10 July 1998

Profit squeeze puts abattoirs in danger

By Philip Clarke

ABATTOIR closures are expected to gather pace in the coming months as the squeeze on profits reaches crisis point.

"The greatest pressure in the short term will be felt by the medium-sized unit which not only faces rising costs, but whose customer base is disappearing most quickly," says the Meat and Livestock Commission in a new report on the future of the UK meat industry, launched at the Royal Show. "As supermarkets seek to secure their supply chains, they are streamlining the supply base, dropping the smaller, secondary suppliers."

Other difficulties facing the sector include the removal of support for renderers and increasingly strict hygiene and specific risk material (SRM) controls.

"Without the return of the beef export market and with reduced intervention, market opportunities for beef will be limited," adds the report. "And even with some fall in the £s value, imports are likely to continue to provide a threat to all sectors."

But the greatest problem blighting the abattoir sector is overcapacity. "As plants have upgraded to meet new hygiene requirements, the investment has resulted in an increase in industry capacity. The desire to maintain throughput to spread fixed costs has led to a highly competitive market for stock."

A study by the MLC in 1992/93 put overcapacity at 42%, raised two years later to 45%. But efforts then to initiate a voluntary rationalisation scheme failed and current estimates put overcapacity for prime cattle and sheep at over 50%.

Faced with this problem, the abattoir sector has little bargaining power with the supermarkets, says the MLC, a situation which is expected to get worse.

The report predicts a 25% increase in the number of superstores between 1995 and 2000, and a continued slump in the number of high street butchers. "These large supermarket chains will continue to increase in importance in the period to 2006 and they can be expected to increase their market power in relation to suppliers."

Against this background the number of abattoirs is expected to fall from about 450 to just 250 by 2005, dominated by a top tier of 15- 20 large, well integrated operators serving the European market.