Focus on Scotland: Facing the challenge

However, the Scottish meat industry is facing its fair share of difficulties and challenges ahead. Chief among concerns is supply, with countries across Europe suffering from diminishing herds and flocks as a consequence of Common Agricultural Policy (CAP) reform, but with a unique livestock configuration leaving Scotland more vulnerable than most.

Thrown into the mix, meanwhile, has been the economic downturn and rising farmgate prices offering a lift for farmers, but critical profit margins for processors struggling to recoup the hike from supermarkets, while facing the prospect of spiralling meatinspection costs.

Recognising Scottish red meat production as both a vital domestic food source and valuable export under threat, the Scottish Executive (SE) is backing the sector with a programme of aid and marketing support from 'farm to fork'. The SE is currently developing its first-ever food policy, including measures to increase the market for red meat, with support for local sourcing, and the Scottish government's catering contract now sources all its beef and lamb from Scotland.

An added fillip for the sector is the allocation of additional levy funds to promotional body Quality Meat Scotland (QMS) on 1 April (see panel, page 16). "It's not an easy time; it is a challenging time for industry," says Uel Morton, chief executive of QMS. "The positives are that we have fantastic brands in Scotch Beef and Scotch Lamb, and Specially Selected Pork has been given a big boost with the Scottish SPCA link.

"QMS is bullish about the outlook. We went to industry with proposals to increase the levy and their acceptance was a very strong endorsement of our activities."

CAP reform

"A significant number of businesses in Scotland rely on the supply of quality meat, and are anxious that Scotland continues to be a producer of livestock," says Lochhead, affirming the Scottish government's commitment to addressing the decline through support packages and representation in Brussels.

Former ANM Group chief executive Brian Pack was appointed chairman of a new Inquiry into Future Support for Agriculture in Scotland in 2009, with his interim report earlier this year highlighting the country's high dependence on ruminant livestock and hence the necessity of continued direct payments.

Pack has also recommended allocation of a percentage of Pillar 1 direct payments to initiatives aimed at improving the sustainability of farming, and making a 'special case' of Scotland for the portion of subsidies permitted for 'trade distorting' activities in recognition of its unique plight.

"We need some form of support for production and we need support for calves, from single-coloured skins into black and white ones as well," says Alan Craig, chief executive of ANM Group and president of the Scottish Association of Meat Wholesalers (SAMW). "We have been consistent on that since the Fischler reforms in 2003.

"Livestock numbers have dropped and the countries that are seeing it dropping substantially are getting worried. We need some form of linked payment to encourage farming and quality production."

QMS is also closely following the Pack review. "If you move to a 'simple' process, it could divert significant funds away from the most efficient livestock producers and would play badly on profitability," says Stuart Ashworth, head of economic services at QMS. "There is a recognition that things have to change, but we have to work to minimise the disruption."

Dwindling stock

While the latest census figures (December 2009) for the beef cow herd support more optimistic reports of a bottoming-out in declining cattle numbers representing a 0.4% year-on-year drop to 456,000 head the herd has fallen by 9% since December 2004, when direct support was removed, says Ashworth.

Further, Scotland's unique cattle make-up with 70% of the breeding herd beef cows in contrast to 50% or less in England and Wales magnifies the impact from even marginal declines in number. Dairy cow numbers have fallen by 3% year-on-year, and by 7% since 2004.

More positive trends include a 6% rise for beef in-calf heifers and stability in the theoretical numbers of heifers for future breeding, offering tentative "green shoots of recovery", says Ashworth. However, calf registrations fell by 2.5% year-on-year in 2008 and a further 5% in 2009, leaving the pool of stock getting smaller, and an emphasis on spring calving an ongoing concern for the Scottish beef sector, he says.

Nevertheless, "The beef sector is just beginning to feel a little bit happier with itself," says Ashworth. "Fragile, but on the positive side would be the best description."

Farmer co-operative ANM Group has welcomed increased values and margins, particularly for store stock year-on-year, says Craig, despite "an underlying drop in livestock numbers, although the drop seems to have started to flatten out".

Scottish beef producers receive 20p/kg over their Irish or English counterparts, with higher volumes lowering prices in those markets, says Craig, adding: "And we have had to trade in that marketplace. With sheep, however, the fear is the population has been lost for good. More tonnage is coming from sheep on the ground, as weights have increased, so there is a bit of encouragement there. Whether or not there will be a reversal of sheep numbers remains to be seen."

While the December 2009 census indicated little change in the breeding flock at 2.877m head, a positive trend, ewe numbers have fallen by 15% since December 2004. And, according to Ashworth, between December 2009 and June 2010, there has been a lot of snow, rain and generally cold weather and a lot of dead lambs. "We won't have as many lambs to sell as last year, and they will be a bit slower coming on to the market," he says.

The sheep sector, meanwhile, faces the added problem of sterling strengthening against the euro, eroding the profitability of exports. "Sterling is the least ugly of the ugly currencies," says Ashworth.

QMS launched results from the fourth year of the Sheep Focus Farm Project at Scotsheep last week, identifying cumulative gains of £10/ewe from both hill and lowland flocks participating in the first phase of the project, and £17.33/ewe in the second phase.

For pigs, breeding sow numbers are fairly stable at 33,200 head, with slightly more piglets in the December 2009 census. "The Scottish pig sector is very efficient," says Morton, highlighting successes in reducing salmonella incidence and other diseases. The new collaboration with the SPCA, offering high-welfare, accredited Specially Selected Pork has also boosted its prospects, he says.

Challenging market

Amid all the noise over the impact of CAP reform on livestock numbers, the processing sector has faced challenging trading conditions in the recession and what Craig describes as 15 years of inflation hitting livestock in 2008. This has left processors struggling to scrape a margin as the middle-man between rising farmgate prices and supermarket contracts.

"Recession has had an impact on all sectors," says Lochhead, commending the meat industry for maximising the value of every animal. "Clearly our meat processors have had to adapt to changing eating behaviour, which is testament to their resilience."

Recognising a difficult past year for processors, with raw material costs rising and concerns over meat inspection costs, Lochhead said the Scottish agriculture department had made it "a priority to ensure the market delivers a fair share to all parts of the supply chain".

ANM Group, meanwhile, has welcomed rising prices for its producer stakeholders, but also faces challenging conditions as a meat processor and supplier into the retail and catering sectors. "It has been an extremely challenging year, with the recession partly to blame," says Craig. "You have to operate in the marketplace you're in."

With wholesale prices showing little movement, abattoir margins are still wafer-thin, says Ashworth. "A recent fall in the beef farmgate price may help a little, but future supplies of cattle are likely to be tight and prices may climb again.

"Our processors would say there are adequate supplies, with more cattle killed in the first half of the year than expected," he adds, "but it is making them nervous about what supplies will be left for the rest of the year. The supermarkets are reasonably happy to stand on where prices are, but processors are finding it difficult to get movement upwards in wholesale prices."

Against this backdrop, the reform of meat inspection is raising the hackles of the Scottish processing sector, with SAMW citing a potential three-figure increase in inspection costs. "We're not looking for it for nothing, and are prepared to pay for a professional, cost-effective service, but regulation is getting mixed up in costs and delivery," says Craig. "We do want to see modern meat inspection, but it has to be commensurate with risk."

On a more positive note, SAMW has applauded support from QMS in securing better representation from the processing sector on its board. QMS is welcoming candidates from the sector for both its board positions for 2011 and a currently vacant position. "We never demanded a place on the board," says Craig. "We just wanted the opportunity to apply."

Supporting butchers

As part of efforts to boost the domestic meat industry, focus has also turned to the Scottish butchery sector, with the Scottish Federation of Meat Traders Association (SFMTA) working with the SE on a solution to overcoming red tape that prevents butchers from stating provenance under EC beef labelling regulations.

The SE is pushing for mandatory origin labelling of meat and dairy products under the new EC Food Information Regulation, while also promoting voluntary origin labelling in the foodservice sector.

In the meantime, a low-cost and simple solution will be developed, helping butchers to label beef and veal by farm and geographic origin in compliance with the current regulations.

Levy investment

Additional levy funding is allowing Quality Meat Scotland (QMS) to ramp up its promotional spend, offer greater support throughout the red meat chain and boost its research and development programme.

On 1 April, a levy rate increase approved by stakeholders upped the coffers by almost a fifth to £4.6m in annual payments. "A very good round of industry engagement preceded the increase, with widespread and wholehearted support for the move," says Uel Morton, chief executive of QMS. "Now we have the pressure to keep informing people about what we do and our objectives to meet, and we're up for it."

Activity supported by the levy hike includes a new marketing campaign 'The genuine article' addressing consumer confusion over origin, with support for Scottish butchers in particular.

QMS operates marketing and research and development (R&D) strategy groups for beef, lamb and pork "like a sounding board, working with industry rather than a formal consultation", says Morton and a particular focus is extending the approach to butchers. QMS has been supporting SFMTA's efforts to get closer to the end-consumer through the use of more digital media.

General marketing activity is also to be stepped up for Scotch Beef in London, and for Scotch Lamb and Specially Selected Pork in the domestic market, while QMS will extend its promotional activity in schools, with a focus on the health message, and sporting associations.

QMS is hoping to boost premium export prospects for Scotch Lamb, meanwhile, having secured its presence on the menu at the prestigious Bocuse d'Or 'Chefs' Olympics' in January 2011 in Lyon, the gastronomical capital of France, concurrent with the SIRHA foodservice trade fair.

On the R&D side, QMS is seeking to develop a whole chain efficiency programme, mapping the chain and identifying where waste can be removed and efficiencies improved. Carbon footprint and the climate change agenda are also priorities, with a new manifesto launched on World Environment Day (5 June).

"The anti-meat lobby is using climate change as a hobby-horse to jump on, confusing consumers," says Morton.

QMS has 50-plus R&D projects on the go, spanning topics as diverse as nutrition, genetics and sustainability, including a three-year project led by the Scottish Agricultural College, with funding from the Scottish Executive, to measure eating quality through the use of robotics on abattoir lines.

Earlier in the year, £40,000 was invested in a project, match-funded by QMS and Scottish Enterprise, to produce healthier versions of classic Scottish meat products, including bacon, Lorne sausages, pork sausages, lamb and beef burgers, haggis, black pudding and Scotch pies through lowering saturated fat and salt content. QMS worked with seven meat producers and the Food Innovation team at Abertay University.

Trader promotions

Sunshine, the football World Cup, craft demonstrations around the country and better use of digital media are among strategies to be deployed by the Scottish Federation of Meat Traders Association (SFMTA) to bolster its members' prospects over the coming months.

Reports from the Scottish butchery trade are mixed, says Douglas Scott, SFMTA chief executive. "Some people are very pleased with trade, others are despondent. The feeling is that the recession has bitten more since February, with purse strings tightening. There are a lot of bargains around with sirloin. People are not buying the best cuts; they are economising. Everyone would like the sun to come out and have a good barbecue season."

For the barbecue season, SFMTA has not let Scotland's failure to qualify get in the way, with World Cup-themed posters for shops, and ingredients suppliers such as Dalziel, MRC and Verstegen all producing innovative South African flavours.

Other SFMTA activities this year include its usual craft awards, sausage and black pudding competitions, Venison Day in September and lamb promotions on St Andrew's Day. Butcher members will be demonstrating their skills at the Royal Highland Show, and at roadshows across five Scottish regions.

Improving its members' marketing skills is a big drive for the association, with seminars highlighting better use of digital media, such as Facebook, Youtube and Twitter.

"Consumer-to-consumer ads are much more effective," says Scott, citing SFMTA's debut on Twitter as part of a discussion on the beef labelling issue. "If your staff aren't doing anything, have them out of the shop handing out leaflets. A lot of butchers could market themselves a bit better."

The SFMTA also launched an instructional DVD on cooking with meat this year. "It's what butchers felt was required," says Scott. "Sales of LCD screens have shot up, to show it in their shops."

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