Home and away

Looking at domestic consumption of beef, little has changed year-on-year, with a mood of austerity continuing to drive sales of mince and cheaper cuts at the expense of steaks and joints. “The trend has been the same over the past 18 months to two years with nothing new,” says Matthew Southam, research and insight executive at the Agriculture and Horticulture Development Board (AHDB). “Beef is one of the more expensive cuts of meat and, when it’s promoted, consumers are willing to buy it.”

Domestic beef sales have been flat over the past year, rising by only 0.4% to 303,079t over the 52 weeks to 10 July, according to data from Kantar Worldpanel. By volume, mince achieved growth of 2.4%. “There is a long-term trend of mince growing and it is now over half of all beef sales,” says Southam. “Roast beef dinners continue to suffer, due to the high price compared to chicken and pork.”

Stewing beef also saw limited growth, while frying and grilling cuts lost 2.4% in volume sales as a result of price sensitivity. “When promoted, you do see an uplift in sales,” says Southam.
Mince comprises 50% of beef volume sales, followed by roasting joints at 20%, frying and grilling cuts at 15% and stewing beef at 14%.

By value, beef sales figures for the year rose 1% to £1.849bn, led by increases of 2.6% for mince, 2.2% for stewing beef and 0.5% for frying and grilling cuts. In value terms, “roasting is down slightly and the rest are doing okay,” says Southam.

Looking at the 12 weeks to 10 July gives a bit more of a positive picture, with fresh and frozen beef up 4.5%, by volume, he adds. While roasting joint sales in this period are up 15%, the figure is distorted by the inclusion of Easter in this year’s figures, but not in those for 2010. Meanwhile mince volume sales are up 6%, while frying and grilling cuts have lost 7% in volume trade as a result of the poor weather and limited barbecue occasions.

Value trends for the 12-week period are similar, with mince sales propelled by 3-for-£10 or other deals. “With roasting joints, people are switching to cheaper cuts and steaks are struggling unless they are on promotion,” says Southam. “Shoppers are still price-sensitive when they’re shopping for their meat. If you look at pork loin or chicken, for good steaks, the price differential is quite large.

“Consumers are watching what they are spending. Mince is over 25% of all red meat and 50% of beef; it is still pulling really strongly. We’ve had the coldest July since 2000,” he adds, “and there has not been a great demand for barbecues, which hasn’t helped steaks.”

Burger sales (not included in the data), have been similarly affected, with volume sales down by 8% for fresh and 9% for frozen burgers, exacerbated by last year’s uplift from the Football World Cup.
Value sales data for the four weeks to 10 July offers a further snapshot of the economic climate and the weather’s impact. Total fresh and frozen beef sales were up 13.1%, including second-quality stewing beef, up 64.6%, and first-quality stewing beef, up 40%.

“During the summer months, we would not expect to see strong sales of roasts, which are more traditionally associated with winter months,” says Richard Cullen, AHDB retail and consumer insight manager. “However, there have not been as many opportunities to eat summer- or barbecue-type food in the last month as the weather has been cooler and wetter, and therefore meat dishes that require some cooking, like roasts, would benefit from this.”

The AHDB expects UK beef consumption (including processed products) to fall 8% to 1.131mt in 2011 and a further 3% to 1.097mt in 2012.

Tight supply

Supply and demand are driving higher prices in 2011, with UK and Irish availability expected to tighten for the rest of the year, while exports from South America are limited and the EU market is facing increased demand from markets such as Russia and Turkey.

GB liveweight producer prices for prime cattle reached an average of 172.87p/kg in July 2011, up 22% on July 2010 and 56% since July 2006. Young bulls saw the biggest hike in the first half of 2011, year-on-year, while steer and heifer prices were also lifted, with heifers achieving the highest premium.
For cows (dairy- and beef-sired), average producer prices – boosted by export demand – rose 34% to 120.91p/kg liveweight in July 2011 on July 2010, up from 53.12p/kg for dairy-sired and 70.30p/kg for beef-sired cows in July 2006 (no average available).

Deadweight cattle prices, meanwhile, achieved record highs in the second quarter of 2011 with the average price for R4L steers hitting 315p/kg in late July. Looking at deadweight averages in June 2011, year-on-year, young bulls again saw the greatest increase (rising 17% to 286.4p/kg) while both steers and heifers rose 14% to 301.4p/kg and 300.2p/kg respectively. Live- and deadweight prices have continued to climb in August.

“With finished cattle prices reaching an all-time high of comfortably over 300p/kg deadweight this summer and the cull cow trade showing similarly unparalleled strength despite higher levels of supplies, cautious optimism is the tone,” says Debbie Butcher, Eblex senior market analyst.

Calf prices have not held up as well, with the average price for black and white bull calves down by 10% to £45/head in the second quarter of 2011, year-on-year, and Hereford bulls losing 5% at £137/head, although Continental bulls gained slightly at £222/head. Store prices for dairy-bred yearling steers and heifers also dropped in the second quarter of 2011, with only Continental crosses gaining in value.

Temporary hike

While availability is expected to constrict later in 2011, supply has been plentiful in the year to date. In the first six months of the year, beef and veal production rose 8% to 475,000t, buoyed by both higher prime cattle and cull cow slaughtering. For the same period, England and Wales registered the highest increase in prime cattle throughput, at 9%, while Scottish plants saw a 5% climb and Northern Ireland a 5% decrease.

GB calf registrations rose 1% to 1.56 million head in the first six months of the year on the same period in 2010, according to figures from the British Cattle Movement Society. Two-thirds of the registrations were non-dairy cattle and only dairy-bred male animals registered a decline; attributed to less retention for finishing as a result of high feed costs.

“There has definitely been some improvement in price optimism but it’s quite difficult for producers to be making decisions now, based on where they think things will be in two years,” says Butcher. For cull cows, slaughtering rose by a quarter between the first half of 2010 and the same period in 2011, while there was also some stabilisation of the cow herd although the trends are not expected to continue.

While the last published Agricultural Census (December 2010) indicated a slowing of the decline in beef breeding cow numbers, the sector remains vulnerable to fluctuating milk prices. “High feeding and bedding costs are expected to keep a damper on demand for dairy bull calves and, with it, future dairy beef supplies,” says Butcher.

Increased slaughtering of both beef cows and heifers in the first half of 2011 is expected to result in the national suckler herd declining to 2009 levels by the end of 2012. “This is mainly a consequence of high input costs, a shift in the balance of cow and sheep numbers and farm competition from arable enterprises,” says Butcher.

Reduced Prime beef supply

Total UK prime cattle slaughtering rose 5% to 1.1 million head in January-June 2011, year-on-year, with heifer, steer and young bull production climbing by 7%, 5% and 2% respectively. However, lower dairy bull registrations and higher live calf exports from Northern Ireland are expected to result in reduced prime beef supplies across the UK in 2011 and slaughtering going into 2012.

A further factor likely to result in limited availability in 2012 is lower carcase weights, expected as a result of higher cereal feed costs and limited winter forage supplies, says Butcher. Over the past year, “finishers took stock to higher weights to try to offset relatively high purchased store cattle costs”, she says. AHDB forecasts production to rise by 1.3% to 921,000t in 2011 but then to fall back by 3.9% in 2012 to 885,000t.

Organic cattle numbers in the UK, meanwhile, climbed 6% to 350,000 head, largely as the result of a 5% hike to 250,000 head in England, according to figures from Defra. The increase boosted the organic herd’s representation to 4% of total UK cattle numbers in 2010, against a backdrop of falling organic permanent and temporary pastures in the UK.

Strong Exports

With domestic markets remaining focused around mince and other cheaper cuts, the UK beef industry has been making the most of tight global supplies to expand trade with existing, and enter new, markets. “Prospects globally are very good,” says Butcher. “One of our key strategies this year is to drive our exports. Strong demand from the Continent for manufacturing beef is predicted to markedly raise export levels, compensating for any slowing of domestic consumer demand as a result of current austerity measures and inflation levels.”

Eblex has set a target of increasing exports from 10% to 20% of production by the end of 2012, with the figure currently sitting at around 13-14%.

“The rate of export growth is spectacular, very encouraging,” says Peter Hardwick, Eblex head of trade development, with total UK exports of beef and veal rising by 42% between January-May 2010 and the same period this year to 56,400t (source: GTIS, HMRC). A continued weak sterling, meanwhile, does not necessarily influence the volume of exports but can prove advantageous for UK beef in terms of returns (as well as EU subsidies). “Global markets have narrowed,” he says, “and the level of competitiveness has changed. We are now more competitive and there has been an increase in demand for ruminant meat.”

Over January-May 2011, 96% of all UK beef and veal exports (53,900t) were destined for the EU including 22,800t to the Netherlands for domestic and other markets. Ireland is the second biggest importer, at 12,400t, with lesser volumes going to France, Italy, Belgium, Germany and Denmark. Continental demand has risen for both cow and prime beef.

While representing only 4% of UK exports, trade with international (non-EU) markets more than doubled between January-May 2010 and the same period in 2011. The increased volume of exports added £40m, taking export trade over the five months to £165m, according to the AHDB. “We are seeing the fruit of activity to open new markets,” says Hardwick, although he adds: “Markets in China, Russia and the Middle East are still not open, so there is a big challenge.”

Highlighting the 30% rise in red meat prices forecast in the OECD-FAO Agricultural Outlook 2011-2020, Hardwick says: “Prospects for the beef market are that it’s going to be tight globally, with strong demand. The US herd is at its lowest since the 1950s and imports from South America are down 40% in the first quarter of 2011.”

China is expected to be a major driver of increasing consumption, and Eblex is heading out on its second trade mission this year in November, visiting Shanghai and Beijing to look at opportunities for exporting hides and skins. Beef producers can maximise carcase returns through lucrative fifth quarter exports. “The market has gone from virtually nothing in 2006 to £100 per animal for hides and skins,” says Hardwick.

The AHDB forecasts UK beef exports (including processed products) to climb by 19% to 162,000t in 2011 but increase only marginally to 164,000t in 2012.

Imports fall

Beef and veal imports, meanwhile, are following the opposite trajectory, falling by 3.5% to 89,700t between January and May 2010 and the same period this year. “With no additional supplies anticipated from Ireland, the Netherlands or South America, imported fresh and frozen beef volumes are expected to be well below the previous year’s levels in 2011 and 2012,” says Butcher.

With import volumes also falling from countries such as Namibia and Botswana, “a significant factor is the drop in imports from non-EU countries,” says Hardwick, “and many of the non-EU sources are not showing any immediate sign of returning to the fold.”

Indeed, Hardwick points to the latest EC Beef Market Situation report, which illustrates “the dramatic shift in the EU going from being a net importer to a net exporter of beef as a reflection of market demand and shifting competitiveness as global prices rise”.

The US, Australia and EU have all increased their ranking as exporters at the expense of Brazil, while China has become the biggest importer. The narrowing of prices between 2007 and 2011 between South America and the EU, has also affected the global market dynamic, says Hardwick.

Over 89% of UK imports (80,100t) originated from EU countries in January-May 2011, including 63,700t from the Republic of Ireland, 6,600t from the Netherlands and lesser volumes from Germany, Spain, Belgium and Italy. UK imports from non-EU countries totalled 9,600t over the period, including a 53% drop to 2,800t in supplies from Uruguay, while imports increased from Australia and New Zealand.
cost pressures

Record deadweight prices are not necessarily translating into record profits for beef producers facing huge hikes in feed, fuel and fertiliser costs, and are certainly not welcomed by the beef processing sector.

“Overall it’s a pretty uncomfortable place for processors to be,” says Stephen Rossides, director of the British Meat Processors Association. “Livestock prices are high and meat inflation is lagging behind a bit with retailers under pressure to keep prices down.

“The margins on slaughtering are quite low anyway, with any profit coming from value added. Everybody is seeking efficiencies and driving down costs one way or another.”

In addition to value added “the value of fifth quarter in historic terms is very good on the domestic and export markets”, says Rossides.

Despite the challenging environment, the past year has not seen any major rationalisation of the beef processing sector and even healthy profits and continued investment for some companies.

In June, Waitrose beef supplier Dovecote Park, based in North Yorkshire, reported turnover up 17.4% to £124.8m and pre-tax profits up by over a third to £2.73m in the year to October 2010 on the back of sales growth across the business and notably by-product exports.

The collective turnover of Scottish processors increased by 15% year-on-year to around £930m in 2010 due to a 40% increase in the value of exports, according to the QMS Scottish Red Meat Industry Profile 2011 published in June.

In Northern Ireland, Linden Foods officially opened a retail packing and new product development plant at its existing Dungannon site in early 2011, with the £10m investment including 85 new jobs.

ABP, meanwhile, was given the green light this past spring to extend its North Shropshire abattoir, effectively replacing the existing plant with a new modern facility doubling its size.

Meat inspection

One issue of ongoing concern for beef and other meat processors, however, is both the format and funding of new meat inspection services. Proposals to transfer full costs for meat inspection services to the meat industry have raised concerns over future competitiveness and sustainability of meat processing.

The Food Standards Agency (FSA) came under criticism from the Association of Independent Meat
Suppliers and Scottish Association of Meat Wholesalers – which is seeking a devolved Scottish system of meat inspection – in July for failing to make progress with recommendations in the Macdonald Farming Regulation Task Force Report.

The report suggested setting up a group to consider introducing independent control bodies but at its last meeting, the FSA board instead requested its executive report back in September on the viability of privatised third-party inspection.

The Macdonald Report suggests consistently competent meat processors should be able to source meat inspection services from accredited private-sector providers within a system managed by the competent authority. It also goes on to recommend government should move towards a risk-based system in the longer term; potentially as an EU-wide solution to meat inspection.

“We are currently engaged in discussion over the different ways of delivering the Macdonald report,” says Rossides.

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