Renderers blamed in beef price controversy

03 July 1998

Renderers blamed in beef price controversy

By Johann Tasker

FARMERS who say supermarkets are making money out of plummeting beef prices may be barking up the wrong tree: It is renderers, rather than retailers, who are largely to blame for the widening gap between farmgate and retail prices, according to an independent report released late yesterday (Thursday).

“There is no evidence of excess profits at the retail level,” says an advance copy of the report obtained by Farmers Weekly and FWi. “Retail margins on beef sales before the BSE crisis were less than the average for the grocery sector, and remain tight or even negative.”

The report, prepared for Tesco by consultants London Economics, clears the supermarket of profiteering from plummeting beef prices. Consultants were granted access to Tescos management accounts and held discussions with the NFU and the Livestock Auctioneers Association before reaching their conclusions.

“Farmers have complained that the average fall in retail prices has been much less than the fall in farm gate prices,” the report says.

But the increased producer-retailer price gap in the wake of BSE can be accounted for by increased post-production costs and BSE-related regulations, rather than supermarket profiteering, the report reveals.

The reports authors calculated that farm gate beef prices have dropped by almost 54p/kg deadweight in the past two years. During the same period, retail prices have fallen by less than 31p/kg. As a result, the gap between producer and retail prices has grown by 23p/kg.

Post-BSE regulations imposed on abattoirs, processors and retailers increased post-production costs by 27p/kg which means supermarket returns dropped by 4p/kg. Tesco and other supermarkets coped by restocking shelves with alternative products following the fall in demand for beef. But farmers, auctions and abattoirs were unable to offset losses to the same degree and were hit by both lower prices and lower demand.

“Everyone bar the renderers suffered,” the report says. “Margins were squeezed further and pressures for rationalisation increased.”

The rendering industry was protected by its monopolistic structure, the report claims. The two biggest renderers used their dominant market position to pass on cost increases, despite receiving about £150 million in Government compensation to the cost of abiding by BSE-related regulations and the loss of their by-product market.

“Our supply chain analysis showed little scope outside the rendering sector for raising prices,” the report says. However it concedes that there is no evidence of excess profits either by retailers or by any other part of the supply chain.

“The least competitive part of the chain – the rendering sector – continued to make high profits, but evidence suggests that these had not increased following the BSE crisis,” the report concludes.