Suitable supply chain strategies for the delivery of naturally fed beef from the Limpopo Province

Abstract

This goal of this research was to develop and evaluate a number of suitable supply chain strategies for the delivery of naturally fed beef from the Limpopo province in South Africa. The Limpopo province is the northernmost province of South Africa, and consists mainly of "savanna" grassland. It is traditionally known as a good cattle farming region. For the purposes of this research, "naturally fed" beef is defined as beef from cattle that: • Lived and grazed on natural pasture. • Have not gone through a feedlot process, where growth hormones and antibiotics are given to the animals to accelerate growth. • Has been processed in such a way, at all points of the supply chain, that it conforms with all the legal requirements of South Africa regarding beef. This research has determined that the markets for natural and organic beef in the USA have grown very rapidly over the past decade. It is accepted that the South African market typically lags behind the American market by about 10 to 15 years. Furthermore, a significant amount of beef consumers who took part in this research indicated that they are concerned about growth hormones given to cattle in feedlots. They are also concerned about animal welfare and would typically be willing to pay a premium for naturally fed beef. This indicates that a strong market for naturally fed beef could develop over the next decade in South Africa. Two types of naturally fed beef, "Type A" and "Type B" beef, have been conceptually developed. Type A beef is produced in the Waterberg region, with higher rainfall and more water resources, where pasture can be planted and irrigated. Type B beef is produced on farms in the drier Bushveld regions, on completely natural farmland and without any irrigation of pastures. The research determined that consumers are willing to pay premiums for these products. Specifically, it determined that a premium of 10% (based on the standard average carcass price for feedlot produced beef) could probably asked for type A beef, and a premium of 20% could be asked for type B beef. Process and cost information regarding the required elements of the supply chain for naturally fed beef, such as farming, abattoirs, logistics, processing and packing and retail channels were obtained. This information was used to perform numerical simulations on a number of different supply chain configurations. The influences of the following parameters were considered through the simulations: • Supply chain configuration (process close to market versus process close to source). • Market size. • Sales premium. • Input costs. • B2C versus B2B markets. • Type A versus Type B beef. The simulations indicated the following: • It is far more profitable to produce type A beef than it is to produce type B beef. This is due to the fact that farmland is extremely expensive and the grazing capacity in the drier regions of Limpopo is very low. • Through effective branding and advertising, natural beef should be positioned in such a way that both sales volumes as well as price can be increased, since the combination of these two factors has a very positive impact on profitability. • The supply chain configuration is not very significant in terms of influencing profits. • Profitability is reduced when opting for contract at a reduced price. However, as a lower risk, lower return option it could be considered, especially if the more profitable type A beef is sold. • For the base case simulation, the increase of operational costs by 10 % to 20 % has a significant impact on the supply chain, as it results in supply chain losses.