The downstream economic implications of predation in the red meat industry

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Estimated reading time: 9 minutes

  • Livestock losses due to predation is not new in South African livestock producers.
  • Predation usually becomes problematic where there is competition for the same natural resources.
  • The economic implications of predation can be divided into two categories: the physical loss of animals, and the economic ‘downstream’ or induced effects on the livestock industry and related sectors of the economy.
  • By making use of economic models, it is possible to summate the downstream implications of losses within the red meat industry and greater economy of South Africa.
  • Predation remains a challenge for livestock producers in South Africa.

Livestock losses due to predation is not new in South African livestock producers. In fact, producers have been shielding their animals from the detrimental effects of predation for hundreds of years. Be that as it may, notable losses are suffered at times, with the small- and large stock as well as the game ranching sectors being affected.

Predation usually becomes problematic where there is competition for the same natural resources. In South Africa, the black-backed jackal and caracal share their distribution ranges with livestock producers, with all parties that must ultimately share these resources. Approximately 80% of the available land used for agriculture in the country comprises of arid and semi-arid natural pastures (veld), which is utilised by grazing animals.

Economic value of livestock

Livestock production is the primary income for agricultural producers in these large arid and semi-arid areas of South Africa. In general, primary agricultural output contributes over 2,3% to the country’s gross domestic product (GDP). The total gross value of primary agricultural production annually exceeds R300 000 million (animal products, horticultural products and field crops contribute around 48, 29 and 23% to the total gross value, respectively).

These values only include primary agricultural production and not secondary and tertiary linkages and contributions to the greater economy. It is evident that agricultural production is tightly linked to the rest of the economy and plays a pivotal role in interrelated industries and other value-added products.

The economic implications of predation can be divided into different categories. Firstly, there are the physical loss of animals (including production potential) as well as the additional indirect cost associated with management strategies to reduce the occurrence and level of predation losses. The second category relates to the economic ‘downstream’ or induced effects on the livestock industry and related sectors of the economy.

Research and economic models

Research related to predation mainly focusses on the direct effect of predation and management aspects to reduce the detrimental effects of the losses livestock producers suffer. Although research on predation management strategies is crucial, a clear perspective is needed in understanding the magnitude of predation losses at industry level or its influence on the general economy of the country.

By making use of economic models, it is possible to summate the downstream implications of losses within the red meat industry and greater economy of South Africa.

This article is aimed at providing a better understanding of the downstream economic implications of predation to comprehend the magnitude of the losses incurred. Alternatively, the information can be utilised to develop and implement effective predation management strategies at an industry level or national platform.

The last quantification of the direct implication due to predation within the small-stock sector (sheep and goats) was done in 2010 (Van Niekerk, 2010). The direct cost of losses was estimated at more than R1 390 million at the time.

Large stock (cattle) losses attributable to predation in South Africa exceeded R393 million in 2014 – this only included the direct cost (Badenhorst, 2014).

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By making use of economic models, it is possible to summate the downstream implications of losses within the red meat industry and greater economy of South Africa. These models mimic the inner workings of the economy, making it possible to implement economic ‘shocks’. These models were also used for simulating predation associated losses in the red meat and related industries.

Estimated losses in the red meat industry was derived from assumptions made from other related studies on predation losses (Van Niekerk, 2010 and Badenhorst, 2014) – losses in the large- and small-stock sectors were calculated to be 8,16 and 0,31%, respectively.

The economic models were able to illustrate losses in the red meat industry in terms of changes in output generated, GDP contributions to the economy, employment, utilisation capital and how efficiently resources were utilised.

Direct, indirect, induced effects

In the red meat sector, predation losses have direct, indirect and induced effects. Direct effects indicate influences in the livestock sector on all other sectors that offer inputs to the red meat industry, whereas indirect effects reflect impacts in the livestock sector on all other industries that supply inputs to the red meat industry.

The direct multiplier measures the direct influence of a given sector (in this example the livestock sector). This multiplier will, for example, determine how an increase in livestock sector production affects employment in the same industry. These direct effects are the most intimately tied to the sector and, as a result, are most likely the most significant repercussions from a strategic and planning viewpoint.

Indirect effects reflect the effects the red meat sector has on all other industries that provide inputs to the sector’s operations. These ‘backward links’ are critical because they assess the sector’s overall impact on the economy. These indirect effects are frequently large and may even outweigh the direct effects.

Induced effects relate to the economic impact of paying salaries and wages to people who work in the red meat industry, as well as the salaries and wages paid by companies in sectors that are indirectly tied to the livestock industry due to the supply of inputs. These higher incomes and wages raise demand for a variety of consumable commodities, which must be provided by a variety of economic activities across the economy.

The induced effect of predation can thus be described as the lower demand for goods and services from the livestock industry, and the lower supply of products for processing, which reduces employment numbers in die wider economy and thus reduces the amount of salaries and wages which, in turn, should have created demand for goods and services.

Total impact of predation

The total estimated impact of predation on the red meat industry’s revenue and output is illustrated in Table 1. Predation in the red meat industry led to a direct decline of R618 million in revenue, and thus in output as well. The indirect and induced effects caused output to decline by R959 million and R2 877 million, respectively, bringing the total reduction in output to R4 454 million.

The aforementioned effects of predation on revenue and output may seem to represent substantial financial amounts, but they must be evaluated in terms of the total economic contributions to the red meat sector and economy.

When the direct losses are compared with the factor cost contributions to the economy, as used in the SAM, they represent only 0,33% of the total value of the agriculture, forestry and fisheries sector. However, when considering the impact of predation on the livestock sector only, the direct losses reduce the factor cost contribution of this sector by 1,9%. The total losses in output (direct, indirect and induced) attributable to predation account for a 2,4% reduction in the value of the agriculture, forestry and fisheries sector, and 17% in the livestock sub-sector.

Macro-economic variables

Table 2 illustrates the combined results of the impact of predation on the macro- economic variables in the large- and small- stock sectors. Although the cattle industry contributes more in terms of output and contributions to the agricultural sector’s GDP than the sheep and goat industry does, it has a lower level of predation.

The loss of large- and small stock due to predation reduces the number of animals for marketing, and the presence of predators influences the level and intensity of best management practices employed by the red meat industry.

Total GDP contributions decreased by R13,91 million, labour income by R541,68 million, capital requirements by R15,72 million and taxes to government by R15,50 million.

Impact on effectiveness

The macro-economic impact of predation is evaluated in terms of effectiveness criteria (resource utilisation by the sector). Table 3 shows the effectiveness criteria for the large and small-stock sectors.

In the case of large stock, the GDP/ capital ratio decreased from 0,018 to 0,017 due to predation. Since capital is used less effectively when predation is present, and since total output also decreases in the presence of predation, this results in R28 million less in GDP efficiency gains.

The same principle was applied to the labour/capital ratio – a decrease of 0,0001 is observed in effectiveness criteria. The lower effectiveness and reduction in output reduce the labour efficiency gains by R2 million in the presence of predation.

In the case of the small-stock sector, the GDP/capital ratio decreased from 0,001 to 0,00091, resulting in a R5,9 million reduction in GDP contributions when the lower output due to predation is considered. The labour/capital ratio for this sector decreased from 0,005 to 0,0046 and resulted in a R306 million reduction in labour efficiency, given the lower output.

An interesting observation is that the GDP/capital ratio is higher than the labour/ capital ratio in the large-stock sector. This means that in terms of beef production, more value is added to the product through the value chain, while less labour is needed.

The small-stock sector reveals the opposite, with the labour/capital ratio being higher than the GDP/capital ratio. This proves the common fact that sheep production is more labour intensive than cattle production, while less value adding occurs through the value chain to deliver the final product (lamb and mutton) than in the case of beef.

Impact on employment

The employment coefficient without predation is calculated at 4,401 for the large-stock sector. This indicates that 4,401 jobs will be created when output increases by R1 million. Predation in the large-stock sector, however, reduces the coefficient by 0,014 to 4,338. The decrease in the employment coefficient, combined with the reduction in total output due to predation, results in 360,92 job opportunities being forfeited in the sector (Table 4).

Predation in the small-stock industry reduces the labour coefficient by 0,39 – from 4,777 to 4,387. In the absence of predation, 28 800 jobs in total are used to produce direct output worth R6 564 million. The decrease of R536 million in direct output from the small-stock industry due to predation, in combination with the lower labour coefficient, results in the loss of 2 561 jobs (Table 4).

Food for thought

Predation remains a challenge for livestock producers in South Africa. This study reveals the serious impact of predation at macro- economic level and the spill-over effects on different variables. – Dr Walter van Niekerk and Profs Yonas Bahta and Frikkie Maré, University of the Free State

For more information, send an email to vniekerkhn@ufs.ac.za.