Focus on Wales: Learning to Adapt
Published:  24 June, 2011

The Welsh red meat industry has undergone dramatic changes over the past two years.

Under the last Labour/Plaid Cymru coalition government, a host of measures were introduced by the Welsh Assembly to bolster an industry crippled by the aftermath of disease, high farmgate prices, poor profitability, sharp contractions in the national herds, loss in production and widespread closures of abattoirs. The new over-arching policy, the Strategic Action Plan was introduced in 2009, with the aim of revolutionising the industry and working towards a more sustainable future and a profitable rural economy. Two years on, and amid in a shifting political climate, how much has really changed?

Gwyn Howells, chief executive of industry body Hybu Cig Cymru (HCC) sees a clear stabilisation within the industry. “Over the past few years, there has been one a complete change of what we’ve known for the last five or 10 years,” he says. “With market signals and market prices being relatively robust over the past two years, we’ve seen the decline arrested, so things have evened out.”

Figures released by HCC demonstrate a growth in value of the red meat industry in Wales by £5m during 2010, while the number of livestock also increased in the same period. There was a modest 1% increase in the national flock and, despite an increase in adult sheep slaughterings, the 3% rise in the number of breeding ewes boosted not only this year’s lamb crop but also the national flock going forward.

The Welsh beef herd also saw a turnaround, growing by as much as 2% year-on-year. However, this is thought to be a relatively temporary rise, which increased slaughter numbers in 2011.

Howells is relatively cautious about the future: “Whether we see an increase is going to be highly debatable, because while market prices have been encouraging for farmers in particular, we’ve seen a huge and dramatic rise in the cost of production at the same time.“

Ed Bailey, president of NFU Cymru, agrees. “There has been an element of optimism, but I think when we work out the final figures, it probably won’t be quite as good as we hoped it would be,” he says.
As has been seen elsewhere in the UK, the pressure on production cost for Welsh farmers has come primarily from colossal year-on-year rises in the three ‘Fs’ — fuel, feed and forage /fertiliser. This has all but outstripped gains made from market prices. As Howells notes, “There is a question of the sustainability of production going forward if the escalation continues. Hopefully, it will even itself out.”

Near-drought conditions in some parts of Wales are not affecting the Welsh industry as much as the confirmed drought conditions in the south east, but as this is where much of the straw and grain originates from, Bailey fears for the additional costs this will put on livestock producers. “We feel there will be problems going into the latter half of the year. Straw and grain purchases are going to be terribly expensive and there will be shortages,” he explains, adding, “There needs to be some sort of resolution there as to quite how we’re going to do it.”

However, figures released in January show that a greater number of Welsh sheep farmers are managing to cover the cost of production — by 101% — taking them just over the threshold of profitability.   
Howells remains optimistic: “What farmers are concentrating on now is looking to see what the costs of production are and how they can make their unit and businesses more efficient by growing more of their own more crops, or finishing animals in a slightly different way. So people are already reacting to the challenges that the new environment is throwing up at them. I know that the supply chain in Wales, the processors, are also reacting to the new changes. We have to continually adapt.”

Supply and demand

Supply and demand in the Welsh red meat industry has also changed dramatically over the last few years. Howells says: “Supplies have got tight – not only in Wales or the UK but worldwide – in both the beef and sheep meat sector – and that has driven a huge change in the supply chain and consumer end of the supply chain in terms of demand as well.

“There has been a shift in UK market to different, cheaper cuts – mince is selling well and also forequarters. Beef on the whole as a category has remained fairly constant, with even a small increase in demand. Sheep meat has been more challenging in that it is an expensive protein now to the consumer, so we’ve seen a shift in the buying patterns of lamb. Obviously the industry has to cope with those shifts in behaviour, and supply what the consumer actually demands.”

The rocketing price of lamb over the last few months has certainly caused concern in some quarters, with catering butchers and foodservice apparently unwilling to pay the high prices. In addition, the unseasonably good spring weather saw barbecues take over the traditional role of lamb at Easter, and sales slumped. William Lloyd Williams, who owns a small independent abattoir and butcher in Montgomeryshire, has noticed a decline in demand: “We’ve seen the cost of the product go up, especially lamb. People have been erring more towards pork and chicken, because of the price of lamb and beef, so we’ve see significant rises in the pork and chicken as well in the last two three weeks. Hotels have taken lamb off the menu and that means that there is less throughput in some abattoirs.”


However, despite sluggishness in the UK for all lamb sales, the export market for Welsh lamb and beef has proved very buoyant, with the strength of the brand remaining very high.

The total volume of lamb exported from Wales in 2010 was 31,200t, valued at £111.7m, with beef volumes coming in at 11,700t in 2010, and worth £35.3m.

“What we have seen over the last two years and what we’re still seeing is a very robust export market, which is driving the market price and making sure that the carcase balance from the UK market is easier to deal with,” says Howells. “We’ve seen growth in exports year-on-year for the last few years, largely driven by the favourable exchange rate between the euro and the British pound. What we’re seeing now is another driver in play – the scarcity of supply in any given market. Global supplies are very tight, so the main players such as New Zealand and Australia are very tight on the lamb front.”

France remains the largest export market for Welsh lamb, worth £78.4m in 2010. However, despite the demand for premium quality products on the French market, there are some big challenges. “The economy has been struggling and that has come through in some of the consumption data,” explains Howells. “There are other markets in Europe that have really steaming ahead as well, particularly the Benelux countries and Germany, where we’ve invested a lot of resources in developing markets for our products. Now we are reaping the rewards in those markets, they have gone from strength to strength, which is very encouraging.”

There are also increasing export opportunities outside Europe. Sales to Hong Kong rose 35% during 2010 to £620,000, with the value of exports to Singapore increasing by more than 80%. In May this year, a delegation of Chinese officials visited Wales at the invitation of the First Minister Carwyn Jones, opening up the possibility of export to that holy grail of markets.

According to Howells, there would be additional benefits in terms of carcase utilisation. “Our market research, independent of the visit, shows that there are tremendous opportunities out there, not only for lamb cuts but also for the lamb fifth-quarter, where they pay very reasonable prices for parts of the lamb that we wouldn’t necessary value as highly. So there’s a synergy there.”

Meat inspection

Even with these potential gains in the pipeline, however, the industry is facing some very challenging times.

One of the biggest concerns is the potentially catastrophic implication of the FSA’s plans for full-cost recovery of meat inspections. The number of abattoirs in Wales has remained relatively constant for the last two years, but many in the industry feel that the controversial plans to recoup the cost of inspection threaten the survival of many small to medium-sized plants, despite a discount for plants with a small throughput.

As William Lloyd Wiliams argues: “If these small abattoirs dotted around our principality close, that’s going to put more pressure on the remaining ones, which may take them over the threshold of the meat inspection discount and, more significantly, animals will have to endure longer journeys to the abattoir, which is not what we stand for. We stand for low carbon footprint, a completely local, sustainable business that is buying and selling a product and keeping money in the area.”

Although HCC has ruled out going down the same route as Scotland and calling for its own, devolved inspection system, it has called for a fairer statutory levy system, based on livestock breeding populations, whereby the levy would be redistributed to the areas where the livestock originated from.

CAP reform

Ed Bailey of NFU Cymru sees the proposed changes to CAP as another key area of concern. At present, CAP pays agricultural businesses in Wales over £350m every year, keeping businesses afloat and thousands of people in work, as well as benefiting the wider community and economy. “The main challenge in the short-term is to get an equitable answer to CAP reform. We must try to sort it out so farmers do have rewards for producing what they’re producing,” says Bailey.

Howells agrees. “The next couple of years will be quite instrumental in understanding how those changes in support will impact on the farming landscape as we see it now and whether there will be a redistribution of European aid, and what impact that will have on our systems of production and the scale of various units. I think that will be critical going forward.”

The Welsh government has tentatively welcomed recent amendments, but the Deputy Minister for Agriculture, Food, Fisheries and European Programmes Alun Davies warned that: “There are still some proposals that do not reflect the views of the Welsh Government, particularly in relation to the linking of greening measures to direct payments and the capping of farm payments.”

Agri-environmental schemes

Glastir, the Welsh agri-environmental scheme introduced last year by the Welsh Assembly to replace four previous schemes – Tir Gofal, Tir Cynnal, Tir Mynydd and the Organic Farming Scheme/Organic Farming Conversion Scheme – has also run into trouble.

“There were very few participants,” explains Ed Bailey, “about 2,900 last year when we were expecting 15,000.” With a pot worth around £89m to help farmers deliver specific environmental benefits, the low uptake has been a significant disappointment, prompting then Minister Elin Jones, to review the basic All Wales Element (AWE) of the two-tier system.

NFU Cymru ran its own survey to find out why people hadn’t joined the scheme. “We found out there was too much bureaucracy and not enough rewards,” says Bailey. “There simply wasn’t the return that people felt there should have been, for being asked to reduce the stocking levels and the various other prescriptions.” There was also a degree of wariness, as the second tier of the system, the Targeted Element (TE), hadn’t yet been announced. So where does this leave Glastir?

“The new government has announced that they are carrying on with it, but they haven‘t announced if they will review it in any shape, way or form,” says Bailey.
In Wales, the majority of red meat holdings are based in land classified as less favoured areas (LFA) – approximately 80% of the 1.6 million hectares of agricultural land in Wales falls within these designated LFAs.

“The irony of that is that England and Wales are the only two countries without a dedicated LFA scheme. The difference is just over £2 an acre for the best land in Wales to the very poorest land.

Bovine TB

One of the more controversial actions of the past Labour/Plaid Cymru coalition – at least in terms of public perception – was to announce plans for a badger cull in an ‘intensive action area’ (IAA), where bovine TB is endemic, including parts of Pembrokeshire, Carmarthenshire and Ceredigion. However, the plan seems to have stalled since Minister for Rural Affairs Elin Jones laid the order before the National Assembly in March of this year. The newly sworn-in government seems reluctant to press ahead, which is causing considerable disquiet among the farming community. As MTJ was going to press, the industry was awaiting a statement from the new Minister for the Environment John Griffiths on its stance.

Ed Bailey, president of NFU Cymru, says: “We thought we had an acceptable way forward, a holistic approach towards TB, but we’re uncertain now as to which way the new government is going. With there being a change in the government, they have not given any clarity as to what is actually happening. The Labour Party manifesto did say that it would look at the TB issues and ‘follow the science’, but that’s rather ambiguous.

“The meat industry will be set back to a certain extent unless the Ministers follow the course of the last government,” he adds, also making the point that the previous government was Labour-led, albeit with a Welsh Nationalist Agriculture Minister.

The recent May elections have returned a minority Labour government to the Senedd, with little indication of how it intends to proceed with the policies that were founded so confidently in the last term. Pundits are already talking about the flat start of the historic new Assembly, despite the increase in its law-making powers. With the possibility of stagnation on the Welsh political landscape, the effect on the physical landscape and the meat industry in Wales remains to be seen.

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