GENERIC ABATTOIR MODEL – UPDATE

In our last quarterly newsletter, we discussed the viability of a low throughput abattoir that has the capacity to slaughter 6 units. This quarter, we discuss the viability of an abattoir with the capacity to slaughter 10 units per day. 10 Unit is equivalent to 10 cattle, 60 sheep/goats or 120 porkers.

As mentioned in our previous quarter’s newsletter, the risks that are associated with the illegal/informal slaughtering of livestock are endless and dangerous to consumers and the environment, as no inspection is performed on the carcasses and there is no adherence to the regulations that govern the slaughtering industry. Farmers are also faced with the risk of selling their livestock to the agents at lower prices.

As it was witnessed in the previous newsletter, the financial returns of an abattoir that slaughter 2 units per day were not that attractive. Unless poultry is added to the mix, the profit was not that inviting. In today‘s business world, to succeed you either go big or go niche. The Western Cape Department of Agriculture requested the UTA to also test the viability of an abattoir at a bigger scale. The UTA appointed Ivimbi Technologies to carry out a generic viability study to investigate the operation of such an abattoir and the profitability thereof. The report focuses on the production and human resource requirements, capital requirements, infrastructure requirements and financial viability for a rural abattoir with a daily slaughtering capacity of 10 units. It also addresses the possibility of slaughtering different species (cattle, sheep/goats, pigs and broilers) on the same premises.

 

Financial Analysis

The abattoir business model allows the owner to decide between two methods of operating the business, namely carcass ownership and fee based slaughtering. Both methods have risks associated with them. However, years of experience and training will enable the owner to mitigate the risks, for example that of buying poor quality livestock. The owner must be able to know the quality of the meat he will get from the animals by visual inspection only. Table 1 provides a summary of the financial requirements and the financial projections for the abattoir.

 

Item	Scenario 1 10 cattle and 60 Sheep (Slaughter fee)	Scenario 2 10 cattle and 60 sheep (Ownership)	Scenario 3 10 cattle, 60 sheep and 1500 broilers (Ownership)
Capital Requirement	R4 743 000	R4 743 000	R5 793 600
Prices / Fees	R37 per sheep and R210 per cattle	R35.72/kg sheep and R26.67/kg cattle	R35.72/kg sheep, R26.67/kg cattle, R44.61/ fresh bird and R29.62/ frozen bird
Income	R1 979 107	R15 491 667	R16 480 464
Expenditure	R992 751	R13 715 100	R14 232 819
Net Profit	R986 354	R1 776 561	R2 247 645

 

The capital requirement for an abattoir with the capacity to slaughter 10 units is estimated at R4 743 000 excluding VAT. Adding a poultry slaughtering facility at the same premises, but not in the same building, will increase the capital cost to R5 793 600.00. As indicated in Table 1, the estimated profit for the fee based slaughtering is R986 354.00 while the carcass ownership method has the potential to generate a profit of R1 776 561. The carcass ownership method requires a lot of operating capital, as livestock needs to be bought in cash. The advantage with this model is that the abattoir can charge premium prices when selling to the end consumer unlike the fee based slaughtering where no sales to the direct consumer is possible. However, the fee based model returns are also attractive given the fact that no stocking risk is carried and no marketing of the meat occurs. A return on equity of R0.21 for fee based slaughtering and R0.37 for carcass ownership for every R1 is achieved.

To maximize the profits, the owner can introduce poultry slaughtering, which will increase the capital to R5 793 600 and importantly the profit to R2 247 645 for the carcass ownership scenario. On this scenario, the return of equity will increase to R0.39 for every R1 invested.

Due to the risks that are associated with animal slaughtering, the abattoirs are regulated. There are rules and regulations that the abattoir must adhere to to ensure that people and the environment are protected. Compliance to the regulations and laws of the slaughtering industry is the key to the success of the abattoir business. The abattoir should be compliant with the following Acts:

• Animal Health Act, 2002 (Act No. 07 of 2002)
• Health Act, 1977 ( Act No. 63 of 1977)
• Animal Protection, 1962 (Act No. 71 of 1962)
• Fertilizers, farm feeds, Agricultural Remedies and Stock Remedies Act, 1947 (Act No. 36 of 1947)
• Occupational Health and Safety Act , 1983 (Act No. 3 of 1983)
• Atmosphere Pollution Prevention Act, 1965 (Act No.45 of 1965
• Agricultural Products Standards Act, 1990 (Act No. 119 of 1990)
• Stock Theft Act, 1959 (Act No. 57 of 1959)
• Meat and Safety Act, 2000 (Act No. 40 of 2000)
• National Environmental Management Act, 1998 (Act No. 107 of 1998)
• General Hygiene Requirements for Food Premises and the Transport of Food
• R918 of 1999.
• National Water Act 1998 (Act No. 36 of 1998)

Other compliance for abattoir include:

• All the buildings should be approved by the municipality
• The plans and layout must be approved by the Department of Agriculture
• Necessary stamps and roller mark to be obtained to identify species
• Registration with the Department of Agriculture for unique identity number

An environmental impact assessment authorization is a requirement as well as a waste license.