Rikus Grobler | Jan 16, 2018 | 0
Weakening euro weighs down Meatco
Namibia’s prime beef exporter Meatco, says that weakening exchange rate of the euro to the British pound has become an added challenge for Meatco.
Corporate Communications Officer at Meatco, Thokozile Mdlalose said “Meatco exports approximately 20% of its volumes to the European Union, including Norway, and receives returns from these volumes amounting to around 44% of overall sales. Amongst others, this is a result of the favourable exchange rate during the last few months. Obviously other factors also play a significant role in the total sales returns generated by Meatco from these markets. For Meatco to enjoy continued maximum sales returns, the exchange rate as well as other factors like product mix, an effective price, volumes, customer selection, market positioning, should ideally also remain the same.”
“Like to the euro, the British pound has also had an impact on overall sales returns, since we receive about 23% of overall sales returns from roughly 16% of our overall volumes marketed within the United Kingdom. As a result, euro and pound denominated sales represent around 67.2% of overall sales returns, whilst only representing 35% of all sales volumes.”
Sometimes Meatco needs to adjust its export volume mix to take the edge off fluctuations in exchange rates. For example, they are slowly shifting sales volumes towards the United Kingdom in reaction to the weakening euro against the pound, Namibia dollar and US dollar. Therefore, they sometimes move some of their products from a euro dominated sales market into a pound dominated market to minimise the effects of long-term currency exchange fluctuations.
However, in the past month, the euro went from a high of N$13.37 to a low of N$12.85 against the Namibia dollar. As a result the euro lost significant value against other currencies, mainly because of their own economic circumstances.
“Meatco tries to minimize fluctuations in foreign currencies by making use of, inter alia, Foreign Exchange Contracts (FECs). An FEC is a legally binding agreement with a commercial bank wherein Meatco undertakes to sell a specific amount of foreign currency at a specific future date at a pre-determined fixed exchange rate. However, using an FEC only works in the short-term because of the continued uncertainty of fluctuations, therefore this isn’t a long-term solution,” said Meatco’s Chief Financial Officer, Nico Weck. “Since the euro exchange rate has a big influence on the overall sales returns gained for our products, any change in foreign currency affects local producer prices. At the moment we are concerned about the actual returns for B and C grade products. Currently these two grades are overpaid in terms of actual returns from their respective markets. Accordingly, the producer prices relating to these two grades have been decreased to align them with the current market situation. Meatco strives to pay Namibian producers the highest returns in terms of what their product achieves in our selected markets. And yes, the euro exchange rate definitely plays a significant role,” Weck said.