Meat Perfection Defined

Presentation at the Public-Private Dialogue on the Beef Value Chain

!Dr. Akolang Tombale PhD

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17th November 2014

Meat Perfection Defined

} BMC is required to buy cattle made available to it irrespective of condition.

} 80 to 90% of Botswana’s cattle are in the Communal set up and are not compliant with the best market for Botswana beef, the EU.

} BMC buys cattle through DCP and put them through feedlots for 90 days for them to be compliant with the EU market.

} Cattle take 90 days in feedlot, then after slaughter it takes 4 to 8 weeks to transfer the product to the market, and about 30 days to realize the cash.

} It is therefore a cash upfront business model.

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Botswana’s Beef Industry Structural Problems

Meat Perfection Defined 3

Feed Costs

▪ The cattle procurement program of BMC is know as Direct Cattle Purchase Scheme. Under this scheme BMC publish a buying schedule across Botswana and buyers buys cattle from the producers/farmers from the respective location as per pre announced dates. !

▪ 80% of the farmers are communal farmers with a stock of less than 50. This is a big challenge for the commission as these cattle are not eligible for direct slaughter for EU export market and has to be placed in ‘Feedlot’ for a minimum residence period of 40 days before slaughter !

▪ BMC sub contacted feeding of cattle to private owners and closely supervise the performance with the help of Department of Veterinary services (DVS). The standing capacity of feedlots is about 25,000 cattle. !

▪ All cattle slaughtered at BMC follows a traceability protocols and with strict supervision by the regulatory before slaughtered.

!Cattle&on&Feed&2013 Cost&(P&,000) Cattle&on&Feed&2013 Cost&(P&,000)

Lobatse& 44391 125576 39686 105295

Cost&of&feedlotting

Average  Cost  Per  head  in  2013    P  2,829 Average  Cost    Per  head  in  2014    P  2,653

Meat Perfection Defined

} Traditionally BMC used to buy cattle from farmers and pay within 48 hours of delivery despite the fact that current processes allows BMC to realize cash only after 7 to 8 months, we are still expected to pay within 48 hours.

} On average 10 to 13% of Botswana’s cattle made available to BMC suffer from measles with an opportunity loss of over P73 Million.

} 5% of Botswana’s cattle made available to BMC have multiple bolus and added to this are mis-permitted cattle total opportunity loss over P35 Million.

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Botswana’s Beef Industry Structural Problems

Meat Perfection Defined 5

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!200!000

!400!000

!600!000

!800!000

!1000!000

!1200!000

!"!20!000!40!000!60!000!80!000!100!000!120!000!140!000!160!000!180!000!200!000

2009 2010 2011 2012 2013 2014

Cattle!No!Vs!Revenue

Cattle Revenue

Cattle Number Vs Revenue

Meat Perfection Defined 6

Average cost per Head

2009 2010 2011 2012 2013 2014Cattle 135286 179009 91918 122577 139626 1240495Per0head 3846 4200 5176 4646 4377 4813

0

1000

2000

3000

4000

5000

6000

020000400006000080000100000120000140000160000180000200000

Axis0Title

Cattle0cost0per0head0(Avg)

Meat Perfection Defined 7

Cost of Production

2013 2014 !Labour Cost 34% 36% !Selling & Distribution 21% 16% !Operating costs 45% 48% !!The above % is based on total cost of production excluding raw material price

Meat Perfection Defined

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!} BMC traditionally received cattle from farmers

through the quota system which has never delivered more 60% of cattle pledged on average.

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Traditional Cattle Delivery to BMC has Serious Limitations

1 2 3 4 5 7 8 9 10 11 14 15 16 17 18

No..booked 440 600 500 569 61 450 819 1330 595 595 610 555 650 490 692

No..Delivered 400 465 395 315 40 398 450 510 470 431 419 412 454 479 22

0

200

400

600

800

1000

1200

1400

Axis%Title

Undelivered%Quota%3 April

Reasons for non Delivery

DATE%Number%of%

Failed%Producers

Expected%Delivery%

from%Failed%Producers

Total%undelivered

VETS%unavailable

Cattle%had%no%boluses

Transport%logistics

Sold%to%alternative%markets

Farmer%could%not%find%animals

Animals%wild%and%escaped%at%loading

Reasons%unknown%%

(Farmer%not%recheable)

Animals%found%to%be%in%poor%condition

04/04/2013 24 265 186 2 1 2 1 2 0 16 0

11/04/2013 38 212 153 0 6 17 0 7 0 10 0

18/04/2013 33 509 251 2 4 7 0 3 2 15 025/04/2013 34 480 315 1 6 2 0 6 0 19 0

165514 129 1466 905 5 17 28 1 18 2 60 0

ANALYSIS%OF%CATTLE%BOOKED%FOR%OTHER%MARKETS%VERSUS%CATTLE%NOT%DELIVERED%

FAILED%QUOTA%BOOKINGS

LOBATSE APRIL%2013

INCIDENCES%AND%REASONS%FOR%NOT%DELIVERING%CATTLE

Meat Perfection Defined

!

!

!} EU market is still the best market for BMC

products

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Market Comparisons

Meat Perfection Defined 13

Sales YTD 2014

Meat Perfection Defined

BMC Markets

Cyprus Czech Republic Germany Greece Italy Netherlands Norway Portugal UK Belgium

EU Regional

South Africa Angola Zimbabwe DRC MozambiqueFar East

Hong Kong

Middle East

Meat Perfection Defined 15

2014 Financial Forecast

Financial'Forecast'20142012 2013 2014

Actual Actual Forecast

REVENUE 743 592 1 007 677 1 174 612 Freight, storage and other selling expenses (32 874) (87 223) (88 956) Net livestock and meat costs (617 381) (608 714) (685 726) Net Sales 93 337 311 740 399 930 Fair value gain/(loss) on biological assets (2 602) 1 529 1 000 Production and administration costs (322 514) (325 180) (272 665) Other income/(losses) (13 055) 86 164 25 000

Operating Surplus/ ( Defict) (244 834) 74 253 153 265 Finance costs (38 513) (44 615) (44 540) Finance income 2 742 1 510 -

Surplus (Deficit) before taxation (280 605) 31 148 108 725

Taxation (37 823) (3 446) (45 267)

Appropriations 14 394 156 272 (20 285)

Surplus /(Deficit) for the year (304 034) 183 974 43 173

Meat Perfection Defined

} BMC at peak slaughters 5,000 cattle a week whereas JBS of Brazil which also supplies the EU market slaughters around 500,000 cattle a week. BMC cannot compete on volume or cost.

} BMC must aim for niche market which requires quality of product, consistency of supply and requisite volumes.

} Fragmentation will be suicidal.

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Future of Botswana’s Beef Industry

Meat Perfection Defined 17

✓ EU licence ✓ HACCP SANS 10330:

2007 ✓ ISO 9001:2008 ✓ British Retail

Consortium Food Safety standard Issue 6: 2011

✓ Halaal certificate

Meat Perfection Defined

Thank You

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