The Northern Ireland Red Meat Industry Task Force, established to develop a five-to-10-year strategy for the beef and sheepmeat industry, has concluded that suckler-origin beef and hill sheep have no future.
In the absence of a commitment from retailers and manufacturers to a significant movement in farmgate prices, the task force cannot see in general the prospect of an economically viable suckler-origin beef or hill sheep model.
The damning report states that "the evidence suggests that current suckler-origin beef and hill sheep producers who wish an economic return would be significantly better off if they used their single farm payment for transition towards diversification or exit. Those that choose to remain in suckler-origin beef and hill-sheep production should be aware that they are unlikely to make an economic return".
The task force conducted a survey of more than 1000 producers, a detailed financial survey of the economics of processing, and more than 100 in-depth interviews with stakeholders and experts from across the industry.
They found that the red meat industry in Northern Ireland is generating a loss of more than £200m per annum when full production costs are included.
This whole industry loss is driven by the very poor economics of production. The vast majority of producers are using their single payment to cover the costs of loss-making production, with losses estimated at £260m per annum.
This situation defies reasonable market conditions, as demand for beef and lamb in the UK has been stable or slowly growing. In fact, over the past 10 years against the backdrop of BSE and its effects on trade and consumption, Northern Ireland has been successful in building up its market share with grocery multiples and food services in Great Britain, within an increasingly competitive global market.
Processing in Northern Ireland is much more consolidated, with the largest five processors accounting for 90% of the red meat processed. The task force processor survey suggests that their margins of around 5% are in line with industry benchmarks. However there is a substantial overcapacity, close to 10%, and processors are facing a declining supply base.
The task force took the view that while some upward movement in retail price cannot be ruled out (primarily to reflect recent increases in input costs as has been seen in other sectors) the industry should not assume that retail and farmgate prices will rise significantly to cover the full costs of the current production and supply chain.
"Global supply and demand are projected to remain broadly in balance, and the option remains for imports from Latin-America to offset declines in local production."
The report concludes that for suckler-origin beef, without a dramatic increase in average farmgate price to just under £3.20p per kilo, there is no prospect of creating an economically viable model of production for even the most efficient producers of suckler-origin beef (producers with at least top 10% performance and scale of 100 cows or 100 to 200 finishing animals.) The report also concluded that it is not possible to create an economically viable production model for an efficient producer of hill sheep unless the farmgate price increases substantially to approximately £2.80 per kilo.
Such conclusions are just as relevant to Scottish producers and will set alarm bells ringing in an industry already in crisis from the foot-and-mouth and blue tongue outbreaks.
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