“A new drive to build strong market positions in Europe is now critical if the Irish beef industry is to secure its survival in a tough and challenging marketplace” according to Angela Kennedy, Chairman of Bord Bia. “The industry faces a major challenge as competition from low cost producers in South America continues to grow.”
Speaking at Anuga, the world’s largest food and drink fair, taking place this week in Cologne, Germany Angela Kennedy commented “The EU market deficit is heading for one million tonnes over the next five to eight years as European production contracts. We need to act now to ensure that the Irish beef industry retains its share of the market by targeting premium positions and delivering higher returns back to producers.”
Ireland is the largest exporter of beef in Europe, with export sales last year valued at €1.5billion. Irish beef has achieved significant diversification across the EU marketplace, which now accounts for 97 percent of exports, up from 50 percent in 2000. The industry has made significant progress in particular over the last five years, increasing its sales to Continental EU markets by 70 percent. Irish beef is listed in more supermarket groups (62, up from 27 in 2001) in more markets than beef of any other country of origin.
“The scale of the challenge that now confronts the industry cannot be overstated” commented Aidan Cotter, Chief Executive, Bord Bia. “However, while Irish beef producers require a significant premium over current market prices to remain in business, it is likely that there will be some realignment in beef prices to reflect the recent upward shift in grain prices. Similarly, a comprehensive analysis of market opportunities by Bord Bia suggests a further repositioning within the market could achieve an additional lift in market returns for Irish beef.”
“Ireland’s grass-based production systems are set to benefit relative to Continental Europe’s more intensive, grain-based feedlot systems from what now appears to be a permanent upward shift in feed prices” continued Aidan Cotter. “This should lead to an improvement in the relative competitiveness of Irish beef and the prospect that the pressure for production cutbacks, in the face of competition from South America, may be even more pronounced in Continental Europe.”
Bord Bia has undertaken, over the past nine months, a comprehensive analysis of the industry’s current performance in Europe, and the opportunities to further enhance existing market positions and deliver higher returns.
The assessment concluded that by successfully pursuing a range of opportunities, focusing on product differentiation, the industry could generate additional export revenues amounting to €170 million annually, equivalent to more than €100 per animal. These opportunities include:
Increasing the industry’s penetration of the expanding premium beef sector, as the market continues to segment and polarise, represents the biggest opportunity to secure higher returns
Many of these premium segments represent value added by producers, based for example on breed (including Hereford and Angus) and type of production (grass-based, organic or eco-friendly as in the REPS programme), that can ensure the higher returns can be captured by producers
Extending the industry’s portfolio of supermarket customers, as well as growing existing retail business organically, to generate additional revenues by shifting product from lower returning segments. The industry’s proven track record in building new retail business provides a strong platform for development
The adoption of central packing facilities across further EU markets will continue to provide Irish suppliers with increased opportunities to access Continental EU retailers
Specialist manufacturers are increasingly looking for higher specification raw material – specifications that are very demanding both in terms of control over the source of the raw material and the technical preparation of that product, which is effectively an ingredient used in further manufacturing. Ireland currently exports in the region of 2,000 tonnes to this category and there is significant potential for growth
The reopening of markets and access to new international market segments, driven in particular by growth in Asia, will also provide niche opportunities to add value in areas such as specialised cuts and offals
According to Bord Bia achieving these higher returns would require a significant, strategic repositioning and the setting of ambitious targets by industry over the next five years. It would require a doubling in the industry’s sales into the growing premium segment as well as extending its sales into the standard retail sector by one-third.
Bord Bia suggests there are two critical factors fundamental to supporting such a strategy:
Securing sufficient production, to exact market specification, matching supplies to requirements, on a 52 week basis. Given the diversity of markets being supplied within Europe, securing these supplies as volumes increase to the more discerning markets will require a greater level of supply chain collaboration – in particular, it will mean stronger links between primary processors and producers
2. Building trade and consumer awareness of Ireland as a source of premium beef is essential to successful differentiation in the marketplace. This will require significant investment in market development by the industry to add new retail business and consumer promotion to foster a positive image that will underpin its premium positioning.
The growing gap between what the EU produces and consumes provides further opportunities for non-EU suppliers to increase their presence. Brazil and Argentina combined account for 85 percent of EU beef imports at present and both countries are gradually gaining a stronger presence in the modern retail sector.
While the Doha round of WTO negotiations has yet to reach any agreement, the current proposal of a 70 percent cut in tariff rates could have significant implications for the competitiveness of imported beef over the medium term. As it stands around 120,000 tonnes of beef is imported at full duties and tariffs, which can amount to around €3,500 per tonne.
Assuming there are no supply disruptions from key markets, import volumes are expected to fully offset the decline in EU beef production over the medium term. This would increase import volumes to over 900,000 tonnes by 2013, compared to over 500,000 tonnes in 2006. Given the likely price competitiveness of this beef, it would have serious implications for open market beef prices in the EU. It highlights the need for the Irish beef to secure a market position from which it can insulate and differentiate itself, to the greatest degree possible, from imported product.