10th Wageningen International Conference on
Chain and Network Management
Wageningen, 23-25 May 2012
STUDY OF COMPETITIVENESS OF CATTLE AND BEEF SYSTEM IN
NEUQUÉN PROVINCE, ARGENTINA BY USING THE EPESA
METHOD.
Senesi, Sebastián
Sub-Director Food and Agribusiness Program
School of Agronomy-UBA
Email: ssenesi@agro.uba.ar
Napolitano, Gustavo
Food and Agribusiness Program
School of Agronomy-UBA
Email: gnapolit@agro.uba.ar
Palau, Hernán
Food and Agribusiness Program
School of Agronomy-UBA
Email: hpalau@agro.uba.ar
ABSTRACT
The objective of this paper is to present the study of competitiveness of the cattle and beef
system applied for the Government of the Province of Neuquén, following the methodology
called EPESA (Study and Strategic Planning of the Agribusiness System). The paper includes
a quantification of the economic and product flows, a diagnosis in term of institutional,
organizational, technological and commercial environments, a competitive analysis of the
system, comparing with other cattle and beef systems in Argentina and the description of
transactions and attributes of transactions in the whole system. All this information is used for
formulating a strategic plan.
Key words: strategic lines, quantification of the system, institutions, organizations,
transactions.
Track: Managing Wicked Problems: The Role of Multi-Stakeholder Engagement, Resources
and Value Creation
1
STUDY OF COMPETITIVENESS OF CATTLE AND BEEF SYSTEM IN
NEUQUÉN PROVINCE, ARGENTINA BY USING THE EPESA
METHOD.
1. INTRODUCTION
The province of Neuquén, in Argentina Patagonia, currently has over 200,000 head of cattle
in over 1,300 livestock farms (0.4% of the national totals). Bovine slaughter in the province of
Neuquén has increased almost 400% since 2001. Due to the present health status of the
province regarding foot-and-mouth disease (FMD-free without vaccination throughout most
of its territory), cattle raising stands out as a very important present and future activity,
especially with respect to beef consumption within the province and beef exports to countries
of the FMD-free circuit, countries that demand high quality beef at very high prices. On the
other hand, livestock production in the area is currently practiced using extensive methods,
with little technological development; there exists a potential to increase productivity of the
livestock and the farms.
In order to improve the productive question and therefore increase beef production in the
province, innovations are necessary in the institutional, organizational and technological
environment that will directly impact the commercial scene. To this effect, the province of
Neuquén, together with the CFI (Consejo Federal de Inversiones – Federal Investment
Council), have contracted the services of the Food and Agribusiness Program (School of
Agronomy-UBA, Argentina) to conduct a systemic study of cattle raising and beef
consumption in this province, by using the EPESA (“Study and Strategic Planning of the
Agribusiness System”; EPESA refers to the Spanish words) method.
The EPESA method is an interesting tool in order to better understand the bovine
Agribusiness System (ABS) of the province of Neuquén, by studying not only the
technological aspects related to productivity but also the institutional and organizational
environments that contribute to the systemic competitiveness of the ABS. It aims to be a
participative method, with strong support from local public and private actors –at primary,
industry and commercial levels–, leveraged by several group activities. “The actors’
participation is also important to establish trust, ties and communion, in short, to create a
space for dialogue that will improve the capacity to generate collective actions, to expand
knowledge collectively and to build social capital” (Senesi, 2009).
Therefore, this study sets out to formulate a diagnosis of the productive and commercial
situation of cattle raising and beef consumption in the province of Neuquén, and later
establish a series of strategic actions together with the provincial government. Its object is
sustained by the proposal to:
“produce, process and distribute high quality beef, differentiated by origin, identity
preservation and quality certification, with the object of accessing markets, satisfying
consumers and creating value for stockbreeders, within the framework of sustainable
development in the Province” (Ordóñez, H., 1994).
2. PROCEDURES
2.1. Theoretical framework
The study of the bovine ABS cannot be done by using the classic economic assumptions.
Traditionally, economics has been studied by means of “neoclassical economics.” This
paradigm points at explaining the functioning of the economic system based on the following
2
assumptions: An infinite number of buyers and sellers, transparency in the transactions,
complete contracts, homogeneous products, complete information, factor mobility, freedom to
enter and exit, prices based on supply and demand. According to Hoff et al. (1993),
“neoclassical theory explains the economic system adequately when markets ‘function’
reasonably well, but fails when there are missing markets and price is not all that is needed to
adjust and carry out transactions.”
Based on Coase (1937, 1960) a new theory has been developed to study economic systems:
“transaction cost economic theory” (Coleman, 1998), which takes the transaction as the basic
unit for analysis. There arose a concept elaborated by Williamson (1985) on the basis of
preceding works: “the new institutional economics” (NIE), based on historical processes with
institutional changes (North, 1990), on the economy of property rights (Demzsetz, 1967), on
the theory of the firm and transaction costs (Williamson, 1985), and on the agency theory
(Arrow, 1963, 1968; Jensen and Meckling, 1976). The NIE approach uses several theories in
order to understand how the economy works (Kherallah & Kirsten, 2001) and how the
economic agents behave in terms of the transactions and strategies.
The main difference between neoclassical theory and the new institutional economics is that
the latter analyzes the institutions, since the legal structure that the laws, contracts and
property rights enforce is relevant to the economy (Hoff et al., 1993). The new institutional
economics (NIE) poses two propositions: 1) “institutions do matter” and 2) “the determinants
of institutions are susceptible to analysis by means of the tools of economic theory”
(Matthews, 1986).
One of the objectives of the NIE is to try to explain the determinants of informal and formal
institutions1 and their continuity —or lack of it— in time and to “evaluate the impact of these
in economic performance” (Nabli & Nugent, 1989); that is to say, the level of transaction
costs that exists under this or that institutional system. North (1990) mentions that if property
rights are not properly defined in the institutional environment, or if they present weakness,
the path to growth and development needs them to be created or strengthened.
NIE also mentions that in the real economy there are costs, always positive, called
“transaction costs”, which are not taken into consideration by neoclassical economics.
Transactions costs are those incurred before (ex-ante) and after (ex-post) the transaction itself.
They are the not-always-visible costs that arise from negotiating, designing and carrying out a
transaction,–ex-ante–; and the costs that arise from a bad negotiation, adjustment and/or
safeguard of the contract in question –ex-post–, whether these are caused by mistakes,
omissions and/or unexpected alterations (Williamson, 1993) or opportunist actions
(Hallwood, 1990). In the end, transaction costs are “functioning costs of the economic
system” (Arrow apud Williamson, 1985).
Uncertainty is the main source of transaction costs. Institutional uncertainty is due to constant
changes in the rules of the game or to poor enforcement of the law. Institutions are a society’s
rules of the game. They are the formal (laws, decrees, etc.) and informal (culture, customs)
norms that rule business and transactions among other things. Institutions and their
enforcement are responsible for the operation of organizations (the economic agents or
“players”) within the legal or formal framework. The higher the respect of the laws and
customs, i.e., the stronger the enforcement of the laws and contracts, the lower the
institutional uncertainty and, therefore, the lower the transaction costs at macro level.
1
By informal institution we understand the culture, customs and other influences that rule informally over men and business.
Formal institutions are the laws, regulations and other legal resolutions that rule over men and business.
3
At organizational level, the higher or lower level of uncertainty is due to behavior
assumptions: bounded rationality (Simon, 1962) and opportunism (Arrow, 1963, 1968;
Akerlof, 1970). These phenomena influence lack of information –what is known as
incomplete/asymmetrical/imperfect information theory”– and lack of information generates
uncertainty regarding future events. This organizational uncertainty leads to micro transaction
costs.
Associativism of the economic agents at horizontal or vertical level depends on enforcement
of the law and contracts. In those environments where opportunism and bounded rationality
are significant, there are fewer incentives for the players to want to develop links with other
agents for fear of being duped or running with higher transaction costs due to these alliances
(Palau, 2005). Therefore, the most common governance structures for the development of
transactions are the typical spot market (coordination via prices) and the firm or vertical
integration (coordination via control), depending on the de la specificity of the asset2
involved.
Williamson (1993) states that with a low level of asset specificity and high levels of
uncertainty, transactions via the market are the most efficient, since the risks of opportunism
and rationality limited are avoided. In the meantime, as the level of specificity of the asset
rises, vertical integration –internalization of externalities– appear as the superior option to
minimize fixed, variable and transaction costs. Hybrid forms, contracts or alliances
(coordination via incentives) are only possible with low levels of uncertainty, a result of
respect for the laws, contracts and rights, in this case, property rights.
Ordóñez (2002) summarizes the paradigm of the new institutional economics: “the analysis of
the real dynamics of business from a theoretical perspective found a series of difficulties in
orthodox neoclassical economics. The assumptions of perfect competition […] are not always
present in the real world of the economy and business.” Coase (1937) called this approach
‘Nirvana economics’ or ‘chalkboard economics’. The world of real economy or business is a
world of imperfect competition: A reduced number of economic agents, differentiated
products, incomplete information, restrictions to the mobility of factors and entrance barriers.
Coase (1998) proposes then an approach to the economic problem from the point of view of
economics, law, political science, social psychology and anthropology, in such a way that its
most complex aspects may be included. It is in this sense that the new institutional economics
approach is created.
2.2. The EPESA Method.
The authors follow the method “Study and Strategic Planning of the Agribusiness System”
(EPESA) (Senesi, 2009). This method was built on the basis of a methodological combination
between the chain approach (Ordóñez, 1999) and the GESIS method (Fava Neves, 2007),
complemented with the new institutional economics theoretical framework.
This methodological approach is summarized in Figure 2.1:
2
Specific assets are those assets whose value depends on the continuity of contractual relations.
4
Figure 2.1. EPESA Method: “Study and Strategic Planning of the Agribusiness System”
1 – Initiative of
leaders within
the productive,
industrial
System,
Government,
and
universities
2–
Quantitative
and
qualitative
mapping of
the
Agribusiness
System
3–
Establishment
of a Vertical
Organization
within the
System
4 – Planning
and strategic
management
design for
the
Agribusiness
System
5–
Consolidation
and management of the
prepared
projects and
contract designs
Source: Adapted by Senesi (2009), based on Fava Neves (2007) and Ordóñez (1999)
1. Initiative of leaders within the productive system and research institutes/universities to
plan the future of a productive system
The EPESA process should start from the initiative of some existing organization
within the sector (normally a sectoral organization), along with the Government,
universities and research institutes, eager to organize a process of planning and a
future approach for the productive system.
2. Mapping and quantification of the Agribusiness System (ABS) (chain, network,
netchain)
The mapping and quantification stage may be summarized in six phases: a) review of
existing studies; b) description and definition of the agribusiness system; c)
description for executives; d) research in associations; e) interviews with experts and
executives from companies; f) quantification.
3. Establishment of a Vertical Organization within the System
The establishment of a vertical organization may contribute to achieve objectives such
as: a) organization and exchange of information; b) a forum for strategy discussion; c)
flexible organization in order to gain and utilize resources, etc.
4. Planning and Strategic Management Design for the Agribusiness System
This stage has the following components: a) qualitative and quantitative defining and
description of the abs; b) discrete structural analysis; c) analysis of transactions and
governance structures –i) transaction space; ii) coordination analysis–; d) analysis of
the consumption; e) analysis of the competitive environment; f) diagnostic tools (i.e.:
SWOT analysis); g) setting of scenarios and futures strategies.
In this paper, the authors use only those elements of the EPESA method that contribute to the
analysis (step 2) and planning and strategic phase (step 4). Step 1 will not be described, due to
the initiative was already launched by the province of Neuquén, Argentina, as it was
explained at the introduction of this paper. On the other hand, steps 3 and 5 were not taken
into consideration since there were not included in the consultancy project.
Step 2 “mapping and quantification of the productive system” has the following 6 phases:
Table Error! No text of specified style in document..1: Phases of the EPESA method
applied to the present study (each phase includes when it has been done during the
project)
Phases
a. Review of existing
studies
Procedures
Carrying out reviewing of existing private or public studies, sectoral diagnoses
and cases of relevant companies. February 2010.
5
Phases
b. Description and
defining of the ABS
Procedures
Design of the ABS through “boxes”, respecting product flow, extending from
supplies to the final consumer. Specifying the system implies defining it
according to the object of study: i) Level of analysis (Meso-system, System, Subsystem or Strictly Coordinated sub-systems –Ordóñez, 1999); ii) Field of analysis
(supply chain, networks/netchains or food and agriculture districts –Ordóñez,
1999); iii) Products/services portfolio; iv) Regional sub-systems and/or strategic
groups. March 2010.
c. Description for
executives within the
private sector and other
experts.
d. Research in
associations and
institutions
e. Interviews with
experts and executives
from companies
With the first draft of the description, some in-depth interviews with executives
from companies acting in the sector, and other experts (researchers, sectoral
leaders, among others), must be carried out in order to adapt the design proposed.
April 2010
f. Quantification and
strategy proposals
Herein all information obtained is processed and added to the system description,
following the name of the industry. Thus, the data are sent to the contributing
companies that will analyze the values. The companies send the data back with
commentaries and contributions. June 2010.
g. Workshop for
mapping and
prioritizing strategies
In the final phase a workshop for presenting results and discussing numbers takes
place. Afterwards, in the final part of the event, there are created small discussion
groups seeking the fulfillment of strategic actions presented and summarized in
plenary section are created. July 2010.
Some private associations provide their members with information about the
ABS, many times even on the Internet. May 2010.
Interviews with buying directors will be carried out, trying to estimate the market
from the opposite side of the system link. Interviews oriented towards focusing
on competitive business keys, group of strengths/opportunities and of
threats/weaknesses. Critical points of competitiveness. Relevant group of
endogenous competitive advantages and disadvantages of the business and
exogenous ones of the context. Current competitive paradigm. Strategic prospects
of the different agents. Validation of the review of existing studies. June 2010.
Source: Senesi (2009).
Once the mapping and quantification of the productive system are executed, the only thing
that remains is to carry out the strategic planning and management of the ABS (step 4 in the
Figure 2.1; see table 2.2.).
Table Error! No text of specified style in document..2: Detailed sequence of the step 4 of
the EPESA method (each stage includes when it has been done during the project).
Stage
a) Qualitative and
quantitative defining
and description of
the ABS
What must be done?
Identification of agents, processes, supplies flow and products within the ABS under
study. Based on gathered information, implementation of stage 2 of the EPESA
method. Qualitative and quantitative mapping. April-July 2010.
b – Discrete
structural analysis
Analysis of the Institutional (formal and informal), Organizational and Technological
environments, according to outcome area. Study of related or supporting sectors.
Stage based on New Institutional Economics concepts. August 2010.
c- Analysis of
transactions and
governance
structures:
i – Transaction
space
ii- Coordination
analysis
Identification of transaction spaces, interfaces between the different sectors within the
ABS. Description of transactions: frequency, uncertainty and assets specificity. Most
frequent governance structures: market, contracts, vertical or horizontal integration.
Mapping of contracts and of the existing coordination forms. Breach of contracts and
legal certainty. Identification and analysis of existing markets in the different
interfaces. Alignment of transactions. Correspondence between governance structures,
business strategies, and coordination mechanisms and institutional environment.
Degree of adjustment. Remediability criterion. Capability of managing conflicts.
Cooperation and rivalry. Mechanisms for distributing surpluses. Capability of adding
6
Stage
d- Consumption
value. Strategic alliances, contracts, joint ventures. Social capital. September 2010.
What must be done?
Description and identification of consumption trends. Current main suppliers and
demanders. September 2010.
e – Analysis of the
Competitive
Environment
Competitive scenarios. Main suppliers and demanders. Basic market conditions,
number of agents, competitive interactions, strategic performance, asymmetric
information, imperfect competence and the power of the market. Existing (tariff and
non-tariff) barriers. Structure, number of buyers and sellers, product differentiation,
entrance barriers, cost structure, vertical integration, other integration models. Growth
patterns and competitive paradigm. Dynamic capabilities and generation of singular
resources. Analysis of target markets and client sectors. World trade. Main exporters
and importers. October 2010.
f- Diagnostic Tools
Study on competitive advantages of the countries. Methodology: Porter’s Diamond
Model. Study on the external environment (opportunities and threats) and domestic
environment (strengths and weaknesses). Methodology: SWOT analysis. Connections
between matrices. October 2010.
g – Scenarios and
future strategies,
objectives proposed
Prospective analysis. Analyzing current scenarios and proposing the design of future
alternative scenarios. Trends. System adaptability. Potential for change and agents’
resistance to change according to new changes in the local, regional and global
business scenario. List of main business strategies and public policies within the
system (actions) that will be employed in order to achieving the objectives, degree of
convergence between both of them. Winners and losers. Ethics, reliability, credible
commitments. Formal and informal institutional environment. Innovation.
Institutional, organizational and technological innovation. Innovation and the
capability of generating knowledge. November 2010.
Source: Senesi (2009).
3. MAPPING AND QUANTIFICATION OF THE CATTLE AND BEEF SYSTEM IN
NEUQUÉN, ARGENTINA
Livestock farming in the province of Neuquén, Argentina, started at the end of the nineteenth
century through an ancient form of nomadic herding in the north and center of what was at the
time a national territory. The first farms developed winter fattening destined to exports to
Chile, an activity that continued until the advent of the railroads to the area in the first decade
of the twentieth century, when regional production started focusing on the Argentine wetlands
and the Atlantic (PROSAP, 2009).
In the past, bovine stock experienced fluctuations between 150,000 and 120,000 head of
cattle, but starting in the 2000s it has increased to reach the current figures (204,000 heads).
Regarding its health status, the province is divided in two regions: North Patagonia A (NPA)
subsystem (which is FMD-free where vaccination is practiced) and North Patagonia B (NPB)
subsystem (more extensive and FMD-free where vaccination is not practiced). The NPA
subsystem has a stock of 12,610 head of cattle, which represents only 7% of the provincial
total. In addition, it concentrates 71% of the total population of the province (366,171 people).
The NPB subsystem has a total stock of 181,273 heads (93% of the provincial stock), while
concentrating the remaining 29% of the population of the province (149,563 people).
The differences in FMD status make transfers of cattle on the hoof and beef with bone
possible only from the NPB subsystem to the NPA subsystem. On the other hand, only
deboned beef from other national territories with “FMD-free without vaccination” status is
allowed to enter the NPB subsystem.
Error! Reference source not found.1 and 3.2 present the main stages (hereinafter “result
areas”) of the bovine ABS of the province of Neuquén and the main actors and support
7
organizations involved, and quantification in terms of product and cash flow. Cash flow
information is also presented in Table 3.1.
Figure 3.1. Bovine ABS in Neuquén: actors and quantification of product flows (in
number of heads and tons of beef; year 2009).
36.269
Steers, Heifers
NORTH PATAGONIA A
SUBSYSTEM
INPUTS AND TECH
PROVIDERS
Blood
528 tons
SUPER and
HIPERMARKETS
11.751 tons
Viscus
1.932 tons
GROCERY STORES
INDUSTRY
5.782 heads NPA subsystem
36.269 heads out of province
CONVENIENCE
STORES
Total: 42.051 Heads
FARMER
Stock
5.781 Cows
1.732 Heifers
411 Bulls
6.000
Slaughter’s cows
4.000
Fattening’s cows
Fat
1.476 tons
Leaders:
42.051 u.
Bones:
3.608 tons
Beef
8.856 tons
Fat
821 tons
Viscus
1.074 tons
11.751 tons
CALVES TO SERVICE
397 calves.
Index of replacement (25%)
FARMER
(Grass fed)
1.113 male calves
835 female calves
1590 female calves
1590 male calves
BUTCHER STORES
CONSUMPTION:
64,2 Kg/inhab/year
TOTAL CONSUMPTION:
366.171 tons.
Half carcass: 2.987 tons
Cuts: 11.660 tons
FARMER
(FEED LOT)
3.477 male calves
358 femaie calves
3.000 calves
FARMER
Stock
86.500 Cows
32.556 Heifers
5.609 Bulls
CALVES TO SERVICE
14.567 female calves
Index of replacement (48%)
7.000 male calves
3.000 female calves
Blood
294 tons
FARMER
(Grass fed)
14.947 male calves
8.225 female calves
INPUTS AND TECH
PROVIDERS
GROCERY STORES
CONSUMPTION
52,4 Kg/inhab/year
TOTAL CONSUMPTION:
7.839 tons.
30.275 female calves
30.275 maie calves
CONVENIENCE
STORES
INDUSTRY
Total: 23.383 heads
BUTCHER STORES
FARMER
(FEED LOT)
8.328 male calves
4.583 female calves
Leaders:
23.383 u.
Bones
2.006 tons
Beef:
4.924 tons
SUPERMARKETS
NORTH PATAGONIA B
SUBSYSTEM
12.700
Steers, Heifers
Cuts: 2915 tons
ARGENTINE BOVINE
AGRIBUSINESS SYSTEM
LOGISTIC
FINANCIAL MECHANISM
INSTITUTIONAL ENVIERONMENT (PROVINCE AND NATIONAL)
Source: the authors
Figure 3.2. Bovine ABS in Neuquén: cash flow quantification (in Argentine pesos; year
2009).
$84.747.052
Steers / Heifers
NORTH PATAGONIA A
SUBSYSTEM
Half carcass: $24.788.075
Cuts: $209.522.415
FARMER
(FEED LOT)
Calves
$2.340.000
INPUTS AND TECH
PROVIDERS
$2.100.000
Blood
Fat
SUPER/
HIPERMARKETS
$168.930.329
Viscus
$13.344.159
GROCERY STORES
INDUSTRY
CONVENIENCE
STORES
Leather
Bones
Beef
$73.504.493
FARMER (COWS)
Slaugher
and fattening cows
$11.880.000
BUTCHER STORES
$2.470.510
$168.930.329
FARMER
(GRASS FED)
CONSUMPTION:
$922,6 inhaab/year
TOTAL CONSUMPTION:
$337.860.658.
$8.385.612
FARMER (COWS)
$47.047.350
Blood
INPUTS AND TECH
PROVIDERS
$9.000.000
Viscus
CONVENIENCE
STORES
INDUSTRY
BUTCHER STORES
FARMER
(FEED LOT)
$27.575.093
NORTH PATAGONIA B
SUBSYSTEM
Fat
FARMER
(grass fed)
$58.799.651
Leather
Bones
Beef
$
40.873.016
SUPERMARKETS
CONSUMPTION:
$753,5 inhab/year
TOTAL CONSUMPTION:
$112.696.547 tons.
GROCERY STORES
Male and
female calves
$7.782.000
Steers / Heifers
$29.675.138
Cuts:
$24.194.274
ARGENTINE BOVINE
AGRIBUSINESS SYSTEM
LOGISTIC
FINANCIAL MECHANISM
INSTITUTIONAL ENVIRONMENT
Source: the authors
8
9
Table 3.1: Bovine ABS in Neuquén: cash flow (in Argentine pesos; year 2009)
Result area
Invoicing
Veterinarian Inputs and Services Suppliers
Animal forage suppliers
Inputs and technology
Total inputs and technology
Breeder (calf producer) (productor de cría)
Extensive fattening
Intensive fattening (Feed Lot)
Sales outside the province
Buys outside the province
Primary production
Total primary production
Livestock Commercialization
Industry
Independent agents
Bone-in beef
Subproducts of the slaughter
Total industry
Extra-province beef
"Imports" bone-in beef
"Importa" cut beef
Total "imports" of beef
Distribution
Supermarket sales
Butcher sales and other distribution channels
Total sales to consumer
Neuquen Total
Subsystem A
Subsystem B
$
$
2.682.864,08 $
49.868,08 $
2.632.996,00
69.499.368,14 $ 12.805.552,14 $ 56.693.816,00
$
72.182.232,22 $
$
$
$
$
$
44.005.606,56
33.426.705,31
20.690.997,53
22.658.553,89
47.392.587,36
$
12.855.420,22 $
59.326.812,00
$
1.833.439,81 $
42.172.166,75
$
1.756.747,21 $
31.669.958,10
$
3.884.479,63 $
16.806.517,90
$
22.658.553,89
46.548.282,36 $
844.305,00
$
168.174.450,65 $
54.022.949,02 $ 114.151.501,64
$
$
$
1.300.000,00
86.136.768,27 $ 55.756.435,42 $ 30.380.332,85
1.511.553,56 $ 1.511.553,56
$
87.648.321,83 $
57.267.988,98 $
30.380.332,85
$
$
19.732.175,24 $ 19.732.175,24
274.525.933,42 $ 214.414.249,77 $ 60.111.683,65
$
294.258.108,66 $ 234.146.425,01 $
$
$
245.440.244,26 $ 221.249.475,27 $ 24.190.768,99
213.650.447,22 $ 117.402.926,94 $ 96.247.520,28
60.111.683,65
$
459.090.691,48 $ 338.652.402,21 $ 120.438.289,27
$ 1.081.353.804,85 $ 696.945.185,44 $ 384.408.619,41
Sour Source: the authors
Following the quantification of the bovine ABS in the province of Neuquén, it can be said
that I generates almost 1 billion pesos, that represents approximately 2% of the industrial
GNP of the country, or 14.5% of the GPP of Neuquén ($6.9 billion in 2009).
Input and technological expenses at ABS level are approximately 72 million pesos, but it is
important to mention that 95% of those inputs come from other areas of the country, mostly
under the category of animal feed. This means that 68.5 million pesos leave the province to
provide for fattening of local animals, and represents a weakness in terms of increase
production and productivity.
“Primary Production” result area generates 168.17 million pesos, and its main category is the
purchase of bovines outside the province (47.39 million pesos) and calf production (44
million pesos). It is worth mentioning that the province “exports” to other domestic cattle and
beef systems of a total of 22.6 million pesos.
Regarding industrialization, the bovine ABS of Neuquén generates a little over 87 million
pesos. As for the beef supply in the ABS, 12% of it comes from animals produced and
slaughtered in the province, while 20% originates in animals from other provinces. The
remaining 68% of the beef supply can be explained by beef “imports” from other regions of
Argentina, in the form of half carcasses (8% of the total volume) and packet cuts (60% of the
total volume), mainly from the pampas region.
The total beef consumption of the province of Neuquén in 2009 was 34,219 tons for a value
of $459,090,691. This means an average per capita consumption of 66 kg/inhab., which
equals $864/inhab./year. The province “imports” 68% of the beef it consumes, which equals
312 million pesos.
10
4. PLANNING AND STRATEGIC
AGRIBUSINESS SYSTEM
MANAGEMENT
DESIGN
FOR
THE
The objective of this section is to present the step 4 of the EPESA method. It has 4 main
topics: the discrete structural analysis (analysis of the institutional, organizational,
technological and commercial environments), the analysis of the transaction of the whole
system, the consumption analysis, and the analysis of the competitive environment.
4.1. Discrete structural analysis
The main topics that influence the Neuquén’s bovine ABS at institutional environment are:
 Due to the Federal Meat Act, there are different types of licensing slaughterhouses
(municipal, provincial and national), and so do technology, investment in facilities,
product portfolio and health requirements. As a result exist unfair competition between
industries with higher requirements and enforcement (generally those to export,
comparing with domestic market industries).
 Nationally, in the past 5 years there has been a process of State intervention that has
controlled and restricted beef exports. However, some of these regulations exempt
animals slaughtered in North Patagonia B and South Patagonia, giving the possibility
to the province of Neuquén to be an important export player in Argentina, especially
because it is free of Foot and Mouth Disease without vaccination in almost all its
territory.
 Also in Neuquén, Provincial Law 2669 “Plan Productivo Provincial” (Provincial
Productive Plan) is currently in force to implement plans and programs with the
mission to “reach higher levels of economic development in the different links of the
value chains of the Province”, among them, cattle raising.
 The establishment of industries linked to cattle and beef, as well as those devoted to
feed-lot fattening, fall under Law Nº 1875/90 of preservation, conservation, defense
and improvement of the environment, and Law Nº 899/75, Water Code.
The main topics that influence the Neuquén’s bovine ABS at organizational environment are:
 Inputs and technology:
 Provincial and extra-provincial suppliers of veterinary inputs and cattle feed, most
of which come mainly from outside the province. It could generate some
distortions in terms of input and technology suppy.
 Primary Production:
 In the NPA subsystem, the small cattle ranchers predominate. 87% of the
producers own less than 100 head and concentrate 42% of the stock of the
subsystem. On the other hand, 15 producers own over 250 head, but concentrate
only 22% of the stock. The latter are associated to feed-lot expansion in the
province.

In the NPB subsystem there is a predominance of farmers who own less than 100
head (863 producers, 56% of the total), representing 13% of the stock of the
subsystem, associated to a “small subsistence producer” profile. 44% of producers
can be associated either to a traditional cattle rancher or a new rancher profile.
 Livestock Commercialization:
 There exists a high level of intermediation in the system, and the presence of
“independent agents” and/or “brokers”.
11
 Industrialization:
 In the NPA subsystem there are two meat processing plants and two municipal
slaughterhouses. These processing plants are licensed for federal transit.

In the NPB subsystem there are eight small scale municipal slaughterhouses, of
which only 2 are licensed for federal transit (CATA SA and Matadero de Zapala).
There is a lack of capacity in this subsystem, especially in order to supply foreign
markets.
 Distribution:
 There coexist in the province different formats of retail distribution, from large
supermarkets belonging to national chains to small retailers and the HORECA
channel. In the NPA subsystem supermarket sales predominate. In the NPB
subsystem butcher stores prevail.
 Public and private institutions for control, development and research:
 Among the national organizations, ONCCA granted subsidies to feed-lot fattening
farms; SENASA is in charge of supervising slaughter; INTA is the main national
research and transfer organization for the agricultural sector. At provincial level
are FUNBAPA and the Ministry for Territorial Development of the province of
Neuquén; the Universidad Nacional del Comahue conducts research and has
extension programs together with INTA; AAPRESID develops a network of tests
to improve forage, and the Rural Society of Neuquén represents livestock
producers locally and nationally.
The main topics that influence the Neuquén’s bovine ABS at technological environment are:
 Inputs and technology:
 Since feed-lot fodder and bales for the complete cycle are brought in from other
provinces, freight has a high impact on the final cost. At present, there are
initiatives to develop the production of animal fodder in Neuquén.

Primary Production:
 Neuquén is characterized by the prevalence of extensive livestock raising. The
province has a low extraction, around 17%; in general, low productive and
reproductive rates can be observed in small producers. The larger and more
professional producers show very good reproductive rates.

The handling of the animal load and overuse of forage resources is critical, and
there exist degradation and over-exploitation problems.
 Industrialization, slaughter, deboning and processing:
 The technological level of the meat processing plants operating in the A
subsystem is the highest in the province. In the B subsystem, processing plants
show low to very low technological levels. The entire system shows low levels of
use of the byproducts of slaughter.
 Distribution
 60% of the beef supply of the province is done in vacuum packed cuts; this allows
greater efficiency in the integration of the half carcass. This product is mainly
marketed in supermarkets, although in the NPB subsystem, as a consequence of
the scarcity of beef in relation to the demand, butchers also sell vacuum packed
cuts.
12
Finally, the main topics that influence the Neuquén’s bovine ABS at commercial environment
are:
 There are serious deficiencies in the availability of information related to the system
(prices, markets, volumes produced and/or commercialized, etc.), especially in the
case of the small and medium producers.
 There is a great influx of calves at a very narrow window of time in the year, when
they come down from the Cordillera, between April and May. In addition, these
animals show low uniformity regarding their state and physical condition. Small
nomadic breeders are the most affected by this situation because they are trapped in
their need to sell animals.
 There exist deficiencies in compliance with normative and formal aspects related to
the calves, especially those whose owners are nomadic producers. There are many
small producers with low volumes of animals and low uniformity within the same lot,
making commercialization difficult (the figure of the broker appears).
 Internal beef production is not enough to supply the internal consumption of the
province.
4.2. Analysis of transactions and governance structures
Five transaction spaces have been identified in the system:
1.
2.
3.
4.
5.
Inputs and veterinary services supplier - producer (breeding / complete cycle / feedlot)
Animal forage supplier – producer (breeding / complete cycle / feedlot)
Calf producer– complete cycle / feedlot producer
Complete cycle / feedlot producer– industry
Industry – Retail distribution
Error! Reference source not found. presents a summary of the analysis of the transactions
identified within the livestock and beef ABS of the province of Neuquén regarding the three
attributes used to describe them and the prevailing governance structures. In addition, the
most efficacious and efficient governance structures for each case are suggested. In this sense,
three transaction spaces have been found in which the governance structures used and those
suggested are not aligned.
Table 4.1. Summary of the characteristics of transactions and governance structures
most common in the livestock and beef ABS in Neuquén.
TRANSACTION
SPACE
FREQUENCY
UNCERTAINTY
SPECIFY
ASSETS
GOVERNANCE
STRUCTURE
PRESENT
THEORETICAL
GOVERNANCE
STRUCTURE
ALIGMENT OF
TRANSACTION
1
Inputs:
medium to
high;
Genetics: low
Low
Market
Market
Yes
2
Medium
Medium
Market
Medium to
high
High to
medium-high
High
Hybrids /
contracts
Market
No
3
Inputs:
Low;
Genetics:
medium
to high
Medium
to high
Medium
to low
Medium
(prod.)
High
(ind)
High
(ind)
Low
(distr.)
Yes
Hybrids
No
Hybrids
No
4
5
High
Medium to high
Medium
Market &
Vertical Int.
Market
VI
Market
Source: the authors
13
Given this characterization, we may infer that, in general terms, coordination of the business
is done through price (market), and there are practically no contracts (hybrid forms).
Contracts could define win-win relations, getting out of the current schemes (win-lose) that
promote imbalances, inequities and low added value schemes.
These conditions are responsible for the low level of coordination of the bovine ABS in
Neuquén and the existence of high level of transaction costs, avoidable by applying more
efficient designs.
Since there is no real coordinator in the system, the agents operate individually and
opportunistically, depriving the system from competitiveness and decreasing the added value.
At the same time, the situation generates an imbalanced distribution among the actors of the
value produced.
4.3. Consumption
The international demand of food has undergone changes in the past few years. Economic
growth in developing countries has led to greater consumption of animal proteins. On the
other hand, global consumers show preferences that are often present only in developed
countries. Various quality certifications, guarantee of origin and food safety, consideration for
the environment, social aspects and animal welfare are being demanded by consumers both in
developed and developing countries (Palau, 2005). Therefore, we are going through a process
of consumer segmentation, based on their preferences; however, these segments are no longer
niche markets, but are becoming more and more important in terms of the volumes demanded
(Fava Neves, 2000).
Worldwide, the greater beef consumption has provided the drive for some countries to
increase their beef production and therefore their exports. In particular, Brazil and India have
increased their participation in international commerce (Palau et al., 2010). On the other hand,
historically exporting countries –the US, Australia, New Zealand– have not increased their
export volumes considerably, concentrating on their traditional markets. In countries like
China and even Brazil, economic growth promoted an increase in beef consumption of local
production.
Argentina presents very erratic exports in the international market –in 2005 Argentina was the
4th main exporter with more than 750,000 tons and in 2011 it exported only 250,000tons–,
mainly oriented to the commodities market. The country has been unable to capture the
growth of international demand, either in quantity or in quality, due to institutional
restrictions to exports in the past few years. Therefore, the greater volume of beef is destined
to the domestic market, since beef consumption in Argentina has been close to 60
kg./inhabitant/year for the past three decades, and the local consumer does not pay for name
brand, information or certifications.
Starting with the stock liquidation from 2006 and the strong increase in over-the-counter beef
prices experienced at the end of 2009 as a consequence of that liquidation, beef consumption
dropped again to a little over 60 kg./inhab./year (Senesi et al., 2010). According to several
studies (Ordóñez, 1998; Ordóñez, 2002; Palau, 2005; Contreras et al., 2009), Argentine beef
consumers have very different consumption patterns from those of international consumers;
they prefer tender meat from young animals with low weight. On the other hand, price is the
most important sign to purchase, not taking into account certification and traceability
programs.
Beef consumption is concentrated mainly in the pampas region, particularly in the city of
Buenos Aires and Greater Buenos Aires area. It is estimated that 50% of beef consumption
14
corresponds to Bs. As. and GBA, where 14 million people live, while the remaining 50%
corresponds to the rest of the country, with a population of 26 million inhabitants.
4.4. Analysis of the Competitive Environment
The analysis of the competitive environment was developed using Porter’s Diamond
methodology, which establishes competitiveness aspects based on 4 key attributes and a
satellite attribute: Factor Conditions; Demand Conditions; Related and Supporting Industries;
Firm Strategy, Structure, and Rivalry; and Government. Variables for analysis were
established for each of these attributes and these variables were compared between the NPA
subsystem – FMD-free without vaccination– and the NPB subsystem –FMD-free with
vaccination system– in Neuquén. The comparative analysis of the variables was developed
both qualitatively and quantitatively (see Figure 4.1).
The analysis of the factor conditions allows us to identify that the NPB subsystem of the
province of Neuquén presents better conditions for bovine production compared to the NPA
subsystem and to the Patagonia FMD-free without vaccination livestock and beef system. This
is due to the fact that it has better precipitations, the presence of wetland meadows, access to
irrigation water (better to that of subsystem A, but lower than that of Patagonia FMD without
vaccination). Compared to the FMD-free with vaccination livestock and beef system, the NPB
subsystem is in competitively inferior condition with respect to the variables mentioned. The
property of the land, geographical location (in relation to the demand), investments and
availability of machinery variable are in a better competitive situation in NPA subsystem, than
in the NPB subsystem. As for labor (availability and quality), research and knowledge transfer,
the bovine ABS of Neuquén is in inferior conditions to those of the rest of the bovine systems
in the country.
From the analysis of the demand conditions, it is concluded that per capita consumption is
higher in the NPA subsystem than in the NPB subsystem; in the former it is close to the
national average, while in the latter it is almost 15% lower. However, a competitive
disadvantage is observed here that also appears in the Patagonia FMD-free without vaccination
livestock and beef system: beef “imports” (whether in the half carcass or vacuum packed) are
necessary in order to supply the demand. Therefore, before a growing dependency on beef
“imports”, the system/subsystem is more vulnerable to production and price fluctuations in
other regions of the country. As for prices in the NPA and NPB subsystems, higher prices for
cuts with bone can be seen in the NPB subsystem because these cuts come exclusively from
local slaughter. On the contrary, cuts without bone have higher prices in the NPA subsystem
than in the NPB subsystem because of a greater demand of these cuts in the first subsystem.
The analysis of the related and supporting organizations shows that the livestock and beef
system of Neuquén is in competitive inferiority when compared to the FMD-free with
vaccination livestock and beef system, and is in a similar situation to that of the Patagonia
FMD-free without vaccination bovine ABS.
The situation of the firm strategy, structure and rivalry of the business attribute is similar
to that of the previous attribute, in which the bovine ABS of Neuquén and of Patagonia FMDfree without vaccination show low competitiveness compared to the Argentine bovine ABS,
FMD-free with vaccination.
Finally, the analysis of the government attribute shows that the bovine ABS of Neuquén has a
greater competitive advantage than the rest of the systems nationwide, especially because local
government is committed to support the industry –both at production and industrialization
level–, promoting investments in irrigation, seeds and feeding inputs and slaughtering capacity.
15
Figure 4.1. Summary of the main elements of the analysis of the competitive
environment
Source: the authors
5. STRATEGIC ANALYSIS
Based on the conclusions of each of the previous chapters, an analysis is developed that
highlights the main points to take into consideration and the strategic lines that the authors
consider that the Government of the Province of Neuquén is advised to analyze and
implement.
Strategic Line I:
Strategic Line II:
Promote the differentiation of the product to satisfy global client segments.
Promote livestock productivity in the province, especially in the breeding
areas, and the incorporation of new areas for finishing and/or fattening.
Strategic Line III:
Promote a Livestock and Beef System capable of generating and adding
value within the scope of the province of Neuquén.
Strategic Line IV:
Establish a single heath and commercial standard at provincial level. Unify
Subsystems A and B.
Strategic Line V:
Develop the institutional and commercial framework for unification of
slaughtering licenses.
Strategic Line VI:
Develop a Provincial Livestock Raising Plan that will promote the strategic
lines proposed in this paper in addition to others of interest to the
Government.
16
Strategic Line VII:
Establish criteria for the use of fiscal lands and the demarcation of private
property.
Strategic Line VIII:
Promote a specific Law for the establishment of feed-lots in the Province
and review Law Nº 899/75 of the Water Code.
Strategic Line IX:
Promote research, development and extension in topics related to the
Competitiveness of the Beef ABS of Neuquén.
Strategic Line X:
Improve the extraction rate of the Province.
Strategic Line XI:
Develop industries around the byproducts of the slaughter and improve the
disposal of wastes.
Strategic Line XII:
Promote cooperation designs among economic agents so as to make
progress towards added value coordination by means of transactions
aligned by focusing on the client.
6. CONCLUSIONS
Internationally, beef consumption is increasing and it’s expected to have higher level of
consumption, especially due to economic growth in developing countries. Argentina is in an
unique position in terms to be a supplier of beef: grasslands, grains, production culture and
tradition, infrastructure, etc. The province of Neuquén in particular incremented its cattle and
beef production in the last years and, due to the present health status regarding foot-andmouth disease, cattle raising stands out as a very important present and future activity to
supplying both domestic and international markets. On the other hand, livestock production in
the area is currently practiced using extensive methods, with little technological development;
there exists a potential to increase productivity of the livestock and the farms by investing in
feed lot facilities.
However, the province as a system needs the formulation of a strategic plan, which has been
conducted by the authors in alliance with the CFI (Consejo Federal de Inversiones – Federal
Investment Council) and the State of the province of Neuquén. The methodology used was
the EPESA method (“Study and Strategic Planning of the Agribusiness System”), with two
main stages: a) diagnosis and quantification of the system; b) planning and strategic
management (step 2 and 4 of the EPESA method). The project includes a systemic study of
cattle raising, industry, distribution and beef consumption in this province, identifying also
the coordination and transactions.
A priori, this work would have two conclusions. In the first place, it is worth noting a
conclusion about the livestock and beef system of the province of Neuquén, which has
production capacity and local supply, but beef from other regions of the country must be
brought in to supply the demand of the province. This is mainly due to the fact that agro
ecological conditions have a low comparative advantage in relation to other regions. On the
other hand, the handling is many times deficient, and, therefore, so is the productivity of the
livestock, which shows low productive and reproductive rates.
However, it can be observed that the provincial government has been promoting livestock
raising, since it is possible to improve these rates by means of a series of innovations in
technology (feeding) and infrastructure (the meat processing industry). It is for this reason
that the province of Neuquén might become, in a near future, a beef production pole, with the
added value of being FMD-free without vaccination, which would allow it to export beef to
the main high-demand markets of the FMD-free circuit.
Hence the importance of the formulation of the current strategic plan, which gives rise to the
second conclusion of this work. The plan formulated takes into consideration, based on the
systemic diagnosis, the needs, advantages and disadvantages of the system, using as a hard
17
nucleus the theoretical framework of the new institutional economics together with concepts
of modern industrial organization, based on the EPESA method. The result of the strategic
plan resulted in strategic lines and can be summarized in terms of a) promoting differentiation
of Neuquen’s cattle and beef, b) promoting higher productivity by increasing the use of corn
and protein, c) establishing an unique FMD status in the whole province, d) developing the
unification of the slaughtering licenses and health and commercial standards, e) establishing
better criteria of lands and water use, f) promoting research in terms of production,
industrialization and commercialization of beef and byproducts from Neuquén to different
markets, g) promoting cooperation design between farmers, industrials and traders by means
of transactions aligned by focusing on the client. All these strategic lines were thought in
order to improve Neuquén beef system’s competitiveness. The project did not include how to
implement them.
The EPESA method is still under construction; the formulation of these plans at sectoral level
and later publications will serve to gradually adjust details and improve that method.
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