Northern Ireland report: The challenge of change

CAP reform, dwindling livestock supply and processing sector rationalisation are issues likely to change the character of the meat industry in Northern Ireland over the next few years. Alyson Magee provides a snapshot report on the market

By Alyson Magee

- Published: 23 July, 2010

The complexities of Northern Ireland's relationship with its neighbouring countries are all too apparent in its meat industry. Northern Irish produce falls under the British brand, but rarely achieves the same farmgate prices as livestock on the mainland. At the same time, it looks with envy at government support across the border.

Nevertheless, with production far outstripping the small domestic market in the Province, investment-boosting processing capacity and changes potentially afoot in beef and lamb marketing, a more positive story emerges.

Representing a small geographic region with a population of 1.7 million, Northern Ireland punches above its weight, with agriculture two-and-a-half times more important to its economy than to the UK as a whole. There is self-sufficiency in meat production many times over, in contrast with the general British deficit.

"The food industry is one of Northern Ireland's main manufacturing industries and red meat is a significant part of that," says Phelim O'Neill, chief executive of the Northern Ireland Meat Exporters' Association. "Selling three-quarters of what we produce outside the region, we have to be good. We have decades of trading with the best customers in mainland Britain, Europe and beyond, which suggests there is considerable skill in the industry here. When it comes to meat processing and servicing, Northern Ireland can compete with anyone."

Hoping to take market potential to the next level, meanwhile, is the Livestock & Meat Commission (LMC) of Northern Ireland, representing beef and lamb levy payers. LMC is currently awaiting the outcome of an independent strategic review of its operations, commissioned by the Department of Agriculture and Rural Development (DARD). The hope is that it will be cut loose as a government agency to allow the establishment of a private entity.

"Replacing LMC with a private body would offer greater freedom outside EU regulations and government bureaucracy," says David Rutledge, chief executive of LMC. "LMC tries to run commercial services for its stakeholders, but is limited in what it can do, with state aid rules effectively neutralising our efforts."

Task force

Northern Ireland's beef and sheepmeat sectors have also been the focus of a Red Meat Task Force, established to develop a long-term strategy. Its latest progress report, in September last year, noted that although farmgate prices have risen by a third since its establishment, difficulties with the EU Single Farm Payment (SFP) and red tape continue to prove challenging for livestock producers. "Instead of drowning in paperwork and forms, our farmers need to be free to focus on the business in hand," says Task Force chairman Pat O'Rourke.

The Task Force is also taking a proactive approach to the issue of climate change, with plans in place to map the carbon footprint of livestock production in the Province, as well as highlight Northern Ireland's image as a producer of high-quality beef and lamb from a natural environment.

"It's a fairly complicated debate, with the anti-meat lobby jumping on the bandwagon," says Rutledge, "but there is a growing population which needs to be fed. Grass-based beef production is sustainable and viable and should be developed."

Robust demand

Demand for meat has held up well in the recession. "In the early part of the economic cycle, there was a trend out of the more expensive cuts and into mince primarily," says Rutledge. "Volumes held up well, but with a transition from higher- to lower-value products."

Northern Irish consumers tend to eat more beef than their British counterparts, who favour chicken instead. Kantar Worldpanel data for the 52 weeks to 13 June claim beef penetration of 93.5% in Northern Ireland against 87.7% in Britain.

In terms of exports, Continental markets are regarded as important, with Invest NI launching a two-year campaign targeting beef and lamb customers in France, Italy, the Netherlands, Spain and Scandinavia in mid-2009. But Britain is the key market for Northern Irish meat and is likely to remain so.

"Since the ban ended in 2006, export markets have been slow to recover," says O'Neill. Relationships with UK multiples "were extensively developed in the meantime, with too much investment put into those to abandon them now".

Exports to the Continent have been steady, rather than spectacular, says O'Neill, while international markets, such as Africa and Asia, offer exciting potential. "That's the next big challenge," he says, "but it's more for government at a UK level."

Rising pig numbers

DARD's June 2009 census indicated an 8% rise in both breeding sow numbers, to 38,200 head, and total pig numbers to 433,500 head in Northern Ireland.

The pig sector has seen consolidation, too, with pork processor Dunbia adding 92 new jobs to its workforce in 2009, after purchasing Cullybackey-based Stevenson & Co earlier in the year. Stevenson & Co had been facing closure, and the acquisition also saved 100 jobs, with Invest NI lending £600,000 in support for Dunbia's expansion plans.

Dunbia also gained a new contract to supply Sainsbury's across the UK with fresh pork products, processed by Stevenson and Dunbia's Dungannon site.

In March this year, Tesco announced an additional investment of £2m in locally supplied pork for its Northern Irish stores, as part of a 'Putting Pork into the Spotlight' campaign, including promotional prices and a touring road show in collaboration with the Ulster Pork & Bacon Forum. Taking Tesco's total spend on local pork to an annual £11m, the initiative included the launch of new lines such as Doherty & Gray's Saints and Scholars gourmet sausages.

Suckler herd concerns

Cattle numbers declined by 1% in the June 2009 census to 1.6 million head, with a decrease of 3% in beef cow numbers to 256,800 head and 2% in dairy cow numbers to 284,700 head.

Rising prices "have made dairy beef profitable and got closer to making suckler beef profitable, but not for the vast majority of farmers who are still reliant on the SFP", says Rutledge. "The very best suckler producers about the top 10% are just about making a profit."

"The big issue is the suckler herd under pressure," says Maguire. "We're dependent on it to keep the quality there and it's something we need to keep a focus on."

The Northern Irish cattle sector has the highest area-based payments of UK regions or the Republic and, thus, greater vulnerability to changes to the SFP. "Most people expect historic payments will be phased out from 2013 and the consequences for the dairy beef sector could be quite significant," says Rutledge. "Will the market compensate for that?"

"Supply is stronger this year, putting pressure on price," says Conall Donnelly, LMC economist. "The differential with GB narrowed in the first few months of the year, but recently widened as GB prices rose."

Higher supply in the first six months of 2010 is not likely to be sustained in the long-term, he says, with calf births down 5% and numbers of beef cattle on the ground down 9%, year-on-year, in May.

"There's usually a lull into June, but that hasn't happened this year," says Maguire, with Linden Foods slaughtering more cattle in the first half of 2010, year-on-year. "Somewhere down the line, numbers might tighten."

"The big issue is the number of young bulls with a lot more in the slaughter mix off the back of reduced exports to Europe," says Donnelly, citing trade disrupted by TB in a batch of GB cattle exports to Holland. "A lot of calves were retained and are coming into the slaughter mix."

Cattle imports were stable, year-on-year, during the first five months of 2010, at 17,000 head, with 8.5% of cattle slaughtered in NI plants from the Republic, and reduced imports from GB due to concerns over bluetongue. Finished cattle exports to Britain, meanwhile, have increased over the past few years, as prices have risen, but exports to RoI have fallen as a result, down 70% in January to May 2010 year-on-year.

Sheep flock in decline

While June 2009 census figures place the total sheep flock at just under 1.9 million, down 4%, with breeding ewe numbers down 5% at 892,400 head, a further decline is notable in the first five months of 2010. "Sheep numbers are down 59% on 2006 for the year to date," says Donnelly, "with a strong decline in breeding ewes, down 9% since 2006."

Exacerbating the problem, imports from GB have fallen again due to bluetongue and from the Republic due to issues since the introduction of EID across the EU in June. "Up to the end of May, prices were consistently higher than last year, but in June they have come down sharply," says Donnelly. "Sheep and lamb meat is typically more sensitive to currency issues and a lot of production heads for Spain. It has also had a significant impact on buyers coming into local markets from the Republic."

However he adds: "The euro is still worth a lot more than two years ago and the market should stabilise. At current prices, lamb will be more attractive."

Rutledge describes the trend of declining numbers in the sheep sector as perverse. "For the last couple of years, sheep farmers have been doing reasonably well and have had good prices," he says. "There are not a lot of concerns about the viability of their businesses and yet numbers continue to decline."

"It's a vicious circle," says O'Neill. "For several years, farmers didn't make much money on sheep and prices have been falling, but this year prices went up. The decline in production has been faster than the decline in demand."

Rationalisation and expansion

The Province's meat processing sector has seen its share of rationalisation and consolidation over the past year, including announcements of the closure of both Coleraine-based Lean and Easy and lamb processing at the Foyle Food Group's Derry site in June.

Foyle, a supplier to Tesco, cited declining lamb supplies down by over half since 2007 and 27% in the first six months of 2010, year-on-year, alone as the key factor in the decision.

However, the news is not all bad, with a last-minute reprieve for Derrylin-based Tenderlean Meats, seeing it acquired from administrators in April by an investor group, with 100 jobs saved. The beef, lamb and chicken producer blamed the recession for its difficulties, and has been rebranded Tenderlean Limited.

And there is room for growth among the more successful processors, with Dungannon-based Linden Foods increasing its workforce by 100 to 500 this year and a new plant opening in September on the Granville Industrial Estate to allow expansion of its retail packing capacity. Linden's biggest customers are UK multiples, including Marks & Spencer and indirectly to other supermarkets through primal supplies to GB processors, with smaller volumes going to markets in the Netherlands and Italy.

Moy Park moves on

Consolidation in the Province's poultry sector saw chicken processor Moy Park announcing plans to buy rival O'Kane Poultry in May, in a move aimed at boosting capacity to supply markets across Europe. The combined business will employ 5,000 workers in Northern Ireland, supplying an annual 20 million chickens and 1.5 million turkeys from 760 local producers, supplemented by imports.

EU regulators approved the Brazilian Marfrig Group's acquisition of Moy Park in late 2008, and the Craigavon-based processor has since announced plans for a multi-million-pound investment in automation across its sites.

Prior to the acquisition, O'Kane had embarked on a review of its operations, with potential job losses, attributed to new EU regulations coming into force in 2010, prohibiting the sale of chilled poultry meat that had previously been frozen and, thus, stock-piling of turkey meat for peak demand periods.

DARD's June 2009 census recorded a 1% decline in table bird numbers to 11.3 million in the Province.

Grading process

Plans are in place to introduce Video Image Analysis (VIA), mechanical grading of, initially, cattle and, later, sheep carcases, across slaughterhouses in the Province as soon as possible. Grading is currently conducted manually, but VIA has been used in the Republic of Ireland for around five years.

"It will bring consistency to the classification exercise," says Northern Ireland Meat Exporters' Association chief executive Phelim O'Neill, with smaller farmers in particular having complained of bias in the manual system. "VIA has been undergoing trial in a member factory and every indication so far is that it has been successful. If approved, any abattoir in the UK can use it."