by D. Long
Before discussing the role of the public and semi-public sectors in the development of the meat industry, it is necessary to look at the role the meat industry plays within a country and define the different 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 primary source of farm income, rural employment and subsistence. Before the development of the meat and animal 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. This situation still exists in some areas but, in general, with the increase of urban populations the animal agriculture sector has been commercialized to various degrees. Such operations can range from the small-scale up to highly specialized production systems, however the result is always the same - generating rural income by utilizing available natural resources. The resulting end product is the provision 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, meat processing 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 only valuable foreign exchange but also savings through import substitution. Meat production therefore provides the opportunity for converting non-exportable resources into an important component of the national economy.
In summary, the role of the meat industry can be characterized as a source of:
In order to examine these support services it is necessary to divide the industry into clearly defined sectors. The follow categories are used in this paper:
Sectors may differ from each other in their level of development from the highly sophisticated to the under-developed. With the exception of animal production none of the different segments are more important than another.
EXPORT VERSUS DOMESTIC MARKETS
There is often a basic belief that exportation is the solution to a developing country's problems. In the meat industry, many errors have been made in the past by developing industrial facilities and production systems solely on the basis of exportation. The reality is that export markets can come and go. Any change in world market conditions, transportation costs, trade policies (tariff and non-tariff trade barriers), exchange rates or even armed conflicts can affect this market. If an industry is dependent solely for exports, such market changes could mean disaster.
If the processing facilities for export have production costs higher than can be absorbed by national market prices, if the products produced are not consumed nationally' or if there is an insufficient local demand - then the loss of an export market (for whatever reason) could be a disaster. It is my opinion that a national, or regional market, should always be developed in parallel to an export market, in order 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 national development 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 over the last several years. Such support services can include anything from simple extension services to grants and subsidies for production and industrialization. However, there is a growing realization that the money available to government is limited and that the financial burden of many such programmes cannot be borne solely by the public sector. Furthermore, many well designed programmes in the past have 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 the programme goals. The first step in defining such goals is to clearly establish both the current and projected situations.
Defining the current situation requires both statistical analysis and a practical view-point. For example, if a country has a cattle population of 10 million owned by two million producers, one cannot assume that the average farmer has 5 head of cattle. The situation could well be that 500 farmers own 10,000 head each and the remaining producers have less than five head each. In such a case the analysis must be broken into at least two distinct and separate groups, both of which would require different management strategies. The crucial point is that the actual situation must be realistically defined.
Assessment of the current situation must be followed by a clear elaboration of the long-term goals in relation to the role of industry its segments already listed. From the interim list of goals, a projected timetable 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 in developing a sustainable programme. Goal determination must involve all parties and the most practical mechanism to achieve this is to establish commissions and sub-commissions. Representatives should 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, make sure it is representative of all sectors of the industry. The committees and sub-committees that are formed must function in a similar manner, always respecting the time schedules fixed by the commission. After the “where are we” and “where do we want to go” stages have been established and agreed upon by all parties, an action plan can then to be developed and various financing options analysed.
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”. All services 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 are clearly the domain of government. The difficulty is finding the correct balance between over and under regulating. The development and success of the entire industry can depend on how good these regulations are and how well they are enforced. It is better that regulations that are not enforced do not exist.
Regulations concerning public health are necessary. When it comes to the control of transmittible animal diseases, such as foot-and-mouth disease, the government must be prepared to financially support such programmes if success is to be expected. Regulations concerning basic animal welfare, food handling, sanitation, public health, worker safety and environmental protection should be established 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 can effectively establish guidelines that work. Naturally, it's the role of government to represent the national interest in international trade negotiations concerning common markets, anti-dumpling agreements and GATT.
It is important that regulations and guidelines have the flexibility to take account of changing conditions, eg. a change in technology or markets should they occur. Regulations should not attempt to 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 animals in order to maintain or increase the overall productive population. Such action can cause the market to develop a negative attitude towards female slaughter stock, that may effect their value at a later date. Such regulations have good intentions and may bring about short-term success, but can cause long-term damage.
Communication is essential and is often the first activity undertaken, usually inadequately, by a support service. Government services must be responsible for the accumulation and publication of valid and timely statistical information. The source of such information can frequently be found with regional cooperative groups, trade organizations or other government services.
Communications to all sectors of the industry can be accomplished through the publication of bulletins/newsletters distributed through cooperatives, trade groups or through the local media. Newspapers are readily accessible, widely distributed and require only editorial support from government or cooperative groups to disseminate information. In Chile this approach has been very successful and agriculture supplements in the leading newspapers are one of the principal sources of information available to producers and industry.
Marketing support can be an important function of government and/or other support services to the industry. If the development goal is to export, then a world-wide trade representation through the diplomatic service or trade-group representatives can assist in locating potential markets, providing logistical support and putting buyers in contact with sellers. Trade groups can also function within a country, to promote local consumption to increase product demand and develop a more quality discerning consumer.
Attempts by cooperative groups to combine forces in a direct marketing campaign have proven impractical and, generally, counter-productive. The majority of such schemes failed due to conflicts of interest between the farmer (a traditional seller) who becomes a buyer for a group. This is typical of many attempts of business integration where the lack of specialization causes an entire organization to function at minimal efficiency.
Financing is probably the most controversial aspect of government or cooperative support. There are many means of direct financing, including: subsidies, credits, free breeding stock, etc. However, in general, the era of free money has ended, yet financial assistance to the industry can still be an important factor. A healthy credit policy, guaranteed by the government, through private banks is such an example. The critical factor is to ensure that such programmes are successful so that the loans can be repaid on schedule and do not constitute a grant. Cooperative groups can provide financial assistance 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 through a result-oriented incentive programme. Such programmes could include the duty-free import of breeding stock, tax advantages for new processing facilities, export stimulation, tax benefits, etc.
Result-oriented incentive programmes do not cost the government anything, except when an accomplishment has been made and the private effort carried out. Financial support to the industry can also be provided through improved financial planning. One possibility would be an active local futures market, carefully regulated by the government and policed by the trade groups, which would provide the necessary security to both the buyers and sellers to promote growth. Cattle producers could sell their stock in a futures market, for example when of buying inputs, therefore assuring them of a sale and at a known price. Meat sellers could also buy futures at the time of closing an export contract to assure a stable cost of raw materials. An appropriate insurance programmes could work in a similar fashion. Stimulating private investments in industry through tax advantages is essential if the meat industry is to be expected to stand alone and become an asset generator.
Technology transfer is frequently thought to be the principal responsibility of the government and cooperatives. 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, slow and results are often constrained by limited funding. I believe that basic research is best left to the developed countries with adequate resources. Developing countries should concentrate their research and 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 capital investments such an modern equipment - this need not be the case. Management techniques are more important than the equipment itself. The coordination of trips by producers, industry representatives and retailers can be an important means of exposing them to new concepts and encouraging the uptake of new technologies.
Technology transfer to the traditional producer in Chile has been achieved through a successful programme involving the schools where the children are taught basic production principles appropriate to 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's development and that cooperative support services have a limited value. However, in the interim period some government support services and the advantage of cooperatives may be necessary in the development 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) be the 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 constant business pressure is limited. Along these same lines, we must remember the driving force that allowed the developed countries develop. An entrepreneur invests time and money in a business with the aim of making money - because of the money invested they work hard to make their business or industry successful.
Control of production costs in relation to revenue is the key to success in business. The international trade in meat is becoming a global market with similar prices. Therefore, the lack of competitive costing 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. The same 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 the Government of Chile and the ITT (International Telephone and Telecommunication) Corporation in the late 1970's. It was formed with an initial monetary grant and a mandate to aid the transfer and adaptation of technologies from other parts of the world to increase the economic and social development of Chile. As a condition in its charter FUNDACION CHILE received only one initial grant, disbursed over several years, and with no other government funding possible. Therefore, it was forced to operate as a self sufficient institution, the idea being that technologies given free are not necessarily 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 to subsidize other longer term or high priority socially oriented projects. The institution has concentrated its efforts in the agriculture and fisheries sectors.
It was through the concept of self-sufficiency that FUNDACION CHILE assisted in the development of a multi-sector meat industry project which focused on the sustained development in the whole industry.
The project resulted from initial studies undertaken to examine the Chilean Meat and Animal Industry in 1981. These studies found the Chilean meat industry to be disorganized, in various stages of development, showing no signs of any recent technical advance, limited regulations and no quality control standards. A series of seminars, round-table discussions and commission meetings were held and outside consultants were hired to assist in preparing proposals to revitalize the industry. By early 1983, 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 development of modern fresh meat handling and processing technologies, with successful private corporations demonstrating management and operational techniques. A private corporation was formed in mid-1983 with its shareholders being FUNDACION CHILE, a national cooperative union, local cattle producer cooperatives, individual cattle producers and private investors. The company, named PROCARNE S.A., with its modern, but modest, beef processing plant begun immediately and the first animal was processed in mid 1984.
The first year and a half of operation was expected to suffer financial losses due to the cost of market entry and general extension aimed at cattle producers, retailers and the consumer. During this period the Ministry of Agriculture formed a National Meat Commission charged to prepare recommended guidelines 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 of withstanding commercial interest rates for more than a modest proportion of its net worth. The financial losses proved greater than originally anticipated. Although at no time has government had to 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 associations began to function, cattle producer groups began to undertake genetic and management improvements and meat plants were improved and re-equipped. This was partially due to the general success of the Chilean 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 managerial and technical assistance from FUNDACION CHILE, and negotiations were made to increase the private sector holding of shares in the company. The resulting company, PROCARNE S.A. has since merged into a holding company which operates two beef packing plants, (one inaugurated in December 1990), two slaughter plants, two rendering plants one commercial cold storage centre and a national meat products distribution centre. It has also become the first Chilean meat company to successfully and regularly export beef. These export possibilities were not only the result of the various companies direct efforts but also of the governments support to a) the long-term programme that eliminated foot-and-mouth disease from Chile b) the export promotion board operating in the foreign markets c) and the minor tax incentives granted to stimulate non-traditional exports. Thus FUNDACION CHILE successfully, and profitably, recovered its investment in the project and had funds available to use on other projects. Actually, FUNDACION CHILE has successfully used a similar development model in various other industries in Chile including salmon production and agriculture diversification.
Today Chile has a healthy animal production industry with modern genetic and land management technologies being applied by both the large and small scale producers. A series of dependable companies involved in the trading of live cattle, eight plants producing vacuum packaged beef (over 15% of the national market), many producers of frozen packed beef, improved slaughter plants (over 85% of the nations slaughter capacity), private meat grading standards, extensive refrigerated distribution systems, along with modern and sanitary meat retailing facilities. This was undertaken without the construction of new meat processing plants, but by remodelling the older ones and modifying the management practices. Also, no government money was utilized, but a lot of government and cooperative support was provided and still continues. The work of the National Meat Commission is now being presented before congress in an effort to convert them into laws. The various trade organizations of the meat industry are in the process of forming a promotion and communication 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 the requirements of the meat industry toward society are being met: rural subsistence, an efficient food source, improved cash flow through exports and import substitution, quality control and increased general employment. This example has made me a firm believer in support services that are not funded outright by government and that basically one gets what one pays for, that is, government should be the facilitator and not the implementor. If development comes for nothing, its worth nothing, and therefore is not sustainable - if it costs a lot effort and dedication it will be worth a lot and survive. The business must show a potential for making money in order to flourish and continue to develop into a sustainable venture and not just a short-term adventure.