Meatco introduces dual price system

Meatco has announced the introduction of a new dual price system for purchasing cattle beginning 15 October 2012. According to the new system, cattle that are not 90/40 days compliant will earn 25% less than cattle which are 90/40 days compliant.
Meatco has been in discussion for some time with producers about paying different prices for cattle that comply with 90/40 days regulations and those that do not. Cattle that comply with the National 90/40 day animal movement regulations can be exported to lucrative markets such as the European Union and Norway, while those that do not comply, cannot. Returns from exports to these lucrative markets are currently more than 45% higher per head of cattle than returns from cattle that cannot be exported.
Meanwhile, due to “exceptional factors” in the South African market impacting significantly on the Meatco producer price, the corporation says it has been forced to repeal the Age Gap Adjustment (“AGA”) until such time it is able to deliberate and agree to an alternative with producers via the Producer Forum and Farmer Liaison Meetings.
The decision follows significant increases in the (South African Red Meat and Abattoir Association) prices for A-grade carcasses in recent weeks, which led to corresponding increases in Meatco’s A-grade prices.
Meatco says the increase is not market related, but the result of a drive by South African feedlots to recover an extended period of losses. Consumer prices in South Africa have remained unchanged, which suggests that the increased feedlot prices are being absorbed at retail level and not by increased consumer spending.
Similarly, Meatco is absorbing higher local producer prices, driven by the South African feedlots, without any significant increase in realisations from its South African customers.
Meatco has to date slaughtered about 30 000 less cattle than it did during the same time last year, but has already paid an average of N$2.50 per kilogram more than it did during the same period last year.
Meatco says due to the low margins resulting from the static South African retail prices and high A grade prices (and resultant high AB, B and C prices), the AGA has become economically unviable and will be excluded from the pricing formula starting from 1 October 2012.
Meatco has in the meantime gone back to the method used to calculate age gap pricing prior to the implementation of the AGA.