Monthly Archives: February 2016

WHERE DO YOU FIND IRISH BEEF IN UK SUPERMARKETS?

This article is the follow-up to an earlier Blog post, “Is Irish beef all about mince and meatballs?”. Its aim is to illustrate why there is a differential between Irish and British beef; a differential which some farming leaders in Ireland believe there is no justification for.

In the last couple of years I cannot recall an article in the Irish farming press [admittedly I might have missed it] that goes into detail about the way beef is retailed in the UK and how the prices thus generated work through the supply chain. When over 50% of Irish beef exports go to the UK it is extraordinary that we are not being constantly informed by Bord Bia and the press about the detail within the UK beef market. In this Irish beef farmers are being poorly serviced.

Do all the United Kingdom supermarkets stock Irish beef?

Of the major supermarkets only Asda, Sainsbury and Tesco [AST] retail Irish beef. Together they control about 60% of UK food sales. The top end retailers, Waitrose and M&S operate a British beef only policy. Morrisons, the Co-operative and Budgens likewise. The so-called ‘discounters’ [although is ‘discount’ really their market position or are they really now just competitors to those in the mainstream market?] also reserve their shelves for British beef only. The latter is not a surprise as they operate a similar policy in Ireland where they highlight their support for Irish farmers; albeit in terms of placing Irish produce on Irish shelves. Sadly, their support does not go as far as stocking Irish beef in the UK; a market that is far more important to Irish farmers than their own market.

The Aberdeen Angus and Hereford beef retail-schemes

Should one assume that the price premium for AA and Hereford scheme beef be the same either side of the Irish Sea? Is it a homogenous market? The answer lies in a quote from the Beef Industry News [12th February 2106] “Premiums for Angus and Hereford sired cattle in the RoI are already almost non-existent at around 4p-5p a kilo compared with 20p-30p in Great Britain”.

Unfortunately for Irish retail scheme members, the use of the similar retail schemes in the UK beef is accompanied by country-of-origin marketing; it is the second half of the premiumization of the product. It is no different in Ireland where it is sold as Irish Hereford or Irish Angus. This translates through to a premium price for Angus and Hereford scheme cattle in the UK. This can also be enhanced by having Protected Geographic Indicator Scottish origins. Irish scheme beef might be available but it lacks one essential characteristic, it is not British. That leaves Irish scheme beef chasing a small share of the small Irish market and exports beyond the UK. More Hereford and Angus scheme beef from the expanding Irish dairy sector is unlikely to help.

What is written on the UK retailers’ premium labels

In Ireland one may be aware of Tesco’s “Finest”; its own label premium range. It is most likely to be Irish Angus [thus illustrating the use of Irish AND the AA retail scheme together]. They use the same premium-designation combination in the UK. Sainsbury’s in the UK has its equivalent “Taste the Difference” label. The third stockist of Irish beef, Asda uses the term “Extra Special”.

Now for a snap-shot of Asda’s “Extra Special range of burgers. They include Aberdeen Angus burgers, Rump Steak burgers and Wagyu burgers. In the past they have also listed Scottish Beef burgers and dry-aged burgers have been listed. Quite and extensive choice. What do they have in common? They are all from British beef and Red Tractor quality assured.

A similar pattern emerges with other products, the premium label is British origin and, probably, Red Tractor scheme assured. However, when it comes to their budget and standard ranges it is a different story. Then the beef can be of British or Irish origin, albeit still quality assured under the relevant national assurance scheme. Being quality assured in Ireland allows your beef to be sold in the UK but do not expect it to finds its way into the premium market segments.

From where do the UK retailers source their premium cuts?

Not all expensive beef cuts [i.e. steaks] are sold under the three [AST] supermarkets premium labels [as above]. When it comes to standard-range steaks there are times where the beef can be of British or Irish origin. It would, nevertheless, be more typical to see the more expensive cuts being of British origin and Red Tractor assured. Irish steak is not unknown and ensuring its availability may be a reason that Irish factories follow the specification requirement of the UK’s big three.

At times one has heard the question raised about how can all this British beef be on the shelves of a country that is only three-quarters self-sufficient in beef. The simple answer is that British beef is disproportionately focused on the upper echelons of the market. These are not necessarily the largest volume segments but when totalled up they are likely to result in a significant retail price differential between the price of Irish beef and British beef on the UK supermarket shelves.

Is mince the main volume market segment in the UK?

Data from the AHDB/Kantar shows that mince makes up the single largest segment of household beef purchases. In 2014 mince accounted for about 44% of purchases.

It is, however, not a homogenous segment. Waitrose’s offer includes Hereford mince, Angus Mince, Duchy Originals organic mince and there standard offer of British Beef mince. As it is Waitrose, it is all British beef but its offering illustrates the use of the breed-schemes to differentiate the market.

Aldi and Tesco do the same. Another common mince segment differentiator is to offer steak mince as a premium product, or in the case of Morrisons, Scottish minced steak. Needless to say it is difficult to find any Irish mince in among this premiumised crowd. That said one has seen in Asda’s mince portfolio ‘reduced fat Irish Aberdeen Angus mince’.

Reduced fat is in itself is a market differentiator. A look at Sainsbury’s mince reveals that they have a basic-range mince at 20% fat and within their standard range, 15%, 10% and 5% offerings. Their prices at the time of the research [for a 500 gram pack] were £3.80/kg, £6.00/kg, £7.90/kg and £9.00/kg respectively. Clearly less fat means a higher price. The same is to be found in other supermarkets, albeit the Sainsburys range illustrates the point well. Although not being up to speed on the specifics, one can probably assume that premiumization-by-fat content occurs mainly within the processing environment. As an aside, is there is a further opportunity to rear breeds that are known for beef that is both lower in fat and lower in cholesterol [as per the Irish Piedmontese]?

So where do you find the Irish beef in UK supermarkets?

You have to look in Asda, Sainsburys and Tesco but either when in the aisles or shopping on-line, finding Irish beef is still difficult. Typically you will find it among the mince, meatballs, burgers and diced beef. You will also find it among the roasting joints and the standard range of steaks. It is invariably in the budget and standard ranges. It will probably not be flagged as Irish. The word Irish may well be on the label [unaccompanied by a national flag or Bord Bia QAS logo] but in a way that the word ‘Irish’ can be easily inter-changed with ‘British’. It is probably fair to say that it goes into those beef products that are aimed at the price conscious shopper who is more interested in value for money than the national origin of the beef.

When one reviews the beef offerings on the UK shelves one can see that there is a beef mince category that is equivalent to the 89p for 4 pints of milk category [one could probably loosely use the term ‘loss leader’]. They are the volume focused, low-priced products aimed at bringing the customer in the door. The typical ‘bargain basement’ mince price is around the £4.00/kg [c. €5.20/kg] mark. In AST the product information is likely to say “Origin: UK/Ireland” and a mention of it being quality assured under the relevant national quality assurance scheme. There is no fanfare about the QAS but you can assume that it is required if you wish to supply the UK supermarkets. It is nothing less or more than a market-entry ticket.

Of nearly 250 beef products in my database [across six supermarkets including AST], there are just under 50 [20%] which are labelled in my database as “maybe Irish”. The AHDB survey [Nov. 2015] states that in Asda 72% of beef products were ‘British facing’, in Sainsbury it was 90% and in Tesco 67% [these are product numbers not product volumes]. There is no commitment to selling [let alone promoting a beef product that is definitively Irish. For 2014 Bord Bia states that 271,000 tonnes of Irish beef was exported to the UK so the market position that it has ‘achieved’ is extraordinary.

In what product categories do you find Irish beef?

My own survey shows that 48 out of 170 products in AST were maybe-Irish products. By numbers of products they are fairly evenly weighted across the product range with 21 [45%] being either joints or steaks [typically the higher-value products]. A number of organic products may also be of Irish origin. The weight of product is, nonetheless, biased towards the lower-value mince, meatballs, burgers and diced beef products. Although the survey is, due to the vastly complex nature of the beef offerings, not academically ‘robust’ in nature, it still suggests that lower value products account for 5/6ths of sales by weight. Or to put it another way 1/6th of the products were steaks of joints [where portion size may dictate carcass size specifications].

One can also add that five of the lowest six products [by price per kilo] in the survey were maybe-Irish and four of the five lowest priced mince products were also maybe-Irish. One could say that when in Tesco’s look for their budget Everyday Value label as all five beef products in the range are currently either maybe Irish or definitely Irish.

So what is the AST Irish-British beef price differential?

Attempting to provide specifics on the average retail price achieved by Irish beef is nigh on impossible; there are just too many beef products on the shelf. A simple average price for British and Irish products will not suffice, not least because labels may specify Irish or British. Just assessing product prices will also not work because there will be vastly different volumes sold of a basic mince and a sirloin steak. Maybe the retailers themselves would have access to the data to provide accuracy but in the absence of such one can only use a realistic weighting of product sales volumes. What is known from AHDB/Kantar is the volumes sold within different categories and the average price achieved within these categories. A weighting-by-volume was, therefore, given to each product with the category price and market share being used to ‘anchor’ the estimates. It is far from an exact science but one is, after all, only after a ‘feel’ for the figures.

What one can say is that if British beef disproportionately occupies the upper price categories and Irish the lower this will create a retail price differential. It is just arithmetic.

If one just focuses on retail sales through AST, the price evaluation suggests that the UK over Irish price premium is about 27%. This, of course, does not include retail prices from the British-only-beef supermarkets. If anything premium Waitrose and M&S prices might nudge the differential upwards whilst the others are more likely to be in-line with mainstream AST market prices. To put the differential another way, Irish beef is just over 83% of the market average whilst British beef is priced at about 6% above the market average. This is probably realistic.

In terms of average retail prices in AST, the overall average was about €9.60, the UK average €10.20 and the Irish average about €8.00. Although data suggests that the retail sector only accounts for about 30% of the total UK beef market, this price difference is significant.

So what does this mean for carcass price differential?

Another unknown in this is the prices paid for beef that is not sold through the supermarkets. As much of it is destined for the burger chains and ready-meals market segments one can assume that the average price is lower. One would also expect that there will be far less country-of-origin premium pricing. So just what is the impact of adding in sensible prices and very little British-beef price premium into the equation. As with all of this work, everyone would benefit from transparency throughout the supply chain but that is work for others.

Using a €5/kg average price and a 2% British price premium, the overall price premium for British over Irish is just under 12% [a zero British premium would leave this at about 10.5%]. If one then deducts estimates for the various supply-chain costs and margins, this leaves an ex-farm carcass price of £3.50/kg [€4.50/kg] for UK beef and €3.90/kg for Irish beef. Probably realistic.

The result of so much number crunching therefore suggests that a carcass price premium of 14.5% exists if there is no British-beef premium outside the supermarket environment. With a 2% British beef premium it is about 16% whilst at 5% it would be over 18%. The conclusion is that a carcass price differential of 15% or so is justifiable given the UK supermarkets preference to fill their higher-level, premium-priced product categories with British beef.

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IS IRISH BEEF ALL ABOUT MINCE AND MEATBALLS?

There is a weekly publication in the UK called Beef Industry News [BIN]. It is written by Robert Forster [www.rforster.com], [probably] the UK’s leading commentator on the beef industry. It makes fascinating reading as its author has an extensive network of contacts that allows him to give his readers a good feel for which way the wind is blowing. As the UK takes over 50% of Irish beef exports, what happens there should be of concern to Ireland’s farming associations and leadership. They should be avid readers of the BIN.

Apart from exports the Irish and British beef industries are conjoined in many ways. At the retail end, Tesco, Aldi and Lidl are present in both markets. Hence one can assume that retailing practices across the Irish Sea have a lot in common; not least when it comes to promoting Irish beef in Ireland and British beef in the UK. It is about supporting local farmers; albeit that means for Aldi and Lidl stocking British beef in the UK and not Irish [even though this policy may act against the interests of export-dependent Irish farmers]. Tesco at least stocks Irish beef in the UK, even if you have to search it out because its Irish origins may only be found in the small print.

There is also much common ownership of the meat processors plants across both markets. This probably allows them to more easily manage their supply contracts to the major UK retailers that will stock both British and Irish beef. These are Asda, Sainsbury and Tesco which together control about 60% of the UK food market.  I think it is safe to assume that other major importers of Irish beef include McDonald’s and Burger King.

The BIN provides an insight into the UK beef industry from the retail sector through to prices paid for different categories of cattle and by different processors [who have different supply contracts with different retailers]. It is not about academic research, it is about providing readers with a good ‘feel’ for what is happening in the industry. The latter is valuable in an industry that is characterized by diversity. And one should add that when it comes to reacting to the demands of the market, information that is current and derived from experience is most likely to be of more value than historic data, however well researched it may be. In the context of recent times [horsegate and the turmoil at Tesco], a finger on the pulse would have been a greater necessity than ever.

The retail market for beef is complex with retailers carrying many product lines [defined by cuts and stratification]. The author did a recent survey of six UK supermarkets and filtered a database down to 240 products [to really analyse the detail would mean monitoring circa 400 products on a frequent basis]. Here again ‘feel’ is often better than historic-data research but, nonetheless, it still leaves an annoying ‘over-time’ gap in one’s detailed market knowledge.

A current issue relates to premium-cut portion size and it would be interesting to see how that has really evolved over time. That said, one is aware that manufacturers/retailers do reduce portion/pack size to avoid excessive ‘headline’ prices [think about the shrinking tub of Roses chocolates]. Rather than raising the on-label price, the price is maintained but the portion size reduced. It is retailing pricing policy practice that may well be having a significant impact upon [and changing] retailer beef specifications if it is indeed the driving force behind retailers demanding smaller portion sizes for premium cuts and, as a consequence, wanting smaller carcasses.

Is portion size change now as crucial to understanding the retail market as tracking the rise of British-origin beef has been over the last decade? Are Irish beef farmers suffering from a lack of wider market information and too reliant on pricing grids and specifications from the factories? If so, they need their farming organizations to monitor the retail markets so that they can stay ahead of the game and, to a degree, anticipate consequential supply-chain specification changes.

To return to BIN, what is noticeable is the comments from UK finishers. They appear to reflect an industry that has got used to the changing of supermarket specifications. Maybe they have become more reactive over time and more flexible. Maybe it is a case that when the specifications change they rely on experience to re-tune their systems to find a way to meet the market specifications and, at least over the longer-term, make it pay. One does not doubt that some finishers in Ireland are as equally adroit, but the Irish industry is complex with its smaller farms, suckler and dairy-reared calves, marts that define inter-farm prices and many beef production systems. In such circumstances should one expect an industry to be able to react as quickly?

The Irish beef industry [with its tens of thousands of farmers] appears to be far more reliant on ‘knowledge transfer’ from its advisory services. Is it also more reliant on research to define solutions? And is that research suitably well informed about market movements to produce results which are usable within a market-defined time-frame? To look at an extreme, we saw bull-beef-is-the-way-to-go within the national food strategy only to find that by the time the cattle were ready for market, the market had moved on. It was painful for the farmers if not the strategists.

The author has used the word ‘dysfunctional’ for the Irish beef supply chain. It is a supply chain that should go something along the lines of a) consumer demand, b) retailer specifications, c) processor requirements and, d) on-farm production. Thorough market research should inform each and every one of these stages. If it does not, the whole ceases to function effectively. Certainly in the UK one can see the increasing importance of supply-chain partnerships in delivering to meet consumer demand [the ultimate deciding factor even if one considers that it can be influenced by retailers]. In Ireland we see antagonistic relationships between farmer and factory [I am not in a position to comment upon the relationship between factory and retailer]. A partnership cannot exist effectively when the parties address each other across the picket lines. It is not a situation that is going to lead to Irish farmers delivering premium beef to UK premium-paying consumers anytime soon.

I have often said that Ireland’s many small-scale farmers need a premium price to offset their scale disadvantages. With the countries need to export, they are inevitably going to have to supply major retailers that in business terms dwarf them. In the middle are a very few processors who are family-owned and who appear to operate a high-volume / low-margin model. They do not have voracious shareholders to pay dividends to or [given how few processors there are] a great need to pay a premium price to their suppliers. Thankfully it now appears that the leaders of Ireland’s farmers have cottoned onto the problem; that Ireland has too few processors [and routes to market] and that the lack of competition removes the necessity for the them to deliver for their suppliers.

One should also add, at the risk of upsetting a few farmers, that one has to acknowledge that the factories are dealing with a diverse supply base whilst themselves having to deal with and supply a few dominant retailers who may, in turn, expect their own suppliers to dance to their tune.

To highlight a point just made about supply-chain partnerships; “Thorough market research should inform each and every one of those stages [in the supply chain]”. Crucial to the long-term effectiveness of the supply chain and for all its partners is the transmission of consumer demands and preferences through the definition of specifications. To put it simply, without agreed specifications [that are first acceptable to the consumer] how can the supply-chain be market-led, let alone effective? Nevertheless, in Ireland we see an antagonistic farmer-factory, supply-chain relationship that is defined by disagreements over specifications as much as price?

Judging by the IFA Presidential leaflet from Flor McCarthy, one would say that a long-term armistice is some way off. This week I have read “Could retail led drive for medium carcases eventually set maximum weight of 350-360 kilos?” from Robert Forster [author of BIN] and from Flor McCarthy “Increase the slaughter age from 30 months to 36 months and not allow the introduction of weight limits”. The former is stating that carcass weights are dictated by the retailers whilst, in Ireland, one is left with the impression [from various sources] that the weight limits are being imposed by the factories themselves and that they are working in their own interests and not being driven by their own customers and markets. I will leave it to the reader to decide which explanation they prefer.

It is interesting to compare the positions across the Irish Sea. From reading BIN the impression is that the UK response is that we may not enjoy having the goal posts moved but we will deal with it, adjust our farming systems and deliver on spec. In Ireland, it appears to be that specifications, or at least changes relating maximum carcass weights have to be opposed. Is it fair to say that Ireland’s farming leadership just does not accept that there is a specification connection between portion size [as demanded by the consumer and retailer]? Real clarity on the issue is urgently needed.

A follow-up article is planned on the UK supermarket retailing of beef. For now one will state that Irish beef in the UK appears to be largely finding itself retailed in the form of mince, meatballs, burgers and diced beef. It also does not find itself into the premium retailers or the premium own-label of others. It also does not find its way into retailers via the breed-specific retail schemes. By and large, it supplies the standard and basic ranges of the above products in the three mainstream supermarkets of Asda, Tesco and Sainsburys. The UK is not self-sufficient in beef but nowadays it ‘reserves’ the upper segments of its fresh beef markets pretty well exclusively for British beef.

So if Irish beef is mainly sold as mince, meatballs, burgers and diced beef why the emphasis on the carcass size? Well the retailers do use some Irish beef in their standard range of steaks. The Irish processors are also supplying the domestic Irish retail market with only Irish beef so they need the full product range for Ireland. Given their cross-Irish Sea ownership, following tight retail specification would, one assume, also mean that they have supply flexibility for their UK retailer customers. It might also be that standardization of carcass size means better processing efficiency in a low-margin per head business. I am sure that the meat industry is far more capable of coming up with explanations than I and it is for them to explain their rational to their suppliers, not myself.

Is a logical conclusion of the Flor McCarthy position to “not allow the introduction of weight limits” that Irish beef farmers would prefer not to be constrained by carcass-to-portion size specifications? If so, does it follow that mainstream Irish beef production should focus on mince, meatballs, burgers and diced beef? One assumes that this would remove the contentious retail portion size issue. For the US market it would be about supplying what is cited as the big opportunity, ground beef [albeit certifying it as grass-fed will be difficult given that the USDA clearly defines what is ‘grass-fed’].

Producing beef for mince and meatballs would then allow farmers to focus on production factors that minimize the cost per kilo of beef [not unlike with targeting low-cost milk for milk powder] unconstrained by portion-linked carcass size. For the market segments that remain, maybe the Irish Aberdeen Angus and Irish Hereford schemes would suffice to supply the market?

Sadly one is unable to provide detailed information on where beef carcasses go. Just what proportion goes into mince and diced beef and what to higher-value cuts? And what carcasses follow what routes to market to which customers. It is this kind of market information that is absent [even from ad hoc research]. If it was, the farmer would be better informed as to what to produce. Are they focusing on what they consider premium whilst their produce is sold as non-premium?

Could Irish farmers accept that a ‘premium’ animal leaving the farm or going through the mart ring is not destined for a premium market? Could they accept that their premium animal going for mince or ground beef? Of course they would still have to be quality assured. And how would it effect the farm-gate price? Would improved production efficiencies and lower costs mean higher farm incomes? Again, it is not dissimilar from low-cost dairying. Maybe it will work better as so many beef producers are part-time. It is an interesting idea, but will it just leave Irish beef farmers competing head on with beef operations in the Americas? Competing on cost will be tough, even without TTIP.

My personal view is that Irish beef should be about quality and a premium product. That does, however, mean defining and producing premium products that are recognizable as premium by premium-paying consumers [nobody in the supply-chain is going to pay a premium price for cattle unless the final consumer is paying for that premium]. And producing those products means producing to [more] specific specifications. Simply, premium prices go hand-in-hand with consumer-driven specifications. And those specifications have to be passed from consumer to retailer to processor to farmer [a market information chain which seems to have broken down in Ireland].

If Irish farmers are unhappy that this chain is not working, that it is dysfunctional, then they need greater control of the chain. This may mean being more proactive when it comes to collating and disseminating market information and/or it may mean taking control of some downstream supply-chain activities; thus ensuring both information and money transfers from consumer to farmer. But one thing is certain, consumers pay more for high-specification products and if one aspires to being a premium producer specifications are a necessity; as is a supply-chain that links the final, premium-paying consumer to those within the supply-chain who add the value when creating the product.

Having said the above, one should not rule out the development of farmer-to-market supply-chains that focus on mince and diced beef as they will work for some. It would probably help all parties to have end-market-linked specifications that mean we have horses for courses as opposed to expecting one-horse specifications being applicable to all market situations.