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Potential effects of maintaining and relaxing price controls on urban slaughter of stall-fed cattle

31. The short and long-run effects of both maintaining and relaxing retail price controls on urban slaughter of stall-fed cattle have important implications for the expansion of stall-fed production in the Mandara Mountains. In the short-run, removing, or at least increasing the level of controlled retail prices in urban areas would allow urban butchers to compete with rural butchers and cattle traders for the higher quality locally raised animals. This should result in higher prices for stall-fed cattle, thereby benefitting producers. Many urban consumers are willing to pay higher prices for beef. This is demonstrated by the considerable numbers who attend secondary markets near urban areas in order to buy higher quality beef which is retailed at prices well above the maximum retail price enforced in urban areas. Consumers in Mokolo complain about shortages of beef, particularly during the late dry season and early rainy season. This is precisely the period when high cattle acquisition prices per kilogram and the relatively low retail ceiling prices on the sale of beef induce urban butchers to slaughter fewer cattle. Thus, the overall result of controlling prices at artificially low levels is that production is restricted while demand remains unsatisfied.

32. By removing price controls and allowing urban butchers to bid competitively for stall animals, more of the estimated 6,000 cattle taken off the regional stall-fed herd each year would likely be sold for urban slaughter. If 10% of the 1980 urban beef supply had come from stall-fed cattle, for example, 487 more stall animals would have been slaughtered (adding to the 230 head actually slaughtered). The potential short-run effect of relaxing price controls on urban butchers' procurement practices would likely stimulate commercial production of stall animals in the Mandara Mountains.

33. In the medium to long-run, removing retail price controls would provide opportunities for stall-fed cattle producers and butchers to satisfy the expanding demand for beef in urban areas in the Mandara Mountains. Demand for beef can be projected for 1990 by using 1980 estimates of urban and rural beef consumption, and by assuming likely ranges for key variables such as income elasticity of demand for beef and rates of population and per capita income growth for urban and rural areas. Increase in beef consumption can be projected using the following simple formulation: d = pop + (n * y), where d = the percentage change in consumption of beef between 1980 and 1990, and pop = the percentage change in population between 1980 and 1990, and n = the income elasticity of demand for beef, and y = the percentage change in real per capita income between 1980 and 1990. Relative prices are assumed to remain constant over the 1980-1990 period.10/

34. For the purposes of this analysis, urban areas include 10 percent of the population of the Mandara Mountains region, and rural areas include the remaining 90%. It is assumed that the urban population will grow at an average annual rate of 5% during the 1980s and the rural population at the rate of 2%. The income elasticity of demand is assumed to fall in the 0.6-1.0 range for urban areas and 0.2-0.5 for rural areas.11/ Real per capita income growth is first assumed to be 2% and then 5% per year for both urban and rural areas.

35. Projected incremental beef consumption in urban areas, expressed in metric tons and stall-fed cattle equivalents in Table 6, is an additional 510-844 metric tons of beef by 1990. if this additional demand were met entirely by slaughtering locally produced stall-fed cattle, then 2,523-4,174 additional bulls would need to be slaughtered by 1990. The demand estimates also show that an additional 917-1,861 metric tons of beef will be consumed in rural areas of the Mandara Mountains region by 1990. If incremental rural demand were satisfied solely by slaughter of stall-fed cattle, an additional 4,534-9,204 animals would have to be slaughtered by 1990. This is unlikely to occur, since approximately half of the regional rural population resides outside of stall-feeding production zones, which are found in the mountains and the piedmont, and slaughter of stall-fed cattle is uncommon in these plateau and plains areas.12/

Table 6: Projected beef consumption in The Mandara Mountains Region, 1990

 

Incomea Elasticity of Demand

Rate of Income Growth

Incremental Beef Consumptionb (metric tons of beef and offals)

Incremental Cattle Slaughterc (stall-fed cattle equivalents)

1990

1990

Urband

0.6

2%

510

2523

5%

675

3339

1.0

2%

568

2814

5%

844

4174

Rurald

0.2

2%

917

4534

5%

1203

5948

0.5

2%

1146

5567

5%

1861

9204

a Lower and upper bounds on the income elasticity of demand for beef are used in projecting demand. Higher estimates for the urban areas reflect greater purchasing power and hence the ability to make discretionary purchases. The lower estimates for rural areas are based upon expenditure data obtained from a sample of 52 households in two villages near Mokolo.

b Incremental beef consumption is calculated using 1980 estimates of beef consumption in rural and urban areas as a base.

c The incremental beef consumption is converted to stall-fed cattle equivalents by using the average weight of the four quarters plus offals (202.2 kg.) for stall-fed cattle slaughtered at Mokolo.

d The urban population comprises 10% of the regional population, and urban areas absorbed 5300 head of cattle in the base year of 1980. Estimated urban beef consumption was 671 metric tons in 1980. The rural population is the remaining 90% of the regional population, which absorbed an estimated 3488 metric tons of beef in 1980.

36. While demand for stall-fed beef in the Mandara Mountains region will expand under reasonable sets of assumptions, pricing policies will play an important role in assuring that increased demand is satisfied. If only 4.3% of incremental demand for beef in urban areas in 1990 were satisfied by slaughtering stall-fed cattle, only 142-235 additional stall animals would be slaughtered. This scenario assumes that the 1980 market share for stall-fed animals is maintained in urban areas in the future, due to continued enforcement of retail price ceilings which are set below market-clearing levels. If retail control prices were relaxed or removed, it is likely that far more stall-fed cattle would be acquired by wholesale butchers for urban slaughter. Another scenario is that the cattle-surplus Diamare Plains would supply 70% of urban butchers' incremental needs in the Mandara Mountains reflecting the same Plains' proportion of 1980 slaughter. It is further assumed that the remaining 30% of incremental slaughter is divided equally between locally produced stall-fed and range-fed animals. Under this set of assumptions, 471-781 additional head of stall-fed cattle would be slaughtered in 1990 than in 1980. The urban market for beef in the Mandara Mountains could, therefore, absorb about half to three-quarters of the annual stall-fed cattle output (1,000 head) of a credit program that extended 1,000 stall-feeding loans per year by 1990.13/


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