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El Niño Grinding The South African Meat Industry

By Chris Swanepoel
Published on: 22:49 PST, Mar 4, 2016

El Niño, the periodic warming of the eastern equatorial Pacific Ocean that brings sea surface temperatures above average, results in the severe disruption of weather patterns worldwide and causes a relentless reduction in rainfall in South Africa. This, in turn, has devastating effects on the South African Agricultural Industry, with the 2014-2016 episode being the worst since 1983.

The South African meat industry, in particular, has been hard hit by the severe water shortage in the country. The effects of the drought are exacerbated by the poor agricultural season the previous year, resulting in a significant shortage of grazing. This shortage has had a remarkable effect on the price of grain, with the cost of Lucerne rising by 50 percent since January this year and an increase of between 50 and 77 percent in the price of maize, the production of which is the lowest in eight years. On the farms, dams, boreholes, and springs are drying up, resulting in huge stock losses (40,000 head of cattle in the KZN province alone). Water and feed are now being brought into these areas by road at an enormous cost, as new boreholes are extremely expensive and have limited success. In addition to irrigation, consumption of water by cattle amounts to between 40 and 50 liters per head per day, given the extreme heat being experienced.

In turn, this has serious implications as far as herd building is concerned, as many farmers have scaled down to nucleus herds in an effort to keep the costs of water and feed to a minimum. There seems to be no good news in the foreseeable future regarding the supply of red meat to the South African market. Best case scenario would be the drought breaking and normal rainfall experienced for the rest of the season. Should this take place, the supply of livestock to the market will decrease due to herd building, and meat prices will rise over the medium and longer term, as farmers attempt to recoup their herds after the drought.

The slaughtering of feedlot cattle, however, will remain relatively stable for the next few months, as the standing capacity of the feedlots is at its highest ever (560,000 units). On the other hand, if the drought persists, more young females will be likely to be slaughtered, resulting in a lower calve percentage, therefore lowering the supply. Even though more “emergency” slaughters would take place, the supply will not rise significantly due to the already diminished herds. Producers prices will be somewhat lower, but the consumer will be paying more, as abattoirs sustain their higher selling prices. In the long term, this means that the supply will be under extreme pressure and meat prices will exceed the inflation rate. The matter is under review by the National Agricultural Development Plan, as the red meat industry is one of its most important agricultural industries, with 1.2 million households owning or being dependent on livestock for their livelihood.

According to industry group Agri SA, the agricultural sector may need up to R18 billion ($1 billion) in financial aid to recover. Agri SA executive director Omri van Zyl, in a talk at a grain producer’s conference, said late summer rains are crucial and could reduce the amount needed significantly.

“If we get enough rain now it would be about 6 or 7 billion rand. The medium-range scenario is about 12.5 billion rand. A lot of that money would be for feed and livestock farmers and loan subsidies for farm workers’ wages so we don’t lay off workers, and a lot of it would be production credit for the next season.”

He further went on to say that the money would have to be drawn from financial institutions, as the government lacks the funds to step in.

[Image via Shutterstock]

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