Outlook 2019: Beef – plan for life after subsidies

The expected loss of direct support payments after Britain leaves the EU will be a major blow to the beef sector, so never has there been a better time for businesses to ensure they are financially robust enough to survive, says Andersons’ Ben Burton.

He believes ending area-based payments and switching support towards funding public goods will put real economic pressure on suckler cow systems in particular and may result in more beef coming from the dairy sector, perhaps using sexed semen.

Conversely, in Scotland there may be an element of income support (eg, continuing direct payments) and production support (such as the Scottish Beef Calf Scheme), providing some protection for suckler units, he says.

Price pressure

In the more immediate future, the long, cold winter of 2017/18 and subsequent drought have created forage challenges, prompting additional heifer and cow slaughtering, Mr Burton says.

“Finishers may ordinarily default to concentrates or alternative feeds. However, competition from AD plants and unfavourable concentrate prices may discourage throughput and encourage lower finishing weights.

“Consequent delayed fat deposition could enhance feed conversion efficiencies, while sacrificing fat class and confirmation potential. With intensive finishing margins eroding, it is difficult to perceive store prices holding.”

Equally, although finished prices remain historically strong, Mr Burton says further increases are unlikely. But much depends on the outcome of Brexit discussions, which at the time of writing, were ongoing.

Greater political certainty could strengthen the pound, making Irish beef more competitive and applying downward pressure on UK prices, he says. Conversely, difficulties passing Brexit legislation or a “no deal” Brexit may result in the opposite.

Producers need to be aware of longer-term policy and market trends to ensure their business can exploit future opportunities such as environmental support under the Agriculture Bill, new markets and retailer requirements.

Trade uncertainty

The UK remains reliant on imports, especially from Ireland, to meet a significant portion of consumer demand, so any trade agreement that adds cost to imported beef (for example, through tariffs or customs checks) could make imports less competitive, Mr Burton says.

“These political uncertainties may see displacement of traditional supply chains as domestic and foreign purchasers seek to secure product. However, significant domestic price improvements may be limited by exchange rate movements and/or substitution by other meats.”

Brexit could result in increases to imported input costs and possible disruption to supplies, or the supply chain, so contingency planning for key inputs may be prudent.

Regarding exports, nearly 90% of UK beef is EU-bound, and when the UK is outside the EU, the EU may be less motivated in resolving any meat trade issues, such as food scares, or regulation, Mr Burton says.

Longer term, if the UK pursues a cheap food policy through new trade deals, prices could fall. Particular threats include Brazil, Argentina, Australia and a developing hormone-free US beef sector.

Concerns about greenhouse gas emissions from meat production could see stricter controls in areas such as manure management, with retailers potentially going further with environmental audits, Mr Burton adds.

“While this may incur additional sector costs, it could differentiate British beef to maintain a price premium.”