1. 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 2015 Gaborone, Botswana 1

2. 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.

3. 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?

4. 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

5. 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.

6. 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)

7. BMC export markets in 2013

8. Price received per BMC market channel

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

10. Australian beef price in ME

11. Brazilian beef price in ME

12. Indian beef price in ME

13. 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).

14. Beef value chain Botswana

15. Beef industry Conceptual model

16. 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)

17. Model results: Cattle price (Source: simulation results)

18. Value chain actor’s cumulative profit performance relative to baseline scenario (Source: simulation results) RunsProducersBMCFeedlotsTraditional ButchersModern Butchers Run 2 vs 142%1%6%No Change Run 3 vs 149%10%7%2% Run 4 vs 155%20%8%4%3%

19. Value chain actor’s average profit performance over time (week to week comparison) relative to baseline scenario (Source: simulation results) RunsProducersBMCFeedlotsTraditional ButchersModern Butchers Run 2 vs 179%-23%12%No Change Run 3 vs 188%9%16%5%4% Run 4 vs 195%43%20%10%7%

20. 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.

21. 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.