6.1 INTRODUCTION
Since animal skins and leather are generally by-products of breeding livestock for meat consumption, hides and skins are mainly received as by-products from abattoirs or farms. Because the leather industry depends on the receipt of skins from livestock, the supply of skins depends on the available numbers of animals and size of the skin recovered. However, exotic leather, unlike other livestock leather, is not a by-product of meat production, but forms part of an interdependent relationship between leather and meat which is simultaneously farmed with production focused on both commodities. The previous chapter described the history of the ostrich industry and what ostrich husbandry entailed. This chapter explores the exotic leather supply chain which consists of complex production systems which include incubation, phases of weight gain, industrial processing and export logistics. The chapter starts with an introduction to supply chains, governance in the supply chain and European retailer supply chains. Following this section is an overview of the livestock supply chains in a developing world context and then a discussion on the leather and meat industry in South Africa. There is limited information describing the ‘current state’ of how the whole supply chain and the structures support the ostrich industry, ‘from egg to fork’; but this information is essential in order to suggest potential collaboration opportunities that can be identified for new farmers. It is therefore a prerequisite to understand the scope of the processes, participation of different role players and service providers and which companies or institutions are part of the networks and linkages. The chapter concludes with the description of the case studies and supply chain linkages in the Eastern Cape.
6.2 INTRODUCTION TO SUPPLY CHAINS
According to Maloni and Benton (2000:3), “the concept of logistics has evolved since the 1970's as the strategic coordination of traditional corporate cost centres such as purchasing, manufacturing, transportation and warehousing. The objective of such co-ordination is to recognize functional synergies within the firm to fulfill customer requirements better”. Logistics and supply-chain research during this time focused on alignment initiatives with the overall business strategy of a company. Then in the 1980s supply chain management emerged to manage the flow of goods from suppliers to the ultimate end user (Feller, Shunk and Callarman, 2006:3). La Londe and Masters (1994:35) defined the supply chain as a group of firms that passed materials forward. It included several independent firms involved in manufacturing a product and placing it in the hands of the customer. Lambert, Stock and Ellram (1998), as quoted by Verma and Seth (2011:6), defined a supply chain as the alignment of firms that brings products or services to market. Chopra, Lovejoy and Yano, (2004:13) described the supply chain as “the management of all aspects of providing goods to a consumer, from extraction of raw materials to end-of life disposal and recycling, including manufacturing, physical logistics, and after-sale service and warranty issues”. Supply chains therefore have a focus more on operational issues and provision of raw materials, while value chains have been more focused on innovation, product development, marketing and on customer requirements (Feller et al., 2006:2). Value chains integrate supply-chain activities to position organizations in the supply chain to achieve the highest possible levels of customer satisfaction and value while manipulating the abilities of all the entities in the supply chain (Handfield and Nichols, 2002:12). Supply chains are susceptible to environmental change in the global arena and today the supply-driven ostrich industry is reliant on the EU demand.
6.3 GOVERNANCE IN SUPPLY CHAINS
Farmers and producers in developing countries are involved in the earlier stages of international supply chains. The current trend of globalisation required that companies to pursue flexibility, lowest raw material prices and cheap labour which is in some cases to the detriment of small producers (Traidcraft Exchange, 2005:1) and contributed to increasing poverty (UNCTAD, 2004:123). The influence and capability of different forces to exercise power in supply chains differ considerably according to the sources of their power as well as structural constraints (Fuchs and Glaab, 2011:1). Hess (2008:452) defined ‘power’ as a ‘centred’ concept, which allowed the capacity of some individuals, institutions and actors to dominate others. The changing power asymmetries in supply chains have also been a cause for concern among African agricultural exporters (Rich, Ross, Baker and Negassa, 2011:214). The inequities in power relationships based on the governance of the supply chain have highlighted potential points of entry or exclusion for smallholders (Hess, 2008:452).
The focus in value chains has been on increasing competitiveness and performance, and on providing effective technologies. While governments have the ability to determine trade regulations, agricultural subsidies or market access, private actors manipulate these public regulations to suit their own ends or create rules and standards which suit themselves (Clapp and Fuchs, 2009:109). The area of governance in value chains to smallholder producers has not received much attention. “Good governance in value chains, however, harbours a significant potential for capacity building of smallholders within the value chain through lead actors which will allow small producers to strengthen their position in value chains” (Dietz, 2012:1). In a concentrated processing sector for high value goods, oligopoly power can be at the origin of the produce and on the other hand the downstream firms can act as oligopsonists in procuring produce from farmers, intermediaries and processors (Moir, 2006:1). Farmers and especially smallholders that are price takers can often be victims of this scenario. These actors can influence prices downwards and upwards to enhance profit at the expense of players that have less leverage in the chain.
With reference to Figure 6.1, Gereffi, Humphrey and Sturgeon (2005:90-94) differentiate five value chains by governance systems. In the Market Model the thin lined arrows represent exchange based on price while the thicker arrows in the Relational Model represent larger flows of information and governance. In the case of modular global value chains, wider information flows are narrowed down leaving each partner to manage unstated information within its own enterprises boundaries. The Relational Model occurs when buyers and sellers rely on multifaceted information that is not easily transmitted, and where rapid changes may be required. Close working partnerships with suppliers are important for sustainability in turbulent environments. The Captive Model identifies small suppliers as those that are dependent on a few buyers who influence by power and control. Such models are frequently characterized by a high degree of monitoring and control by the buyer. The Hierarchical Model defines chains as those that are characterized by vertical integration that develops and manufactures products in-house. It is the researcher’s view that due to complex ostrich out-grower regulations the ostrich industry is moving towards a Hierachical Model, which will be discussed further in Chapter 11.
6.4 LIVESTOCK FARMING SUPPLY CHAINS IN THE DEVELOPING WORLD
The livestock sector is characterized by long market chains that employ at least 1.3 billion people globally and directly support the livelihoods of 600 million poor smallholder farmers in the developing world (Thornton, 2010:2853). Livestock is vital to the economies of many developing countries for the animals are a source of food, income and employment. For the poor, livestock serves as a symbol of wealth and provides draught power and fertilizer (Pica-Ciamarra, 2005:1). The total meat production in the developing world tripled between 1980 and 2002, from 45 to 134 million tons (World Bank, 2009:1-2). This growth was concentrated in developing countries that experienced rapid economic growth and focused on farming poultry and pigs. According to Jones and Thornton (2009:427) the impacts of climate change are expected to have a substantial influence on agriculture in many areas of sub-Saharan Africa. The warming may reduce crop yields between 10 to 20 percent by 2050 which is why livestock is becoming an alternative to cropping.
The ostrich’s tolerance to aridity makes it a strong livestock candidate for the future drying landscapes of sub-Saharan Africa (Shanawany, 1995:8). African producers face increasing competition from low-cost farmers in India and South America that have low-cost production systems, economies of scale and highly sophisticated supply chains for the distribution of a diversity of different products (Swanepoel, Stroebel and Moyo, 2010:157). According to Lynam and Theus (2009:10), value chains are often aimed towards more formalised, vertically integrated supply chains, suggesting that effective coordination and organisation within the value chain are crucial for success.
Small livestock on South African rural farms is usually farmed in close proximity to the farmer’s home and therefore the farmer and family have substantial contact with the livestock. Research conducted by Randolph et al (2007:2788) on the role of livestock in human nutrition and health for relieving poverty in developing countries, indicated the risk livestock farmers faced of transmission of zoonic diseases. This concern is particularly applicable to rearing ostrich chicks close to homes and the potential these birds have to transmit avian influenza to the farmer or other poultry. This was a concern expressed by the South African Department of Agriculture, Forestry and Fisheries and National Directorate of Animal Health in 2012. When the standards for the requirements, registration and maintenance of registration and official control of ostrich compartments in South Africa were enforced (VPN/04/2012-01, revision 6.0), this meant that ostrich farmers could no longer keep the ostrich chicks near to their homes and were required to have compartments separate from chickens (backyard poultry). These bio-security measures have had an impact on the farm management and have intensified the supply chain. Whether the rural farmer will be willing to adopt these requirements and efforts in his supply chain is still to be determined.
6.5 THE OSTRICH INDUSTRY SUPPLY-CHAIN RELATIONSHIP MAP
In order to understand which actors are involved in the process, and what relationship they have with one another it is helpful to construct a relationship map to understand the flow among the groups and players (Handfield and Nichols, 2002:44). A relationship map provides a useful model for conceptualising the performance of various parts of the ostrich industry within the context of South Africa’s entry into the global economy. The map does not consider specific activities, but concentrates on linkages between main groups.
It is an integration and linkage of suppliers, manufacturing, distribution and customers in which raw material runs from suppliers to processors who prepare them for the customer’s requirements. The linkages are becoming more complex in global supply chains, while the standardisation and food-safety requirements imposed are making it increasingly difficult for emerging farmers to participate in the supply chain. Transformation and development interventions are required from all the stakeholders if emerging farmers are to successfully participate in these changing agri-food supply chains (Louw et al, 2008:305).
With reference to the ostrich-industry relationship map (Figure 6.2), the ostrich- industry supply chain starts with the hatching of chicks on the farm (F). As discussed in Chapter 5, the ostrich chicks are reared till 3 or 6 months of age and then moved to a phase of growing to ideal slaughter weight. It is at this point that farmers sell the chicks to other farmers or continue to grow for themselves. Once the birds have reached ideal weight the birds are taken to the abattoirs (A), which should be in close proximity in order to prevent damage to the skins. In Figure 6.2, t1 represents the transportation of birds to abattoir and t2 represents the transport for export. DAFF has restricted movement during these points of the supply chain. The abattoir signifies the beginning of the processing phase of removing the skins, meat and feathers. The skins are then tanned and the feathers dyed and these processes occur in separate venues. Once the carcases have been deboned the meat goes to be heat treated.
The leather, meat and feathers are then packed and distributed by agencies or cooperatives. The majority of the ostrich skins and leather supplied are co- ordinated by account managers of cooperatives or agencies for export markets. The orders, co-ordination and logistics for ostrich exports are run by a handful of account managers in South Africa. The small-volume by-products are derived mainly from the processing plant and distributed amongst local markets, crafts and ecotourism. The supply chain includes a traceability system and has to comply with regulations stipulated by the British Retail Consortium
Eighty percent of ostrich products are exported to manufactures or wholesalers/supermarkets before reaching the end customer. In Figure 6.2 the left column represents the main commercial transactions, namely, technical value which is the resource value (Tv), organisational value which includes reliability (Ov), brand, company reputation and the personal value which are the relationships that are involved with exchange of resources (Pv) (Feller et al., 2006:2).
Each of these commercial transactions represents the main areas where value- adding takes place. The darker shade of the left column indicates increased value-adding. The thicker arrows in the map demarcate where there is increased vertical integration in the industry. The darker circles indicate where the governance of the supply chain lies. The primary infrastructure on the left hand side represents where the main capital is required for production and processing.
Key for Figure 6.2
Skins (Sk) Meat (Me) Feathers (Fe)
Tanned (Tn) Local (L) Buyer (Buy)
Auction (Au) Dyed (Dy) Transport (t1 / t2) Heat treated (Ht) Agencies (Ag) End customer (EC)
By-products (By) Manufacturers (M/F) Wholesaler/Supermarket (W/SP) Incubation (in) Chick-rearing (Ck) Ostriches at full weight (Gr) Resource value (Rv) Eco-tourism (Eco) Personal value (Pv) Technical value (Tv)
The EU supermarket chains have a strong market share in all but three EU countries, namely, Spain, Greece and Italy (Baas, Van Potten and Zwanenberg, 1998:25-27). Since the establishment of the first South African ostrich abattoir in 1965, South Africa began with marketing and export of ostrich meat into Europe (Wessels, 2003:40). France and Belgium were two of the first countries to consume ostrich-meat on a noteworthy scale (Shanawany and Dingle, 1999:148) and these countries developed into South Africa’s main ostrich meat trading partners (DAFF, 2011b:9). South Africa has also benefited from a preferential tariff rate when exporting to these EU countries. The multiple European retailers such as Tesco and Marks & Spencer adopted ostrich meat as one of their alternatives to red meat; but in order to gain access to these European markets, South African ostrich farmers have to adhere to strict food- safety regulations and requirements. Food safety is closely linked to traceability requirements and often requires further stronger linkages with the value-chain members (Grunert, 2005:371).
The traceability and food-safety assurance are monitored at all critical points (HACCP). Ostrich meat processors have ostrich specialist veterinarians, fully equipped laboratories, microbiologists and food technologists that maintain traceability and food safety. The ostrich-industry supply chain has become increasingly dependent on the European market for leather and meat sales. According to Shanawany and Dingle (1999:147), the EU offers the best export market for ostrich meat because the large populations and sophisticated eating patterns suggest that ostrich meat has great potential, but transparency and understanding of the environment of supply chains need to be understood by all the role players for fair governance and mutual benefit. There is a lack of supply-chain analysis to help decision-makers evaluate the impact that the EU regulations and export policies have had on the ostrich industry and specifically on how this has affected the emerging farmer’s potential for entry into the
6.6 OSTRICH INDUSTRY SERVICE PROVIDERS
This section is an outline of the influences affecting supporting role players and their interaction in shaping the ostrich industry and value chain (Figure 6.3).
Fig 6.3 South African Ostrich Business Chamber linkage to stakeholders
Sourced from South African Ostrich Business Chamber (2013)
6.6.1 The South African Ostrich Business Chamber (SAOBC):
The SAOBC, which was established in 1998 in Oudsthoorn, is regarded as the umbrella body for the South African ostrich industry. The SAOBC is a ‘Section 21 Company’ which represents the interests of the South African ostrich industry. Its main function is to ensure the sustainability and profitability of the industry. The SAOBC represents two main member organizations, namely, the South African Ostrich Producers Organisation (SAOPO) and National Ostrich Processors of South Africa (NOPSA). There is no emerging ostrich farmer association in the SAOBC stakeholder linkage chart.
The SAOBC has been instrumental in co-ordinating veterinary services, European export protocols, a biodiversity management unit and AgriBEE model. The ostrich is regarded as a game animal and therefore the meat is referred to as game meat (Fajardo, González, Rojas, García and Martín, 2010:409).
The objectives of the SAOBC include the following:
promoting, co-ordinating, supervising and securing the interests of all registered businesses involved in the production and processing of ostriches and ostrich products;
fostering proficiency of production;
fostering and promoting relations between the roleplayers in the industry; encouraging a code of conduct;
contributing towards the creation of an international environment suitable for export;
communicating with government, government agencies and other directly affected groups;
identifying and promoting initiatives aimed at improving the status of the ostrich industry;
securing solidarity of the organisations in the ostrich industry; providing a discussion forum;
supporting or opposing any proposed legislation; and
administering fees for the purpose of carrying out the objectives of the ostrich industry.
The South African Ostrich Business Chamber has been authorised by DAFF to enforce movement control of ostriches and provide authorization when
6.6.2 National Ostrich Processors of South African: (NOPSA)
NOPSA was established in 1995, its role being to unite the interests and efforts of processors. It has 21 members and has existed since 1995. The objectives of the NOPSA include:
promoting the interests of the ostrich processing industry;
approaching Government to coordinate any matter directly or indirectly; affecting the affairs of the ostrich processing industry;
collecting and circulating market information and statistics;
serving as a forum for constant dialogue amongst its members; and promoting public interest in ostrich products by way of advertising and marketing assistance.
NOPSA has the following members:
Camexo SA Ltd.: Graaff-Reinet (meat)
Klein Karoo International (PTY) LTD: Oudtshoorn ( meat, leather and feathers)
Ostriswell (Pty) Ltd: Swellendam (meat, leather and feathers)
Gondwana Marketing: Magaliesburg (Oryx Game and Ostrich Abattoir) Mosstrich Ltd. : Mossel Bay (meat )
Rancho las plumas: Oudtshoorn (feathers)
South Cape Ostrich Tanning: Mossel Bay (leather) Swartland Volstruise: Somerset West (meat and leather)
None of these processes represents full AgriBEE ownership and the majority of the processes were established before deregulation.
6.6.3 South African Ostrich Producers Organisation (SAOPO)
The South African Ostrich Producer’s Organisation which is represented by seven provincial members works along provincial lines. Ostrich producers throughout South Africa register as members through their respective provincial ostrich-producer organizations.
6.6.4 South African Ostrich Breeders Association
The Ostrich Breeders’ Association was established in 1995 and registered with the South African Stud Book and Livestock Improvement Association. The South African Ostrich Breeders’ Association has been instrumental in the ostrich industry with developing the definitions on Norms of Excellence in Ostrich Breeding.
6.6.5 Department of Agriculture, Forestry and Fisheries (DAFF/NDA)
DAFF and Provincial Departments of Agriculture fulfill the roles of responsible functioning and auditing as outlined in the Meat Safety and Animal Health Acts and the Constitution of South Africa. They are responsible for the slaughter of animals within approved abattoirs through its Sub-directorate of Veterinary Public Health and for import and export control of meat. The Department of