THE SCOTTISH RED MEAT INDUSTRY PROFILE 2010 EDITION

INTRODUCTION
This report draws together a wide range of the latest information on the red meat industry in Scotland covering the chain from the producer to the final consumer. It collates data from a number of sources and covers the calendar year 2009 unless otherwise stated. The objective of the report is to provide users with a single source of key information on the shape and scale of the red meat industry in Scotland. This is the fifth edition of this publication and highlights the continued importance of the red meat sector to the Scottish economy. A decline in breeding stock numbers over several years resulted in a general decline in prime stock availability during 2009. The financial crisis of late 2008 continued to weigh heavily on exchange rates through 2009 and the continued weakness of the Sterling/Euro exchange rate made Scottish red meat exports to mainland Europe extremely competitive and processors achieved further growth in export sales. Tight supplies and improved export demand underpinned an improvement in producer prices. Improved prices in the livestock sector resulted in the importance of rearing livestock for meat production in Scottish agricultural output to increase to 38.5% with beef production the single largest enterprise in the mix contributing 26% of total agricultural output. Reductions in the price of some key inputs, particularly animal feeds, fertiliser and energy, and improved product prices contributed to returning confidence among producers and as 2009 drew to a close there was some evidence that the decline in breeding stock numbers was slowing if not reversing. In the processing sector, wholesale and retail meat price inflation did not match producer price inflation and processors found it difficult to pass on increased costs of production. Consequently, despite an increase in turnover among Scottish processors their profit margins continued to be squeezed and they were particularly concerned over future livestock availability. Lower domestic production and increased exports meant that increased imports would be needed if consumption was to be maintained. However, through a combination of trade disruptions with South American suppliers, declining stock numbers in Australasia and Europe and exchange rate movements, imports failed to match the decline in domestic meat availability and resulted in UK consumption of beef, lamb and pork all declining during 2009. 2009 was, consequently, a varied year for the Scottish red meat supply chain. While processors found the year challenging with margins under pressure, producers generally benefited from the market conditions and ended the year with more confidence over their future than for several years.

CONTENTS EXECUTIVE SUMMARY ...........................................................................................................3 FARMING CONTRIBUTION .....................................................................................................4 Cattle production .........................................................................................................................6 Sheepmeat production .................................................................................................................8 Pig production ...........................................................................................................................10 PROMARY PROCESSING CONTRIBUTION ........................................................................11 Supply of Product to the Processing Sector................................................................................13 Cattle.....................................................................................................................................13 Sheep.....................................................................................................................................16 Pigs .......................................................................................................................................18 PRICES........................................................................................................................................19 General Economic Factors.........................................................................................................19 Retail price index (RPI) .........................................................................................................19 Exchange Rate Movements....................................................................................................19 Price Movements.......................................................................................................................21 Producer Prices......................................................................................................................21 Producer Input Cost ...............................................................................................................23 Retail Prices ..........................................................................................................................23 CONSUMER DEMAND .............................................................................................................25 UK OVERSEAS TRADE............................................................................................................26 Imports......................................................................................................................................26 Beef.......................................................................................................................................26 Sheepmeat .............................................................................................................................27 Pigmeat .................................................................................................................................28 Exports......................................................................................................................................31 Beef.......................................................................................................................................31 Sheepmeat .............................................................................................................................32 Pigmeat .................................................................................................................................33 REFERENCES............................................................................................................................34

EXECUTIVE SUMMARY
Farming and processing of red meat in Scotland makes an important contribution to the nations economy. Before support payments the sector has a turnover of approximately 1.7bn. This figure, which excludes ancillary industries and further processing, represents an 8% rise on 2008s output. As Scottish GDP declined 4.8% in 2009, the livestock and primary processing sectors contributed more to the economy than in the previous year with a share in GDP of around 0.6%. Direct employment in the rearing of beef cattle, sheep and pigs and the primary processing sector amounts to approximately 27,000 employees and proprietors (both full and part-time). The Scottish suckler herd reversed the declining trend of recent years to grow 0.4% in 2009 to 521,000 head. The breeding ewe flock fell only 0.2% in 2009, remaining just under 2.9m head. After large declines in recent years the rate of decline in the sow herd slowed to 0.6%, with the population standing at 33,200 head. Tight supplies and exchange rate movements underpinned producer prices. Annual average prices at the farm gate for beef, lamb and pork increased by 8%, 21% and 15.5% respectively during 2009. There was a 1.2% decrease in cattle slaughterings to 498,000 head during 2009, but only marginally less beef was produced (down 0.1% to 172,000 tonnes). Nevertheless the processing sector increased its revenues from beef by 5% on the year to 536m. In the sheep sector a higher kill and a 10.2% increase in sales volume pushed revenues up by 5m to 103m. Despite a 13% fall in throughput and volume of meat produced, pig processors saw turnover rise 12% to 168m. In 2009 total production by the Scottish red meat industry amounted to 248,850 tonnes, a reduction of 1.7% on 2008. Scottish processors sold about two-thirds of their output to multiple retailers, an increase from the previous year as less pigmeat was delivered to food processors and less beef went to independent retailers. During 2009 red meat retail prices increased faster than the retail price index and all food items grouped together as producer prices saw strong year-on-year growth. Food price inflation was higher than the general level of retail price movements, which fell due to the reduction in VAT and lower housing costs. The UKs annual red meat consumption fell for a second year. There were declines in beef, lamb and pork, whereas bacon and ham consumption rose. Agricultural input prices, which had fallen back after spiking in 2008, began to rise again in the second half of 2009. This happened as a weaker Sterling against the US Dollar, than in previous years, inflated oil prices and imported protein in Sterling terms. Sterlings weakness against the Euro made British exports more competitive in the EU market, while imports became more expensive. The cattle industry saw further export growth in 2009 despite weaker consumer demand in the European Union. Exports of sheepmeat also expanded on the year, up 8.3%, while pigmeat exports fell a fifth. Imports of beef dropped to their lowest level since 2002 as unfavourable exchange rates raised their cost. Lamb imports increased on the year, up 3%, which can be attributed to more deliveries of expensive fresh and chilled product from New Zealand. Although overall imports of pigmeat fell 4.5% compared to 2008, more processed product was delivered.

FARMING CONTRIBUTION
In 2009 the Scottish agricultural industry contracted by 2.7% with output for the year, excluding subsidies, being 2,261.4m. However, output from the beef, sheep and pig sectors of Scottish farming rose for a second year in a row. Livestock output, at 871m, was 13% higher than in 2008. Consequently the livestock sector increased its share of Scottish agricultural output to 38.5%. Beef production was again the largest sector of Scottish agriculture, contributing 581m. This was an increase of 8.9% on 2008 with the sector making up slightly more than a quarter of all agricultural production in Scotland. Strong growth in output was underpinned by a 6% gain in the output of finished cattle, whilst a 27% rise in output from store cattle and calves gave it a further boost. 2009 saw a large increase in output from Scottish sheep farming. It grew by 31% compared to the year before to stand at 226.6m with gains spread between finishing, store sheep and capital formation. This raised its share of Scottish agricultural output by three percentage points to 10%. There was very little change in the output of Scotlands pig sector at 63.7m. However, due to the fall in overall agricultural output its share increased marginally to 2.8%.

Livestock contribution to agricultural output in Scotland - 2009

Cattle 26%

Other 61%

Sheep 10% Pigs 3%

Source: Scottish Government (2010c) Scottish agriculture created direct employment for some 60,000 occupiers, spouses and regular full and part-time employees during 2009, an increase of 2.5%. On a pro-rata basis, based on contribution to output, the beef cattle, sheep and pig sectors created employment for approximately 23,400 people. Livestock remains of greater significance to Scottish agriculture than it is in the UK as a whole or on average in the EU. Scotland UK EU-27

Percentage of agricultural output in 2009 Beef Sheepmeat Pigmeat 25.7 10.0 2.8 4 13.8 4.8 4.6 8.4 1.4 8.9

Sheep production remains the most common farming activity in Scotland with 29% of Scottish holdings being involved in sheep production in 2009. 25% of Scottish holdings are involved in cattle production with pig production far smaller at approximately 2% of holdings.

Proportion of holdings with livestock enterprises

40

30

Per cent

20

10

0 Holdings with cattle Holdings with sheep Holdings with pigs

Source: Scottish Government (2009a)

Average herd and flocksize In 2009 the average Scottish beef suckler herd consisted of 49 cows, which is almost double that of the UK average and is unchanged on the previous two years. The average breeding ewe flock was 3.5% smaller than the year before at 253 head but remains much larger than the UK average. 2009 saw yet further consolidation in the pig sector with the average sow herd falling by around a further 12% on the year to 68 head. When compared with 2007, the decline in the sow herd has extended to 25%. Scotland (2009) Beef cows Breeding ewes and gimmers Breeding sows 49 253 68 Scotland (2008) 49 262 77 UK (2008) 25 211 78

Source: Scottish Government (2009, 2010b), Defra (2009)

Cattle production The Scottish beef breeding herd reversed its recent declining trend, increasing by 2,000 head or 0.4% to reach 521,000 head as of December 2009. However, the dairy breeding herd saw a continuing decline, falling 6,000 head or 2.6% to 223,000 head. Scotlands total cattle population fell for the sixth year during 2009, falling a further 21,000 head to stand at 1.75m head, although the fall of 1.2% was its lowest proportionate decline since 2005. Scottish cattle population 2007 2008 000 head Beef breeding herd Dairy breeding herd Total cattle herd 537 238 1,826 519 229 1,777 521 223 1,756 2009

Breeding herd comprises cows and heifers in milk and cows and heifers in calf Source: Scottish Government (2010b) During 2009 there were only minor changes in the regional distribution of cattle. The breeding herd is still concentrated in the south west and north east of the country. The higher percentage of the total herd in comparison to breeding herd in the North East reflects the movement of store cattle from west to east and emphasises the importance of cattle finishing to the economy in the North East.

Regional distribution of cattle

Argyll & Bute Ayrshire Clyde Valley Dumfries & Galloway East Central Eileanan an lar Fife Highland Lothian NE Scotland Orkney Scottish Borders Shetland Tayside

Per cent 10 20 Breeding cows Total cattle

30

Source: Scottish Government (2010a) Scottish calf registrations provide a leading indicator for the following couple of years. Calf registrations fell by 3.6% in 2009, a greater decrease than in the previous two years. This extended recent declines into a fifth consecutive year whilst the fall, at 20,900 head, was 6,400 head more than 2008s decrease. The reduction in beef sired calf registrations of 11% to 435,500 head during 2009 reflects the decline in the suckler herd. In contrast dairy sired registrations continued to grow reaching 127,100 head, although they remain less than 25% of the total. 2008 calvings were 2.4% down on 2007, and consequently as these animals reach 2 years of age during 2010 the availability of slaughter stock is forecast to tighten further.

Number of Scottish born calves registered with BCMS 2007 Calf registrations Of which beef sired 598,000 504,000 2008 583,500 489,000 2009 562,600 435,500

Scottish calf registrations

140000 120000 100000
Head

80000 60000 40000 20000 0 Jan Feb Mar Apr May Jun 2007 Jul Aug Sep Oct Nov Dec 2009

2008

Cumulative calf registrations Beef sire

600000 500000 400000 Head 300000 200000 100000 0 Jan Feb Mar Apr May Jun 2007 Jul Aug Sep 2009 Oct Nov Dec

2008

Cumulative calf registrations Dairy sire

120000 100000 80000 Head 60000 40000 20000 0 Jan Feb Mar Apr May Jun 2007 Jul Aug Sep Oct Nov Dec 2009

2008

Sheepmeat production 2009 saw only a minor decrease in the number of breeding ewes of 3,000 head or 0.2%. Although still a decline it compares favourably with 2008 when the flock fell 7% during the year. Although total sheep numbers dropped again in 2009, the 2.2% reduction to 4.6m head was far smaller than 2008s 7.7% fall. Nevertheless, the continued decline means that the Scottish December sheep population remains at its lowest level for more than 30 years. Scottish sheep population 2007 2008 000 head Breeding sheep flock Total sheep 3,097 5,116 2,879 4,723 2,877 4,619 2009

Source: Scottish Government (2010b) Approximately 45% of Scottish breeding ewes are located in three regions. 17% of the flock is found in the Scottish Borders, whilst Dumfries & Galloway and Highland account for around 14% each. Regional variation in ewe performance results in a different distribution of the lamb population. Scottish Borders, Dumfries & Galloway and Highland are still the major regions with respective shares of 18%, 12% and 11% of the lamb flock.

Regional distribution of breeding sheep

Argyll & Bute Ayrshire Clyde Valley
120000 Dumfries & Galloway East Central 100000

Cumulative calf registrations Dairy sire

Eileanan an lar
Head

80000 Fife Highland 60000

Lothian NE Scotland Orkney 20000 Scottish Borders 0 Shetland Tayside

2007 2008 2009 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 40000

10 Per cent

15

20

Source: Scottish Government (2010b) Scotlands ewe population has continued to fall since decoupled support was introduced in January 2005. A regional variation in the rate of decline has occurred with the most disadvantaged areas in the north and west being hit the hardest. The Western Isles and Argyll & Bute have around 25% fewer ewes than six years ago whilst Highland, Orkney and Shetland have lost around 20% of their 2004 numbers.

Per cent
-5 0 -30
Ar gy

-25

-20

-15

-10

Regional decline in ewe numbers 2004 to 2009

ll Ay & B ut rs e hi re Cl yd e Va D um lle y fr ie Ea s & st G Ce al nt lo Ei w le ra ay an l an Fi an fe la r H ig hl a Lo nd th ia n N E Sc ot la O rk nd ne y Sc ot ti s Sh h B et or la de nd rs Ta ys id e

Pig production The Scottish pig breeding herd continued to decline during 2009. The past decade has seen a decline of more than 41% in numbers as external factors have hit the industry hard. However, on a more positive note the decrease slowed to just 200 head or 0.6% during 2009, from 13% a year earlier. Despite a decline in the sow herd, 2009 saw expansion of the total pig herd which was up 3.2% on December 2008 to 395,000 head. The apparent halt in population decline has been helped by the strength of producer prices throughout 2009, which were on average 16% higher than in 2008. Higher prices are likely to have improved margins and therefore increased producer confidence. Scottish pig population 2007 2008 head Pig breeding herd Total pig herd 38,600 449,900 33,400 382,400 33,200 394,700 2009

Source: Scottish Government (2010b) The majority (61%) of Scotlands pig breeding herd can be found in the North East region. However, the North Easts share of the Scottish pig breeding herd has fallen from 70% in 2007. This share fell to 64% in 2008 before a further contraction of the North Easts breeding herd in 2009 by 3,800 head resulted in a three percentage point decrease. Tayside and Lothian were two regions where breeding herds expanded during the year, adding 200 and 400 head respectively. In particular Lothians increase amounted to 15% year-on-year.

Regional distribution of pig breeding herd

Argyll & Bute Ayrshire Clyde Valley Dumfries & Galloway East Central Eileanan an lar Fife Highland Lothian NE Scotland Orkney Scottish Borders Shetland Tayside

10

20

30

40

50

60

70

Per cent

Source: Scottish Government (2009b)

Pig production remains concentrated in a small number of businesses with 15% of Scottish holdings with sows accounting for more than 80% of the breeding sow herd.

10

PRIMARY PROCESSING CONTRIBUTION

During 2009 there were 37 licensed abattoirs operating in Scotland, an increase of two during the year. Of this total, 25 sites processed cattle, 25 processed sheep and 19 processed pigs. Over the course of the year, 2.6 million animals were processed in Scottish abattoirs, an increase of 1% compared with 2008. Production from Scottish abattoirs in 2009 Number of animals Cattle Sheep Pigs 498,145 1,514,977 593,757 Tonnes of meat 172,000 30,513 46,335 Value (m) 536 103 168

The estimated turnover of the primary processing sector in Scotland increased by 7% to 807 million in 2009. Direct employment among the abattoir companies was, however, little changed from last year and estimated to be around 3,300 people. The number of cattle handled by Scottish Abattoirs declined by 1.3% although slightly higher carcase weights meant production was little changed. Overall turnover increased by some 5% as processors passed some, but not all, of increased raw material cost onto their customers. Sheep slaughter numbers recovered during 2009 and the volume of sheepmeat produced increased by about 10%. However, processors found it hard to pass on the increased cost of raw materials and although turnover from sheepmeat increased it failed to keep pace with the increased production. Pig processors found it hard to secure supplies as the production sector restructured and the volume of pig meat produced by Scottish abattoirs fell by some 12%. Strong growth in retail prices in the first half of 2009 allowed pig processors to pass on most of the increase in raw material costs and consequently turnover increased despite a reduced volume to sell. Distribution of Scottish red meat sales in 2009 Scotland Rest of UK Value (m) Beef Sheep meat Pig meat 142 21 36 352 53 130 41 29 3 Exports

The most important market place for Scottish red meat remains England and Wales where some twothirds of the value to the industry is derived. Around 66% of beef and half the lamb leaving Scottish primary processors is sold into the wider UK market. This is a small decline on previous years as export activity outside the UK increased during the year. Geographical distribution of Scottish red meat sales in 2009 Scotland Rest of UK Percent by Value Beef Sheep meat Pig meat 26 21 21 11 66 52 77 8 27 2 Exports

Recovery in sheep slaughter numbers and restructuring in the sector allowed export opportunities to be addressed and sheepmeat exports recovered strongly. Beef exports also continued to grow steadily as Scottish processors continued to work hard to maximise opportunities. Exports of pigmeat continue to play a minor part in Scottish processors activities but they too have increased during the year. Type of product sold by primary processors in 2009 Beef Sheep meat Percent by Value Carcases and half carcases Boneless and part-boned primals Shelf ready packs Processed products 13 67 13 7 28 55 11 6 3 62 13 23 Pig meat

Processors continue to deliver over 80% of beef, sheepmeat and pigmeat as carcases and boneless and part boned primals. The highest level of value added activity among processors occurs in the pigmeat sector where most major plants incorporate integrated further processing lines. Interest in further processing beyond primal cuts is increasing slightly among beef processors but remains a small part of the product portfolio. The multiple retail market continues to dominate the sales profile of Scottish processors accounting for over 60% of all sales. The structure of the pigmeat sector is slightly different from the cattle and sheep sector with the lowest deliveries to independent retail sector and the greatest dependence on sales to independent processors. Distribution of Scottish red meat sales by market outlet in 2009 Beef Sheep meat Percent by Value Multiple retailers Independent retailers Retail wholesalers Food processors Food service 62 13 12 5 7 67 11 17 1 4 73 3 4 19 1 Pig meat

12

Supply of Product to the Processing Sector Cattle In 2009 Scottish abattoirs killed 446,000 prime cattle, a marginal increase on 2008s total of 445,000 head. After increases in recent years of the numbers of older cattle being slaughtered at Scottish abattoirs, almost 7,000 fewer cows and mature bulls were killed in 2009 compared to a year earlier. At 51,800, this figure was 11.5% down on 2008. Total throughput of cattle in Scottish abattoirs destined for the food chain fell by approximately 1% year-on-year to 498,200 head.

Seasonal supply of prime cattle to Scottish abattoirs

12000 11000
Head per week

10000 9000 8000 7000 6000 5000 4000 J F M A M 2007 J J 2008 A S 2009 O N D

Average carcase weights 2007 2008 Kg per head Steers Heifers Young bulls All prime cattle Cull cows 370 319 347 348 331 364 316 341 343 322 370 320 349 348 329 2009

The average carcase weight of prime cattle returned to its 2007 level of 348kg after a 5kg drop in 2008. Average weights of steers and heifers went up by 6kg and 4kg year-on-year respectively, while young bulls added 8kg to their year earlier average. Average cull cow carcases were also heavier in 2009 than they were in 2008, up 7kg, but remain below their 2007 mean. Higher average carcase weight pushed up the total volume of product from Scottish abattoirs by 1.6% compared to 2008. However, output was still 8.5% below its 2007 level. The distribution of kill by gender varies during the year, although steers and heifers remain dominant throughout averaging 84% of total kill between them. Only in July did cows and young bulls make up more than 20% of the slaughter. After falling 18% in 2008, young bull slaughter fell a further 7% in 13

2009. Whilst 2008 saw declines in slaughterings of both heifers and steers, the situation improved in 2009 as 2% more heifers were presented for slaughter and steer numbers were almost identical. Cows and mature bulls made up 10.4% of the total Scottish slaughter in 2009, slightly down on their 11% share in 2008.

Seasonality of prime cattle supplies by gender - 2009

1.00

per cent of monthly supplies

0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 Jan Feb Mar Apr May Jun Steers Heifers Jul Aug Sep Young Bulls Oct Nov Dec Cows

Age of prime cattle at slaughter Since 2005, when the headage payment scheme ended, there has been a change in the age pattern of male cattle being delivered to abattoirs. The curve is flatter than before as the incentive to keep steers until they have reached 22 months of age is no longer in place, encouraging some producers to sell their steers slightly younger. In the past three years the male slaughter age profile has settled into this new pattern. Since decoupling of support payments there has been little change in the age pattern of heifers being sent to slaughter from that found before decoupling.

Age profile of male prime cattle

10 8

% of total

6 4 2 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 age in months 2009 Ave 2007-2009

14

Age profile of female prime cattle

12 10 % of total 8 6 4 2 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 age in months 2009 Ave 2007-2009

15

Sheep Scottish abattoirs killed almost 122,000 more lambs in 2009 than in the previous year. The annual total, of 1.48 million, was 9% higher than 2008 and 3.5% greater than 2007. These increases occurred despite the decline in the Scottish ewe population.

Seasonal supply of prime sheep to Scottish abattoirs

44000 39000
Head per week

34000 29000 24000 19000 14000 9000 J F M A M 2007 J J 2008 A S 2009 O N D

Average carcase weights in Scotland 2007 2008 Kg per head Lambs Cull sheep 20.5 27.2 19.7 25.5 20.0 27.2 2009

The average lamb carcase weight rose 0.3kg in 2009 to 20kg. Combined with higher throughput the overall volume of sheep meat produced by Scottish abattoirs was up 10.4% on the year.

16

Carcase quality The UKs 2009 lamb crop saw 62.0% of lambs marketed achieving at least an R3L grade. A year earlier this proportion was 61%.

Proportion of sheep carcases in GB with R3L grade or better

90 80
percent

70 60 50 40 M J J A S O N D J F M A

2007/2008

2008/2009

2009/2010

17

Pigs

Scottish abattoirs saw a second successive decline in annual clean pig slaughterings during 2009. Throughput fell 12.6% to 593,500 head from 679,000 head the year before. This came on the back of 2008s 8.8% decrease.

Seasonal supply of prime pigs to Scottish abattoirs

20000 18000
Head per week

16000 14000 12000 10000 8000 6000 4000 J F M A M 2007 J J 2008 A S 2009 O N D

Average carcase weights in Scotland 2007 2008 Kg per head Clean pigs 79.3 78.2 78.4 2009

Prime pig carcase weights increased 0.2kg per head in 2009 but remain below 2007 levels.

18

PRICES
General Economic Factors Retail price index (RPI) Food price inflation was again greater in 2009 than the general level of retail price movements, with RPI actually falling. Strong growth in prices was common throughout the food basket with meat prices showing some of the highest growth rates. However, the RPI was held down by a reduction in VAT from 17.5% to 15% and a huge fall in mortgage interest rates following an unprecedented loosening of monetary policy by the Bank of England. Excluding these factors from RPI would narrow the gap considerably between food price inflation and RPI. Change over past decade to 2008 31.8% 25.2% 25.0% 42.0% 37.3% to 2009 29.2% 31.5% 31.9% 58.0% 53.6%

Annual change 2008:2009 RPI Food Beef Lamb Pork -0.5% 5.3% 8.3% 11.8% 7.7%

Source: ONS (2010) Exchange Rate Movements Although Sterling started and finished 2009 with 1 equivalent to roughly 0.90, there was more variation within the year than in 2008. Over the first half of the year Sterling increased in value towards 1 = 0.86 which made British product more expensive in European markets and imports into Britain cheaper. This movement reversed in the second half of the year with the rate depreciating back towards the level it started the year. In comparison to 2008 and 2007 Sterling was on average much weaker during 2009 making UK exports to Europe more competitive - the same price in Euro yielded 25% more pounds in December 2009 than in January 2007. The resulting improved competitiveness of Scottish red meat products contributed significantly to higher producer prices. Similarly, the weak Sterling made red meat imports from Europe relatively more expensive in 2009 than in 2008 or 2007. With many energy and protein costs denominated in dollars, a weaker Sterling against the US Dollar has raised their Sterling cost. For example, the price of oil in December 2009 was at a similar level in Sterling terms to May 2008 though its price in Dollars was 20% lower. This currency effect started to increase costs of production in the second half of 2009.

19

Exchange Rates 2007-9

0.95 0.9 0.85 0.8 0.75 0.7 0.65 0.6 0.55 0.5 0.45 J F MA M J J A S OND J F MAM J J A S O ND J F MA M J J A S OND 2007 2008 2009 $: :

Source: OANDA

Exchange Rate (:)

0.95 0.9 0.85 2007 0.8 0.75 0.7 0.65 J F M A M J J A S O N D 2008 2009

Source: OANDA

20

Price Movements Producer Prices Cattle Deadweight cattle prices were very stable throughout the whole of 2009 with the highest price only 5% above the lowest. Like the year before they peaked in early July, with steers at 297 p/kg dwt, whilst the beginning of August saw the steer price floor at 283 p/kg dwt. On average the farm gate price for a Scottish steer was up 8% on 2008. Auction prices exhibited similar stability with the average prime cattle price reaching a high of 173 p/kg lwt in June and never falling below 160 p/kg lwt.

Sheep Old season lamb prices began 2009 at 163p/kg lwt, more than 60% higher than they started 2008. Prices then followed a rising trend (although they fluctuated from week-to-week) to hit a new season peak of 211p/kg lwt in early May, some 12% higher than they had reached a year earlier. In the summer there was a sharp seasonal drop in prices, which bottomed out at approximately 140p/kg lwt through the autumn before rising again in the last two months of the year as Sterling weakened. They ended the year 33% higher than the same time the year before. Deadweight prices mirrored the auction market. They spiked in early summer, fell back at the end of July ahead of the peak selling season between August and November, and then rose again in the last two months of the year. New season lamb reached highs of 442 p/kg dwt whilst the autumn seasonal lows were around 320 p/kg dwt. The mean producer price during 2009 was approximately 21% up on 2008.

Pigs Producer prices exhibited a similar trend to that shown during 2008. They started the year at 131 p/kg dwt, before rising seasonally towards a summer peak of 155 p/kg dwt at the beginning of August. The clean pig price then fell gradually over the final five months of the year to end 2009 at 138 p/kg dwt, 6% higher than where they finished in 2008. The annual average producer price was 15.5% higher than the previous year.

21

Scottish deadweight steer prices

320 300 280

p/kg dwt

260 240 220 200 180 J F M A M J J A S O N D

Steers 2007

Steers 2008

Steers 2009

Scottish prime lamb auction price

235 210 185 p/kg lwt 160 135 110 85 60 J F M A M 2007 J J 2008 A S O N D

2009

GB producer price for pigs (DAPP)

160 150 140 p/kg dwt 130 120 110 100 90 J F M A M 2007 J J 2008 A S 2009 O N D

22

Producer Input Cost While producer prices went up in 2009 the general level of agricultural input prices fell, suggesting that for some producers there was the prospect of a considerable improvement in margins. Although input costs were lower than in 2008, they were still 17% higher than 2007. An annual 16% reduction of energy costs masks large increases towards the end of the year. The resumption of world economic growth boosted demand and hence prices, whilst at the same time Sterling weakened against the Dollar, pushing up Sterling prices of Dollar denominated commodities.

2005 = 100 Energy Fertilisers Feedstuff Veterinary All Means of Agricultural Production Source: Defra (2010a) Retail Prices

2007 117.9 113.3 129.7 114.1 113.8

2008 158.2 229.4 167.3 122.3 139.6

2009 132.9 233.7 153.7 122.0 133.1

Annual Change 2008:2009 -16.0% 1.9% -8.1% -0.2% -4.7%

Retail prices for beef were relatively flat throughout 2009, although on average they were around 8% above their 2008 level. In the second half of 2007 and first half of 2008 farm gate prices grew at a higher rate than retail prices which widened the gap between producer and retail prices. Since this differential remained in 2009 the pressure on processor margins continued, as they were unable to pass on the higher level of farm gate prices due to weak consumer demand. In contrast to producer price fluctuations, lamb retail prices were, like those for beef, relatively flat throughout the year. Though their trend was relatively flat, they were on average 11% above 2008. A small seasonal improvement quickly faded in the autumn. Although producer prices in the pig sector were 15.5% higher in 2009 than a year earlier, retail prices moved more slowly. With producer prices moving more quickly than retail prices, further pressure was placed on processor margins.

23

Index of producer and retail price for beef

150 140
Jan 2007 = 100

130 120 110 100 90 J F M A M J J A S O N D J F M A M J J A S O N D J F MA M J J A S O N D 2007 2008 UK retail GB producer 2009

Source: ONS

Index of producer and retail price for lamb

200 180

Jan 2007 = 100

160 140 120 100 80 J F MA M J J A S O N D J F M A M J J A S O N D J F MA M J J A S O N D 2007 2008 UK retail GB producer 2009

Source: ONS

Index of producer and retail price for pork

150 140

Jan 2007 = 100

130 120 110 100 90 J F M A M J J A S O N D J F M A M J J A S O N D J F MA M J J A S O N D 2007 2008 UK retail GB producer 2009

Source: ONS

24

CONSUMER DEMAND
Annual beef consumption in the UKs home, food service and ready meal processing sector fell during 2009 by 3.5% to 1.02m tonnes. UK lamb consumption decreased for a second year to 347,000 tonnes. This figure was 6.8% lower than in 2008 and is the lowest total since 2001. There was also a drop in pork consumption in the UK during 2009 with the total quantity consumed falling 6.2% to 776,000 tonnes. However, UK consumers ate 4.2% more bacon and ham in 2009 with the total reaching 471,000 tonnes for the year. This reversed a declining trend which first appeared in 2003. A reduction in the annual consumption of red meat in the UK may be partially explained by the tightening of supply making red meat less readily available. Also, low supply may have restrained consumer demand by pushing up the general level of red meat prices with the likely consumer response being a substitution for cheaper proteins.
Annual consumption of red meat in the UK
1200 1000
Thousand Tonnes

800 600 400 200 0 Beef Lamb 2006 2007 2008 Pork 2009 Bacon

Source: DEFRA (2010b)

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UK OVERSEAS TRADE
Details of imports and exports of meat into and out of Scotland are not available separately from UK figures. Consequently, this section summaries trade data for the UK as a whole and reflects the trade environment in which Scottish producers and processors operate. Imports Beef 2009 saw imports of beef fall by 6.6% (16,200 tonnes) to their lowest levels since 2002. Only in the final two months of the year did imports exceed their corresponding monthly total from the year before. Sterling depreciated in value against the Euro and many other currencies in October 2008, raising the cost of imported beef. This exchange rate weakness continued right through 2009, and along with the recessions negative impact on consumer confidence, helps explain the reduced requirement for imported beef. The majority of the decrease was of frozen beef, where volumes were 16.1% down on the year to just over 70,000 tonnes and accounted for 30.5% of all beef imports.

UK beef imports
27000 24000 21000 18000 Tonnes 15000 12000 9000 6000 3000 0 J F M A M 2007 J J 2008 A 2009 S O N D

Source: HM Revenue and Customs (2010) Ireland continued to be the UKs largest supplier of beef despite further declines in its cattle population. Although Ireland increased its market penetration by two percentage points to 66%, volumes exported to the UK were down on the previous year due to lower deliveries of frozen beef. Germany also exported less frozen beef to the UK in 2009. Uruguay managed to expand its beef exports to the UK by 12.5% in 2009. Though it remained the UKs third largest supplier, Uruguay closed the gap on the Netherlands and continued to benefit from export problems in Argentina and Brazil, which used to be major suppliers of beef to the UK market. The Argentine government attempted to ease domestic supply bottlenecks by severely restricting exports, while the European Union placed restrictions on imports from Brazil due to sanitary and traceability concerns.

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Suppliers of beef to the UK in 2009

Others 8%

Australia Botswana 2% 1% Namibia Uruguay 3% 7% Argentina 2% Germany 3% Netherlands 7% Brazil 1%

Ireland 66%

Source: HM Revenue and Customs (2010) Sheepmeat 2009 saw a year-on-year increase in imported lamb of 3% to 115,500 tonnes. New Zealand increased its dominance of the market, boosting its exports to the UK by 5.7% to now supply more than threequarters of the UKs sheepmeat imports.

UK lamb imports
16000 14000 12000
Tonnes

10000 8000 6000 4000 2000 0 J F M A M 2007 J J 2008 A 2009 S O N D

Source: HM Revenue and Customs (2010) A 5.7% rise in supplies from New Zealand amounted to an extra 4,750 tonnes of sheepmeat. This growth occurred despite the New Zealand Dollar strengthening 5.1% against Sterling, and reflects the tightly supplied UK market. The average Sterling price was 500 a ton more expensive than a year earlier. The type of product being supplied into the UK market can explain this apparently counterintuitive result. Deliveries of the more expensive fresh chilled sheepmeat rose 17.1% year-on-year. This meant fresh chilled sheepmeat increased its share to nearly 34% of total imports, up from 29% in 2008. 27

Suppliers of sheepmeat to the UK in 2009

Others 8% Ireland 7%

Australia 11%

New Zealand 74%

Source: HM Revenue and Customs (2010)

Pigmeat The UK imported in excess of 655,000 tonnes of fresh and processed pigmeat during 2009, a fall of around 4.5% on 2008. Fresh and chilled imports were down 10% year-on-year to 355,000 tonnes. Nevertheless the majority of pigmeat imports (54%) were still fresh and chilled product, though the gap with imported processed product has narrowed in recent years.

UK pork imports
50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 J F M A M 2007 J J 2008 A 2009 S O N D

Tonnes

Source: HM Revenue and Customs (2010)

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After a 23% fall in deliveries from Denmark in 2008, there was another substantial decline of 36% in 2009 to 95,000 tonnes. As a result its market share decreased to 28%, whereas just two years earlier Denmark had a 41% share of a bigger market. Beneficiaries include the Netherlands, Belgium, Ireland and France.
Suppliers of pork to the UK in 2009

Portugal <1% Netherlands 15% Italy <1% Irish Republic 12%

Spain 7%

Poland <1%

Others 3%

Belgium 12%

Denmark 28%

Germany 14%

France 9%

Source: HM Revenue and Customs (2010) The UKs bacon and ham imports went up 3% in 2009 to 301,000 tonnes. December did volumes fail to exceed their year earlier total. Only in August and

UK bacon and ham imports

30000 27000 24000 21000
Tonnes

18000 15000 12000 9000 6000 3000 0 J F M A M 2007 J J 2008 A 2009 S O N D

Source: HM Revenue and Customs (2010)

Supplies of bacon and ham to the UK from the Netherlands were down around 10% on 2008 to 118,000 tonnes. In contrast, Denmark exported 12% more bacon and ham to the UK than it did the year before. In terms of market share, Denmarks share went up to 42% whilst Hollands fell to 39%. Germany also improved its share year-on-year, up two percentage points to 11%.

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Suppliers of bacon and ham to the UK in 2009

Others 3%

Netherlands 39%

Denmark 42%

Italy 3% Germany 11%

France 2%

Source: HM Revenue and Customs (2010)

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Exports Beef 2009 exports of British beef increased by 2.5% or 2,100 tonnes over 2008 levels. This growth was underpinned by a favourable exchange rate, but restrained by weak consumer spending in the European Union.

UK beef exports
10000 9000 8000 7000
Tonnes

6000 5000 4000 3000 2000 1000 0 J F M A M 2007 J J 2008 A 2009 S O N D

Source: HM Revenue and Customs (2010) The Netherlands and Ireland continued to be the destination for more than two-thirds of UK beef exports. However, they swapped places, with Holland reclaiming its place as the largest importer of UK beef with a 5% increase in share to 37%, whereas the Irish share declined 7% to 31%. Italy almost doubled its share to 9% whilst other significant destinations, including France and Belgium, also increased their share. On the other hand, Germanys market share fell a further percentage point to 2%.

UK beef exports 2009

Others 3%

Belgium 8%

France 10% Ger 2%

Netherlands 37%

Ireland 31% Italy 9%

Source: HM Revenue and Customs (2010) 31

Sheepmeat Following on from 2008s recovery in sheepmeat exports, 2009 saw further strong growth of 8.3% to 94,500 tonnes. September and October were particularly strong with volumes approximately 30% higher than the corresponding months of 2008, which may be explained by Sterling weakness.
UK lamb exports
12000 10000 8000
Tonnes

6000 4000 2000 0 J F M A M 2007 J J 2008 A 2009 S O N D

Source: HM Revenue and Customs (2010) France continued to be the largest destination for UK sheepmeat at more than two-thirds of the total. Though 5% more was exported to France by volume in 2009, its market share fell by 2% compared to the previous year. This reflected increased sales into other European markets such as Belgium, Italy and Germany.

UK sheepmeat exports in 2009

Portugal Netherlands 1% Others <1% 3%

Italy 4% Ireland 5% Germany 4% Belgium 9%

Spain <1%

France 74%

Source: HM Revenue and Customs (2010)

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Pigmeat Despite the weak Sterling making British exports more competitive in the European marketplace throughout 2009, pigmeat exports fell 20% to 120,000 tonnes. However, the UK managed to make inroads into the Southeast Asian market with around 18,000 tonnes of fresh, chilled and frozen pork being shipped to Hong Kong.
UK pork exports
14000 12000 10000

Tonnes

8000 6000 4000 2000 0 J F M A M 2007 J J 2008 A 2009 S O N D

Source: HM Revenue and Customs (2010) Bacon and ham exports fell 39% on the year to 19,000 tonnes.

UK bacon and ham exports

9000 8000 7000 6000
Tonnes

5000 4000 3000 2000 1000 0 J F M A M 2007 J J 2008 A 2009 S O N D

Source: HM Revenue and Customs (2010)

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REFERENCES Defra (2009) - Agriculture in the United Kingdom 2009. http://www.defra.gov.uk/evidence/statistics/foodfarm/general/auk/latest/documents/AUK2009.pdf Defra (2010a) Agricultural Price Indices, United Kingdom (2005=100). http://www.defra.gov.uk/evidence/statistics/foodfarm/farmgate/agripriceidex Defra (2010b) Meat Production and Supplies. http://www.defra.gov.uk/evidence/statistics/foodfarm/food/slaughter/documents/qtrmeat. xls European Commission (2010) Agriculture in the European Union - Statistical and Economic Information 2009. http://ec.europa.eu/agriculture/agrista/2009/table_en/2009enfinal.pdf HM Revenue and Customs (2010) UK trade data. https://www.uktradeinfo.com/index.cfm? OANDA Historical Exchange Rates. http://www.oanda.com/currency/historical-rates ONS (2010) Focus on Consumer Price Indices. http://www.statistics.gov.uk/STATBASE/product.asp?vlnk=867 Scottish Government (2009) Scottish Agricultural Census Summary Sheets by Geographic area: June 2008. http://www.scotland.gov.uk/Publications/2009/03/13094638/0 Scottish Government (2010a) - Final results of the 2009 December agricultural survey. http://www.scotland.gov.uk/Publications/2010/03/agricsurveydec2009 Scottish Government (2010b) Scottish Agricultural Census Summary Sheets by Geographic area: June 2009. http://www.scotland.gov.uk/Publications/2010/03/16165732/0 Scottish Government (2010c) Total Income From Farming in Scotland 2000 2009. http://www.scotland.gov.uk/Topics/Statistics/Browse/Agriculture-Fisheries/aggincexcel10

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The Rural Centre, West Mains, Ingliston Newbridge EH28 8NZ Tel: +44(0)131 472 4040 Fax: +44(0)131 472 4038 email: info@qmscotland.co.uk www.qmscotland.co.uk Quality Meat Scotland June 2010