Holding pattern

21 August, 2009

Can lamb hold on to its market share in the face of the economic slowdown or will it lose out to cheaper products, asks Ed Bedington

When faced with an economic slowdown and consumers looking to cut the cost of their food bills, being in a high-value premium product industry, such as lamb, might be the last place you would want to be. Yet, for some in the lamb sector, despite the high prices and low spend, the market appears to be holding up quite well.

"The market has been pretty good for everyone," says John Mabb, UK market manager for Meat & Wool New Zealand. "Anyone who has been in the sheep industry this year cannot really complain about prices they're receiving. They will, of course, but they shouldn't be."

Mark Topliff, from Agriculture & Horticulture Development Board (AHDB) Market Intelligence, says that lamb is "looking like it is recession-proof".

He reckons that lamb remains a relatively small market in relation to other proteins, but people are still continuing to eat it and are prepared to pay the extra, despite the current economic outlook.

Perceptions may also have helped, he says: "Lamb has increased in price, but not to the same extent as others, so probably the consumer has noticed that beef seems more expensive, while lamb hasn't risen that far."

However, as Mabb points out, it's a fine balance. "Prices are likely to continue to edge up, but the worry is that they will do so to the point where they kill demand," he says.

Some would suggest that the tipping point has been reached. Bill Joyce, Hybu Cig Cymru - Meat Promotion Wales marketing manager, says: "Following a buoyant start to the season, there has been consumer resistance in recent weeks to the relatively high price for lamb, up 8% over the same period last year, with household purchases dropping by around 5%." But lamb still retains a premium cachet with consumers, he adds. "Although UK consumers are undoubtedly looking for value, they have also not shunned the premium products, including Welsh Lamb, but rather, they are buying it in smaller quantities."

That view of a tough market is echoed by Vion UK, a leading lamb processor. John Dracup, livestock director for Vion's red meat business unit, says the sector continues to be challenging due to the economic climate. "Livestock prices are high and are likely to remain high, and those prices need to feed through to the consumer. But in the current economic climate, one must not forget that lamb is competing with other proteins." He says the situation reinforces the case for those in the supply chain to work together. "One of the things this climate does is to further emphasise the importance of working in partnership with your major customers to try and find solutions."

Watching and waiting

Scottish meat bosses say they are keeping a close eye on the price situation. Louise Welsh, communications manager with Quality Meat Scotland, reckons conditions are good at the farm end, with farmers experiencing strong prices, but says that is impacting on consumer prices. "The challenge is to maintain, or increase, consumer demand while paying higher producer prices. That's something QMS is focusing on in September and onwards during the Festival of Scotch Lamb - our most intensive promotional period. "We're keeping a close watch on the possible effect of price on the consumption of lamb. The retail price of lamb is high compared to other meats. For example, a leg of lamb in Scotland is retailing at over £10/kg, 14% more than last year. Despite the main consumers of lamb being the older generation, persistent increases in the retail price may make them look for other products - and it could also put off potential new consumers."

In long-term trends, consumption has fallen, but Topliff says sales are holding up quite well at the moment, despite the recession. He says there has been a decline in lamb volumes at retail level in the last 18 months, but notes that this is in comparison with 2007, which was a very strong year. "This year is more like 2006, which is where we'd probably expect lamb sales to be."


Sales trends

According to data from TNS, the lamb market over the 52 weeks ending 8 July dropped back by 2% in volume, but rose by 4.5% in value. Asda is one retailer which has done well out of lamb, according to the retailer's agricultural manager Pearce Hughes. He says that, over the last year, Asda has grown its lamb sales by 9.5% in volume and 14% in value. And he claims that the retailer continues to outperform the market. "The latest four-week data shows the market shrinking by 14.5% in volume and over 9.5% in value, while Asda is growing by over 30% in volume and over 20% in value. So we are comfortably out-performing the market in the both the short- and long-term data."

Topliff points out that over 50% of the lamb market is dominated by roasting cuts. However, many of the retailers are seeing growth outside that traditional sector. While some of this is due to the season - roasts generally perform poorly in the summer months - consumers are also looking for cheaper options when it comes to lamb, not to mention a good deal.

Sainsbury's beef and lamb buyer Tom Harvey says: "Lamb mince sales remain strong, while joints are challenging, due to the relatively warm weather and relatively high price. Customers are opting to buy the smaller packs of chops and steaks over the joints, which in turn helps us with our carcase utilisation. The one aspect customers are not compromising on is quality."

Mince and stewing cuts have certainly seen a rise, with mince up 23% in value over the last 12 months and 14% in volume, while stewing cuts have risen an equal 6% for both value and volume. However, those rises remain off a low base, with mince making up 7,368t and stewing 4,015t, of a total of 77,501t. Asda has also seen growth in portions, steaks and chops in particular, but Hughes says the consumer's desire for a deal is what is really driving sales. "Consumer trends are showing that shoppers are more and more deal-savvy and less loyal, as they seek out the deals. Growth is increasingly driven by what is selling on promotion.



"Asda's price position is reaping the rewards of this increasingly price-driven position. For example, lamb joint volume sales have fallen by over 4% in the past 52 weeks, yet Asda's joint sales have grown by over 20%. Asda is gaining consumers from the supposedly higher-end retailers, such as Marks & Spencer and Sainsbury's."

Asda's keen pricing may well be giving it an edge in a market where prices have remained extremely firm. A mixture of factors has fed into the strength of those prices, but one of the key issues has been the shortness of product.

New Zealand, one of the world's leading lamb producers and a major supplier to the UK market, has seen its production drop significantly, says Mabb. "Back last year, we announced that we would be down and, by the end of September, we'll be down 23% on last year's kill. That's a hell of a lot of lamb - six million head, basically, or 12 million legs."


Still keen

Despite this fall in production, he says NZ is keen to continue to fill its EU quota, "because the EU sets the benchmark for pricing around the world". The UK market remains very important for the Kiwis, and Mabb says total sheepmeat exports for the UK were up 5.6% in the first seven months of the year. He says they have had no problems shifting volume: "We're able to sell what we're importing and the market is still demanding product."

Any shortness of product would simply be solved with a little marketing creativity and perhaps some lessons from the past, he says. "If legs are short [in supply], then retailers might encourage consumers to look at other joints, like shoulders - they've shied away from them over the years, as they're difficult to carve.

"We may have to go down that route if the market is short. However, we'll have to show consumers how to remove the blade bone to carve it, like we did 20 years ago!" In the meantime, however, Mabb says the signs are looking good for a slight increase in NZ sheep numbers for next year.

The fall in production is not just an issue for New Zealand either. Across the UK - and the wider EU - production has declined and, at the moment, that trend is showing no sign of reversing. Topliff says: "The flock has fallen: in 1998, the breeding flock was 20.5m ewes, but by 2008, it had dropped to 14m."

He says that is set to continue. "We're still looking at a reduction in the breeding flock - 5.5% this year and probably another 5% next year."

One factor that will determine the level of decline will be the introduction of Electronic Identification (EID) and how the industry reacts to the new regulations (see box, page 18). But does this decline mean the industry is teetering on the brink of losing critical mass? Topliff is unsure. "Critical mass is a question we've been musing ourselves - it's a hard calculation to work out. If services like processing reduce in line, it's not an issue. There's still over-capacity in the slaughtering sector for lamb, so there's scope there."

John Mercer, chief livestock advisor with the National Farmers' Union, says that while prices are currently high, the years of poor prices have taken their toll. "The key worry is the decreasing national flock, particularly in the upland areas, a lot of people are getting out of sheep farming."

And it is not just the individual businesses that have suffered from the decline. He says sheep farmers are often the backbone of their local community, both economically and socially, and also help to maintain the environment in those areas. And he notes that while the recent price rises were welcome, following the years of low prices, there had been an increase in input costs as well.

Asda is working hard to help support the sector and continues to back up its LambLink scheme, launched in 2002. So far, the scheme has paid out more than £3.8m in bonuses, Hughes says. "Farmers supplying into the scheme are eligible for free collection of lambs direct from their farms or their nearest collection centre, a free fieldsman service, carcase competitions and payment within 48 hours."


Heavy lamb

On top of LambLink, Asda has also introduced a heavy lamb scheme. "Traditionally, we only accepted lambs up to 21kg, but we now accept and pay for lambs between 25-30kg, rewarding farmers who have invested in the best genetics and who are able to breed heavy lambs that don't run into fat," he says. "We have purchased four high-merit Charolais rams, with the ideal genetic traits for producing heavy lambs. These are now at Barony College and their 'heavy' lambs will be on Asda shelves this summer/autumn."

The success of the export market has also affected tightening supplies. "Exports, aided by the strengthening of the euro, have been strong, which has helped to underpin the market for Welsh Lamb," says HCC's Joyce.

Between 25% and 30% of the UK's lamb production is now going to export, adds AHDB's Topliff. "The export market is doing very well. In 2001, foot-and-mouth disease seriously affected the trade, but we've recovered and it's now one of the major drivers." France is the main market for the UK, taking up to 70% of all UK exports of lamb. "France is a major destination; one in five of all our lambs go to the French market. Belgium and Italy are also strong markets and the Mediterranean countries take a lot of our bigger lambs," says Topliff.



EBLEX has invested heavily in promoting lamb in the French market and, last year, saw the launch of Agneau Presto, a three-year campaign run in conjuction with its French and Irish counterparts, Interbev and Bord Bía. The campaign is also being backed financially by HCC, Quality Meat Scotland and the Livestock & Meat Commission in Northern Ireland. The focus of the campaign is to rejuvenate French consumers' interest in lamb, by demonstrating new cuts that are quick and easy to cook, as well as providing recipe inspiration.

The main thrust of the project is a bid to recapture the attention of younger French consumers, who have largely turned away from eating lamb in recent years. But of course, it is not just young French consumers who are not consuming lamb - the same problem applies in the UK market, with most consumers being in the 40- to 45-years and older bracket.

The lack of engagement with younger consumers is a concern that has dominated the agenda within the lamb sector for some time. But it appears that the industry is now relaxing on the issue. Mabb says: "There has been a lot of angst about getting younger consumers into the market. The worry is that the older consumers will die off and no-one will be eating lamb, but in 10 years, the 30-35-year-old market will be 40-45 years old and will have more disposable income."


In good stead

He says lamb's premium offer will stand it in good stead for the future: "I'm sure smoked salmon producers don't lose any sleep about young people not buying smoked salmon."

Topliff agrees that concern has been a little misplaced: "Younger consumers not choosing lamb has been said for years, but we've not seen any downward trend over those years. So perhaps, as people get older and become more affluent and discerning about the meats they're consuming, they are eating more lamb.

"However, we would like to see more younger consumers eating more lamb, and a lot of work is being done to encourage that - lamb cuts that are quick and easy to cook for example."




One potentially untapped area of the sheepmeat market has been identified by HCC - Meat Promotion Wales. According to Welsh meat bosses, the industry could be sitting on a £3m goldmine if the laws on 'skin-on sheep meat', otherwise known as smokies, are relaxed. Production of smokies is said to offer an alternative outlet for low-quality cull ewes that would otherwise be destined for the halal trade. Switching production to smokies may lead to price rises for cull ewes, says HCC.

A report from the Welsh body concludes: "It has been estimated that up to 155,000 ewe carcases or 25% of the Welsh ewes slaughtered each year could be processed to produce 'skin-on sheep meat'. This is a significant proportion of Welsh ewes that would otherwise be of a low commercial value to both the farmer and to the retailer."

Smokies are said to be a traditional food for some sectors of the African and Asian communities. The HCC report adds: "With a premium of £20 per carcase for 'skin-on sheep meat' carcases compared with conventionally processed mutton carcases, the Welsh red meat industry could generate a significant premium of approximately £3.1m."

At present, however, the production of smokies is illegal, according to European legislation. The HCC report now forms part of the Food Standards Agency's (FSA) research into a possible safe and hygienic procedure for producing smokies. The European Commission has indicated that EU hygiene legislation could, with strong supporting evidence, be adapted to allow 'smokies' to be produced legally, says the FSA.

The National Sheep Association and the Association of Independent Meat Suppliers are developing plans for an abattoir to carry out trials suggested by the FSA. This should enable more valuable data to be collected and strengthen any submission to the EC. But the FSA has warned that the process of legalising the production of smokies would probably take several years.





From January 2010, all sheep born will have to be individually identified with an electronic tag. The scheme, known as EID and created by the European Union is aimed at controlling and eradicating disease and will mean a record of each animal's existence will have to be made in the farmer's holding register. From 2011, each individual animal's identity must also be on any movement documents.

While farming organisations throughout the UK claim the scheme will add a layer of unnecessary costs that they can ill afford, there have been recent amendments to the scheme, says AHDB's Mark Topliff. This means farmers no longer have to own the equipment needed to scan the animals' electronic tags. "The UK has managed to get some changes made to the regulations - farmers won't necessarily have to read the tags themselves; it can be done by a third party, so they won't have to invest in equipment. But yes, it's going to add cost and that's more weighted to the producer.

"But hopefully there will be some benefits from it, in terms of livestock management - and the benefit from the processors' point of view is better traceability."

John Mercer, chief livestock advisor with the National Farmers' Union, says the industry has won some concessions on EID and hopes these will minimise the impact on farmers. But the main concern is the impact the regulations will have on a sector already facing steep decline.

Topliff says the reason the AHDB is predicting further 5% declines over the coming years is due to the impact of EID implementaton. "Some farmers are thinking they'll get out of the business or at least down-size further. What was first proposed and what is now expected is not as onerous, so hopefully fewer will leave. Farmers are struggling to see what the benefits will be."

Mercer says: "Farmers are very resilient and will adapt, but the worry is that EID will be just another blow, and it's the culmination of a number of things - years of low prices and then this regulation on top."

Alistair Mackintosh, NFU livestock chairman says EID is simply seen as yet another burden. "We see this as regulation adding yet another cost to industry - one we could do without."

He says cost is not the only issue either. "Because of cross-compliance issues, there's a fear of getting it wrong and losing your single farm payment - that, coupled with the cost, blows it out of proportion. I'm not saying that the cost of EID is going to put me out of business, but it does give me a bureaucratic concern."

Both Mackintosh and Mercer say EID might deter youngsters from entering the sector. Mackintosh says: "We've seen sheep farming as a way in for younger farmers, because of the lower capital costs. But another regulatory burden tends to sour the taste for youngsters looking to come in."

Yet despite EID, he believes there are positives for the industry. "Looking at the current sheep prices, we have strong export, which we need to build on, so for those who are prepared to jump through the hoops, there's a reasonable future.

"We would like to see more English and Welsh lamb producers looking to the future. The Irish herd has fallen, the French are only 50% self-sufficient, so would suspect there's an opportunity out there. We don't want to sound ridiculously upbeat, but if we can get through these turbulent times, there will be a chance to capitalise on those opportunities."


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