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.