Memorandum from the Meat and Livestock
Commission
PRODUCER AND RETAIL PRICES OF BEEF AND LAMB
INTRODUCTION
MLC has published price spreads on a monthly
basis since October in its UK Weekly Market Survey—it should
be borne in mind that these are price spreads not margins. A summary
of the situation over the past two years is set out in the table
below:
Table 1
PRODUCER AND RETAIL PRICES, AND PRICE SPREADS
|
| Beef
| Lamb |
| | |
| | | |
| | | |
| Producer
| Retail | Price spread
| Producer
| Retail | Price spread
|
| p/kg lw
| p/kg dw | p/kg
| p/kg | %
| p/kg lw | p/kg dw
| p/kg | p/kg
| % |
|
| 1995 | |
| | | |
| | | |
|
| Dec | 120.9 | 223.8
| 403.2 | 179.4 | 44.5
| 118.8 | 252.8 | 406.2
| 153.4 | 37.8 |
| 1996 | |
| | | |
| | | |
|
| Jan | 119.7 | 221.7
| 403.6 | 181.9 | 45.1
| 123.5 | 262.7 | 414.7
| 152.0 | 36.7 |
| Feb | 120.2 | 222.6
| 400.4 | 177.8 | 44.4
| 131.6 | 280.1 | 423.0
| 142.9 | 33.8 |
| Mar | 117.6 | 217.8
| 403.5 | 185.7 | 46.0
| 148.4 | 315.7 | 433.3
| 117.6 | 27.1 |
| Apr | 104.5 | 193.4
| 380.1 | 186.7 | 49.1
| 178.4 | 379.5 | 524.4
| 144.9 | 27.6 |
| May | 99.8 | 184.9
| 383.5 | 198.7 | 51.8
| 156.5 | 332.9 | 542.4
| 209.5 | 38.6 |
| Jun | 100.8 | 186.6
| 386.6 | 200.0 | 51.7
| 125.6 | 267.1 | 509.5
| 242.4 | 47.6 |
| Jul | 99.8 | 184.8
| 386.5 | 201.7 | 52.2
| 109.5 | 233.1 | 449.5
| 216.4 | 48.2 |
| Aug | 96.0 | 177.8
| 388.1 | 210.3 | 54.2
| 110.4 | 234.8 | 438.8
| 204.0 | 46.5 |
| Sep | 96.0 | 177.7
| 385.4 | 207.7 | 53.9
| 119.3 | 253.8 | 435.3
| 181.4 | 41.7 |
| Oct | 96.5 | 178.8
| 385.6 | 206.8 | 53.6
| 117.4 | 249.7 | 433.5
| 183.8 | 42.4 |
| Nov | 107.1 | 198.2
| 385.7 | 187.5 | 48.6
| 134.3 | 285.8 | 451.0
| 165.2 | 36.6 |
| Dec | 108.2 | 200.3
| 389.7 | 189.3 | 48.6
| 137.0 | 291.5 | 466.8
| 175.3 | 37.6 |
| 1997 | |
| | | |
| | | |
|
| Jan | 105.4 | 195.2
| 390.7 | 195.5 | 50.0
| 139.4 | 296.7 | 476.5
| 179.8 | 37.7 |
| Feb | 102.1 | 189.1
| 385.4 | 196.3 | 50.9
| 142.5 | 303.1 | 484.1
| 181.0 | 37.4 |
| Mar | 98.0 | 181.4
| 384.3 | 202.9 | 52.8
| 148.0 | 314.9 | 486.4
| 171.5 | 35.3 |
| Apr | 94.2 | 174.4
| 381.6 | 207.2 | 54.3
| 138.3 | 294.3 | 487.7
| 193.4 | 39.6 |
| May | 91.0 | 168.5
| 389.2 | 220.7 | 56.7
| 135.8 | 289.0 | 513.2
| 224.3 | 43.7 |
| Jun | 92.2 | 170.8
| 382.1 | 211.2 | 55.3
| 116.8 | 248.4 | 485.7
| 237.3 | 48.9 |
| Jul | 98.3 | 182.1
| 383.7 | 201.6 | 52.5
| 111.7 | 237.6 | 463.9
| 226.3 | 48.8 |
| Aug | 100.0 | 185.1
| 384.3 | 199.1 | 51.8
| 111.8 | 237.9 | 454.4
| 216.4 | 47.6 |
| Sep | 99.4 | 184.1
| 385.7 | 201.6 | 52.3
| 111.5 | 237.1 | 442.6
| 205.4 | 46.4 |
| Oct | 96.2 | 178.1
| 383.8 | 205.7 | 53.6
| 104.2 | 221.7 | 442.6
| 220.8 | 49.9 |
| Nov | 93.1 | 172.4
| 377.8 | 205.5 | 54.4
| 99.5 | 211.6 | 439.5
| 227.9 | 51.9 |
| Dec | 92.9 | 172.1
| 374.9 | 202.8 | 54.1
| 91.5 | 194.7 | 433.0
| 238.3 | 55.0 |
|
Retail prices are derived from a sample of untrimmed averages
(bone, fat and other trim valued at zero), of quoted retail selling
prices from retail outlets (butchers and supermarkets).
The bases of these figures are set out in Annex 1.
REASONS FOR
CHANGES IN
PRICE SPREADS
Price spreads are intended to be a broad measure of the difference
between the producer and retailer price as well as trends in the
difference. It should be noted that the "retail prices"
refer only to disposals to half of the market and ignore the value
of beef and lamb, sold in the manufacturing and catering sectors.
They also take no account of changes in the costs of marketing
and distributing the meat downstream of the farm sector or of
differences in the meat marketing chain; for example, there may
not be actually a separate wholesaler these days.
As a result, over the two year period precise comparisons
of prices are difficult to make. For example, the quoted price
spreads do not take account of the profits or costs from the "fifth
quarter". This means that producer prices will also be affected
by selling hides and edible offals and the cost of disposal of
Specified Risk Materials (SRM) in addition to the retail price.
Nevertheless, Table 1 shows a widening in the spread over
the past two years even allowing for a significant seasonal variation.
The key reasons for this are:
(a) the balance of cuts sold in multiple retailers has
altered very significantly over the past two years; this can be
measured by comparing the situation from audited retail information
over the past two years. In addition it is difficult for the series
to take full account of all the various special offers;
Table 2
PERCENTAGE SHARE OF HIGHER PRICE CUTS
SOLD THROUGH MULTIPLE RETAIL OUTLETS
|
| December 1995 |
December 1997 |
|
| Beef | 41% | 45%
|
| Lamb | 70% | 71%
|
|
(b) there has been a significant increase in processing
costs in the period. These are due to:
(i) certain cattle offal by-products have been banned
from November 1989, and the list had been added to prior to 1995.
However from March 1996 the radical changes in the values of meat
and bone meal and tallow resulted in a major adjustment to the
economics of rendering abattoir waste which in turn resulted in
the introduction of a subsidy to renderers. Table 3 sets out the
change in prices for meat and bone meal and tallow;
Table 3
PRICES FOR UK MEAT AND BONE MEAL AND TALLOW
|
| 1995 |
| 1997 |
| | £ per tonne
| |
|
| Meat and Bone Meal | 120-200
| | 0 |
| Tallow | 180-320 |
| 40-120 |
|
(ii) the withdrawal of the rendering subsidy (which will
be finally phased out by March 1998) means that the industry will
have to meet an additional £100 million costs a year. The
cost to the beef sector would be £43 million (£20 per
head) and to the sheep sector £32 million (£1.37 per
head);
(iii) the value of offal by-products (excluding hides/skins)
returns to abattoir in December 1995 was £18.20 an animal
but by December 1997 this had fallen by over 50 per cent, to £9
per head, and sheep by-product prices also fell from £2.70
per head to £1.35 per head;
(iv) average cattle hide values have fallen by 4 per
cent over the two year period;
(v) for beef, abattoirs who were selling certain high
priced cuts for export and were able to sell other cuts more competitively
on the home market were unable to do so after March 1996 due to
the loss in the export market.
(c) the average producer price in the price spread calculation
represents the return from selling all parts of the animal to
a range of outlets eg the manufacturing and catering sectors where
the price for certain forequarter cuts has been exceptionally
depressed.
ESTIMATED PRICES
AND COSTS
In tables 4 and 5, we set out the estimated prices and costs
in the beef and lamb chains for the fourth quarter of 1997. These
tables take account of the various additional cost factors and
give some idea of the difference between returns and costs for
the two sectors. It should be borne in mind:
(a) the division between the abattoir and retailer shown
in this example is artificial because of the many different relationships
which now exist between abattoir operators and multiple retailers
eg some multiple retailers require their abattoir to deliver retail
packs—others deliver primal cuts for in-store butcheries;
(b) in many cases retailers will not buy whole sides but
primal cuts or meat packed in Controlled Atmosphere Packs (CAP).
This confuses the issue as to where costs are incurred in relation
to particular sectors;
(c) the "difference" shown in rows 10 and 16
in tables 4 and 5 represent indicative differences of prices over
operational costs, which still have to cover a range of other
overhead costs which exist at the abattoir or retailer stage.
Table 4
ESTIMATED PRICES AND COSTS IN THE SUPERMARKET BEEF CHAIN,OCTOBER/DECEMBER
1997
|
| Item | | Assumptions
| 1997 | 1997 |
| Producers | |
| p/kg | £/head |
|
| 1 | Live steer price | 600 kg
| 94.1 | 564.6 |
| 2 | Deadweight equivalent |
Killing out = 54 % | 174.3 | 564.6
|
| | 324 kg carcase
| | |
| | |
| |
| Wholesalers/abattoirs |
| | | |
| 3 | Wholesale seling price |
MLC 270-330 kg carcase | 197.5 |
639.9 |
| | wholesale prices + 5 %
| | |
| 4 | -Buying price |
| 174.3 | 564.6 |
| 5 | +Hide/other by-produce sales
| | 12.3 | 40.0
|
| 6 | =Difference (3+5-4) |
| 35.6 | 115.3 |
| 7 | -SRM disposal costs |
| 1.3 | 4.2 |
| 8 | -Rendering charges |
| 3.4 | 11.0 |
| 9 | -Indicative costs of slaughter and primal boning
| | 25.8 | 83.7
|
| 10 | =Difference (6-7-8-9) |
| 5.1 | 16.4 |
| | |
| |
| Retailers | |
| | |
| 11 | Retail selling price (untrimmed)(a)
| | 309.9 | 1004.1
|
| 12 | -Buying price |
| 197.5 | 639.9 |
| 13 | -Loss due to higher cutting specs
| 67 % used by supermarkets | 13.3
| 43.0 |
| | instead of 70% in MLC survey
| | |
| 14 | -Drip loss | 2.5 % weight loss
| 7.7 | 25.1 |
| 15 | -Indicative retail costs
| | 86.7 | 281.0
|
| 16 | =Difference |
| 4.6 | 15.0 |
| (10-11-12-13-14) |
| | |
|
(a) Average retail selling price of multiple retailers—is
derived from average prices of cuts weighted by the proportion
in which the cuts are sold in supermarkets (as a result this price
is lower than that indicated in Table 1).
Based on the following assumptions
1. Separate retail cutting function from wholesale/abattoir
function.
2. Meat leaves the abattoir sector as primals.
3. Cutting and packing takes place in the retail sector.
4. Producer, wholesale and retail returns are based on
average prices from MLC surveys.
5. Abattoir buying price does not take account of any
adjustments relating to transport costs or other deductions.
6. Abattoir costs include estimated costs of slaughter
and basic boning to main primals.
7. Retail costs include estimated butchery costs and
packaging but do not cover store overheads, sales staff, depreciation,
etc.
Table 5
ESTIMATED PRICES AND COSTS IN THE SUPERMARKET LAMB CHAIN,
OCTOBER/DECEMBER 1997
|
| Item | Assumptions
| | |
| | | 1997
| 1997 |
| Producers |
| p/kg | £/head
|
|
| | |
| |
| 1 | Live lamb price | 38 kg
| 98.4 | 37.4 |
| 2 | Deadweight equivalent |
Killing out = 47% | 209.3 | 37.4
|
| | 17.9 kg carcase
| | |
| | |
| |
| Wholesalers/abattoirs |
| | |
| 3 | Wholesale selling price
| 30-40 kg carcases | 221.9 |
39.7 |
| 4 | - Buying price |
| 209.3 | 37.4 |
| 5 | + Skin/other by-product sales
| | 50.3 | 9.0
|
| 6 | = Difference (3+5-4) |
| 62.9 | 11.3 |
| 7 | - SRM disposal costs |
| 1.7 | 0.3 |
| 8 | - Rendering charges |
| 4.2 | 0.8 |
| 9 | - Indicative costs of slaughter and primal cutting
| | 32.6 | 5.8
|
| 10 | = Difference (6-7-8-9)
| | 24.5 | 4.5
|
| | |
| |
| Retailers |
| | |
| 11 | Retail selling price (untrimmed)(a)
| | 339.6 | 60.8
|
| 12 | - Buying price |
| 221.9 | 39.7 |
| 13 | - Loss due to higher cutting specs
| 72% used by supermarkets instead of 75% in MLC survey
| 13.5 | 2.4 |
| 14 | - drip loss | 3% weight loss
| 8.5 | 1.5 |
| 15 | - Indicative retail costs
| | 71.3 | 12.8
|
| 16 | = Difference (10-11-12-13-14)
| | 24.4 | 4.4
|
|
(a) Average retail selling price of multiple retailers—are
derived from the average price of cuts weighted by the proportion
in which the cuts are sold in supermarkets (as a result this price
is lower than that indicated in Table 1).
Based on the following assumptions
1. Separate retail cutting function from wholesale/abattoir
function.
2. Meat leaves the abattoir sector as primals.
3. Cutting and packing takes place in the retail sector.
4. Producer, wholesale and retail returns are based on
average prices from MLC surveys.
5. Abattoir buying price does not take account of any
adjustments relating to transport costs or other deductions.
6. Abattoir costs include estimated costs of slaughter
and basic boning to main primals.
7. Retail costs include estimated butchery costs and
packaging but do not cover store overheads, sales staff, depreciation,
etc.
CONCLUSION
The retail price spreads for beef and lamb have widened significantly
over the last two years. The above analysis suggests that a significant
proportion of this can be explained by the higher cost structure
which has been incurred by the industry. It is also clear from
Tables 2 and 3 that returns to the abattoir and retailer sectors
in recent months are not excessive, taking account of the additional
costs that have had to be met by these sectors.
It is also clear however that whereas for much of 1996 low
producer prices were compensated by increased premium payments,
total returns in the latter part of 1997 for beef and lamb producers
were significantly reduced, whereas margins for the abattoir and
retail sectors appear to have been maintained.
23 January 1998
| 
