Beef rides out crisis
Published:  04 September, 2009

While retail sales and volume are suffering, value sales of beef are riding out the recession and exports are enjoying the benefits of a weak pound. Alyson Magee provides an update

Retail sales of beef have suffered this year, but largely as a result of limited supply, high prices and the vagaries of British weather rather than the economic downturn. The recession has not had a negative effect on retail sales of beef in any significant way, according to AHDB category development manager Richard Cullen, although a greater impact is notable in the foodservice sector. "As far as we can make out, comparing against the average over the last six years, we're not really seeing any change in consumption patterns," says Cullen, "although the next six months will be difficult, with redundancies and so on. People are still paying for food, and they're still eating meat."In fact, one sub-category undeniably seeing a hike in sales as a result of the recession has been mince, with volume sales up by 4.4% in 2008 to just under 150,000t and value rising by a fifth to £587m (source: TNS). The popularity of mince has not been welcomed by all, however, with the National Beef Association (NBA) calling on processors to market higher-value cuts instead of putting half of the carcases into mince, potentially losing £15-£20 per head of cattle. And some processors are seeing a greater impact on ancillary industries, such as leathergoods, with Linden Foods reporting lost revenue of £15 per head of cattle, expected to total year-on-year losses of £2m in 2009. The trade in hides typically represents 5-10% of cattle returns, and has been hit by weakened consumer demand for furniture and cars in the recession. Overall, however, the British beef industry appears to be riding out the economic depression without any significant degree of rationalisation. Dunbia has been the only casualty this summer to date, with 20 jobs cut after it lost a beef boning and packaging contract to North Highlands Products of Caithness. The Irish beef industry has taken a bigger hit, with Dawn Meats laying off 130 workers in the Republic, due to the closure of a de-boning facility in Co Cork, and transfer of operations to another site, to maximise efficiencies. Meanwhile, ABP announced the acquisition of Sturminster Newton Abattoir in Dorset, in line with its strategy of building a greater regional focus, and plans are in place to expand throughput at the site. A collaboration between the processor, Sainsbury's Dairy Development Group farmers and Farmright, follows Sainsbury's move from Dutch to British veal and, in August, ABP announced a new initiative to utilise its dairy suppliers' bull calves as beef across Sainsbury's frozen, processed and ready-meal product lines.

Sales falter

While volume sales of beef have taken a battering over the past three months - not to mention the past year as a whole - some recovery has come through over the last month. Having followed an upward trajectory in recent years, with 2007 notably a good year, volume sales declined by over 2% in 2008 and the trend has continued this year. TNS data for the year to 10 August cites a 3.3% decrease in retail volume sales, with roasting and stewing cuts taking the biggest hits at 10.2% apiece, followed by fine grilling beef, down 6.5% in volume sales. Sales of mince were stable for the year as a whole, with the economy product having grown to half of all retail beef sales; roasting and fine grilling cuts constitute a fifth apiece, and stewing beef 10%. Limited supply and weather have been the key issues driving down beef sales, along with rising prices, according to Cullen. "Domestic production is down, of course, and Brazilian beef has been pretty much absent from the market for 18 months now," he says. "Brazil would supply the roasting and fine grilling cuts typically promoted heavily by the retailers, so we're not seeing the same promotions as before." A comparison of volume sales over the 12 weeks and then four weeks to 10 August highlights the impact of the weather on trade. "Sales are pretty much where we would expect them to be," says Cullen, "and they are a definite indication of how much the weather affects sales. For the last four weeks, it was wet again and people returned to hotter meals. Previously, it was nicer with hotter weather."Thus, fine grilling beef was the only cut seeing growth over the 12-week period, with volume sales climbing 4%, year-on-year, on the back of barbecue trade. However, the trend reversed in the four weeks leading up to 10 August, with fine grilling beef sales falling by 10.5% but roasting joint sales boosted by 20.1%, followed by stewing beef, up 12.6%, and mince up 7.9%. Total beef sales rose by 7.9% for the four-week period, year-on-year, as consumers turned to comfort food when forecasts of a long hot summer proved over-optimistic. Meanwhile, high retail prices have boosted value returns, despite the volume decline, with value sales up by 5.2% over the four weeks to 10 August, or 1.9% over the 12-week period and 8.4% for the year as a whole. For the four-week period, the average price for beef was £5.99/kg, down from £6.16/kg for the same period in 2008, while the average for the 52 weeks to 10 August rose by over 12% to £6.03/kg. The value loss over the last four weeks will probably continue in August and September, according to Cullen, lowering the average for 2008. "Prices are higher, but are starting to work their way through the system," he says. "Volume sales need to recover to keep the value growth going, unless we get another hike in beef prices - for example if grain prices rise again." Pork has been performing the best of the proteins up to the last four weeks, says Cullen, with lamb - like beef - suffering from lack of supply due to a weakened sterling making imports less competitive. organic sales Organic sales, while niche at less than 1% of retail trade, have held up well, due to loyal organic enthusiasts and retailer promotions. "Organic meat is holding up better than the organic market in general," says Cullen. Organic cattle production in Scotland rose by 17% between July 2008 and June 2009 to just over 8,000 head, according to figures from the Scottish Agricultural College. More Irish beef farmers are also reportedly converting to organic production, with the Irish Department of Agriculture reporting an 80% increase in conversion applications across all foods this year, attracted by the premiums available and the sector's sustainability and comparatively low input costs. Provenance continues to be topical among retailers, with the NBA calling for better retailer compliance with regulatory guidance on the separation of beef by origin on-shelf. In August, the NBA singled out Sainsbury's, in particular, for failing to adequately separate beef from Britain and other countries. Among the multiples, Morrisons, Waitrose, Marks & Spencer, the Co-op and Budgens all stock 100% British beef, while Sainsbury's, Tesco and Asda supplement British supplies with imports.

Tight supply

Higher prices in 2008 and 2009 may have given producers a much-needed fillip, but the UK beef industry is still facing a supply crisis, with herd numbers and production in long-term decline. The UK produced 685,000t of prime beef and 176,000t of cow beef in 2008, with total production down by 2.2% year-on-year. While volumes were stable in England - by far the biggest producer of beef - at 504,500t, and even increased in Wales to 45,600t, production fell by 6.9% in Scotland to 172,200t and 8.1% in Northern Ireland to 140,200t. Cow beef production is forecast to decline at a faster rate than prime beef between 2008 and 2010, with total beef production projected to drop 6.5% over the period to 805,000t. Total dairy and beef cows are forecast by AHDB to continue declining to, respectively, 1.856m and 1.580m head in 2009 and 1.805m and 1.540m head in 2010. Calf supplies are also expected to dwindle in number, as are steers, heifers and particularly young bulls, while projections for prime cattle slaughtering indicate a drop of 3.8% to 1.950m head in 2009 and a further 2.6% to 1.9m head in 2010. Earlier this year, EBLEX published a new report, In the Balance The future of the English beef industry, highlighting a 27% decline in the beef breeding herd over 1990 to 2007, and a 12% growth in consumption over the same period, while self-sufficiency had fallen from 109% in 1995 to 80% last year. The report also claimed cattle prices were now lower than 1990 in real terms, and called on producers and processors to adopt a longer-term strategy of recovery, including technical and business improvements. Numbers of both dairy and beef cows fell uniformly across the regions over 2007 and 2008 - the exception being Northern Ireland, where a small increase was notable in dairy cows, possibly reflecting the dairy-origin beef initiative as part of the Livestock & Meat Commission's Red Meat Task Force. The Task Force initially planned to focus on the dairy herd, but is now tackling its declining beef suckler herd, following the revival in beef prices, making the sector potentially viable again. Meanwhile, a Strategic Plan was launched by the Welsh Assembly earlier this year to safeguard the Principality's red meat industry. And in Scotland, the Efra Committee published a report in July outlining strategies for securing food supplies - including domestic beef production - up to 2050. Concerns were aired at the annual conference of the Scottish Association of Meat Wholesalers (SAMW) earlier this year over the potential loss of a critical mass in cattle stocks, although beef cattle are suffering to a lesser degree than numbers of sheep and pigs. "The forecast is for a continued decline," says Peter Shipton of AHDB Meat Services, "mainly due to economic factors such as CAP reform and the move away from headage payments, resulting in rationalisation of the sector. The general decline in output is not just a UK but a European and global situation, driving prices up." The key result of UK and global shortages in beef has been rising prices; a trend likely to continue as production declines across the EU, but demand grows in markets such as Asia-Pacific. Against a retail price increase of 15% for 2008, average supplier prices rose by 26% to 259.6p/kg last year, although much of the hike was absorbed by increased input costs. While feed costs have come down, the exchange rate has rendered imports of feed, fertiliser and machinery expensive for British producers. Fortunately, the tight supplies have kept prices up this year to date.

Exports soar

One favourable impact of sterling's weakening against the euro has been to bolster export prospects for British beef producers, with export sales rising by 37% year-on-year to 92,000t in 2008. Ireland was the leading recipient of British beef in 2008, importing 38% of the total, followed by the Netherlands at 32% and smaller markets ranging from 9% down to 3% for France, Denmark, Belgium, Italy and Germany. While AHDB has forecast exports of 90,000t apiece for 2009 and 2010, due to tight supplies, the trade has continued to grow this year, with volumes rising by 8% year-on-year in January to May 2009. "We have seen some reduction in exports to Ireland, but more has gone to France and Belgium, and volumes have doubled to Italy, so more prime beef is going out," says AHDB's international manager Peter Hardwick. UK value exports of beef and veal, meanwhile, rose by 52% to £64m in the first quarter of 2009, according to EBLEX, with the favourable exchange rate and gap left in the EU market by lower South American supplies both contributing factors. Recognising the value of export markets in balancing carcase use and boosting farmer returns, each of the devolved meat promotional bodies is targeting specific markets across the EU. Prince Charles and the Duchess of Cornwall attended a British Embassy reception in Rome earlier this year, at which Quality Standard beef was served, reflecting its growing presence on Italian retail shelves. In August, Invest NI launched a two-year campaign targeting France, Italy, the Netherlands, Spain and Scandinavia with beef and lamb from the Province, claiming its efforts over the past 18 months had netted £25m in new business for the Northern Irish meat industry. British producers have been given the go-ahead to begin exports of beef, under specific conditions, to Hong Kong, which is a good market for British pigmeat but has been closed to beef since the 1996 BSE outbreak. In August, Defra hosted an inaugural EU Protected Food Names Roadshow, showcasing Scotch Beef and Welsh Beef, both of which have used the EU accreditation to their benefit in export markets. Although the smallest of the regions in terms of beef supply, Wales exported £17m of Welsh Beef in 2008, including £2.5m to France and £3m to Italy.

Uncertain imports

As UK supplies dwindle and exports increase, imports of beef and veal are forecast to continue climbing, despite the exchange rate making trade into the UK less favourable. Imports increased by 2.3% to 308,000t in 2008, and AHDB projects limited growth to 310,000t this year as a whole, but a further hike to 315,000t in 2009. Beef imports in the first five months of 2009 have fallen by 12.4% to 89,000t, in comparison to the same period last year, according to HM Customs figures. While Ireland has gained in market share, supplying 65% of UK beef imports over January to May, actual volume trade has fallen by 8.1%. Irish imports into the UK struck a sour note for producers on both sides of the Irish Sea this year, with the NBA claiming Irish produce was flooding the market at £70-£80 less per head than British cattle and threatening the long-awaited average price increase. Irish farmers were equally less-than enamoured with the price differential, taking their protest to meat processors supplying the UK multiples. The Netherlands and Uruguay are the next biggest suppliers, at around 7-8% apiece, followed by Germany and Namibia with 4% and 2.5% respectively; the latter representing the fastest-growing supplier over 2008-2009. The biggest change in the export mix is the decline in Brazilian market share from 12,620t or 12.5% of British beef imports in January to May 2007 to 1,717t or 2% for the same period in 2009. According to Hardwick, the EC's disease-related import restrictions applying to Brazilian beef mean only a sixth of the farms supplying the EU at the peak of autumn 2007 are currently eligible. The issue of reopening Brazilian farms to the EU continues to be contentious, with UK farmers expressing concerns over standards and their Irish counterparts calling for an outright ban. A recent EU Food & Veterinary Office report, however, highlights improvements in hygiene and traceability systems, as well as Brazil's certification system. "There is a little more beef coming through from South America, but it is still quite slow at the minute," says International Meat Trade Association secretary general Liz Murphy. "All in all, it's a bit of a scrapping around for supplies at the minute. Summer is not a great time; we would expect it to pick up in the autumn. I would still foresee a fairly tight situation for the rest of this year and into next year." Beef imports have increased from Australia and New Zealand, says Murphy, but are limited by the small quota size for chilled beef. "Quantities are still shifting, but it's just not a very buoyant market and it will be interesting to see what happens when the market does pick up," she says. Meanwhile, other South American countries are unlikely to be able to fill the gap left by the Brazilian beef deficit, with production forecast to fall 8% in Uruguay this year, and Argentina arguably becoming a net importer of beef in 2010.

Environmental agenda

Brazil has also found itself at the centre of environmental controversy recently, after Greenpeace published the results of a three-year study into Brazilian farms involved in illegal Amazon deforestation in June. Beef from these farms is ending up in ready meals sold by British retailers including Tesco, according to the campaigner. While the Brazilian Embassy refuted the allegations, claiming all EU-approved farms are at least 1,000km away from the edge of the rainforest, two of the three major exporters supplying 90% of volume destined for the UK, Marfrig and Bertin, have since pledged to avoid all cattle from the Amazon or linked to farms involved in deforestation. Meanwhile, the wider global meat industry is coming under increasing pressure over its methane emissions. EBLEX's In the Balance report lays claim to an improving water footprint for English beef producers compared to many other countries, and falling greenhouse gas emissions, including methane emissions, down 12% since 1990. EBLEX is also working with BPEX, the British Meat Processors Association, the National Farmers' Union and the British Retail Consortium on a meat road map, to be published this autumn, outlining strategies for reducing the environmental impact of meat production. Environmental concerns have had negligible impact on beef sales, however. AHDB category development manager Richard Cullen says. "Consumers are sceptical of the issue. It is a step too far."

Foodservice trends

Provenance is a hot issue in foodservice, with the Livestock & Meat Commission (LMC) for Northern Ireland calling for mandatory country-of-origin labelling (COOL) in the sector. A motion was passed in the Northern Ireland Assembly this summer proposing its introduction in the Province, and LMC chairman Pat O'Rourke claims the dioxin scandal would have had less impact in Northern Ireland had COOL been in place. EBLEX foodservice project manager Hugh Judd, points out: "Provenance is still the best and simplest way to maintain prices." Consumers are eating out less in the recession and, when they do, they want the experience to be extra-special. "Do you go out because you think you can get something cheaper " asks Judd. "Probably not. Price is important, but it's about value and the total experience in the eating-out market. People will pay sensible money, but they want real value for it and something better than you can cook at home. Mediocrity is not an option." Foodservice has become increasingly polarised between the top end and "pile it high, sell it cheap", says Judd, with the middle market suffering the most and the quality of service often falling, as caterers face tighter margins. Regarding cuts, Judd admits that some people have traded-down and are looking for cheaper options. "There has been some substitution of beef with cheaper proteins to keep a lower price point," he says. "Organic has always struggled in foodservice and people are questioning if it's worth paying more for."Earlier this year, EBLEX master butcher Dick van Leeuwen and master chef Pierre Koffmann developed a specialist steak range, aimed at lowering price points, and is already reporting requests for lesser-known cuts such as 'flat iron', hanger pavé and hanger steaks.And following on from its beef and lamb cutting guides, this summer, the promotional body introduced a veal cutting guide for caterers and retailers, aimed at boosting awareness and uptake of cuts beyond the standard veal escalopes and calf's liver.