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The coronavirus pandemic is impacting significantly on the meat and livestock sectors. Demand for beef has been disrupted here in Ireland and across our major export markets by the closure of restaurants, hotels and bars, as Governments try to contain the spread of the virus.
Market channels
Sales of Irish beef have performed strongly in recent weeks at multiple retailers and butcher shops. However, this is not enough to replace the significant loss of orders coming from the foodservice and manufacturing sectors, which are particularly important when it comes to achieving a carcase-balance.
Almost 90% of Irish beef production is exported, with the UK and continental Europe accounting for the majority of this.
In recent years, the Irish beef industry has been successful in gaining listings with more than 80 EU supermarket groups: more than any other country.
This has included ongoing business with leading retailers in Germany, the Netherlands, Italy, Scandinavia and Belgium.
The following analysis of Irish beef exports by region also provides a breakdown according to the three principal market channels: retail, foodservice and manufacturing (Figure 1).
While the recent improvement in retail sales is positive, the difficulty is that, on average, almost 60% of the total volume of Irish beef exported is normally sold into the foodservice and manufacturing channels.
The steak cuts, which include fillet, striploin, ribeye and rump, have experienced a collapse in demand
At present, these outlets are heavily impacted in most markets, as both sales of beef into restaurants, particularly steak cuts, and manufacturing for the large burger chains have been effectively suspended.
The steak cuts, which include fillet, striploin, ribeye and rump, have experienced a collapse in demand, because the foodservice channel usually accounts for more than half of steak sales.
Falling prices may lead to much of this product having to be frozen and sold later in the year. However, by freezing, the product is also devalued in the eyes of most customer.
Producer prices
Falling cattle prices are a major concern at farm level, particularly following the difficult market situation endured by the beef sector in the past year.
The most recent prices published by the Department of Agriculture, Food and the Marine for the week ending 28 March show that Irish R3 steers averaged €3.65/kg excluding VAT.
For the same week, R3 steer prices in the UK were equivalent to €3.74/kg excluding VAT, which also reflected recent weakness in sterling against the euro.
Across the EU, where the majority of male cattle are finished as bulls, the average R3 young bull price was €3.52/kg (excluding VAT).
Visitors to the beef market tracking section of Bord Bia’s website (Figure 2) will notice that the Irish composite cattle price, or average price paid in Ireland across all categories and grades of animals for the week ending 28 March stood at €3.38/kg.
While this indicator has been in decline in recent weeks, the export benchmark price (which tracks the equivalent carcase prices prevailing across the main EU markets for Irish beef, was equivalent to just €3.29/kg for the same week.
This highlights the significant declines also being recorded in cattle prices across Europe in recent weeks.
In the past fortnight, quotes for O grade cows have fallen by up to €0.40/kg at Irish meat plants
With the foodservice and manufacturing channels greatly restricted, cull cow prices have experienced the most severe downward pressure.
In the past fortnight, quotes for O grade cows have fallen by up to €0.40/kg at Irish meat plants.
Similarly, there is limited demand for other animals falling outside the preferred retail specifications.
Supply situation
To date for 2020, cattle throughput at export meat plants has been running some 2% or 9,000 head above the equivalent period last year.
This reflects higher numbers of steers and heifers available (up 9% and 4%, respectively), although young bull supplies have declined by 25% and cull cows by 4%.
Cattle processing activity is expected to decline over the coming weeks.
Following strong supplies of finished cattle throughout the first quarter, some seasonal contraction in availability would be anticipated.
In addition, the present difficult market environment is likely to put pressure on throughput, while sales opportunities are restricted.
Chinese market
In recent weeks, the situation in China regarding COVID-19 has become more positive. As the number of new cases continues to fall, the market is starting to recover.
Businesses there are reopening and it is estimated that close to half of employees have returned to work.
The foodservice sector, which during February and most of March was limited to companies offering delivery, has this week seen close to 90% of restaurants resume normal service, albeit with reduced footfall.
Restaurants themselves are offering discounts to attract customers
This includes McDonald’s, which has reopened 95% of its Chinese outlets.
For now, demand remains muted and a survey by the Chinese catering industry association revealed that 49% of restaurant owners believe it will take three months after COVID-19 has stabilised for demand to fully recover, with another 46% thinking it would take up to six months.
Local governments are starting to implement various schemes (coupons/cash) to spur consumption.
At present, there is a shortage of shipping containers available worldwide
Restaurants themselves are offering discounts to attract customers. However, China was already experiencing a fundamental deficit of meat as a result of African swine fever (ASF).
COVID-19 has further amplified this shortage, which highlights the growing importance of continuing to develop the Chinese market for Irish beef exports.
At present, there is a shortage of shipping containers available worldwide, because of the COVID-19 related disruption to logistics within China in recent months.
However, it is anticipated that this situation will improve as the market recovers.
The performance of cattle prices has traditionally been assessed by comparing the Irish R3 steer price at a point in time with the prevailing prices of R3 prime male cattle (steers/young bulls) across key markets, such as the UK and continental Europe.
However, one of the outcomes arising from the beef taskforce last autumn focuses on the comparison between the Irish composite cattle price and the export benchmark price.
Composite cattle price
The Irish composite cattle price equates to the average price per kilo paid for all cattle slaughtered in Ireland on a weekly basis.
Therefore, it takes into account the proportion of animals which fall into the different categories: steers, young bulls, heifers and cows (Figure 3) and the main carcase grades, based on the profile of animals processed in Irish meat plants in 2019 (Tables 1 to 4).
What is export benchmark price?
In order to establish a representative market indicator with which to compare the Irish price, Bord Bia analysed the cattle prices in our main export markets.
This involved producing composite prices for the individual markets, using the prices reported for the different carcase categories and grades on a weekly basis by the European Commission.
Weightings are then applied according to the markets’ relative importance for Irish exports. For example, UK cattle prices are given a weighting of 47%, reflecting the level of Irish exports there in 2019.
Similarly, % weightings were applied to cattle prices across EU markets including France, Italy, Germany, the Netherlands and Sweden, in order to arrive at an export benchmark price.
This equates to the average price that Irish producers would theoretically receive, if their cattle were priced according to the prevailing carcase prices across the primary export markets.
Comparing the Irish composite price with the export benchmark price over the past year (Figure 2), we can see firstly that during the second quarter of 2019 average returns in Ireland exceeded the market indicator.
The analysis indicates that from July onwards, cattle prices in Ireland were on average lower than those in our main export markets.
The comparison also shows the decline in cattle prices over the past month, which have actually been more dramatic across key export markets than they have here in Ireland.
The closure of a major route to market with the loss of restaurants and food service sector and its devastating impact on the value of steak meat means a refocusing of Bord Bia campaigns.
Minced beef is selling well through supermarkets and butchers so the challenge is to get retail customers persuaded to buy steak.
In Germany, an in-store campaign is planned alongside a retailer campaign to drive sales of Irish beef
A TV campaign is running in Ireland to encourage shoppers to buy beef with a particular attention to steak.
Elsewhere in Europe, an online campaign in Italy for steak meat in butchers has reached 170,000 people and led to an increase in sales despite the coronavirus difficulties in that country.
In Germany, an in-store campaign is planned alongside a retailer campaign to drive sales of Irish beef. Promotions will continue as COVID-19 restrictions are relaxed over time.
There are more encouraging reports coming from our China office about Chinese buyers being back in the market
Rebuilding export markets will be assisted by Bord Bia’s network of 14 global offices where our people on the ground are maintaining a link with buyers of Irish beef.
There are more encouraging reports coming from our China office about Chinese buyers being back in the market.
We will be building on this and similarly in other markets as they recover from the devastating impact of COVID-19 using every tool at our disposal to make sure Irish beef is firmly in the minds of buyers across the world.
