June 14, 2022

 

Rabobank report questions consumers' willingness to pay for costlier beef

 

 

Companies are taking steps to meet their emissions reduction goals, but with consumers already paying more for beef, Rabobank questions whether the market will be able to support a further lift in beef prices to offer a 'premium payment' for net-zero-carbon beef.

 

This is reflected in the latest beef report by Rabobank.

 

"The full cost of production, sustainability initiatives aside, is not currently being passed onto consumers," said Angus Gidley-Baird, senior analyst (animal protein) at Rabobank. "Consumers' willingness and ability to pay is likely to be tested in 2022 as inflation levels climb around the world."

 

Globally, consumers are paying more for beef now than at any previous time in history. Rabobank sees the positioning of low-emission and climate-neutral beef products on shelves worldwide, but it said that it's not an easy time to translate sustainability and emission commitments into action.

 

Cattle prices across significant exporting zones such as China, Europe, Brazil, the United States, Australia and Mexico, remained strong through the year's first quarter.

 

Many regions are experiencing either high cattle livestock prices or high beef prices. While some common factors, such as strong demand from China, local drivers are arguably more critical in beefing up these record values.

Wholesale prices for beef are under pressure even though production costs are higher.

 

According to Rabobank's second-quarter report 2021 on the global beef market, which details the high demand for beef in the US, the Australian beef cattle herd is at its lowest point in over 30 years.

 

Low inventory and favorable seasons in Australia continue to support cattle prices. In contrast, firm consumer demand keeps US prices despite the higher-than-expected production and cattle on feed numbers resulting from dry conditions.

 

The first signs of softening consumer confidence are already apparent in most markets, with wholesale prices for beef coming under pressure even though production costs are higher.

 

According to Rabobank, a downward adjustment of cattle prices and upstream input costs will be needed to restore processor margins and maintain beef's competitiveness with consumers.

 

"We expect ongoing adjustments of consumption and margins in all markets as we head into Q3 2022," said Gidley-Baird.

 

Several of the first movers in the carbon-neutral beef space utilise offsets to generate their carbon-neutral status. These offsets add costs to the supply chain. But the reduction of emissions while saving the costs of offsets comes with another set of costs.

 

A return on investment or revenue to cover these costs is needed for businesses to implement carbon-reduction practices.

 

"We see five possible forms of return, many of which will co-occur: access to the market, finance, improving productivity, premium prices and new revenue streams," said Gidley-Baird.

 

"Theoretically, such a return needs to sit somewhere above business as usual to incentivise change but below the cost of purchasing offsets to maximise efficiencies."

 

- Food Ingredients First