Is Increasing Beef Retail Prices the Solution to Falling Producer Prices?

The recent drop in finished cattle prices is causing understandable alarm.

The cause appears to be too much supply and not enough demand, as spring calved stock and more dairy bull beef arrive on the market yet beef consumption remains sluggish and exports less strong. Indeed the National Beef Association has recommended that farmers stagger supplies to avoid a spring peak.

Pressure on producer prices regularly ignites calls for retail prices to rise and the additional revenue shared across the supply chain, because, says conventional wisdom, beef consumption is inelastic, meaning that increased prices will have little effect on volumes.

But is the conventional wisdom true?

In 2007 Eblex modelled the effect of a 10% increase in the price paid to producers on the volume of each cut of meat. Adjusting for slippage as prices work through the supply chain, this meant an average increase of 5% at retail, and the findings by cut were as follows.

A 3.2% rise in the price of stewing steak resulted in a volume decline of 1.3%. A 5.9% rise on mince led to a volume drop of 1.7%, a 3.8% rise in the price of steak led to a drop of 2.7%, and a rise of 6% on top quality roasting joints led to a volume drop of 16.1%.

Real figures from the market place confirm that price rises lead to volume declines. In 2008 at the height of retail price inflation what was then TNS Worldpanel (now Kantar) recorded that average beef prices went up by 11% and volumes dropped by 3%. Shoppers shunned the more expensive cuts like steak and roasts in favour of mince and stewing steak, yet this behaviour change could not prevent beef market volumes from declining.

In the 12 months to April 2010 prices were up 2% on the previous year, and volumes were flat. There has been a slight pick up in the last twelve weeks but all the evidence seems to indicate that beef sales are respond to price changes.

Some have suggested that the price of mince should rise, but this needs to be handled with care.

Mince is the cheapest entry point to beef. It is versatile, quick and convenient, and acts as a regular reminder of beef’s excellent taste and nutritional values. Over aggressive pricing risks people dropping out of the beef market completely, for they will not gravitate to other cuts, none of which deliver mince’s unique combination of price and convenience, but instead turn to alternative proteins, the obvious one being chicken.


I do not think that a market where volumes drop year after year does any player in the beef supply chain any favours. And whereas the declines might be just two or three percent in the short term, there is every chance that they will accelerate as consumers get out of the habit of buying beef, and retailers shrink the space devoted to it. This is happening on lamb right now where volumes are still dropping - down 4 % 2008 v 2007 and down a further 9% in the twelve months to April 2010.