Plummeting Farmgate Prices for Beef Cattle – Could This Have Been Foreseen?

The farmgate price paid for finished cattle has fallen from £3.85p a kilo in January to £3.55p a kilo at the end of April, and it is causing anxiety among beef producers.

EBLEX has traced the problem to reduced consumer demand, in turn caused by a rise in retail prices, and to a small rise in finished stock brought forward for sale.

It is worth digging a bit deeper. Why would major retailers want to put the price of beef up at a time when consumers are budget conscious and the likes of Aldi and Lidl with their low prices are stealing customers. Why not take advantage of plentiful supply and promote beef to raise sales and become more competitive?

This seemingly odd behaviour from retailers is likely to be part of a long term plan.

For months now, retailers have been watching the rise of the discounters and its effect on their own sales They will have noted in particular the disastrous decline in Morrisons sales, know that Morrisons have to do something radical to stem the decline, and will have been bracing themselves for a price war.

Price wars are expensive, and have a severe impact on profits. No one wins because all the retailers follow each other’s pricing policies, and engage in a futile race to the bottom. So they want to cushion the impact by building a war chest, and one way to do this is to stealthily raise prices where they can, pocketing the increased cash as an insurance against the evil day when the price war starting gun is fired.

The beef market is an ideal candidate for such a strategy. Valued at over £2billion pounds, the money raised from a retail price increase will far outweigh the loss in sales that might result.

Morrisons announced in March that they will be dropping prices, and now the promise has become a reality. One of the biggest price drops announced is on minced beef where a 500g pack will be reduced by 20%.

Mince is a staple, a “known value item”. It accounts for over half of beef sales. Other retailers will follow suit. Consumer demand will pick up. Unless stock available for sale increases dramatically, equilibrium should be restored, and farmgate prices should rise.

And there’s the rub. Beef farmgate pricing is at the mercy of supply and demand. If demand rises, and supply is constrained, prices rise – as they did to over £4.00 a kilo at the time of the horsegate scandal. A couple of years ago, when there was a surge of supply of dairy beef, farmgate prices fell.

We are told that rising world demand for meat means a bright future for farmers. One can only hope so. But there is no sign of accelerating demand yet. Meanwhile, British beef farmers will be at the mercy of short term factors. Some of these are predictable, and bodies such as EBLEX could support producers by being better in tune with market factors.

But there is no silver bullet, and planning beef production where the lead time from putting the bull out to selling the finished article is at least two years is uniquely tricky.