Press Release - Surge in retail sales income should mean more security for beef + notes

Surge in retail sales income should mean more security for beef sector.

Higher retail prices could be the salvation of the beef industry and British consumers, who are spending millions more pounds on cuts each month - even though they are buying slightly less in product weight terms - are showing how the sector can move forward.

So says the National Beef Association which is worried that retailers and processors, but particularly processors, have still to pick up the message that tighter supplies are generating more overall income because shoppers are currently spending 15 per cent more on the beef they take home than they did a year ago.

“The evidence is there to see. Survey figures show that in the three months up to October 5th a 15 per cent cross the board lift in beef prices provoked an eight per cent rise in gross retail sales income to £371.4 million compared with the same period in 2007 despite there being a six per cent drop in sales volume,” explained NBA director, Kim Haywood.

“More recently the massive 29 per cent year on year rise in the value of mince that was confirmed in the three months up to November 2nd has helped to maintain the 15 per cent year on year jump in retail beef prices while overall sales volumes fell by only two per cent.”

“All of which means that retailers are taking significantly more money, despite selling slightly less in volume terms, and there is every justification for further rises in slaughter cattle prices so that more farmers can cover their costs as beef supplies, both home produced and imported, continue to tighten.”

And the NBA would like beef industry strategists to focus more attention on the predictive information put before them only 18 months ago by Eblex which forecast that a substantial rise in retail beef prices would generate more income for everyone in the sector because inelastic demand for basic beef cuts (stewing beef, grilling steaks, mince and burgers) meant consumers
would not turn their back on the product if it cost them more.

“It is now clear that because beef is significantly more expensive in the shops more businesses, retailers, processors and producers included, have a better chance of moving into long term profit – as long as the surge in retail income is passed back and everyone in the supply chain has a share,” said Ms Haywood.

“The lift in the price of beef could create a win/win situation for everyone who handles it and if processors give up their attempts to reduce incomes earned by farmers by sitting hard on slaughter cattle prices, and make more effort to pull more money back from their own customers, then the cash flowing in from new consumer spending can be used to ensure that whatever else happens supplies of home-produced beef will continue to come forward.”

For more information contact:

Kim Haywood, NBA director.    Tel 0131 336 1754

Note.  Eblex published its paper “An analysis of Retail Meat Demand” on June 1st 2007

    Briefing on Eblex analysis on the price elasticity of beef.

      Earlier today the English Beef and Lamb Executive published a paper, “An Analysis of Retail Meat Demand, which carries a number of important, and positive, messages for beef farmers in all parts of the UK.

  It shows that contrary to wide held belief increasing the price paid to prime cattle finishers would have little impact on consumer purchases of most beef cuts.

  It also confirms there is clear evidence that English consumers do prefer English or other home produced beef above Irish, South American and other imports.

  And concludes, using beef mince as an example, that increasing the farm gate price by ten per cent would lead to a 5.9 per cent increase in the retail price but with only a corresponding 1.7 per cent drop in sales.

  In other words that a rise in retail price would give both farmers and retailers more money.

Basic supply information.

   Britain is around 70 per cent self sufficient in beef. Total domestic supplies are in deficit all year with supplies being lightest in April and July and heaviest between October and February.

  Steaks are in greatest deficit between May and August – and steak imports are heaviest in this period.

  There is a heavy 45,000 tonne deficit in mince in January. Mince is in deficit in all other months too with the lightest shortfall in July.

   Nor is there ever a domestic surplus of roasting joints.

  There is a slight surplus of stewing beef in summer and other cuts, flank and brisket for example, can be in slight surplus between October and April.

  Conclusion:  Imports are needed, in greater or lesser volumes, at particular times of the year.

 However there has to be a great suspicion that imports are being ordered not as tactical/strategic top ups at specific times of the year – but as a means of depressing the price of UK beef in general.

 
Consumer preferences.

    There is differentiation on the GB market between imported beef and domestic beef. This is confirmed by, and encouraged through, beef labeling.

    TNS (Taylor Nelson Soffres) surveys confirm that compared with 2003 the average retail price of English beef was 14 per cent higher over 2006, home produced ( that is the description on the label) was six per cent higher, Scottish 3-4 per cent lower, and Irish beef was four per cent higher.

  This means English labeled beef had enjoyed the most improved price.

  Question:  Why are some multiples, or their processor suppliers (particularly ABP and other Anglo-Irish operations), importing so much beef when it is clear there is a preference for home produced beef –  for example English beef in England which can be sold for a higher price?

Investigations into Price Elasticity of Demand (PED).

    The average all-beef PED is 1.5.  However the PED for home produced beef is 1.2, the PED for English beef is 0.9, the PED for Irish beef is 2 and the PED for other imports is slightly higher than the Irish PED at 2.1.

 A low PED means that the price is inelastic – a price rise does not provoke a disproportionate fall in consumption.

 A high PED means the opposite – a price rise will provoke a disproportionate fall in consumption.

  Conclusion: If consumers are differentiating beef by country of origin, and English beef has an inelastic price, why is it being undersold by retailers and why are they not increasing their income, and their volumes by selling more English beef at the expense of imports?

  Another question – why do UK multiples reject the maxim that price is for sanity and volumes are for vanity? Current tactics mean they are actually rejecting opportunities to increase their income.

It is also worth noting that, according to TNS, Irish beef has a much lower brand integrity than many marketing specialists believe - it is therefore an overvalued product. 
 
 Only 17 per cent of consumers in the TNS survey recognized Irish beef compared with 68 per cent for English.

Investigations into the PED of specific beef cuts.

  Roasting joints are price elastic – a rise in price provokes a disproportionate fall in volumes purchase and overall takings are reduced.

  However stewing beef, frying/grilling steaks, mince and burgers are inelastic – prices could be pushed upwards and increase overall takings as a result of there not being a proportionate drop in volumes sold.

   Conclusion – all beef cuts besides roasting joints are undersold and could take a price rise without reducing overall retail income.

Potential for price rises without disproportionate sales loss.

  It is accepted that a ten per cent rise in the price of prime cattle would result in a 4.8 per cent rise at retail level. (Current GB average for R4l steers is 206p so in this example it could rise to 226p)

 PED calculations from TNS suggest that:

#    A ten per cent rise in the farm gate price could be achieved if there was a 3.2 per cent rise in the retail price of stewing steak (1.3 per cent drop in consumption), 3.8 per cent rise in steak prices (2.7 per cent consumption drop) and a 5.9 per cent rise in mince (1.7 per cent consumption drop.)

#   Roast prices would have to go up by six per cent too and in this instance there would be a 16.1 per cent fall in consumption. (This suggests it would be a mistake to raise the price of roasting joints.)

 Conclusion:  If retailers introduced modest rises in the price of steak, stewing steak and mince (especially mince) they could make more money. If mince prices rose by 5.9 per cent across the board overall retail income would increase by £18.4 million.

Question:  Why are retailers not doing this already?  Possible answer – they are only using red meat to reinforce the concept of one stop shopping and to increase foot fall in front of other commodities.

Second conclusion:  Beef is undervalued and undersold and multiple retailers have not spotted this.

Eblex action so far.  

  Eblex has briefed its own Board, NBA, NFU and NSA. It also briefed the agricultural and meat trade press under a strict June 1st embargo.

  It will also send the information to individual retailers to study.

 Its messages include:

#  There is a need for supermarkets to take a fresh look at retail prices because they are missing out on a chance to increase their own revenues while at the same time being too heavy on farmers and jeopardising future prime cattle supplies.

#   If they focussed on price rises for some cuts they could raise the value of a beef carcase and make their own contribution to the sustainability (economic and environmental) of UK agriculture.

#   Raising the retail price of beef creates a win/win situation for retailers, processors and farmers as well as protecting the multiples own ability to maintain supplies of the first choice beef (English in England) that their customers prefer.

Other messages include:

#  There is no reason for government to believe that cutting back on home beef production reduces carbon footprints because wherever the beef comes from the carbon footprint created by the consumers purchasing a beef cut remains the same.

#  If retailers slightly reduce the pack weight they could sell at the same price while still introducing a retail price rise that could add ten per cent to the value of a prime beef animal.

#    Are supermarket shareholders aware that the multiples are not maximising their profit from beef – ie they are earning less margin per sq foot of shelf space than they should be?

#   This analysis shows that supermarkets are out of touch with their customers and are missing a trick by not giving them more of what they want at a price that will help to ensure that the supply of their first choice purchase is more likely to be assured.

National Beef Association
June 1st 2007