DVS Actions:

• On Friday, 2 September 2016 at 16h30, Meatco was informed in writing that DVS has closed the feedlot due to zeranol detected in a urine sample taken on 4 April 2016 (see Appendix A).
• The letter stated that Meatco’s Feedlot is committing a “violation/repeat infringement” due to zeranol being detected twice within a period of 12 months.
• Due to the alleged infringement(s), a number of sanctions were implemented as per attached DVS letter.

Meatco’s position:

• Meatco did not administer zeranol and its metabolites in any shape or form.
• Hormones like zeranol are naturally occurring substances. They can be technologically modified to be administered via implants or injections or oral intake to promote animal growth.
• Science has shown that prolonged continuous intake by humans can lead to various diseases such as cancer, developmental problems in children, etc. For this reason, the EU has banned the use of growth hormones. The EU therefore established a law to prohibit the administration for the purpose of growth promotion. However, these hormones can occur naturally and if detected, it does not lead to unilateral conviction.
• Namibian law also prohibits the intentional administration of this prohibited substance and the presence thereof in meat and meat products (Prevention of Undesirable Residue in Meat Act No. 21 of 1991, as amended in 1994). Naturally occurring hormone levels, for example in urine are not affected by this legislation.

The sampling and testing of urine is one method used internationally to guide the competent authority to identify possible illegal abuse of growth stimulants. From those results, DVS needs to first determine the reason for the presence of zeranol in the urine sample. The argument being that if not through administration, then there is no violation of said Act.

• The EU directive pertaining to Council Directive 96/22/EC also prohibits the administration of hormones such as zeranol. The EU posts their annual residue monitoring reports on their website and it clearly shows that they also pick up zeranol in urine and if seen to be in low levels and indicative of contaminated feed, no action is taken against the farmer/producer. They take into cognisance that the hormone could be there due to the animal’s gender, the diet and other environmental contaminants.

ACTIONS TO DATE:

• On Monday, 5 September 2016, during a meeting between Meatco management and DVS, the latter said that the urine samples that tested positive are those taken at the Meatco Windhoek abattoir on 1 April 2016. The samples, of which we received the results on 3 August, were taken on 4 April from animals at the feedlot.
• It must be noted that these detected levels are less than those of 2015 that have been cleared as acceptable to DVS and which led to the reopening of the Feedlot earlier this year.
• The meeting on 5 September was followed by a meeting on Wednesday, 7 September 2016. The matter was not resolved at either meeting and both parties have not been able to reach a common understanding on the way forward.
• Meatco, on own initiative, contacted the competent authority in the EU to test our understanding of the EU legislation and find ways to mitigate the concerns raised by DVS. The EU competent authority indicated their willingness to assist in resolving the matter through telephonic or other correspondence if so requested by DVS. Contact details were therefore forwarded to DVS on Friday, 9 September 2016 for that purpose.
• This prompted another meeting with Meatco board and management on Friday, 9 September 2016.
• After submission of this report dated 20 September to the Ministry of Agriculture, Water and Forestry (MAWF), the Minister responded and referred the matter to be resolved between Meatco Board, Management and DVS. The only meeting lined up is for Friday, 23 September 2016 and we don’t know what the outcome will be.

1.Legal implications

• DVS is a directorate within the MWAF and was performing an administrative function when it took the decision to close the Okapuka Feedlot.
• A person/body that is subject to an administrative decision has certain rights in terms of the law. Furthermore, the public body performing an administrative function has to take certain factors into account, especially where the rights of persons/body are affected. This public body is required to act fairly and reasonably and should also afford the person affected by the decision, an opportunity to be heard before an adverse decision is made against them.
• Meatco is of the view that DVS implemented the harshest possible action and in doing so did not act reasonably under these particular circumstances. They also failed to afford Meatco the opportunity to be heard before the decision was taken. This is a right that is guaranteed by Article 18 of the Constitution and supported by various court decisions over the years.
• Furthermore, the actions/measures that DVS implemented are outside the powers afforded to it by the two Acts cited in correspondences with DVS and referred to during the meetings held. These two Acts (and the applicable regulations) are the Prevention of Undesirable Residue in Meat Act, Act No. 21 of 1991 as amended in 1994 and the Animal Health Act, Act No. 1 of 2011. The Act that is applicable and in terms of which DVS should be acting, is the Prevention of Undesirable Residue in Meat Act which provides for the control over the administration of certain products to animals which causes undesirable residue in meat and meat products.
• Zeranol, the hormone/substance that was detected in the urine sample, is one of many substances prohibited from being administered in animals and the manner of administering this substance, as per the Act, is by way of an implant. Neither the Act, nor its regulations affords DVS the power to close the feedlot. By closing the feedlot in the absence of powers to that effect, DVS acted ultra vires – meaning it acted beyond its legal power or authority.

1.Financial Impact

Direct impact:

• Monthly Feedlot cost incurred to feed animals currently accommodated there: N$9.39 million per month.

• Opportunity cost to the factory as result of limited throughput: N$7.5 million per month. The Feedlot sells an average amount of cattle to the value of N$15.39 million to the abattoir to ensure effective throughput at the factory. The inability to deliver these numbers to the abattoir will have an impact of roughly N$7.5 million per month – a cost that cannot be recovered. This figure is theoretical in as far as other cattle sources could be used as they are available under current drought conditions.

• Inability to meet contract commitments: N$1 mil per month, but very difficult to estimate. This figure will increase dramatically when considering the inability to fill the Norway Quota.

• With an assumed length of 8 months Feedlot closure and an impact of N$17.89 million per month, the total cost is estimated to be N$143.12 million. At current slaughter volumes, Meatco will be forced to drop present beef prices by roughly N$7.15 per kg to compensate for these losses (N$143.12 million / 20 million Kg estimated production). This figure increases substantially as the period of closure lengthens.

2.Impacts on the markets

• Meatco currently purchases cattle for the feedlot at an average of N$12.03 million per month. These purchases will have to be suspended and as the border remains closed for the export of weaners, it is anticipated to have a material impact on the current weaner prices due to an oversupply with no other offtake.
• Export revenue loss to Namibia based on estimated sales of N$10.77 million per month (70% exported of N$15.39 million per month sales to abattoir) for the Feedlot alone.

Impact on the Norway Quota

• Meatco was awarded an additional quota of 400 ton that was unutilised, to fill before the end of the year. Filling this quota is very important for Namibia as a country, to show our competency to the Norwegian government and also for future negotiations. This additional quota will help us sustain a better producer price throughout the year.
• Besides the importance of the Norwegian market, Meatco also has obligations to serve our EU clients, which is a valuable market.

Long-term impact

• Permanent closure of Okahandja factory due to decrease slaughter volumes – Jobs affected: 300
• Termination of expansion plans to feedlots (Annasruh and Kombat) – Jobs affected: 57

3.Impact on the Feedlot Industry development

• Feedlotting has been identified by Meatco and the industry as one of the means to address government’s growth-at-home strategy, and to address the vast numbers of weaners (ca. 180 000 p.a.) leaving the country on-the-hoof to neighbouring South Africa.
• Close to N$50 million has been spent to upgrade the Okapuka Feedlot in the past few years to accommodate up to 9 500 cattle standing (slaughter 34 000 p.a.). Furthermore, N$100 million is earmarked to establish feedlots at Annasruh (Gobabis) and Buschbrunnen (Kombat) with a standing capacity of 12 000 cattle each (slaughtering 42 000 p.a. each). These backwards integration initiatives are aimed at filling idling slaughter capacity at Meatco’s abattoirs, and to sustain cattle farming in Namibia by offering all farmers a better producer price by improving export parity.
• In the current drought, farmers are desperate to market their cattle but have been restricted in doing so by the closure of the Okapuka Feedlot due to the detection of zeranol in the urine of two sampled animals.
• The current cost of the closure to Meatco and the producer, is roughly N$3.5 million per week due to prolonged standing days and decreased turnover of cattle. The Feedlot cattle supply is vital for Meatco to fulfil the demands of its overseas markets, and the prolonged closure will challenge Meatco’s ability to fulfil the additional Norwegian Quota for 2016. With declining cattle numbers due to the drought, the risk of losing lucrative clients overseas because of inconsistent supply and quality of meat, is increasing.
• The Okapuka Feedlot intended to slaughter 32 000 animals during the 2016/17 financial year. However, this target has already been decreased by 7 000 animals due to the restriction of trade imposed by DVS on the feedlot. Many of the forfeited animals were replaced by cattle from producers desperately in need of slaughter allocations due to the drought. However, if the Feedlot remains closed, from next week Meatco will run out of slaughter animals for their abattoir, as very few cattle are left on producer’s farms. The lack of slaughter cattle will put Meatco at risk of not being able to fulfil the additionally allocated 400 ton of the Norway Quota for this financial year. Potentially this could have detrimental effects on future allocations for this lucrative quota to Namibia.
• Hopefully 2017 will be a post-drought year which is characterised by the rebuilding of the national cattle herd. In essence this means that very little cattle will be available for slaughter. Historic slaughter data shows that cattle numbers coming from farms to Meatco’s abattoirs are easily halved during a year following a drought. Meatco’s cattle supply during 2017 to maintain current slaughter numbers and to be able to supply overseas clients and fulfil the Norway Quota is estimated at sixty percent of cattle originating from feedlots. Should DVS maintain their draconian measures on the control of naturally occurring zeranol in cattle urine and not allow trade in and out of the Feedlot, only between 30 000 and 40 000 extensively raised cattle will reach Meatco abattoirs for slaughter. This is less than half the slaughter capacity of Meatco’s Windhoek abattoir, with the Okahandja plant remaining closed. Future feedlot operations will therefore not be practically possible in Namibia, resulting of the live animal market being solely dependent on RSA weaner exports. Meatco’s lost turnover and revenue impact is estimated to be N$700-800 million, of which seventy percent is usually derived from foreign currency. Indirectly Meatco expects that at least half of its workforce is at risk losing their jobs.
• Many mitigating actions have been implemented at the feedlot to prevent further contamination with the Fusarium fungus, for example, the addition of a mycotoxin binder in the feed, increased quality control of raw feed material, and dry storage amongst others. It is, however, virtually impossible to keep raw feed material completely free of fungal growth, and even should we treat all animal feed to the same quality standards as human food, minute levels of mycotoxins and fungal growth will still be detected. Also, maintaining those standards applicable to human foodstuff would render Feedlot operations too costly and it is thus not an option for slaughter cattle production in Namibia. As a result, further feedlot development at Gobabis and Kombat will be ceased with immediate effect, forfeiting potential employment creation for approximately 100 Namibians.
• Furthermore, should this approach of zero-tolerance be followed, all feed manufacturing facilities and animal feed producing farms must be subject to the same regulatory environment, and by default, prohibited from selling any raw feed material – be it maize, sorghum, bran, lucerne, grass infected with Fusarium fungus or any levels of zearalenone. In principle, this would render the Feedlot and animal feed industries non-viable in Namibia.
• It must also be noted that part of the positive samples taken by DVS originated from free-range cattle, thus confirming scientific research that zeranol can occur naturally in all cattle under various production systems. Should zeranol in urine be regulated with a zero-tolerance on detection approach instead of zero-tolerance of administration of zeranol, the whole Namibian cattle export industry’s future is at risk

4.      Conclusion

Meatco does not use zeranol at Feedlot operations and it is our conviction that all zeranol detected, occurs naturally. It is therefore our submission that the actions implemented by DVS are harsh and excessive. We believe that the matter can still be resolved through simple interaction between the relevant competent authorities i.e. DG Sante and DVS, which will lead to the reopening of the Feedlot and clearing Meatco of any liability.

Meatco Okapuka