Scottish Processors’ Export Revenues up by 40% but Margins Still Tight

Scottish processors saw their total turnover increase by 15% year-on-year during 2010 to around £930 million, boosted by a 40% revenue increase in exports during the year.

The latest figures were revealed today (Monday 20th June 2011) at the launch of Quality Meat Scotland’s Scottish Red Meat Industry Profile 2011, which includes new figures following a survey of Scottish-based processors.

The survey also revealed an additional 200 members of staff were taken on by Scottish processors over the course of 2010, taking the total number of people employed by the sector to 4,100.

Speaking at the launch of the Profile, which will be available free at the QMS stand at the Royal Highland Show, Stuart Ashworth, QMS Head of Economics Services, emphasised that the processing sector was still finely balanced in terms of profitability.

“While these figures seem be encouraging what they don’t do is give us a clear indication of profitability. The challenge for processors is that increases in wholesale retail values have not been sufficient to offset higher raw material prices and the other increased costs such as energy bills,” said Mr Ashworth.

And he emphasised the structure of the sector in Scotland meant not all abattoirs could capitalise on economies of scale.

“The five largest abattoirs operating in Scotland handle more than two-thirds of the slaughter of cattle, sheep and pigs and throughput remains very important. Anything that challenges the volume of livestock available can tip the balance between profit and loss,” added Mr Ashworth.

The combination of a 4% rise in the number of cattle slaughtered in Scottish abattoirs and higher average carcass weights meant that production volumes increased by 6.5% when compared with 2009. With the average value of sales also increasing, overall turnover rose by 12%.

Sheep throughputs at Scottish abattoirs fell by more than 2.5% during 2010 with harsh weather disrupting supplies during the first half of the year. With sheepmeat in short supply globally processors were able to pass on some of the higher cost of sourcing product, with the end result a greater than one third improvement in turnover.

Having fallen by 12% in the previous year, the total volume of pigmeat produced by Scottish abattoirs decreased by a further 3% in 2010 as the production sector continued to restructure. Nevertheless, revenues increased as strong pigmeat demand facilitated higher prices in the wholesale and retail markets.

England and Wales remained the largest market for Scottish processors in 2010 with nearly two-thirds of all revenues being generated there.

“Scottish beef and lamb processors targeted export markets heavily during 2010. Revenue generated from exports grew approximately 40% on the previous year as businesses worked hard to maximise their opportunities overseas. Pigmeat exports, however, continued to play only a minor part with their share of the market unchanged.”

Notably fifth quarter product continues to be of increasing importance for cattle and sheep processors, providing a growing source of revenue.

For the second year the Scottish suckler herd expanded and was 2.5% larger than in 2009 at 534,000 head. However the breeding ewe flock decreased by 1% and fell to 2.85m head. The sow herd rebounded sharply from a steady decline in recent years as it grew 12% to 37,300 head.

As a consequence of higher production volumes at the UK level, annual average producer prices for cattle and pigs fell about 3% on the previous year.

However, farm gate lamb prices were boosted by tightening supplies and rose 9% above their 2009 average. In real terms the average price went up 4% on 2009.

Mr Ashworth said 2010 was a varied year for the Scottish red meat supply chain.

“While processors of beef and pork and producers of lamb saw margin pressures ease, producers of beef and pork and processors of lamb generally felt a tightening in their margins.

“Sheep producers in particular saw greater returns than in 2009 and ended the year with more confidence about their future than for several years. But as farm gate cattle and pig prices recovered towards the year end, their producers also began to look more favourably to the future.”

Looking forward, Mr Ashworth predicted that beef producers would be less likely to be tempted to run cattle to big weights than last year, against a backdrop of high grain and straw prices.

On the sheep front he observed that the early breeding sheep sales had resulted in some very strong prices. But he warned that the industry was still struggling to rebuild its ewe flock. “Although producers are benefiting from high farm gate prices there is little evidence yet of a flock re-build. Ewe slaughter numbers have been surprisingly high in the first third of 2011 despite good lamb prices and sheep farmers appearing confident,” said Mr Ashworth.

And 2010 was a good year for the Scottish pig industry in terms of recovery of numbers encouraged by stronger prices in 2009. “The structure of the Scottish pig industry is now such that producers are comparatively committed to staying in pigs and to taking a long-term view. Our producers also tend to grow a fair percentage of the grain they require for feed making them less vulnerable to feed price swings.”

The farming and processing of red meat in Scotland generated around £1.8bn during 2010, up 8% on the previous year, and accounting for a 0.7% share of Scotland’s GDP.

The industry creates direct employment for 27,000 employees and owners, with a further 23,000 jobs dependent on the industry.