The wider view

While sales of beef in the UK are positive at present, the industry could be facing a growing dilemma as supplies tighten and insufficient imports drive prices up further. Fred A’Court reports

The beef industry may be reasonably buoyant at the moment, but several underlying trends could converge to submerge it over the coming months. Supplies of beef are likely to tighten for the rest of this year, further price rises are virtually inevitable, according to some, and it is unlikely that extra imports will bail the sector out.

Indeed, in the medium- to long-term, a quota system claimed not to be fit for purpose and out of date, given current market conditions, could be a significant factor in depriving the UK of much-needed extra supplies. Lucrative new markets emerging around the world for quality beef may result in more competition for supplies once destined for the UK. Whether the latest recent government warnings about the dangers of eating too much beef combine with a worsening economy to dampen demand remains to be seen.

The market for beef in the UK has changed dramatically in the past few years, driven by several factors, including a drying-up of once plentiful supplies of South American beef, and fewer calves being finished because farmers are not prepared to pay the high costs of feed. The downturn in the economy has turned the beef market on its head. Forequarter beef, once so difficult to sell, is now where demand is — a point pertinently underlined by the fact half of the UK’s beef sales are now from mince, whereas hindquarter cuts have become more difficult to sell.

Richard Cullen, AHDB Meat Services research and insight manager, says the latest three month’s figures to 23 January showed retail beef sales up by 1.4% in value and up 1% in volume. This disguised the somewhat roller-coaster ride that the retail beef market has seen in recent months. Against all expectations, beef sales rose by just over 10% in December, when it snowed heavily, yet fell by almost the same amount in January when it was milder. “People may have stockpiled because of the poor weather and they probably bought more than they needed,” he says. “I expected December to be quite bad, because people weren’t able to get around. January demand was quite bad, particularly for roasting joints and that may have been because the weather was quite mild.

“Beef sales in the foodservice sector were poor in December, though inevitably picking up over Christmas itself and the New Year. Generally, foodservice has been trading down year-on-year, the only people doing well are the quick service restaurants. Pubs are starting to perform well, but only the chains, not the independents.”

Given the size of the market, Cullen says he does not foresee immediate huge changes. “People are going to be more concerned about what they are eating. Pork has been the best of the three red meats for sales and I expect that to continue, because it’s the cheapest. Beef looks expensive when consumers are looking to save money. It’s becoming a bit of a treat; instead of having it every other week or every three weeks, people are pushing it out to once a month.”

Scotland is seeing a similar situation to further south, says Stuart Ashworth, head of economic services at Quality Meat Scotland. “We’re killing more prime cattle than this time last year. Through 2010, the increase in cattle numbers was driven by young bulls coming through in much greater volumes. At the tail end of 2010, we also saw an increase in the supply of 28- to 30-month cattle, and some over-30 month heifers. There was also an increase in 14- to 18-month-old cattle. These young ones included young bulls and some intensively finished steers, plus a few more older heifers.”

Ashworth says the increase in cattle numbers in January caught him “on the hop”. He thinks  the cost base for finishers rose so quickly that they sold cattle as soon as they were ready, rather than fattening them further. “Earlier in 2010, they were probably going for weight to get big summer money for their beef, because the market price had declined slightly year-on-year, but as the year progressed, with the spike in the grain prices and the cost of straw that happened at the end of last year, a few more came out in January than was expected.”

Farmers have been bemoaning the fact that the market price gets all the attention and the cost of producing does not, adds Ashworth. “The producer is beginning to feel the pressure of rising input costs again. That has long-term issues. The wholesalers are finding it tough going still. Forequarter, manufacturing and the lower-value cuts are moving. Not many will be singing from the hilltops saying it’s absolutely roaring trade, but forequarter and manufacturing seems to be moving.

“For processors, the margins are diddly-squat so they need the volume to make anything work. They are seeing energy costs rise and there is real uncertainty about what the MHS/FSA inspection charges are going to mean for them. There’s the threat of extra cost hanging over them and that’s not doing anything for long-term confidence when they are doing budgets. It’s making them concerned about what their costs are going to be, notwithstanding the price of cattle.”

Scottish meat wholesalers are also very concerned about the stock availability, he says. “While January has been very good for them, they remain nervous in the longer term. They can see that calf registrations are down and the average age of animals is about two years old, so they can see tighter supplies.”

A sea change for the beef sector happened in mid-2010, with sudden feed cost increases. “Dairy bull calf registrations seemed to drop off a cliff last August, when the grain price went through the roof,” says Ashworth. “The economics of intensively finished young bulls changed complexion completely and the incentive to keep these calves disappeared.”

The double whammy of farmers offloading cattle in January and fewer calves coming through to slaughter means supply prospects through May to the tail end of the year look less rosy. “It’s a bit of a tightrope that processors are walking, although with the prospect of better supplies 18 months out,” he says.
Welsh prime cattle slaughterings in 2010 were up 3% on 2009 at 145,600 head, while beef production was up 5% on the previous year to 44,000t, says Emma Jones, market development officer for Hybu Cig Cymru (HCC). Retailers sold 25,539t of beef worth £152m in Wales in 2010, up 10% on the previous year. Sales of mince, stew, frying and grilling beef all increased, but roasting joints fell.
northern ireland trends

Conall Donnelly, economist at the Livestock and Meat Commission Northern Ireland, says Great Britain remains the key market for NI beef. “NI is obviously a smaller market than the overall GB market,” he says. “However, it remains an important element of the trade here and beef penetration in NI is typically higher than GB levels. While GB sales volumes have increased somewhat in 2010, NI sales volumes have been under pressure, perhaps due to competition from chicken and pork, the price of which has dropped slightly while beef prices have risen.”

There is strong throughput at Northern Ireland abattoirs at the moment, he says, with numbers holding up quite well. The cattle supply was higher this January than last, despite a decline in the availability of NI born beef cattle. The overall kill was up in 2010 due to more dairy bulls in the system and imports from the Republic.

Trading director for Dawn Meats UK Dennis Clarke says some recovery of UK trade is now happening. “Now the banks are making a bit of money, the top of the market is coming back. It’s the middle that is suffering because consumers are down-trading, going for the cheaper option. Fillets have had a bad run — it’s more sirloin and rib-eye. Pubs are putting on topsides and silversides, and there’s lots of imagination in terms of carveries using cheaper cuts. They are even using the knuckle and steaks from the flank, making more of the meat.”

A tightening of global beef supplies could have implications for availability in the EU and the UK according to Bord Bía trade marketing specialist Henry Horkan. The EU imports 300,000t of beef each year to meet demand, “The EU herd is falling by about 1.5%. If you assume that, over the next several years, it falls by 0.5%, another 250,000t of extra beef will be needed, 550,000t in total.”

The UK is about 75% self-sufficient and relies on the supply of Irish beef to help make up the shortfall, even more so since South American supplies dried up. “At the moment about 53% of our exports come into the UK,” says Horkan. “But in coming years it’s likely that, in value terms, our beef will follow where the market is. If the market on the Continent for steak cuts is going to be stronger at certain times of the year and is going to pay a higher price than the UK will pay, then obviously that product will go to the Continent.”
There has already been demand for Irish steaks in Germany and the Netherlands, because supplies out of South America have not been available. “We’ve expanded in Continental Europe,” says Horkan. “Ten years ago, we were in about 20 supermarkets in Europe and today we’re in over 70. Irish beef has made huge strides in Europe, 99% of our exports remain within the EU.”

Prices are going to rise across the board, he predicts. Irish beef production is going to fall by 40,000t this year, mainly due to high live cattle exports of Spain, Italy and the Netherlands. “A lot of cattle have been taken out of the mix. The sentiment among farmers is that they’re getting a better price on the live markets than they are getting through the plants. With EU beef supplies falling back by about 1.5%, tightening supplies in the UK and export markets from South America not there, prices will continue to rise” he says.