Focus on: Abattoirs
Alyson Magee investigates the UK abattoir sector and how the sector might be thriving despite recent death knells.
Things could be worse, but they could also be better, is the overriding message from the UK abattoir industry.
Some sectors are faring better than others, with the big operators getting bigger but toughing it out with the multiples, while smaller plants are struggling with the regulatory burden but carving out their own niche, supplying the lucrative foodservice sector.
Plimsoll Analysis’ latest report on the UK’s leading 121 abattoirs, published on 6 May, indicates increased profitability for half of businesses, including 40 companies achieving sales growth of more than 10%, but a decline in average annual sales growth across all 121 operators to 3.1%. Fifteen new entrants are listed.
Nine companies are named in Plimsoll’s report as ‘the best in the market’ among 55 businesses rated ‘strong’ as a result of their overall financial performance.
Plimsoll cites 18 companies in danger among 21 companies making a loss for a second consecutive year and 52 companies in too much debt.
Opportunity, meanwhile, is identified among 30 companies rated as ‘highly attractive’ acquisition prospects, the 18 companies in danger and 36 businesses contracting in their latest year of trading.
“If anything, the abattoir sector is doing reasonably well, looking at businesses like Cranswick Country Foods and the profits they’re making at the minute,” says Mick Sloyan, director of AHDB Pork. “Cranswick does a lot of value-added, but the core of what they do is pig slaughtering. There are challenges in the market but people seem to be handling them well at the minute.”
For Norman Bagley, head of policy at the Association of Independent Meat Suppliers (AIMS): “I would say the last few months have probably been better for the beef wholesaling side, from a profitability point of view.”
While cheap imports are affecting pork prices, “lamb and beef prices are manageable”, says Bagley. “They’re not off the clock completely.
“Contract slaughtering and boning are doing well, and independent catering butchers are doing extremely well. They take orders at midnight from chefs and deliver the next day; something the 3663s of the world can’t cope with.
“Investment in the sector is still pretty strong right across the board over the last 12-18 months. Small abattoirs are investing too.”
Independent catering butchers, in particular, are adding cutting operations to their abattoirs in response to increasing demand. “With the cutting side, they’ve pretty much all got it now,” says Bagley. “There’s a need to be more flexible and they’re certainly doing that.”
For larger abattoirs servicing the multiples, margins remain tight. “There’s been a five-year period of competition between the major retailers for survival, and who knows how it’s going to turn out with the big processors in the middle,” he says.
Stuart Ashworth, head of economics services at Quality Meat Scotland, says: “Aggressive competition in the high street is affecting processors in the same way that it is affecting all food suppliers to multiple retailers.
Negotiations over prices and product specifications are fierce.”
“Everybody is struggling with the retail market,” says Sloyan. “It’s difficult.”
The greatest consolidation is notable in pigmeat processing. “There’s a tremendous amount of consolidation in the pork sector at the moment,” says Sloyan. “The top four to five have 70-80% of throughput.”
Next up is likely to be Northern Irish processor Dunbia. “They have a broad range of interests so it will be interesting to see if their pig slaughtering ends up with another specialist,” he says. “On an international basis, there are fewer abattoirs on a bigger and bigger scale; it’s all about costs.”
Ashworth says: “In a Scottish context, the pig sector has seen the biggest change over the past five years or so with the closure of Vion Broxburn and the investment at Brechin. Nevertheless, the challenges are pretty common across all cattle, sheep and pig abattoirs.”
In Wales, meanwhile, abattoir numbers have remained relatively stable at around 22-24 following consolidation in the 1990s, says Prys Morgan, head of operations at Hybu Cig Cymru – Meat Promotion Wales (HCC).
However, ongoing volatility in the meat industry has affected the Welsh abattoir sector through changing ownership. “We’ve also seen the large abattoirs dominate throughput but, having said that, small abattoirs are still very important, with the contract kill sector selling direct to market doing very well,” says Morgan.
In April, HCC published a report – Assessment of Capacity in the Welsh Red Meat Slaughtering Industry – calling for further investment in the sector.
Valuing the contribution of the cattle, sheep and pig slaughtering sector to the Welsh economy at an annual £461m, the report estimates cattle throughput of 120,400 head, worth around £186m, sheep at 3.4m head, worth £271m, and pigs at 32,900 head, worth £4m. Large abattoirs represent 90% of the Welsh sector.
There has been investment in recent years, says Morgan, but at an insufficient level due to low profitability.
“It’s the kind of industry that needs continual upgrading and maintenance, and there is a lot of pressure on profitability from waste costs and electricity,” he says. “There is room, all the time, to improve efficiency from the largest to the smallest abattoirs.”
And abattoirs need to keep up with evolving demand. “Capacity to change is quite important going forward and that needs investment,” says Morgan, whether stemming from consumer demand or new regulations, which “larger abattoirs have more capacity to deal with”.
Ashworth says: “As a consequence of both the supply-and-demand pressures, margins that are historically slim are under intense pressure and, as profitability comes under pressure, the ability to finance infrastructure improvements etc becomes more challenging.”
Also identified as issues in the Welsh report are limited plant infrastructure, including a shortage of chillers, a limited customer base, skilled slaughter and butchery workers in short supply, and succession planning.
Labour, says Morgan, is “not just butchery skills but also customer relationships. Abattoirs are not just about slaughtering, they involve buying, slaughtering and selling.” As for succession, he says: “If families or individuals are involved, is there a plan in place?”
“Abattoirs are an important part of the Welsh economy and will need to be supported in order to maintain and improve their efficiency,” says Morgan. “To increase efficiency – for example, reducing the amount of water used – does need investment.
“In any investment, if support is available, it needs to be on a case-by-case basis. There is no point opening an abattoir if you don’t have a target market. Support needs to be for businesses that can demonstrate sustainability going forward.”
Supply is a concern across the industry. “Although livestock is a processor’s biggest single cost, a lot of their other costs are of a ‘fixed’ nature rather than variable – for example, refrigeration costs,” says Ashworth.
“Utility costs, labour costs etc are relatively ‘fixed’ and, consequently, throughput is important to ‘spread the costs’. The decline in cattle and sheep availability over an extended period clearly then impacts on profitability.”
Morgan says: “Livestock supply is a big one,” and a barrier to investment. In Wales, “sheep are fairly steady”, he says, while “beef has generally declined, with livestock supply for abattoirs a concern going forward.
“The pig sector in Wales is unique, with marketing reflecting the diversity of the sector. It’s a small but important sector, with direct-to-market sales important.”
Meanwhile, returns from hides, skins and the fifth quarter have diminished at the same time as disposal costs have risen.
“There is a significant difference in the amount paid for disposal of by-products, depending on the location and the volume of waste,” says Morgan. “With skins and hides, some are getting more than others.”
Bagley says: “Waste disposal costs have run through the roof [and] hides and skins are getting towards worthless. Hides are worth half what they were 18 months ago.”
While praising Food Standards Agency (FSA) chief operating officer Jason Feeney as “a breath of fresh air and more proactive at working with industry than any civil servant we’ve dealt with before”, AIMS continues to push for changes to the FSA’s payment structure for meat inspection, says Bagley.
“You can hire a meat inspector for £15/hour,” he says. “Is it right you can then source them out to the meat industry at £30/hour. The overloads piled onto us are unacceptable. The only way is to outsource meat inspection; it could save industry a significant amount of money.”
Morgan says: “It’s not all problems. There are successful businesses and, like any business, there are challenges.”
On the positive side, a weakening of sterling against the euro has boosted export prospects. Conducting his phone interview from SIAL China, Sloyan says: “There are other compensations, like the export market, which is what I’m doing here.”
One to watch for the abattoir sector is next month’s Brexit poll, with EC regulations widely regarded as a burden by industry, but the EU also representing its biggest export market.
“If we leave, there is a potential gain for non-exporting plants,” says Bagley. “There’s no reason they couldn’t go back to the old square stamp, and would you need veterinary ante-mortem? There are potential benefits for small operators.”
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