The movement in cattle prices over recent years highlights the volatility created by a complex international beef market, according to Stuart Ashworth, Quality Meat Scotland’s Head of Economics Services.
Although the farmgate price has fallen 14% in the past six months, it rose by 10% in the first six months of 2013. Similarly, in the first six months of 2010 the beef price fell by 7%, however in the first six months of 2008 the price rose by 24%.
“This volatility, coupled with the backdrop of the long production cycle behind beef production, brings sharply into focus the need for better communication throughout the supply chain, from farm to retail shelf,” observed Mr Ashworth.
This volatility is also reflected on the retail shelves, he added, as illustrated by the market disruptions caused by consumer perceptions of the product during the horsemeat scandal. Weather, too, is an example of an uncertainty which can have a substantial impact on demand with sunshine bringing out the barbeques and driving demand while rain doesn’t.
“Equally challenging for food businesses is managing supply against a retailer’s activity plan which may not recognise the lengthy production process behind the raw material. These elements play on the market price in the short term but over an extended period supply and demand balances play a greater part,” stated Mr Ashworth.
Beef production is of course a long term production process - from conception to sale can take three or more years. “The consequences of reducing cow numbers this year will not impact the retail shelf for three years. Indeed, in the short term it will increase beef production as more cows and heifers are culled,” he said.
“Similarly, moves to increase the national breeding herd will reduce beef availability in the short term but increase it in the longer term. Combining this biological time frame with market volatility in planning a way forward is not easy and reflects the need for greater communication throughout the supply chain from retail shelf to farm,” said Mr Ashworth.
“International currency movements are also outwith farmer and processor control. With sterling currently strengthening towards 80p buying one Euro, imports of European beef become cheaper while at the same time it is tougher for exporters. Sterling’s relative strength against the dollar does, however, make imported grains and proteins cheaper,” Mr Ashworth observed.
Farmers beginning to review their long-term business plans following this week’s announcement of the reformulation of the Common Agricultural Policy over the next five years will, he said, find themselves challenged with factoring in many unknowns.
However, he said there are a number of building blocks which augur well for the long-term future for Scottish beef production.
“In terms of supply we know that the number of cattle in the UK and Ireland continues to decline. In 2013 GB registered 3% fewer calves than 2012 and mortality in early 2013 was higher than 2012.
“Over the first four months of 2014, GB calf registrations have fallen a further 1%. Scotland has faired worse, with 2013 calf registrations down 4.5% on 2012 and registrations in the first four months of the year down 3% on the same period last year.
“The Republic of Ireland reports a similar situation with their 2013 calf registrations falling around 4% on 2012 meanwhile they exported more cattle under 12 months old in 2013 than in 2012, further reducing their pool of 2013-born cattle.”
With carcase weights currently at historically high levels it is difficult to see how, as 2014 turns into 2015, the volume of British and Irish beef reaching the market could seasonally be higher than it currently is, observed Mr Ashworth.
“Equally, we know retail prices have moved forward slowly and did not reflect the speed of movement in farmgate prices during 2013. However the recent slide in farmgate prices mean that over an extended period of three years the relative movement in farmgate and retail price is similar.
“The challenge for the whole industry is that increased retail prices have over the past 12 months led to reduced consumption of fresh beef cuts.
“The latest information from market research company Kantar suggests that the volume of beef retail cuts sold has fallen by 5% over the past year but the volume of cheaper cuts for example has fallen more slowly than the more expensive cuts.
However, with the UK economy reported to be on the upturn, opportunities will emerge to once again grow sales of high provenance high quality Scotch Beef PGI to consumers.