ALISTAIR Darling and the Treasury may not like it, but the fact is that beef retail prices will have to rise substantially to ensure continuity of supply.
Farmers are currently receiving almost 15 per cent more for finished cattle than 12 months ago, with top-quality animals now making about 250p per kg on the hook, but this is still not enough to maintain the required level of production. Meanwhile, t
he processing sector is being squeezed hard by the large retailers, to the extent that there is very little profit in handling prime cattle.
The supermarkets have been repeatedly warned that they must pay more – and charge more at the checkouts – so that every link in the chain can make a decent margin.
Currently, the multiples are making virtually no profit from selling beef. The trade view is that competition is so fierce that the big four chains are terrified of losing market share. But some-one will have to blink first – and soon.
Kim Haywood, director of the National Beef Association, said yesterday: "The time has come for a complete rethink. Direct subsidies disappeared more than three years ago, world food supplies are getting shorter by the day, and both retailers and processors can no longer afford to risk future trade by consistently under-pricing their producers' cattle.
"The traditional response of abattoirs faced with an uncomfortable period of high prices has been to bear the loss stoically and be alert for the earliest possible opportunity to force down the market and recoup their margins, which usually means as soon as they get a sniff that more animals might be on offer."
That scenario is now highly unlikely, given the fact that the Meat and Livestock Commission reported that the kill of prime cattle during January was down by 6 per cent on a UK basis and 4 per cent lower in Scotland. A similar trend is evident in Ireland, traditionally the largest source of imported beef for the UK market.
With processors having to pay more to farmers just to keep their plants running, there are growing concerns that there could be a major casualty in this sector. Farmers are being quietly advised to check the terms of trade when they sell cattle.
Haywood added: "Processors must now change their tactics because it is they, not the feeder, who is going to be squeezed unless they react by making sure that retailers understand the necessity of paying more."
"It is up to (processors] to explain that they are faced with an irreversible shift in supply patterns and if trading terms do not allow them to pay the full price, then cattle will be directed towards the minority of companies that have a full appreciation of current conditions."
Farmers are certainly enjoying the higher prices, but the production chain is a long one, stretching for almost 30 months from the time a breeding cow is served by a bull to the progeny being fit for slaughter. Current values for store cattle – young animals bred in the hills and uplands for finishing on low ground farms – are at record levels. However, there is no sign of a halt in the steady reduction in the number of breeding cows. The overall economics of the beef sector still appear decidedly doubtful unless farmers are prepared to use the single farm payment to subsidise their enterprises. That may not continue for much longer.
The full article contains 579 words and appears in The Scotsman newspaper.
