Beef in the balance

It has been a year of change for the beef industry, with rising prices, tightening supplies, cautious consumer demand in the light of the recession and a better outlook for exports because of weak sterling. To cap it all, the focus driving sales has changed from premium cuts of beef to value cuts, dominated totally by sales of mince. This year promises much of the same, with little prospect of growing sales for beef. The one factor that could lift sales of traditional high-value steak cuts is a long, hot summer, bringing with it a booming barbecue trade.

EBLEX economics and policy manager for the beef sector Mark Topliff sums up the feelings of many who work in the sector. “We are probably going to see a softening in demand this year of about 2%, as people tighten their belts. Some of that fall will come from the foodservice sector, as people eat out less and that will help the retail sector.

“The pound will remain fairly weak, which will continue to help with exports of beef particularly for cow beef. Imports will continue to be more expensive. We will continue to see prime cattle decline this year; there’s no doubt about that.”

The much-lauded single farm payment scheme may have given British farmers more flexibility and greater room for manoeuvrability in running their businesses, but it has not done the beef industry many favours, says Stuart Roberts, director of the British Meat Processors Association (BMPA), who echoes the view shared by many. The scheme has been the catalyst, in part at least, for some beef farmers to quit the industry or substantially decrease their herd sizes.

The number of quality beef cattle now available to the trade is in decline, although cull cows coming back into the food chain have offset this, accounting for one-fifth of current beef production. Perhaps the most worrying fact is that farmers seem to be cashing in on the 26% rise in beef prices over the last 12 months; in January, cattle prices were a quarter higher than the year before, with price rises as high as 28% in some parts of England and Wales.

To make matters far worse for the whole sector, farmers have been sending their female cattle to slaughter. With less breeding stock to draw on, the rate of decline in the size of the national herd – in other words the level of supply – is set to continue its downward spiral. Less supply means the UK’s level of self sufficiency in beef is also set to fall from its already dismal 64%.

Impact on efficiency

Cattle shortages are not only impacting on price, but also on the efficiency of abattoirs. With not enough animals to kill, the old problem of over-capacity in the sector is again becoming a very worrying factor. The UK kill has fallen by 6.5% over the last year. Beef prices now stand at £2.82/kg compared to £2.35/kg this time last year and processors are also facing a problem that was almost unthinkable just 12 months ago – what to do with hindquarter cuts. Until last year, the problem was always what to do with forequarter cuts, but a sudden seismic shift saw the focus change from premium to value, as the recession started to take hold. As one processor rather forlornly laments: “If only the animal were three-quarters forequarter!”

Not everyone is suffering, of course. The top end of the foodservice sector is holding up. It is the middle tier of the foodservice market – the mid-range restaurants – that are seeing custom plummet as people tighten their belts. They are heading for a beefburger at McDonald’s instead – or even cooking their own meals. In adjusting to changing demand, chefs and caterers have been rethinking their menus. EBLEX project manager Dick van Leeuwen says: “I get calls from catering butchers on a daily basis, seeking new products to replace roasting cuts. The whole industry is looking for new ideas. I think the recession has shaken people up a bit and they are thinking out of the box.”

With an eye to extending the value cuts available to the trade, EBLEX launched a range of 12 new steaks last year from different parts of the animal, extending the choice beyond the traditional fillet, sirloin and rump. Seam butchery is used to create steaks from under-used sections of the carcase, including the underblade, the thick and thin flanks and the body skirt.

Export boost

Sterling has lost a quarter of its value in the last year, but the upside is a strong market for British beef on the Continent. The increased interest is being dampened, however, by the increased prices the British trade has to pay for stock in the first place, according to Quality Meat Scotland economist Stuart Ashworth. However, according to AHDB Meat Services export manager Jean Pierre Garnier, market conditions for beef exports are probably as good as they have been for 20 years. The combination of weak sterling, availability of high-quality hindquarter cuts and cow beef, and strong marketing campaigns on the Continent is making Britain an attractive place to consider buying from. “We have been very expensive over the last few years,” he says. “Now things have changed and we are competitive on price.” The investment in marketing and promotion campaigns, initially to aid recovery from the 2007 foot-and-mouth outbreaks, is beginning to pay off, he adds.

UK beef exports were up 38% last year compared to 2007, although exports that year were hindered by trade bans in the final third of the year caused by foot-and-mouth disease. The main markets were the Netherlands, Ireland, France, Belgium and Germany. The biggest growth has been through increased trade with Ireland and the Netherlands. There has been a slight fall in trade to France. In total, 85,000t were exported in 2008, three-quarters of it in cow beef.

“The prospects are very good for the next year,” says Garnier, adding that, given the bright forecasts, the industry should look to build cattle stock levels. “It’s a good time.”

Major Headache

The weakness of the pound is causing a major headache for Irish beef producers, however. Irish beef is now 25% more expensive for UK buyers than it was this time last year. Although the trading situation tightened as the credit crunch started to bite during the second half of 2008, Ireland nevertheless managed a 7% increase in the value of beef sold to the UK during the year. The €1.6bn (£1.4bn) of beef sales achieved was against a background of lower UK production and a ban on Brazilian beef coming onto the EU market.

The UK is still Ireland’s biggest export market accounting for just over half of the 500,000t of beef traded outside Irish borders. In 2008, 261,000t came into the UK, 217,000t went to other countries in the EU and the remainder, albeit a small amount, to international markets. More Irish beef is being traded into Continental Europe because of a general shortage of product, although international markets remain important for sales of fifth-quarter products. Supplies of Irish beef are expected to become slightly stronger this year, with an extra 6,000t forecast to come into the UK.

Carcase challenge

Balancing sales of different parts of the carcase continues to be challenging. A spokesman for Irish food organisation Bord Bía says: “It’s becoming a real issue. Quite a few companies are trying to be clever about it and extract the best value out of the forequarter.”

The challenge for all companies seems to be to achieve greater value from the forequarter than simply
from mince, through the development of a new range of added-value economy cuts. One problem in achieving this is overcoming the ignorance of a public who are most familiar and comfortable with mince – hence the overwhelming demand for it – but lack the knowledge and confidence to cook other less well-known or new higher-value cuts from the forequarter.

Kim Haywood of the National Beef Association says there are relatively high levels of optimism among livestock farmers thanks to rising prices for animals, particularly cows. Yet although prices have risen, there is still much work needed to be done to improve efficiencies in production systems, as the costs of feed and fuel are still high.

The move to cheaper cuts due to the credit crunch is worrying, she says. The trend has been most keenly felt in the catering sector, where some restaurants are simply taking beef off the menu. Rather than replacing more expensive cuts of beef with cheaper cuts, it is disappearing completely from dining room tables. Even some restaurants that have prided themselves on providing country-of-origin beef or local supplies are cutting back, she says. “There seems to be have been an over-correction of the problem.” Problems surrounding South American beef supply seem to have knocked confidence even before the current situation, she added. The industry itself has to tackle the rocketing price of quality cuts of beef. “As an industry, we have to look at a discounting strategy to get beef back on the menu. Then we can look at improving margins.”

Although demand for beef is rising, the focus is now too heavily weighted towards lower-priced cuts and mince. These now make up 50% of the market supply and demand. “It seems an atrocity to be putting high-quality suckler beef into lower-priced products,” says Haywood.

Tighter Supplies

Tightening supplies are being made worse by what she says is a massive decline in the number of dairy-beef cross animals coming onto the market. The NBA calculates that the first half of this year will see almost one-fifth less dairy beef crosses coming forward. This has been caused by a slump in demand from Belgium and Holland for beef calves and better demand for pure dairy calves. The result has been a huge switch from using semen from Limousin and Belgian Blue bulls, which produce relatively good-shaped animals, to semen from poorer-shaped Holsteins and Friesians.

The slaughter rate has already dropped from 2.2m animals to 1.98m. “If it drops further it will have huge ramifications for the industry, including fewer animals transported, fewer coming to market and fewer for the meat industry,”adds Haywood. The current price hike has divided livestock producers. Older farmers are depleting their herds by selling their breeding stock to cash in on current good prices, taking the view that if the single farm payment stops, they will get out of the industry and retire. Younger farmers see a shortage of animals – and therefore opportunities – for years to come and are trying to build herds.

More Choice Please

Haywood appeals to the supermarkets to offer more choice of beef to shoppers. “In supermarkets now we see shelf after shelf of mince. They aren’t offering a range of different products. The multiples need to be more innovative in their approach to products on sale to cover the cost of producing the whole animal. It might be most cost-effective for them to mince the whole animal and put it into a pack, but people will go out of business. Everyone in the supply chain can make a margin but there has to be choice in buying beef.” Less choice will mean shoppers getting out of the habit of buying some cuts of beef. “We need a whole range of choice from the bottom to the top,” she adds.

From the Welsh standpoint, Hybu Cig Cymru - Meat Promotion Wales marketing manager Bill Joyce says the challenge of selling the whole carcase is not such a problem in Wales compared to some other parts of the UK, because of the relatively limited supplies of beef cattle in the principality. “Demand exceeds supply,” he says, adding that a recent survey indicated that 82% of shoppers would buy Welsh beef rather than beef from other countries. This compared to 67% in 2007.

Science may yet rise to the rescue of the beef industry, by not only coming up with more efficient ways of breeding animals for the trade, but greater consistency in cattle size, shape, and eating quality of the resulting beef. Genus, the animal breeding technology group, is launching a service to provide sexed semen from specialist beef bulls. Livestock farmers will be able to use the product to produce suckler herd replacement animals from within their own herds. By breeding replacements with sexed semen, beef producers should be able to breed a more consistent and more uniform herd.

The sexed semen, initially available from Aberdeen Angus and Simmental bulls, has been selected for excellent maternal traits and high growth rates. Its use can eliminate the need to buy in replacement animals and allow producers to operate a ‘closed’ herd, therefore protecting its health. By using sexed semen on heifers, suckler calf producers will also be able to use higher-quality terminal sires across the rest of their herd and therefore increase the overall value of calves.

STANDING OUT FROM THE HERD

The global trade of beef is a tough business and it is difficult to stand out in the crowded competitive market. Unless you can guarantee the ability to churn out vast volumes, it is difficult to make a mark. So for small producers it is vital to develop a product or package that gives your exports an edge.

Namibian producers are hoping the development of a new brand to support their beef exports will give them an edge, and allow them to step out of the commodity trap. André Mouton, marketing manager with Meatco, Namibia’s main processor, says the country’s small production meant they had to act: “We felt we were caught in a commodity situation, so we wanted to create something we could develop and have a chance to get out of that position.” The result is the launch of the Natures Reserve brand, which, with a three-tier position of good, better and best, is aimed at positioning the country as a serious contender on the export market – with a particular focus on the UK.

Brian Perkins, Meatco’s UK managing director, says: “We’ve spent some time rebranding the product, refocusing it on the UK and EU markets, and now signed a deal with Jeffrey Davies & Davies to distribute the product. We wanted a more consumer-facing brand. It has been very much commodity-focused in the past. We spent time revisiting specs and trimming levels and refocused the product on the UK market requirements.” He said the deal with Davies means they can serve a wider range of customers, from high-end caterers to independent retailers. “It has opened up the market for us, and we can serve all customers, from those wanting just one piece, to those wanting a pallet.”

While it is still early days, he says, the brand was already seeing repeat business and is well on its way to establishing a loyal customer base. He adds: “A brand cannot just be a pretty box, it has got to have a USP. What we’re trying to get across is that this is a product, made in a modern facility, to a world-class standard, producing a consistent, high-quality product and fully farm-assured.”

Meatco slaughters around 170,000 head of a cattle a year, but with only 15-20% of its production consumed on the domestic market, the ability to export the rest is vital. The country has three beef plants approved for export, and Meatco owns two, making it responsible for the lion’s share of exports.

The firm was established in 1986, a venture between the producers with financial backing from government, while the government remains a major stakeholder in the business today, it is still controlled and run on behalf of the producers, says Mouton.

Meatco has two plants approved for export to the EU, with the main plant based in the Namibian capital, Windhoek. Rebuilt in 1993-94, in peak season, the multi-species site processes 420 cattle a day, and weekly around 1,700 lambs and 500 pigs.

The plant debones its carcases while they hang, a technique Mouton says was brought over from Australia. While he admits there are slight disadvantages in terms of yield, it allows a fast and effective flow along the deboning lines. The company has been exporting to the EU since 1989, and Mouton says it was always Meatco’s intention to target the European market. “Right from the beginning, our plans were to get into the EU market, so we made sure our facilities were of the standard required.”

The country started out with a 10,000t quota, which has since moved to 13,000t but Mouton is hopeful of increasing that further in 2009, although he admits there has been no formal agreement yet. Beef production in a country like Namibia is not without its challenges: Namibian farmers have to contend with predators such as leopards, cheetahs and jackals. Sonja Keeble, who runs Progress Farm near Windhoek, says the cows have to be able to defend their young, but farmers also have to ensure diversity on the farm to protect the cattle. “You have to have a lot of game and a good mix, as it gives the predators something to eat other than the cattle.”

Keeble’s farm focuses on Simmental breeds and she says most farmers are now concentrating on a Simmental Brahmin cross. Namibia’s beef production is seasonal, with around six months on, six months off, says Mouton, although they are extending the season to around eight months. “It all depends on the rain – it affects the availability of animals. If farmers had their way, they’d sell all their cattle in July, but we want to slaughter 365 days a year, so we try and manage it by offering premium payments in the off-season for example.” The season begins in February and peaks in June through to August.

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