November 23, 2010

UK beef processors called to put more security in export sales

UK's National Beef Association believes the iron grip British supermarkets have on both ex-farm and retail beef prices can be broken if processing companies put more effort into securing much-needed export sales.

Beef processors can exert more influence on future UK cattle production levels than they appear to think, the association added.

The association is convinced this should be much easier than it has been in the recent past, with tighter global supplies and more favourable sterling-euro exchange rates.

"Processors are worried about maintaining future throughput levels at a time when pressures on suckler beef production are mounting rapidly and dairy beef output is shrinking in response to more expensive cereals. If slaughter cattle numbers fall as steeply as predicted it is inevitable that some abattoirs will be forced out of business. However, if the root cause of the reduction, which is entirely down to production costs not being covered by market income, is removed, then more cattle than expected will be retained and companies that would otherwise go down will be able to continue to operate," said NBA director Kim Haywood.

The key to beef-sector viability, both for farmers and for processors, is the development of alternative sales outlets so the industry is no longer dominated by retailers who do not offer its end product at prices which cover the cost of putting it on the shelf.

"However, the all-round income stranglehold inflicted by supermarkets can be broken if more high quality UK beef is sold into their EU countries where supplies are already getting short-and other carcase portions are distributed to willing buyers elsewhere," Ms Haywood said.

"It all comes down to just how keen processors themselves are to break the supermarket deadlock because the answer lies entirely in their hands. At present, domestic retail sales account for 90% of production and at present it is cow-beef deliveries that dominate export activity. But if exports rose to 25% of UK output, and the increase was almost entirely down to additional prime-beef sales, then the multiples would at last have a competitor and would be forced to take a more realistic approach to pricing," she added.

Ms Haywood said industry analysts felt some processors would be reluctant to expand into exports because it might offend the supermarket that buys the bulk of their throughput, while others could be worried that a surge in exports would make cattle too expensive for them to make money out of supermarket contracts.

She also said, "The NBA hopes this is not the case and that simple self-preservation persuades more companies to protect themselves, and their cattle supply lines, by selling more beef on to the export market and reducing the industry's all-round dependence on domestic sales through supermarkets."