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The beef chain in Costa Rica: Identifying critical issues for promoting its modernization, efficiency and competitiveness

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Title The beef chain in Costa Rica: Identifying critical issues for promoting its modernization, efficiency and competitiveness
 
Creator Holmann, Federico J.
Rivas Ríos, Libardo
Pérez, E.
Castro, C.
Schuetz, P.
Rodríguez, J.
 
Subject beef
economic value
consumers
marketing
productivity
quality
modernization
economic competition
appropriate technology
 
Description The objectives of this study were to (1) describe the economic agents of the chain and their commercial and legal relationships; (2) identify the articulations between links, technological levels, indicators of efficiency, installed capacity (scale), and degrees of occupation; (3) characterize and estimate the costing and pricing structures, and the generation of value in different links of the chain; (4) identify those critical costs that can be modified through technological interventions, policy, or other activity; (5) determine the biological and economic risk factors throughout the chain; and (6) develop a methodology to identify and estimate the costs and benefits in each segment and evaluate the generation of value throughout the beef chain. Data at the farm level was obtained from a national livestock survey (CORFOGA 2005b), which provided data on production systems, inventories, productivity, culling, and labor. In addition, surveys were carried out in different segments: (1) auction houses, (2) slaughterhouses, (3) butcher shops, and (4) supermarkets. The aim of these surveys was to describe behavior, determine risks and costs, and identify problems. The weak dynamics of livestock production in Costa Rica are reflected in unsatisfactory productivity indicators. The annual gross income was estimated as US$44/ha for cow-calf operations, $126/ha for dual purpose (including income from milk sales), and $135/ha for fattening activities. Such income rates are considered extremely low, if one uses as reference the commercial value of land allocated to livestock production (ranging between $1000 and $2000/ha). The aforementioned biological inefficiencies, combined with high land costs, impede the recovery of opportunity costs for the capital invested in land, thus making beef production uncompetitive. The cow-calf operation, with its low productivity, remunerates family labor with wages below the legal minimum. On the assumption that the only cash cost is that of labor, cow-calf farms pay family workers at a wage that is equivalent to 60% of the legal minimum. Auctions present relatively good profits per event. However, when these profits are analyzed on a calendar-day basis, they are unattractive because of the low use of installed capacity. One strategy that would usefully improve the efficiency of the auction system in Costa Rica is its integration to reduce the number of fixed operational costs or encourage sharing of these houses so that administrative and operational personnel are rotated among the several existing auctions, taking advantage of the fact that they differ in their days of operation. This scheme would help reduce fixed costs and the commission collected without affecting profits, thus improving efficiency in this link of the chain. However, this option is not easy to implement, as auctions are run by private operators, whose various interests do not always coincide. The industrial sector formed by rural and industrial slaughterhouses shows a low occupation of installed capacity, resulting in high operational costs and low labor efficiency. The total operational costs of slaughtering and dressing are estimated as being between US$32 and $66 per animal. If the estimated unit costs are compared with the rates charged per slaughtered animal (between $15 and $23), then we have to conclude that rural slaughterhouses work at a loss and that industrial slaughterhouses cover their operational costs with processing services and the very small profit margins from sales of byproducts. The best performance in terms of efficiency and profitability is found in the retail sector of butchers and supermarkets. The rate of profits, expressed as the fraction of the final price paid by the consumer that remains in the butcher’s hands as remuneration of his work, ranges widely between 3% and 40%, with an average of 32%. If these profit rates are compared with those of other retail businesses, which are about 8%, then this type of activity presents excellent profit margins with relatively low risk. If, in addition, we take into account that this sector also offers the consumer a broad range of meat cuts from other animals such as pork and chicken, and processed meats, then profit margins are still higher. The value generated throughout the chain, as a percentage of the final value of the young steer at retail price according to activity, is distributed as follows: fattener (34%), retailer (33%), breeder (19%), slaughterhouse (7%), transporter (6%), and auction house (1%). As observed, the distribution of value throughout the beef chain is totally inequitable and incongruent with the level of individual risk confronted by the actors who form it. The inequity observed in the distribution of added value reflects a clear dominant position in the market of some actors of the chain, which enables them to capture a very high fraction of the profits. The value generated in the chain, adjusted for operational time in each link, ranges between US$0.28/animal per day for the breeder and $45.85/animal per day for the butcher. Thus, the highest proportion of the total added value concentrates on the final link of the chain. The butcher or supermarket obtains, on the basis of one animal in the same unit of time, 164 times more value that the breeder located in the first link of the chain. The latter has to confront biological and economic risks not covered by insurance policies, whereas retailers may mitigate risks through insurance policies for their raw materials, equipment, and infrastructure. The competitiveness of the beef chain is the aggregate of the efficiency and productivity of all the links that form it. In a situation where, in the final segment, the demand for beef is low and weakly dynamic, then economic signs of modernization and the technological change it promotes, are not being generated in other components of the chain, particularly in the first link of production. This, in turn, results in a vicious cycle, generating low productivity and lack of competitiveness. To promote technological change, efficiency, and competitiveness in the value chain for beef in Costa Rica, we propose the following six recommendations: 1. That successful experiences of other chains such as that of poultry be analyzed and learned from to identify strategies that would increase the efficiency of the beef chain as a whole. 2. That strategies for promoting the milk production of breeding cows be developed to increase family income, as remuneration of labor is currently below the minimum wage. This option would be viable only in localities where a milk market exists. That livestock producer funds [a livestock producer fund consists of granting livestock in company to produce meat, provided that the producer concerned has adequate pastures for this purpose on his farm] be created as mechanisms to develop social capital, reduce transaction costs, and help improve the chain’s productivity and profitability. These organizations would bring together the different classes of the chain and favor synergies in the interaction of public and private actors. 3. That incentives be created to promote the large-scale adoption of already available improved forage species, as most of the problem of low livestock productivity originates in poor and deficient feed. This strategy would emphasize feeding during dry seasons, thereby minimizing seasonal weight losses in the national herd and improving the profitability of farms. 4. That a carcass classification system be established, based on quality and price that would permit differentiating supplies for different segments of the market. 5. That consumer education be promoted on the health benefits of beef, forms of preparation, and differentiating between cuts, uses, and qualities of beef products.
 
Date 2008-04-15
2010-03-19T08:31:23Z
2010-03-19T08:31:23Z
 
Type Journal Article
 
Identifier Holmann, F., Rivas, L., Pérez, E., Castro, C., Schuetz, P. and Rodriguez, J. 2008. The beef chain in Costa Rica: Identifying critical issues for promoting its modernization, efficiency and competitiveness. Livestock Research for Rural Development Volume 20, Article #51.
0121-3784
https://hdl.handle.net/10568/853
http://www.lrrd.org/lrrd20/4/holmb20051.htm
 
Language en
 
Rights Open Access
 
Format application/pdf
 
Source Livestock Research for Rural Development