Feasibility analysis to trade boneless beef from Botswana to the Middle East: A system dynamics

approach

Kanar Hamza (PhD candidate at UNE)Presented by Hikuepi Katjiuongua

04-06 March 2015Gaborone, Botswana

1

Purpose

In this study, we analyze the feasibility to export beef from Botswana to the Middle Eastern markets.

To do such analysis:1- We look at prices of Botswana beef in its 2013 market channels.

2- Then we look at prices of beef of major exporters to the Middle East (Brazil, Australia, and India)

3- Then we analyze economic feasibility to export beef from Botswana to the Middle East.

Research questions

• Is it feasible (profitable) to export Botswana beef to the Middle Eastern markets?

• How does the Middle East export trade channel affect value chain actor’s profitability?

The importance of this research

• Botswana is already one of Africa’s largest beef exporters;• According to UN COMTRADE database, the export value of Botswana’s beef was

approximately $116 million in 2013; • By contrast, beef exports value from both Namibia and South Africa were about

$77 million and $61 million, respectively. However, maintaining Botswana’s access to the EEA markets is challenging. For example, FMD outbreak in 2011 caused significant lost in export value

2010 2011 2012 20130

60000000

120000000

180000000

Botswana Beef Export Value (Source: UN COMTRADE)

Year

Million USD

The importance of this research

• Botswana’s beef exports heavily dependent on the EEA and South Africa (von Engelen et al. 2012)

• Reforms for market diversification are urgently needed.

Market shares and prices of Botswana beef in its current market channels and those of major beef exporters (Brazil, Australia, and Beef) to

the Middle East (ME)

BMC export markets in 2013

Angola 1%Germany

11% Namibia 0%

Netherlands 4%

Norway 0%

South Africa 54%

United Kingdom 30%

Botswana Meat Commission Export Market Share(UN COMTRADE 2013 Data)

Price received per BMC market channel

Angola Germany Namibia Netherlands Norway South Africa United Kingdom0

5000

10000

15000

20000

25000

5651

13375

3172

11651

19608

49655651.45935043647

Price of boneless beef from Botswana – UN COMTRADE 2013 Data

USD/ton

Middle Eastern markets(Bahrain, Jordan, Oman, Saudi Arabia, UAE, Qatar, and Kuwait)

Australia 29%

Brazil 25%

India 28%

Others 18%

Australia, Brazil, and India Market Share of the targeted Middle Eastern Markets (UN COMTRADE 2013 data)

Australian beef price in ME

Bahrain Jordan Oman Saudi Arabia United Arab Emirates

Qatar Kuwait0

2000

4000

6000

8000

10000

12000

7532

6235

10340

6267

9425 9240

7546

Price of boneless beef from Australian – UN COMTRADE 2013 Data

USD/ton

Brazilian beef price in ME

Jordan Oman Saudi Arabia United Arab Emirates Kuwait0

1000

2000

3000

4000

5000

6000

7000

8000

4671

6936

5896

5336

6806

Price of boneless beef from Brazil- UN COMTRADE 2013 Data

USD/ton

Indian beef price in ME

Bahrain Jordan Oman Saudi Arabia United Arab Emirates Qatar Kuwait0

1000

2000

3000

4000

5000

60005644

4228 4137

47644545

41124330

Price of boneless beef from India- UN COMTRADE 2013Ddata

USD/ton

Modelling approach

• We present a holistic quantitative value chain model of the beef sector in Botswana to evaluate the effects of beef export to the Middle East on all value chain actors.

• Methodologically, we used a system dynamics modeling approach to develop a dynamic value chain framework that highlights the changes and the performance of the beef value chain among involved actors over time (Rich et al. 2011).

Beef value chain Botswana

Beef industryConceptual model

Tested scenarios(1) A baseline;

(2) We look at the effect of trading beef to the Middle Eastern markets on the profit performance of producers and other value chain actors (assuming price of 4,500 pula per head the Middle Eastern markets)

(3) This scenario is the same as run 2 but we assume a price of 5,500 pula per cattle in the Middle Eastern markets; and

(4) This scenario is the same as Run 2 but we assume a price of 6,500 pula per cattle in the Middle Eastern markets.

(Note: these assumed prices are within the range of main exporters price to the Middle Eastern markets)

Model results: Cattle price

(Source: simulation results)

Value chain actor’s cumulative profit performance relative to baseline scenario (Source: simulation results)

Runs Producers BMC Feedlots Traditional Butchers Modern Butchers

Run 2 vs 1 42% 1% 6% No Change No Change

Run 3 vs 1 49% 10% 7% 2% 2%

Run 4 vs 1 55% 20% 8% 4% 3%

Value chain actor’s average profit performance over time (week to week comparison) relative to baseline scenario (Source: simulation results)

Runs Producers BMC Feedlots Traditional Butchers Modern Butchers

Run 2 vs 1 79% -23% 12% No Change No Change

Run 3 vs 1 88% 9% 16% 5% 4%

Run 4 vs 1 95% 43% 20% 10% 7%

Conclusion

Our model results highlight the importance of beef trade to the Middle East to diversify beef export market channels of Botswana.

• A notable result is that during FMD outbreaks, trading beef to the Middle Eastern markets significantly improves the financial performance of producers, feedlots, BMC, and, to a lesser extent, traditional and modern butchers profits.

• However, trade to the Middle East is less profitable in the short term when BMC has access to the EEA markets (unless BMC receives higher prices for its beef in the Middle East than the EEA markets).

• This suggests that although beef trading to the Middle East has potential benefits to producers, careful consideration of Botswana’s beef price in the Middle East is key to make Botswana’s beef export feasible to the Middle East.

Limitations

• Price analysis is done based on UN COMTRADE data. This database does not provide information about cuts and quality of beef traded. It only provide volume and price received per ton.

• The model presented here can be improved in terms of precision about beef sector costs and returns, particularly regarding the costs of BMC to access new market channel such as those of the Middle East. We assumed a 5% of received price as entry cost but more research is needed to provide more precise cost estimates.