Danger alert

12 June, 2009

Can the Scotch brand stay strong in the face of dwindling supplies and a consumer credit crunch? Ed Bedington takes a look at some of the issues facing the Scottish meat sector

The Scottish meat industry could be "sleepwalking into oblivion" if nothing is done to curb the decline in the country's livestock numbers. That is the stark warning from the boss of one of Scotland's leading processing operations.

Alan Craig, the new head of the ANM Group, says: "We've sleepwalked into this situation, and it's this sleepwalk into oblivion that I fear the most."

The figures for the decline in Scotland's livestock numbers are of considerable concern. According to QMS' chief executive Uel Morton, beef cows are down 2.5%, dairy cows 3%, breeding ewes 7% and breeding sows up to 13%.

Morton says: "This is particularly concerning on the beef side. The pig cycle is relatively short, but for beef it takes at least three years from putting the bull in the field to getting an animal into the supply chain."

"This hasn't happened all of a sudden," says Ian Anderson, executive manager of the Scottish Association of Meat Wholesalers (SAMW). "It has been a gradual process - more evolutionary and than revolutionary."

The gradual process is what many in the industry are referring to as a "sleepwalk" - it has been a long time coming, but the enormity of the situation is only now beginning to sink in. The cause of this decline is easy to track, says Morton: "It's still a hangover from the decoupling of subsidy."

Anderson agrees: "We've been seeing a decline since CAP reforms - you can trace it back to that. There has been a constant 2-3% decline every year and no sign of it stopping."

The biggest concern for the entire meat industry is an ongoing loss of breeding stock, as farmers cash in on the higher cattle prices. Craig says this is the real worry: "Once they're gone, they're gone and the high prices have been encouraging it. Farmers are thinking 'Will the market be as good next year? We might as well cash in now'."

Farming, he says, is a "bloody hard existence" and the single farm payment system has given them the choice whether to continue farming cattle - and many are now exercising that choice. For processors, the problem is clear. Morton says: "The number of cattle killed between 2007 and 2008 was down 6%, lamb 5% and pigs 9% - hence the concern about critical mass in the industry."

But the industry is not sitting back passively. The SAMW has been busy looking at how it can take advantage of what remains of the subsidy system to support - and even bolster - livestock numbers. It has submitted a proposal to the Scottish government, which suggests adapting the existing Scottish Beef Calf Scheme.

Allan Jess, SAMW president, says: "We believe that the option we've presented to government has the potential to reverse the damaging downward trend in livestock breeding, which has existed since CAP reform. As well as our core proposal, we've also given government a variation to consider as an alternative solution. We believe both of these proposals tick all the boxes, without damaging other sectors in the process. They also ensure that the new level of funding is directed entirely towards those who are engaged in active farming."

He says SAMW engaged a European financial and funding research agency to help identify new funding options, which would come within the terms of existing European Union rules and regulations.

"The agency's work triggered further debate within our association, resulting in the submission that we have now passed to government and on which we are urging the minister to give full consideration." For details on the SAMW proposal (see the panel, page 20).

Craig says it is vital the scheme gets through. "We need the subsidy to go back to the breeders. Finishers are benefiting from the higher prices, but that's not going back to the breeders."

Anderson points out that it is only the countries that have maintained some coupling of subsidies with production that are seeing production numbers increasing.

Across the market, meat sales, in terms of volume are falling, while value remains on the upwards trend, primarily due to meat price inflation, says Morton. However, he says, the credit crunch has had some positive impacts. "More people are now cooking from scratch, and there's greater use of more economical cuts, such as liver and the forequarter."

With the increasing focus on cheaper cuts, QMS is continuing its work on fifth-quarter utilisation, aimed at large and small processors. Morton says: "It's really about getting value back into the fifth quarter. There has been a loss of knowledge over the past 10 years, when we weren't using those products. So there's a training and education element to the project - getting plants up to speed on how to harvest those products to best effect. We are very pleased with how that's proceeding and the industry up-take. It's industry-led and that approach is paying dividends."





QMS is also working hard on pushing the nutritional benefits of meat in the diet and working hard to get recognition of that within the Scottish government. Morton says: "We want the contribution that red meat makes - not just to the economy but to the health of the nation - to be recognised within the national food policy."

The Scottish national food and drink policy is currently being developed, but Richard Lochhead, rural affairs and environment secretary, says the contribution of the meat sector is noted. "Last year, the red meat sector accounted for almost a third (31%) of the total Scottish agricultural output, higher than the rest of the UK," he says. "The sector is of huge value to Scotland and future viability is not just about getting support right, but also about producing for the market.

"Demand for food is rising both globally and in Scotland - beef sales were up 7% and lamb sales increased by 8% last year. We are working closely with Quality Meat Scotland to build on that success and help Scottish exporters further boost sales of red meat products.

"The livestock industry has a vital role to play in developing our national food and drink policy - the next steps of which will be unveiled at this year's Royal Highland Show. The policy recognises that Scotland is a land of food and drink and much of this is supported by the red meat industry through its reputation for high-quality produce."





Of course, going into a recession with a brand that carries a perception of premium is never going to be easy, but while Morton accepts that having a premium brand in a recession is a challenge, it's not something QMS is going to shy away from. "The Scotch brand fits in well in the top shelf - it's a premium brand and we commit significant resource to maintaining that position. All retailers, multiple and independent, recognise it as a brand that adds value to their operations.

"The recession is a concern - the credit crunch has resulted in all segments trading down in some way. But it's swings and roundabouts - some might trade down from prime Scotch beef steaks to mince, some from mince to liver."

But he says, those who have traded down from eating out will be buying the premium products to cook at home. Plus, he says, it will always hold a certain cachet: "The fact is, there are just some things in life people don't compromise on. And thankfully, beef is one of them."

Craig agrees that premium products will find life tougher: "Any brand perceived as premium has come under pressure in last 18 months, and will continue to be so. However, Scotch still represents value for money and affordability, and I don't think that's going to change."

However premium aside, Craig says Scotch beef has to compete in the market, premium or not: "We hear people saying that we're a niche player and we cannot compete, but we have to be able to compete in the world market. There's only a portion we can get in the premium market; we have to compete on the rest of the market."





The Scottish meat sector is also keen to see changes when it comes to hygiene regulations. Anderson points out that the Scots have not had a case of BSE for some time. "It's effectively nil," he says, "So Scotland is in the clear, but we still have these excessive controls. There was a general view that the time was right to unwind some of the controls, a general recognition that we'd roll stuff back, but here we are and we're not seeing any visible signs of action."

He says he wants the Food Standards Agency to establish a unit to push through change in the EU. He says a person has been assigned, but that is not enough - it needs more dedicated resources.

So, there are plenty of challenges facing the industry, yet the Scottish sector remains vibrant and if it can address the issue of falling cattle numbers, then it may find itself in a strong position going forward. l


=== SAMW lays out its cards ===

SAMW's core proposal is that the Scottish Beef Calf Scheme (SBCS), as it currently stands, should be withdrawn and replaced by an area payment to encourage active livestock farming over as wide an area of Scotland as possible.

To raise the £48m that is allowed to be paid under Article 68, this would require a top-slicing of all existing beef and sheep support by approximately 18.5%. The new funding generated by this would then be returned to active beef and sheep enterprises in Scotland's Less Favoured Areas (LFA), which is the part of the beef and sheep sector most under threat.

"This approach would provide significant new payments to LFA-based livestock breeders, targeting aid at more than 80% of the suckler herd and more than 90% of the breeding ewe flock," says Allan Jess, SAMW president. "Obviously, beef finishers would have to accept a reduction in support. The benefit to such businesses, however, is that they would continue to enjoy a steady supply of high-quality raw materials on which to base their finishing business. Their alternative is to keep collecting an enhanced support payment now and have no raw materials to work with in the longer term."

SAMW is also submitting a variation to this proposal, in which the calf scheme is retained, accounting for £16m of support, with a reduced top-slicing of existing beef and sheep support being used to raise the additional £32m. Once again, a total of £48m would be provided for the beef and sheep sector although, in this case, spread across both LFA and non-LFA areas. "By keeping all other sectors out of this proposed redistribution of funding, we believe this is the fairest possible solution to the present running-down of Scotland's livestock industry," says Jess. "In addition, while beef finishers would be making a funding sacrifice, under our proposals, these businesses would, in effect, be investing in their own future progress and prosperity."

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