Casings: A casing point

During the last World Cup in 2006, which was probably the last prolonged hot summer without any major washouts, Rudgley says he saw a boom in demand for natural casings and he is hoping history will repeat itself in the run-up to the big event in South Africa this year. "We saw a very big demand for natural casings before the World Cup and the demand for sausages this year will be absolutely mega," he says. In 2006, turnover trebled during the World Cup months for the Suffolk-based firm, with staff putting in 18-hour days to keep up with demand. But this time Rudgley and his company will be prepared, he says, which is a welcome relief after a tough time in the natural casings sector over the last few years.

Martin Blythe, MD of Martin Blythe Casings, which also specialises in natural casings, confirms that the demand for casings has increased and foresees sales continuing to rise with the upcoming football fest and a predicted hot summer. Last year the Met Office forecast that Britain was "odds-on for a barbecue summer", but later admitted that July 2009 was "disappointing, especially in terms of rainfall". This year, it has announced that it will no longer be making seasonal forecasts and, instead, monthly outlooks, so it is difficult to predict in April/May what might lie ahead weather-wise for the sausage sector. Casings company employees will be keeping their fingers firmly crossed.

Market trends

Despite a sometimes turbulent ride for the casings sector over the past few years, with supply and demand affecting fluctuations in pricing, recent company and market performance suggest that the market has now achieved stability.

Casings giant Devro says it had a strong start to the year, particularly in the retail sector. In February it reported pre-tax profits up 76% in 2009 to £26.9m, as well as a 20% rise in revenue to £220m, with sales volumes up 6%, as demand for sausages rose worldwide. Speaking at the time, chief executive Peter Page said: "Devro's markets are resilient at a time of economic uncertainty, and we view 2010 with confidence. As the supplier of a key ingredient for a widely-consumed, affordable food product, we have a good balance of opportunities. The world market for meat continues to expand, and we expect to see continuing growth in demand for casings of 4-5% per annum, although with significant local and regional variations."

Speaking on behalf of his members, Natural Sausage Casings Association (NSCA) chairman Brian Johnstone notes that there are three factors determining the demand for casings. Firstly, there is the raw material supply, with a rise or fall in pig production in China or lamb kills in New Zealand and Australia having a significant effect on the availability of the basic product. Secondly, there is the demand from the processors and buyers, who need a continuous supply of raw material to maintain the viability at their facilities and the retention of highly trained operatives. "It is not possible to lay off experienced staff when it is quiet, then take them back when it gets busier," Johnstone says. Thirdly, there is the actual sausage consumption. Any combination of these three can have an impact on the classic supply and demand situation and the subsequent rise or fall in price.

In terms of one of these factors demand the UK market for sausages has been good, says Dunbia Casings joint MD Charlie Heggarty. "Recent figures confirm that sausage sales in the UK have risen again year-on-year. even in the depths of a recession," he says. "The downturn in the economy has been beneficial to sausage sales, as consumers have a continued desire for meat products, but at a lower and more affordable price point. This has occurred at both ends, with the growing introduction of premium sausages to the market, which is due to high earners wanting to trade down from steak and dining at home, rather than in restaurants, and then also consumers on a tight budget buying into value brand sausages. Families with children also consider sausages a tasty, nutritional and affordable meal that will feed and satisfy the whole family." He adds that statistics confirm that sausages are now seen as a quality product and not just a cheap alternative, which was the view in the past.

Other suppliers also agree that the increased demand for sausages has driven the overall market for casings, whether natural or collagen. "For natural casings there has been big growth; for expensive sausages, like a fine wine, people want the best they like a natural casing," says Rudgley.

The demand for a natural casing on a top-quality sausage product is as prevalent as it ever was, agrees Stuart Revill, MD of TruNet, a company that supplies both types of casing. "This is seen at all levels of food production, with the most expensive products still in natural hog or sheep casings."

Vince Minchella, sales manager of Naturin/Viscofan, which specialises in artificial casings, says current demand across the market is relatively stable, with a slight tendency towards growth and he agrees demand for sausages has been helped by the recession: "The continuing economic conditions mean that people are still eating more cheaply and are continuing to look for value-for-money meal solutions. Sausages fall very nicely into this category and it is therefore reasonable to expect some increase in demand."

Two tribes

Despite these positive market trends, the debate is still split on how the recession has affected natural and artificial casings and whether consumers are trading down to cheaper meals.

As one of the few companies in the UK offering customers both natural and collagen casings, TruNet can claim a good overview of the market: "The sausage market has seen some growth, along with cheaper meat products of all types," says TruNet's Revill. "However, what we have seen is that, at processor level, both medium and large, there has been more of an interest in making cost savings, which has led them to look at collagen or other processes; we have a few customers now using our curved collagen casings as an alternative to our naturals. Some have converted and some haven't. At the end of the day the consumer will drive the demand."

The NSCA's Johnstone agrees that although some larger sausage producers have changed production to artificial casings, he still sees an increasing market for premium-quality sausages in natural casings, with the demand for natural casings strong and growing.

For Dunbia Casings, the growth in premium sausages over the last 12 months has provided an opportunity to deliver high-quality casings to cater for this growth market. According to Heggarty, today's consumers have discerning tastes, so they can tell the difference between collagen and natural casings. As an example, he cites a story he heard from industry sources where a major supermarket chain, which changed from natural to collagen casings, experienced a 25% drop in sales. "Consumers associate natural casings with a premium sausage, so as that market grows, so too will the natural casings market."

Blythe feels that the recession has been a golden opportunity for natural sausage casings, even while consumers down-grade. He argues that, even with cheaper sausages, a natural casing is the best bet. "If you supply a decent sausage at competitive prices then there will always be a demand for your product," he says.

Meanwhile, Devro argues the case for collagen, saying that, at any level, consumers do not notice the difference between collagen and natural. The company has worked with consumer research firm Kantar Worldpanel and found that the recession has been actually good for food in general as 'eating in' has replaced 'eating out'. Devro sales director Lee Hamilton says: "Within the food category, sausage has performed strongly. Consumers are having to be cleverer with their money, but will not sacrifice quality in doing so. That is why this is a golden opportunity for collagen casings. Not only do they provide a more cost-effective alternative to gut casings for sausage manufacturers, but we have proven that consumers do not notice any difference in quality. And for those who have converted, sales have proven it."

Hamilton adds that the company's positive sales figures have been bolstered by many customers converting their gut lines to its porcine collagen range. "Customers are forever looking at ways to improve efficiencies, without affecting quality. Our porcine casing is made from natural pork collagen and not only provides a healthy cost saving but also improves productivity."

From a collagen casing point of view, says Minchella, one of Naturin/Viscofan's goals is still the conversion from natural casings and one of the ways to achieve change is to try and convince the market that there are other advantages to collagen, which will help provide some form of consistency in pricing.

Meanwhile, the NSCA's Johnstone believes that premium or high-quality sausages filled into natural casings offer the best pound-for-pound value, due to the higher meat content, cookability, better presentation and taste compared to an economy product. However, he says sausages have always been considered a good value meal. If money is really tight, people may choose a cheaper economy sausage, but this is likely to be filled into an artificial casing anyway, he argues.

"Having said that, there is no doubt that sausage demand has been increasing steadily," says Johnstone, "particularly with the butcher's shops for premium-quality sausages, which we think is due to people choosing sausages over steaks or chops. As meat prices have increased, a premium quality sausage is seen as an excellent alternative. Both natural casings and artificial producers are likely to benefit from the increased demand."

So it seems that, despite recession, the natural casings and artificial versions have both performed at satisfactory levels. Yet although casings are enjoying a good year so far, past experience with pricing fluctuations and supply difficulties indicates that suppliers have little chance to rest on their laurels, as there are no guarantees around the corner.

Investment lines

One indication that the casings market is healthy lies in the fact that it is still attracting new investors. Private equity firm Silverfleet capital acquired German artificial sausage casing company Kalle in August at a cost of 212.5m, described as one of the largest private equity deals agreed so far that year.

Dunbia Casings will now be strengthening its position as a market leader by making an investment of £1.8m over the next three years. This will include a state-of-the-art BRC-approved purpose-built factory, equipped with new machinery, to increase the company's productivity and efficiency and also offer employment opportunities. "We plan to launch a new brand identity for our company in the coming months and this will be in conjunction with a suite of innovative marketing media to include an e-commerce website for our customers," says Dunbia Casings joint MD Charlie Heggarty

Devro is introducing a new generation of casings Select collagen casings for smoked and processed sausages. This new range is designed to improve the 'knack' bite and appearance of the finished sausage. "Independent research has confirmed that these objectives have been achieved," says sales director Lee Hamilton. Sausages in this new casing will be available for sampling at the company's stand at the IFFA exhibition in Frankfurt in May.

The Natural Sausage Casings Association

"For the best part of 50 years, animal intestines have been my bread and butter," says Natural Sausage Casings Association (NSCA) chairman Brian Johnstone. He was directed to the International Casings Co in the early 1960s after leaving school, where he got his first whiff of the natural casings trade and the rest is history, he says.

NSCA members include firms such as W Weschenfelder & Sons, M C J Casings, Harder Bros and the Irish Casings Co. Last November the association held its 55th annual general meeting, during which Johnstone was elected to the chair. "The aims of the NSCA, as stated in our original constitution, are to promote, develop and protect the natural sausage casings industry. It is the association's intention to maintain this original commitment and also to raise further the awareness of proper sausage skins and their importance in the production of traditional and high-quality sausages, as well as encouraging everybody associated with the production and usage of natural sausage casings to support the NCSA in these aims," he says.

Johnstone believes the darkest day for natural casings arrived on 23 May 2002 when the Food Standards Agency recommended that sheep intestines should be banned from food use as a precautionary measure against the theoretical risk of BSE in sheep. "The livelihoods of hundreds of people directly involved in the collection, processing and distribution of natural casings were suddenly under threat and the NSCA was in the front line," he says.

"We immediately mounted a campaign costing several thousands of pounds for lobbyists, legal and scientific advice the association funds are unlikely to ever recover from the crippling cost as well as petitioning MPs, sausage makers, butchers and just about everybody we could think of, seeking support for what we considered to be an unfair and unfounded proposal."

The issue was eventually taken to the EU where it was agreed, in early 2003, that the removal of a small part of the sheep intestine, thought most susceptible to the theoretical risk, was sufficient. "Since then, the use of natural sausage skins has steadily increased," he says, "and our trade has returned to the relative calm of the normal business ups and downs, without any serious problems."

Supply and demand - the impact on pricing

At the Foodex show in 2008, one of the big topics of debate between sausage and casing firms was the huge hikes in hog casing prices and fears that supplies might run out. Two years on and with another Foodex passed, there now seems to be relative calm in the natural casings market, as the hog pricing problem has morphed into a sheepish slump in 2010.

Dunbia Casings finds that, overall, the casings market is strong, with the demand for certain types of casings either remaining stable or, in some instances, increasing quite significantly. Joint MD Charlie Heggarty says: "Our recent experience at Dunbia Casings has found that the demand for sheep casings is high, though in contrast the demand for hog casings remains stable."

Heggarty adds that the shortage for hog casings, which the market experienced a few years ago, has now been rectified, as stocks in China have been replenished and, due to the downturn in the economy, the demand in Russia has reduced. Another factor contributing to the stabilisation of the price of hog casings, he says, is that in general farmers are making more profit from rearing pigs, so they are keeping more and increasing availability. In addition, there has been a reduction in buyers purchasing casings for the sole use of extracting raw heparin for pharmaceutical use, such as in heart medicine.

NSCA chairman Brian Johnstone agrees that prices for hog casings are steady at the moment, having fallen back at the end of last year, but feels there is some pressure on raw material prices, reportedly driven by lower-than-normal kills in the major sheep and pig producing regions of the world. This has meant big processors in the Middle East and Europe have seen a drop in their raw material supplies. "In the past, big pork-producing factories, particularly in the US, would save pig runners if the selling price made it viable and then stop saving them when it became uneconomic, resulting in these sometimes severe fluctuations in selling prices. The sheep and pig productions indicated tend to recover in a relatively short time, so we would expect the pressure on raw material prices to ease in the near future," he says.

According to Martin Blythe Casings MD Martin Blythe, while hog casing prices have calmed down considerably from this time last year, even falling by as much as 50%, the real problem at the moment is the demand for UK sheep casings. He estimates that the prices for raw material have nearly doubled from £0.75 per runner to £1.45 per runner and he expects this to reach £2 per runner. The reason for this is that the number of sheep slaughtered has decreased and the demand for UK material has increased.

"Hog prices have calmed but this is after a succession of price increases, so they are still more expensive to use than their collagen alternatives," adds Devro sales director Lee Hamilton. "The sheer size of the world market, and therefore the demand generated, will continue to have an effect on the supply of hog casings going forward and this will always influence price."

Associated Casing Co MD Terry Rudgley says prices [for natural cases] have levelled and he does not forecast any reduction or increase on the current level of about 10p/lb and Stuart Revill of TruNet says hog prices have calmed down due to the fact that there is a greater availability worldwide than there was before. However, he puts the shortage of white sheep casings in the market, which TruNet uses for chipolata production, down to a shortfall in the kill of approximately 35%.

Johnstone warns, however, that it is possible the pendulum will swing the other way and that, over the next two years, selling prices of hog casings will increase once more. But he adds that most major hog casings producers are now focusing on long-term contracts with major slaughterhouses in an effort to stabilise the price for end-use.

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