Viability Report for Livestock Export to Indonesia (Edited)

Safeway Livestock Export: Viability Report Safeway Trading 2

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Viability Report for Livestock Export toIndonesia

Safeway Livestock ExportSouth Africa

Safeway Livestock Export27 Avonwold Road

Saxonwold

Johannesburg

Gauteng

South Africa

2196

P.O. Box 85512

Emmarentia

Johannesburg

Gauteng

South Africa

2029

Telephone: +2711 646 5000

Fax: +2711 486 1234

Email: [email protected]

Website: www.safewaytrading.com


Table of Contents

Contents

1 Executive Summary…………………………………………...62 General Company Description……………………………….92.1. Mission Statement…………………………………………………………………………………………...9

2.2. Company Goals and Objectives……………………………………………………………………………..9

2.3. Company Description……………………………………………………………………………………….9

2.4. SWLE SWOT…...…………………………………………………………………………………………10

3. Products and Services……………………………………….113.1. Introduction………………………………………………………………………………………………..12

3.2. Breeds……………………………………………………………………………………………………...12

3.3. Maturity……………………………………………………………………………………………………12

3.4. Weight …………………………………………………………………………………………………….13

3.5. Health……………………………………………………………………………………………………...14

3.6. Fat Assessment…………………………………………………………………………………………….15

3.7. Usage………………………………………………………………………………………………………15

3.8. Price………………………………………………………………………………………………………..16

4 Beef Cattle Market…………………………………………...174.1. Indonesian Macro…………………………………………………………………………………………..18

4.2. Indonesian Beef Cattle Industry……………………………………………………………………………18

4.3. South African Beef Cattle Industry……………………………………………………………………...….20

4.4. Botswana Beef Cattle industry……………………………………………………………………………...29

4.5. Namibia Beef Cattle industry……………………………………………………………………………….31

4.6. Sudan Beef Cattle industry…………………………………………………………………………………32

5. Competitor Analysis……………………………………...…345.1. Australia………………………………………………………………………………………………..…..35

5.2. South America: Brazil, Argentina and Uruguay…………………………………………………………..…40

5.3. United States of America…………………………………………………………………………………...40

5.4. New Zealand…………………………………………………………………………………………….....40

5.5. Canada…………………………………………………………………………………………………...…41

5.6. India……………………………………………………………………………………………………..…41


Table of Contents

6. Operational Plan………………………………………….....426.1. Finance……………………………………………………………………………………………………..43

6.2. Procurement of Cattle………………………………………………………………………………….…...43

6.3. Land Transport…………………………………………………………………………………………….46

6.4. Pre-Export Quarantine Facility …………………………………………………………………………….49

6.5. Shipping……………………………………………………………………………………………………53

6.6. Insurance…………………………………………………………………………………………………...54

6.7. Process Flow……………………………………………………………………………………………….56

7. Risk Analysis…………………………………………….…..587.1. Finance……………………………………………………………………………………………...……...59

7.2. Procurement of Cattle……………………………………………………………………………...………59

7.3. Land Transport…………………………………………………………………………………………….68

7.4. Pre-Export Quarantine Facility…………………………………………………………………..…………69

7.5. Shipping…………………………………………………………………………………………..………..70

7.6. Insurance………………………………………………………………………………………….……….75

8. Management and Operation………………………………..768.1. Company Organogram…………………………………………………………………………….……….78

Contents


Executive Summary

1. Executive SummarySafeway Livestock Export (SWLE) will procure live beef cattle reared in Argentina, Botswana, Namibia, South

Africa and Sudan for exportation to West Sumatra, Indonesia. Safeway has entered into an export exclusivity

agreement with PT Kendimas Satria Nusantara to supply 12,000,000 heads of beef cattle over a period of eleven

years. PT Kendimas Satria Nusantara will provide SWLE with an irrevocable, transferable, unconfirmed, deferred

letter of credit, issued by Bank Negara Indonesia (BNI) with which to procure the required supply.

Indonesia is dependent on the import of live cattle. It has serviced this demand primarily from Australia for more

than a century. The Indonesian demand for beef has grown exponentially over the past several years, a direct re-

sult of the increasing middle class. This has been augmented by the demand for live slaughter cattle during the Eid

Festival. The export exclusivity agreement, letter of credit in favour of SWLE and deteriorating relations between

Indonesia and Australasian economies allows SWLE to stand out from the competition.

We predict sales to PT Kendimas Satria Nusantara to equal USD173,600,000 for the year ending December 2015.

The entire eleven year contract is valued at USD12 billion.

The process by which SWLE will supply KSN is as follows:

SWLE will receive a deferred letter of credit (LC) from the first class Indonesian bank, BNI. The four major

banks in South Africa being First National Bank, Standard Bank, Nedbank and ABSA are corresponding

banks of BNI, each having an established line of credit with BNI. Upon confirmation by South African

Banks, the deferred LC becomes discountable. The South African discounting banks will then either create a

site LC facility for SWLE or provide working capital against the confirmed deferred LC. This will allow

SWLE to procure the supply of cattle from the exporting nations.

SWLE will service the supply of cattle from both the emerging and the commercial livestock sectors within

the exporting nations. SWLE has identified the National Agricultural Marketing Council (NAMC), African

Farmers Association of South Africa (AFASA) and procurement agents such as Grainvest Livestock as pos-

sible procurement partners within the South African market. In essence, SWLE will issue these partners

with a site LC from the discounting bank on which the partners will raise working capital to purchase the

cattle required. Once the cattle are loaded onto the sea vessel and the bill of lading is submitted to the dis-

counting bank, the value of the site LC will be paid out. SWLE has identified similar partners in the Bot-

swanan and Namibian markets being the Botswana Meat Commission (BMC) and AGRA respectively. In

Sudan, a similar governmental organisation to the NAMC is being setup.


Executive Summary

Animals originating from producers in South Africa and Botswana will be loaded on to suitable land

transport vehicles for transport to the pre-export facility. Land transport will be direct from commercial and

emerging producers located in various parts of South Africa and from the BMC holding facilities in Lobatse

to the pre-export facilities in Coega or Richards Bay, depending on proximity. Transport will be undertaken

by Grainvest Physicals along with land transport vendors appointed by the NAMC and AFASA.

Animals will undergo a period of quarantine as per Indonesian requirements at the pre-export facility. Dur-

ing such time animals will be provided with a maintenance feed to maintain weight. State veterinarians will

be appointed by the South African Department of Agriculture, Fisheries and Forestry (DAFF) to quarantine

the animals and issue the relevant permits stating that Indonesia’s quarantine requirements have been met.

All feed required for the quarantine and vessel transit period will be brought to the facility in a raw form,

mixed and stored on site.

Once the cattle have undergone the mandatory quarantine period at the pre-export facility they will be load-

ed onto the shipping vessel at the port of loading. SWLE has identified Emirates Future as a possible freight

partner to the project. Its duties will include providing shipping vessels that meet world animal welfare

standards. The M+R Spedag Group has been identified as a likely freight logistics manager. Its role includes

managing the chartering of vessels, export clearing as well as tracking of the vessels to the port of discharge

in Teluk Bayur, West Sumatra. The contract concludes when all cattle are offloaded at the port of discharge.

The project will create approximately 6,620 full time equivalent (FTE) jobs for the South African economy,

through direct and secondary job creation. The annual wage contribution of the new employment opportunities

will exceed R179m. Majority of the jobs will be in the primary sector and focusing on unskilled labour (refer to

appendix 1). The project will also address the historical inequality in the South African agricultural sector by

granting emerging farmers market access to international markets as compared to typical market barriers restrict-

ing trade to historical homelands and national commercial markets which apply a discounting penalty to emerging

farmer’s stock.



General Company Description

2. General Company Description

2.1. Mission Statement

Safeway Livestock Export’s mission is to supply beef cattle to West Sumatra for consumption and breeding. We

will provide cattle from five of the world’s best cattle producing countries. Our cattle will be delivered timeously,

to the highest international standards and will be procured sustainably from the exporting markets.

2.2. Company Goals and Objectives

a. Supply quality beef cattle to the Indonesian market.

b. Deliver the highest degree of service.

c. Expand Indonesia’s beef cattle supply market.

d. Develop emerging farmers in the exporting nations.

e. Supply affordable beef to the Indonesian market

2.3. Company Description

Safeway Trading has been engaged in international trade for more than a decade, specifically within the commodi-

ties industry. We have successfully launched and developed our brands Five Rivers and Supa Gold into leaders

within South African and neighbouring countries’ markets.

We have established ourselves as suppliers of quality products at competitive prices and excellent service. We hold

some of the best-known business names in the country amongst our clientele, including Bidvest Food, Casa Mia

Biscuits, De Vries Biscuits and Clippa Sales.

Safeway Livestock Export (Pty) Ltd is a subsidiary of Safeway Trading, and has been created specifically to service

the contract to procure and export live cattle to KSN, Indonesia.


General Company Description

2.4. SWLE SWOT

1. Exclusive contract with KSN.

2. Strong relationships in privateand public sector.

3. Proximity to cattle procure-ment markets.

4. Safeway Trading's experience:international trade of agri-products for over 10 years.

5. SA-Indonesia relationship anddiplomatic friendship exceeds370 years.

6. Organic cattle supply.

Strengths

1. Australia-Indonesia diplomat-ic tensions.

2. Indonesia GDP growth of 5-6% and growing middle class.

3. Increased quotas for Australi-an beef from the USA.

4. Live red meat seasonal in-crease in demand during Eidul Adha (Celebration of Sacri-fice).

5. Renewed commitment to self-sufficiency programme byGov. of Indonesia, targetingincreased imports to build updomestic herd.

Opportunities

1. SWLE is an emerging playerin the international livestocktrade.

2. Distance between SWLE’s cat-tle procurement markets andIndonesia.

3. Lack of cattle procurementand export infrastructure inprocurement markets.

4. SWLE’s lack of independencein sea transport.

Weaknesses

1. Price volatility.

2. Competition by domestic feed-lots and abattoirs in cattle pro-curement markets.

3. Supply sustainability in cattleprocurement markets.

4. Risk of animal health epidem-ics.

5. Political instability.

Threats


Products andServices

250 – 450kg

18 to 42 months62.5% male & 37.5%

female

11 allowablebreeds


Products and Services

3. Products and Services3.1. IntroductionKSN has unique market specifications catering for the Indonesian market. SWLE will only procure cattle that

meet those requirements. Below we detail the requirements of KSN as set out in the contract. Further we will de-

tail the method by which SWLE will ensure these specifications are met. A summary of requirements detailed by

KSN are as follows:

a. Breed: Eleven beef breeds are allowed (refer to Appendices 2.1 and 2.2).

b. Age: between 18 and 42 months

c. Weight: 250-450 kg

d. Gender: 37.5% female and 62.5% male.

3.2. BreedsEleven beef breeds have been approved. Any further breeds can be included subject to the approval of KSN as a

beef breed. Hybrids and part breeds from the selected breeds are permitted.

a. Afrikaner

b. Beefmaster

c. Bonsmara

d. Braford

e. Brahman

f. Brangus

g. Hereford

h. Limousin

i. Nelore

j. Red Angus

k. Simmental

3.3. MaturitySWLE will supply KSN with animals that are between 18 and 42 months of age. This age category is referred to as

B grade. KSN has exhibited a preference for B grade maturity in its order. B grade cattle have the advantage of

producing Prime, Choice, and Standard quality grades of meat, according to the USDA, while being competitively

priced. Only A and B grade animals qualify for Prime, Choice, and Standard meat quality grades, though B grade

animals are cheaper than A grade animals. Indonesia, being a low income market, has greater demand for B grade

animals than A grade.



The age of a beef animal has a direct effect on the tenderness of the meat it produces. As cattle mature, their meat

becomes progressively tougher. There are five maturity groupings, designated as A through E by the U.S. Depart-

ment of Agriculture (USDA). Approximate ages corresponding to each maturity classification are:

A — 9 to 18 months

B — 18 to 42 months

C — 42 to 72 months

D — 72 to 96 months

E — more than 96 months

The ability to age cattle is an important component of SWLE’s procurement process, considering KSN’s prefer-

ence for B grade cattle. It is important that age can be defined at the point of procurement by SWLE and upon

delivery to KSN. Further there should be no discrepancy on whether the animals meet the age requirement or not.

In live animals, age can be defined in calendar months or by dentition (teeth).

Cattle are aged as milk teeth, two teeth, four to six teeth, eight teeth, worn, broken or gummy. The age ranges at

which these dental stages occur is described in Figure 1. The age in months when these teeth erupt is variable but

still reliable enough for markets to include teeth in their specifications. The way the teeth wear varies from beast to

beast and with the breed and nutritional and climatic conditions. To prevent discrepancies, SWLE will only pro-

cure animals that are 2-tooth, 4-tooth or 6-tooth. Cattle which meet the age requirement in years but do not meet

dentition will be not be procured. KSN has agreed to the above dentition definition, since there is no set classifica-

tion of maturity by months. Refer to Figure 1 on the next page.

3.4. WeightSWLE will supply KSN with cattle in the weight range of 250-450kg. The value of cattle is determined by the

composition of its weight.

Producers selling over the hooks get paid on carcass weight.

Carcass weight = Live weight x Dressing percentage

Dressing percentage = (carcass weight ÷ live weight) x 100

When cattle are off feed and water, live weight will decrease as gut fill lessens. Dressing percentage will increase, as

the carcass does not loose weight immediately.

The term ‘yield’ is often used instead of dressing percentage. The true meaning of yield is the amount of red meat

that can be cut from the carcass. This is often termed the ‘retail beef yield’. Dressing percentage is influenced by a

number of factors. Some of these factors are type of feed, breed, pregnancy status, level of fatness and musculari-

ty.



3.5. HealthAn overview of the top ten diseases faced by cattle during the period 2006-2009 are illustrated in Figure 2. Please

refer to appendix 3 for an overview of disease risks. Health requirements of cattle exports to Indonesia will be

concluded following a diplomatic visit in early February 2015.

Figure 1: Dentition age ranges

Source: DPI NSW, 2002

Milk Teeth—about 0 to 24 months 2-tooth: about 18 to 30 months.

4-tooth: about 24 to 36 months 6-tooth: about 30 to 42 months

8 tooth: about 36 months onwards Worn full mouth: from about 7 years

Broken mouth: from about 8 years Gummy mouth: from about 9 years

The eruption of permanent incisor teeth defines the age categories. In captions to the pho-tographs below, the age ranges are given as an indication of the approximate age of cattlein each category.



3.6. Fat Assessment

Figure 3: Key sites for assessing live cattle

Source: Department of Primary Industries New South Wales (DPI NSW), 2007

Figure 2: Top 10 cattle diseases

‘000 LSU’s lostto diseases p.a.

Echinococcosis

Bovine tuberculosis

Enzootic bovine leukosis

Brucella abortus

Hemorrhagic septcaemia

FMD

Rabies

Anthrax

Lumpy skin diseases

Theileriosis

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000LSU losses from all other cattle diseases: 10,505



Fat preferences vary by country. Fat will be assessed according to Indonesian standards to deliver quality meat as

demanded by the Indonesian market.

3.7. UsageAnimals will be used to supply direct slaughter, KSN’s feedlot and breeding programmes. Animals will be supplied

according to the usage outlined by KSN in each shipment.

3.8. PricePricing will be determined by market prices. According to the Northern Territory Livestock Exporters Association

Incorporated’s South East Asia Beef Market report, the market price for imports to Medan at the end of Septem-

ber 2014 was AUD3.50. Prices are paid in AUD to Australian exporters. The price converts to USD3.05 taking

the exchange rate of USD/AUD 1.14586 on the 30th of September 2014. SWLE will charge a price of USD3.1 to

Indonesia. For details of pricing please refer to Appendix 2.3.


Beef CattleMarket

“Behind every sweaty face of a cat-tle rustler is a story of determinationand courage.”African Proverb

South African Nation-al Herd: 13.9 million

In the first half of 2013-14Indonesia imported 624,749

heads of live cattle fromAustralia

SWLE to developEmerging FarmerCSI Programmes


Beef Cattle Market

4.1. Indonesian MacroGovernment policies to restrain domestic demand and to rein in inflation and the current account deficit have

kept Indonesia’s economy subdued this year. The slowdown is sharper than anticipated, mainly owing to the

weakness in exports, particularly commodities, as well as deceleration in fixed investment and government spend-

ing. Growth in gross domestic product (GDP) at 5.2% in the first half was the slowest since 2009. Private con-

sumption remained robust, helped by receding inflation, good harvests, and spending related to parliamentary and

presidential elections.

While growth forecasts are trimmed from the Asian Development Outlook (ADO) 2014 in April, optimism about

timely reform by the incoming government and a better outlook for exports next year suggest that growth will

accelerate by 0.5 percentage points in 2015.

Inflation ebbed in the first 8 months as the impact of a hike in administered fuel prices in June 2013 faded and the

good harvests kept food price inflation low. For 2014 as a whole, inflation is now seen averaging 5.8%, slightly

above the earlier forecast. The new government is expected to reduce fuel subsidies in 2015, which should free

considerable budget funds for infrastructure and social development, though it will temporarily push inflation to

6.9%, above the earlier projection.

A larger trade surplus resulted in the first half as imports declined more steeply than exports, but after taking into

account income and trade in services the current account recorded a deficit equal to 3.1% of GDP. Large inflows

of foreign direct and portfolio investment kept the balance of payments in surplus. International reserves rose,

and the rupiah appreciated against the US dollar.

4.2. Indonesian Beef Cattle IndustryPlease refer to appendix 2.4.

4. Beef Cattle Market

2014 2015

GDP Growth (%) 5.3 5.8

Inflation (%) 5.8 6.9

Current Account Balance (share of GDP) (%) -3.2 -2.5

Source: ADB estimates.


Beef Cattle Market


Beef Cattle Market

4.3. South African Beef Cattle IndustryThe agricultural sector contributes approximately 3.5% to the national Gross Domestic Product (GDP). The sec-

tor employs between 10% - 11% of the South African labour force. Livestock production falls under the umbrella

of the agricultural sector. Within livestock production, cattle farming forms the most crucial subsector, making up

25% - 30% of total agricultural output per annum. Since the western two thirds of the country is relatively dry,

livestock farming (cattle farming in particular) is the only viable agricultural activity.1

The beef cattle population is concentrated along the coastal areas of the Eastern Cape, the western parts of Kwa

Zulu Natal, the north-eastern and central areas of the Free State and the southern parts of Mpumalanga. In the

North West province, most cattle are found in the north-western and south-eastern areas whereas in Limpopo the

distribution of cattle is even. The small cattle population of the Northern Cape is concentrated in the northern

districts.

South African cattle breeds can be categorised as follows:

a. Sanga and Sanga derived

This category includes all the landrace breeds of South Africa. Landrace breeds are defined as indigenous

and locally developed breeds closely linked to a country by way of name, local content, breeding programs

and origin.

b. Zebu and Zebu derived

This category includes the Brahman and Brahman composites.

c. European breeds.

d. British breeds.

Beef cattle farming accounts for 79% of all South African cattle.2 The total size of the South African herd as for

the year 2012-2013 was 13.9 million.3 Thus there are approximately 10.981 million heads of beef cattle available in

South Africa.

There are four types of major beef cattle farmers in South Africa:

The commercial producerTheir production tends to be comparatively high and similar to developed countries. They prefer to use synthetic

breeds and crossbreeding of British and European breeds.

The seed stock farmerSeed stock cattle are breeding cattle typically registered with a breed association. They have documented pedigrees

and estimates of genetic merit. Indigenous landrace breeds dominate the South African seed stock industry.

The emerging smallholder farmerTheir cattle consists of indigenous crossbred or exotic type animals.


Beef Cattle Market

The communal and subsistence farmerThese farmers raise their cattle on communal grazing land. Breeds consist mainly of the indigenous types.

Subsequently, the categories of the smallholder farmer and the communal and subsistence farmer will be integrat-

ed and referred to as emerging farmers.

The national herd can be further divided up amongst the provinces. Eastern Cape has the highest number of cat-

tle, followed by the KwaZulu-Natal. The provinces with the lowest numbers of cattle are the Western Cape,

Northern Cape and Gauteng. The calculated percentages of dairy cows for the different Provinces are as follows:

Western Cape 58%, the Eastern Cape 34%, Gauteng 27%, KwaZulu-Natal 25%, Mpumalanga 18%, Free State

13%, North West 9%, Northern Cape 5% and Limpopo 4%.

2400Seedstock

Farmers

22 000Commercial Farmers

87 000 farmers with potentialto commercialize

240 000 emerging smallholder farmers

3 million communal and subsistence farmers5.69 million beef cattle

6.67 million beef cattle

0.5 million beef cattle

Source: National Livestock Survey

Figure 4: Gene flow pyramid for beef and dual-purpose cattle.


Beef Cattle Market

Figure 5: Beef Areas of South Africa

Source: EMAC, Safeway Trading 2014


Beef Cattle Market

The Commercial SectorThe success of the livestock industry in South Africa in terms of the gross domestic product (GDP) is largely due

to commercialization and intensification that has increased turnover and off take.

In 2007, there were approximately 39,996 commercial farming units in South Africa.3 Commercial farms have an

average herd size of 413 cattle. Farmers tend to register their cattle with breeder societies which are affiliated to

the South African Stud Book Association. This enables data to be easily collected and collated, which allows for

informed decision making in improving the sector.

Cattle are marketed through formal auctions where they are generally purchased by feedlot farmers. Around 55%

of cattle are marketed through these arrangements. Prices are determined by free market forces. Feedlot farmers

purchase weaner cattle which they retain for up to 120-135 days. During this period cattle are fattened up and gain

in access of 100kg in mass. Usually, feedlot farms in South Africa are vertically integrated with abattoirs. More

than 70% of all beef cattle slaughtered in the formal sector in South Africa originate from commercial feedlots.

British and European breeds dominate the feedlot industry with 53% of cattle in the feedlots originating from the-

se breeds. This demonstrates that these breeds are being used very effectively in order to meet the requirements of

the commercial sector. The Sanga breeds (mainly the Bonsmara) also play a significant role in the feedlot industry.

From the 2007 Agricultural Census, approximately 3.62 million cattle were sold from commercial farms. The

offtake rate for beef cattle in 2007 was approximately 23%, which compares well with the developed beef produc-

ing nations of South America.2

The Bonsmara breed is dominating the feedlot industry, with the Hereford and Simmentaler also playing major

roles. A total of 67% of feedlot animals are crossbreds, indicating that crossbreeding is significant in the commer-

cial industry. An indigenous breed such as the Nguni is not popular and not readily available at feedlots.

Table 1: Estimated cattle numbers in South Africa

*Figures not available for emerging farmers Source: Livestock Development Strategy

Province Total herd size Number of dairy cowsNumber of beef cows

Commercial Emerging

Eastern Cape 3197 1086.98 611.9058 1498.1142

Free State 2320 301.6 1961.8848 56.5152

Gauteng 276 74.52 201.48*

KwaZulu-Natal 2805 701.25 955.1025 1148.6475

Limpopo 1181 47.24 420.62496 713.13504

Mpumalanga 1375 247.5 701.305 426.195

Northern Cape 493 24.65 463.6665 4.6835

North West 1816 163.44 1153.48688 499.07312

Western Cape 501 290.58 202.84488 7.57512

Total 13964 2937.76 6470.82132 4353.93868


Beef Cattle Market

Commercial farmers have vital resources at their disposal. These resources include expertise in rearing healthy and

productive livestock. Cattle undergo regular vaccinations, dips and licks to avoid debilitating diseases. Their feed

includes all essential nutrients to maintain an excellent appearance. In terms of their fertility, 88.6% of farmers

practise controlled mating, whilst 22% of the sector applies artificial insemination in conjunction with natural ser-

vice. The calving percentage was estimated at 70%. These factors contribute to the marketability and efficiency of

this sector.

South Africa is not a live cattle exporting nation. There are very few farmers that engage in this market. Currently

between 3000 – 6000 heads of cattle are exported per producer annually to markets, which include Mauritius,

Mozambique and Nigeria. Influential South African exporters include the Page Family Trust and Claremont Farm-

ing.

The volume of livestock production in South Africa, as measured by an index, has increased from 107.9 in 2006 to

122.1 in 2011, taking 2005 as the base year.3 This is expected to improve within the commercial livestock sector by

striving for higher efficiencies. The benefits will accrue to the farmers. This will counteract unnecessary imports of

beef and will increase the opportunity to develop niche export markets, such as the export of live cattle.

Table 2: Results of the feedlot survey on beef cattle listing the 12 most important breeds

(#) - Percentage purebred from the total sample of 218 459 animals.(*) - The survey did not distinguish between Brahman crosses and Simbra or Brangus animals. The data of the Brahman is thus con-founded by that of the Simbra and Brangus.

Source: Livestock Development Strategy

Position Breed Type % of total Crosses : Purebred (#)1 Bonsmara 15.9 54 : 46 (7.4)2 Hereford 12.7 93 : 07 (0.9)3 Simmentaler 12.3 71 : 29 (3.6)4 Limousin 8.9 78 : 22 (2.0)5 SA Angus 8.2 70 : 30 (2.5)6 Beefmaster 6 93 : 07 (0.4)7 Drakensburger 5.3 45 : 55 (2.9)8 Sussex 4.5 13 : 87 (3.9)9 Charolais 4.2 52 : 48 (2.0)

10 Holstein 4.1 92 : 08 (0.3)11 Afrikaner 3.8 24 : 76 (2.6)12 Santa Gertrudis 3.4 89 : 11 (0.4)

Brahman/Simbra/Brangus (*) 5.3 72 : 28Other breeds and nondescripts 5.4 81 : 19

Total 100 67 : 33


Beef Cattle Market

The Emerging SectorWith the exception of the Northern and Western Cape provinces, beef cattle production was the major livestock

enterprise in the emerging sector. It is recorded that 86% of emerging livestock farmers, farm cattle. There are

around 240 000 emerging farmers who provide a livelihood to more than 1 million of their family members and

occasional employment to another 500 000 people. These farmers supply local and regional markets, where large

numbers of emerging traders make a living. Extensive farming systems accounted for 75% of the emerging cattle

sector, whilst 18% were backyard productions.

In emerging areas, cattle are not only kept for production. Other purposes include investment, meat, ceremony,

cultural, dowry and work. Cattle are held in a communal grazing areas and are allowed to move about unrestricted.

Emerging farmers tend to have a similar profile: they are male, above 50 years of age and are uneducated (some

are illiterate as well). Above 80% of emerging farmers are not otherwise employed. They supplement their in-

comes with pensions and temporary employment. They have no access to finance and credit which is essential to

the production process for the purchase of stock, drugs and supplements and during the marketing and value add-

ing processes.

The emerging sector is still dominated by the Sanga types. However, the presence of large numbers of non-

descript and Brahman bulls presents a threat to the indigenous cattle breeds that formed the backbone of this sec-

tor in the past. The influence of British and European breeds is very limited. The results of the national livestock

survey listing the most important beef breeds in the emerging sector is given in Table 3. In the case of beef cattle,

the ten most popular breeds were: Bonsmara, Brahman, Nguni, Beefmaster, Simmentaler, Santa Gertrudis, Angus,

Simbra, Drakensberger and Afrikaner.

Table 3: Dominant beef breeds in the emerging sector (listed according to bulls used)


Position Breed type Bulls used (% of total) % of herds1 Non descript/crossbred 35 66.42 Nguni 22.5 14.23 Brahman 18.2 5.24 Afrikaner 9.9 6.55 Bonsmara 5.1 2.26 Drakensburger 2.8 2.27 Simmentaler 2.1 0.78 Hereford 0.8 0.49 Beefmaster 0.6

10 Angus 0.6Other zebu derived types 0.8Other European breed types 0.9Other British breed types 0.4

Other Sanga types 0.3


Beef Cattle Market

The average emerging herd size consists of 19 animals. Larger herds generate higher marketable surplus of animals

than smaller herds. This increases the bargaining power that the farmer has and makes him more eager to sell. Ta-

ble 4 indicates the herd size and the distribution of cattle in the emerging sector per province, compared to the

average in the commercial sector.

Out of the limited marketing channels available to emerging farmers, they prefer to sell their livestock through

public auctions and unofficial sales. Information about prevailing market prices, demand, quality, quantity and

market opportunities is indispensable when making decisions pertaining to whether to sell livestock or not. In

emerging areas, sources that can provide this information are limited. Due to this farmers do not realise their re-

turn on investment, even though the emerging sector holds cattle with an asset value of R3 billion.5

Emerging farmers normally keep C grade animals, which are cattle older than 3 years of age. These animals tend to

fetch the lowest price in the market. According to industry experts, there are more male than female cattle in the

emerging sector. The result is a calving rate that is negligibly low. However, this tends to be more often than not a

gross generalisation. A case study conducted by the National Agricultural Marketing Council (NAMC) shows that

in an emerging area there were more female than male cattle.4

Cattle productivity in the emerging sector is declining due to diseases and parasite prevalence, lack of feed re-

sources, poor breeding, poor rangeland management and marketing management. Livestock production methods

are primitive and exhibit little or no regard for scientific production techniques. A vast majority of mating is still

uncontrolled and methods such as artificial insemination is rarely employed.

Effective control of highly contagious and notifiable diseases, which have international trade implications, is im-

perative. These diseases include BSE, foot and mouth, African swine fever and Newcastle, to name a few. Recent

Table 4: Weighted herd sizes per province in the emerging sector compared to the average for the commercialsector


Province Sample Size(#)

Herd size (%)Average herd size

(#)1 to 25 26 to 50 51 to 100 101 to 150 >150

Eastern Cape 173 75 8 11 5 1 28Free State 33 91 3 3 3 0 14Gauteng 13 54 8 23 15 0 40KwaZulu-Natal 316 93 6 1 0 0 12Limpopo 398 92 6 2 0 0 13Mpumalanga 113 74 16 6 2 2 24

Northern Cape 11 9 9 27 18 36 231

North West 120 74 18 5 2 1 22Western Cape 13 69 23 8 0 0 21Emerging 1190 19Commercial 90 413


Beef Cattle Market

outbreaks and border threats from neighbouring countries have had negative impacts on cattle movement, killings

and foreign earnings. Animal health issues in the emerging sector forms a barrier to trade in livestock. Diseases

such as anthrax, foot and mouth, black leg and contiguous contagious abortion increase the mortality and morbid-

ity rates of the cattle. This poses a serious threat as emerging farmers lack medical supplies and adequate disease

control infrastructure.

The eventual result of all these downside factors is that the emerging sector has poor productivity, lagging behind

the commercial sector at around 8%. Thus there is ample room for improvement in production efficiency.

In the past, policy and developmental efforts to improve cattle production in the emerging sector had been based

on the use of fast growing imported cattle breeds. These were perceived as being superior to native breeds because

of their large body size. Contrary to this presumption, imported breeds are failing to cope with the harsh environ-

mental and socio-economic conditions prevalent in the communal areas. Amongst other constraints: disease is

rampant, feed is scarce and the level of management is minimal.

Most emerging cattle production constraints can be solved by the use of locally adapted breeds, such as the Nguni

breed. The resurgence of the Nguni cattle breed is giving emerging farmers a new opportunity. The breed is indig-

enous to southern Africa and common amongst emerging farmers. For many years the commercial sector looked

down upon the traditional Nguni breed. Due to its diminutive almost stunted physical conformation they believed

that the breed had little value as a source of beef. The world has since changed. Meat that contains a high fat con-

tent is increasingly frowned upon by consumers. Organically produced foods, free of pesticides like the Nguni

breed are now gaining a high premium price in the market. The Nguni breed is hardy with virtually no input costs.

The breed is known for its fertility and excellent resistance to ticks and an immunity to tick borne diseases. Mor-

bidity and mortality amongst Nguni are low. Nguni cattle are also highly adaptable to poor quality grazing and

conditions of excessive heat and humidity.

Thus indigenous cattle breeds such as the Nguni breed are being used in the emerging sector to form sustainable

livestock systems with the potential to improve food security, rural livelihoods and incomes. In 2004, the Industri-

al Development Corporation (IDC) in partnership with the Limpopo Experimental Farm launched the Nguni cat-

tle initiative. The project’s long term goal is to develop an international niche market for organically produced

beef. The partnership also joins the North West, Eastern Cape, Northern Cape, Free State, Mpumalanga and more

recently Gauteng in raising the prominence of the indigenous species.

By the implementation of these initiatives the Department of Agriculture has sought to remedy the emerging cattle

production constraints. There is however an integral component which is crucial to ensuring sustainable growth of

this sector, which is the marketing of the emerging cattle. The National Agricultural Marketing Council (NAMC)

was setup for this specific purpose. The NAMC’s function cannot be limited to investigation and advising on stat-

utory measures which has become its dominant role. The state and emerging cattle industry should commit to po-

sitioning the NAMC as its main agency for agricultural marketing. The NAMC can solicit state and industry fund-


Beef Cattle Market

ing for priority programmes such as market access for emerging farmers, export promotion, levies, application of

trust funds, research and market intelligence. The NAMC is well positioned as an important liaison between the

emerging sector and the state and vice versa.

Accordingly it is evident that an integrated approach will underpin an efficient livestock marketing system in the

emerging sector. This requires a joint effort by government, municipalities, emerging farmers, producer organisa-

tions and private sector role players.

The Role of Safeway Livestock ExportThe synopsis of the beef livestock industry has underlined a key factor preventing South Africa in fulfilling its po-

tential. This is characterised by the inefficient marketing of cattle in both the commercial and emerging sectors. As

a result the industry is in stagnation, being unable to increase its performance, in terms of productivity and reve-

nue. This has led to South Africa becoming dependent on imports of live cattle from neighbouring countries

which has augmented an ever increasing trade deficit.

Commercial cattle farmers in South Africa are restricted to one official marketing outlet. Namely, to sell their live-

stock at auctions. The majority of buyers at auctions are feedlot farmers, who tend to bully commercial farmers in

terms of pricing. Private sales are rare and off the record. The fact that the South African beef market is centred

on the export of meat products, has encouraged this one-dimensional composition of the market. Diversification

is essential to create a thriving and competitive industry.

Through the establishment of Safeway Livestock Export’s project, a secondary market has opened to South Afri-

ca: the export of live cattle to Indonesia. This entails the direct procurement of cattle from commercial farmers,

circumventing the auction market. Cattle producers thus have an alternative marketing outlet. Since the supply re-

quirements have been set out at the onset of the project, in terms of quantity required, specifications of the cattle

and price sensitivity, the commercial sector has sufficient time to adjust and undergo structural evolution. The key

advantage to the contract is that the commodity is pre-sold and as such there are no fluctuations in demand. This

significantly reduces the risk of commercial farmers initiating processes that will increase the productivity of their

herds, so as to benefit from this project.

The crucial role of SWLE will be to ensure that information is disseminated efficiently to the commercial sector

and to develop a trusting relationship with farmers.

The emerging sector has seen a mass exodus of programs introduced by government to develop the productivity

of emerging cattle. The obstacle that has hampered the success of these programs has been the lack of a sustaina-

ble market to sell emerging cattle. Farmers have become disillusioned as they continue to sell cattle only once a

year, to the same channels as before. They continue to use outdated farming techniques with no intention to de-

velop. Without the establishment of a market, it is impossible for subsistence farmers to move into the category of

emerging farmers and for emerging farmers to develop into commercial farmers.

The government has recognised these shortcomings, and has setup directorates such as the NAMC and the Afri-


Beef Cattle Market

can Farmers Association of South Africa (AFASA) to overcome them. These agencies have endeavoured to link

emerging farmers to commercial markets, but this has had minimal success due to the connotations of poor quali-

ty and disease that are associated with emerging cattle. The only unofficial link between the commercial and

emerging sectors, is the exploitative transactions that involves the sale of emerging cattle to feedlot farmers, at

prices well below market value.

SWLE proposes a mutualistic partnership with these agencies to remedy this problem. This involves SWLE meet-

ing its required supply of cattle from South Africa at an agreeable price while providing a sustainable market on

which to sell emerging cattle. The impact of this project will be to develop the emerging sector into a thriving and

profitable segment of the agricultural industry.

Towards the long term benefits of the project, economies of scale will be developed. After the 11 year duration of

the contract, South Africa will be transformed into a livestock exporting nation. Initially, a nation that exported

less than 10 000 live heads of cattle a year, will be exporting in excess of 100 000 heads per annum by 2025. The

infrastructural, economic and educative benefit of this project will stand South Africa in good stead to engage in

similar projects with other nations. Eventually export can be expanded to include other livestock species as well.

4.4. The Botswana Beef Cattle Industry6

According to the latest data available, there were roughly 77,000 cattle farmers in Botswana in 2008. These farm-

ers operate on around 333,000 km2 of pasture land, with 76,300 communal households occupying 80% of this area

(260,000 km2 ) and 700 ranch farmers operating on 20% (73,000 km2). Of the 77,000 cattle farmers, roughly

40,000 (52%) have fewer than 20 cattle, 60,000 (78%) have fewer than 40 cattle, and 75,000 (97%) have fewer

than 150 cattle.

Cattle production in Botswana is highly cyclical, depending upon rainfall and pricing structures. Farmers sell ani-

mals during droughts, flooding the market with poor-quality animals and driving prices down, and the rebuild their

herds when rainfall is good, reducing the number of animals for sale and driving up prices. Between 1995 and

2010 the total number of cattle in Botswana fluctuated between 2 and 3 million head. For 2010, the estimate of

the national herd size was 2.7 million. The cattle population could be increased significantly, but this would re-

quire reducing dependency on extensive grazing through changes in husbandry and marketing systems. There is

now a tendency for the market, especially the BMC but also the smaller meat processors, to create mechanisms to

increase offtake during good years through increased prices and by adding additional value to animals through

feedlotting. The latter brings animals up to a suitable slaughter condition with 0–2 teeth, which is not possible in

drought years with only grazing. Livestock herd sizes in Botswana also vary because of farmers’ choices. For ex-

ample, in the early 1990s many commercial farmers opted to change to game farming and reduced their live-

stock numbers. In the past there was a tendency for scientific literature to present constant figures for ani-

mal numbers, carrying capacity of the range, livestock productivity, offtake and mortality.


Beef Cattle Market

It is increasingly clear that these factors vary widely in space and time in extensive beef production schemes in

semi-arid areas and a new school of thought is gaining ground that takes this disequilibrium into account.

The ranch system consists of large commercial farmers operating on fenced freehold or leasehold land, with exclu-

sive rights to grazing resources. These ranches are referred to as commercial farmers in part because they made

modifications to the traditional husbandry system. They have reduced in importance over time. In the 1980’s they

accounted for 30% of the national herd, but now account for only about 10% of the national herd. This decline is

mainly the result of the eroding profitability of cattle production in Botswana. With 73,000km2 of pasture land

available to them, i.e. 100 km2 per ranch (24 ha/LU) on average, these farms have the greatest potential for pro-

duction growth.

Usually these farms are fenced and they practise rotational grazing as an alternative to the former transhumance

system. They used exotic genetics on Tswana animals from an early stage, starting with the then popular Afrikan-

der and British breeds such as Sussex and Hereford, but currently they are largely making use of continental Euro-

pean breeds (Charolais, Simmental) and Zebu breeds for a criss-cross breeding scheme. Some commercial farmers

have opted for synthetic breeds such as Beefmaster or Santa Gertrudis (stabilized crosses between taurine and ze-

bu-type breeds) to simplify the breeding operations and to have more uniform cattle.

In the past the fenced/commercial farmers followed a similar oxen-based production system to that used on com-

munal farms. Now they have increasingly been shifting to a weaner-based production system, selling weaners to

the BMC or raising them in feedlots themselves if they have the means to do so. This change of production sys-

tem has lead to a higher proportion of breeding cows in the herd and slightly higher offtake but also to a greater

need for investment and a higher management level (supplementary feeding of cows, record keeping etc.). It is

estimated that there were around 700 ranch farmers in Botswana in 2010. One farm of particular note in this cate-

gory is the government-owned Banyana farm in Molopo, which keeps over 15,000 cattle.

Region Number of holdings Number of Cattle Average per holding

Central 21,387 770,082 36

Gaborone 18,084 331,263 18

Francistown 13,669 296,083 21

Southern 13,588 227,629 17

Maun 4,898 167,328 34

Western 4,764 154,118 32

Total 76,390 1,946,503 25

Table 5: Communal livestock holdings by region, Botswana, 2008

Source: CSO (2011)


Beef Cattle Market

As there are clear indications that herd sizes and offtake rates have increased in response to the growth in feedlot-

ting and better prices, we have assumed that ranching accounts for around 10 percent of the estimated 2010 herd

of 2.7 million head, giving an estimated commercial herd of around 300,000 units in total. Today, ranches include

a wide variety of farms, varying in size from 1,600 ha (4 × 4 km) to over 100,000 ha. Some ranches are underuti-

lized. Ranches held freehold, keep more cattle per holding than those held under the Tribal Grazing Land Policy

(TGLP). The TGLP ranches were created in 1975 on tribal land in an effort to increase productivity and

curb widespread range degradation in communal areas. The original farms covered areas of 8 × 8 km but were

reduced to 6 × 6 km during the implementation of the 1991 National Policy on Agricultural Development

(NPAD).

As previously indicated, the ranch system performs only slightly better than the communal system in terms of

technical productivity indicators. Part of the explanation for this is that some commercial ranches, especially

TGLP ranches, operate almost the same way as a cattle post (and vice versa), the only difference being that cattle

are kept in by fences on ranches and do not stray as they do on unfenced farms. Some ranches also do not have

paddocks, hence are unable to practice modern husbandry techniques such as controlled breeding and rotational

grazing.

The Botswana Meat Commission (BMC) was setup by the government to regulate the beef industry as well as to

diversify red meat supply into various export markets. It has successfully tapped into the EU zone by supplying a

variety of red meat products. Within the BMC, live cattle trade is a key area that will benefit from development.

The BMC is the only agency allowed to export live beef and beef products from Botswana. SWLE has enlisted the

BMC’s support in supplying live cattle from Botswana for export to Indonesia.

4.5. Namibia Beef Cattle Industry7

The structure of the Namibian Beef Industry has changed during the last several years. The contribution of pro-

ducer’s income from local slaughtering at export abattoirs has declined, while local slaughtering for the local mar-

ket and live exports has grown. More than 400,000 head of cattle were marketed in 2011, south of the veterinary

cordon fence (SVCF). Approximately 35% of income of the primary cattle producers SVCF was derived from

slaughtering at export abattoirs and 17% from slaughtering for local consumption. Live cattle export increased by

almost 20% to 200,000 in 2011, against the average live exports of 167,000 from 2006-2010.

In the first half of 2014, live cattle exports were less than 50,000 head but will increase to 150,000 by the end of

the year. The decrease in exports was due to policy action by the South African government driven by protection-

ist groups in the South African market. Prior to 2014, the value of live exports accounted for over 40% of produc-

er cattle marketed.


Beef Cattle Market

The net income that a producer receives for slaughter cows was consistently higher at auctions, compared to

slaughtering at export abattoirs, since the end of 2008. Producers are therefore expected to react to these market-

ing conditions by increasing their female herd, selling more animals through auctions and slaughtering less female

animals at export abattoirs. This will further reduce the competitiveness of export abattoirs as the slaughter cost/

head increases further. As a result value chains competing with the local export abattoirs value chain became more

competitive.

South African feedlots vertically integrated and invested in further value adding into the full value chain, selling

directly to Namibian retailers. Currently they are buying weaner calves on a contract basis directly from the pro-

ducer in South Africa, and selling value added carcass cuts and processed meat directly to the retailer. They there-

fore have control over the full value chain.

Meatco is an industry leader within the beef market of Namibia. It controls majority of the Namibian export of

beef products to the EU zone. The marketing strategy of Meatco changed significantly in recent years, with a

much higher percentage of beef sold directly to retail customers than in the past. More benefits are therefore gen-

erated to the producer. Feeding weaners intensively in a feedlot is currently not profitable in Namibia. Namibia is

a net importer of feed, and a net exporter of meat, which reduces the Beef:Maize ratio. This negatively impacts

profitability.

AGRA, now registered as a company, was formed from a co-op of Namibian commercial farmers. In recent years

they have dominated the sale of live cattle within Namibia as well as the export of live cattle to neighbouring

countries. As such, SWLE has identified AGRA as a possible partner in the Namibian market

4.6. Sudan Beef Cattle Industry8

Since the discovery of oil in Sudan in the mid-1990s, petroleum has been hugely important to Sudan’s economy.

As a result, Sudan enjoyed one of the highest growth rates in Africa between 2000 and 2009, of almost 8% p.a.

But even during this period, agriculture was significantly more important to GDP (Gross Domestic Product) than

petroleum, and much of this was due to the livestock sector.

Having accounted for about 80% of national exports before oil was discovered, the contribution of crops and live-

stock combined dropped to between 5% and 10% of national exports after 2000. Indeed, the significance of live-

stock relative to crop production in Sudan’s domestic economy has increased. According to the Central Bureau of

Statistics (CBS), livestock now accounts for more than 60% of agriculture’s total contribution to GDP and crop

production less than 40%, despite the fact that the latter has been given most attention by government and in poli-

cy initiatives. The main methods for exporting livestock and meat from Sudan are as follows:

a. Shipping live sheep, goat, camels, and cattle to the Middle East through Port Sudan and Suakin.

b. Trekking camels on the hoof to Libya and to Egypt.


Beef Cattle Market

c. Trekking cattle from Sudan (Darfur) to Chad and the Central African Republic.

d. Flying chilled meat (from small stock, cattle, and camels), mainly from abattoirs around Khartoum, to

the Middle East, and occasionally from Nyala in South Darfur.

It is estimated that Darfur’s livestock account for between one-quarter and one-third of Sudan’s livestock re-

sources post-secession. Sudan’s national export trade in livestock and meat, oriented towards the Middle East, is

heavily dependent on a small number of markets—Saudi Arabia, Egypt, and Jordan—making it vulnerable to

changing trade regimes in those markets and to losing its market share to competitor exporting countries that have

more sophisticated production and marketing infrastructure, especially as welfare, hygiene, and disease control reg-

ulations become stricter in livestock-importing countries.

During the years of petroleum wealth in Sudan, the livestock sector received rather little attention in terms of gov-

ernment policy and investment, although this now seems to be changing, with renewed government interest in the

livestock sector and the role it can play in future economic growth in Sudan post-secession. Darfur’s livestock

trade was immediately and badly affected by the conflict. Early on, in 2003–4, when large numbers of rural house-

holds were displaced, looting of livestock was widespread. Prices plummeted as distress sales of livestock soared,

and many of the looted animals were sold quickly and locally, usually for meat consumption. Many livestock trad-

ers went out of business and were bankrupted in these early years. Others switched to trade in less-risky commodi-

ties. Large-scale livestock traders from Omdurman withdrew from Darfur’s livestock markets because of insecurity

and the risks associated with trekking animals on the hoof, effectively transferring the risk of trekking livestock to

central Sudan to smaller-scale Darfuri traders.

By March 2011, there were signs of limited recovery in Darfur’s livestock trade as some large-scale traders from

Omdurman returned to the region, especially to South Darfur, but this recovery is fragile and could be threatened

by shifting conflict dynamics. The volume of livestock traded during the conflict years contracted by at least 50

percent and the quality of livestock brought to the market compared to the pre-conflict years deteriorated. Most

secondary livestock markets have contracted in terms of volume of sales and many primary village markets in Dar-

fur have been closed since the conflict began.

The Sudanese government is currently considering setting up a parastatal organization in Sudan similar to the

NAMC in South Africa. This will provide immense regional support to SWLE’s project.


CompetitionAnalysis

“Until the lion has his own storyteller,the hunter will always have the bestpart of the story”African Proverb


Competition Analysis

Indonesia is a beef import dependent nation. Since Indonesia is not a traditional cattle producer, it requires that its

demand for beef be subsidized by the import of live animals. Over the last year the differential between the in-

creased demand and lower supply has caused rapid inflation in the price of beef.

The following analysis will highlight all countries that are involved or have the potential to become involved in the

export of live cattle to Indonesia. The nations will be evaluated according to their strengths, weaknesses as well as

opportunities and threats that they face in dealing with the Indonesian beef industry. These evaluative factors will

be used to determine the effectiveness of each countries process flow. The process flow parameters include politi-

cal relations with Indonesia, finance, supply, inland transport, quarantine and freight.

5.1. AustraliaAustralia is the world’s third largest exporter of beef holding 3% of global cattle inventory. The national herd

comprises of 28.5 million cattle with 13.6 million being bred for beef production and export. Australia has an es-

tablished history of live cattle export. For the year of 2013, the value of Australia’s live cattle export was USD590

million. (source: Meat Livestock Australia)

Political relation with Indonesia

Australia has been recorded as exporting live cattle to Indonesia since the early 1900’s. It has established a monop-

oly over the Indonesian market in recent years. More than 60% of Australia’s live cattle export is to Indonesia,

which on average is equivalent to 500,000 heads of cattle per annum.

WeaknessesThe broader agricultural relationship between Australia and Indonesia remains largely shallow in nature. It is dom-

inated by a ‘we sell you buy mentality’. Neither country has much influence and exposure to each other’s supply

chain in terms of value addition. This makes it simpler for Indonesia to reduce its dependency on Australia by

opening up other import markets for live cattle. This is currently the case.

5. Competition Analysis



Over the past several years, the political relationship between Australia and Indonesia has deteriorated to a great

degree. This is due to the occurrence of certain events that will be summarized below:

a. Australian export ban:

In 2011, the Australian Federal Agricultural minister, Joe Ludwig, placed a ban on Australian farmers ex-

porting live cattle to Indonesia. The ban lasted for several months and was a result of footage being aired in

Australia of animal rights violations occurring in Indonesian abattoirs. Even though the ban has since been

lifted, there continues to be a strain on diplomatic relations.

b. Indonesian children in Australian jails:

The former Australian administration under Prime Minister, Julia Gillard had seen an influx of asylum seek-

ers from Indonesia. This threatened to overrun the entire border protection system. To prevent this, a deci-

sion was taken to implement legislation that would enforce a five year jail sentence on ‘people smugglers’.

The problem hinged on the fact that smugglers sought out young children from remote Indonesian villages

to work as deckhands on these boats. This led to the arrest of these minors by Australian officials. The re-

sult was that by 2011, fifty Indonesian children were detained in Australian maximum security prisons.

c. The ‘Bali-Boy’ case:

In 2011, a 14 year old Australian boy was arrested and charged for drug possession in Bali, Indonesia. Re-

gardless of Indonesia following its due legal process, the Australian foreign minister directly intervened. He

pronounced that the boys release would become the Australian government’s ‘number one priority’. This

statement was made in light of Australia previously criticizing Indonesia about its lack of independence be-

tween its government and judiciary. Despite Australia’s inappropriate behavior, Indonesia had allowed the

case to be resolved with judicial independence and without political interference. The boy was subsequently

released. The case stirred up mass media attention which augmented the political tension between the two

nations.

d. The spying debacle:

Australian intelligence agencies covertly placed former Indonesian president Susilo Bambang Yodhoyono

under surveillance by tapping his phone in November 2013. Once exposed, government officials planned to

diversify Indonesian imports away from Australia to minimize the interaction between the two nations. The

Indonesian trade minister Gita Wirjawan, stated that Indonesia ‘intends to revise protocol to allow it to im-

port from other countries’.

The fragility of the political relationship between Australia and Indonesia is being held together by Indonesia’s de-

pendence on Australian cattle. Once this dependence is diversified away from Australia to other markets, the rela-

tionship is bound to worsen (refer to appendix 4.1).

OpportunitiesIndonesia will soon overtake Australia in economic size, which means that Australia will for the first time have a

regional neighbor dominating it. This will allow Australia to have enormous opportunities to build closer trade,

business and community ties with Indonesia



Finance

WeaknessesPrior to 1997, imports of live cattle from Australia were based on letters of credit and payment could be deferred

until all cattle were delivered. In some instances for months beyond delivery. This system has dramatically

changed. Now the payment system required from Indonesian importers is as follows: 20% payment at the time of

placing the order, 60% payment after selection of cattle and the remaining 20% paid after all cattle have landed at

the import destination. In effect, this requires an 80% deposit from Indonesian importers prior to shipment (refer

to appendix 2.4, Pg 11).

SWLE has afforded its importing partner KSN the opportunity to acquire supply by providing a deferred letter of

credit. Initially the allowed deferment period will be 365 days. This is in stark contrast to the above mentioned

Australian requirements. In actual fact KSN will not only benefit from the prolonged term, but also from not hav-

ing to raise working capital along with its associated costs.

Supply of Cattle

Strengtha. Indonesia and its surrounding islands have arguably the finest crop growing land with top quality soil. This

is augmented by good rainfall, access to markets and economies of scale. It would be enormously inefficient

to use this type of land to breed cattle. The lost opportunity cost of doing this would be horrendous. Indo-

nesia thus requires a nearby land that has abundance of wide brown land, where there is ample opportunity

to breed cattle. This is called Australia. The beneficial model is that Australia breeds cattle and Indonesia

feeds them as Australia’s long, dry season prohibits the process of fattening being undertaken there. Austral-

ia ships cattle that are around 300kg, which are then taken into Indonesian feedlots. Using the leftovers

from the production of food crops (sugar, palm oil, pineapples), the residual waste products can be used as

feed.

b. Australia’s comparative advantage is due to the technical knowledge and expertise of its farmers. Australian

farmers are amongst the best in the world. They have had to be good as there are virtually no government

subsidies available combined with a harsh, isolated environment. Australia’s agricultural sector has world

class expertise in the areas of technology, science, water management, marketing and branding.

c. A spike in the Indonesian beef price requires the government to increase the supply of beef. This accrues as

a direct benefit to Australia as import quotas are lifted and a deluge of cattle is supplied by Australia. After

the 2011 ban, Indonesia in an attempt to become self-sufficient imposed restrictions on Australian cattle

imports. This caused beef prices to rocket, which led the Indonesian government to open its borders uncon-

ditionally to the import of Australian cattle.



Weaknessesa. Australia is facing major hurdles, which are causing the agricultural industry to shrink. These include: labour

costs (in many cases are too high), diminishing productivity, distance to market, fear of foreign investment

and the impact of climate shocks and poor rainfall.

b. No government subsidies are available to the agricultural sector.

c. Cattle exported to Indonesia for breeding purposes must have a certificate of pedigree, which is documenta-

tion that most Northern Territory (NT) cattle stations cannot provide. For this reason approximately 10,000

breeder cattle have remained locked in Indonesian quarantine facilities for almost a year (refer to appendix4.2).

OpportunitiesThere has been interest shown from Indonesia in investing in Australia by taking a shareholding of Australian cat-

tle stations. Australia in turn is seeking investments in actual manufacturing in Indonesia. This will involve ship-

ping additional quantities of beef and then processing it in Indonesia. The advantages will see considerably more

cattle leave Australia as well as an integrated supply chain. Australia has similar small scale models already running

in Indonesia albeit in a different industry. A company called CBH from Western Australia exports flour to Indo-

nesia where it is produced into noodles and other products. These products are then shipped throughout the re-

gion.

Threatsa. The Indonesian government is completely supporting the Beef Self Sufficiency Plan. The policy aims to

have Indonesian resources fulfill 90% of the beef consumption demand leaving the remaining 10% to be

satisfied by imports. The enforcement of the policy will see live cattle import permit restrictions and weight

restrictions, which will deter Australian exports.

b. Recent live export and domestic sale-yard prices have mutually trended upwards. Export prices per head,

received for live cattle, between the years of 2005 – 2009 have been steady at around AUD650. During 2010

prices rose significantly to AUD707 per head and climbed to AUD755 per head in the first half of 2011.

According to the Eastern Young Cattle Indicator (EYCI) the carcass price in Indonesia was 357.75 c/kg for

September 2014.

c. Australian exporters are only granted export permits to Indonesia from the Australian government if they

can demonstrate:

The animals can be tracked through the export supply chain to the point of slaughter.

Australian animals will only be transported, held, handled and slaughtered in facilities that meet World

Animal Health standards.

They will collect and make public data on consignments they take to market. This includes where ani-

mals are fattened, how they are transported and where they are slaughtered.



d. In a bid to promote its beef cattle market, Indonesia slashed its import quota for live cattle by more than a

third in 2012 and by a further 30% in 2013. Rising beef prices due to the shortage in supply over 2014 has

seen an increase in imports as described. This shrinking of the Australian market severely affects domestic

pastoralists and transporters.

Inland Transport

Weaknessesa. In Australia, input costs such as transport are very high. Australia will have to accept that while it always

grows and exports food, certain elements of sectors will have to be based in other countries.

b. In 2014, 45.9% of Australia’s live cattle export emerged from the Northern Territory (NT). Nearly 50% of

cattle from the NT travel upwards of 1000km between farm gate and port. Transport costs exceed AUD150

per head and consist of up to 35% of the cattle market price. It is reported that 85% of the NT’s live cattle

export is to Indonesia (refer to appendix 4.3).

c. Certain areas of the NT are prone to floods. This results in cattle being stranded and roads blocked reducing

their value and increasing overall costs. The existing road and rail infrastructure is currently under much

pressure due to the ongoing growth of the region.

Freight

Strengtha. In 2013, Darwin and Fremantle ports in Australia handled the highest volume of live cattle exports placed at

346,444 and 145,492 respectively (refer to appendix 4.4).

b. Indonesia is Australia’s closest neighbor to the north. This allows for a brief sea transit between Australian

ports of loading and Indonesian ports of discharge. The distance from Darwin to Jakarta is 2201nm and the

voyage takes on average 7.1 days to travel, travelling at 13 knots.

The distance from Fremantle to the port of Teluk Bayur in West Sumatra is 2522nm which takes on average

8.1 days to cover, travelling at an average speed of 13 knots.

To put this into perspective, the distance between the port of East London, South Africa and Teluk Bayur

in West Sumatra is 5725nm. Travelling at an average speed of 13 knots will take approximately 18.3 days to

complete the voyage (http://www.ports.com/sea-route).c. Wellard is an Australian based company that owns and operates the most modern and technologically ad-

vanced livestock fleet in the world. The fleet consists of four ships, which have been constructed to achieve

optimal animal welfare outcomes. The MV Shearer is the largest livestock carrier currently in operation. In

2011, it set the world record for the largest shipment of cattle. The ship travelled from Australia to Indone-

sia carrying 25,817 heads of cattle.



d. Developed countries tend to pay subsidies to their livestock producers. In addition, their exporters often

receive export refunds creating a further distortion and uneven playing field as South African producers do

not receive any subsidies. The extent of support of various countries is shown using the index of Producer

Support Estimate (PSE). Australia had a PSE of 6.8% while South Africa had a PSE of 2.7%.2

5.2. South America: Brazil, Argentina and UruguayBrazil is currently the world's leading exporter of beef, followed by Australia, then the United States and India.

Brazil's recent live cattle export decline is in line with its herd rebuilding (after peak slaughter rates in 2006 and

2007), surging domestic demand and a strong currency. The major markets that Brazil is servicing at the moment

include the Middle East and Russia.

Argentina and Uruguay have both lost their competitiveness in the global market. Extremely high slaughter rates

in 2009, primarily of their female breeding cattle, have depleted their national herds. Recovery is expected to take

many years.

The immense distance of transporting cattle from South America to Indonesia and its associated cost makes it

economically unviable for Indonesia to import South American cattle.

5.3. United States of America (US)Exports of beef from the US in 2010 increased 19% year on year, as it continues to make its way back into the

international market after the discovery of BSE in the US herd in 2004. Current export levels are still sitting below

pre-2004 levels, indicating that the US has the potential ability to produce more meat for export. The low US dol-

lar is assisting the United States’ competitive position. In terms of the Producer Support Estimate Index, the US

had a PSE percentage of 21.6%, showing immense governmental support for its foreign trade. Exports of beef are

far outpacing imports. The expectation is for the US to ultimately become one of the world’s largest beef export-

ers.

Indonesia has restricted and basically prohibited the imports of animals from the US. This has been achieved

through the imposition of trade restrictive, non-automatic import licensing requirements on importers trading

with the US. According to the US, Indonesia has imposed unreasonable and discriminatory pre-shipment inspec-

tion requirements. There is also not sufficient information available concerning the import licensing measures. The

US has thus filed a formal complaint with the world trade organisation. (refer to appendix 4.5)

5.4. New ZealandIn November 2007, the New Zealand Government introduced the Customs Exports Prohibition (Livestock for



Slaughter) Order. Although not a blanket ban, the new legal requirement restricts live animal export for slaughter,

unless the risk to New Zealand's trade reputation can be adequately managed. Indonesia has imposed restrictive

trade policy on New Zealand, as described in the case of the US above (refer to appendix 4.6).

5.5. CanadaCanada has an established supply of cattle with vast export experience to the US. Canadian infrastructure has seen

the industry grow and a PSE percentage of 16.1% displays great governmental support.

Although Canada has never traded cattle with Indonesia, the export of live cattle was banned. In 2011, with the

imposition of the Australian ban, Indonesia invited six countries including Canada to discuss the possibility of at-

taining live cattle supply. Canada attended but indicated its inability to service this requirement. The shipping dis-

tance from Vancouver to Jakarta places Canada at a disadvantage as well.

There however exists an opportunity for Canada to harness its export experience to overcome the hurdles that are

preventing it from exporting live cattle to the Indonesian market.

5.6. IndiaIndia has the biggest beef herd in the world. In excess of 300 million head of cattle in 2010, it is nearly double the

size of the next largest herd, belonging to Brazil.

In 2010, India supplied the Philippines with 42% of its imported beef products, followed by Australia at 22%, Bra-

zil at 14% and the US at 9%. India's strong export growth is forecast to continue, due to comparatively low prices

and a good exchange rate that is augmented by strong global demand.

In Indonesia, cattle imported from India have the connotation of disease. This perception is based on the poor

quality of cattle that Indonesia had received in the past from India. These cattle were blamed for the outbreak of

bovine diseases in Indonesia.


OperationalPlan

Outcome: Export 12 mil-lion heads of cattle by 2025

Objective: 35 – 45shipments in 2015

Key: Efficiency


Operational Plan

6.1. FinanceKSN, SWLE’s import partner in Indonesia, has established a deferred Letter of Credit (LC) facility with Bank

Negara Indonesia (BNI). BNI is a first-class rated bank having established correspondence with the four major

banks in South Africa (FNB, Standard Bank, Nedbank and ABSA). Thus there are existing lines of credit open

between BNI and the South African banks.

The deferred LC facility offered to KSN by BNI is underwritten by non-liquid collateral. An irrevocable, transfer-

rable, unconfirmed, deferred Letter of Credit will be issued to SWLE per contract with which to procure the sup-

ply of cattle (refer to appendix 5.1). Upon confirmation of the deferred LC by a South African bank, the instru-

ment becomes discountable. The process of discounting by the South African bank will allow a site LC facility to

be made available to SWLE. SWLE will thus use this facility to issue irrevocable, non-transferrable, confirmed,

site LC’s to procurement partners.

In South Africa and Botswana the costs associated with inland transport, feed for pre-export and transit, mainte-

nance costs and miscellaneous costs are included within the value of the site LC. In Namibia and Sudan cattle are

purchased FOB, as a result only the transit feed and miscellaneous costs are included. The various procurement

agents will raise working capital on the site LC’s in order to secure the supply and various costs involved. When

the cattle are loaded onto the shipping line, the bill of lading (BL) describing the cargo loaded will be submitted to

the confirming South African bank. The funds secured by the site LC will then be released.

It is imperative that all documents match as agreed upon by SWLE and KSN. This means that all terms and con-

ditions highlighted within the deferred LC mirror those within the site LC. The only difference being ‘deferred’

versus ‘site’.

6.2. Procurement of CattleIn South Africa, SWLE has defined a strategy that will engage both the commercial and emerging farming sectors

in providing supply. While the emerging sector is growing and adapting to the change that will allow it to meet its

potential to supply the entire SA quota, SWLE will service majority of the supply from commercial farmers.

The National Agricultural Marketing Council (NAMC) has been mandated with the purpose of marketing South

African agricultural products. In terms of red meat, its objective has been to provide a market to emerging farmers

as traditional markets have been heavily skewed towards commercial farmers. For this reason the red meat mar-

keting program was established. Unfortunately over the past several years, the program has failed to run efficiently

as a consistent end market was not available. SWLE with the implementation of this project provides this market.

6. Operational Plan


Operational Plan

Thus a partnership has been created. Initially the supply of emerging cattle will tend to be low, as the emerging

sector redefines itself. The goal is to eventually fulfil the entire SA quota by purchasing animals from the emerging

cattle sector of SA.9

The African Farmers Association of South Africa (AFASA) has been identified by SWLE as another key partner

within the project. It is structured as a non-profit, cooperation of emerging farmers. It is currently comprised of

35,000 South African emerging farmers. In essence it has a similar mandate to the NAMC, being the development

of the emerging cattle sector through marketability and education.10

To understand the interaction of the emerging sector, it is crucial to first define the role that the NAMC and

AFASA will play in the process flow.

SWLE envisages a collaboration with these agencies to execute the project which will result in significant benefit

accruing to the SA economy. The project will provide much needed foreign currency to SA. It will also advance

and entrench international trade relations between SA and Indonesia, as SWLE is a South African domiciled com-

pany. SA farmers, particularly emerging, will be provided with access to markets which have been absent thus far.

The business and animal husbandry skills of emerging farmers will be developed.

These agencies have the requisite expertise, skills and manpower to assist the contract. Furthermore they will sup-

port the project in its entirety i.e. from the procurement phase until the final loading of the cattle onto the

transport ship.

The NAMC has instituted a red meat marketing program, which seeks to develop emerging farmers by finishing

off their cattle to make them more marketable. As it stands, the program has newly developed feedlots throughout

the country in emerging areas. The process allows emerging farmers to enter their cattle into the facilities for up to

120 days. During this period cattle are fattened up and vaccinated to improve their general condition. During this

feedlotting period, the NAMC looks to arrange buyers for the animals. The cost to feed each animal per day is

R16, whilst the NAMC charges every farmer R850 for the complete program. Thus 56% of the cost is subsidized

by the government through the NAMC. SWLE has proposed a mutualistic strategy to the NAMC: SWLE will

form the NAMC’s final market and the NAMC will form SWLE’s supplier.

Selection and purchase days will be scheduled in the respective homesteads. Prior to this, the price paid per kg for

cattle by SWLE for that particular month will be advertised to the emerging farmers. This price will be related to

the current market price in SA as well as in Indonesia. The NAMC and AFASA will be competitively priced in

relation to the BMC of Botswana and Agra of Namibia.

At the time of selection by SWLE, the cattle will be weighed and tagged. Emerging farmers will then deposit the

cattle into a holding facility created by these agencies for a maximum period of seven days. Thereafter SWLE will


Operational Plan

arrange for the livestock land carriers to collect the cattle at the various regional holding facilities. At this stage the

emerging farmers will be paid. Land transport is crucial to the success of the project. All cattle are to be transport-

ed to a pre-export facility at the port of loading. The cost of transport is charged per kg. Cattle will be insured

throughout the journey. Adequate facilities are required to reduce the strain on the cattle during transportation.

This will assist in mitigating excessive weight loss and the contraction of infections. We believe that if land trans-

portation can be achieved using companies that are linked to the NAMC and AFASA, this will prove to be effi-

cient and will allow for better control.

The cattle will then be transported to the pre-export facility to undergo quarantine after which they will be loaded

onto the shipping line for sea transit to Indonesia. The NAMC and AFASA will support the construction of the

pre-export facility at the port in Coega.

As the contract entails a host of benefits to SA, SWLE will apply to the SA government to subsidise elements of

the project. The pre-export facility as well as the feed required for the sea transit are particular areas that would

benefit but are not dependent on subsidisation.

SWLE recognizes its responsibility in developing the emerging farming sector and will implement corporate social

investment (CSI) programs to advance farmers. These programs will be focused on increasing the health, fertility,

productivity and size of their herds. The programs will be conducted in the local languages to facilitate ease of un-

derstanding. This will enhance market information dissemination, which is currently lacking in the emerging sec-

tor.

The NAMC and AFASA will assist in these functions taking on a role that promotes a profitable, vibrant, quality-

driven SA meat industry in local and international markets.

The model of purchasing from commercial farmers is simply explained. SWLE will work closely with procure-

ment agents to purchase commercial cattle. Procurement agents such as Grainvest Livestock have been identified.

Grainvest Livestock form a subsidiary of the Russell Stone Group. The need for a procurement agent is based on

the fact that commercial farmers tend not to accept a site LC as a form of payment, especially from a new player

in the market. They prefer to provide terms on condition that a cash sum is paid. SWLE thus requires a procure-

ment agent that has the capacity to raise working capital, on the issued site LC, to pay commercial farmers. The

existing relationships and trust that the procurement agents have built up with farmers within the industry during

their careers is equally indispensable to SWLE.

SWLE has divided up the major feedlots in South Africa amongst procurement agents that we have identified.

The procurement agents will carry out their role as SWLE representatives and not as independent traders. This

defined allegiance to SWLE will prevent agency problems from arising, where agents trade with their personal ob-

jectives in mind, to the detriment of SWLE. Grainvest Livestock backed by the Russell Stone Group can fulfill

this role. The procurement liason officer has been identified as Petrus van Heerden. He has extensive experience


Operational Plan

in procuring cattle for both commercial and feedlot farmers in South Africa and Namibia (refer to appendix7.10). Malcolm Moodie and Peter Blore are similar procurement agents that have been engaged by SWLE. (refer to

appendix 7.11 and appendix 7.14)

In Botswana, the procurement model is simple. The Botswana Meat Corporation (BMC) has been setup by the

government to market Botswanan red meat. Thus the BMC alone is the sole exporter of live and slaughtered beef

and beef products from Botswana. SWLE has developed a relationship with the BMC that will allow the BMC to

act as our procurement agent in Botswana. Thus the BMC will become our supplier as it has the capacity to handle

the LC issued by SWLE. Cattle will then be trucked from Botswana to the pre-export facility in SA to await sea

transit to Indonesia.11 A second scenario available to SWLE would be to raise working capital from the discount-

ing banks and purchase cattle directly from the producers.

Namibia and Sudan have the same mechanisms of procurement. SWLE has identified and engaged a procurement

agent in both countries to become our cattle supplier. AGRA will form SWLE’s partner in Namibia while a gov-

ernment Co-op is being formed in Sudan similar to the NAMC of South Africa. These procurement agents will

assist SWLE as the NAMC in SA and the BMC in Botswana.12

The option to purchase cattle directly from the producer is also available to SWLE in Namibia and Sudan.

Cattle will be purchased by SWLE, free on board (FOB), at the port of loading in Namibia and Sudan. In both

these scenarios the price per kg will be negotiated with the procurement agent prior to purchase. SWLE will have

dedicated staff in these countries to monitor the cattle prices and competitive nature of the market, to prevent the

procurement agents from forming a monopoly.

6.3. Land transportGuiding principleLand transport is planned and is undertaken on a competently operated and suitable vehicle, with the livestock

being handled in a manner that prevents injury and minimises stress throughout the journey.

Required outcomes:a. Only livestock fit to travel are presented for loading.

b. Livestock are loaded in a manner that prevents injury and minimises stress.

c. Transport of livestock is undertaken in a manner that meets the requirements of the state or province relat-

ing to the transport of livestock, and importing country requirements.

d. Livestock are unloaded in a manner that prevents injury and minimises stress.


Operational Plan

Procedural standards:a. The health and welfare requirements of livestock are addressed throughout the whole of the land transport

phase in the export chain. Livestock presented for land transport must be fit to travel and accompanied by

documentation that allows the livestock to be traced to their property of source. Traceability systems are

described in appendix 5.2.

b. The land transport phase begins when the first animal is mustered and ends when the last animal is unload-

ed at the end of the journey. It includes:

pre-loading mustering and yarding.

any stationary resting or holding periods.

transport of livestock from the property of source to registered premises.

subsequent transport from registered premises to a point of embarkation.

c. Livestock will not be permitted to begin a new journey until they have had sufficient rest and recuperation

time, with the provision of adequate and suitable feed and water.

d. Transport operators are responsible for ensuring that vehicles are of appropriate design for the cattle being

transported, and are appropriately maintained. Operators must plan the journey to ensure that it complies

with these standards including any relevant requirements for animal health and welfare and road transport

under state or provincial legislation and model codes of practice, such as requirements relating to the length

of journey, stocking density, rest periods and access to suitable feed and water. Details of the journey, any

incidents during the journey and any animal care provided that could affect the livestock’s health and welfare

need to be accurately documented by the vehicle driver. This information will be uploaded to the GMP Ba-

sics platform.

e. Livestock handlers have a responsibility for the humane handling and care of livestock, especially during

loading and unloading.

f. The vehicle driver, in his capacity as a representative of the land transport operator, accepts responsibility

for the livestock at the point of loading and transfers this responsibility to a suitable person at the final desti-

nation. The driver must provide details of any aspect of the journey that might affect the future health and

welfare of the livestock.

g. The NAMC must be able to demonstrate that the transport of the livestock complies with these standards,

importing country requirements, and any relevant risk mitigation measures documented or referred to in the

in-land consignment risk management plan.

h. The land transport will be undertaken in accordance with a travel plan drawn up by the transport operator.

Each plan will address the following:

Class, condition and number of cattle.

Transport vehicles.

Loading densities.

Duration of the journey, including rest periods for driver and livestock.


Operational Plan

The method of loading and unloading of the livestock.

Inspection of livestock before loading.

The feed and water, and curfew time.

The expected weather conditions before and during transport.

The route and the types of roads traversed.

Completion of vendor declarations or waybill regarding the property of source and the time of depar-

ture.

Contingency plans for managing transport breakdown, accidents, escapes, deaths, downers and inju-

ries.

i. The following feed and water curfews must be observed for livestock before their loading for land transport

from the property of source:

Livestock on green feed must be held off green feed (but may be given access to dry feed) for at least

12 hours.

Livestock may be held off water (but may be given access to dry feed) for up to 12 hours.

j. When livestock are loaded for transport by land:

Different classes of cattle must not be mixed.

Young animals must be separated from older animals.

Animals of a dissimilar size must be separated.

Cattle lacking horns may be mixed with cattle with horns up to 12cm in length and tipped (blunt).

k. The documentation relating to each consignment will be kept for at least 2 years after the date of export.

l. At loading for land transport, the transport operator will assume responsibility for the livestock.

m. Livestock will be checked to ensure that they are evenly distributed and remain fit to travel:

Immediately before departure.

Within 30–60 minutes of commencement of the journey.

At least every 2–3 hours as road conditions warrant.

Immediately before departure after any stop.

n. At unloading, livestock become the responsibility of the person designated with responsibility for the live-

stock at the registered premises. That person must be notified of any aspect of the journey that might affect

the future welfare of the livestock.

o. The transport operator for land transport will be required to provide a proforma invoice valid for a period

of 90 days. The proforma invoice will provide a guarantee on service charges but will allow for a change in

the fuel price.

p. The transport operator will be required to show a buffer supply of 10% extra vehicles in the case of contin-

gency.

q. Payment terms will be negotiated between the transport operator and SWLE. Options such as setting the

land transport charge as an assignment proceed is available to SWLE.

r. The transport operator pricing to include all cross border and transit permits/clearing.


Operational Plan

s. If needed water and feed will be supplied by the transport operator, at the driver's discretion.

Refer to appendices 6.1 to 6.3.

PricingGrainvest Livestock has provided an initial quote of R35.00/km for 100 animals. Please refer to appendix 8.1 for

details.

6.4. Pre-Export FacilityGuiding principleLivestock are assembled at registered premises, where the husbandry and management practices ensure that the

livestock are adequately prepared for the export sea voyage.

Required outcomes:a. Facilities at registered premises are appropriate for the type and species of livestock to be held.

b. The health and welfare needs of the livestock are appropriately catered for in a secure environment.

c. Livestock leaving the premises are fit for the export voyage and meet Indonesian requirements.

d. Livestock rejected for export are managed humanely.

Overviewa. The assembly of livestock for export commences with the unloading of the first animal into the pre-export

premises, and ends with the departure of the last animal from the pre-export premises, whether or not

passed as fit for export. Livestock will be held in secure premises for a sufficient period of time to enable

recovery from land transportation and to meet Indonesia’s requirements. Preparation of livestock will com-

ply with this standard. Livestock will also be inspected and deemed fit to travel before leaving the premises.

b. The premises will be used for holding and assembling livestock for export, and will be registered in accord-

ance with the legislation. The pre-export premises operator is responsible for the design, maintenance, secu-

rity and operation of the premises, including the provision of appropriate shelter, feed and water supply sys-

tems, animal husbandry and care by competent animal handlers.

c. The pre-export premises operator will be able to demonstrate to the DAFF that the management of the live-

stock at the registered premises accords with the specifications set out in the risk management plan for the

consignment and the Indonesian requirements for the registered premises.

d. These standards are relevant to each stage of the livestock export chain and should be reflected in relevant

quality assurance programs. Livestock sourced for export will meet any requirement under a law of a prov-

ince. Provincial DAFF is responsible for ensuring that these jurisdictional requirements are met under re-

spective provincial and national legislation. DAFF will be satisfied that Indonesia’s requirements and the

standards have been met before issuing a health certificate and export permit.


Operational Plan

Linkages to other parts of the export chaina. Only fit livestock accompanied by appropriate documentation can be accepted into the registered premises.

b. Only livestock fit to travel, which meet Indonesia’s requirements, can be loaded for transport to the port of

embarkation. Land transport arrangements to the port of embarkation will be consistent with the require-

ments specified under Land Transport Standards.

DefinitionsIn this Standard:

a. Clear day, in respect of the length of time that livestock will remain in registered premises prior to departure,

does not include the days on which the livestock arrived at and departed from the premises.

b. CRMP means a consignment risk management plan.

c. NOI means a notice of intention to export.

d. Registered premises are premises intended to be used for holding and assembling of livestock for export or

the pre-export isolation of livestock for export.

Management of livestock in registered premisesa. The location of the registered premises, used for inspection for ‘leave for loading’, will be no more than 1

hour journey time from the port of embarkation.

b. The pre-export premises operator will employ sufficient appropriately trained staff for the effective day-to-

day operation of the premises and management of the livestock.

c. Livestock handling facilities and sheds at registered premises will comply with the following:

Sheds will be constructed with sufficient drainage and ventilation to ensure that the shed is free drain-

ing.

Sheds with slatted or mesh floors will be designed and maintained to prevent entrapment of feet.

Livestock handling facilities will be constructed to handle the number of livestock with a minimum of

stress and injury.

Floors of yards, sheds, pens and loading ramps will have non-slip surfaces.

d. During the period of pre-export isolation, animals forming the consignment will at all times be physically

isolated from all other animals (whether for an alternative export market or domestic use) to prevent con-

tact.

e. To control drainage, surface water, groundwater and effluent run-off, the premises will be located or con-

structed in such a manner that:

Surface water and livestock effluent are directed away from laneways, livestock handling areas, live-

stock confinement areas and feed storage areas.

The livestock confinement area of the registered premises is free draining and remains firm under

foot.

The surfaces around feeders and water troughs are evenly graded and compacted to form a hard, du-

rable surface that readily sheds surface water.


Operational Plan

f. The registered premises will be either constructed or located in such a manner as to provide animals with

protection from extreme climatic conditions by means of:

Shade

Windbreaks

Shelter

Other means approved by the registration authority.

g. Fencing at registered premises will:

Be appropriate to hold livestock and to prevent the entry of livestock.

Be maintained in a good state of repair.

Be inspected before the entry of each consignment and twice a week while livestock are in the regis-

tered premises.

Be consistent with Indonesia’s requirements

h. To ensure adequate supply of feed and water:

Where feeders, self-feeders and water troughs are used, there will be of a design that allows for com-

plete cleaning of all surfaces, prevents spoilage of feed during inclement weather, and minimises faecal

contamination and injuries.

All livestock feed for use at the registered premises will be stored in a manner that maintains the integ-

rity and nutritional value of the feed, and protects it from weather, pests and external contaminants

(including chemical spray drift) and from direct access by animals.

The quantity of feed available should meet at least minimum feed requirements, which is 2.5% of the

animal’s bodyweight, of a quality feed able to meet daily maintenance requirements.

All livestock in the registered premises will have access to drinking water at all times (unless under cur-

few).

Water troughs will be:

i. Positioned apart from hay and feed sources to prevent fouling.

ii. Kept clean.

iii. The water quality will be suitable for the livestock and there will be sufficient backup storage or

a contingency plan to ensure continuity of supply at peak demand for 2 days.

i. The minimum length of time that livestock will remain in premises prior to departure is 2 clear days.

j. The pre-export premises operator will have arrangements in place at the premises to prevent unauthorised

entry and access when livestock are being prepared for export. Access to the premises will be controlled at

all times, with:

All entry points to premises being clearly signed.

Only those persons necessary for the day-to-day operation of the premises and national and provin-

cial government officials having direct access to the area of the premises.

All non-employees reporting to reception for appropriate biosecurity checks relevant to the require-

ments of the facility.


Operational Plan

k. Stocking density at registered premises will provide at least the following minimum space per head (cattle

with horns will be provided with additional space):

For cattle held for 30 days or more, a minimum of 9m2 based on an individual live weight of 500 kg

(this allowance can be varied by 0.09m2 for each 5kg change in individual live weight).

For cattle held for less than 30 days, a minimum of 4m2 based on an individual live weight of 500 kg

(this allowance can be varied by 0.04m2 for each 5 kg change in individual live weight).

l. When receiving and identifying livestock, the pre-export premises operator will obtain a copy of the vendor

declarations regarding the property of source and health and welfare status of the livestock before accepting

the livestock for the purpose of preparation for export.

m. Unloading and inspection:

Livestock will be unloaded as soon as possible after arrival at the registered premises. Facilities will

enable safe and efficient unloading of livestock.

Livestock will be individually inspected at unloading to determine whether they are suitable for prepa-

ration for export.

Livestock for export will be held and assembled at the registered premises in accordance with the rele-

vant approved NOI and CRMP.

n. All livestock accepted into the registered premises will be offered water and feed as soon as possible and no

more than 12 hours after arrival.

o. Livestock will be penned in accordance with the following criteria:

Different classes of cattle must not be mixed.

Young animals must be separated from older animals.

Animals of a dissimilar size must be separated.

Cattle lacking horns may be mixed with cattle with horns up to 12cm in length and tipped (blunt).

p. Daily monitoring of health, welfare and mortality will include the following:

All livestock will be inspected daily by a competent stock person.

All sick or injured livestock will be given immediate treatment, and veterinary advice will be sought if

the cause of a sickness or injury is not obvious, or if action taken to prevent or treat the problem

is ineffective.

Investigation by a registered veterinarian will be conducted if mortalities in any one paddock or shed

exceed 0.1% or 3 deaths, whichever is the greater, on any one day. Dead livestock will be collected

and disposed of on a daily basis. Animals will not be able to access the area for disposal of carcases.

Records of each consignment will be kept for at least 2 years after the date of export.

q. Any livestock identified at unloading as being distressed, injured or otherwise unsuitable for export will be

marked by a permanent method and isolated from the rest of the consignment. A record will be kept that

details identity, the method of treatment or euthanasia and disposal of all rejected animals. Criteria for rejec-

tion are outlined in appendix 5.3.


Operational Plan

Cattle found with any of the rejection signs must be rejected from the proposed export consignment. Any other

condition that could be defined as an infectious or contagious disease, or would mean that the animal’s health or

welfare would decline or that the animal would suffer significant distress during transport, also requires the ani-

mal’s rejection from export.

PricingPricing will be determined according to Indonesian requirements. Please see appendix 8.9 for details of veterinary

charges. Feed charges of R16 per head per day will apply.

6.5. ShippingVessel preparation includes the selection and preparation of a suitable shipping line to transport the livestock to

the port of discharge. At the outset of the contract when the pro-forma invoice is issued by SWLE to Indonesia,

the livestock carrier will be booked and notified to travel to the port of loading when a readiness document is

signed by SWLE two weeks prior to shipment. This will be subject to the payment of a 30% upfront deposit of

the total freight charge. The upfront deposit will be secured by SWLE by means of a performance bond that will

be issued by a South African Bank to the freight logistics manager. SWLE has identified Spedag Switzerland to

possibly assume the role of the logistics freight manager. The freight manager will either raise working capital or

issue a bank guarantee on the performance bond to settle the upfront deposit, which is to be paid to the shipping

line. Gary Jeffries is a potential candidate for the position of freight logistics manager to SWLE from Spedag (refer

to appendix 7.8). The vessels nominated by SWLE originate from the Jordanian livestock shipping fleet owned

by Emirates Future. Emirates Future has one of the most sophisticated and the largest livestock-vessel fleet in the

world (refer to appendix 7.7).

A shipping vessel that originates from an area as close to Indonesia as possible will be selected so as to minimize

the freight charge. Once cattle have been procured and have undergone the necessary quarantining at the pre-

export facility, the shipping vessel will be ready to dock at the port of loading. The vessel will then allow SWLE

two days of lay time to load the cargo onto the ship. Loading of the vessel commences with the arrival of the live-

stock at the port of loading. Loading terminates when the last animal has been loaded onto the vessel and an ex-

port permit and health certificate are issued by animal health officials. The loading time also includes the inspec-

tion of the livestock required to determine whether they are fit for travel. Time taken in excess of the loading days

will be subject to demurrage charges at a rate of USD27,000 per day (refer to appendix 8.2). Once the cattle are

loaded onto the vessel, it will embark on the sea voyage to Indonesia.

Each vessel comes with a specialized team of stockmen and veterinary officials to monitor the animals thus ensur-

ing the safe transit of the cattle. Each animal is afforded sufficient space, feed and water to minimize stress and

complications. On-board management covers the period from the time the first animal is loaded onto the vessel

until the time the last animal is unloaded at the port of discharge.


Operational Plan

The shipping line loads on feed for the transit journey at the port of loading which is supplied by SWLE. Fresh

water is produced by the desalination plant onboard the ship.

SWLE will ensure that the vessels used will exceed international standards for animal welfare.

Once the vessel docks in West Sumatra the cattle are offloaded at the port of Teluk Bayur and this concludes

SWLE’s contract. Disembarkation commences after the arrival of the vessel at the port of discharge (and ac-

ceptance of the consignment, or part thereof, by the competent authority of Indonesia). It commences with the

unloading of the first animal and ends when the last animal is unloaded from the vessel.

After discharge, the health and welfare of the livestock is the responsibility of the importer, KSN.

6.6. InsuranceEach insurance contract will underwrite a shipment of five thousand cattle. The term of the contract will be for

approximately three months. SWLE will insure all livestock against death, price volatility, loss of stock as well as

consequential loss due to delays. The cattle will be insured to the value of 110% of the CIF Indonesian invoice

price.

Marsh Insurers have been identified by SWLE to potentially provide the policy cover. Lester Botha will be ap-

pointed by Marsh to head up the project (refer to appendix 7.9).

Price volatility of cattle will be mitigated by the inclusion of a revised livestock risk protection amendment which

will allow any price rise above a certain maximum level to be covered by the policy. Loss of stock includes any

event that prevents the livestock from being exported on time, as set out by the timeline of the project. It includes

death (not specific to a particular event), theft, run-aways, poisoning, acts of God, injury (caused by trampling) and

morbidity that results in cattle being unfit for export.

Consequential loss due to delays includes any cost that SWLE accrues, such as demurrage, due to an event that

delayed livestock from being ready for shipment. Such events could include an outbreak of disease within the pre-

export quarantine facility that resulted in all the cattle being kept for a longer period of time.

Livestock will be insured through every phase of the process flow. This can be divided into three legs.

The first leg begins at the farm gate and ends when the cattle are offloaded from the trucks at the pre-export facili-

ty. During the first leg, the policy covers death, physical injury or slaughter for humane reasons of the insured live-

stock directly caused by:

a. Fire, explosion, flood, act of God.

b. Collision of the conveying vehicle with any external object other than the road, gutter and similar surround-

ing surfaces.


Operational Plan

c. Overturning or jackknifing.

d. Impact of livestock with something that is not part of the conveying vehicle (e.g. falling from the truck).

The second leg of the policy begins at the pre-export facility and terminates when the cattle are loaded onto the

shipping line. All risks associated with stock loss are covered at the pre-export facility. Another crucial risk that is

to be covered at this phase is the risk associated with the performance bond, where the ship will dock at the port

of loading but will not find any livestock to load onboard. Thus the upfront deposit will be lost and thus needs to

be covered in the policy.

The third and final leg of the policy will cover the sea transit from the time that the cattle are loaded onto the ves-

sel up until they are discharged at the port of Teluk Bayur in West Sumatra, Indonesia. This leg now becomes rele-

vant to Namibia and Sudan.

In addition to the events already mentioned, this leg of the policy will also cover death or injury to livestock

caused by washing overboard, jettison, collision, grounding, sinking, capsizing of the vessel or general average sac-

rifice. Since the ship will be sailing international waters cover will be taken against war or war like activities. There-

fore any sea invasion, act of foreign enemy, hostilities, civil war, rebellion, resolution, insurrection or civil strife

will be covered.

In the event that the insured transit is interrupted or terminated due to the insolvency or financial default of the

carrier, the policy will pay the extra cost to freight the livestock to their intended destination or to return them to

the place from where they were dispatched. This will only be enforced if the financial institution that has attached

the vessel refuses to conclude the delivery of the cargo.

An important risk that might take effect during this stage is the risk associated with demurrage. This can be caused

by an event that will result in the ship being delayed at the port of loading, although being fully loaded with live-

stock. The risk of demurrage cost is thus insured against.

It is important to note that at any of the stages were an accident to occur, the insurance policy would offer the ad-

ditional benefit (if SWLE is required to pay these costs) of clean up and disposal costs as well as any additional

freight or salvage charges that SWLE is required to pay to remove livestock from the accident site. This will also

include the cost of transport to forward the livestock to their intended destination or to return the livestock to the

place from which they were dispatched.

During the entire process flow, if any event had occurred that placed the livestock at threat of falling sick or dying

then the reasonable cost paid by SWLE to avoid or minimize any further death or disease will be repaid by the

insurer.

In the case of injury to livestock where recovery will bring the animal back to perfect condition, the policy will pay

the cost of restoring the livestock.


Operational Plan

6.7. Process Flow

1. SecuredCredit

PT Kendimas SatriaNusantara (KSN)

2. Issue LCBank Negara Indonesia

6. Pre-export FacilityGov. Dept., Transnet & The

NAMC

7. FreightSpedag Group & Emir-

ates Future


Operational Plan

3. Confirm LCSA Commercial Banks &

Land Bank

4. ProcurementThe NAMC, AFASA & Procure-

ment Agents

5. Land TransportNAMC & AFASA Vendors

&Grainvest


Risk Analysis

“If you have the courage and de-termination and know when to takea radical tactical shift, then virtuallynothing is impossible on this conti-nent."Lewis Pugh, Ernst & Young Strategic Growth Forum


Risk Analysis

7.1. FinanceSWLE has ensured that all risks associated with the Letter of Credit, be it deferred or site, are considered.

a. Expiration of the LCEvery contract (i.e. shipment of 5000 cattle) has a term of 3 months. In the event of delays within the supply

nations, an expiration term of 6 months has been attached to the deferred LC.

b. Default of the LCThe LC, be it deferred or site, will default if the documents that support it do not match at any stage. SWLE

will set management protocol in place to ensure that all LC’s are mirrored in accordance with the terms and

conditions of the instrument.

7.2. Procurement of cattlea. Climatic Shocks:

Climatic change will have far reaching consequences on livestock, mainly arising from its impact on grass-

land and rangeland productivity. Heat distress suffered by cattle will reduce the rate of the animal’s feed in-

take and result in poor growth performance. The direct effect of climatic change will include higher temper-

atures and changing rainfall patterns, which could translate into the increased spread of existing vector

borne diseases and macro-parasites. This is accompanied by the emergence and circulation of new diseases.

Other indirect effects will be linked to the expected shortage of feed arising from the increasingly competi-

tive demands for food, feed and fuel production.

Drought tends to follow harsh climatic shocks. During drought animal productivity falls. Majority of emerg-

ing livestock systems rely heavily on extensive grazing as opposed to feedlot operations. Hence animal

productivity is more closely tied to climatic and ecological shocks than in the industrial feedlot operations.

Liquidity needs to be accessed to purchase grain, fuelling the sharper increase in livestock supply. Thus the

value of livestock declines. Farmers tend to build herds during wet years and deplete their herds during

drought.

In order to mitigate this risk, measures need to be set into place. Farmers especially from the emerging sec-

tor are required to consider production adjustments. Possible methods include pasture management, chang-

ing land use and irrigation as well.

Breeding strategies play an integral role as many local breeds are well adapted to harsh environmental condi-

tions. In South Africa, the example is that of the Nguni cow. Theses hardy animals outperform exotic and

European breeds under severe conditions. They maintain growth and fertility as well. The Department of

Agriculture, Forestry and Fisheries (DAFF) has been conducting a campaign to reintroduce Nguni cattle

7. Risk Analysis


Risk Analysis

into the South African beef market. Genetics can also be modified by engaging in cross-breeding with Ngu-

ni cattle.

In some instances institutional and policy changes can be enforced to develop some control. Introducing

subsidies, insurance systems or establishing livestock early warning systems could benefit climatic adaptation

efforts.

Efficient and affordable adaptation practices need to be developed for the rural poor who are unable to af-

ford expensive technologies. These could include the provision of shade and water to reduce heat stress

from increased temperature. Given current high energy prices, providing natural (low cost) shade instead of

high cost air conditioning is more suitable for rural poor producers. Changes in livestock/herd composition

prove advantageous (selection of large animals rather than small). It is imperative to improve management

of water resources through the introduction of simple techniques for localized irrigation (e.g. drip and sprin-

kler irrigation), accompanied by infrastructure to harvest and store rainwater, such as tanks connected to the

roofs of houses and small surface and underground dams.

Towards the long term, unmitigated climate change will exceed the capacity of natural and human systems

to adapt. Given the magnitude of the challenge to reduce GHG concentrations in the atmosphere, it is im-

perative to receive the contribution of all sectors with significant mitigation potential.

Agriculture is recognized as a sector with such potential and farmers should be part of the solution. There-

fore, it is important to identify mitigation measures that are easy to implement and cost effective in order to

strengthen the capacity of local actors to adapt to climate change.

The livestock production system contributes to global climate change directly through the production of

GHG emissions. This is augmented by the destruction of biodiversity and the degradation caused by land,

water and air pollution. There are three main sources of GHG emissions in the livestock production system:

the enteric fermentation of animals, manure (waste products) and production of feed and forage. Indirect

sources of GHGs from livestock systems are mainly attributable to changes in land use and deforestation to

create pasture land.

Mitigation of GHG emissions in the livestock sector can be achieved through various activities, including:

Animal feeding management.

Manure management (collection, storage, spreading).

Management of feed crop production.

An interaction of the above mentioned strategies will enable climatic shocks to be adapted to or mitigated,

promoting sustainable agriculture and livestock related practices.

SWLE will include strategies to develop emerging farmers, in these regards, within its CSI program.


Risk Analysis

b. Overgrazing of pasturesOvergrazing of grassland has a negative impact on the development of a farmers herd. It reduces productivi-

ty through lowering of fertility rates and affecting herd health. It reduces the usefulness of the land and is a

cause of desertification and erosion.

Sustainable management of grassland can be achieved by grazing cattle at stocking rates that do not exceed

the grassland carrying capacity. Grazing intensity should be properly regulated and land should be rotated

frequently. A rotational grazing system combined with seasonal use of land allows the grass adequate time to

grow and become lush. This provides cattle with the best form of feed. It is essential to close off degraded

grasslands from livestock grazing for given periods of recovery time.

Effective livestock management systems that adopt better feeding practices and use specific agents and die-

tary additives have a positive effect on productivity and meat quality.

SWLE will include these strategies within the framework of its developmental programs to be run in the

emerging sector.

c. MorbidityDiseases that affect cattle may be caused by: i) Infections from bacteria, viruses or fungi. ii) Parasite infesta-

tions. iii) Nutritional deficiencies, excesses or imbalances. iv) Metabolic disorders.

Cattle affected by diseases may not always show obvious clinical signs of the disease. However, the disease

may still be having a negative impact on productivity by:

Reducing growth rates.

Reducing reproductive rates.

Causing condemnation of carcasses.

Damaging hides.

Diseases also have a negative impact on the welfare of cattle, especially when animals are suffering clinically

from the disease. Diseased animals are usually in a weakened state so they are less able to feed, drink and

seek shelter.

In many instances cattle diseases can be avoided through proper management. SWLE will work with farm-

ers from the emerging sector to develop this awareness. A common problem with emerging cattle of the

SADC region is the contraction of measles. There is no way to detect the disease prior to slaughtering the

animal. The effects of the disease will be found on the carcass leading to the affected meat being con-

demned. Measles is contracted by the presence of human defecation close to the cattle’s source of feed or

water. Once infected, there is currently no vaccination that can be administered. The simple preventative

measure would be to educate emerging farmers not to defecate in proximity to the cattle grazing lands.


Risk Analysis

Another common disease associated with emerging cattle is parafilaria. Parafilaria is caused by threadlike

roundworms that have entered the internal system of cattle. The only external signs of infection in cattle are

bleeding spots that may ooze for some hours before clotting and drying in the matted hair of the coat.

Bleeding spots are induced by the female worm, which causes the formation of a small nodule, perforates

the skin, and deposits eggs in the blood dripping from the central wound. The tiny eggs contain the first lar-

val stage of the parasite. In South Africa, bleeding spots are markedly seasonal, being most common in

spring and early summer. Most bleeding spots occur along the dorsum of the animal, particularly in the fore-

quarters. Face flies ingest the eggs when feeding at the bleeding spots. Transmission of the disease occurs

when the flies feed on wounds, bleeding spots or ocular secretions of cattle. The end result is the formation

of subcutaneous lesions on the carcass of the infected animal. Infected carcasses are trimmed, often serious-

ly disfigured and consequently downgraded. In severe cases, the carcass may be condemned.

The disease can be clinically diagnosed by means of a blood test. Infected animals can be medicated. Ani-

mals should be treated for at least 70–90 days before slaughter to provide sufficient time for lesions to re-

solve. The treatment-to-slaughter interval should not be more than 120 days, because unaffected larval

forms of the parasite may induce fresh lesions as they mature. Vaccines are available to prevent the contrac-

tion of this disease.

It is widely agreed that prevention rather than treatment is the most economical way of keeping disease loss-

es low. Treatment of disease after onset is not always effective and is often costly. Losses tend to occur even

before diagnosis and treatment can be instituted.

Many herd health programs fail in their objective as too much emphasis is put on vaccinations and other

treatments. A comprehensive health program recognizes vaccination as an important tool, but not as the

ultimate preventative measure. Effective programs integrate medicine and management to prevent disease.

Three major factors that will be considered by SWLE in attempting to keep losses to a minimum include:

Prevent exposure to diseases:

Procurement procedures will be employed to decrease the likelihood of disease introduction into the

existing herd. SWLE’s project gives rise to an increase in confinement, which increases exposure to

disease-causing-organisms that exist in all groups of animals. This will require more intensive preven-

tative programs.

Keep disease resistance high:

Nutrition and management will be designed to keep resistance high at all times. Preventing and mini-

mizing animal stress is a necessity for maintaining good resistance. In addition to these measures, re-

sistance to specific diseases will be accomplished by vaccination.

If disease is detected, SWLE will prevent its spread by segregating affected animals immediately.

Thus a proactive approach will be taken in managing the health of the herd by identifying the common cat-

tle diseases that occur locally.


Risk Analysis

It is advantageous to prevent disease instead of treating it. A herd disease management plan will be devel-

oped by SWLE to manage the health of animals already procured and to prevent introduced stock bringing

new diseases onto the pre-export quarantine facility. An appropriate combination of management, preventa-

tive treatments, vaccination and curative treatments will be used to manage the health of the herd. Cattle will

be fed a nutritious diet to develop an effective immune response to diseases.

Monitoring the health and welfare of the livestock will be crucial in identifying, treating or euthanizing any

animals suffering from disease.

All carcasses of any animals that die suddenly, unexpectedly or for unknown reasons will be quarantined for

further investigation after which they will be destroyed.

All cattle that are diagnosed with a disease will be afforded the necessary treatment to restore them to

health. This treatment cost will be included in the cover offered by the insurance policy.

The pre-export facility will be equipped with qualified veterinary staff headed up by Dr. Ian McDonald who

will ensure the cattle are maintained at an optimum level of health (refer to appendix 7.13).

Cattle that are terminally ill, without the possibility of being restored to health will be covered within the in-

surance policy. The policy will also cover the event that results in all cattle contracting disease preventing

their export to Indonesia and all associated consequential risks that follow this event.

d. Livestock MarketingThere are a variety of infrastructural shortcomings in the emerging sector that impedes the physical flow of

animals, creating barriers, to trade.

The lack of market information is a fundamental problem. Broadcasting and dissemination of accurate mar-

ket information is not available to both buyers and sellers in the emerging sector. Efficient arbitrage depends

essentially on trades having access to reliable information on market conditions, especially prices. Emerging

farmers will be educated on understanding price formation based on market prices in South Africa and

abroad. Inefficiencies exist as there is limited exposure to auctions or other forums of public price for-

mation. There tends to be a lack of marketing agents and value adding activities within each area. Market

information reduces market risk.

The absence of infrastructure such as livestock pens, loading ramps and road networks within emerging

communities results in lower marketability. Holding facilities are lacking in most emerging settings and thus

feedlotting and the finishing off of cattle does not occur. Vaccinations, inoculations, dips and licks are rarely

available. This means that the overall appearance and condition of emerging cattle tends to be poorer than

its commercial counterpart. The market tends to be skewed towards commercial farmers.


Risk Analysis

Emerging farmers face the following challenges in terms of their supply. Animals that are offered to the

market are of a mature age and are usually classified as C-grade, very lean or excessively fat due to poor graz-

ing and are sometimes neither castrated nor healthy as a result of poor management practices. These animals

fetch the lowest price per kg.

This is the reason for the implementation of the red meat marketing program by the National Agricultural

Marketing Council (NAMC). The program is aimed at finishing off emerging cattle to provide a healthy and

marketable animal. This program has been described in detail earlier. SWLE will support the marketability of

this program by providing a consistent source of demand for the finished cattle.

e. Damage to CattleWhen cattle are bruised and injured during handling or transport, they become unfit for export. The extent

of the damage will depend on the location and depth of the injury. If cattle carcasses are bruised, the effect

will be a reduced price when sold.

Thus it is key for SWLE to provide cattle with adequate space when in transit. Animals with horns will be

afforded even more space. Cattle that are continuously ridden will be separated from the herd as a precau-

tion. If injury however does occur, the cost to recovery of the animal will be included within the insurance

cover. If in the event the animal is terminally injured and unfit for export, the insurance policy will cover this

risk.

f. ConflictDuring conflict times, the massacre of both people and livestock occurs. Livestock are either killed or loot-

ed. For many nations (eg. Sudan), cattle are an integral component of life and a loss of livestock has a seri-

ous impact on the living conditions of these populations. Before the 1991 conflict in South Sudan, estimates

suggest that in the Bor/Kongor area there may have had as many as 1.5 million livestock. Following the

massacres and looting in 1991, livestock numbers decreased to 50,000 (less than 5 percent of the original

figures).

g. Legal ConsiderationsIn terms of the Animal Health and the Animal Identification acts, no one may dispose of an animal through

the formal markets without a registered brand mark on the animal. When purchasing the animal, SWLE will

obtain a valid identification certificate from the seller. A veterinary stock movement permit is also required

when moving livestock between areas. The permit will always accompany the animals.

Exclusion of any of this documentation will cause delay in the export of the cattle.


Risk Analysis

h. Traceability SystemsIn recent times it has become very important to trace the origin of an animal. This provides information on

how the beef was produced and processed. Information on feed, medication and history will be recorded on

each animal entered into the system. All this information will be accessed via the tag of the specific animal.

In the SADC region Namibia has already introduced traceability systems to meet EU compliance. When

used correctly, traceability can become a powerful marketing aid. It can be used to identify and guarantee

products such as grass-fed beef and feedlot beef. It can also be used to verify the health status of a herd.

SWLE will implement the traceability system in conjunction with the tagging identification system. Thus all

information will be uploaded to one database. The system and support will be provided by GMP Basic

headed up by Rachelle Cloete (refer to appendix 5.2).

i. Procurement ScreeningCattle will be screened according to their breed, age, weight and class by the specifications received from

Indonesia. General data that will be gathered on each animal includes information on breeding, calving,

weaning and health history.

The following are important factors that will be considered when selecting cattle:

Eyes: should be bright, clear and not runny (no discharge), crusty or bloodshot.

Nose: the muzzle should be moist and cool with frequent licking. The breathing should be regular and

not labored. Discharge, coughing, wheezing and irregular breathing are signs of poor health.

Coat: should be glossy, clean and unmated, free of vermin. Beware of skin with parasites, eruptions or

dull and dry hair.

Weight: average weight for breed. Beware of emaciated or thin cattle.

Attitude: should be curious, alert and contented. Beware of cattle that stand apart from the herd, seem

disinterested or that show signs of a bad temper. The whorl is a spiral of hair that is located on the

cattle’s forehead and is related to temperament. The lower the whorl the less flighty the animal.

Mobility: walking should be easy and free of limps. Beware of slow uneven gaits or hunched positions

when sitting. The animal should be able to rise from a seated position with ease.

There are certain technical considerations that will be taken into account as well when screening the

animal. These have been exclude for brevity.

SWLE will ensure that through these processes the best animals are selected when purchasing. SWLE will

potentially contract the expertise of Malcolm Moodie of Obaru to assist in this process (refer to appendix7.11). Malcolm has been an authority in the industry for the last forty years. This process will fortify our rela-

tionship with Indonesia as optimum cattle will be exported.


Risk Analysis

j. Price VolatilityThe volatility in the price of cattle is dependent on certain factors, which include:

The availability and the price of maize.

Climate (rain or drought).

Economy of the country.

Beef imports.

Seasonal variations.

When procuring cattle, a combination of any of the above factors could cause the price of cattle to increase

sharply. If a contract to provide a shipment of cattle has already been entered into, sharp increases can have

severe consequences on the profitability of the contract. Hedging the price volatility is thus crucial to

SWLE.

Price risk associated with buying feedlot cattle can be transferred to speculators using a feeder cattle forward

contract. These are however not available in any of the exporting nations and thus cannot be matched.

Not all price volatility is price uncertainty. Many prices move in somewhat repeatable seasonal patterns. In

South Africa for instance, cattle prices are normally high during October to December and lowest during the

months of January to March. Seasonal price patterns can be determined by calculating monthly seasonal in-

dex values. This is done by dividing monthly average prices by the annual average price and then converting

to a percentage. If this is done for five years and the average is taken for each month, an estimate of the his-

torical seasonal price pattern will be developed. This can be carried out for the various cattle weight catego-

ries. These monthly seasonal index values will then be used to make short term 1 – 6 month price forecasts

to provide an estimate of the future price.

So for instance if it were July and we wanted to predict the November price for a 350kg heifer, then we

would take the current July price and divide by the July index and then multiply by the November index.

Research has shown that for many agricultural commodities, the most accurate forecast for local cash prices

is to adjust the futures market price by the historical basis. Since South Africa does not currently have a fu-

tures contract for feedlot cattle, this will not be possible.

Often when discussing price risk management, forward contracts can be utilized. SWLE will tie producers

into contracts to provide a set quantity of cattle, at a future date, meeting certain specifications and at an

agreed upon price. A written contract will specify the remediation in the case of a drastic market move

which causes livestock to end up being considerably different than what was agreed to. The contracts will be

entered upon 1 – 4 months in advance of when cattle will be delivered.

SWLE recognizes that in dealing with the commercial sector, price determines all loyalties. Farmers have the

tendency to dishonor a forward contract if a better price is achieved. To manage this risk in South Africa,

SWLE has identified the services of procurement agents. These procurement agents have established pur-


Risk Analysis

chasing contracts with farmers in both the feedlot and production industries within South Africa. SWLE will

reap these benefits as farmers will not be willing to put their existing relationship with the procurement

agents at stake by dishonouring the SWLE forward contract.

Revised livestock risk protection insurance for cattle is the risk management tool that SWLE will use to

hedge price volatility. This insurance can be likened to purchasing a put option on a futures contract for cat-

tle (if one were to exist in any of the exporting nations) in that a benchmark price is established. If prices rise

above this benchmark level than an insurance indemnity is paid out to SWLE. If the market price is lower

than this level then SWLE will be out the insurance premium but will receive the benefit of a lower market

price.

Another product that can be utilized is defined as Adjusted Gross Revenue Insurance. This product does

not insure against one peril, such as price risk or death loss, but rather insures against revenue loss. That rev-

enue loss may be a result of a price incline or a stock loss.

In Botswana, Namibia and Sudan a single FOB price will be paid at the port of loading. Thus the only risk

mitigating tool available to SWLE once the contract is enforced and the price rises is the insurance cover

described above. SWLE will opt for revised livestock risk protection insurance.

Due to the nature of the project SWLE will continually be in the market. By selling livestock at multiple

times of the year and in multiple countries, some of the effects of seasonality may be reduced. This will also

mitigate the risk of buying in a bad market (i.e. procurement price high, Indonesian price low). This diversi-

fication which is obtained by purchasing cattle at various times and in various places reduces risk. Essential-

ly, SWLE is not putting all our eggs in one basket or perhaps it would be better said that we are not procur-

ing all our cattle in one market.

The South African beef market in 2014 has averaged at around R18 per kg of beef, live weight. These are

prices that are achievable for weaner cattle from commercial feedlot farmers. The prices at auctions tend to

be even higher. The project becomes viable from the South African market when prices reduce to R14-R15

per kg, live weight. The supply of B-grade cattle in the commercial market of South Africa is particularly low

as most feedlots are vertically integrated with abattoirs. It is not feasible for commercial farmers to hold cat-

tle post weaner as the added value does not substantiate the added cost. Demand in the market is for weaner

stock.

SWLE has considered this scenario where beef prices do not come off and has identified a possible tactic to

mitigate it. A weaner calf weighs approximately 180—200kg at the age of 10 months. At the price of R18

per kg, a weaner of weight 200kg will cost R3,600.

At this age, cattle are at their optimum condition to gain weight. This weight can be gained by background-

ing the animals. Backgrounding is the process where cattle are left out to graze. A period of 120 days back-

grounding will allow for a weight gain of approximately 120kg. The cost of maintenance for the period of

backgrounding is around R12 per animal per day. Thus at the end of the 120 day period the cattle will weigh


Risk Analysis

320kg, be 14 months old and cost R5,040. This equates to a price of R15.75 per kg. The export contract is

more sensitive to the weight of the animal than the age.

Another scenario involves purchasing weaner cattle in South Africa and feedlotting them in Indonesia. Thus

all possibilities will be taken account of to manage higher market prices.

k. Foreign exchange rate volatilityThe implications of exchange rate swings could negatively affect profitability. In this regard, SWLE will miti-

gate the volatility by entering into a foreign exchange options contract. This will ensure that any positive

movement in the exchange rate will be benefitted from, while SWLE will be insulated from the downside

effects of any adverse movements. From a procedural standpoint the markets will be followed closely to an-

ticipate any foreign exchange fluctuations.

7.3. Land Transporta. Cost

The cost faces a risk due to changes in the petrol price, toll roads, service charges, water costs, driver wages

and feed costs. The 90 day guarantee provided with the pro-forma invoice hedges against increases to ser-

vice charges, water costs, driver wages and feed cost increases. Increases to toll fees require public notifica-

tion and would not be realised in less than 90 days, therefore it is unlikely that the pro-forma invoice would

be affected by it.

b. Road infrastructureAreas designated for the aggregation of cattle and the pre-export preparation of cattle have road infrastruc-

ture requirements built into site selection. The requirements under site selection mitigates the risk of impass-

able roads.

c. Delays:Contingency plans are required by the various operators in the process flow. As such a delay in animals to

be presented for land transport would be ruled out by a confirmation that animals are awaiting loading. The

process would be managed by the land transporter who would plan their logistics according to confirma-

tions of livestock readiness. A delay due to land transport infrastructure is hedged against by the contigency

plan submitted by land transport operator and a detail of time lines for the services to be concluded in the

pro-forma invoice.


Risk Analysis

7.4. Pre Export Facilitya. Environmental damageThe effects of adverse rain, humidity, UV exposure, wind and fire can result in structural damage to infrastructure

and a deteriorating health or death of livestock. These risks are addressed through proper design which protects

animals and infrastructure from adverse conditions within a reasonable extent. Risks beyond what is deemed to be

reasonable are covered through insurance products.

b. Critical servicesWater, electricity and connectivity are critical to the operation of the pre-export facility. Electricity can be backed

up through the use of bio energy derived from waste material generated at the facility. Water will be sourced from

borehole supply which is a requirement of the site. The presence of connectivity on the site through cellular signal,

data connectivity and land line connections is also a requirement of the site. In the event of a critical service failure

that exceeds contingency plans, insurance products to cover the loss of business will be called upon.

c. Theft and loss of animalsContingency plans to prevent stock theft and loss are to be enforced. Contingency plans greatly reduce the chanc-

es of an adverse occurrence. In the case of an event, losses and theft of livestock are covered by insurance policies.

d. Input costsVeterinary costs are set annually by the provinces and therefore pose little to no inflationary risk. The costs of

electricity is regulated and protected from sudden inflationary risks. Should either of these risks eventualise to a

point that export is no longer profitable, there is no risk of SWLE as the realisation time of price increases allows

SWLE to stop exports before any losses are incurred. The risks of feed price volatility is similarly mitigated

through early pricing, effectively forward trading. Feed to be used at the pre-export facility and upon the vessel

will be quoted for up to 3 months, prior to delivery, in a pro-forma invoice valid for 3 months. Should prices ex-

ceed the break even pricing, SWLE is not required to export.

e. Animal healthThe risk of disease is decreased due to intensive observation by state veterinarians during the quarantine process.

Feeds are to be mixed on site. Should animals be observed to be losing weight or deteriorating in condition, rapid

detection and action can be taken by veterinarians and resident stockmen and dieticians.


Risk Analysis

7.5. Shippinga. Stress

The immunosuppressive stress of prolonged transport may not only increase a healthy animal’s susceptibility

to infection, but it may trigger the emergence of a variety of diarrheal and respiratory diseases. Shipping fe-

ver for example is often caused by latent pathogens that may become active when shipping cattle long dis-

tances. Thorough cleaning of carriers with disinfectants has been estimated to remove 95% of pathogens

and will be a requirement of SWLE to the shipping vessel.

At all times SWLE will ensure that cattle are handled carefully. During the first 24 hours onboard the ship,

human movement through the cattle pens will be kept to a minimum to help the cattle adjust and acclima-

tize to the new setting. Once this is achieved, cattle will begin to feed and drink as usual.

b. DiseaseThe following health risks are commonly associated with long haul sea transits. Trained staff will be aware

of these possible conditions and will be active in diagnosing stock.

Diarrhea: caused by dietary disturbances and infection with disease causing agents.

Infectious Diarrhea: a common cause is salmonella and coccidia and is associated with stress factors

on long voyages.

Bloat: most frequently seen on vessels feeding cattle with small pellets especially if stored in silos,

which increase the level of pellet dust. These fine particles when present in the rumen of the animal

cause bloat.

Wounds and injuries: the most common injuries would be to lower limbs usually sustained during

loading or through misadventure (misadventure covers a multitude of unfortunate accidents that can

happen to cattle onboard a ship) in the ship’s pen.

Pneumonia: this is one of the more common and serious conditions on long haul voyages. It is almost

always associated with some form of stress placed on the cattle, especially hot environmental condi-

tions and poor ventilation.

Downers: this group is often most difficult to diagnose and treat. Animals that become stressed dur-

ing loading may show signs of transit tetany. This condition will be most commonly seen in mature

cows. They will appear nervous, agitated, tremble violently, become aggressive and charge at humans.

They will often become so uncoordinated and distressed that they will fall over soon after their aggres-

sive behavior and be unable to rise. Treatment will lead to complete recovery.

Pink eye: most commonly seen in Herefords and Angus breeds on long haul voyages. Causes may

range from dust, areas with fast airflow to high water pressure cleaning of decks covered with saw-

dust.

SWLE will ensure that sick cattle onboard the ship will be isolated immediately by veterinary staff and stock-

men. Treatment will also be administered as soon as possible.


Risk Analysis

c. Weight LossThe weight loss of cattle during transit is called shrink. There are two types: one is exudative, which is loss

of urine and faeces. The second type is due to tissue loss. Tissue loss is the loss of fluid from the cells and

cattle require more time to regain from this type of shrink. The real factor that determines shrink is fat com-

position. The fatter the animal, the less shrink encountered. This is because fat contains less water than mus-

cle. Older cattle tend to have more fat than younger animals. Of course the general health of the cattle will

also have an effect.

To reduce shrinking the following practices will be implemented by SWLE onboard the ship:

Avoid loading of cattle during inclement weather.

Ensure that careful, non-abusive handling is practiced at the loading and unloading phases.

Ensure that the shipping vessel and all associated equipment are in good working order.

Dry feeds are more desirable than wet feeds for cattle prior to shipping.

Provide proper space allocation to each animal during sea transit.

d. DeathLoss due to death during sea transit is held to a minimum. Between 2 – 3% is not unheard of, but on most

occasions it is well under 0.25%. Sudden death will be one of the most difficult riddles to solve. Unless there

have been some minor signs prior to death, then a post mortem is the only means of determining the cause.

In many cases even the post mortem will not provide useful answers. As sudden death is more common

during long haul voyages during periods of high temperature and humidity, it is probably fair to presume

that heat stress is an important trigger for most cases.

To reduce heat stress SWLE will ensure that cattle be watered down. This is a sensitive process and does

not involve hosing the cattle off which could cause further complications. The right temperature of water

will be used (room temperature). If the water is too cold then the animal could die of shock.

e. Pre-shipping factorsThe following factors will be given due consideration as they could affect the success of the voyage:

Heavier animals will generally be less agile and more susceptible to stress, injury and illness during

loading and transport.

As a general rule, older animals are the poorest travelers of all types of cattle.

Cattle with horns can cause problems by injuring other stock or preventing them from excessing feed

and water troughs. Thus horned animals should be penned with other horned animals and granted

additional space.

Animals which are constantly ridden should be removed from the pen as riding activities can cause

serious injuries. Animals that constantly ride others frequently wear their hooves down and should be

isolated if possible or placed in a pen with high levels of bedding.


Risk Analysis

Animals feed will be kept consistent and not suddenly changed from lush feed to ship fodder.

A stockmen’s duty rests on promoting the health and welfare of the livestock on board.

f. Demurrage CostThis is the penalty incurred for exceeding the free time allowed for loading the shipping vessel at port. Any

event that might delay the vessel once loaded from setting sail will be the cause of demurrage risk.

In South Africa, animal welfare organizations such as the SPCA are mandated with the task of preventing all

live animal export. To achieve this goal they endeavor to delay the vessel at port once all the livestock are

loaded thus incurring demurrage costs on SWLE. This delay tactic is used to frustrate the exporter to the

extent that they give up. Welfare organizations cannot prevent shipment although the delays that they cause

come at a premium. In South Africa they have previously lost all cases against exporters, most recently the

Page Brothers Trust. To ensure no specific reason is afforded to the SPCA the ship will follow all health and

safety requirements for transporting livestock.

As a worst case scenario any demurrage cost that is caused by consequential risk will be covered by the in-

surance policy. Consequential risks include any insured event that results in the occurrence of a scenario that

leads to further loss.

g. Performance BondA performance bond is a guarantee that is provided to the shipping vessel, in order to make the voyage to

the port of loading. It basically underwrites an upfront deposit of 30% of the freight charge. SWLE will de-

posit this 30% with its bank as collateral for the issuance of the bond. If the vessel enters the port of loading

to find no available cargo to load, the performance bond will be called paying out the underlying value to the

shipping line. The liability will then be transferred to SWLE.

In terms of SWLE’s project, the loss would come into effect if no cattle were available to load onto the ship.

This could be due to the following scenarios:

The timing was misjudged and cattle are still being quarantined.

No cattle were procured or no procured cattle were delivered.

All the cattle died or became severely sick and thus could not be shipped.

SWLE will adopt the following procedure when booking the vessel. At the inception of the contract, three

months prior to the actual date of shipping, the ship will be booked. The upfront deposit will however not

be paid at that time. SWLE will ensure that the vessel is provided with a guarantee from its bank highlight-

ing that the funds for the deposit have been blocked and are unavailable for use by SWLE. Two weeks prior

to the date of shipping, SWLE will provide the vessel with a readiness confirmation, which will be accompa-

nied by the issuance of the performance bond. To further placate any doubts that the charter party might

have, SWLE will provide a complimentary trip to a representative of the vessel operator allowing them to

view the cattle that are ready for sea transit at the pre-export facility located at the port of loading.

SWLE will ensure that timelines are set out and adhered to, to prevent a mismatching of processes. Addi-


Risk Analysis

tional time will also be given as a buffer. The master pre-export facility will have at least 20,000 animals at

any given time. That equates to four shiploads. Thus on hand there will be sufficient animals to fill a ship.

Other identifiable risks at this stage include any events that occur, after the readiness confirmation is provid-

ed to the shipping line, that render the cattle unfit for sea transit. Such events could include the outbreak of

disease within the pre-export facility or the sudden death of all cattle. In the event of this worst case scenario

materializing, SWLE will ensure that the value of the performance bond is covered by the insurance policy.

SWLE can place a final layer of security on the performance bond. The Export Credit Insurance Corpora-

tion (ECIC) of South Africa have the capacity to put up 90% of the collateral required to issue the perfor-

mance bond. The remaining 10% will then be provided by SWLE. The ECIC is mandated to promote the

export of South African domiciled companies. This means that it can facilitate this arrangement for all the

countries that SWLE is exporting from. The ECIC is an extension of the South African Department of

Trade and Industry and is underwritten by the National Treasury.13

h. Delays in the shipping vesselIt is important to identify the circumstances that will prevent the vessel from reaching the port of loading

once confirmation has been provided by SWLE. Factors such as the breakdown of the ship, sinking or the

liquidation of the vessel are possible causes.

In the event of breakdown or sinking, the vessel must have a contingency plan enforced, which will be stip-

ulated in its contract with SWLE. This contingency plan will also include any associated costs due to the de-

lay of shipment. In the event that the vessel becomes insolvent, SWLE will negotiate with the financial insti-

tution that has attached the ship, to deliver the cargo to its destination as it assumes the role of the freight

provider.

If due to administrative mismanagement the vessel has been double booked, SWLE will ensure that a penal-

ty clause is included in the contract with the freight company to account for such an event.

i. Risk of piracyCattle that will be shipped from Sudan will pass by the Gulf of Aden which is infamous for piracy. Vessels

will be equipped with an anti-piracy team to manage this risk. In the event that pirates do seize the vessel,

this risk will be insured against.

j. Role of stockmen in risk mitigationWhen animals are loaded onto the vessel they will often become agitated by the close proximity of humans.

This excessive nervousness will disappear after the first 24 to 48 hours of sea transit. Thus initial activities in

the cattle hold of the ship will be reduced to only essential movements.


Risk Analysis

Thereafter it is essential for stockmen to observe cattle closely and take note of the following characteristics:

Respiratory rate: this is an indicator of heat stress and ventilation efficiency.

Appetite (feed and water consumption): this is an excellent means of identifying distressed animals as

the first reaction of stressed animals is to reduce their consumption.

Dehydration: this is a key guide to testing the animal’s health and general condition.

Faecal consistency and urine: the appearance of these wastes will provide information on general

health and performance.

Animals loaded at a density, which is higher than the correct level will have difficulty excessing feed, be sub-

ject to bullying, sustain more injuries and disease, lose weight and have a higher mortality level. Each animal

will be given a minimum of 1.4m2 of space within the pens with more allowance afforded to pregnant, fat,

horned, sick and tired animals.

Stockmen will ensure that cattle have comfortable decks of bedding. This involves a constant compromise

between the buildup of soft, relatively dry faeces to provide a comfortable pad for the cattle to lay down on

and a need to remove loose, wet faeces and urine, which discourage animals lying down, produce ammonia

and contribute to increased humidity.

The minimum amount of feed loaded onto the vessel will ensure that cattle obtain 2% of their body weight

in feed per day with an additional three days contingency feed. The aim of feeding on board is to recapture

lost gut fill due to the effects of transit rather than attempting to gain real weight. Real weight gain onboard

has the potential to exacerbate temperature problems. Animals gaining weight will generate significantly

higher levels of body heat than those maintaining weight. The stockmen will regulate the temperature and

humidity in the pens through the onboard ventilation system.

k. DischargeAt the end of every voyage it is absolutely essential for the stockmen to be well prepared for discharge to

ensure that all the hard work achieved during sea transit is not undone by poor unloading arrangements. The

contract will terminate once the cattle are offloaded from the ship onto Indonesian soil.


Risk Analysis

7.6. InsuranceA crucial component of the contract is the use of a livestock insurance policy in managing associated risks.

The policy has to be maintained in good faith so that in the event of a loss, it will pay out. The insurance

company will be assured of payment by SWLE by the issuance of an assignment proceed to them. This is a

guarantee from the issuing bank confirming that the cost of the policy will be released directly to the insurer

before SWLE is able to draw from the funds that become available when the LC is paid out. The following

is required of SWLE to mitigate the risk of an insurer defaulting on a claim:

a. SWLE will ensure that all information about the company and its risk profile is accurate. Incorrect

information, whether erroneously drafted, could affect the validity of the policy and may result in the

insurer voiding the policy.

b. Any material changes that may increase the risk of loss or damage of the cattle must be disclosed. This

will allow the insurer to continue with new terms and conditions.

c. Reasonable steps must be taken to prevent the loss of or damage to the cattle after an event. If no ac-

tion is taken the insurer might not compensate for loss and damage.

d. If an event occurs, SWLE will inform the insurer of all details known including the time and location

of the loss. Information should be provided in writing including all supporting documents.

e. SWLE will abstain from disposing of livestock before providing the insurer with the opportunity to

examine the same.

f. SWLE will always note down the extent and type of loss in the consignment note or similar docu-

ment.

g. If loss occurred during transport then within 3 days SWLE will lodge a written claim on the carriers. If

the extent of the loss cannot be quantified, then we will advise the carrier that further details will be

forwarded once the claim is quantified.

h. If a surveyor is appointed to report on aspects of the loss then SWLE will cooperate with them as this

will assist swift consideration of the claim.

i. When settling a claim the insurer might endeavor to pursue recovery rights against the carrier or a

third party that caused the loss. SWLE will authorize the insurer to act in its name in such recovery

action and will provide reasonable assistance.

j. At the time of a claim, if questions are answered dishonestly by SWLE then the insurer may refuse to

pay the claim or cancel the policy.

k. Any fraudulent act, be it the non-disclosure of vital information, may result in either refusal by the

insurer to pay the claim or treating the policy as if it never existed.

l. The principle reason for payments being refused by insurers are ‘non-disclosure’ or failure to comply

with a policy conditions or warranties, which SWLE will avoid.

SWLE will ensure that all conditions mentioned above are adhered to in order to receive the compensation

agreed to, on any event resulting in a loss.


Management and Operation

8. Management and OperationSWLE is setup as a private company. All strategic decisions are taken by the board of directors. The directors are

on a profit share remuneration. The day to day operations of the project will be managed by the executive who

will report to the board of directors. A synopsis of the executive is provided below.

The executive is headed up by CEO, Mohamed Saeed Dadi Patel. Mohamed Saeed has vast experience in interna-

tional trade. He oversees and is involved in all aspects of SWLE, providing the vision, mission and goals of the

organization. He will ensure that all processes within the project are completed with proficiency as well as taking

on the decision of defining roles within the organization and filling these roles with expert personnel.

Mohamed Shazim Dhorat is the CFO. Mohamed Shazim is a chartered financial analyst. He is a hedge fund man-

ager at Ashburton Investments. Mohamed Shazim is responsible for presenting the financial statements and fore-

casts of SWLE. He plays key roles in the insurance and freighting processes underlying the project. He is responsi-

ble for SWLE’s financial position and investments, taking into consideration risk and liquidity. In addition, the

CFO will oversee the capital structure of the company, determining the best mix of debt, equity and internal fi-

nancing.

Faheem Ahmed Vally is the Commercial Director. Faheem is an actuary and has experience in economic consult-

ing and strategic planning aimed at developing trade in emerging markets. He has previously worked at Mayet

Economics taking on the role of Executive Director in International Trade. Faheem is responsible for the pro-

curement, freighting and insurance phases of the project. He also plays an integral role in maintaining and devel-

oping governmental and corporate relationships within the various nations involved in the project. The Commer-

cial Director is crucial in attaining and preserving competency and efficiency in SWLE and its partners.

Ridhwaan Mayet is the COO. Ridhwaan has his honours degree in Economics. He has insight into business devel-

opment and strategic economic consulting in world markets and is the CEO of Mayet Economics. He is responsi-

ble for the inland transport and the pre-export quarantine facility aspects of the project. The COO will ensure that

all aspects of the project run congruently identifying possible ways to improve its operation.

Ashraf Tayob is the Director of Marketing. His objective is to maintain and advance the relationship between

SWLE and KSN as well as the Indonesian government. This will allow for key information to filter to SWLE,

which will be included in our strategy going forward. Ashraf is a successful businessman, with immense experience

in international trade.



Abdul Rahim Kazi will form SWLE’s legal advisor. Abdul Rahim holds a BA LLB degree in law. He is a commer-

cial lawyer with expert insight into international trade and contracts. He will be involved in assessing all contracts

and aspects of the project to ensure that SWLE is legally insulated at all times. Abdul Rahim will represent SWLE

in the event of hindrance from animal rights organisations. Protocol and planning will be set into place if this was

to materialize.

The structure of SWLE can be viewed in the company organogram that follows. Within the various phases of the

project, key personnel have been identified to fill crucial roles. The executive have carefully selected these individ-

uals based on their expertise and experience in the cattle industry. The various individuals and their roles has and

will be introduced within the ensuing report.

This amalgamation of strategy and competency is SWLE’s backbone for success. All resumes of the abovemen-

tioned individuals are presented in appendix 7.1 to 7.6.



8.1. Company Organogram

Emirates Future

Issam Hijazi

AFASA

Mike Mlengana

Marsh Insurance

Lester Botha

Abdul Rahim Kazi

Position: Legal Council

Faheem Ahmed Vally

Position: Commercial Director

Mohamed Shazim Dhorat

Position: CFO

Muhammed Saeed Dadi Patel

Position: CEO

Board of Directors

SA: NAMC & AFASA

Liason: Sizwe Ndlovu (AFASA)Liason: Dr. Xolile Ngetu (NAMC)

Botswana: BMCLiason: MalebogoLetshaba Nkhwa



Obaro (Feed Formulation)

Malcolm Moodie

Grainvest

Petrus van Heerden

Quarantine Vet

Dr. Ian McDonald

Ashraf Tayob

Position: Director - Marketing

Ridhwaan Mayet

Position: COO

Muhammed Saeed Dadi Patel

Position: CEO

Board of Directors

Namibia: AGRA

Liason : James Turner

Sudan: Co-op

Liason: Moussa Babaand Minister Abdullah

Procurement AgentsPeter Blore, Malcolm Moodie,Mohsin Baba & Abbas Peer


Related Reports:


Viability Report for Livestock Export to Indonesia (Edited)

Documents