6 October 2011

5 minute read

Europe

The reduced supply of beef in the British Isles has been well documented over the course of the year. In ROI cattle supplies were particularly tight in the first half of the year, with NI supplies tightening from April onwards.

It is expected that GB supplies will be coming under more pressure as the year progresses.

The potential for reduced supply to deliver an increase in price will only be realised however if the demand conditions are right and while beef supplies have been under pressure, retail beef demand has remained robust in GB with sales of beef significantly higher than previous year levels.

The increase in demand for beef over the 12 weeks ending 4 September was impressive. The latest Kantar Worldpanel data shows that in that period, sales of beef were seven per cent higher than in the same period last year.

However, this increase in sales came despite a two per cent increase in retail beef prices relative to the same period in 2010 (see Figure 1).

As far as beef cuts were concerned during the summer, the standout performer was stewing beef. Stewing sales increased by 19 per cent year on year, with frying / grilling sales up by eight per cent.

Mince sales increased by six per cent, with roasting sales, which were generally under pressure in recent years, up by five per cent compared to the same period last year.

In August it was roasting, frying and grilling which drove the increased sales of beef with reports of increased promotional activity for these higher value cuts. The Kantar data shows that consumers became more likely to buy beef on a visit to the shop and those that purchased beef were buying more of it.

Almost 53 per cent of consumers purchased beef on their shopping trips during the summer. This figure was four per cent higher than in the same period last year. The average weight per purchase during the summer was 1.5kg, three per cent more than last year.

Greater demand despite higher prices

Higher retail prices would generally have a dampening impact on beef demand, so an increase in sales, despite rising prices ought to be seen as a positive phenomenon.

While price is one factor that affects beef demand, there are a range of other factors, including income, consumer confidence, population issues, the weather and the price of substitute proteins that can cause changes in overall beef demand.

Rising demand despite higher prices would indicate that some of these other factors are at play, helping to create the conditions for stronger demand.

Beef is certainly an income sensitive product and the industry is rightly concerned about the prospects of a double dip recession and its impact on the beef trade. But if consumer confidence has been impacted by the recent bad news emanating from international economic agencies, it is not coming through in the demand statistics from Kantar.

One of the positives about the poor summer of 2011 has been an improvement in demand for beef. While a barbecue summer might drive demand for higher value cuts, it was demand for stewing that was strong during the cool weather which was a feature of this summer.

Price of alternative products

The strong performance of the retail beef trade may also have been driven to some degree by changes in the competitive environment. Pork and chicken are recognised as two cheaper alternatives to beef and many consumers were reported to have been switching to cheaper proteins during the recession in 2008/09.

Lamb is another more expensive alternative. Over the last year however, it has been reported that the chicken sector has managed to secure retail price increases and the price of fresh chicken was around eight per cent higher in August / September 2011, compared to the same period last year.

In the four weeks ending 4 September, the retail pork price was five per cent higher than previous year levels (last year pork was more heavily promoted). Over that same period retail beef prices were up by a more modest two per cent.

This relative improvement in the market position of beef relative to alternative products may have caused some producers to change their shopping behaviour, particularly earlier in the year when chicken prices rose sharply. The beef sector has probably benefitted from these developments to some extent. The rising retail price of lamb may also have led to some switching from lamb to beef.

Retail prices relatively subdued

The relative stagnation in the retail beef price, is in stark contrast to the developments in farmgate prices in 2011. In the last week of September 2011, the average cattle price (all categories) was 23 per cent higher than previous year levels.

In comparison the retail beef price was only two per cent higher in August / September.

With rising input costs, farmers have required farmgate price increases in 2011. Producers are clearly taking a greater share of the retail price and given that the consumer is not absorbing the higher farmgate prices, it is likely that processor margins on their retail business may have been impacted as a result of these developments.

However, this will probably have been offset to an extent by ongoing developments in export markets and in the market for the fifth quarter with trade in these areas reportedly strong.

However, some beef processors may be looking enviously at the poultry sector where there were strong increases in retail chicken prices earlier in the year.

Greater expenditure on beef

The current retail beef situation is broadly positive and is in contrast to the situation back in 2009 when the trade came under significant pressure due to general economic concerns and stronger retail beef prices.

According to Kantar, beef expenditure in the 12 weeks ending 4 September 2011 was 10 per cent greater than in the same period in 2011 (see Figure 2 ).

The fact that volume sales have risen in an environment where retail price has increased is an added bonus which reflects the relatively healthy state of the trade at retail level.

Given what has happened farmgate prices over the last year however, there has to be some prospect of further increases in retail prices and the potential impact of these are difficult to gauge.

However, it is clear that demand is impacted by a whole host of factors beyond price, and developments in the wider economy, the weather and in the chicken, pork and lamb markets will combine to determine the performance of the retail beef trade in the future.

TheCattleSite News Desk