Challenges for the livestock sector highlighted
Published:  23 February, 2016

Livestock farmers are facing an uphill struggle to achieve positive margins when selling finished animals, according to latest figures from Quality Meat Scotland’s (QMS) economics services team. 

According to QMS, livestock producers continue to face declines in farmgate prices for their finished animals. “The most marked year-on-year shortfall is in the pig sector where prices are trailing last year by 16%, but beef prices also trail last year,” said Stuart Ashworth, head of economics services at QMS.

“While it has to be recognised that some input costs have fallen, they have not fallen fast enough to allow many livestock farmers, and pig producers in particular, to maintain their margins.”

It is only natural for livestock growth rates to feel the effects of several factors; this can range from climate variation to genetic capability. As an example, Ashworth highlighted that a period of wet or cold weather requires an animal to eat more feed to keep its frame before growing, thereby reducing the benefit of falling animal feed prices.

“Improving or maximising the existing genetic capability of livestock is not a fast win,” added Ashworth. “At one level it requires investment in animal science research and at the other a willingness and capital resource from producers to invest. Without a sufficient margin it is difficult to finance the investments needed to continue to drive efficiency into any business.”

Excessive price volatility can result in livestock producers facing difficulty in planning and investing in their businesses, which may derail existing investment plans, said Ashworth. There are several factors driving price volatility, although it is ultimately driven by the balance between supply and demand at a global level.

“Supply can be affected by climate and one example of this is the impact of droughts in the United States over the past two years. These led to significant declines in cattle numbers along with price increases which pushed US cattle prices to some of the highest in the world. As things return to a more normal situation, beef production has increased and US cattle prices have fallen by around one-quarter in the past six months.”

Supply can also be impacted by trade restrictions. Scottish lamb prices collapsed in 2007 when trade with Europe ceased in light of the last foot and mouth disease outbreak, which left increased volumes on the home market.

In more recent times, Russian restrictions on trade have destabilised the European pig market, which has led to a need to find alternative markets, in some instances at lower prices. In the short term, this has resulted in increased volumes of pigmeat on the European market, driving producer prices down.

However, looking to the future, there are opportunities for the European market to open up to increased imports of meat. One such measure is the free trade talks with South American trading block Mercosur, the US, New Zealand and Australia. According to Ashworth, these have the potential to add even greater volatility to farmgate prices but do little to increase EU and UK access to growing consumer markets.

“On the other side of the equation sits demand,” he commented. “While a growing work population is seen as a driver for increased consumption of meat, offsetting this is the level of income, as illustrated by the slowdown in China’s economic growth, where demand may remain but prices paid have to dip. Demand if also fickle in respect of dietary fashions, food-related health scares, lifestyle changes and environmental and animal welfare messages.”

Ashworth also said that producers can only respond to this volatility by delivering a product that meets the demands of the marketplace in respect of quality, provenance and product promotion.

“Generally price volatility moves quicker than the animal rearing process, meaning that prices received at the end of the rearing period can be very different from the expectation when the breeding and rearing process began.

“Consequently, measures to maximise the efficiency of the production process may offer the best risk management tool. To do this will often require investment and without profit to reinvest or investment support, the funding for investment in production efficiency will be held back.”