The calls for a Regulator for the Irish beef sector intrigue me. I am just not sure what a Regulator can really do in a country [and an EU] where the free market rules and there is thus little that can be controlled when it comes to created-within-the-rules trading imbalances.
The simple fact is that there is a major distortion within the trading relationships within the food supply chain. They have come about with the rise of the major supermarket retail chains to a point where a handful of buyers dominate the market. They have grown up within a legal structure and it appears that there is little way within competition law to curtail their dominance. For the Irish beef farmer there is also the added complication that the intermediate stages of the supply chain are similarly dominated by a few meat processors.
I have noted the calls for a Regulator to bring greater transparency to the supply chain. Then I ask myself how easy is it to get commercial companies to disclose internal management data? I suppose a Regulator can establish a way to determine standard costs for the various aspects of the supply chain and thus model who gains what from the processing and retailing of meat. It would be interesting to see if it shows that there is excess profit taken per carcass when it comes to those activities that happen between farmer and retailer. It may not.
There has been recent news about Tesco and its current difficulties. It concerns me that the Irish beef sector is over-exposed to Tesco as a sales outlet. It concerns me that there is too much talk about supplying Tesco. If, however, one considers that the likes of Waitrose have a British-beef-only policy one soon realises that Ireland is having to sell into the lower end of the market because it is Irish. Hence, I cannot understand why so much promotional emphasis is placed on the generic word ‘Irish’. The power of Tesco within the market means that they have a major influence on the Irish beef sector but I am not exactly sure what an Irish Regulator can do to persuade them to become more benign . Worse, with the current pressure on profits at Tesco, there is little to suggest that trading with them is going to get better any time soon.
Another complaint I often read is that the proportion of the final retail price received by the beef farmer is falling. In light of the fall in profits of the aforementioned retailer is this any great surprise? I also suspect that it is a benchmark used by the accountants within the supermarkets and I also suspect that beef receives a higher proportion of the final retail price than many of the thousands of other products on the retail shelf. Within the context of this benchmark and, bearing in mind that we are talking accountants and not farm management economists, one can expect the squeeze on beef suppliers to continue. If supermarket price wars intensify in the UK one cannot see the situation improving. A Regulator may be able to show that the Irish beef farmer is bearing an unfair burden but short of an appeal to consumers in the UK [who are already buying British] about fair trade practices I am not sure what a Regulator can do.
One may also like to think about this trading situation in the context of the apparent resilience of beef farmers to continue through thick and thin – it makes the supply of beef relatively price inelastic. Those within the supply chain also know that the CAP effectively subsidises the production of beef by supporting farm household incomes. To be cynical about it, the CAP payments are now providing a subsidy to the retailers in that they are able to source beef that may often be produced below the cost of production. Again, I am not sure what a Regulator can do about this other than to provide substance to the previous cost of production comment.
A Regulator can of course propose and introduce a Code of Practice. This, nonetheless, is likely to be voluntary. And have they been seen to be a great success elsewhere? To go beyond the voluntary is difficult and it will be hindered by the presence of the legal frameworks within which the commercial entities operate. To implement legal constraints on the trading practices of entities operating within the European Union food supply-chains could take decades.
One assumes that a Regulator could play an arbitration role between the processors and the farmers with regard to the operation of the payment schemes and the meeting of specifications. But then I cannot say I have heard many complaints about the way carcasses are actually evaluated within the context of the quality-specification/price grid itself. The complaints appear to be more about not being paid a quality bonus for animals produced on quality-assured farms; albeit it appears that having a quality-assured farm is not sufficient on its own to receive a bonus payment. This appears to be misunderstanding that has come about through the creation of a farm assurance scheme and then miss-calling it a quality assured scheme.
Numerous requests have been made to the Minister of Agriculture for a Regulator. As of today, he remains lukewarm about the idea. Apparently his alternative suggestion is to form producer groups of many thousands of farmers to enable them to trade together and redress the balance. One rational behind the idea appears to be that there are EU funds available to form such groups. I would, however, suggest that having an available grant is not a reason for forming groups. Good business decisions are not made on the basis of chasing grants; although one is becoming aware that grant chasing is something of a national pastime in Ireland.
A concern I have is that the creation of producer selling groups is focused on continuing an antagonistic situation between farmers and processors. If one concludes that the current beef crisis is in part due to a market information failure with respect to fully understanding and transmitting changing specification requirements back to the farmer, will producer sales groups actually address this situation? It may if they also take on the role of market research but, ultimately, the groups will still be at least one step removed from the retailer [if it is they who determine specifications] and two steps away from the actual final consumer of beef. Will an extended antagonist trading relationship actually improve the flow of market information?
I would like to see a movement towards producer groups but not on the basis of seeking to consolidate sales and redressing the trading relationships alone. I would prefer to see the producer groups created around a determined product rather than just a regional grouping of farmers that produce Irish beef. This is not least because of the continued over-emphasis being placed upon the use of an Irish brand; partly because it is of little value in the UK market and partly because, in a wider context, ‘Irish’ does not actually impart any particular quality characteristic on the product. ‘Irish’ branding is about selling rather than marketing.
One was also hearing this week about the success of the Irish Aberdeen Angus producer group. It was reported that it had benefited its 8000 producer members to the tune of Euro 2.8 million. That is, however, only Euro 350 per member. I would also like to know if this is an increase in sales revenue or an increase in bottom line farm income. As a farm management economist I would like to see what the benefits and costs are so I can reach a fair conclusion in terms of the bottom line benefits but alas seeing such information is far from common place within an Irish agricultural press that often falls short of robust farm management economic analysis.
There is, however, rather more to developing a producer group than one might think. One cannot doubt the success in recent years of the Aberdeen Angus and Hereford groups, both in the UK and Ireland. I do, however, ask whether they have been driven by those wishing to first sell AA or Hereford genetics as opposed to selling AA or Hereford beef. If it was the latter, why have the schemes been built upon using a registered sire and, hence, qualifying cattle for the schemes that are only 50% purebred? Such an approach has, however, clearly been successful in enabling the quantity of qualifying branded beef to be made available to the markets.
A question I would like the answer to nevertheless is to what extent has the volume of available AA and Hereford scheme carcasses influenced the retailers carcass size specifications? Has the rise of the ‘traditional’ breeds within the retail environment been partly responsible for the recent carcass size specification reductions? If so, have the AA and Herford schemes had an unforeseen consequence for the many who produce beef from the continental breeds?
Further, to what extent can the AA and Hereford schemes support beef export developments into, in particular, the USA. Are not both breeds already well represented in the beef lots and on the grasslands of the USA and also sold under similar breed-related schemes, albeit I have heard said that any cattle that are black may be considered to be Aberdeen Angus.
I know that an immediate response to the above comment will be that beef sold into the USA will be branded as Irish and grass-fed. The latter is, however, a pretty vague term that is far from defined in Ireland whereas it may well already be more clearly defined within the US market where grass-fed beef is on the rise. It takes more than blarney [and right now that is what I consider the use of grass-fed to be] to create a long-term market with sophisticated, informed consumers and vague claims are unlikely to cut it. If anything they will be detrimental as they become seen as what they are, sales talk that is not underpinned by any clear definition.
To come full circle to the idea of a Regulator, maybe one role a Regulator could have is to ensure that there is integrity within the Irish beef sector in terms of how beef is labelled and presented within the market to the consumer and the claims made about it. The future is about products that the consumer can trust and that means that any claims about premium-quality characteristics have to be fully justified. It is not about branding and selling generic Irish beef as premium, it is about creating genuinely premium products [and for beef that is done first on farm] that have a complete and transparent marketing story behind them.
If one is to go down the producer groups route, the author’s preference would be for them to be created around the supply of clearly defined products. Ideally they should also be products that are unique and ones that the producer group can control the volumes of through a certification scheme. The parameters used for defining the products may be production related [say clearly defined grass/forage fed and suckler reared], breed related, meat quality related [say low in fat and/or low in cholesterol], environmentally related [organic or, for a wider market, conservation farmed] or heritage and/or location and/or landscape related. These parameters should define the product and should form the multi-characteristic, ‘multi-functional’ foundation of the product. The characteristics then inform the marketing story presented to the final consumer.
And finally to link back to asking the Minister to do something to help the Irish beef industry. Within a free market environment one of the few things that the Minster can do is influence how the government allocates its resources to industry support mechanisms, be they under direct Department of Agriculture control or indirectly as agricultural-industry-support quangos. There is a not insignificant agricultural support spend by the government in Ireland and I for one would prefer to see a proportion of these funds spent on supporting farmer producer groups to define new farming- systems-linked products, to evaluate their potential and to create routes to markets to deliver them to an informed, premium-quality-focused consumer. Only then may we see a situation where beef farmers can produce and sell the premium beef products that can properly reward them for their investment, time, husbandry and management skills.