Reciprocal influences of carcass classes on supply and pricing of red meat in post-Apartheid South Africa

Abstract

The study evaluated the integrated influences of red meat carcasses and product from red meat animals on price and supply of red meat carcasses. The purpose of the study was to assess the status of the South African red meat industry over five years and in comparison, to the status during the Apartheid era. The study resolved to establish in principle the relationships between the types of red meat carcasses (beef, mutton and lamb, and pork) on the purchase price (R/kg cold carcass mass) and carcass classes over a selected period, to establish in principle the relationships between the types of red meat carcasses (beef, mutton and lamb, and pork) on products from red meat animals (wool and hide) and to determine the effect of a red meat market on red meat producers. A great deal has changed since the Apartheid era with regards to red meat marketing and pricing. During the Apartheid era, the South African Livestock and Meat Industries Control Board (Meat Board) controlled the access of red meat to controlled areas and abattoirs. The system skewed the real picture of the supply, demand for and price of red meat. The last time a complete study of the South African red meat industry on supply and demand was completed by Du Toit in 1982, under the apartheid era. The study focused on external factors and not internal factors (carcass class) affecting supply and demand. There is no study on the effect of a specific red meat carcass class, according to the current South African red meat classification system, on price and supply of red meat carcasses. Market research has shown that there should be an interaction between the different types of red meat carcasses, meaning for example if the supply of beef were to increase, it could have an associated decrease on demand for pork meat. The supply and demand of the different red meat carcasses affect the price per kilogram of a particular red meat type. This study was designed to determine the effects of different meat carcass classes on each other concerning price, meat bought by the abattoirs and mass. The theory is that the different types of red meat carcasses would influence each other concerning price and number of carcasses bought by the abattoirs, the effect would be due to specific meat classes and not all the classes would be involved. It would be essential to know the effects of red meat production and price on the secondary and primary products from red meat animals. The concept is that there could be effects from some, but not all secondary and primary products from red meat animals. Data comprising 259 sets was obtained via the Red Meat Abattoirs Association (RMAA) for the period 2013 to 2017. The data was collected from abattoirs that voluntarily sent their information to the RMAA (RMAA, 2020). This data consisted of weekly data from the abattoirs on the number of carcasses bought, average mass, average purchase price, average selling price, and minimum and maximum selling price of each carcass class (pork, beef and sheep). The following variables were used for pork, sheep and beef carcasses: the number of carcasses bought, average purchase price and average mass per carcass price. The tonnage of meat was calculated by multiplying the average purchase price with the total number of carcasses bought for the specific red meat type. Data was analysed employing SAS® (Version 9.4). Linear regression analyses were used with a 95% confidence level. For each type of red meat carcass (pork, beef and sheep) and the average purchase price as compared to the tonnage of meat and the average purchase price of carcasses (R/kg) for pork, beef and sheep carcasses and carcass class. The influence of tonnage of pork, beef, lamb and mutton (sheep) per carcass class on the average purchase prices of pork, beef, mutton and lamb (sheep) respectively were analysed similarly. This process was followed in all the regression analyses for different explanatory variables. VI The third set of regression analysis addressed the relationship between each red meat carcasses average purchase price with red meat products (feedlot hide price, veldt hide price, SA wool price, US wool price, European wool price and Australian wool price). The data was sourced from Cape Wool SA and AWEX-EMI over the review period. The outcome of the study supported the hypothesis that carcass type and specific meat classes within carcass types were responsible for the differences in meat carcass prices. There was a differentiation in price between different meat classes, which affected the price of other classes, but some meat classes did not influence the dynamics of meat prices. The value in the analysis pointed directly to the classes that to a greater or lesser extent influenced price with an interactive effect between meat types. The analysis revealed that the influence observed was due to specific carcass classes and their specific factor (tonnage of meat, average mass, the average number of carcasses bought by abattoirs and average purchase price) and not all the carcass classes for price determination by buyers at the abattoir, processors and retailers as well as traders at the Johannesburg Stock Exchange (JSE), the different and combined influences of the different carcass classes on red meat price need to be considered. A great deal has changed since the Apartheid era and the study of Du Toit (1982). In order to offer producers optimal prices, all factors (including carcass classes and external factors) influencing red meat prices must be taken into consideration when determining the price. Currently, planning by red meat producers would not be influenced by the interactions of commodities and red meat, since their decision-making is not based on either carcass classes or the price of specific carcass classes. They base their decisions on the ratio between muscle and fat as well as the maximum profitability per animal based on input versus output cost. Producers are paid on a R/kg basis for carcasses and not according to the classification system. Negotiation of the price occurs before animals are brought to the abattoir according to contract or according to market information published by the JSE. Even though this study relates to the South Africa classification system, these principles apply to other countries and their specific classification or grading system. Further studies would be required to determine the combined effect on the price and supply, as well as on-demand about the internal factors and external factors affecting them.