Memoranda submitted by the Meat and Livestock Commission
1. INDUSTRY OVERVIEW
The last 12 months have been a tumultuous time for the meat and livestock sector for two reasons:
— the escalation of the BSE crisis in Europe; and
— the outbreak of Foot and Mouth disease in the UK.
2. OVERVIEW OF THE CATTLE SECTOR—2001
The average producer price for cattle over the 10 months to October 2001 has fallen by 2.4 per cent, compared with the same period 12 months previously. To a large extent, the weakness of the cattle market can be linked to the BSE crisis in continental Europe, which escalated from November 2000 onwards. Although British demand for beef was unaffected, demand levels in other member states were affected to varying degrees. World market demand for EU beef also fell (to about half normal trading volumes) with the result that the EU has been faced with a beef surplus.
Given the resilience of British demand for beef, and the continued strength of sterling against other EU currencies, there has been a consequent increase in imports of beef into the UK as a whole. Over the January-August period (the latest period for which import data is available), beef imports into the EU from other member states rose by almost 11 per cent. This has had a dampening effect on GB cattle prices, and, more recently, a decline in the hide price has also had an effect. Linked to the global economic slowdown, hide prices fell back along with the demand for luxury leather goods.
However, the outbreak of Foot and Mouth Disease (FMD) has also had an impact on the sector in terms of reducing available supplies of prime cattle for slaughter. Although a decline in availability of between 2 and 3 per cent would have occurred without FMD, the effect of the outbreak has been to reduce supplies by about 11 per cent, as cattle were lost both to the disease and the associated Welfare Disposal Schemes. Management practices have also been disrupted as a result of the movement restrictions and this has, in some areas, had an impact on the quality of cattle being presented for slaughter. This will also have affected prices paid and will have partially contributed to the lower cattle prices this year, compared with last.
3. OVERVIEW OF THE SHEEP SECTOR—2001
The sheep sector has been considerably affected by the FMD crisis, more so than either cattle or pigs. An estimated 15 per cent of the breeding flock has been lost as a result of the various culls. Losses brought about by the FMD crisis have reduced the number of lambs available for slaughter with lamb slaughter figures for the season so far (since April down by 33 per cent year-on-year).
Despite this reduction in slaughterings, producer prices have been weak compared with last year. In September, prices were about 8 per cent down year-on-year whilst in October the differential was about 14 per cent.
Over the 10 months to October 2001, producer prices for lambs fell by about 1 per cent. However, this includes the pre-FMD period of January and early February 2001, when lamb prices were especially strong. This was partly due to a rising level of demand for export. Considerable difficulties have clearly occurred in the lamb sector since the onset of the FMD crisis. Collection of lamb price data was also difficult in the early months of the crisis, when the closure of auction markets meant the loss of the usual source of producer prices. An alternative source of prices, dead-weight price reporting, has subsequently been set up by the MLC. First results were published in August.
In Wales, the bulk of finished lamb sales off-farm would have commenced from about August onwards. This coincided with a collapse in lamb prices. Average prices over the period August-October were nearly 10 per cent lower than over the same period 12 months previously. The drop in prices was partially due to a collapse in the sheep skin price. Evens on 11 September compounded the gloomy global economic outlook. World demand for luxury leather/sheep skin products fell away with an immediate negative impact on skin prices of at least 25-30 per cent.
The announcement, at the beginning of November, of a partial lifting of export restrictions has had an almost immediate effect on prices, even before product was physically exported. Current prices are actually about 6 per cent higher than they were 12 months ago. This illustrates the significant effect that the existence of an export market can have on producer prices.
4. PRODUCER AND RETAIL PRICES AND PRICE SPREADS IN GREAT BRITAIN
MLC produces and publishes on a monthly basis price spread information for meat. The price spread is the difference between the producer price for carcase meat and the corresponding retail price charged for the balance of cuts that make up that carcase. Recent price spreads are shown in the table below and the price spread is expressed in two ways:
— the actual price spread in p per kg—being the difference between the producer and retail price; and
— the percentage price spread—being the retail price less the producer price expressed as a percentage of the retail price.
Price spreads are intended to be a broad measure of the general trends in the combined margins of the wholesale and retailing sector. They are not a measure of retail margins. In addition, these calculations do not take into account the value of beef and lamb sold into the catering and manufacturing areas.
Table 1
PRODUCER AND RETAIL PRICES AND PRICE SPREADS
|
|
Beef |
|
|
|
|
Lamb |
|
|
| |
producer
price |
retail
price |
price spread p/kg% |
producer
price |
retail
price |
price spread p/kg% |
|
January 2000 |
171.8 |
392.8 |
221.0 |
56.3 |
189.2 |
443.8 |
254.6 |
57.4 |
|
February 2000 |
169.2 |
386.7 |
217.5 |
56.2 |
221.0 |
453.2 |
232.2 |
51.2 |
|
March 2000 |
168.2 |
388.8 |
220.6 |
56.7 |
226.1 |
460.9 |
234.8 |
50.9 |
|
April 2000 |
168.6 |
381.0 |
212.4 |
55.8 |
228.6 |
464.4 |
235.8 |
50.8 |
|
May 2000 |
165.1 |
373.5 |
210.4 |
56.0 |
221.1 |
477.4 |
256.2 |
53.7 |
|
June 2000 |
170.8 |
381.0 |
210.3 |
55.2 |
201.3 |
463.6 |
262.3 |
56.6 |
|
July 2000 |
170.3 |
381.3 |
211.0 |
55.3 |
176.7 |
446.8 |
270.1 |
60.5 |
|
August 2000 |
168.1 |
381.2 |
213.1 |
55.9 |
175.4 |
437.4 |
262.0 |
59.9 |
|
September 2000 |
163.2 |
377.6 |
214.4 |
56.8 |
172.7 |
440.8 |
268.1 |
60.8 |
|
October 2000 |
159.5 |
376.5 |
217.1 |
57.6 |
168.4 |
443.2 |
274.7 |
62.0 |
|
November 2000 |
156.6 |
375.8 |
219.1 |
58.3 |
180.4 |
443.6 |
263.2 |
59.3 |
|
December 2000 |
165.3 |
366.9 |
201.6 |
54.9 |
192.7 |
452.7 |
260.0 |
57.4 |
|
January 2001 |
165.8 |
370.3 |
204.5 |
55.2 |
235.1 |
477.6 |
242.5 |
50.8 |
|
February 2001 |
162.5 |
368.7 |
206.2 |
55.9 |
244.1 |
493.2 |
249.1 |
50.5 |
|
March 2001 |
164.2 |
387.3 |
223.1 |
57.6 |
198.3 |
524.4 |
326.1 |
62.2 |
|
April 2001 |
166.2 |
382.3 |
216.1 |
56.5 |
228.3 |
516.7 |
288.4 |
55.8 |
|
May 2001 |
165.4 |
382.0 |
216.7 |
56.7 |
216.4 |
514.4 |
298.0 |
57.9 |
|
June 2001 |
162.9 |
375.7 |
212.7 |
56.6 |
211.2 |
505.7 |
294.5 |
58.2 |
|
July 2001 |
163.5 |
379.7 |
216.2 |
56.9 |
165.2 |
474.5 |
309.3 |
65.2 |
|
August 2001 |
165.2 |
376.7 |
211.5 |
56.1 |
163.1 |
433.8 |
270.7 |
62.4 |
|
September 2001 |
161.9 |
375.4 |
213.5 |
56.9 |
158.6 |
443.1 |
284.5 |
64.2 |
|
October 2001 |
157.2 |
378.5 |
221.3 |
58.5 |
145.2 |
439.7 |
294.5 |
67.0 |
5. COST INCREASES ALONG THE DEMAND CHAIN
Increased costs, as a result of the FMD crisis, have had to be borne at all levels of the demand chain. Notable costs would have included:
(a) To producers:
— vehicle cleansing and disinfecting procedures;
— transport costs (associated with trips to C&D centres and deadweight centres further away than might have been the local auction mart);
— time costs associated with both the above plus extra time required to find an outlet for finished stock, especially if not familiar with the deadweight selling procedure; and
— retention of stock for longer than normal due to movement restrictions and general complications associated with movement licence applications and diseconomies associated with sale of small lots of animals:
— decline in quality and value of stock.
(b) To abattoirs:
— additional inspection, cleansing and disinfecting procedures:
— physical cost of required equipment;
— cost of slowing down the rate of throughput at the abattoir;
— increased procurement costs due to movement restrictions possibly limiting supplies from usual sources:
— lower quality of stock on offer (due to impact of movement restrictions on normal producer management practices);
— collapse in the sheep skin (and cattle hide) market:
— especially affected returns from mid-September onwards when the 11 September events compounded the gloomy global economic outlook. World demand for luxury leather/sheep skin products fell away with an immediate negative impact on skin prices of at least 25-30 per cent.
(c) To retailers:
— some decline in consumer demand—especially at the beginning of the crisis due to negative (mainly sheep related) media images:
— consequent increased cost of consumer reassurance;
— reduction in availability of promotional funding from MLC.
Mr Bob Bansback
Corporate Strategy Director
5 December 2001
NOTE ON THE WELSH COUNCIL
Terms of reference, membership and operational procedures
INTRODUCTION
At the meeting held on 11 November 1998, it was agreed that an MLC Council should be established in Wales. Its principal function should be to take an overview of the livestock and meat sectors in Wales and to make recommendations to the Commission and other agencies on appropriate strategies for Wales. A further meeting on 27 January 1999 agreed the terms of reference.
PROPOSED TERMS OF REFERENCE
Act as a focal point for discussion on the strategic development of the livestock and meat industry in Wales and recommend strategies to MLC.
Support the National Assembly for Wales and the WDA's Agri-Food Partnership on strategic issues within the livestock and meat industry in Wales.
Co-ordinate implementation of agreed strategies along the whole meat supply chain.
Provide guidance to MLC in the management of levy funded MLC activity in Wales.
Support the Welsh industry in the accessing of regional (external) funding for Wales.
Provide strategic input to the MLC Species Strategic Councils for sheep and cattle.
Provide a focus for the communication of levy funded activity to all parts of the meat supply chain in Wales.
POSITIONING OF THE COUNCIL
Given the above terms of reference, the Council will need to have a pivotal positioning in relation to all levy-funded expenditure in Wales. Strong links will be required both with MLC Milton Keynes and Aberystwyth, as well as links to the National Assembly for Wales and other agencies.
OPERATION OF THE COUNCIL
It is proposed that the Council meet four times a year. The timing of meetings would need to take account (amongst other issues) of input into MLC's Corporate Plan.
The Council will be supported by a secretariat provided by the MLC office in Aberystwyth, supported by MLC Milton Keynes. Members will identify agenda items, and papers will be drafted for discussion at the meetings and presented by relevant MLC staff and others.
Minutes will be taken and circulated to members. Communication of Council activities and decisions will be agreed by the Council, for MLC to implement either through its own offices or agencies.
MEMBERSHIP
At the meeting on 11 November 1998 it was agreed that the Council would be chaired by MLC Commissioner, Rees Roberts. In addition, it was recommended that attendees of the meeting should form part of the membership of the Council. It was also recommended that current Welsh members of the MLC Species Strategy Councils should be included on the Council. It is therefore proposed that membership of the Council be constituted as follows:
|
Farmers' Union of Wales |
2 members |
|
National Farmers' Union Cymru—Wales |
2 members |
|
Guild of Welsh Beef and Lamb Suppliers |
2 members |
|
Young Farmers' Clubs Co-operatives |
1 member |
|
Welsh Agricultural Organisation Society) |
2 members |
|
Welsh Lamb and Beef Promotions Ltd) |
|
|
Women's Farming Union |
1 member |
|
Auctioneers |
1 member |
|
Welsh Development Agency (Food Director) |
1 member |
|
Welsh Institute of Rural Studies |
1 member |
|
National Assembly for Wales |
1 member |
In addition, the four Welsh representatives on the Cattle and Sheep Strategy Councils should be included, and provision is needed for up to three independent members.
VOTING
In the event of a vote becoming necessary, representatives from levy paying organisations only will be eligible to vote. The proposed voting arrangements are:
|
Farmers' Union of Wales |
2 votes |
|
National Farmers' Union Cymru—Wales |
2 votes |
|
Guild of Welsh Beef and Lamb Suppliers |
2 votes |
|
|
|
The Chairman will have a casting vote in the absence of a majority.
| 
