by D. Long
INTRODUCTION
Before discussing the role of the public and semi-public sectors in the development of the meatindustry, it is necessary to look at the role the meat industry plays within a country and define thedifferent functional areas into which it is divided.
The role of the meat industry varies tremendously from country to country, depending on geography,economic position and local customs. The development of the meat/animal industry is the primarysource of farm income, rural employment and subsistence. Before the development of the meat andanimal agriculture industry, as we know it today, animals were kept to provide milk, meat, wool,skins, fertilizer etc. for the rural family group where the sale of these products was not relevant. Thissituation still exists in some areas but, in general, with the increase of urban populations the animalagriculture sector has been commercialized to various degrees. Such operations can range from thesmall-scale up to highly specialized production systems, however the result is always the same - generatingrural income by utilizing available natural resources. The resulting end product is theprovision of meat (among other products) as a food and protein source both locally and nationally.
The industry is also an important source of profit and incentive to the private sector. In addition, meatprocessing and its associated industries also provide employment, income and stimulate the local,regional or national economies.
The meat industry may also be an important component of the export sector, generating not onlyvaluable foreign exchange but also savings through import substitution. Meat production thereforeprovides the opportunity for converting non-exportable resources into an important component of thenational economy.
In summary, the role of the meat industry can be characterized as a source of:
- subsistence, income and employment in rural areas,
- food and protein,
- foreign exchange,
- urban employment,
- an important by-product industry, and
- investment opportunities.
In order to examine these support services it is necessary to divide the industry into clearly definedsectors. The follow categories are used in this paper:
- animal production,
- live animal marketing,
- slaughter,
- initial processing,
- value added processing,
- wholesale marketing,
- distribution,
- retailing, and
- by-product industries.
Sectors may differ from each other in their level of development from the highly sophisticated to theunder-developed. With the exception of animal production none of the different segments are moreimportant than another.
EXPORT VERSUS DOMESTIC MARKETS
There is often a basic belief that exportation is the solution to a developing country's problems. Inthe meat industry, many errors have been made in the past by developing industrial facilities andproduction systems solely on the basis of exportation. The reality is that export markets can come andgo. Any change in world market conditions, transportation costs, trade policies (tariff and non-tarifftrade barriers), exchange rates or even armed conflicts can affect this market. If an industry isdependent solely for exports, such market changes could mean disaster.
If the processing facilities for export have production costs higher than can be absorbed by nationalmarket prices, if the products produced are not consumed nationally' or if there is an insufficient localdemand - then the loss of an export market (for whatever reason) could be a disaster. It is my opinionthat a national, or regional market, should always be developed in parallel to an export market, inorder to prevent total dependence on any one sector. As a general rule of thumb no more than 50 %of a product should be destined for export and this must be considered when designing nationaldevelopment and support programmes in any sector.
THE ROLE OF GOVERNMENT IN THE MEAT INDUSTRY
The role of government support services in agro-industrial development has been a controversy overthe last several years. Such support services can include anything from simple extension services togrants and subsidies for production and industrialization. However, there is a growing realization thatthe money available to government is limited and that the financial burden of many such programmescannot be borne solely by the public sector. Furthermore, many well designed programmes in the pasthave started well but have failed due to a lack of recurrent funding.
The role of government support services must, therefore, be clearly defined in order to achieve theprogramme goals. The first step in defining such goals is to clearly establish both the current andprojected situations.
Defining the current situation requires both statistical analysis and a practical view-point. Forexample, if a country has a cattle population of 10 million owned by two million producers, onecannot assume that the average farmer has 5 head of cattle. The situation could well be that 500farmers own 10,000 head each and the remaining producers have less than five head each. In sucha case the analysis must be broken into at least two distinct and separate groups, both of which wouldrequire different management strategies. The crucial point is that the actual situation must berealistically defined.
Assessment of the current situation must be followed by a clear elaboration of the long-term goals inrelation to the role of industry its segments already listed. From the interim list of goals, a projectedtimetable can be established. This timetable should be neither optimistic nor pessimistic - but realistic.
Who should be involved in determining these goals? This is probably the most important factor indeveloping a sustainable programme. Goal determination must involve all parties and the mostpractical mechanism to achieve this is to establish commissions and sub-commissions. Representativesshould include both the beneficiaries of the programme and whose will have to implement it.Naturally, the work of the commission which establishs the workplan should, as a prerequisite, makesure it is representative of all sectors of the industry. The committees and sub-committees that areformed must function in a similar manner, always respecting the time schedules fixed by thecommission. After the “where are we” and “where do we want to go” stages have been establishedand agreed upon by all parties, an action plan can then to be developed and various financing optionsanalysed.
SUPPORT SERVICES
Let us briefly look at some of the mechanisms that are available utilizing state, cooperative or ‘non-profit’cooperative services. Two key words that come to mind are “utilize” and “maximize”. Allservices must maximize the efficiency in utilizing all the available resources, both public and private.I have divided the support services into five basic groups, namely: communication, technology,financing, marketing, and regulations.
Regulations
Regulations are clearly the domain of government. The difficulty is finding the correct balancebetween over and under regulating. The development and success of the entire industry can dependon how good these regulations are and how well they are enforced. It is better that regulations thatare not enforced do not exist.
Regulations concerning public health are necessary. When it comes to the control of transmittibleanimal diseases, such as foot-and-mouth disease, the government must be prepared to financiallysupport such programmes if success is to be expected. Regulations concerning basic animal welfare,food handling, sanitation, public health, worker safety and environmental protection should beestablished independently, by government, in order to protect the industry from itself. Grading,quality and retail standards are not necessarily a government responsibility and the private sector caneffectively establish guidelines that work. Naturally, it's the role of government to represent thenational interest in international trade negotiations concerning common markets, anti-dumplingagreements and GATT.
It is important that regulations and guidelines have the flexibility to take account of changingconditions, eg. a change in technology or markets should they occur. Regulations should not attemptto legislate market desires. Only the monetary pressure of costs versus benefits can, in the long run,determine which products and production systems are most appropriate.
A good example of a short-sighted regulation could be the restriction on slaughtering female animalsin order to maintain or increase the overall productive population. Such action can cause the marketto develop a negative attitude towards female slaughter stock, that may effect their value at a laterdate. Such regulations have good intentions and may bring about short-term success, but can causelong-term damage.
Communication
Communication is essential and is often the first activity undertaken, usually inadequately, by asupport service. Government services must be responsible for the accumulation and publication ofvalid and timely statistical information. The source of such information can frequently be found withregional cooperative groups, trade organizations or other government services.
Communications to all sectors of the industry can be accomplished through the publication ofbulletins/newsletters distributed through cooperatives, trade groups or through the local media.Newspapers are readily accessible, widely distributed and require only editorial support fromgovernment or cooperative groups to disseminate information. In Chile this approach has been verysuccessful and agriculture supplements in the leading newspapers are one of the principal sources ofinformation available to producers and industry.
Marketing
Marketing support can be an important function of government and/or other support services to theindustry. If the development goal is to export, then a world-wide trade representation through thediplomatic service or trade-group representatives can assist in locating potential markets, providinglogistical support and putting buyers in contact with sellers. Trade groups can also function withina country, to promote local consumption to increase product demand and develop a more qualitydiscerning consumer.
Attempts by cooperative groups to combine forces in a direct marketing campaign have provenimpractical and, generally, counter-productive. The majority of such schemes failed due to conflictsof interest between the farmer (a traditional seller) who becomes a buyer for a group. This is typicalof many attempts of business integration where the lack of specialization causes an entire organizationto function at minimal efficiency.
Financing
Financing is probably the most controversial aspect of government or cooperative support. There aremany means of direct financing, including: subsidies, credits, free breeding stock, etc. However, ingeneral, the era of free money has ended, yet financial assistance to the industry can still be animportant factor. A healthy credit policy, guaranteed by the government, through private banks issuch an example. The critical factor is to ensure that such programmes are successful so that the loanscan be repaid on schedule and do not constitute a grant. Cooperative groups can provide financialassistance to their members through negotiating group credit through private lending institutions.
Probably the most effective means of the government support, from a financial viewpoint, is througha result-oriented incentive programme. Such programmes could include the duty-free import ofbreeding stock, tax advantages for new processing facilities, export stimulation, tax benefits, etc.
Result-oriented incentive programmes do not cost the government anything, except when anaccomplishment has been made and the private effort carried out. Financial support to the industrycan also be provided through improved financial planning. One possibility would be an active localfutures market, carefully regulated by the government and policed by the trade groups, which wouldprovide the necessary security to both the buyers and sellers to promote growth. Cattle producerscould sell their stock in a futures market, for example when of buying inputs, therefore assuring themof a sale and at a known price. Meat sellers could also buy futures at the time of closing an exportcontract to assure a stable cost of raw materials. An appropriate insurance programmes could workin a similar fashion. Stimulating private investments in industry through tax advantages is essentialif the meat industry is to be expected to stand alone and become an asset generator.
Technology
Technology transfer is frequently thought to be the principal responsibility of the government andcooperatives. Technology can be generated in several ways: from basic research within the country,or technology transferred or adapted from other countries. Basic scientific research is a luxury which,in my opinion, the developing world cannot yet afford. In most cases such research is expensive, slowand results are often constrained by limited funding. I believe that basic research is best left to thedeveloped countries with adequate resources. Developing countries should concentrate their researchand development funds on transferring and adapting proven technologies to suit their own situations.
Technology is frequently associated with either new genetic material (plant or animal) or costly capitalinvestments such an modern equipment - this need not be the case. Management techniques are moreimportant than the equipment itself. The coordination of trips by producers, industry representativesand retailers can be an important means of exposing them to new concepts and encouraging the uptakeof new technologies.
Technology transfer to the traditional producer in Chile has been achieved through a successfulprogramme involving the schools where the children are taught basic production principles appropriateto their area. They in turn, pass on the technology to their parents at home.
It is obvious that I am not a believer in the government taking a financial role in the industry'sdevelopment and that cooperative support services have a limited value. However, in the interimperiod some government support services and the advantage of cooperatives may be necessary in thedevelopment of the industry. I believe that the cost-benefit advantages of a free market system will(with the proper tools provided by government, cooperatives and even international organizations) bethe only long-term successful strategy. Enforced programmes may demonstrate short-term successes,but the chances of such “success” withstanding local and world economic variations and constantbusiness pressure is limited. Along these same lines, we must remember the driving force that allowedthe developed countries develop. An entrepreneur invests time and money in a business with the aimof making money - because of the money invested they work hard to make their business or industrysuccessful.
Control of production costs in relation to revenue is the key to success in business. The internationaltrade in meat is becoming a global market with similar prices. Therefore, the lack of competitivecosting reduces the capacity to complete. If the production costs of the live animal and, consequently,its meat is reduced, selling prices can be lower thereby stimulating either consumption or exports. Thesame applies to the by-products sector and support for hide and skin processing is equally important.
CHILE - CASE STUDY
I would like to describe the successful experience that we have had in Chile which combined public,semi-public, cooperative and private efforts which resulted in the formation of FUNDACION CHILE.As a non-profit private institution FUNDACION CHILE was formed as a joint venture, between theGovernment of Chile and the ITT (International Telephone and Telecommunication) Corporation inthe late 1970's. It was formed with an initial monetary grant and a mandate to aid the transfer andadaptation of technologies from other parts of the world to increase the economic and socialdevelopment of Chile. As a condition in its charter FUNDACION CHILE received only one initialgrant, disbursed over several years, and with no other government funding possible. Therefore, it wasforced to operate as a self sufficient institution, the idea being that technologies given free are notnecessarily taken-up or successfully implemented. Applying the old adage, “easy come, easy go”,FUNDACION CHILE was forced to either charge for its services or operate profitable projects tosubsidize other longer term or high priority socially oriented projects. The institution has concentratedits efforts in the agriculture and fisheries sectors.
It was through the concept of self-sufficiency that FUNDACION CHILE assisted in the developmentof a multi-sector meat industry project which focused on the sustained development in the wholeindustry.
The project resulted from initial studies undertaken to examine the Chilean Meat and Animal Industryin 1981. These studies found the Chilean meat industry to be disorganized, in various stages ofdevelopment, showing no signs of any recent technical advance, limited regulations and no qualitycontrol standards. A series of seminars, round-table discussions and commission meetings were heldand outside consultants were hired to assist in preparing proposals to revitalize the industry. By early1983, the basic project outline and programme had been completed and was named “PROCARNE”.Its stated goals were to assist in the development of the entire meat industry through the developmentof modern fresh meat handling and processing technologies, with successful private corporationsdemonstrating management and operational techniques. A private corporation was formed in mid-1983with its shareholders being FUNDACION CHILE, a national cooperative union, local cattle producercooperatives, individual cattle producers and private investors. The company, named PROCARNES.A., with its modern, but modest, beef processing plant begun immediately and the first animal wasprocessed in mid 1984.
The first year and a half of operation was expected to suffer financial losses due to the cost of marketentry and general extension aimed at cattle producers, retailers and the consumer. During this periodthe Ministry of Agriculture formed a National Meat Commission charged to prepare recommendedguidelines and/or regulations for the control of the industry.
It is important to note that PROCARNE was fully capitalized to construct the necessary facilities,carry inventories and absorb the estimated start up losses. Very few new businesses are capable ofwithstanding commercial interest rates for more than a modest proportion of its net worth. Thefinancial losses proved greater than originally anticipated. Although at no time has government hadto subsidise the venture but FUNDACION CHILE had not been reimbursed for its expenditures.However, the business began to flourish, industry seminars became common place, trade associationsbegan to function, cattle producer groups began to undertake genetic and management improvementsand meat plants were improved and re-equipped. This was partially due to the general success of theChilean economy but was also as a response to the press coverage and commercial success of the“project”.
At this point the project title was dropped and the company was to stand alone without the managerialand technical assistance from FUNDACION CHILE, and negotiations were made to increase theprivate sector holding of shares in the company. The resulting company, PROCARNE S.A. has sincemerged into a holding company which operates two beef packing plants, (one inaugurated inDecember 1990), two slaughter plants, two rendering plants one commercial cold storage centre anda national meat products distribution centre. It has also become the first Chilean meat company tosuccessfully and regularly export beef. These export possibilities were not only the result of thevarious companies direct efforts but also of the governments support to a) the long-term programmethat eliminated foot-and-mouth disease from Chile b) the export promotion board operating in theforeign markets c) and the minor tax incentives granted to stimulate non-traditional exports. ThusFUNDACION CHILE successfully, and profitably, recovered its investment in the project and hadfunds available to use on other projects. Actually, FUNDACION CHILE has successfully used asimilar development model in various other industries in Chile including salmon production andagriculture diversification.
Today Chile has a healthy animal production industry with modern genetic and land managementtechnologies being applied by both the large and small scale producers. A series of dependablecompanies involved in the trading of live cattle, eight plants producing vacuum packaged beef (over15% of the national market), many producers of frozen packed beef, improved slaughter plants (over85% of the nations slaughter capacity), private meat grading standards, extensive refrigerateddistribution systems, along with modern and sanitary meat retailing facilities. This was undertakenwithout the construction of new meat processing plants, but by remodelling the older ones andmodifying the management practices. Also, no government money was utilized, but a lot ofgovernment and cooperative support was provided and still continues. The work of the National MeatCommission is now being presented before congress in an effort to convert them into laws. Thevarious trade organizations of the meat industry are in the process of forming a promotion andcommunication commission to be financed solely by the industry itself.
The Chile example has been a success and has produced a sustainable animal industry. All of therequirements of the meat industry toward society are being met: rural subsistence, an efficient foodsource, improved cash flow through exports and import substitution, quality control and increasedgeneral employment. This example has made me a firm believer in support services that are notfunded outright by government and that basically one gets what one pays for, that is, governmentshould be the facilitator and not the implementor. If development comes for nothing, its worthnothing, and therefore is not sustainable - if it costs a lot effort and dedication it will be worth a lotand survive. The business must show a potential for making money in order to flourish and continueto develop into a sustainable venture and not just a short-term adventure.
