Gwyn Howells, chief executive of Hybu Cig Cymru (HCC) – Meat Promotion Wales, explains that the increase in the price of the “three Fs” — fuel, feed and fertiliser — has outstripped the inflation rate over the past few years. “The input costs to produce and process animals is outside the control of most businesses.
In the past two years, we’ve seen year-on-year increases of 20% in certain categories. It’s important to acknowledge that we cannot control it, but we can mitigate increases by lessening the costs,” he says.
Farmers’ Union of Wales (FUW) deputy president Glyn Roberts believes the rise in input costs is the main challenge ahead for the Welsh meat industry. “We have to focus on our production costs, because at the moment, market prices are just covering costs for lamb, and only cover two-thirds of production for beef. We need to produce more cheaply, with less impact on our resources, grow better grass and produce renewable energy to help produce quicker meat with less impact on the environment, which in the long term will also help the planet,” he says.
In order to improve efficiency, HCC recommends relying more on grass systems, for example, including conserved grass in the winter. Genetic research is also crucial to increase returns and reduce the impact on the environment. “We are aware of what our GHG emission levels are and, over the past few years, we have tried to produce lamb in a more efficient way, by selecting the quickest-growing animals that utilise grass in an efficient way to reduce the impact on the environment.
“The Welsh brand is very closely linked to genetic improvement. We have invested quite heavily in that area, by harvesting the traditional husbandry skills of farmers and marrying them with the technology of selecting animals, and we’ve had very encouraging results,” Howells adds.
Thanks to these efforts, lamb production remained constant, at 12,400t during the first quarter of 2012, despite a 5% drop in the number of slaughterings. HCC industry information officer John Richards explains this is due to heavier carcases. “The latest figures show that lamb carcase weights in Wales and England averaged 19.9kg — 0.6kg heavier than the corresponding period in 2011 — and was the highest average since April 2007. Adult sheep weights also rose by a similar amount to average 26.2kg,” he says.
HCC has also enhanced training to help farmers meet market requirements, which has resulted in a 12% rise in lamb carcases meeting abattoir specifications between 2004 and 2012. “Over the past few years, an increasing number of lambs have been reaching the ideal specifications and farmers in Wales have shown a greater understanding of the market requirements. This has come as a result of improvements, including the genetics of the Welsh flock and training provided by HCC, to show farmers what the processing sector is looking for in terms of product quality and consistency.
"Since HCC’s inception, we have been running ‘live to dead’ courses for Welsh farmers at livestock auction markets and taking them into abattoirs to see what happens to livestock after they leave the farm. This has created a greater understanding within the industry of the needs of the processing sector and the consumer.
“This, coupled with HCC’s market intelligence and knowledge transfer initiatives, has led to farmers being better informed and equipped to address the production challenges they face and meet the requirements of the markets in order to achieve a better price for their lambs,” adds Richards.
However, the rise in input costs still presents many challenges, and is affecting farmers’ confidence, resulting in the ongoing decline of the Welsh beef herd. According to the latest figures published by the Welsh Assembly for December 2011, the number of beef cattle aged two years or older has fallen from 232,500 to 220,000 in the course of the previous 12 months.
“The cost of production is the main reason for the decline in the beef herd. We have seen an accelerated increase in those commodities, and it has not been profitable. For most farmers, the price of beef does not cover production costs, so they are scaling back production. The dynamics will change again, but costs need to be scrutinised very carefully,” points out Howells.
The recent decision by the Welsh Assembly to cancel a bovine tuberculosis (bTB)-related badger cull has angered beef farmers and may also contribute to the lack of confidence seen in the sector. “Implementing vaccination is the wrong decision. It’s going to have a big effect in certain parts of Wales that are affected with bTB, especially in the south. Farmers are disappointed because they agreed on the cull with the government two years ago, but the new government has now decided to stop it,” says John Owen, chairman of the LFA Board at the Welsh branch of the National Farmers’ Union (NFU Cymru).
Roberts adds that farmers whose herds have been affected by bTB are “devastated”, and questions the legitimacy of saving badgers if it means culling cows later on. “Was that decision based on scientific evidence? Is it a political or a scientific decision,” he asks.
His questions were prompted by the resignation of the Welsh government’s chief scientific adviser Chris Pollock, following the decision not to cull badgers. Before leaving, Pollock said: “Vaccination is effectively untried, so you are exchanging an approach which has a track record of success in Ireland and elsewhere with one not really tried at all. Using vaccination in the targeted intensive action area, where the level of infection in badgers is extremely high, in my view goes against the recommendations of his [Environment Secretary John Griffiths’] own scientific review.”
FUW saw the resignation as a sign of the “flawed nature of [the] decision”, and of “scandalous” government negligence. The Union’s bTB spokesman Brian Walters said: “Professor Pollock’s resignation backs up everything we have been saying about the Welsh government’s decision since it was announced.
The evidence given to the government shows their decision will cost the taxpayer at least an extra £3.5m and is not backed up by the science. Now we have a world-renowned scientist, who has been an adviser to the Welsh government for many years, saying the same and sacrificing his position in protest.
“His decision to resign over the government’s cowardly and scandalous betrayal of the farming industry is a noble one, and highlights the need for an inquiry into this issue.”
Despite the recent row over the badger cull, Owen explains that a recent increase in feed supply may bring back optimism, but it will take time to see real results. “These are long-term industries, it takes a few years to build up livestock numbers, but I am optimistic. People need food and the population is increasing, so ultimately there will be demand for our products,” he adds.
Howells notes: “If we look at the bigger picture, there is going to be increased global demand for food, and red meat is a vital part of a balanced diet, so there has to be a prosperous future for the industry.”
Roberts also believes the industry has a bright future. “When we look at macroeconomics, things are looking reasonably good because of the growing demand for meat on a global scale. Countries like China, for example, have a better standard of living than ever before, and there is growing demand for better food and better protein,” he says.
But despite the predicted increase in demand, Welsh Lamb has faced important challenges in its domestic market. The decrease in lamb consumption is deemed quite worrying by the industry, and Owen believes the accent must be put on the benefits of meat as part of a healthy diet in order to curb that trend.
However, the slight increase in livestock numbers observed in recent months — the total breeding flock in December 2011 stood at 3,988,000, an increase of 217,000 over the 2010 figure — could impact on prices, generating a potential boost in consumption.
“With more production, and considering that ours is a seasonal product, there will be a lot of pressure to sell between June and December. But we are lucky to have a state-of-the-art processing infrastructure that can cope with increased supply while maintaining quality,” Howells says, pointing out that the supply chain becomes much stronger once there is demand.
Meanwhile, on a European level, issues surrounding the CAP reform and the repartition of subsidies are keeping Welsh farmers on edge, as EU support represents a large percentage of their incomes. NFU Cymru is campaigning to make sure Wales get its fair share of the European aids, but it is the uncertainty that is disturbing markets the most.
“The negotiations are taking place between 27 member states, so it’s going to take some time. It’s a matter of not knowing, and then of implementing the changes. There will undeniably be winners and losers, but it will definitely have a big effect on the industry,” says Howells.
Moreover, the financial turmoil shaking the EU is having a tremendous impact on the Welsh meat industry. Roberts explains: “The whole timing of the CAP reform, combined with the financial uncertainty in the eurozone, makes us worry that the agricultural budget might be cut down. I hope it won’t be, because, particularly in Wales, we rely a lot on single-farm payments, especially as our costs of production have gone up higher than the price increase for our commodities.”
Owen adds that the financial crisis is also affecting exports, due to unstable exchange rates. He says:
“Currently our main challenge is the currency fluctuation on the EU market. It’s having an effect on price, as the rising value of the pound is making our exports more expensive. We are at the mercy of financial markets and, with the current uncertainty, lamb prices have dropped significantly in the past two weeks.”
The financial crisis is also generating a drop in demand from countries in debt. Historically, Greece was the biggest market for Welsh hill sheep (which have lighter carcases), but that market has completely disappeared over the past few years, Owen says.
He adds that problems on the export front are a significant issue, as exports allow Welsh farmers to maintain good prices both abroad and in the home market. “There are not a lot of slaughterhouses in Wales, and most of them are affiliated to different supermarkets,” he says.
Roberts also believes the balance between the domestic and export markets is vital to the industry as it “creates competition and ensures a fair price for commodities”.
As processors’ costs also rise and their margins are squeezed, particularly on the domestic front, export demand is an important asset for farmers to put forward in negotiations. Both Owen and Howells agree that relationships between abattoirs and farmers have improved a lot over the past few years, but more work needs to be done.
And although Wales’ main export destination is the EU, the principality is looking to expand its presence more internationally in order to reduce its dependency on an uncertain market. HCC recently welcomed the opening of the Canadian, Norwegian and United Arab Emirates’ borders to Welsh meat products.
“We are not ignoring existing markets, but where we can augment our presence with new markets, we do it. This strategy reduces the risks related to relying on only one market. This is even more relevant now, considering the economic difficulties in most EU countries; it’s important to seek out new markets where there is affluence and discerning consumers who want proven quality. It also allows exporters to deal in different currencies, not only the euro, which also reduces risks,” says Howells.
Roberts adds that although it is crucial to expand export markets outside the EU, more traditional markets must not be left aside, and the key to maintaining that balance is to focus on the quality of Welsh Beef and Lamb.
“Exports outside the EU represent a very good opportunity at the moment because of the global economy. It is good to look for outlets outside the EU to capitalise on the opportunities presented by growth in developing countries. In Dubai, for instance, people see Welsh Lamb as the best in the world. It is very important to sell ourselves as premium.
“Exports outside the EU might increase in the future, but we must not underestimate the importance of our EU market either. The ideal would be a good home/EU/international balance,” he says.
In the future, the Welsh meat industry will target Russia and China, two countries with growing economies and disposable incomes. Howells adds: “Russia is struggling to increase its domestic beef production and therefore continues to import large volumes. HCC hopes that Welsh Beef will be given access to the Russian market in the future.
“Market access is key. Russia and China both have strong economies and increasing demand for premium products, where Welsh Beef and Welsh Lamb fit very well. Lamb demand and exports from Wales have increased substantially year-on-year, and optimism is being built on the back of demand, so we need to capitalise on that.
"This is why we have a very strong Welsh Lamb brand. It is a unique selling proposition. The export market is crucially important, as it gives the industry access to more customers and allows for better balanced carcase returns. Trade with China, for example, would require parts of the carcase that wouldn’t have a very good value on the domestic market.”
The Welsh beef and lamb industry is facing important challenges due to ever-increasing input costs, the government’s contested sanitary decision on bTB, and the legislative and financial uncertainty on the European market. But optimism remains in the farming sector, driven by good performance on international markets and faith that the growing population is bound to boost meat demand on a global scale.