Modeling Botswana Beef-Cattle Price Dynamics

Abstract

We investigate the dynamics of the beef-cattle pricing which is affected by several factors such as beef supply, demand for foreign currency, etc. The model incorporates mean-reversion to give insights into the relationship be-tween supply to a developed region (or country) and a third world country’s demand for hard currency. We consider the beef-cattle industry which is seg-mented into two markets: the Farmer-Local Cattle Agency (LCA) market in which the LCA buys cattle from the farmers and the LCA-European Union (EU) market in which the LCA exports beef to the EU. Using the Botswana-EU as an example, we investigate the performance of the Botswana Meat Com-mission (BMC) which buys cattle from the farmers and exports beef to the EU based on the price acceptable to the EU and ask whether the agreed price be-tween the BMC and the EU can ever translate into fair price between the farmer and the BMC. Our study has concluded that the operational problems faced by the BMC are an indication that the BMC is passing on the bulk of what it receives from the EU to the farmers. We have made suggestions on how the BMC can reduce its operational risks.