BMC Experiences Cash Flow Challenges

| April 9, 2015

The Botswana Meat Commission (BMC) is not insolvent but facing cash flow challenges.

Acting Minister of Agriculture, Mr Patrick Ralotsia, told Parliament that the challenges resulted from operational losses from as far back as 200506.

He said the losses put immense pressure on the cash flow management of the commission to the extent that some schemes proposed to improve the operations of the commission could not be implemented.

The minister said as a result of the heavy losses in the period 2009 to 2012 the commission accumulated over P747million debt. He said this was because of the commission borrowing heavily from both private financial institutions and the government, as a result the commission is heavily indebted and struggling to manage these debts.

Mr Ralotsia said the situation was made worse by external factors such as the closure of plants due to Foot and Mouth Disease. He said in addition the introduction of the current European Union (EU) Market requirements relating to Livestock Identification and Traceback System (LITS) also affected the commission negatively.

“Implementation of LITS put so much pressure on BMC such that schemes proposed and implemented by BMC to respond to market requirements resulted into serious cost overruns. This was due to the immaturity of the beef industry which was not in a state to sustain these new developments meant to make cattle eligible for the EU market thus putting the onus on the BMC both operationally and financially,” he explained.

Mr Ralotsia said one of the developments was the concept of feeding cattle in feedlots. He said the lack of expertise in the field resulted in BMC shouldering the whole responsibility of the development and financing of feedlots thus suffering losses in the process.

The Minister said as a result of these losses and the high gearing or huge debt, BMC resorted to using short term loans to address its operational costs. He said last year the National Assembly approved that government guarantee P300million short term facility from Standard Chartered Bank.

He said this added to the debt and increased the cost of borrowing. As a result of these borrowings Mr Ralotsia said BMC pays substantial amounts about P86million as financial costs.

“The annual report of the BMC is placed before the National Assembly every year as required by BMC Act not later than six months after the end of the financial year. After such placement, the annual report becomes a public document which every Motswana including farmers can have access to if they so wish. In addition the commission holds regular meetings with stakeholders including farmers apprising them of its operational including financial performance,” he said.

The minister told the House that BMC was paying farmers although it was not paying them within 48 hours after the delivery of their cattle as it had hoped to. In that respect the minister said it had delayed in paying farmers some of whom might have been waiting for up to 30 days.

He noted that it was made worse by the influx of cattle at the buying points due to farmers destocking because of drought.

He said the operating model of BMC with regard to the supply of cattle for the EU market, whereby it buys cattle cash upfront put them through the feedlot for 90 days then takes another eight weeks from the feedlot to slaughter and to market, resulted in 5 to 6 months lag period for the commission to realize the proceeds from the cattle it has already paid for.

He said the lag period of up to six months is what created the cash flow challenges for the commission.

“I am aware of delays in honouring cheques, however all the cheques already issued are ultimately paid. BMC also communicates with farmers concerned as to when they could expect to be paid when the payment plan is changed. Farmers holding cheques are aised when they can submit their cheques for payment,” he added.

Mr Ralotsia said to deal with challenges the commission was facing BMC has engaged a consultancy to assist with the balance sheet restructuring and to come up with a sustainable financing structure.

The minister was responding to a question from Ghanzi North MP Mr Noah Salakae who had asked him to state whether BMC was insolvent and if so, what caused the insolvency and if clients had been duly informed.

Mr Salakae asked the minister if they were any measure in place to provide relief to clients who rely on BMC to sell their cattle and if BMC had not honoured payment of cheques it gave to farmers. He further wanted to know when farmers holding cheques must expect to be paid.

Source : BOPA

Source : Botswana Daily News

Category: Business & Finance

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