Weakening Euro Impacts Meatco’s Strategy

The weakening exchange rate of the euro to the British pound has become an added challenge for Meatco as Namibia’s only exporter of prime beef. This added challenge comes as the country and its producers battle with drought which has forced the government to roll out a N$300 million drought relief programme for the interim period.

Thokozile Mdlalose, corporate communication officer at Meatco, said the drought and the effect it has on the company and its producers was a big worry. “However, in the past few months another challenge we have been facing is the weakening euro against the British pound, which has forced Meatco to adjust our export volume mix to take the edge off fluctuations in exchange rates. For example, we are slowly shifting our sales volumes towards the United Kingdom in reaction to the weakening euro against the pound, Namibia dollar and US dollar. Therefore, we are moving some of our products from a euro denominated sales market into a pound denominated market to minimise the effects of long-term currency exchange fluctuations,” she said.

She points out that in the past month the euro went from a high of N$13.37 to a low of N$12.85 against the Namibia dollar. As a result the euro lost significant value against other currencies, mainly because of economic circumstances.

She added that Meatco has tried to keep producer prices stable despite the negative impact of the current environmental situation and tough conditions the company operates in.

“Meatco exports approximately 20 percent of its volumes to the European Union, including Norway, and receives returns from these volumes amounting to around 44 percent of overall sales. Amongst others, this is a result of the favourable exchange rate during the last few months.

Obviously other factors also play a significant role in the total sales returns generated by Meatco from these markets. Still, for Meatco to enjoy continued maximum sales returns the exchange rate as well as other factors like product mix, an effective price, volumes, customer selection and market positioning should ideally also remain the same,” she noted.

The British pound has also had an impact on overall sales returns, since Meatco receives about 23 percent of overall sales returns from roughly 16 percent of its overall volumes marketed within the United Kingdom. As a result, euro and pound denominated sales represent around 67.2 percent of overall sales returns, whilst only representing 35 percent of all sales volumes.

Meatco’s chief financial officer, Nico Weck, said “Meatco tries to minimise fluctuations in foreign currencies by making use of, inter alia, foreign exchange contracts (FECs). An FEC is a legally binding agreement with a commercial bank wherein Meatco undertakes to sell a specific amount of foreign currency at a specific future date at a pre-determined fixed exchange rate. However, using an FEC only works in the short-term because of the continued uncertainty of fluctuations.

Therefore this isn’t a long-term solution.

“Since the euro exchange rate has a big influence on the overall sales returns gained for our products, any change in foreign currency affects local producer prices. At the moment we are concerned about the actual returns for B and C grade products. Currently these two grades are overpaid in terms of actual returns from their respective markets. Accordingly, the producer prices relating to these two grades have been decreased to align them with the current market situation.”

“Meatco strives to pay Namibian producers the highest returns in terms of what their product achieves in our selected markets. And yes, the euro exchange rate definitely plays a significant role,” added Weck.

Source : New Era