24 October 1997

Money spent on stores may not be recouped next spring

By Philip Clarke

BEEF finishers are paying too much for calves and store animals, with prices next spring unlikely to justify money spent now.

Speaking at last weeks Agra Europe Meat 97 conference in London, MAFF head of beef and sheep, Richard Cowan, predicted a repeat of this years performance, when finished cattle prices slumped below 90p/kg lw in May.

In part, that was due to currency, with the strength of sterling lowering the value of EU support, he said. But it was also due to the effects of the deseasonalisation premium in Ireland, (it pays additional beef premium for delaying slaughterings in the autumn), which had led to a glut of cattle looking for a market in the spring. The stronger £ had also led to more imports from Germany and Holland.

"I think we will see a repeat performance next year, with prices weakening in the spring," said Mr Cowan. Despite a shortage of beef in the UK (due to the various BSE-related schemes), there would still be plenty of beef on the Continent. Supplies that could not be exported to the world markets (due to GATT limits) would find its way to the UK.

As such he was worried by the amounts currently being paid for stores and calves, though he acknowledged that the market, to some extent, was being underpinned by the calf processing scheme.

His advice was that finished cattle prices would continue to weaken and that 85p/kg was the more likely rate in the longer term, as Brussels pressed on with CAP reform.

The need for this reform was spelt out by commission beef chief, Prosper de Winne. The GATT agreement was limiting the amount of beef the EU could export, while the BSE crisis had led to a fall in consumption which was still 7.5% down.

Gradually recovering

With the EU beef herd now contracting, and with demand gradually recovering, he predicted the market would be back in balance by 2001, giving the commission an opportunity to clear intervention stocks. But, thereafter, market imbalance would return, with reform of support policy essential.

Mr de Winne said proposals would soon be tabled in Brussels, based around the 30% cut in intervention price and the commensurate increase in headage payments set out in Agenda 2000. "Thiswill allow the EU to become more aggressive on price and allow us to go for new markets without depending on subsidies."

The big problem was how to distribute the enhanced beef premiums. "This dominates every discussion we have on Agenda 2000 in Brussels," said Mr de Winne.

German delegate, Bernhard Schlindwein said that beef producers in his country had already been hit by the 1992 reforms, which disadvantaged intensive finishing systems. Mr Cowan endorsed this view, pointing out that less than 50% of beef animals got any subsidy in Holland, Germany and Spain. Any increase in payments based on the current allocations would make the situation worse.

Mr Cowans was also concerned that, with about half UK farmers only claiming one premium on their steers, if more of their income was to come from direct payments, they would hold onto them for longer, raising the spectre of increased weights and overfat carcasses. But generally the UK government was supportive of CAP reform. Maintaining the status quo would only lead to bigger surpluses, with intervention physically and financially unable to cope with the unwanted beef.

The 30% cut in intervention support prices proposed should possibly go further, he added, and any compensation through higher headage payments should be "time limited and transitional".