By Vicky Houchin
THE slump in finished lamb prices has left many farmers asking why the retail lamb price remains unchanged while farm returns are falling.
Farm-gate prices for finished lamb at livestock markets last week fell to 75.6p/kg, down 34% on last year. But average supermarket prices now stand at £4.58/kg, a mark-up of £3.82/kg on the price paid to farmers.
At least three reasons were given for the difference between farm-gate returns and retail prices in a report prepared earlier this year, by London Economics, for Tesco.
Consultants found one major factor was the increased cost incurred by non-farming members of the supply chain. They also identified a change in the mix of cuts being sold at the retail level. Third, the report mentioned increases in profits made by the non-farming members of the supply chain.
The report said significant value is added to the live animal before it gets on the supermarket shelf. This includes all costs incurred in slaughter and boning of the animal, rendering and disposal of animal waste products, and weight loss due to cutting and retail costs.
“There is no reason why any of these costs should fall if farm-gate prices drop,” said the report.
“An animal costs the same to slaughter and bone whatever the price, while rendering and disposal of waste doesnt change. In addition, it costs the same to run a supermarket regardless of the underlying cost of raw materials that end up on the shelf.”
The report stated that operators at almost every level of the chain are highly competitive, low-margin businesses. Falling long-term demand for red meat is squeezing those margins and increasing the pressure for rationalisation.
“Retailers are among those making low profits and Tescos own management accounts indicate that losses were made on beef and lamb even before the BSE crisis.”
But with farm-gate prices falling by the week and producers margins being squeezed to minimal if not non-existent, many farmers will be wondering who is profiting from their losses.
Thousands of farmers are expected to lobby delegates arriving to the Labour Party conference in Blackpool next Sunday, in an attempt to persuade the Government to help their ailing industry.
- Market prices, updated hourly (subscribers only)
- Market prices, updated weekly (other viewers)
- Finished lamb trends, updated weekly
- Supermarkets attack OFT profit probe, FWi, 14 September, 1998
- OFT inquiry into supermarkets will ignore suppliers, FWi, 12 August, 1998
- Supermarkets to face OFT profits probe, FWi, 30 July, 1998