Margins for Scottish processors remain ‘wafer-thin’ warns QMS
Published:  13 April, 2012

Margins for Scottish processors remain “wafer-thin” despite record farmgate prices and increased efficiency, Quality Meat Scotland (QMS) has warned, and this is causing concern for the sustainability of the industry within Scotland.

At a briefing on QMS’ plans for the coming year, chairman Jim McLaren said that despite the farmgate price of beef reaching 354p/kg dwt his week, in real terms these high price still failed to match those in 1995, when the industry was at its height, partly as a result of inflationary pressures and the significant increases in the costs of production.  

He said: “Livestock prices have increased significantly over 2011 and, with the backdrop of a weak economy, wholesale and retail prices were unable to rise to the same extent. As a result, processors have had to absorb a large percentage of the increased cost of raw material and, at the same time, faced increased operating costs.

“In 2010 a sample of processors operating in Scotland had an average operating margin of 2.5%, before tax, depreciation and bank interest – for some this figure was as low as 0.5%.

“In light of market conditions since then, the likelihood is that margins have eroded further and this has to be a major concern for the sustainability of our industry.”

He said that the cost of a general ‘basket of goods’ used in agricultural production has increased by 80%, while prime cattle and pig prices have increased by about 60% and lambs around 84%. The result was that not only have farm gate prices failed to keep pace with the general level of inflation, but input costs have been rising more quickly.

Another concern McLaren highlighted is the trend that has developed over the last 18 months in which increasing numbers of female cattle, both heifers and cull cows, have been slaughtered. While some of this was the result of the removal of unproductive females from the herd, he told MTJ it was worrying that producers were taking advantage of the high farmgate price, as this could lead to serious implications for calf registration and the stability of the national herd.

He argued that farmers must work to maintain a critical mass of livestock and take a long-term view of herd numbers, as short-term gains would be undermined if processors do not have adequate stock. He said that processors’ margins were “being stretched to breaking point” in some cases, citing the closure of the Hatston abattoir Orkney Meats and the recent disappointing results from Aberdeen Northern Marts.

He said that while there were signs of some year-on-year stability in calf registrations, it would be difficult to tell before the spring calving data had been fully collected.

“We’ve seen an increase in calf registrations, so hopefully that will be carried through,” he said. “But we must retain the critical mass in Scottish livestock.

In December 2011, the agricultural census results showed Scottish beef breeding herds were down 2.5%, the sheep breeding flock down 1.6% and the sow herd down 13.6% year-on-year.

McLaren also told the briefing that the industry must take advantage of technology and innovation to improve efficiency. QMS currently has around 100 projects under way, aimed at improving efficiency within the industry at both farm and processor level, and good progress has already been made in targeting disease and improving health and welfare, as well as the flagship £1m Integrated Measuring Eating Quality of Meat (IMEQ) project.

McLaren said: “Scotland has a proud history of pioneering ground-breaking science and it is vital our industry continues to capitalise on the opportunities to improve performance and returns through the scientifically proven techniques at its finger tips.

“Our industry has a fantastic story to tell in terms of what sets Scotch Beef, Scotch Lamb and Specially Selected Pork apart – from the world-leading quality assurance behind our labels to our natural, grass-based cattle and sheep production systems.

“It is vital we maintain the livestock numbers needed to satisfy the demand for our world-acclaimed brands.”

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