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D-degree in Animal Science W?\Xz~7 W (/Major professor H Date\" 9/ 1/ 3/0 /Q70 MS U i: an Affirmative Action/Equal Opportunity Institution 0-12771 i W FQJW. . PLACE II RETURN BOX to remove thlo checkout from your record. TO AVOID FINES return on or before dds due. DATE DUE DATE DUE DATE DUE WEI—fl lg JL__ —II—T— MSU Is An Affirmative Action/Equal Opportunity Institution AN EVALUATION OF THE PERFORMANCE OF THE MARKETING SYSTEMS FOR FED CATTLE, RANGE CATTLE, AND BEEF IN MALI by Cheick Abagouro Bocoum A DISSERTATION Submitted to Michigan State University in partial fquIIIment of the requirements for the degree of DOCTOR OF PHILOSOPHY 1990 IMJIL‘IM ABSTRACT AN EVALUATION OF THE PERFORMANCE OF THE MARKETING SYSTEMS FOR FED CATTLE, RANGE CATTLE, AND BEEF IN MALI By Cheick Abagouro Bocoum The Government of Mali is increasingly concerned with the improvement of the performance of cattle and beef marketing systems. Up to now, the lack of baseline data has prevented the full understanding of the current marketing systems. This dissertation’s basic objective is to develop critical information for policy discussions concerning the structure, conduct and performance of the market for fed and range cattle and for beef in Mali. The dissertation findings show that overall the cattle markets and the beef market were effectively competitive. It rejects the alleged redundancy of cattle traders in the market of Bamako. Furthermore, exploitation of farmers by traders was found to be unlikely. The study found no evidence of traders or butchers engaging in prior consultations or entering into agreements with rivals. Prices in cattle markets were set in market places through open bargaining between buyers and sellers. Beef prices were fixed by city authorities and they were generally respected by butchers at least in nominal terms. However, the real price of high quality beef exceeded the nominal prices, while the real price of low quality beef was inferior to nominal prices. Empirical findings on market performance suggest that both the cattle and beef markets are operationally efficient, and available evidence indicates that price premia exist for fed cattle and high quality beef carcasses. Net capital losses have been found seasonally for butchers of low quality beef, suggesting the existence in the Bamako beef market of allocative inefficiencies. Policy recommendations stemming from this research are: 1. Policies should be aimed at eliminating constraints to better performance (capital among others). 2. Better access to capital by traders and butchers requires the design of a sound and comprehensive financing policy. 3. Beef price controls should be removed to allow the necessary beef price adjustments, and to enable the market to coordinate resource allocation; 4. Heights of marketed cattle should be determined by direct measurements to avoid mistakes in the determination of live animal carcass yield and value. To My Children Kalidou Anta Takel Coumba Mama Oumou iv ACKNOHLEDGEMENTS The author wishes to express his special gratitude to his wife and children for their sacrifice and support. The author is very appreciative to his Graduate Committee Members Dr. Robert J. Deans, Dr. Harold Riley, Dr. John Staatz, Dr. David Campbell, and Dr. Allan Rahn for their guidance, their interest and critical reviews of several drafts of this dissertation. He is also very grateful for the very useful inputs they provided to improve this study. The author wishes to thank sincerely the Malian Ministry of Environment and Livestock and all Malian Livestock Officials, the USAID Mission in Mali, and the Livestock Sector Project Authorities for the opportunity given to him to undertake this training in the United States of America. He hopes that this investment will be profitable to the Republic of Mali and to cooperation between the United States and Mali. The author wishes to extend his gratitude to all his friends for their constant support, to the enumerators who helped him during the field surveys, and to the many cattle traders, butchers and farmers who largely contributed to the achievement of this study. TABLE OF CONTENTS Page List of Tables ..... . .............. viii List of Figures . . . . . . . . . . . . . . . . . . . . . x Chapter One--Introduction . . . . . . . . . . . . . . . . 1 Previous Studies of Livestock Marketing in Mali and West Africa . . . . . . . . . . . . . . . . . . . . 5 Objectives of the Dissertation . . . . . . . . . . . . 14 Conduct of the Field Research . . . . . ..... . . 14 The Study Theoretical Framework . .......... 17 The Dissertation Research Approach . . . . . . . . . . 27 Organization of the Dissertation . . . . . . . . . . . 30 Chapter Two--Cattle and Beef Market Structure . . . . . . 33 Cattle and Beef Subsector Organization in Mali . . . . 33 Range Cattle System . . . . . . . . . . . . . . . . . 35 Cattle Marketing Infrastructure . . . . . . . . . . 37 Government Interventions .............. 40 Beef Marketing Infrastructure ......... . . 41 Financing Systems . . . ....... . ...... 42 Fed Cattle System . . . . . .......... . . 44 Bamako Market for Beef . . . . . . . . . ..... . . 50 Demand Factors . . . . . . . . . ........ . . 50 Per Capita Beef Consumption in Bamako . . . . . . . 55 Slaughter Facilities in Bamako . . . . . . . . . . . 57 Recorded Slaughter and Seasonal Variations . . . . . 59 Sources of Cattle Supply in Bamako and Kati Markets 65 Cattle Sales in the Markets of Kati and Bamako . . . . 70 Year to Year Variations . . . . . . . . . ..... 70 Seasonal Variations . . . . . . . . . . . . . . . . 72 Cattle and Beef Market Structure . . . . . . . . . . . 78 Cattle and Beef Market Concentration: Sellers . . . 78 Cattle and Beef Market Concentration: Buyers . . . . 82 Product Differentiation . . . . . . . . . . . . . . 87 Barriers to Entry . . . . . . . . . . . . . . . . . 88 Conclusion . . . . . . . . . . . . . . . . . . . . . 99 vi Chapter Three—~Cattle and Beef Market Conduct . . . . . 102 Fed Cattle Producer (Seller) Market Behavior . . . . 104 Traders’ Market Conduct . . . . . . . . . . . . . . 107 Kati-Bamako Traders . . . . . . . . . . . . . . . . 110 Kati-Bamako Intermediaries ............. 114 Butchers’ Market Conduct . . ........... . 116 Cattle Procurement . . . . . . . . . . ..... . 116 Beef Sales . . . . . ............ . . . 119 Collusion . . . . . . . ..... . . . . . . . . 128 Conclusion . . . ...... . . . . . . . . . . . 129 Chapter Four--Cattle and Beef Market Performance . . . 131 Operational Efficiency . . . . . . . . . . . . . . . 131 Traders’ and Butchers’ Marketing Costs . . . . . . 132 The Alleged Redundancy of Middlemen in the Bamako and Kati Cattle Markets . . . . . . . . 139 Allocative Efficiency (Pricing Efficiency) . . . . 147 Comparative Carcass Yield of Embgughg and Range Cattle . . . . . . . . . . . . . . . . 153 Producer Profit Margins . . . . . ...... . 157 Producers’ Exploitation . ........... 160 Traders’ Profit Margins . . . . . . ..... . 162 Butchers’ Profit Margins . . . . . . . . . . . 165 Conclusion . . . . . . . . . . . . . . ...... 166 Chapter Five--General Conclusions and Policy Recommendations ..... . . . .......... 168 Market Structure ................. . 168 Market Conduct . . . . . . ...... . . . . . . . 168 Market Performance . . . . . . . ..... . . . . . 169 Policy Recommendations . . . . . . . . . . . . . . . 170 Market Competitiveness and Large Numbers of Traders 170 Capital Constraint . . . . . . . . . . . . . . . . 173 Beef Price Control . . . . . . . . . . . . . . . . 176 Selling Cattle on a Weight Basis . ....... . 179 Study Limitations and Research Needs ........ 181 Bibliography .................... 186 Appendix Section ................... 191 Appendix A Conduct of Field Research Surveys . . ....... 192 Appendix Tables 8 and C . . . . . . . . . . . . . . 201 vii LIST OF TABLES Table Page 2.1a Official Estimates of Cattle Population by Region (1977-1987) 0 o o o o o o o o o o o o 36 2.1b ECIBEV Estimates of Emboucheurs and Fed Cattle in Banamba Zone (1975-1986) . . . . . . . . . . . 47 2.2 Population Growth in Bamako (1980—1987) . . . . . 52 2.3 Official Prices of Beef and Substitute Meats in Bamako (1980-1987) . . . . ...... 54 2.4 Annual Beef Consumption Per Capita in Bamako (1980-1987) . . . . . . . . . . . . . . 56 2.5 Comparative Beef and Mutton Consumption in Bamako (1980-1987) e o o o o o o o o o o o o 58 2.6 Annual Cattle Slaughter in Bamako (1980-1987) . . 61 2.7 Official Recorded Cattle Exports From Bamako (1980-1987) . . ..... . . . . . . . 69 2.8 Cattle Monthly Sale Variation Index in the Market of Kati (1980-1987) . . ...... 74 2.9 Cattle Monthly Sale Variation Index in the Market of Bamako (1980-1987) . ...... 75 2.10 Producers’, Traders’, Intermediaries’ and Butchers’ Socioeconomic Characteristics . . . 79 2.11 Cattle Presented Monthly in Banamba (May-Ju.ly’ 1986) O O O O O O O I O O O O O O 81 3.1 Producers’, Traders’, and Butchers’ Market Conduct (March-July, 1986) . . . . . . . . . 105 3.2 Services Provided by Intermediaries . . . . . . 115 3.3 Height, Per Kg Price and Composition of Different Price la; in Bamako, (March-July, 1988) . . . . . ........ 121 viii Table Page 3.4 Real Height, Real Price, and Composition of a Kg of High and Low Quality Beef with Bones, in Bamako (March-July, 1988) . . . . . . . . 124 3.5 Real Height, Real Price and Composition of a Kg of High and Low Quality Boneless Beef in Bamako (MarCh-JUly, 1988) o o o o o o o o o o o o o 126 4.1 Operating Costs per Head for Market Participants Buying in Bamako and Selling in Bamako (MaTCh-JUTY, 1988) o o o o o o o o o o o o o 134 4.2 Operating Costs per Head for Market Participants Buying in Kati and Selling in Bamako, (MarCh-JUly, 1988) o o o o o o o o o o o o o 135 4.3 Operating Costs per Head for Market Participants Buying in Long Distance Markets and Selling in Bamako (March-July, 1988) . . . . . . . . 136 4.4 Operating Costs per Carcass for Butchers In Bamako, (March-July, 1988) . . . . ..... 137 4.5 Employment Generated in Cattle Marketing In Kati and Bamako (March-July,1988) . . . . 146 4.6 Banamba Zone and Bamako Emboucheurs Costs and Profit Margins (March-July,1988) . . . . . . 149 4.7 Fed and Range Cattle Traders’ Profit Margins per Kg and per Head (March-July, 1988) . . . 150 4.8 High and Low Quality Beef Carcass Costs and Profit Margins (March-July, 1988) . . . . . . 152 4.9 Fed and Range Cattle Dressing Percentages and Carcass Composition (March-July,l988) . . . . 156 4.10 Costs of Credit Default Risks . . . . . . . . . 164 5.1 Per Kilogram Net Margin Distribution Between High and Low Quality Beef Butchers in Bamako (March-July 1987) . . . . . . . . . . 172 ix Figure 1.1 2.1 2.2 2.3 2.4 2.5 2.6 LIST OF FIGURES Subsector Structure, Conduct, and Performance Paradigm .......... Annual Cattle Slaughter in Bamako (1980‘1987) o o o o o o o o o oooooooo Index of Monthly Cattle Slaughter Variations in Bamako (1980-1987) ...... Principal Cattle Flows in Mali ........ Monthly Indices of Variations of Cattle Offered For Sale in Bamako and Kati Markets {1980-1987) 0 O O O O ........ Annual Cattle Sales in Kati and Bamako Markets (1980-1987) ............. Cattle Sale Monthly Index of Variations in Kati and Bamako (1980-1987) ........... . 28 . 60 . 66 O 67 . 71 . 73 Page CHAPTER ONE INTRODUCTION The importance of the livestock sector in Mali stems from the fact that livestock is one of the most important components in the country’s economy. In 1987, the total cattle population in Mali was estimated at 4,583,000. In 1982, the total cattle population in Mali was about 6,663,000, the second largest cattle population within West Africa behind Nigeria. The total livestock sector in the Malian economy accounted for about 20 percent of total GNP in 1987 according to the Malian National Statistics Office Report1 (1989). Moreover, the national livestock herd provides most of the animal protein consumed in the country and a large part of the meat consumption of several Nest African countries, of which Cote d’Ivoire is the most important client. According to OMBEVIZ, the official estimate of Malian beef production was about 75,000 tons in 1987. Livestock is Mali’s first or second major export item, depending on the level of cotton exports. In 1987, livestock accounted for 29.2 percent of total exports according to the 1989 National Statistics 1 Compte Economique du Mali 1987. Résultats préliminaires (1939) 2 Office Malien du Betail et de la Viande. Office. At the same time cotton accounted for 40 percent of total exports estimated at 167 billion F CFA (S 564 million). Besides being an important source of protein and foreign exchange, the livestock sector is also an important source of revenue to the national budget through local and export taxes and the licensing of livestock marketing agents. In 1987, the total government receipts from all livestock sector taxes were estimated at 2 billion F CFA (about 5 6.7 million). The value of livestock exports for 1987 was 48.8 billion F CFA (S 16 million) according to the 1989 National Statistic Office Report. Moreover, thousands of people in Mali, including herdsmen, drovers, traders, intermediaries, butchers and apprentice butchers, processors, truck and taxi drivers. vendors of food and drinks, etc., are employed by the livestock subsector and earn part or all of their total income from their livestock activities. Obviously, Mali has a strong interest in the performance of the livestock sector. In order to achieve good performance, not only will the production have to increase, but the marketing system will also have to be improved. Yet in Mali, as in many developing countries, there is a tendency to allocate public resources to promote animal production and animal health and to neglect investment in promoting efficient marketing. According to an OECD3 report (1986), more than 80 percent of the total investment in the livestock sector was allocated to livestock production and animal health during the 1976-80 and the 1981-85 Malian 3 OECO: Rapport sur l’Analyse de la Situation de l’Elevage Malien. 2 economic development plans, while only 5 percent was allocated to livestock marketing. The discrepancy between these two levels of investment calls into question the appropriateness of the current Malian livestock marketing policies. In a country such as Mali, where marketing livestock is one of the most important economic activities, it is important that the marketing system be given more attention. Furthermore, among the four policy objectives defined by the government of Mali for the livestock sector during the 1976-80 and 1981-85 plans, the first three objectives were particularly relevant to marketing systems. These objectives still remain unchanged in 1989. They are: 1. to increase cattle exports; 2. to satisfy domestic protein needs; 3. to secure higher income for livestock producers; 4. to reconstitute the national livestock herd devastated by the 1972-1973 and 1981-1984 droughts. To achieve these objectives, government policies obviously play a critical role in creating the decision-making environment for producers, consumers, and marketing agents. To what extent government policy can deal successfully with marketing issues is very important for the growth and development of the livestock subsector. Attention has frequently been focused on some shortcomings in the marketing system in Mali as important hindrances to the subsector development. The alleged shortcomings are numerous, and the most important are: 1. There is an excessive number of middlemen in the cattle marketing chain, which increases distribution costs; 2. Merchants exploit cattle producers (chiefly emboucheurs‘) because of the merchants’ superior market knowledge or skills; 3. The price control policy has a disruptive effect on beef markets due to the lack of a price premium for high quality (fat) meat; 4. There is a limited demand for high quality beef to justify the continuation and the development of the cattle feeding program. Yet, very little research has been conducted to corroborate or refute these claims. However it would be as great a mistake to assume that all the above alleged shortcomings are false as it would be to assume that they all are true. The difficulty is to distinguish the false from the true. To the extent that they are true, they have important policy implications; to the extent that they are false, policies based on them are likely to be ineffectual, if not harmful. Apparently many of the Malian governmental interventions in livestock marketing have been based more on preconceived ideas about the nature of marketing systems and their constraints than on factual information and analysis. This may explain the failure of several livestock marketing projects such as SONEA,5 SOMBEPEC,6 and recently ECIBEV.7 The scarcity of reliable information likely will continue to severely constrain the design of any new policies to improve the Emboucheurs are farmers who feed a small number of cattle (2-4 on average) during the off-cropping season, usually between January (or February) and March (or April). 5 SONEA: Société Nationale d’Exploitation des Abattoirs. 6 SOMBEPEC: Société Malienne du Bétail des Peaux et Cuirs. 7 ECIBEV: Etablissement de Credit et d’Investissement Betail-Viande. performance of the marketing system if action is not taken to provide the necessary knowledge on the marketing systems. This knowledge includes how markets perform and why these markets perform as they do. To answer these questions it is necessary to identify the determinants of market performance, especially the characteristics of market structure, market conduct, and the policy environment. Therefore, research is required to contribute to the design of a marketing policy and implementation by providing a sound understanding of the current cattle and beef marketing system organization, operation, and performance, and by identifying marketing constraints to secure more satisfying performance. Before dealing in depth with those issues, it is important to review the most important livestock and meat marketing studies conducted in Mali and in Hest African countries. Previogs Studies of Livestoek Merketjng in Mali end Hes; Afrjee Hhile several aspects of livestock and meat marketing have been studied in Hest Africa, very little research has been done in Mali. Three studies are relevant to the subject of this study and deserve special attention: "The Marketing of Malian Cattle,“ by J. Stryker (1973), "Livestock and Meat Production, Marketing, and Exports in Mali," by Delgado (1980), and "Economic analysis of the Livestock Sector in the Republic of Mali" by Robert R. Nathan Associates, Inc. (1988). Stryker, using the perfect competition model as a standard of performance, evaluated the efficiency of cattle marketing in Mali. He found the cattle marketing system competitive, with a very large number of cattle traders at each stage. The market concentration was low in 5 general and there was no evidence of collusion among traders. However, he suspected (without evidence) that in larger markets like Kati, there may be some form of collusion among the relatively low number of traders (“no more than 10 merchants"). He found that prices within different markets were closely related to one another. The system appeared remarkably adaptable and responsive to changing needs. Profits were found to be small, except possibly in some of the larger markets. In his overall evaluation, Stryker found the cattle marketing system in Mali “quite efficient and generally free of monopoly practices." Nevertheless, he suggested a set of recommendations including the improvement of credit access for cattle traders, the provision of additional markets and a transportation infrastructure, the improvement of stock routes, the provision of price information and quality standardization services, and the organization of meat trade associations. The study made by Delgado was aimed at assessing the constraints to and potential for the expansion of Malian livestock and meat exports to central coastal states of Hest Africa. Nevertheless, he also discussed other issues, including trends in domestic production and consumption in order to estimate the amount of cattle "left over" for exports. The conclusions he reached during his five-week trip in Mali in the fall of 1978 were essentially based on the conversations he had with Malian officials in charge of the livestock sector and on the existing literature concerning Malian livestock. In his conclusion on cattle marketing, Delgado mentioned that fed cattle exports were not profitable but range cattle exports were profitable. However, he cautioned that Malian livestock traders could not count on institutional barriers or lack of experience to prevent competition from non-Sahelian sources in coastal markets. Therefore, he suggested that action be taken to cut marginal and average costs of trading for individuals in the traditional sector. To achieve these cost reductions he made three specific recommendations: 1. The donor policy should be strongly oriented toward supporting and increasing the level of competition in the Malian livestock market, contrary to the limitations on the proliferation of cattle traders and the limitations of individuals to specific aspects of trade that OMBEVI was calling for. 2. Malian export formalities should be simplified as a means to promote livestock exports. 3. Cattle trails should be established and equipped in order to avoid crop damage in the south and live weight loss in the north. The Robert R. Nathan Associates, Inc. study was conducted in January-February, 1988. Its objective was to evaluate selective issues concerning development of the livestock sector in Mali. The findings and conclusions of the study relevant to the topic of this dissertation showed that for the next five years, Malian cattle producers would face favorable demand prospects. This would be due mainly to increased demand for beef from export markets, especially Cote d’Ivoire, unless EECa beef surpluses were to be sold to coastal markets at give-away prices. By using a computerized trading simulation model the study estimated that a 10,000 ton EEC export would reduce prices in Bamako by about 18 percent. It pointed out that imports of 20,000 tons 8 European Economic Community of beef by Cote d’Ivoire from the EEC in 1987 had a devastating effect on prices received by Malian producers. As a consequence, the study recommended that controls on the volume of EEC exports to coastal countries should be sought. Moreover, the simulation program based on the effect of investments in Malian cattle health showed that Malian cattle producers would benefit from a slight revenue increase due to an expected higher production despite price drops, but the main beneficiaries would be consumers in Bamako and other importing countries. In Bamako, the price per kilogram of carcass was expected to drop by 8.3 percent following a Malian beef production increase of 10 percent. This negative price impact from increment in total Malian beef production has been largely influenced by the export market, because the beef supply increase is expected to be directed partly to domestic markets and partly to export markets where prices are expected to decline less than in the domestic market. The price elasticity of demand for Malian beef for the combined export and domestic markets was estimated between -1.03 and -1.05 while the price elasticity for the Bamako market alone was estimated at -0.6. However, because of the quality of data available such precision in elasticity figures is questionable. In addition to the above findings, the Robert R. Nathan Associates, Inc. report discussed also the beef consumption and the income distribution patterns in Bamako. The analysis on these sections was made based exclusively on data from a report on food prices and food consumption in urban Mali by Beatrice L. Rogers and Melanee L. Lowdermilk. The Rogers and Lowdermilk report presents the results of a study conducted from May 1985 to May 1986 by the Malian National Statistics Office and Tufts University. The study was based on data from household expenditure, food price, and food consumption surveys in Bamako and the seven regional capital cities of Mali. According to the conclusions of the study, cereals dominated the food consumption pattern in every city and in every expenditure class. Cereals accounted for between 61 and 84 percent of total calories consumed. The percentage of total food expenditures spent on the purchase of cereal varied from 28 to 44 percent. Rice was the largest single item in the diet in terms of expenditures, accounting for more than half of the total cereal calories consumed in the urban areas. The coarse grains (millet, sorghum, and maize) were the next most important source of calories. Non cereal food such as peanuts and peanut butter, meat, oil, and sugar together accounted for only about 20 percent of total dietary calories. The study showed that despite its small caloric intake share, meat accounted for a fairly large share of food expenditures in the Bamako diet. It was estimated that the poorest consumers’ group spent 11 percent of all food costs on meat while the wealthiest group spent an average of 17 percent. The average for all four groups was estimated at 14 percent, suggesting that meat consumption increases as income rises. In absolute monetary terms, the poorest income group spent 323 F CFA? per capita per month on meat while the wealthiest group spent 1,627 F CFA. This ’ us $1.00 = approximately 300 F CFA 9 showed that the upper income quartile spent five times the amount spent by the poorest group on meat. The second and third quartiles accounted respectively for 16 and 26 percent, according to the study data. Based on these results, the researchers concluded that since the richest consume the largest share of meat in Bamako, any measure to reduce the price of meat may benefit chiefly the wealthier population. Thus official meat price control policy intended to protect the poor or encourage their consumption of meat would benefit mostly the rich. Beside these studies on livestock marketing in Mali, OMBEVI, under the funding of the FAO and the Malian Government, has published several papers and reports which provide descriptive information on diverse segments of the marketing system. Elsewhere in Hest Africa, three studies deserve special attention: 1. “The Economics of Cattle and Meat Marketing in the Ivory Coast," by John Staatz; 2. "The Livestock and Meat Marketing system in Upper Volta," by Larry Herman; 3. "A social-Economic Analysis of Stall-Fed Cattle Production and Marketing in the Mandara Mountains of Cameroon,“ by John Holtzman. In his monograph on Ivory Coast cattle and meat marketing, Staatz, using a structure-conduct-performance (SCP) paradigm, concluded that: 1. Evidence available on market structure indicated a large number of intermediaries and a limited scope for collusion among merchants, intermediaries, and butchers in Abidjan and Bouake. Moreover, concentration ratios indicated a moderate degree of concentration among intermediaries in Bouake and a low degree in Abidjan. Therefore, any attempt to make collusive agreement among intermediaries would be inherently unstable. He found the wholesale and retail butchers’ trades in Bouake and Abidjan even less concentrated than the intermediaries trade, thus indicating little scope for collusive behavior. 10 2. Evidence on market conduct suggests that there was no collusion among intermediaries to restrict the volume of cattle sold in order to force up prices, nor among butchers to restrict the volume of meat sold. 3. The profit margins of merchants typically were modest. The rate of return to capital was contained within the range of the accepted opportunity cost of capital in Hest Africa. Similarly, he found the profit margins of traditional butchers fairly low, accounting for between 8 and 12 percent of the retail price of beef. This indicated little evidence of monopoly profits in either cattle or meat markets. In his overall assessment, Staatz found the subsector competitive and efficient given the transportation and infrastructure constraints under which the market participants operate. Accordingly, he recommended: 1. not to proceed in an extensive reorganization of the marketing system, 2. to improve the physical infrastructure of the trade including the improvement of the abattoirs in Abidjan and Bouake, and to move the Abidjan cattle market-abattoir complex to an area where adequate grazing and water were available. He also suggested that in the long run, the government-owned railroad consider replacing some of the poorly ventilated rail cars and the possibility of feeding and watering cattle en route in the rail shipment. Larry Herman also used a SCP approach in his study in Upper Volta (now Burkina Faso). He found in all the four markets under study that the number of cattle sellers and buyers was large, suggesting a high degree of competition. However, he mentioned that some seasonal market power might exist in the northern markets for cull cows and during the rainy season for all cattle. Except in Kaya, where the beef market was dominated by two butchers, Herman found in beef markets low concentration ratios and little market domination. There was no evidence of collusive behavior 11 by cattle market professionals to raise prices for sellers or to lower prices for buyers. In the beef market also there was no evidence of butcher agreements to raise the price of beef or lower the prices of cattle. The evidence Herman found on traders’ net margins suggested that they represented a modest element of gross margins. The net margins of butchers supplying high quality meat markets were significantly higher than those of the majority of butchers who sold lower quality meat on the popular market, because of some contract arrangements between wholesalers and client institutions. In his conclusion, Herman mentioned that cattle marketing was generally competitive and fairly efficient with no redundant and unproductive middlemen. He found that herdsmen and marketing participants already seem to have good access to market information through traditional sources, protecting the producers from abuses and exploitation by cattle buyers. He found also that the creation of cattle trails was not likely to lower costs or increase trade but they might lessen conflicts with agriculturalists. Trucking would gain acceptance as roads were paved and trucking costs decreased. The most serious problems of transport were found in rail transport, resulting from seasonal constraints in rail car availability, excessive duration of shipments, and mechanical problems for refrigerated meat exports. In his recommendations Herman stated that improvement in marketing efficiency can best be brought about by fostering healthy competition and providing necessary and appropriate infrastructure. A general reorganization of trade was not necessary, he said. 12 The Holtzman dissertation is one of the most comprehensive studies on intensive dry-season feeding in Africa, although several experiments have been conducted in Mali, Niger, Nigeria and Senegal. The general objective of this study was to analyze the economic viability of the production and marketing of stall-fed cattle in the Mandara Mountains and to find out the potential for the improvement of the performance of input and product markets. The findings of the study indicate that returns to the existing traditional stall-feeding enterprises were quite low. The study also indicated that retail price controls had the adverse effect of restricting the slaughter of stall-fed cattle in urban areas. Moreover, in examining the macroeconomic effects of expanding stall-feeding on the supply and demand for factors of production, Holtzman concluded that the prices of feeder calves could increase and there would be great pressures on demand for inputs such as forages, water, labor, and agro—industrial byproducts. In order to improve the long-run economic viability of stall- feeding in the Mandara Mountains, Holtzman recommended the removal of beef retail price controls and the restriction on cattle exports. As one can observe from the above review, the information about the performance of the Malian livestock marketing system is modest. For its part, the Government of Mali (GRM) is increasingly concerned with the improvement of the efficiency of the current cattle and beef marketing system (particularly in the capital city eeinture de yjegde or beef belt). To this end, reorganization of the cattle and beef marketing systems is under consideration. Thus, sound information on 13 the cattle and beef marketing systems is badly needed prior to any decision making. MW One of the basic objectives of this study is to contribute to the improvement of the understanding of the current cattle and beef marketing systems in Mali. The overall objective of this study is to provide an in-depth understanding of these systems’ organization, operation, and performance which can inform policy discussions concerning the design and implementation of future marketing policies. The specific objectives are: 1. to describe the organization and operation of cattle marketing systems in the embegehe zone of Banamba, in the cities of Banamba, Kati, and Bamako, and in the beef market of Bamako; 2. to assess operational efficiency as measured by the per-unit operational cost; pricing efficiency as measured by profit margins; and competitiveness in the beef and cattle markets; 3. to estimate the differences between fed and range cattle carcass composition in order to determine the net yield of feeding programs and to relate them to pricing efficiency; 4. to identify the constraints to workable competition and subsector performance; and 5. to recommend alternative policies to remove the identified constraints. on of l The field research was conducted in two phases. The first phase took place in 1986. It was conducted by the author helped by six enumerators during the five months from March to July 1986, the time period necessary to feed and market cattle in the cattle feeding zone. The 1985-86 feeding operations campaign started in February-March, and the sales began in May and lasted until July. The pre-marketing 14 period (March-April) was used for the enumerators’ training, the design and pre-testing of questionnaires, and the selection of sample villages and sample farmers. In addition to the above activities, the period before marketing was used to review background information, previous marketing studies in Mali, and to conduct discussions with Malian officials in charge of marketing policies and with USAID experts on research matters in order to initiate collaboration. Several reconnaissance field visits were made to Banamba embouehe geyseene areas and to Kati, Banamba and Bamako cattle markets to obtain basic information on the number of active butchers, traders, and intermediaries, particularly their business size and experience. This information served as the basis of selecting stratified samples for each category of market participants. Finally, an operational plan of work was elaborated during the same pre-marketing period. The plan comprised the planning of field surveys, detailed timetables and the research budget. The active field data collection started May 1 and ended July 31, 1986. During the three-month research period, seven different types of surveys were conducted by the author, helped by the six enumerators. The surveys were: 1. Traders surveys. . Butchers surveys. . Intermediaries surveys. 2 3 4. Fed Cattle Producers surveys. 5. Abattoir Surveys. 6 . Beef Composition Surveys. 15 7. Market surveys. In addition to the field data collection, secondary time-series data relating to the Kati and Bamako market cattle presentations, sales, and prices, Bamako abattoir slaughter figures, cattle exports from Bamako, and total Malian cattle population were also collected. These data are generally from OMBEVI, National Livestock Directorate ("ONE"), and the Bamako Abattoir (“AFB"), which keep track of relevant livestock bio-economic parameters. Official statistics, however, are available up to 1987 only. During the three months of the field surveys, the six enumerators assigned in the three markets (Banamba=2; Kati=2; Bamako=2) collected only quantitative data on the number of cattle (fed and range) offered for sale, the number of cattle sold and their average sale prices per weekly market day, and retail beef composition surveys. In Bamako, where the cattle market is held daily, Sunday was chosen as the survey day in order to coincide with the arrival of cattle (including the arrival of sampled fed cattle) from the Kati market, which is held one day before. The enumerators were visited once every two weekly market days by the researcher for a review of the data collected and discussion of problems encountered. The researcher personally conducted all of the interviews with market participants. Data collected during the first phase were chiefly information on market structure and conduct. The second phase took place in 1988 and was essentially devoted to supplementing the study with the missing and/or inadequate data of the first phase. The field research was conducted by the author assisted by 16 two hired enumerators. It took place from March to July 1988. During the five months the following surveys were conducted: 1. sale prices of fed and range cattle per kilo and per head in the market of Bamako; 2. traders’ purchase prices per kg and per head and marketing costs in the markets of Bamako and Kati; 3. butchers’ purchase prices and costs per kg and per head in Bamako and Kati for fed and range cattle; 4. fed and range cattle live weights in Bamako; 5. fed and range cattle meat and fat yields in Bamako; 6. proportions of retail cuts sold boneless, with bones, and per Les in traditional butchering for fed and range cattle and the aggregate beef sale revenues in Bamako. Information obtained during the second phase was used essentially to evaluate performance dimensions. All the surveys’ methods (for both phases) are discussed in the appendix. Th ’ r wor Before turning to the empirical evidence collected during the field research, we briefly discuss in this section the relevant conceptual framework from the economic theory. This provides us with a general orientation for prediction and explanation concerning the structure, conduct, and performance of the markets. This section draws largely from the works of industrial organization economists such as Bain, Scherer, Sosnick, and Brandow. Economic theory draws distinctions among markets on the basis of sellers’ or buyers’ concentration. As a result, markets are classified into one of the following three categories: 17 3. atomistic markets, in which many sellers or buyers are in competition; oligopolistic (oligopsonistic) markets, in which a few large markets, participants (sellers or buyers) are in competition; monopolistic (monopsonistic) markets, in which a single buyer or seller operates. Predictions concerning market conduct and performance for each market category are as follows: In atomistic markets each seller or buyer is so small that no one can perceptibly influence the commodity price, and collusive restraint of the commodity by all market participants is ruled out by their large number. In oligopolistic (or oligopsonistic) markets there is an interdependence between the few participants about price and commodity quantity policies. Each rival will determine his price and quantity sold or bought according to his expectations about his competitor’s actions. However, it is possible that rivals act collectively (effective or tacit collusion). This can create a situation in which participants hold market power temporarily. Alternatively, they may compete in an open rivalry leading to market warfare. Consequently, the market performance which may be expected in oligopoly situation ranges from the performance of the atomistic situation discussed above to the performance attribute of a single firm situation described below. In the monopoly context, a single seller or buyer has complete control of the market selling or buying price. Such a market power will give him the ability to influence price, quantity and the nature of the product in the market place. Economic theory also distinguishes markets according to the conditions of entry to them, or the presence of barriers to the entry of newcomers . 1. 2. As a consequence, markets can be categorized as: easy entry markets, without barriers to the entry of new competitors; moderately difficult entry markets, with the presence of barriers to entry but not enough to permit existing firms to 18 enjoy large market power or a monopoly price without attracting new entrants; 3. blockaded entry markets where barriers to entry are high enough to permit existing firms to enjoy market power and a joint monopoly price while precluding newcomers. As one can observe, the conditions of entry or the presence of barriers may influence the conduct and the performance of a market. For example, if existing firms decide to preclude new entrants, they can succeed by limiting selling prices to the level not profitable to new competitors (this is known as "limiting pricing“). Hith regard to the above discussion, one may expect that an association of some forms of market structure as measured by market concentration and the condition of entry may lead to favorable patterns of market conduct and also to good market performance. Conversely, other patterns of market structure or conduct may yield poor market performance. Further discussion in this theoretical framework entails brief definitions and discussions of some crucial notions used in this section such as market structure, conduct, performance and their determinants, and workable competition. Market Structure Market structure refers to the organizational characteristics of a market that influence the conduct of sellers and buyers in the market, and the nature of competition and pricing within the market. According to Marion, the salient characteristics of market structure are: 19 The concentration ratios measure the importance of the market share (or the proportions of total market sales or purchases) of a few leading firms, particularly the four-firm concentration ratios (CR4). A large number of firms (more than 12 firms according to the Scherer’s rule (p.199)) in a market may have a competitive influence even if concentration is high. The reason is that some of the small firms that operate on the fringe of the market have the ability to expand if leader firms decide to limit the commodity quantity and raise prices. However, if the number of firms is very small, concentration ratios measure the importance of market leaders. It is suggested by some economists that a 40 percent market share in a given market is sufficient to confer leadership to a single firm. Peggget Qifferegtietien The degree of product differentiation may be another important market structure characteristic influencing market conduct and performance. According to Bain, the degree of product differentiation refers to the difference in consumers’ preferences for some products between several competing products sellers within an industry such as fed cattle and range cattle, or fat beef and lean beef. In technical terms, the degree of product differentiation measures the degree of substitutability of various products to consumers. This measurement should be normally obtained through the cross-elasticity of demand between the products. A small price decrease of one product should produce at least a perceptible reduction in demand for other close substitutes. Between distant substitutes, however, a small price change 20 for one product should not affect perceptibly the demand for the other products. To give full meaning to product differentiation, however, there might exist some consumers’ ranking of close substitutes based on their scale of preference. Some consumers may prefer one product and some another at comparable prices. Some may be willing to pay a price premium to get their preferred product while others would require a price concession in order to buy the same item. Moreover, the fact that one product is preferred to others may imply that the income elasticity of demand for the preferred product may be higher than that of the other products. Thus, when incomes rise consumption of the preferred product (e.g. fat beef) would increase more than the consumption of the others (e.g. lean beef) if there is no change in relative prices. Factors of product differentiation are many and may include all. causes which make consumers to prefer one competing product to another. The most accepted of these sources are: 1. differences in quality or design among products; 2. consumers’ lack of knowledge about the essential of characteristics and qualities of the product they are purchasing. In this situation, buyers rely on the reputation of sellers or products; 3. persuasive sales-promotion activities of sellers and particularly by advertising; 4. name brands heavily advertised as prestige products; 5. locational differences among sellers involving significant costs in the product delivery or pick-up for sellers and buyers. The presence of several of these sources within an industry at the same time may develop an effective product differentiation. 21 The effects of product differentiation on the market conduct or performance depend on the degree of product differentiation. They would be found essentially on product pricing, and on the levels of market shares. If product differentiation is great, market share would be less sensitive to price determination, price competition is likely to be much less important than non price competition, and costs are expected to be adjusted relative to comparatively insensitive prices rather than prices to costs. If, on the contrary, product differentiation is relatively slight, there would be only a smaller proportionate emphasis on non- price as compared to price competition, and there would be a greater potential instability of market shares. Moreover, the character and distribution of consumers’ preferences between established products and firm on the one hand, and newly introduced products and sellers on the other hand, may influence the degree of advantage that established firms may have over new entrants to create some barriers to new entry. r i r r These characteristics refer to anything that provides established firms an advantage over potential entrants. In economic theory there are five commonly recognized types of entry barriers: - The absolute cost advantages of established firms over newcomers so that new entrants have higher per-unit cost; - Scale barriers, where minimum efficient scale exists; - Product differentiation; - Capital barriers due to the size of required investments for efficient entry, or due to favorable access of entrants to required liquid funds; - Strategic behavior intended to limit the possibility of entry for potential entrants. In addition to the above barriers, other barriers such 22 as training barriers (where experience is required), ethnic barriers, legal barriers due to higher tax and license fees, market information constraints, and transportation barriers can be considered as disadvantages for potential firms in the context of this study (see Chapter 2). Market Conduct Market conduct refers to the patterns of behavior that firms follow in the markets in which they operate. As sellers, firms are chiefly engaged in profit-seeking activities. Thus, their market conduct encompasses mainly: - Pricing and related market practices including the selling prices and quantities of the product that sellers adopt in order to satisfy individual or collective goals; - Mechanisms of interaction of vertical coordination to link successive stages of economic activities and achieve the firms’ pricing and market policy objectives. These policies may be determined independently (in a competitive market) or interdependently (in a non-competitive market). The study conduct findings are presented in Chapter 3. Thus, the market structure is an important determinant of the behavioral alternatives open to firms. However, market structure alone does not determine market conduct. Government regulations such as price fixing, trading licenses, and enforcement activities can also influence market conduct. Market Performance The examination of market performance is one of the most difficult conceptual tasks facing marketing economists because it involves many problems. The problems are mainly: 23 1. Establishing a set of relevant performance criteria as a standard of comparison; 2. Prioritizing performance criteria once they have been selected; 3. Measuring actual market performance with regard to the selected performance criteria; 4. Interpreting empirical measurements once they have been made. To address the first problem, many theorists, notably Bain (1959), Sosnick (1964), Marion (1975), Shaffer (1980), and Scherer (1980) attempted to establish lists of operational performance criteria. Although the lists differ, some performance criteria reappear consistently. These criteria are mainly: technical efficiency, economic efficiency, pricing (or allocative) efficiency, profit levels, competitiveness, progressiveness, employment, distribution of income, equity, flexibility, and adaptability. But any selection of a set of performance criteria is difficult and sometimes controversial because perceptions as to what is important differ through time, across space, and between individuals or groups. The second problem is as difficult to solve as the first one. Since economic theory does not provide specific guidelines for selecting universal performance criteria, it also does not provide means of prioritizing among criteria once they are chosen. Finally, once agreed performance criteria are selected and prioritized, and empirical market performance is measured, the interpretation of the findings is necessarily subjective. The attempt here is to define the concept of performance first and discuss the 24 criteria we deem relevant to the measurement of the subsector under study. Market performance, according to Marion, refers to the composite end results of a subsector. These end results include several dimensions or criteria. In this study, two main dimensions will be evaluated: pricing efficiency as measured by profit margins, and operational efficiency (see Chapter 4). Profit margins are the residual received by a firm from its sale revenues over all costs incurred. Thus, profit margins are the best judge of the relationship of selling price and costs. Profit margins for many economists refer to the normal return to investment and management. Relatively high profit margins are generally associated with market power, barriers to entry, risk premiums, and windfalls due to unanticipated changes in demand or supply conditions. A long-run normal profit (equivalent to the opportunity cost of resources’ best alternative uses) is indicative of an allocative efficiency. In contrast a long—run large profit margin (higher than the Opportunity cost of resources) reveals an allocative inefficiency. Similarly, a negative profit margin (compared to the opportunity cost of resources) and net losses reveal misallocation of resources. Operational efficiency is measured by how closely the firms operating in the markets approximate the lowest attainable costs. The operational efficiency is then strongly influenced by the firm’s size or scale (with regard to the optimal scale). However, high operating costs or inflated costs are associated with higher assembly, transport, storage and processing 25 costs, high risk premiums, and other inefficiencies due to organizational slack and waste of resources in outdated technologies. Horkable Competition To a large extent, the attainment of good market performance rests on market competitiveness. However, market competition required in such conditions is not the unattainable perfect competition discussed in economic theory, but workable or effective competition, in which some assumptions of the perfect competition standards are relaxed. Thus, here, competition is conceptually considered workable or effective whenever there is an adequate number of participants (buyers and sellers), no one of whom is precluded from entry or exit to a particular stage of a subsector, and no collusion exists among participants at any stage of a subsector. As a consequence, effective competition according to both Bain and Kohls rests on the following assumptions: 1. Large (adequate) numbers of both buyers and sellers to provide marketing alternatives, as no single participant can influence prices; 2. Free entry (or exit) into business without handicaps (measured by the absence of barriers to entry, including access to market information); 3. Absence of collusion among participants (as measured by the absence of market agreements to restrict the entry to newcomers, to limit the volume of the product on the market in order to bid down purchase prices, or to force up sale prices). These competition indicators accept the real-life conditions in which both price and non-price competition are used and large firms will develop as they exploit the economies of scale and adopt new technologies. 26 Hhere the above conditions of effective competition are not satisfied, one should expect to find relatively few participants (holding market power), collusion among participants, and/or difficult access to market and market information. Di r o r ro Several approaches are used in agricultural marketing research, and the most known among them are: the institutional approach, the functional approach, the industrial organization approach, and the subsector approach. This study dealt with the subsector approach. According to French, subsector is defined as a group of economic activities related vertically and horizontally by market relationships, that are involved in the production and distribution of a closely related set of commodities. As such, the subsector normally includes several industries. The conceptual framework adapted by Henderson (1975) and Marion (1976) to subsector analysis is the structure-conduct-performance paradigm of industrial organization theory, and it points out that basic conditions plus subsector structure strongly influence conduct, which in turn has an important effect on subsector performance (Figure 1.1). Thus, the subsector approach is perceived as a modified industrial organization approach. However, it differs in many aspects. First, the subsector approach focuses more on the vertically linked set of participants, while industrial organization looks primarily at a horizontally linked set of similar firms. 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Third, the subsector model puts emphasis on the importance of coordinating mechanisms such as bargaining associations, cooperatives, transportation systems, information systems, government programs, contracts, etc., and factors affecting the process of coordination (conduct) such as incentives, management practices, adequacy of inputs and flow of information. In general, the subsector approach is most used in the description of the organization and operation of commodity marketing systems, in the diagnosis of constraints to improve the performance, and in developing policy recommendations to remove these system constraints. The subsector approach was pioneered during the 19605 and 19705 by a group of policy oriented agricultural economists of the North-Central Regional Research Project 117 (NC 117), led by Bruce Marion. According to Marion (1986) the major objectives of the project were: 1. To describe the structural characteristics of industries involved in the food system, identify the changes and causes of change in the structure of these industries, and determine the effects of alternative structural configurations on farm product prices and access to markets, the performance of marketing firms, consumer products and prices, local communities, and the distribution of income among participants in the system; 2. To describe the vertical organization, systems of price discovery and coordinating mechanisms of selected commodity subsectors, identify the changes and causes of change in the organization of these subsectors, and determine the effects 29 of alternative vertical organizations, price discovery systems, and systems of coordination; 3. To describe the legal environment of the food system, determine the effects of the law on the organization and performance of various parts of the food system, and evaluate the effects of alternative legal environments; 4. To identify and evaluate the consequences of alternative public and private actions that could be taken to alter the future organization, control and performance of the food system. Subsector analysis is more than an analysis of the various industries that are part of a subsector, however. Although such industry analyses may be useful, the essential characteristic of subsector analysis is focusing in on the total vertical complex as a system. For the purpose of this study, the subsector approach represents a valuable tool for the understanding of the nature and organization of the cattle and beef subsector, and the mechanisms used to coordinate the vertical system from the producer to the consumer. Within this approach, the study allows one to observe how the structural and behavioral dimensions of producers’, traders’, and butchers’ markets are related and how they affect the cattle and beef subsector performance. W This dissertation is divided into five chapters: Chapter 1 reviews the importance of the livestock subsector in the growth and the development of the Malian economy, and justifies the relevance of the present study. It also reviews the existing studies on livestock and especially cattle marketing in Mali and West Africa, and describes the research objectives. Finally, the chapter describes the 30 conduct of the field research procedures, the market structure, conduct, and performance conceptual framework, and the research approach. Chapter 2 describes the cattle and beef subsector organization in Mali including the production, marketing and marketing infrastructure. It also describes the beef system in Bamako including the movement of cattle into Bamako, the sources of cattle supply and the volume of slaughters. Finally, the chapter presents the research findings on the cattle and beef market structures, especially the degree of market concentration and the barriers to entry into the cattle and beef markets under study, and their competitiveness. Chapter 3 presents and discusses the research findings on the market behavior of producers, traders, intermediaries, and butchers. It describes especially the market conduct in buying or selling cattle or beef including commodity price and quantity determination strategies, and the vertical coordination mechanisms used. Chapter 4 examines the empirical findings on market performance and identifies constraints to good performance. It particularly analyzes two important performance dimensions: operational efficiency and pricing efficiency in the cattle and beef market. Finally, the chapter discusses two important marketing issues: the alleged redundancy of middlemen in the Bamako cattle market and the contention that cattle buyers exploit farmers. Chapter 5 summarizes the study findings on market structure, conduct, and performance. The chapter also recommends alternative policies to remove the identified performance constraints and identifies research areas that merit further studies. 31 The Appendix section provides detailed information on field research surveys and additional tables which support the discussion presented in several chapters. After the presentation of the study’s analytical framework and its research approach, an attempt is made to relate the economic theory discussed above to the empirical evidence observed during the research. 32 CHAPTER THO CATTLE AND BEEF MARKET STRUCTURE This chapter explores the Malian cattle and beef market structure, conduct and performance by surveying its main structural features. The chapter’s main purpose is to present the empirical findings on market structure needed later for the evaluation of market performance in Chapter 4. The first section of the chapter describes the cattle subsector organization in Mali including the production, the marketing, and the marketing infrastructure of range and fed cattle. The second section deals with the beef system in Bamako. The third section presents the research findings on the cattle and beef market structure including participants’ socioeconomic characteristics, sellers’ concentration and barriers to entry into the cattle and beef markets under study. Finally, the chapter conclusions summarize the findings and analyze their economic implications. 0 r o 'n i The cattle and beef subsector includes the production, marketing and consumption of range and fed cattle and of beef. The simplified flowchart presented in Figure 2.1a of the main stages helps track the vertical system for the subsector. 33 Fig. 2.1a SUBSECTOR DIAGRAM Village Range Village Fed Cattle Cattle Production Production and Market l I Neighboring Interior Markets \ I/i’ , BANAMBA MARKET P”////:i/j;?r Modern so TraditionaT\\\\\\\\\\f KATI MARKET k/////;/// Long Distance 3 Interior Markets \\ r \ BAMAKO MARKET _\_ -Exports Slaughterhouse Facilities in Bamako Meat Shops Beef Market Hotels and ! Other Institutionsi i CONSUMERS IN BAMAKO 34 Range Cattle System The range cattle system is the most dominant production system in Mali. Thus, the description of the range cattle system organization in Mali provides information about the cattle system organization in the geographic areas under study and helps in the understanding of the environment in which this particular study is taking place. The range cattle system in Mali is geographically dispersed, stretching from livestock production areas (mainly in the semi-arid zones in the fifth, sixth, and seventh regions, Niono and Macina in the fourth region, Nara in the second region, and Kayes and Nioro in the first region), to centers of high demand for beef in major Malian cities like Bamako, the capital city, and cities in coastal countries such as Abidjan and Bouake in Cote d’Ivoire, Kano and Lagos in Nigeria, Monrovia in Liberia, as many as 1,500 kilometers to the south. Until recently, few cattle were being produced near the major consumption areas to the south of Mali because of humidity and disease problems, particularly the problem of trypanosomiasis. As a result, most of the beef consumed in Malian cities and to some extent, in Cote d’Ivoire is for a large part from the Malian Sahel zone (table 2.1a). Because the major producing areas are in the north, and the major consuming areas are in the south, the flows of cattle and the principal commercial circuits are aligned in the north-south direction. Thus, factors that play a primary role in shaping the cattle marketing system in Mali are the distance between producers and urban consumers and the 35 Ami..— . 828m 585..3.854%;58.58.382.32n58886.82an55858658.35.382.52..822....v. :2. 3.5... 8282' 58.8 58.8 .828 .828 .825 .825. .82.. . 82m .82.. . . 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This is especially so in the context of Mali’s poorly developed communication systems. Such operations, require the involvement of several stages and many market participants, with each participant undertaking a specialized action or operation between producer and consumer. Market agents involved in selling and buying cattle in Mali include traders, intermediaries (brokers) and butchers. Other features of the marketing system are the important phenomenon associated with the transhumance system of cattle production in the Sahelian zone and its impact on the supply of cattle to the major southern markets. With the onset of the dry season, large numbers of cattle are sold before the transhumance. The most economic arguments advanced to explain the herder’s motivation to sell are for tax payment, grain supply, and purchase of household goods or to get rid of those animals in such poor condition that they are unlikely to survive the dry season. Yet, the relative importance and impact of each of these factors on the supply is not fully understood. Cattle Marketing Infrastructures In Mali, cattle are mostly sold in cattle market places. These markets are classified by 0MBEVI into three types: collection (assembly) or country markets; distribution or intermediate markets; and terminal or consumption markets. 37 Collection or Country Markets Collection markets (like those of Banamba) are located on open ground with no fixed facilities. They are generally located in producing areas where animals first enter the marketing chain and where herders sell their cattle to small traders and to other herders. Each of these country markets handles between 5,000 to 20,000 cattle per year. Calves, males of one to three years old, heifers and old cows account for most of the cattle presented for sale in country markets. Adult males destined to slaughter or export are very few in these markets. They generally enter the marketing chain in redistribution markets. Redistribution or Intermediate Markets These.are larger markets, where normally the wholesale assembly is ‘made for the supply of distant terminal or consumption markets. Here primary buyers sell the cattle to long distance traders or intermediate traders who ship them to the south or sometimes to export traders. Moreover, local butchers also buy less valued animals in these markets for local consumption. A few redistribution markets are equipped with facilities and provide services such as watering points, and shelter for men and animals. Such equipped markets are owned and controlled by 0MBEVI or by local governments. A redistribution market typically handles between 20,000 and 50,000 cattle per year. In these markets, mature males and cull cows are generally dominant. However, young males are offered and may account for one-third of the total number of cattle presented. Heifers and old cows account for a small percentage. 38 Terminal or Consumption Markets Terminal markets are located in big cities, and cattle in these markets are slaughtered or moved on to export markets. Participants in these markets are traders (sellers as well as buyers) and urban butchers. A terminal market usually handles more than 50,000 cattle per year. In these markets, mature males account generally for about 80 percent of the total number of cattle offered for sale. Young males of between 3 and 4 years constitute most of the remaining 20 percent. Heifers and cull cows generally represent a very small percentage in terminal markets. Among these final markets Kati and Bamako (both analyzed in this study) are the largest. Major method of cattle transportation The major method of cattle transportation used in Mali between these markets is trekking because, except in the region of Kayes, railways have not penetrated the major livestock producing regions. Until the recent completion of the Mopti-Gao road, motor roads had also not penetrated the producing areas. Thus, almost 100 percent of cattle are moved on foot to domestic markets and 50 percent of export cattle are also exclusively moved on foot. The remaining 50 percent of export cattle are moved by truck and trek-rail shipment. It is alleged that trekking results in large weight losses in cattle and often deaths, particularly during the dry season and when facilities such as provision of water, organization of grazing areas, and veterinary control posts along the routes are absent. Mittendorf (1981) and Fenn (1977) estimated between 15 and 30 percent weight losses 39 in cattle trekking in Nest Africa. However, Staatz (1977) found a weight gain in cattle during the rainy season if trekked slowly. The second major transport method is truck, but as yet it is not well organized because of lack of good roads. Trucking is being used mainly for export cattle and small ruminants from Mali to Cote d’Ivoire. A third transportation method used for export cattle is a combination of trekking from the interior of Mali to rail-head at the border in Bobo- Dioulasso in Burkina Faso or Ferkessédougou in Cote d’Ivoire, then by rail to Abidjan. Government Interventions Besides the internal cattle system organization, there are also some government interventions. These interventions currently are mostly indirect interventions undertaken to improve the marketing of cattle and beef (except the case of SOLIMA1o which buys and sells livestock). They are in the form of regulatory and promotional measures. The most important of these measures are: - Control of meat prices throughout the country for the benefit of consumers; - Meat inspection before sale; - Licensing requirements for traders and butchers: — Provision of marketing facilities such as: . Livestock markets, totaling 144, according to the 0MBEVI 1982 census, among which 5 (Nara, Nioro, Niono, Fatoma, and Kati) are equipped with watering points, shelter for men and animals and even scales and holding pens in Kati; - One livestock trail (from Nara to Kati) equipped with 10 watering points; and 1° Société Lybio-Malienne pour l’Elevage et l’Agriculture 4O - Six modern abattoirs constructed in Bamako, Kayes, Gao, Sikasso, Segou, and Mopti. Beef Marketing Infrastructure The abattoirs and meat shops constitute the bulk of the beef processing and marketing infrastructure. Among Mali’s six modern abattoirs, only five were in operation in 1988. They are in Bamako, the capital city; Kayes, Mopti, Segou, and Sikasso. The Bamako slaughterhouse (AFB) was completed in 1965 and has a daily slaughter capacity of 220 head of cattle, 200 sheep and goats, and 50 hogs. These would produce 40 tons of carcass meat per day. There are holding coolers with a capacity of 48 tons or 800 beef carcasses, and refrigerated rooms for offal, mutton, and pork. The plant is very often operating at its designed capacity. Kayes, Segou, Mopti, and Sikasso have slaughterhouses with capacities of 20 cattle and 40 sheep and goats per day. However, on average, they are operating below their designed capacities. The construction of a modern slaughterhouse designed to handle 40 head of cattle and 120 sheep and goats per day was completed in 1964 in the producing area of Gao. Unfortunately, because of a much lower demand for meat than anticipated, this plant has never been operational. Besides these modern slaughterhouses, there are local abattoirs in most important markets and medium-sized towns. According to the ONE figures, a total of 470,000 head of cattle and 2,406,000 head of small ruminants (both controlled and non-controlled) were slaughtered in Mali in 1984. 41 Very little reliable evidence exists concerning actual consumption of animal protein in general and beef in particular in Mali. DNE estimated in 1985 that about 15 Kgs of meat and offal (including beef, mutton, and goat meat) were consumed per capita in Mali. Most of the beef sold in Malian markets is fresh and classified as boneless beef, with bone beef, or tag which is a mixture of meat, bone and offal in small and unweighted piles. Market agents involved in the sale of beef include butchers and their apprentices. Financing Systems Access to credit for purchasing of animals by traders and butchers is essential to good market performance. According to the findings of this study, however, cattle and beef market participants in a large majority have no capital and no access to bank credits. At present, the major source of capital lies within the marketing system itself. In Mali, the commercial banking system for livestock is very poorly developed. Since the failure of an earlier butchers’ credit scheme implemented by ECIBEV in 1975 due to many defaults on credits, only one State Institution (BNDA) currently provides entry-level credit on a short-term (6 to 12 months) basis. Livestock traders and butchers in Mali generally receive less favorable treatment from all credit institutions than do other businessmen (this is in contrast with PRMC support of cereal merchants thanks to the PRMC11 funds). Although the motives for such discrimination are not quite clear, they seem to derive partly from four reasons: 1‘ PRMC: Programme de Restructuration du Marché Céréalier 42 1. Resource scarcities related to Mali’s poor economic performance; 2. Cattle traders and butchers generally do not have collateral to guarantee the security of the loan (this reason is the one most often advanced by bankers); 3. Cattle traders and butchers usually pass all their commercial transactions outside the banking system, thus, banks cannot gauge their financial position. Bankers are more inclined to deal with those customers who pass all their transactions through their bank accounts than they are with those who do not disclose or disclose only some of their business; and 4. Cattle traders and butchers do not enjoy the political power that businessmen in manufacturing have. Thus, small traders and butchers are more often dependent on informal loans from relatives, individual lenders, or their trading partners. These sources often charge higher interest rates (as evidenced in this study) than would banks. Before its discontinuation in 1987, ECIBEV had indirectly financed the fed cattle trading system through fed cattle producers’ loans (see Chapter 3). The agreed-upon period of repayment of credit varies from 40 days for fed cattle first handlers to one day for butchers in Bamako (see Chapter 3). The long credit delay (30-40 days) at the fed cattle primary market level is justified by the fact that first handlers need time to assemble a lot of 20-30 head and trek to Kati or Bamako for sale. Evidence presented in this study shows that debtors generally extend the delays of repayment and even default. These abuses of credit resulted in high interest rate charges on capital in credit purchases (especially butchers’ purchases) ranging from 5 to 20 percent for a credit duration of 1 to 5 days. There may be many reasons why butchers delay repayment or default on credit. The most likely reason suggested by the study is financial 43 losses incurred by butchers (see Chapter 4). These losses were largely attributable to beef price control and butchers’ misjudgment of animal weights. Theoretically, when an indebted butcher does not repay his credit on time or defaults, the creditor can file a complaint and the debtor can be jailed and his belongings sold to repay the creditor. In practice, however, these actions are seldom taken. Thus, the creditor ends up as the final loser. Although credit market ratios have not been estimated, available evidence based on informal discussions with traders indicates they are low. This, however, is what one should expect given the large number of local traders (and to a lesser extent interior traders) discussed later in this chapter who provide credits. with such a large number of participants, the credit market is expected to be competitive even if concentration ratios are high. Yet, there is a need for further research on the matter to confirm or reject the results of the primary inquiry. Fed Cattle System The vertical system for fed cattle is similar to the range cattle ‘system organization except for a restricted geographical area of production, which is mainly located around the capital city. Moreover, the production system consists of three-month on-farm intensive feeding period during the dry season (January or February to March or April). The implementation of the dry season cattle feeding program, called in French "Embogghe Paysgnne," began in 1975 with the creation of the US-financed project called ECIBEV. The rationale for dry season 44 embouche paysanne was to take advantage of the low opportunity cost of the dry season labor and seasonal increases in cattle prices, to increase cattle supply in Bamako, and increase farmers’ income. One important phenomenon associated with the transhumance production system of cattle which dominates in the major producing areas (the Sahelian zones) is its impact on the supply of animals to the major southern markets, primarily Bamako. After the rainy season, October through February, the supply of cattle to Bamako increases considerably and their prices in general drop noticeably. During the next seven months the animals are away from the owners, and/or are in poor condition, making herders reluctant to sell. Thus, the supply of cattle decreases, generating an increase in cattle prices, with a peak in July. It was in response to these seasonal supply shortages and seasonal price variations that the Embggghe ansanne program was introduced in 1975. To achieve its stated objective, the project made possible for small farmers at the village level to buy feeders at the end of the rainy season, usually November through January, when the cattle prices are lowest. For that, ECIBEV provided cash loans to the farmer for the procurement of feeder cattle, and credit in kind in the form of supplemental feeds (cotton seeds), salt blocks, veterinary drugs and technical support in animal health and feeding methods through its field extension agents who resided in major villages. Farmers themselves were required to provide labor, water, and forage, such as peanut or cowpea hay. 45 The embouche program consisted of a three-month feeding period, usually from January or February to April, and allowed one or two months to sell fed cattle to traders. The daily gain was expected to be .4 or .5 kilogram. The expected improved conditions of the animals after the feeding period, plus the normal seasonal price increase during the dry season in Bamako were expected to benefit the farmers. These incentives for producers were expected to boost the production of fed cattle at least in the short run. (But in the long run, the increased supply may result in a decreased sale price, which could create disincentives for producers particularly if the increased supply was not due to cost- reducing technological changes). At the end of each campaign the farmers were to repay ECIBEV for the cash loans plus a fixed overhead sum called a Legeyagce. The reggyancg included the cost of the veterinary products, feed, the project’s operational costs (including technical assistance) on a per- head basis, a factor (premium) for default on credit, death loss insurance fees and cash loan interest rate. Through years, the cash loan amount was increased from 27,500 F CFA per head in 1975 to 45,000 F CFA in 1986. During the same period, the :edeyange also increased from 5,400 F CFA per head to 17,500 F CFA in 1986. Experience to date suggests that the feeding program has been a success at least at farmer’s level, as can be observed from table 2.1b. Hhen feeding activities began in 1975-76, only 108 cattle were 46 Table 2.1b ECIBEV Estimates of Embouchers and Fed Cattle 1n Banamba Zone |Year Emboucheurs Cattle : | (Farmers) | hay-3; """" a; """"" ;:. """ : :1976/77 65 113 : :1977/78 N/A* 267 : {1978/79 73 191 : {1979/80 64 270 : :1980/81 255 1034 : {1981/82 812 1799 : :1982/83 700 1200 : :1983/84 638 2466 : :1984/85 1046 3110 : {1985/86 465 1862 E Source: ECIBEV (Annual Reports) * Not Available 47 fed by 50 farmers. In 1985-1986, 4,655 were fed under the project sponsorship and 1982 farmers were involved. Emboucheurs of the project (in Banamba and in other feeding zones) gained an average return to farmers’ labor of 13,400 F CFA per head in 1985/86, and 14,200 F CFA in the 1987-1988 campaign, an equivalent of the average of monthly salary of a plant worker in Mali. The geographic areas selected for the implementation of the cattle feeding program were located in the mid-southern zone and included the counties of Segou in the fourth region, Banamba and Koulikoro in the second region (Koulikoro), as shown in Figure 2.1b. These areas are generally populated by farmers familiar with livestock and are environmentally suitable (free from tsetse flies and having relatively few cattle health problems). The geographical area covered by this study comprised the sole county of Banamba. This county lies in central Mali on the left side of the Niger River in the region of Koulikoro. Its climate is tropical, with two subtypes which differ from one another in their amount of rainfall per year: the Sudanian subtype, with 800 mm of annual rainfall, and the Sahelian subtype, with about 600 mm of annual rainfall. The main characteristic common to the two subtypes is the division of the year into a dry season from February to June and a rainy season from June to September. The division of the year into two main seasons has implications for human activities, which tend to be concentrated in the rainy season. During the dry season, there is a sharp decrease in the intensity of economic activities. This is due to the fact that the Saracolle and the Bambara, the two main ethnic groups 48 ALGERIA MAURITANIA NIGER K 0° BURKINA FASO SENEGAL -00 800 “-—Ieohyet (in mm.) ‘ Rivers GUINEA " ‘ ' ,./ ~ 5 ”a. Ora-farm cattle 1400 i ’“P' feeding zones COTE I D'IVOIRE FIGURE 2.1b Ora-Farm Cattle Feeding Zones in Mali which populate the county, are essentially agriculturalists. However, the Saracolle have also interest in livestock raising, including cows, sheep, goats, horses, and donkeys. The most important crops cultivated in the area are millet, groundnuts, beans, and cowpeas. The geographic area under study comprised 39 villages in which 465 farmers fed 1862 cattle in 1986. In 1975-76, when the feeding program began, only 35 emboucheurs were involved and 74 head were fed. Table B1 in the Appendix shows the evolution of cattle feeding in the ECIBEV feeding areas. Unfortunately, because of the project failure to reach its goal of marketing 4,000 fed cattle per year in order to be cost-effective, it was discontinued in 1987. The financing of the embouche program was supposed to be continued by the National Bank for Agricultural Development (BNDA), which effectively financed the 1987 embouche campaign, but failed to finance the 1988 campaign because many emboucheurs did not repay part or all of their debts. At present, the Ministry for the Environment and Livestock (MEE) is looking for alternative schemes for the continuation of the feeding program. After a brief presentation of a Malian cattle and beef subsector, the following section deals especially with the Bamako market for beef. 0 k 0 Demand Factors The major factors which can influence the level of demand for beef in Bamako are: the city’s population growth, changes in the per capita real income, and the costs of alternative meats such as mutton, fish, and chicken. 50 Po i r h During the last years for which data were available, the population of the city of Bamako has grown dramatically, increasing by a projected average of 7 percent per annum between 1980 and 1985, according to the city urban affairs project (Projet Urbain), as shown in Table 2.2. This growth is attributable essentially to a massive rural immigration to towns and cities (Bamako in particular) due to the drought and its related social effects (unemployment). This growth of the urban population tends to increase the total demand for animal protein since it is generally admitted that per capita consumption of meat is higher in the cities due to urban people’s eating habits and their lesser reliance on game meat and fish. However, the influx of immigrants may result in the reduction of the average amount of meat consumed per capita by urban dwellers as a consequence of changes in the relative proportions of different income classes in the city. According to the results of a census conducted in Mali in 1987, however, the total population of Bamako was 37 percent lower than the 1986 projected population. One may explain this decline in the city population by a massive emigration to rural areas of former immigrants because of improved climatic conditions and increased agricultural production beginning in 1985. The differences may also be due to inaccurate projections of the Bamako city population growth rate or to both false projections and massive returns of peasants to their lands. The former seems to be more likely, since the 1987 census in Mali shows that the projected estimates for 1987 were overestimated by about 37 percent. Assuming that the 1980 census and the 1987 census are correct, the 51 Table 2-2 Population Growth in Bamako (1980-1987) Year Population (000) 5;. """""""""""""""" 336'? 1981 588 * 1982 629 * 1983 675 * 1984 722 * 1985 773 * 1987 646** * Source: Bamako City Project 1986 ** Source: Malian National Statistic Office 1989 52 annual growth rate in Bamako between 1980 and 1987 would be about 2.5 percent and not 7 percent as assumed by £rgjet_grba1n_dujuali. Thus, for the 7 years the revised Bamako population estimates can be made (Table 2.4.). f i t The major substitute products for beef in the city of Bamako are mutton and goat meat, and to a lesser extent, poultry and fish. Changes in the relative price of any substitute may have an effect upon the consumption of beef since a decrease in the price of any of them has both an income effect and a substitution effect. Currently, however, because of its relative cheapness, beef (primarily beef with bone and gas) is by far the primary source of animal protein in Bamako. Table 2.3. presents the price of beef, mutton, and goat meat in Bamako. Data on fish and poultry prices are not available. According to 0MBEVI (Paper No. 68, 1976) beef is the most consumed everyday animal protein in urban areas, with mutton second and fish a poor third. Chicken is a luxury good reserved for ceremonial occasions. This is confirmed by the 1988 Robert R. Nathan Associates, Inc. study. Although cross-price elasticities for these substitutes are not available, one may believe that a rise in the price of beef relative to mutton may be expected to have some effect on the demand for mutton and vice versa. Beatrice L. Rogers and Collegue estimate the beef price elasticity in Bamako at -.6. W Personal real income level is an important factor affecting per capita meat consumption since meat is generally considered a superior 53 A.ma.-ooo. .uuoaem aeaanmmzo .eeuaom ouaum econ no.2 mean 3.4 2...." $4 mné nné nné mné 34 ........ madam umoo can acuuax «caved co.— . .— coa . .— oc." . H can can n: own 02. use: 3.09 can nevus: cos :2. cos coo coo nun 93 con «25¢ :33 moon ocod coo." can con 02. who can coo «econ usage.= mean .458. nsmoa-ooa.v "oxeaen :. «use: oeau.eenam age mean no wee.um .e.e.muo "n.~ oHAee 54 (preferred) good. According to 0MBEVI’s survey conducted in Bamako in 1974-75, the overall urban income expenditure elasticity for red meat was estimated at 1.25. This implies that a one percent increase in urban per capita income will be translated into a 1.25 percent increase in expenditures for red meat, other things being equal. A recent meat consumption elasticity estimate made by the 1989 Robert R. Nathan study yielded a very close 1.27. Data from the 1988 Horld Bank - World Development Report indicate that the real income per capita in Mali rose at an average rate of 1.1 percent per year from 1970 to 1986. The data, however, did not indicate the income distribution between rural and urban areas. Per Capita Beef Consumption in Bamako 1980-1987 Table 2.4. presents both the projected and revised estimates of. the population of Bamako city from 1980 to 1987 and the total beef quantity distributed in Bamako during the same period and recorded by the Abattoir of Bamako. However the per capita beef consumption estimate figures presented in that table may underestimate to some extent the real volume of the total beef consumed in the city because of the important quantity of clandestine beef sold throughout the city neighborhoods and also the inaccuracy of suburban slaughter recording. In looking at the same table it appears that there was no persistent tendency in the per capita beef consumption in Bamako until 1984. Between 1980 and 1982 there was a decrease of the quantity of beef consumed by each Bamako resident. Then it increased in 1983 and 1984. Since 1984 however, there is a persistent downward tendency in the per capita beef consumption in Bamako. 55 Table 2-4: Annual Beef Consumption per Capita in Bamako | Revised | Estimates Estimates Total Revised | Year of the City of the City Beef Per Capita ** Per Capita ** | Population Population Consumption Estimates Estimates l (000) (000) (Tone) (K8) (Ks) : ------------------------------------- |*** 1980 550 550 7274 13 2 I | 1981 588 563 7762 13.2 13.8 | | 1982 629 577 7193 11.0 12.5 I | 1983 675 590 8727* 12.9 14.8 I | 1984 722 604 10798* 15.0 17.9 I | 1985 773 618 10609* 13.7 17.2 I | 1986 827 633 9492 11.5 15.0 I |*** 1987 646 641 8369 12 9 13.0 Source: Table 3.1 and 3.4 * The increased volume of beef supplied in Bamako since 1983 may be attributable to a large extent to better recording of slaughters. ** These figures exclude clandestine slaughters *** Census years 56 One may believe that these irregularities are due to the lack of accuracy of the slaughter recordings or to possible changes in the relative populations of different income classes in the city. The mutton and goat meat consumption as presented in Table 2.5. did not seem to substitute in a systematic manner for the beef. However, a smaller percentage of total slaughters of small ruminants occur in the AFB than in the case for cattle. Thus, one cannot put as much reliance on the small ruminant figures. The fall in per capita consumption may also be due to the reduction in cattle supply following the 1981-1984 drought. Slaughter Facilities in Bamako In addition to holding coolers, the modern slaughterhouse (AFB) in Bamako city is equipped with a live animal scale which is installed in one of the three holding pens of the slaughterhouse. There is another scale available in the carcass dressing room to weigh hot carcasses. Running water is also available for cleaning up the slaughter floor. Both working conditions and sanitation are satisfactory in the building. There are three slaughter lines in the slaughterhouse, one for cattle, one for sheep and goats, and one for hogs. The lines are mechanized (however sheep and goats are slaughtered by the butchers or their apprentices) and operated by the abattoir personnel. Animals are delivered to the slaughterhouse in the evening, and they are slaughtered during the night. Carcasses then are dressed, inspected by veterinary agents, weighed and put in coolers. Carcasses are delivered to the butchers in the morning and transported to the city’s numerous meat markets by the abattoir vehicles. The Bamako slaughterhouse is open seven days a week. A total 57 0 Table 2-5: Comparative Beef and Hutton Slaughter Bamako: 1980-1987 Beef Mutton and Coat | Year 65.1.: ' 'QLQQQQQQQQ' ' ' 65.1.3: ' 3.882;: ' ' I (Tons) Change from (Tons) Change from | ' Previous Year Previous Yearl .......................................................... I 1980 7,274 821 : 1981 7,762 7% 927 13% : 1982 7,193 - 7% 977 5% : 1983 8,727 21% 1,212 24% : 1984 10,798 24% 1,146 - 5% : 1985 10,609 - 2% 847 -26% : 1986 9453 - 11% 813 - 4% : 1987 8369 - 11% 707 - 13% : Source: AFB (Annual Reports, 1980-87) 58 of 145 persons work in the abattoir, including slaughter line workers, administrators, and maintenance personnel. For the service it provides, the Bamako Abattoir charges 2,400 CFA per head of cattle to the butcher and 400 CFA for carcass transport to meat markets. In addition to the slaughterhouse discussed above, there are three uptown slaughter slabs where slaughter is carried out on the ground by butchers or their apprentices. A slaughter slab is no more than a simple concrete area that serves to keep the carcasses reasonably clean during slaughter. It is covered by a steel or straw roof and is furnished with a gantry for raising carcasses for easier skinning and dressing. There is no other equipment and no running water. But carcasses are inspected by veterinary agents and taxes assessed by the same agents. The carcasses produced by uptown slaughter slabs are generally sold in suburban neighborhoods. In 1987, the volume of beef produced by the uptown slaughter slabs was estimated by the AFB at 16 percent of the total beef consumed in Bamako. It was 15 percent in 1985. Recorded Slaughter and Seasonal Variations r o n In analyzing slaughter trends it is not easy to distinguish between demand and supply factors that could explain the observed year to year changes. Moreover, due to data recording problems in Mali, one should be cautious about the accuracy of data used here. They rather should be considered as a general indication. In looking at Figure 2.1. and cattle slaughter records in Table 2.6. in Bamako, it appears that between 1980 and 1982, the cattle 59 Figure 2.1 Annual Cattle Slaughter Cattle Slaughter In Bamako (1980-1987 ) Head 1 i )- 100 000» 75 0001b \ so oocfi T ‘v 1980 81 82 83 84 85 86 87 YEARS Source : Table 2.6 fir) Table 2-6 Annual Cattle Slaughter in Bamako (1980-1987) Year Cattle l "5;. """"""""" 5:... """ l 1981 55,083 : 1982 54,333 : 1983 68,733 i 1984 90,942 : 1985 91,631 : 1986 73,968 : 1987 67,173 : Source: AFB (Annual Report 1980-1987) 61 slaughter was stable, but between 1982 and 1984, it dramatically increased. These increases, however, are likely attributable to better recording of the slaughters, especially the including of the suburban slaughter figures beginning 1983 into the Bamako Abattoir records. However, a slight increase in the cattle slaughter due to the city population growth and/or drought-induced cattle sales is likely. Since 1985, a consistent downward trend is observed in the number of cattle slaughtered and since 1984 in the quantity of beef produced. Tables 2.5 and 2.6 show a drop of about 27 percent of cattle slaughters and 22 percent of beef produced in Bamako between 1984 and 1987. Between 1984 and 1935, beef tonnage declined (Table 2.5.), while the number of cattle slaughtered increased (Table 2.6.). This could be explained by a decline in average carcass weight in the two worst years of the drought. Although no data on changes in income in Bamako are currently available, one may explain this situation by a possible reduced beef demand (see Table 2.4 also) due to a per capita income reduction in Bamako. This income reduction was primarily due to massive state operated enterprise workers job losses as a consequence of IMF economic reform policies during the last four years. Data on mutton and goat slaughters in Table 2.5 do not support the substitution of beef by mutton and goat meat. However, the drop may also be explained partly by increased clandestine cattle slaughters in Bamako in order to evade abattoir tax payment. Supply factors such as a decline of offtake (as producers rebuilt herds following the 1981-1984 drought) also could explain the downward trend observed since 1984. One should recall that Mali 62 experienced drought from 1981 to 1984 which forced many herders to sell off stock. n l r i n Looking at Figure 2.2 (derived from appendix Table C2), it appears that the cattle slaughter in Bamako within the year is fairly stable and there were no important variations. The seasonal sale peak observed in December may be explained by the end of the year holidays. Indeed, although the population of Bamako is in large majority Muslim, people in many big cities in Africa celebrate the event by various social activities. Moreover, the relatively high demand in July can be explained by the series of National Youth Festivals which take place at least once every two years in the capital city. These events are usually held in July and gather nearly 5,000 young athletes and artists for two weeks. Moreover, the period between October and January coincides with the increased herders’ sales period discussed in the section above on seasonal variations in cattle sales. In addition, meat demand is generally increased during this period due to the marketing of agricultural products. In contrast, during the dry season, the supply is generally reduced due to the transhumance system and animal poor conditions. The average index, however, obscures some important seasonal slaughter variations in several years (especially at the end of 1983, and in 1984-85) as shown in appendix Table C1. These variations may be explained by different conditions regarding herd liquidation caused by factors such as drought, followed by reduced offtake for herd rebuilding. 63 in Bamako Inpex 140 n 120 100 so 60 40 if 20 0 Figure 2.2 Index of Monthly Cattle Slaughters variations (1 980-87 ) p-—---- .—-_ ......_..‘_.- J F M Source: 15 q Month Table oz 64 "i ii Sources of Cattle Supply in Bamako and Kati Markets Bamako’s beef consumption needs are met by two general sources of cattle supply: the city dwellers’ own fed and range cattle production and the cattle from the interior of the country including the fed cattle from the feeding programs. In general, the major cattle flows to Bamako conform to the country’s general north-south flow patterns (Figure 2.3). However, the patterns of the flows are constantly changing as traders adjust to market conditions, primarily supply and price variations. For example, the flows from Kati usually decline to about two-thirds of the December and January supplies during the rainy season because of the reduced quantity of Zebu cattle offered at that period, while the activities of Bamako’s suburban cattle market of Faladié, which is generally specialized in taurine cattle trade, are increased. This is due to the fact that butchers have preference for fatter meat, and usually during the rainy season only the taurine cattle are fat. The zebu cattle are in poor condition during that period. Figure 2.4. (derived from Table C4 in the Appendix section) presents graphically the monthly indices of variations of cattle offered for sale in the Bamako and Kati cattle market from 1980 to 1987. The Bamako city dwellers’ feeding program produced about 1,000 fed cattle in 1985, and 1,900 head in 1987 through BNDA12 financing. BNDA has for its objective to provide credit to government employees, traders, and farmers who are able to feed about 30 or more cattle per ‘2 BNDA: Banque Nationale du Développement Agricole 65 .an e. «Hosea no. mmHo>H. muasuuwo Hmauuosaoo manwocqum m.~ mmDOHm Quad/x5 Omos mauumo \\\! one»\vno: ooc.n . une.\enes coo.o~-ooo.n . .8332. 82858.8 e une.\eeec ooo.om .v mhmxxe on» mean :H e i «.5 cases i 3003\teos nu 33030 no: odeun emeuo>e ecu omm~ an e. UI-3-|‘6-----5'-'53"533353333'3833556665lie-III3.3-51.3I.‘1-166-631-63635lllxl‘ll'llll“.Illell-Iel"l'll‘|5‘lll'"Ill'll’lI3-153--51" mm omemn o 3.95.. o 9.2.5 m eAEdcen none...> hucsou 8 3.8.8.. _. I a. _eo:ev«nem _ _ _ exam _ _oaafiam _ xees\ccm~ n nN u - m. xooz\coq - nu xeosxqa . «N nee>\n 1 m .uee=. _ .ueex. _ _:o«aeu:o _ _ _ _ _ _ . _ _ _ _ _ _ _ eueum _ magneuu _ eneue>quu< _ auu>uau< _ c«o«uo _ asouo _ _ unocqaan _uaneuaa< _oo:e«uonum _ _ _ _ _ _ _ _ _ _ _ oneue>< _ eueue>< _ anon» _ ocoz unnamed cacaau nuocunom _ unuuezousm uneque> Heuo>om oxaEcm _ “Essa an o acuv _ mucus oauueo .Euoucu «ago: «coasm mo.uu.poEnon:~_ _ muopmuh _ opeuh coauom «sedan «aux use _ ocoz canaeu «ago: oerem _ _ eueuh “connem odaooeuem anemone _ 0:.990uo euaaeu ouoxuasoxv use ensue: _ easemen «comma ensusmm _ _ _ _ n:«teeu euaueo ucgnnouo ouoxuuaox egaOoeuem uncoopOum Anne» .25 5.: 3......» acecueoo .l'l'UU‘UU'l'-""6"303380'3803-'|'ll"-llllull'lilea|'II'I'-"-""II"II.I5lIl'Il'llll'll'UIo"I-Ie'UUUU'Rv"'UUUEUIUUU'U'UI'53"336311 nouuaaueuoeuesu nuancOuoo .ooau anon . not. «com uuezouan one neuueuvesueucH .aueveuh .euoosuOum °~.N canmh 79 According to ECIBEV, a total of 465 farmers participated in the 1986 embouche season in the Banamba zone and 1862 cattle were fed (see Table 2.1b.). At the second stage, such as in market places such as in Banamba, Kati and Bamako, almost all fed cattle sellers are traders, either professional or part-time. Only eight farmers interviewed out of a sample of 29 had attended the Banamba cattle market several times in 1986. In the Banamba Market The sellers at the Banamba market, which is essentially a collection or primary market, were mostly producers (herdsmen and peasants), although sometimes 5 to 10 small part-time traders sell a few cattle bought in Banamba county villages or in neighboring Nara and Djidiéni cattle markets. During each weekly market day in Banamba, each seller normally offers two or three cattle. Small part-time traders, however, can each offer up to 10 head in a single market day. The number of sellers offering cattle for sale at each market day is between 30 to 40, and the average number of cattle offered for sale per market day during the 1986 research period was about 100 head, as presented in Table 2.11. In the Kati and Bamako Markets In the two terminal markets of Kati and Bamako, which are only 25 kilometers apart, the market participants are almost all the same people and are professional traders. They attend the Kati market each Saturday and the Bamako market every day. However, a few sellers in the Kati market came from neighboring rural counties, such as Kolokani, Nara and 80 .aoo:¢>vu cannon haauu on» no vooavou own «panama an uoxuua oauuao any mo aouuabuuou on» was» unwound ua .oannu «an» scum ON Now anua Huuoa e a «flu know «a med «we moan nu and me» me: any voooououm cauuuo Auuoa Avuoav nouonv nu owuucouuom Hanan: oauuuo com oauuuo Huuoa Aucoz nomaa saan-hazv "aaaocan :« haaucox voucoaoum oauuoo HH.N manna 81 Banamba, and usually do not extend their trip to Bamako. Because there were no specialized sellers or buyers (selling and buying are simultaneously made by the same trader in these two markets), it was difficult to determine the number of exclusive sellers and the scale of their selling businesses. Thus, the discussion of traders’ activities in the markets of Bamako and Kati below deals with all aspects relevant to traders’ buying and selling activities. Cattle and Beef Market Concentration: Buyers In h F l M rk It is difficult to determine the exact number of buyers at the farm level because of the part-time trading system, which is made possible by the prevalence of buyers’ credit purchases. Nevertheless, eleven fed cattle buyers at the farm level were identified during the first phase research period (May-June 1986). At Kati-Bamako second buyer’s level, only three traders reported trading fed cattle during the research survey. In addition to traders. butchers also buy fed cattle in the Kati-Bamako market. Among the eleven buyers identified in the Banamba zone as fed cattle first buyers during the 1986 research period, six were professional traders; the other five were part-time traders, mostly agriculturalists or merchants of miscellaneous goods taking advantage of speculative opportunities given to them by the practice of fed cattle purchases on credit. All traders were from the villages of the areas and they belonged to different ethnic groups (Table 2.10). 82 In n rk t According to the 1986 research survey results presented in Table 2.10, six professional traders in the Banamba market regularly attend the cattle market. Moreover, two Banamba butchers were active buyers. Other buyers were rare in Banamba even during the period of fed cattle marketing. The part-time traders mentioned above were exclusively cattle sellers in the Banamba market. This relatively small number of buyers in the market of Banamba can be explained by the fact that it is a primary market and the low level of cattle supply in a collection market cannot support trading activities by more than a few traders. All six traders active in the Banamba market were from the county of Banamba and lived there, although in different villages. Three out of the six belonged to the Fulani ethnic group and were herdsmen like their fathers before becoming cattle traders. The three others belonged to the Sarakolle ethnic group and worked as agriculturalists (their fathers’ professions) before becoming merchants. Three traders in Banamba have been trading cattle for thirty years or more. The other three had between four and fourteen years of experience in cattle trading. All of them have cropping activities during the rainy season in addition to cattle trading. h rk i m k Traders in Kati and Bamako markets were both buyers and sellers. About 25 cattle traders regularly attended the Kati and Bamako markets during the research period in 1986. A sample of B of them were interviewed in 1986 in Kati and Bamako. They all lived in Bamako. Six 83 out of the eight traders frequented both the Kati and Bamako markets. Two attended only the Bamako market. Seven of the eight were from the region of Mopti and seven out of eight belonged to the same Fulani sub- ethnic group of Diawambe, while all the eight belonged to the same large ethnic group of Fulani. The eight traders interviewed had five years or more experience in cattle trading in Bamako and Kati, and three had ten years or more of experience in these markets. More than one half of the merchants interviewed had practiced the cattle trade for ten years or more. Seven of eight had cattle trading as their primary jobs and only one trader earned additional income from other activities (Table 2.10). During the 1988 research phase, only 15 traders were operating actively. Because of butchers’ non repayment of debts, several professional cattle traders had temporarily moved out of the cattle trade. In addition to the classical cattle merchants, there are also cattle intermediaries-brokers involved in cattle transactions. These terms historically are used to refer to two types of marketing agents: the landlords who provide housing and food to cattle buyers and/or cattle sellers, and the brokers whose primary role is to arrange commercial transactions between a seller and a buyer (but do not buy cattle themselves), and provide some other miscellaneous marketing services to a buyer or a seller. It was not uncommon that both functions were performed by the same person. At present, the term "intermediary" has been broadened to encompass small traders who themselves buy a small number of cattle on a cash or credit basis to resell within one or two days. Thus, it is no longer easy to designate 84 a stereotyped picture of an intermediary. In Bamako-Kati markets, the vast majority of so-called intermediaries are speculators who buy on credit and sell for cash on the same day. However, there are still a few commercial transaction facilitators or brokers remaining. There are no intermediaries or transaction facilitators in the Banamba market. The total number of intermediaries (including both brokers and speculators) operating actively in Kati-Bamako markets in 1986 was relatively large, about 20 to 25. In 1988 there were about 40. Eight intermediaries selected on a random basis were interviewed in Kati and Bamako during the 1986 research period. Table 2.10 shows that seven out of eight intermediaries interviewed had residence in Bamako. Six frequented both Kati and Bamako while one attended only the Bamako market and another one frequented only the Kati market. Six intermediaries were from the region of Mopti, and five belonged to the Fulani ethnic group. Out of eight, five intermediaries had ten years or more of experience in the Bamako-Kati market. Six of the intermediaries interviewed reported that they occasionally buy and sell cattle for themselves in addition to their brokerage activities. The others did not have other economic activities. flu1£h££5_1n_BEMQKQ Bamako butchers are the final buyers of most cattle offered for sale in Kati and Bamako. They constitute the main group of beef sellers in Bamako. The active types of butchers in Bamako are wholesale butchers, retail butchers, modern retail butchers, and clandestine meat sellers 85 for whom data are not available. In the context of the Bamako beef marketing system, the apprentice butchers do not directly participate in the exchange functions, although apprenticeships provide training for future butchering. According to the 1986 0MBEVI figures, 53 butchers were licensed wholesalers. Retail licensed butchers were estimated at more than 400. The 0MBEVI figures remain unchanged in 1988 although about 10 to 20 butchers have left at least temporarily the profession according to the 1988 research findings. Both retail and wholesale butchers make retail sales of meat, depending on the capital they own or the opportunity to purchase cattle on credit. During the 1986 research period, four modern meat shops were operating. Official regulations do not make distinctions between traditional retailers and modern retailers, although in practice the distinction does exist. In a traditional retail shop, all beef must be sold within a few hours. Facilities needed are usually simple, with a table or stall, a chopping block, hanging space, and sometimes a scale, while in modern shops designed for longer storage, more capital-intensive technologies such as refrigerated storage facilities are used. From the background information on the sampled butchers in Table 2.10, one can observe that no single ethnic group and no single region dominated the butcher profession in Bamako. Sample butchers belonged to at least six ethnic groups, and they were from at least four regions. According to the same data, 14 out of 16 butchers had 10 years or more of experience in butchering in Bamako. They were all apprentices 86 before becoming butchers. The apprenticeship duration was between 3 and 15 years. Sixty—nine percent of sampled butchers had more than 5 years of apprenticeship. The vast majority of butchers interviewed came from agriculturalist families. None of them had other economic activities. Data collected in 1988 from traders in Bamako (see footnote in Table 2.10) show that both cattle traders including professional merchants and intermediaries buying and selling by themselves, and butchers operated at very small scales. The average business size for cattle traders is about 2 head per day in Bamako, with a lowest size of one head per day and a maximum size of eight head per day. The daily average total share of sales during the 1988 research period accounted for by the largest four traders was about 26 percent. Such a concentration ratio is too low to confer marketing power to these leading firms. In the beef market, too, the 1988 findings show large number of butchers, low market concentration, and small scale of operation. The average business size of the butchers sampled is about two head per day, with a minimum size of one head and a maximum size of six head per day. The concentration ratios for butchers based on average daily slaughters indicate that the four leading butchers have about 15 percent of the total beef market. Product Differentiation Available information relative to product differentiation indicates that most of the factors such as sales-promotion activities (there is no advertising in the beef or cattle trade), name brands, and 87 effective locational differences (most fed cattle are produced and consumed in the same areas) influencing the occurrence of product differentiation are absent in the cattle and beef industries. However, data presented in Table 4.7 (on fed cattle and range cattle per kilo prices), in Table 4.8 (on high quality and low quality carcass purchase prices and per kilo sale prices), in Table 4.9, (on fed and range cattle dressing percentage and carcass composition), and in Tables 3.3 and 3.4 (on high and low quality beef per kg prices and compositions) suggest that there exists a premium for fed cattle and fatty beef. This evidence suggests also that consumers have a preference for fatter meat, and through the implicit price differential observed they implicitly rank the two beef qualities according to their preferences. Since fed cattle and high quality beef are preferred to range cattle and low quality beef, one may suggest that the income elasticity of demand for fed cattle and fatter beef may be higher than that of range cattle and leaner meat. That implies also that if there is no change in relative prices, as incomes rise the demand for fed cattle and the consumption of high quality beef would increase more rapidly than that of lean beef. Barriers to Entry Data collected during both the 1986 and 1988 research phases referring to conditions of entry indicate that: 1. The low trader and butcher concentration in Bamako, and the small size operation in both cattle and beef markets (as described earlier in this section), imply that it is not necessary for an entrant to come in on a large scale. Thus, scale economies are unimportant and do not constitute an entry barrier. 2. Cost data discussed in Chapter 4 show that cattle traders as well as butchers for all categories have almost constant 88 costs. Nhen costs disparities exist, they appear to be small (Tables 4.1 through 4.4). Traders who buy and sell cattle in Bamako may incur no cash costs at all. Twelve out of 35 sampled traders declared having no cash costs at all since they bought and sold their animals the same day in the Bamako market with no transport cost, no drovers’ salary, no brokers’ fees, and no government taxes and license overhead fees (in fact, these traders were officially categorized as intermediaries and therefore not required to hold a trading license). Nine other interviewed traders incurred a total cash transaction cost per head between 150 F CFA (about $0.50) to 190 F CFA (about $0.63). These transaction costs are composed of 150 F CFA for the overnight corral grazing costs, and 40 F CFA for the pro-rata share of their license fees for those traders who hold trading licenses. Traders who incurred these costs bought in Bamako one day and sold their animal the next day in Bamako. Among them, five were intermediaries. The 14 remaining traders in the sample incurred a total cash transaction cost per head between 750 F CFA (about $2.50) and 1,660 F CFA (about $5.50), composed of overhead, drovers’ salary, round trip travel ticket costs for the traders, and license fees. Those costs are incurred in the markets of Kati (between 750 F CFA and 980 F CFA, with an average of 820 F CFA) and in the long-distance markets of Niono, Fana, Konobougou (between 1,330 and 1,660 F CFA, with an average of 1445 F CFA per head costs). Eight out of the 14 were intermediaries operating in Kati but who did not hold licenses. There was evidence that scale of operation conferred pecuniary advantage in license overhead fees and traders’ round trip ticket costs. 89 However, these advantages were so small in absolute terms that their effect on total per head costs are negligible. The maximum cash transaction cost incurred by cattle buyers (in long distance markets) are about one percent of the total cost for a range animal purchased at a average price of 104,000 F CFA (about $346, see Table 4.7). Such a cost difference is indeed small. In the beef market, the twenty butchers (wholesalers as well as retailers) who slaughtered 7 to 9 head per week incurred an average total operational cost per head of 4,610 F CFA (about $15.36). The 23 butchers who slaughtered between 10 and 19 head per week incurred an average total cost per head of 4,575 F CFA (about $15.25). The 14 butchers who slaughtered at the largest scale between 20 and 40 head per week, incurred an average 4,630 F CFA (about $15.43) total operational costs per head. According to these figures, a butcher slaughtering 7 to 9 head per week, incurred a total operational cost 0.75 percent higher than his colleague slaughtering between 10 to 19 head per week. However, his total operational costs were .43 percent lower than those of his colleagues operating at a larger scale between 20 and 40 head per week. Because of these findings, one may conclude that in the beef market, butchers operational cost variations are of minimal importance. i l rri r Little capital was required for buyers or butchers to do business in both fed and range cattle trading or in butchering. In Chapter 3 evidence is presented on cattle sales and purchases indicating that 90 since most transactions were on credit, it was not necessary for buyers to possess liquid funds to do business in fed cattle trading at the first buyer’s level. However, a good credit reputation is necessary, and those traders with a bad reputation may find it a barrier to entry. No such trader was found during the study period. Consequently, one may conclude that capital was not a barrier to entry into the fed cattle trade. According to data presented in Chapter 3 (Table 3.1) the average capital required to enter into the range cattle trade, was in 1986 approximately 1,000,000 F CFA (about $3,333) in Banamba, Kati, and Bamako. These amounts are relatively large by Malian standards. In 1988, however, 20 out of the 35 sampled traders were trading on a credit basis. Such a heavy reliance on credit purchases indicates a considerable reduction of requirement for working capital. Thus, the 1988 data suggest that capital is a negligible barrier to enter the cattle trade. Similarly, butchers’ cattle procurement conditions indicate also a heavy reliance on credit. In 1986, 13 out of 16 butchers and in 1988, 44 out of 55 butchers interviewed purchased regularly on a credit basis. Such traders’ and butchers’ reliance on credit could largely be explained by the scarcity of capital available. As a consequence of the heavy reliance on credit purchases and butchers’ long delays of repayment and defaults, both cattle traders (sellers) and butchers (buyers) in Bamako and Kati recognized that there was a high premium on butchers’ credit purchases ranging from 5 percent to 20 percent for one- to three-day credit depending on the butchers’ 91 credit worthiness (Chapter 3, Table 3.1.). Therefore, although working capital is not expressly required to become a butcher in the Bamako beef market, the possession of capital prevents the payment of high interest rates on capital to sellers creditors (resulting from possible delayed repayment and even defaults), and enables the butcher to reduce his costs. Chapter 5 discusses recommendations to deal with the capital issue. §ggial Tie; Although there was no evidence concerning social ties and their effect on prices in the market, the fact that 50 percent of the emboucheurs sold their cattle to their habitual trading partners could support the assumption that, for some farmers, social ties based on a reliable trading relationship, familiarity, trust, fairness, and honesty of traders are important in fed cattle trading, at the farmer’s level. Thus, traders without such qualities may find doing business with certain farmers very difficult, especially since most sales are on credit. Because it may take relatively long time for an outsider to be trusted by the producers in order to compete successfully with the trusted and longtime buyers within the same trading context, social ties could be a barrier to entry for newcomers. Much of the trading activities, including intermediary activities in Banamba, Bamako and Kati, are in the hands of the Fulani ethnic group, different in language and culture from the majority of the population of Banamba and Bamako. The prominence of this ethnic group reflects historical advantages derived from the possession of skills, 92 experience, and knowledge to manage cattle. Furthermore, they have commercial experience which enables them to assess by eye the return (based on weight and quality) and costs (risks) in cattle operations. They also have a large network of relations and market information in which trade is conducted between herdsmen, intermediaries, speculators, moneylenders, traders, drovers, etc., all along the complete trade channel. It is unlikely that an outsider could reproduce successfully such advantages, at least in the short run. Nonetheless, to the extent that the Fulani ethnic group is very large (the second largest in Mali) and members help relatives get started in the trade, entry into cattle trade is made easier for these people. Butchers interviewed came from various ethnic groups and regions. In addition there was no evidence of any kind of cooperation other than market information exchange among butchers. Furthermore, there was no evidence of ethnic or region-based acceptance of apprentices by butchers. Thus, ethnic or social ties apparently did not constitute a barrier, in contrast to in some countries (e.g., Nigeria, Ghana), where meat trading is monopolized by a very distinct professional group. Legal Barriers; Licensing Reguiremegts Licensing objectives in Mali are to provide resources to the government budget, to allow adequate control over trading activities, and to ensure fair trading. However, beyond these aspects, licensing can also restrict the right to enter the trade and therefore reduces market competition. But no evidence was found to support the view that licensing was a barrier to entry. No such constraints were mentioned by 93 traders as a problem. This may stem from the fact that licensing regulation is not usually enforced or is only slightly enforced. This allowed many traders to bypass regulations by not having licenses, as data in Chapter 3, Table 3.1 and Chapter 4 (Tables 4.1 through 4.4) show. Moreover, Banamba part-time traders did not hold licenses. Furthermore, several professional traders in Banamba confirmed to the author that part-time traders usually do not have licenses. Another way for traders to bypass the regulations is to pay fees for lower license categories than they were required to, or to be registered as a broker. Licensing is not required for brokers. In the meat trade, legal barriers include not only licensing requirements but also meat price control. Licenses are required for wholesale butchers as well as retail butchers operating in Bamako. The number of licenses issued is not limited (as attested by the large number of licensed butchers), provided the butcher applicant can pay the fees and is in good health. The amount paid for license fees in 1988 ranged from 15,000 F CFA to 107,500 F CFA ($50 to $358) per year depending on the business size. These fees do not appear high enough to be a significant barrier to entry. Meat price control, however, if associated with legal penalties such as heavy fines, jail or license denial, would be an important legal barrier because the risk of these might discourage entry into the beef trade, particularly if the meat prices set by the government were out of line with the cattle prices. But so far sanctions have been limited to payment of fines. 94 According to the findings of this study, butchers in Bamako, by using various strategies, were able to evade the regulations. Besides selling in parallel markets and cheating on the weight or composition of a kilogram of beef, butchers in breaking the bulk into small piles or "tag“ easily evaded price control regulations, which did not apply to "tag" and certainly could not be enforced since the units dealt with were so small and their composition so varied. M rk n or 0 on In a competitive market, the bargaining position of buyers and sellers is conditioned to some extent by the degree to which they are informed. Buyers and sellers utilize information about supply conditions and price levels which is available. Better information for all participants should allow the marketing system to operate more efficiently or economically, and with more equity. Knowledge of prices and supplies in a market, thus, is essential if buyers and sellers are to take advantage of price differentials for a better allocation of resources. In contrast, uncertainty involves risks of wrong decision- making, which in turn involves costs. According to the data presented in Chapter 3 (Table 3.1.), in the cattle marketing systems under study, producers in the zone of Banamba generally have only indirect access to market information. Among the 29 producers interviewed in 1986, only 8 attended the Banamba market and reported having direct access to market information. The other 21 relied on market information provided by buyers or other producers. Cattle traders had access to market information by attending every market day and by exchanging views frequently on market cattle offers, 95 sales and prices in Banamba, Kati, and Bamako as well as in other markets. Such market information exchanges should be seen as a means to improve the market knowledge and thus enhance competition. The market information is available to anyone who attends the market since all animals offered for sale are exposed in the market yard and the bargaining is openly done. Moreover, information concerning other supplying markets flows easily and quickly (within one or two days) to all participants thanks to word of mouth and the market information exchange during traders’ conversations. The conclusion that should be drawn from the above is that market information does not constitute a barrier to entry into the cattle trade. Traders in Banamba, Kati, and Bamako markets generally have knowledge of cattle supply and sales conditions, and price levels in the markets they regularly attend and in other markets. This is possible because country markets generally are held once a week, therefore one week is necessary for information to vary. The results of the butchers’ interviews in Table 3.1 indicated that all butchers involved in the purchase of cattle for slaughter claimed to have information concerning market conditions (prices, quantity of cattle offered and attending buyers) in Bamako by regularly attending the markets of Bamako or both Kati and Bamako markets themselves. Given the long experience (more than 10 years on average) of these butchers in purchasing and slaughtering cattle in Bamako and the fact that prices are openly discussed in the cattle markets, one should believe them. Furthermore, information is available to all participants, even to those who were not attending the market, due to 96 the market information exchange between participants. However, one may be skeptical about the usefulness of such market information in the absence of a standardized cattle grading system in Mali. Malian authorities, however, have designed for about 5 years standardized uniform grades for livestock. Yet, these grades and classifications are not completely established. This absence in fact is just apparent because market participants (herders, traders, butchers) themselves have evolved a classification system based on the sex, age, weight, use, and breed that aids in the transmittal of market information. The rationale behind this classification is that the value of cattle depends largely upon the above physical characteristics, in addition to health and fatness. Given the extensive stockraising system in Mali, age, weight, and fatness are generally correlated. Cattle reach maturity between six and eight years. They usually tend to increase in weight and become fatter as they get older. However, the quality of meat (fat and tenderness) falls at older ages, especially for cows. Moreover, the constraints imposed by on the hoof transportation requires that cattle be at ages between six and eight to sustain the trekking effort. The older cattle, especially cows over eight years, and young animals are not suitable for export. Export cattle tend to be heavier, with an average carcass weight estimated in 1977 at 170 kg at the time they cross the border and 150 kg when slaughtered in Abidjan (Delgado, p. 338). During the same period, the average carcass weight of cattle slaughtered in the Bamako abattoir was about 130 kg. In general, steers are most used for export because 97 they tend to weigh more and are fatter than others. Younger cattle (heifers particularly) destined for breeding are generally valued more than those destined to abattoirs. Cows are usually sold at relatively old ages after serving for a long time as milk animals. They tend to have lower carcass weights and lower quality meat than steers. For that reason, cows have little export potential and are slaughtered locally. The breed and region of origin are also very important in the determination of the value of cattle. Large-frame Zebu from the Sahel are preferred to small-frame taurine from the south. The Sahelian cattle weigh more, are fatter, shrink less, and thus are more suitable for export than the lighter, smaller southern breeds. Overall, the traditional grading system provides a price premium to larger males between six and eight years old, with higher weight, better quality and export potential (Stryker, Table A-1). But this classification is not standardized and descriptions vary from one region to another. Farmers who are agriculturalists are generally not familiar with cattle trade language. For these reasons, the study recommends in Chapter 5 that a further study be conducted in order to establish a sound uniform grading system. Tr n or i ' r It seems unlikely that better information about price and supply conditions discussed above will be of much benefit to traders and butchers who do not have adequate means to transport their cattle from or to distant markets. 98 During the 1986 research period and in the markets under consideration, traders transporting their cattle to Banamba, Kati or Bamako were not faced with shipment problems because the single method of transport used was trekking (Table 3.1), and no restriction was involved. Furthermore, the costs involved (the money outlay essentially) appeared small (Tables 4.1 through 4.4). Thus, transport was not a barrier to entry. Since different transportation methods do not compete along the same routes, the comparison of trekking versus trucking or rail shipment is difficult. The transport of beef from the abattoir to the different markets in Bamako was made by private taxi in 1986 at the cost of 400 F CFA per carcass. Since 1987, beef transport has been made by the equipped meat transport trucks of the Bamako abattoir at the same cost (400 F CFA per carcass). No constraints have been found in access to this beef transport means, and transport costs were not found excessive by butchers. As a consequence, transport means was not a barrier to entry in either the cattle or the beef market. 1 io From the above discussions on traders’, intermediaries’, and butchers’ socioeconomic characteristics, concentrations, and barriers to entry into the cattle and beef markets under study, one can conclude that: 1. The cattle trading profession is largely dominated by the Fulani ethnic group which is very knowledgeable about livestock. This may suggest some barrier to entry related to ethnic and social ties. In contrast, there was no ethnic or regional domination in butchering. This implies that the profession is open and there is no ethnic barrier. 99 Cattle traders and intermediaries in Kati and Bamako, and butchers in Bamako relied exclusively on cattle trading activities and butchering for their living and those of their families. This makes their financial stability vulnerable to their business shrinkage as there exists no diversification. The rural cattle merchants in Banamba, however, relied to some extent on cropping. Hith the large number of cattle sellers and butchers, and their low concentrations, no individual firm can noticeably influence the market price and the quantity of cattle or beef on the market. Similarly, concerted actions by competing market participants to control the market price and the quantity of cattle and beef on the market, is unlikely because every market participant would find it advantageous to violate any collective agreement and could do so without retaliation from his colleagues. Cattle traders, intermediaries, and butchers had long experience in their professions. This suggests that both cattle trading and butchering require training and experience. The degree of product differentiation has been found slight in both the cattle and beef markets under study. Barriers to entry overall were quite low in both cattle markets (fed cattle primary market and fed and range cattle markets in Banamba, Kati and Bamako) and the beef market in Bamako. In such easy entry markets, established firms are unlikely to enjoy cost advantages over potential entrants. Economies of scale were relatively unimportant as each firm supplies an insignificant percentage of the total market sales. Neither capital requirements nor legal barriers were the basis of a deterrent to entry in either the cattle or beef markets. Market information was available to anyone interested. Transport was not restricted and its costs were low. The large number of cattle traders and butchers associated with the quite low barriers in the cattle and beef markets, and the availability of market information suggests that both the cattle market (including the fed cattle and range cattle) in Banamba, Kati, and Bamako, and the beef market in Bamako were effectively competitive in the structural sense. 100 Cattle traders and butchers in Bamako are financed largely by cattle traders from the interior. Though concentration ratios in the cattle credit market have not been estimated, one should expect that, given the large number of local and interior traders who provide credit, the cattle credit market concentration ratios could be low. The performance expectations of these competitive markets are: (1) lower marketing costs and normal profit margins for subsector participants, and (2) efficient resource allocation. 101 CHAPTER THREE CATTLE AND BEEF MARKET CONDUCT Chapter 4 will address the extent to which the competitive market for cattle and beef contributed to good market performance. Before addressing that, this chapter will discuss the conduct of participants in the cattle and beef market, which is also influenced to a large extent by market structure. Chapters 1 and 2 have suggested that market structure influences market conduct. In this chapter, we present and discuss the research findings on the market behavior of cattle sellers and buyers in the primary fed cattle market, in the Banamba, Kati, and Bamako cattle markets, and in the Bamako beef market. The first section of this chapter describes the conduct of fed cattle producers. The second section describes the behavior of traders in buying and selling cattle, and the behavior of butchers in the procurement of live animals and in selling beef. Finally, Section 3 deals with the conclusion and the analysis of the findings on the market conduct of cattle sellers, buyers, and butchers. For both sellers and buyers in a market, a matter of first importance is the determination of commodity selling or purchasing prices and the quantity of the commodity to be traded. The questions that arise then are: (1) whether the market participants really compete by acting independently in setting their prices and/or quantities, or do 102 they agree on what prices they will ask (or offer); and (2) what quantities to buy from or sell to the market. To the extent that cattle traders or butchers are able to coordinate their marketing strategies they may defeat the competitiveness of the cattle and beef markets observed in Chapter 2. The basic objective of this chapter is to analyze the available observable evidence on patterns of market conduct in the primary fed cattle market, in the cattle market in Banamba, Kati, and Bamako, and in the beef market of Bamako. This evidence is derived from the observation of indicators of conduct such as collective (interdependent) and independent marketing decision making. In the ideal world of perfect competition, prices are sufficient to coordinate individual behavior, but in the real world with market constraints and uncertainties, additional vertical coordination mechanisms also are necessary to ensure specialized marketing agents that commodities are available, with a certain level of reliability, in the quantities and qualities, and when and where they are needed. Thus, it is necessary to look at the vertical coordination in the cattle and beef subsector to gain insight into how the subsector works. According to Marion,t‘ vertical coordination is defined as activities employed to harmonize vertical stages of production and marketing. Pricing systems, integration (both vertical and/or horizontal), and contracting singly or in combination are some of the alternative means of coordination. 1‘ The Qrgenjzetjen end Eerformenee of the 0,5, Eoed System (p. 60). 103 Surveys conducted in 1986 with fed cattle producers, cattle traders in Banamba, Kati, and Bamako, and butchers in Bamako provided the data relevant to market conduct and vertical coordination (Table 3.1). Eed_Cattle_Er9dus2r_1§eller1_!arket_flebaxigt As shown in Table 2.10, farmers fed on average 4 to 5 cattle during the 1986 campaign. Twenty-seven out of 29 farmers interviewed sold their animals in villages (on farm) directly to buyers without intermediaries, and they reported always preferring to do so. Though transactions were made directly between sellers and buyers, trades were not made in secret. Rather they were made in the presence of many people, and the transactions conditions (price and terms of trade) were usually known to several people, as in traditional markets such as Banamba, Kati, etc. Only 2 sampled farmers sold their animals in the Banamba market. All the farmers who sold their cattle at the farm made sales on credit, with the agreed periods of repayment averaging 30 days. However, the period of repayment takes in general a longer time than the agreed-upon period. Only one emboucheur in the sample charged any interest, 5 percent on 40 day credit. None of them claimed that buyers default on credit. Almost 50 percent of the farmers interviewed sold their animals to part-time traders and 50 percent sold to professional traders. According to the results of the same interviews, the farmers dealt equally with traders with whom they were used to doing business and 104 .no«un«vgauoa:« hauauoomuo .nuOhaa ha nouozousm umuouu we on: connouxo on» :o canon unnuucuu noun-non moan and on acavuoooc vouusvou mood on: aauunao a, .ao«a«>uaoo ozosoaso :36 uuosa concocwu 2.268.. 83 5 doze 3 2.3.63 8.: as: BS 5 .528 .3 2.32:3 8:. :23 88 :2: .. oucnsuuo.ou:« naov on. naouuua n o» a :« unknown“ nuosoaam ocoz xouh uou«:&om mauve-ea: on 0» on usonvouu :oouo sumo advouu uoz oxaEam oucaaouo.ou:« axon vacuouco can auoxuqa a 0» a :u couuo 08“» on» nuovaua ocoz noun uoz unaccouu- on on n auo> uo ago: uauouo cannon acoco.onn.u «u-xnox¢8um oncnnoxo.ou:« vacuouco can sauna-a uuouauh ocoz xouh uoz deduced». anon anon anon coco acne ooo.ooo.u unaccon gunman can «canon nuooavOua unavoou and one: Jena one: Hosea ocoz ocoz anosuouu advouo nude cave-o wove-u nuoosvoum uuuuuuuuuuuuuuuu ululuiiiiiluuonlunuuiluntuitionunnluliiuouniuniaiounululnniiuunlunnllluuliilnuInnuuunolinnullnanitnlnlllnuluIain:un_ _ _accaouuavou _ unooo- _ a _ _ _ _ _ < eemsouom euaue>< Ago“ I so. anon-o _ owned _ _ Ace" I c.— oannau _ coo _ Amonouou _ unease . _ ano.n Ann.» ann.n _ .aon.a~ I . «55.nn I . noa.an I I _ -.on ooo.a on» ooo..- ann oom..o~ nan _ _ _n~n.- I . ooh.na I a can... I a _ _ «n.0c coo.n~ no: nan.oc~ nnn ooc.«nu nun _ _------------------------------------- .......... -------- ....... ------ ........ - ........... ------- ............. _ _ a< eumue>< eneue>< eneue>< eneue>< eneme>< eneme>< _ coon such I some: "aaexumz «can one osmium teen men one on men annual eeua uo acumen: auuomm .auevemh euaaao eucax com new s.c canon 15“) Butchers who slaughtered range cattle during this period incurred on average a loss of 18 F CFA per kg of beef or 2,600 F CFA ($8.60) per carcass of 146 Kg (average weight for range cattle carcasses). This financial loss is equivalent to about 2 percent of total carcass costs (Table 4.8). These data, however, do not reflect the yearly situation of the beef trade in Bamako, but rather the dry period picture characterized by unusually high cattle prices due to the decreased cattle flows to Bamako (Table C.1. in Appendix) resulting from the climatically determined production patterns in Malian producing areas mentioned in Chapter 1. According to the results of interviews conducted with both butchers and cattle traders in Bamako, during the other part of the year, because of favorable cattle supply conditions, butchers in Bamako are able to offset losses they incur during the dry season period by earning positive net margins. They may even be able to have positive average yearly profits. This may also explain why the Bamako butchers in a very large majority stay in butchering despite losses they incur during the bad period. The results of the study (especially those of fed cattle and fed cattle carcasses returns) are surprising and interesting since they reject the allegation generally accepted that fed cattle and high quality beef businesses are not profitable because the government price fixing system does not provide a price premium for fed cattle and high quality beef. In the absence of a uniform grading system for live animals and meat in Mali, and in the context of a uniformly administered pricing 151 nuo. IVDaa 3:333:- 95: a «o anon I'3'-'3'---"8'---'-II-Il---‘---l"-'ll'|'|I-----'Il"l'B'IIIIII'IlII’IIBl-8"---'33""3Io-"'--------'-"""'-'8'-l' _ _ _ o~n.n _ _ aka.~a I a _ no - . _ . _ non.aa I a . an + _ . .< _ nnm.w non. o~¢.au I a noo.- I a can can.n- Nae o~c.oc I a a-.as I a nun ooc.~n« coo a< _ eneue>< _ eneue>< os.o 50.nonsfl I m onm.cuu cN.nooaN I m ocm.nnu _ A< _ mmn.@ I a nnm.un I m Ace" I c. on" ween hand-so sou good I c. o-.~n I a ueen “an anunaao can: _ _ .eu. _ _ _a&u«e3 aaouuou _ manamoo _ _ eneue>< _ aaaoueu _ _ _ _ _ _ _ 8------8--""'l|"""lslu-""-""II'--'B""""-II-B'-'Il'llla-ll'III"|"""I.--'"-'|"-"ll-' noun hush I come! "oxdaon annouoz unwoum v:- uaaou aeaueuumu ueen hoaueao tog can soda 0. c eunuch 1152 system for beef, the reason for the profitability of the fed cattle trade and high quality beef butchering over range cattle and low quality beef businesses could be essentially due to higher live and carcass weight for fed cattle, bearing in mind that positive relationships exist between weight and boneless yield. According to the findings of this study, fed cattle weighed on average 20 percent more than range cattle (371 kg vs 309 kg). Fed cattle carcasses weighed 31 percent more than range cattle carcasses (191 kg vs 146 kg). The live weight average total costs per kg for fed cattle was only 6 percent higher than the live weight average total costs per kg for range cattle (357 F CFA vs 337 F CFA, Table 4.7). All the above differences in means between fed cattle and range cattle are statistically significant. The average total costs per kg carcass for fed cattle was 0.50 percent lower than the average per kg carcass costs for range cattle (808 F CFA vs 812 F CFA, Table 4.8). In the Bamako and Kati cattle markets, the average per head transaction cost differentials between fed and range cattle were very small in absolute terms (379 F CFA vs 536 F CFA). In the beef market of Bamako, the high quality beef and low quality beef butchering and distribution costs per carcass were the same (4,600 F CFA for each). Comparative Carcass Yield of Emeegehe and Range Cattle The reason for higher live and carcass weights for fed cattle over range cattle was due to the combination of the effects of the dry season weight loss that range cattle generally undergo, the well known compensatory growth phenomenon that fed cattle benefit from during their 153 feeding period (which is the dry season February-May), and the related higher dressing percentage. According to Mittendorf,‘I5 cattle on natural grasses without supplemental feeding in West Africa may lose 10 to 33 percent of their weight by the end of the dry season. This is due to the rapid decline in the grass quantity and quality to a level inferior to the maintenance allowance during the dry season. Furthermore, the crude protein content and digestibility decline as the grasses lignify over the hot dry season. The compensatory growth phenomenon is the ability of animals to obtain a high growth rate on unrestricted feeding (such as the emeememe) after a period of restricted feeding following feed shortages, such as occurs after the harvest period (November-December). Growth is defined here as an increase in weight, which in the emeemene case in Mali is primarily an increase in fat and water retention, considering the maturity of the cattle fed. The rate of growth within genetic potential limits is principally associated with variations in nutrition, especially the level of energy intake. In addition to live weight increases, another consequence of the cattle feeding system is a higher dressing percentage for finished animals. Dressing percentage, which expresses the live animal carcass yield (chilled carcass weight/live weight x 100), is essentially influenced by three factors: the amount of fill, the degree of finish, ‘5 cited in C. Bocoum: Master’s Thesis (Michigan State University - 1984) p.142. 154 and the weight of the hide. For the same animal breed and sex, the weight of the hide has only a marginal effect on dressing percentage. Thus, only the amount of fill and the degree of finish have influence on the live animal carcass yield. 1. The amount of fill (the stomach and intestinal contents) has great influence on the dressing percentage, and dressing percentage decreases as fill increases. Generally, the stomach of a finished animal (fed animal) is proportionally smaller than that of range cattle because of fat deposits and smaller stomach capacity required to handle feed concentrates. 2. The degree of finish or fatness is the other factor that is closely correlated with dressing percentage. Data presented in Table 4.9 show that the fed cattle dressing percentage was about 51 percent while those of range cattle was about 47 percent. Besides its consequences for live and carcass weights, the effect of differences in plane of nutrition of the empgmeme has also been reflected in differences in carcass composition, especially the quality of beef or fatness. According to the data presented in Table 4.9, fed cattle carcasses were composed of 58 percent of lean and 24 percent of fat. Range cattle carcasses were composed of 71 percent of lean and 11 percent of fat. Meat and fat composition patterns between high quality beef carcasses and low quality beef carcasses have been found to be significantly different. In comparing the results in Table 4.9, it appears that one effective kg of carcasses of fed cattle contained 9 percent more fat than one effective kg carcass weight of range cattle. This explains why beef from fed cattle is classified high quality beef while beef from 155 www.ma QNQ.NH oo~.nu nns.o I a coo.o I a nso.~ I a on no.cn an.nn unN.nc o~n.~ I a mmn.~ I a nan.“ I a on ~o.n~ an.cn n.nn u u u u acoooaeou aceconsou acocomaou owoaooouem econ ooh one: modaaeun coax zoo: com: com: 'l""'-I'--"""-'8""--""-""--"II'l-"8"-I|""|’ no. IvIao aocoouuncuua none: «on no ones «Inc oao.n I wax nwo. Ivoao accoununcuqa made: a up noes mmn.m «mm.o I a nno.~n I n man.um I a «cow I n. man man euuaeo annum flood I :. c-.~n I a mn~.an I a eaauoo no" nun can Roxy Aux. panda: annum: e>«q aaouuoo enouo>< amoneaoo anomo>< eauuoo coma Adan I soon: "oxoaon "acupunomeou nooouou coo onoacoouom unannouo muuaoo annum one can m.c manna _--_—..-—-—'—- 156 range cattle is classified low quality beef, although no specific standard fatness limits have been determined between high and low quality beef. In comparing lean figures, it appears that one effective kg of fed cattle carcasses contained 22 percent less lean meat than one effective kg of range cattle carcass. These differences in carcass composition, especially fatness, are to be expected considering the state of advanced maturity of these cattle. In order to evaluate the allocative efficiency of the marketing systems, it is necessary to qualify the above observed profit rates as normal, excessive or subnormal profit rates compared with rate of return to capital invested in other activities. According to Staatz (p. 365), the generally accepted range of estimates of the opportunity cost of capital in West Africa varied from 20 to 30 percent. However, before one can compare the trader or butcher profit margin rates to these estimates, it is necessary to recall that profit margin is composed of return both to capital and participant labor. To determine the return to capital it is necessary to know the number of times a producer, a butcher, or a trader rotates his capital per year. The return to labor is estimated by fixing an implicit wage for these producers, traders, and butchers. Producers’ Profit Margins For producers, it is known that capital used for cattle feeding activities does not rotate within a year because usually producers (both in urban and rural areas) feed cattle once a year. Cattle feeding 157 activities usually take place from January to April. Then, the production period is followed by a period of one month during which cattle are marketed. After June, it is no longer profitable to feed cattle since the finished cattle will not be cost effective because of the competition of fat cattle from abundant and highly nutritive rainy season pastures. Should one attempt to make an approximate estimate for the four months of the return to capital invested in feeding one head, then the result would be as follows: A daily wage for an unskilled worker in Banamba is about 400 F CFA while it is about 500 F CFA in Bamako. In 120 days a cattle producer in Banamba could earn (as opportunity cost) about 48,000 F CFA wage. Assuming that each cattle producer fed on average 5.5 head (in 1988, 28 sampled producers fed a total of 155 head), one head should provide a producer in 120 days with a wage equivalent to 8,725 F CFA (48,000/5.5). This leaves 5,475 F CFA for the return to capital invested (Table 4.6) in 120 days, equivalent to 6 percent or a rate of 18 percent per year, which would be considered close to the normal profit rate. However, if the opportunity cost of non tradeable inputs such as hay used in cattle feeding is taken into account, this rate would be considered as low. For a cattle producer in Bamako, who is generally a high level civil servant or a relatively important business man (for whom cattle feeding activities are rather a leisure than a lucrative job) an implicit wage of 750 F CFA per day is assumed. This is slightly higher than a daily wage of an unskilled worker in Bamako. Then, in 120 days, a cattle producer could earn a wage of 90,000 F CFA. Since he fed on 158 average 5 head (22 producers in the sample fed 115 head in 1988), one head would provide an urban producer with 18,000 F CFA as implicit wage in 4 months. That leaves 8,000 F CFA from a four month total profit margin (Table 4.6) as return to capital invested. This is equivalent to a rate of 7.3 percent in 120 days or about 22 percent per year. This rate would be considered as normal. However, it would be lower and even negative if the risk cost is taken into account, as will be seen later in this section. The significant difference in the per head profit margins earned by producers in Banamba rural areas and those earned by producers living in the city of Bamako (see Table 4.6), however, may be explained by a better bargaining position of urban producers through the use of go- between traders or intermediaries discussed earlier, and the Bamako market credit sale risk premiums. Nevertheless, one may be tempted to explain the rural producers’ lower profit margin rate as compared to those of urban producers by the existence of possible exploitation of rural emboucheurs by buyers, as alleged by many people. In order to explore this allegation, this part analyses the circumstances under which the alleged exploitation of emboucheurs by buyers may be possible. The analytical framework used for examining farmer exploitation is based on Bauer and Yamey’s theory“ of producer exploitation, which is in line with the effective competitiveness concept discussed in Chapter 2. 1° Bauer and Yamey: Nest African Trade (1954) 159 Producers’ Exploitation According to Bauer and Yamey, exploitation of producers by middlemen is made difficult if one of two conditions holds: 1. if there is competition among traders seeking to purchase agricultural commodities at the farm level; or 2. if viable marketing alternatives are available to the producer and he is informed of these options. The rationale for the first condition is based on the assumption that effective competition assures producers a fair price. However, such competition may not always prevail because production may be so dispersed and/or so small that some villages may not be able to support commercial activities by more than one or a few traders. This situation leads to natural monopsonies or oligopsonies. With such possible market power, traders may be able to secure large profits to the detriment of producers. The importance of Bauer and Yamey’s second condition stems from the above possible market power situation. Indeed, the rationale for the second condition is based on the belief that where producers are able to get their produce to other markets without great sacrifice of time, effort, or resources, the prices they receive locally cannot be far below those obtained in the more important market centers. The reason is that monopsonistic or oligopsonistic buyers, while appearing to have no competitors or imperfect competition, have nevertheless to set their buying prices in competition with other buyers elsewhere and they cannot depress their own buying prices so low that producers would be better off by taking their produce to other more distant buyers. 160 Analyzing the market conditions faced by farmers within this framework entails looking at the following data: 1. market structure data, including the number of market participants and the existence of barriers to entry into fed cattle trade at primary level; 2. data on the existence of market arrangements among traders; 3. data on traders’ profit margins (for Bauer and Yamey’s first condition); 4. data on the existence of market alternatives available to farmers; 5. farmers’ access to market information data (for testing the second condition). Almost all these data have been already discussed in the evaluation of the degree of competition in primary markets for fed cattle. The conclusions were that the market was generally competitive with no evidence of market power, no large profits, no serious barriers to entry, and no evidence of collusion among first buyers. Moreover, all market participants have access to market information. About the existence of market alternatives, theoretically, five marketing alternatives including farm level sales were available for the farmers. However, according to the findings of this study, almost all the sample farmers sold on farm. Several reasons advanced by farmers themselves explain the choice of the farm market option. They include the farmers’ lack of market experience, the small number of cattle and the cost (both direct and indirect costs) involved in moving cattle long distances, and the inconvenience of the trip in comparison with the price differential between farm and market options. According to data collected during the 1986 research period, the average price per head obtained for the sample cattle sold on a farm was 161 about 3 percent higher than the average price per head obtained for fed cattle sold in the nearby collection market of Banamba (122,000 F CFA vs 118,000 F CFA). However, it was not possible to be sure whether cattle were comparable since it was not possible to weigh cattle in the market of Banamba. One may speculate that the fed cattle sold in Banamba might be animals refused by traders at the farm level because of their low quality. But the average price of the 21 cattle sampled at the farm level was 6 percent lower than in long distance market of Kati (129,000 vs. 122,000 F CFA). The cost of moving cattle was estimated at 900 F CFA per head on large scale shipment basis. Apparently, the advantage that might accrue from selling in long distance was offset by the risk and inconvenience that such an alternative involved. In addition, there is no guarantee that farmers could obtain in long distance markets those higher prices obtained by professional (specialized) traders. In the overall assessment of market conditions faced by fed cattle producers in rural areas, one can conclude that there was no evidence to support the alleged exploitation of the producers by the buyers. Traders’ Profit Margins Given the prevalence of butchers’ credit purchases and butchers’ defaulting or not paying back credit on time, it is difficult to know how many times a traders’ capital rotates in a year. However, based on follow-up interviews conducted with traders and butchers in 1989 and discussed in Chapter 3, it appears that traders’ capital may rotate one time every 20 days from February to July and once every ten days from August to January. As a consequence, a fed cattle trader would possibly 162 rotate his capital nine times in six months while a range cattle trader would possibly rotate his capital 27 times in a year. If each trader receives a daily implicit wage of 1000 F CFA (an amount above the daily wage of an unskilled worker, but equivalent to a junior staff member’s daily pay) with a business scale of about 2 head per day, the return to labor for each trader would be about 500 F CFA per head. In 181 days, the implicit total wage to be provided to a trader by one head would be about 90,500 F CFA. Hith nine possible capital rotations, a fed cattle trader would earn a total margin per head of 153,000 F CFA (Table 4.7). This leaves the return to capital invested in six months at 62,500 F CFA, about 47.7 percent or a yearly rate of about 95 percent. This rate could be considered theoretically excessive compared to standards referred to in this study. For a range cattle trader, the per head annual implicit wage would be 182,500 F CFA. With 27 possible capital rotations he would earn a total yearly margin per head of 243,000 F CFA (Table 4.7). This leaves the return to capital invested at 60,500 F CFA, an annual rate of return of about 58 percent. This rate also could be considered high. These rates, however, do not take into account possible losses of principal due to loan defaults. Assuming one to five percent credit default risks on capital (Table 4.10), the yearly rate of return to capital per head for fed cattle would be: - 77 percent at one percent credit default risks; - 59 percent at two percent risk; - 41 percent at three percent risk; 163 Table 4.10 Cost of Credit Default Risk (From 1 to 5% Risk) Cost per Cost per Risk Fed Range Percentage Cattle Cattle (15) (1? CFA) (F CFA) 1 1310 1049 2 2620 2098 3 3930 3147 4 5240 4196 5 6550 5245 Source: Table 4.7 164 - 23 percent at four percent risk; and - 5 percent at five percent credit default risks on capital. From the above sensitivity analysis, only the rate of return to capital obtained at 4 percent risk of defaults would be considered as normal. The three first results are very high rates while the last one is a very low rate. For range cattle, a yearly rate of return to capital per head would be: - 31 percent at one percent credit default risk; this rate would be considered as normal. - 4 percent at two percent risk; this rate of return would be considered very low. - at a credit default risk higher than two percent, the rate of return to capital would be negative. Butchers’ Profit Margins About butchers’ capital rotation, there exist also some difficulties since butchers generally move out of the profession, at least temporarily during periods of cattle shortages to avoid heavy financial losses, the threat of which was evidenced by the losses many butchers experienced in the beef market. According to the study findings, 33 percent of sampled fed cattle carcasses and 56 percent of range cattle carcasses were sold during the period with a loss. Due to this situation and also, from time to time, supply difficulties on the one hand, and the fact that beef is often not sold out within a day, and/or that credit sales made to retailers (which are repaid between one and three days) on the other hand, it is estimated that butchers’ capital may rotate once every five days. This means that butchers’ capital may possibly rotate 36 times in the period between February and July, and 73 times between August and January. 165 If a butcher receives a daily implicit wage of 1,000 F CFA as his colleague trader, an implicit total wage for a high quality beef butcher in 181 days would be 181,000 F CFA. Since, on average, a butcher slaughters two head per day, the overhead implicit wage for the same period would be 90,500 F CFA. The total six month margin for a high quality beef butcher would be 108,000 F CFA (Table 4.8). Then, the return to capital invested in 181 days would be 17,500 F CFA, a rate equivalent to about 11 percent or an annual rate of 22 percent. For butchers who slaughtered range cattle during the same period, the performance is bad. Based on the above implicit wage and possible capital rotation times, and on negative margins obtained by low quality beef butchers in Table 4.8, the rate of return for the period between February and July would be about -155 percent. This means that during the bad period, a range cattle butcher may lose about two thirds of his total capital of two head. CONCLUSION As one can conclude, empirical evidence in this chapter suggests that: 1. in both cattle and beef markets, participants performed their marketing operations quite efficiently by using simple and inexpensive labor intensive technologies, by operating at low costs and by avoiding unnecessary costs. 2. profit margin rates for producers in the Banamba zone may be considered as low while those of Bamako producers may be considered as acceptable; the differential in margins between urban producers and rural producers may be due to urban producers’ better bargaining position and credit sale risk premiums in the Bamako cattle market; 3. the existence of price differentials between fed and range cattle on the one hand, and between fed and range cattle carcasses associated with the suggested fed cattle quick sale premium and consumer preference for high quality beef on the other hand, may suggest that the cattle pricing system is efficient (see beef sale section in Chapter 3); 166 4. cattle trader profit margin rates (without taking into consideration cost of possible loan default) appeared to be high; however, they should be judged within the particular environment of the Bamako cattle market, where uncertainty and risks are great; thus, these high rates may be the results of both normal return to capital and risk rewards or payment for the cost of uncertainty, especially credit risks; 5. profit margin rates obtained by butchers suggest that high quality beef butchering yields a normal profit while low quality beef activities lead to financial losses. This poor seasonal performance (see Chapter 4) suggests that some allocative inefficiencies could exist in beef markets. Should this situation last long, it would compromise the performance of the entire cattle and beef subsector. In order for the subsector to be efficient, all systems must function as part of a single system that efficiently moves beef from producers to consumers. Within the subsector under study, one should believe that butchers suffering losses would pass some portions of their losses on to traders (as evidenced by credit defaults discussed in Chapter 3), who in turn would pass them on to traders in collection and distribution markets, and to producers, causing producers’ selling prices to fall. This would result in a decline in quantity supplied and even a possible cattle shortage in the long run. The Government price fixing system could largely be responsible for these inefficiencies. However, an unambiguous single cause of these inefficiencies was difficult to establish in this study because one or two of the identified causes may interact (see Chapter 2). Other additional factors which could be responsible for the inefficiencies in the beef market may also be butchers’ misjudgments of the live animal carcass weight (though it is generally accepted that given their long experience in butchering, butchers have the ability to evaluate live animal carcass yield with only small errors). Finding remedies to these constraints to good performance is central to public policy and will be discussed along with the general conclusions of this study in the next chapter. 167 CHAPTER FIVE GENERAL CONCLUSIONS AND POLICY RECOMMENDATIONS Hawaii: The findings of the study indicate that with the large number of cattle traders and butchers and their low concentration ratios, the possibility for individual firms to influence market price and quantities of commodities sold is very limited. Similarly, chances for collusion among participants to control market prices and commodity quantities are small. Even if traders or butchers want to collude, their large number and their small size of operations would make any concerted actions unstable. In addition to the large number of traders and butchers, and their low market concentration, the degree of product differentiation and barriers to entry have been found to be quite low in both cattle and beef markets. This is because: 1. economies of scale have been found to be relatively unimportant; and 2. capital requirements, information access, transport means, and legal barriers have not been found to be deterrents to entry. The dominance of the cattle trading profession by a single ethnic group, however, suggests that some barriers to entry related to ethnic and/or social ties may exist. The large number of market participants, on the one hand, and the low barriers to entry on the other, suggest that both the cattle and beef markets are effectively competitive. mums; The study findings on participants’ behavior suggest: 1. participants in both cattle and beef markets made their marketing decisions independently. There was no evidence of 168 traders or butchers engaging in prior consultations or entering into agreements with rivals to raise or lower commodity prices or to restrict the entry of newcomers. In any circumstances, the large number of participants in each of the cattle and beef markets would make collusive behavior difficult or at least unstable; 2. there is a lack of the coordination mechanisms such as contracting, vertical integration, and horizontal integration which could reduce both price and supply uncertainties and risks, and therefore costs for both traders and butchers. The absence of grading and unreliable contract enforcement, and the scarcity of capital, make contracting or integration more difficult; 3. despite the lack of these coordination mechanisms, sellers and buyers appeared to perform effectively their activities as evidenced by the smooth flow of desired slaughter cattle quantities in Bamako during most of the year; 4. prices in cattle markets were set in market places through open bargaining between buyers and sellers. Beef prices were fixed by city authorities and they were generally respected by butchers at least in nominal terms. However, the real price of high quality beef exceeded the nominal price while the real price of low quality beef was lower than nominal price. By selling by tee, some butchers could evade price controls and sell their beef at higher prices by varying the weight of tee. Thus, consumers do not have the protection that is the main objective of the beef price control policy. Harket_2e:£9rmanse Empirical findings presented on market performance suggest that both the cattle and beef markets operated efficiently at low costs, using inexpensive labor-intensive technologies, and avoiding unnecessary costs. There is no evidence that the large number of middlemen in Kati and Bamako involved unnecessary costs. Rather, available evidence suggests that the middlemen performed economic functions. With regard to pricing efficiency, available evidence suggests that premia exists 169 for fed cattle and high quality beef carcasses because they are heavier and fatter than range cattle and low quality beef carcasses. However, data available cannot allow one to make decisive conclusions concerning the efficiency of the pricing system. The study’s evidence suggests that the profit margin rate for urban producers is normal, but that of rural producers is slightly below the lower limit of the normal rate, which is between 20 and 30 percent annual return to capital in West Africa. For cattle traders, profit margin rates were above the normal rate, but this rate may reflect to some extent the risk involved in credit sales to Bamako butchers. However, financial losses experienced by some high quality sellers and a very large portion of low quality beef butchers (Table 5.1), suggest the existence of some allocative inefficiencies in the beef market which call for remedies. These remedies are discussed in the next section. Wiles: The conclusions discussed above call for the following policy implications and recommendations: Market Competitiveness and Large Numbers of Traders The effective competitiveness of the cattle and beef markets (given the current scarce capital availability) stems from the relatively large number of participants, and the general absence of barriers to entry and collusion among participants. Consequently, any attempt to reduce the number of market participants may have negative results on market conduct and performance, notably on the market competition, leading to possible market power and increases in large traders’ profit margins. The consequences of such a situation (see the 170- section on alleged redundancy of middlemen in Chapter 4) would be reduced welfare for producers (lower cattle prices) and consumers (higher beef prices). Thus, the cattle marketing reorganization under study in Mali (if it includes limitation of the number of traders) could reduce cattle market competition and lead to higher beef prices, an increased parallel market, and the opportunity for corruption in the allocation of limited trading licenses by civil servants. Moreover, it is wrong to suppose that improvement could be obtained in marketing by compulsory limitation of the number of traders, so long as trade is productive and so long as no more productive alternative employment is available for those engaged in the trade. One should remember that besides its role of linking production and consumption sectors, the marketing system also contributes to economic growth and income distribution through the generation of many jobs involved in the transfer of the commodity from producer to consumer. Therefore policy makers should be cautious about any policy which leads to the limitation of market competitiveness and opportunities for employment. Policies should rather be aimed at removing constraints to good performance, enhancing competition by eliminating entry barriers, and promoting productive employment opportunities. In this regard, this study has identified two possible major constraints in the beef market for which government interventions may provide corrective measures: the high interest rates charged by cattle traders when selling cattle on credit to butchers, and the government beef price fixing system. 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