- Location
- Bury St Edmunds, Suffolk
Retail price war led by Aldi and Lidl could force prime cattle prices into even steeper downwards spiral.
Slaughter cattle prices were depressed over 2015 even though both production and imports, each of them critical contributors to overall supplies, were down as well.
This contradiction, which furrowed many brows, continues still and one of the reactions at finisher level has been to accuse processors of conducting a determined, short sighted, unnecessary, and greedy attack on slaughter cattle values.
There is however another explanation. It may have less appeal, because it can relieve frustration to spit at cattle buyers who whatever the circumstances never pay enough money, but it is infinitely more chilling.
This is because at the same time as prime cattle prices struggle (forget the current mini-revival because they will tumble again as soon as more cattle and cull cows begin to move onto the late summer market) the biggest supermarkets are selling less beef.
During January-March fresh sales at both Tesco and Sainsburys fell by a massive 1,200 to 1,800 tonnes compared with the same three months last year and, not by coincidence, sales through the discounters, Aldi and Lidl, picked up by almost exactly the same amount at the same time.
These developments are connected and explain that on-going, and unwelcome, pressure on prime cattle prices is not the result of processors being greedy but because their incomes are under huge strain too.
They are not keen to pay as little as possible for cattle, or demand that more are delivered to tight specification, out of awkwardness or avarice, or as is often alleged by people who log into Farmers Forum, “just because they can” - but because both they and beef retailing are under pressure.
Aldi and Lidl, backed by their more cost efficient business models, have their hands around Tesco’s, Asda’s, Sainsbury’s and Morrison’s throats and the will not let go.
Aldi’s management is on record as saying that they will always sell food for five per cent less than Tesco – even if Tesco reduces its prices by five per cent as well.
For all food producers, not just beef farmers and processors, the implications of this are disturbing because if food retailers are committed to the most savage price war for decades none of them will be volunteering to sell beef for more money – and so the squeeze on their supply chains, on both producers and processors, which is already immense will tighten further.
It might help to think of pythons or boa-constrictors because anything that gets caught in their coils finds it difficult to breathe.
The symptoms at farm level are not just disappointing prime cattle prices but tougher demands on carcase specification too.
Resistance to the latter is a subject on its own and it is strange that there is only partial acceptance that beef farmers, like everyone else who offers a product for sale, need to turn out the most finely tuned retail product they can.
Indeed even though retail demands are changing some finishers who turn out typical commercial cattle are still insisting that they should not have to adapt.
They have argued, are still arguing, and will probably continue to argue, against these changes but when just ten retailers account for at least 85 per cent of fresh beef sales, and some are struggling to keep their own heads above water, it makes sense to listen to what they say.
This transformation, which includes tougher demands for high specification cattle, has been brewing for some time.
Fifteen years ago a front running abattoir (incidentally no longer in business) told me that more than 30 per cent of cattle in a typical delivery were either too big, too fat, too little, too thin, or too old and it lost a lot of money because their beef had to be sold through the secondary wholesale market where it was heavily discounted by caterers.
The catalyst for a universal tightening of spec demands change was the horsemeat scandal in January 2013.
Suddenly origin and provenance were top of the agenda and because Tesco, Aldi, Asda and many others did not want to be discovered selling any more horsemeat they toughened up their supply lines and during this re-arrangement period commercial cattle average jumped to just short of 400p.
It was a watershed moment. It underlined the value of UK origin cattle backed by the Red Tractor.
But it also confirmed that retailers were either unable, or unwilling, to persuade consumers to pay more for high provenance UK beef.
They would not, or could not, pay processors enough to cover the 400p purchase price – and for a time the latter lost disturbing amounts of money. (This is correct)
Processors were also told by retailers, who were desperate to sell as much beef as possible, they must deliver only medium sized cuts that could be sold at attractive, mid-range prices.
And it is as obvious as the nose on a face that properly cut, medium cost, medium sized, steaks and roasts can only be taken off medium sized cattle.
By autumn 2013 processors began to react to their losses by cutting back on their waste, which means not buying cattle they did not want, and so by April 2014 (two years ago) the outlines for supermarket spec had been established.
Everyone knows what they are. UK origin, Red Tractor qualified, UTM, 280-380 kg, R3/4L or better and no more than four owners.
Before more readers blow their gaskets it is important to take another look at the retail market because on-going economic depression, and the soaring success of discounters like Aldi and Lidl, has revolutionised it in other ways.
It is accepted that Tesco’s previously successful one-stop-shop model has been overtaken and because more consumers have abandoned loyalty, shop around, and check prices at a number of other stores there is even greater competition to pull them in.
This includes selling better quality beef for less money- so until beef from the UK and the Republic of Ireland is exported to high paying, non-EU, markets like China, South Korea, Japan and the United States it is unlikely British farmers will be able to earn anything like 400p from finished cattle again.
Which means that in the interim those supplying commercial markets should be concentrating on producing what their customers want by delivering to spec so they avoid ever increasing penalties and earn the maximum available amount of money.
There are other responses to lower incomes like improving production efficiency by raising cow fertility, a more organised approach to feeding, and better soil and grass management – but each of them is another subject.
Be in no doubt that supermarket spec will dominate the market for some time yet.
So breeding, rearing and feeding needs to be tailored to turning out cattle that can be slaughtered at 24 months old weighing no more than 380kg.
Some beef specialists are already saying 16 months and 360 kg maximum might be better – and it would be wrong to think these demands are outlandish.
By the beginning of July companies as diverse as Dawn and Scotbeef will be penalising carcases that are 400kg or more and by the end of the year they, and other companies, will be drawing the line at 380kg.
There is other evidence that more processors are already buying to meet increasingly specific retail orders.
Tesco, which is keen to sell the most attractive beef it can get its hands on, will not be using bull beef in its medium and top tier price ranges so from January its supplier (2 Sisters) will not be handling young bulls – although it will pay 10p above base for beef cross steers and heifers.
There are other carrots. It is not all stick. ABP (which supplies Asda, Aldi and Sainsburys) has been paying 10p-20p above base for heifers for some time - partly because heifers are more likely to hit the weight spec and they are likely to be younger too.
And it, and other companies, already pay 5p-10p more for under 24 month cattle too.
Each of these developments clearly signals the way the market is moving and it would not be wise for them to be ignored.
There can be no doubt that meeting the new weight maximums will be the hardest to adjust to. A lot has been said, or shouted, about the four owner limit but less than three per cent of slaughter cattle fail to hit that target.
In contrast 30 per cent of carcases handled last year topped 380kg and 17 per cent were plus 400kg.
The figures for steers were worse at 40 per cent over 380kg and 25 per cent over 400kg.
The average steer carcase weight last year was 373 kg and it has only dropped by 1kg so far this year.
So it will have to drop further.
Breeders can help store cattle buyers accommodate supermarket spec by breeding and presenting more, well grown, calves that can be finished at a younger age.
They can also dig in and lift their margins by increasing fertility, narrowing calving indices, and producing more calves each year from the same number of cows.
But the big thing is to remember that no business has ever succeeded by forcing customers to buy something they did not want.
Farmers growing milling wheat have to meet Hagberg requirements, dairy farmers must get below maximum TBC.
So beef farmers should not be surprised that cattle aimed at British markets have, to meet a production spec too.
That is not all. More organised demands for better quality, better eating, beef are expected as well.
This means cuts taken from carcases that are not just young but well marbled and delivering beef that is guaranteed to be tender, juicy and tasty too.
This should lead to carcases being paid, or penalised, on marbling scores and shear test results
And surely signals the abandonment of the EUROP grid which is already outdated and should long ago have been replaced by VIA scan payments based on the actual retail value of an individual carcase.
It is accepted that there can be £100 difference in value between R4Ls of the same carcase weight if the relative weight of the striploin and other high priced parts of the carcase are taken into account.
Which surely means that finishers complaining about price, or delivering to spec without there being an obvious reward, should be putting their weight behind the emergence of a payment system which pulls in more good cattle by rewarding breeders and feeders who turn out carcases that not just attract the most money but encourage consumption too.
They should not be wasting their time or energy by fighting a doomed rear guard battle based on delivering cattle the same way they have always been delivered and not taking any account of advances in consumer expectations and important shifts in retail demand.
# It is also worth noting that it is McDonalds, not supermarkets or processors, which drives the maximum four movement/owner rule.
Its installation by many processors is the result of insistence by McDonalds since 1997 that the burger mince it buys is taken exclusively from cattle that can be directly traced and have moved through the shortest possible supply chain.
Unlike supermarkets who may rely on just one company (Morrisons/ Woodhead Bros or Waitrose/Dovecote Park) for their beef and rarely have more than two suppliers, McDonalds orders beef from 28 different processing sites in the UK and the Republic of Ireland.
Its UK supplier is Scunthorpe based OSI which delivers almost 50,000 tonnes of burger mince each year with portions taken from around 450,000 head of cattle.
It is this wide spread, the equivalent of 20-23 per cent of the UK’s annual prime cattle throughput, that makes McDonalds demand for a maximum of four owners so difficult for processors to avoid.
Its dominance, and ability to insist that it gets what it wants, is underlined because most of the processors who specialise in supplying supermarkets have to balance their carcase sales by selling flank and forequarter beef to OSI - and so must focus on cattle which have moved through less than four businesses even though their major retail customer, or customers, may not be so demanding.
McDonalds is undoubtedly a fussy purchaser. Its determination to avoid being implicated in a scandal like the horsemeat crisis means it will not take prime cattle sold through an auction market either.
Its procurement philosophy hinges on insistence that the supply chain must be as short as possible and that it has direct relations with its selected, and carefully monitored, suppliers.
So careful concentration by processors on the four movement/owner rule is not therefore a ruse plucked out of the air to help them drive farmers mad, or drive prime cattle prices down – as some finishers and some farm representatives continue to allege.
But an important safeguard of their ability to sell large quantities of flank and forequarter beef to McDonalds each week - without which the overall value of the cattle they buy could be further undermined.
It is being said that auction markets can overcome buyer reluctance to bid for store cattle without knowing their movement history by asking vendors to voluntarily declare the number of moves/owners – and signalling these from a dedicated ringside display which plays no part in confirming the conditions of sale.
Some feeders who have logged in to Farmers Forums may want to dismiss these observations.
But instead of shooting the messenger, as many have done so loudly before, they might want to consider that all they are doing is shooting themselves in the foot.
(Robert Forster is a former chief executive of the National Beef Association and is the publisher of the influential weekly trade magazine, Beef Industry News – see www.rforster.com)
Slaughter cattle prices were depressed over 2015 even though both production and imports, each of them critical contributors to overall supplies, were down as well.
This contradiction, which furrowed many brows, continues still and one of the reactions at finisher level has been to accuse processors of conducting a determined, short sighted, unnecessary, and greedy attack on slaughter cattle values.
There is however another explanation. It may have less appeal, because it can relieve frustration to spit at cattle buyers who whatever the circumstances never pay enough money, but it is infinitely more chilling.
This is because at the same time as prime cattle prices struggle (forget the current mini-revival because they will tumble again as soon as more cattle and cull cows begin to move onto the late summer market) the biggest supermarkets are selling less beef.
During January-March fresh sales at both Tesco and Sainsburys fell by a massive 1,200 to 1,800 tonnes compared with the same three months last year and, not by coincidence, sales through the discounters, Aldi and Lidl, picked up by almost exactly the same amount at the same time.
These developments are connected and explain that on-going, and unwelcome, pressure on prime cattle prices is not the result of processors being greedy but because their incomes are under huge strain too.
They are not keen to pay as little as possible for cattle, or demand that more are delivered to tight specification, out of awkwardness or avarice, or as is often alleged by people who log into Farmers Forum, “just because they can” - but because both they and beef retailing are under pressure.
Aldi and Lidl, backed by their more cost efficient business models, have their hands around Tesco’s, Asda’s, Sainsbury’s and Morrison’s throats and the will not let go.
Aldi’s management is on record as saying that they will always sell food for five per cent less than Tesco – even if Tesco reduces its prices by five per cent as well.
For all food producers, not just beef farmers and processors, the implications of this are disturbing because if food retailers are committed to the most savage price war for decades none of them will be volunteering to sell beef for more money – and so the squeeze on their supply chains, on both producers and processors, which is already immense will tighten further.
It might help to think of pythons or boa-constrictors because anything that gets caught in their coils finds it difficult to breathe.
The symptoms at farm level are not just disappointing prime cattle prices but tougher demands on carcase specification too.
Resistance to the latter is a subject on its own and it is strange that there is only partial acceptance that beef farmers, like everyone else who offers a product for sale, need to turn out the most finely tuned retail product they can.
Indeed even though retail demands are changing some finishers who turn out typical commercial cattle are still insisting that they should not have to adapt.
They have argued, are still arguing, and will probably continue to argue, against these changes but when just ten retailers account for at least 85 per cent of fresh beef sales, and some are struggling to keep their own heads above water, it makes sense to listen to what they say.
This transformation, which includes tougher demands for high specification cattle, has been brewing for some time.
Fifteen years ago a front running abattoir (incidentally no longer in business) told me that more than 30 per cent of cattle in a typical delivery were either too big, too fat, too little, too thin, or too old and it lost a lot of money because their beef had to be sold through the secondary wholesale market where it was heavily discounted by caterers.
The catalyst for a universal tightening of spec demands change was the horsemeat scandal in January 2013.
Suddenly origin and provenance were top of the agenda and because Tesco, Aldi, Asda and many others did not want to be discovered selling any more horsemeat they toughened up their supply lines and during this re-arrangement period commercial cattle average jumped to just short of 400p.
It was a watershed moment. It underlined the value of UK origin cattle backed by the Red Tractor.
But it also confirmed that retailers were either unable, or unwilling, to persuade consumers to pay more for high provenance UK beef.
They would not, or could not, pay processors enough to cover the 400p purchase price – and for a time the latter lost disturbing amounts of money. (This is correct)
Processors were also told by retailers, who were desperate to sell as much beef as possible, they must deliver only medium sized cuts that could be sold at attractive, mid-range prices.
And it is as obvious as the nose on a face that properly cut, medium cost, medium sized, steaks and roasts can only be taken off medium sized cattle.
By autumn 2013 processors began to react to their losses by cutting back on their waste, which means not buying cattle they did not want, and so by April 2014 (two years ago) the outlines for supermarket spec had been established.
Everyone knows what they are. UK origin, Red Tractor qualified, UTM, 280-380 kg, R3/4L or better and no more than four owners.
Before more readers blow their gaskets it is important to take another look at the retail market because on-going economic depression, and the soaring success of discounters like Aldi and Lidl, has revolutionised it in other ways.
It is accepted that Tesco’s previously successful one-stop-shop model has been overtaken and because more consumers have abandoned loyalty, shop around, and check prices at a number of other stores there is even greater competition to pull them in.
This includes selling better quality beef for less money- so until beef from the UK and the Republic of Ireland is exported to high paying, non-EU, markets like China, South Korea, Japan and the United States it is unlikely British farmers will be able to earn anything like 400p from finished cattle again.
Which means that in the interim those supplying commercial markets should be concentrating on producing what their customers want by delivering to spec so they avoid ever increasing penalties and earn the maximum available amount of money.
There are other responses to lower incomes like improving production efficiency by raising cow fertility, a more organised approach to feeding, and better soil and grass management – but each of them is another subject.
Be in no doubt that supermarket spec will dominate the market for some time yet.
So breeding, rearing and feeding needs to be tailored to turning out cattle that can be slaughtered at 24 months old weighing no more than 380kg.
Some beef specialists are already saying 16 months and 360 kg maximum might be better – and it would be wrong to think these demands are outlandish.
By the beginning of July companies as diverse as Dawn and Scotbeef will be penalising carcases that are 400kg or more and by the end of the year they, and other companies, will be drawing the line at 380kg.
There is other evidence that more processors are already buying to meet increasingly specific retail orders.
Tesco, which is keen to sell the most attractive beef it can get its hands on, will not be using bull beef in its medium and top tier price ranges so from January its supplier (2 Sisters) will not be handling young bulls – although it will pay 10p above base for beef cross steers and heifers.
There are other carrots. It is not all stick. ABP (which supplies Asda, Aldi and Sainsburys) has been paying 10p-20p above base for heifers for some time - partly because heifers are more likely to hit the weight spec and they are likely to be younger too.
And it, and other companies, already pay 5p-10p more for under 24 month cattle too.
Each of these developments clearly signals the way the market is moving and it would not be wise for them to be ignored.
There can be no doubt that meeting the new weight maximums will be the hardest to adjust to. A lot has been said, or shouted, about the four owner limit but less than three per cent of slaughter cattle fail to hit that target.
In contrast 30 per cent of carcases handled last year topped 380kg and 17 per cent were plus 400kg.
The figures for steers were worse at 40 per cent over 380kg and 25 per cent over 400kg.
The average steer carcase weight last year was 373 kg and it has only dropped by 1kg so far this year.
So it will have to drop further.
Breeders can help store cattle buyers accommodate supermarket spec by breeding and presenting more, well grown, calves that can be finished at a younger age.
They can also dig in and lift their margins by increasing fertility, narrowing calving indices, and producing more calves each year from the same number of cows.
But the big thing is to remember that no business has ever succeeded by forcing customers to buy something they did not want.
Farmers growing milling wheat have to meet Hagberg requirements, dairy farmers must get below maximum TBC.
So beef farmers should not be surprised that cattle aimed at British markets have, to meet a production spec too.
That is not all. More organised demands for better quality, better eating, beef are expected as well.
This means cuts taken from carcases that are not just young but well marbled and delivering beef that is guaranteed to be tender, juicy and tasty too.
This should lead to carcases being paid, or penalised, on marbling scores and shear test results
And surely signals the abandonment of the EUROP grid which is already outdated and should long ago have been replaced by VIA scan payments based on the actual retail value of an individual carcase.
It is accepted that there can be £100 difference in value between R4Ls of the same carcase weight if the relative weight of the striploin and other high priced parts of the carcase are taken into account.
Which surely means that finishers complaining about price, or delivering to spec without there being an obvious reward, should be putting their weight behind the emergence of a payment system which pulls in more good cattle by rewarding breeders and feeders who turn out carcases that not just attract the most money but encourage consumption too.
They should not be wasting their time or energy by fighting a doomed rear guard battle based on delivering cattle the same way they have always been delivered and not taking any account of advances in consumer expectations and important shifts in retail demand.
# It is also worth noting that it is McDonalds, not supermarkets or processors, which drives the maximum four movement/owner rule.
Its installation by many processors is the result of insistence by McDonalds since 1997 that the burger mince it buys is taken exclusively from cattle that can be directly traced and have moved through the shortest possible supply chain.
Unlike supermarkets who may rely on just one company (Morrisons/ Woodhead Bros or Waitrose/Dovecote Park) for their beef and rarely have more than two suppliers, McDonalds orders beef from 28 different processing sites in the UK and the Republic of Ireland.
Its UK supplier is Scunthorpe based OSI which delivers almost 50,000 tonnes of burger mince each year with portions taken from around 450,000 head of cattle.
It is this wide spread, the equivalent of 20-23 per cent of the UK’s annual prime cattle throughput, that makes McDonalds demand for a maximum of four owners so difficult for processors to avoid.
Its dominance, and ability to insist that it gets what it wants, is underlined because most of the processors who specialise in supplying supermarkets have to balance their carcase sales by selling flank and forequarter beef to OSI - and so must focus on cattle which have moved through less than four businesses even though their major retail customer, or customers, may not be so demanding.
McDonalds is undoubtedly a fussy purchaser. Its determination to avoid being implicated in a scandal like the horsemeat crisis means it will not take prime cattle sold through an auction market either.
Its procurement philosophy hinges on insistence that the supply chain must be as short as possible and that it has direct relations with its selected, and carefully monitored, suppliers.
So careful concentration by processors on the four movement/owner rule is not therefore a ruse plucked out of the air to help them drive farmers mad, or drive prime cattle prices down – as some finishers and some farm representatives continue to allege.
But an important safeguard of their ability to sell large quantities of flank and forequarter beef to McDonalds each week - without which the overall value of the cattle they buy could be further undermined.
It is being said that auction markets can overcome buyer reluctance to bid for store cattle without knowing their movement history by asking vendors to voluntarily declare the number of moves/owners – and signalling these from a dedicated ringside display which plays no part in confirming the conditions of sale.
Some feeders who have logged in to Farmers Forums may want to dismiss these observations.
But instead of shooting the messenger, as many have done so loudly before, they might want to consider that all they are doing is shooting themselves in the foot.
(Robert Forster is a former chief executive of the National Beef Association and is the publisher of the influential weekly trade magazine, Beef Industry News – see www.rforster.com)
