Size matters, livestock producers told

Beef, sheep and dairy producers need to increase production capacity or collaborate with neighbours if they are to capitalise on future market opportunities, according to a new report from Savills.

Spotlight on Livestock says the growing shortage of breeding animals is creating tighter markets, higher prices and new opportunities, but to have the marketing impact on supermarkets and other end-users, production has to be scaled up.

The report suggests the beef supply chain is particularly inefficient because of the amount of consolidation required.

More than 80% of farms have fewer than 50 head and even where the calves are finished, research indicates a gross margin for a 50-strong herd of only £2000 to £7000 before subsidy and fixed costs.

In contrast, Savills’ research suggests the largest 50% of sheep producers are likely to produce around twice the gross margin of the largest 50% of beef producers. Both beef and sheep sectors are likely to under-go further structural change as more grassland is targeted towards environmental management.

For the dairy sector, Savills says the fall in cow numbers and milk production provides new opportunities for producers who can secure the highest value contracts, operate large units with good access for collection and have a high level of technical expertise.

But producers are advised to reassess investment decisions in the wake of the current market downturn. “Care needs to be taken to avoid any kneejerk reaction as prices are likely to rise again. Any review needs to carefully consider the fundamentals.”

Opportunities exist for smaller-scale livestock producers where premiums can be obtained via direct retailing, although this often requires new skills and premises, the report adds.

There may also be some livestock opportunities in arable areas where animals have not previously been kept. In particular, intensive producers close to bioethanol or starch plants may be able to utilise the associated animal feed by-products.

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