The Uk Market For Organic Beef: Foreword

The UK Market for Organic Beef
THE UK MARKET FOR ORGANIC BEEF

FOREWORD
Demand for UK Organic Beef is growing rapidly; some retailers are frustrated at the slow response of British producers to this market opportunity. This publication is intended to set out some of the facts and makes some forecasts of the likely situation up to 2010. It concludes that there are realistic opportunities for domestic beef producers but full account should be taken of the realities of the higher costs of production and the limited overall size of the potential market. RMIF is prepared to play its role in supporting English beef products to address the challenges of this and other segments of the overall beef market. RMIF acknowledges the help received from Phil Stocker of the Soil Association, and Richard Lowe, Richard Cullen and Duncan Sinclair from the MLC in putting this report together. The advice of OLMC, Graig Farms and others in the organic supply chain has also been much appreciated. We are grateful for the support and input of the Soil Associations Food and Farming department in the production of this report.
RMIF December 2006
Red Meat Industry Forum
CONTENTS
1. INTRODUCTION 1.1 Background 1.2 Objective of the publication 2. CURRENT AND FUTURE SUPPLIES OF ORGANIC BEEF IN THE UK 2.1 Production 2.2 Consumption 2.3 Balance sheet 2.4 Forecasts 3. PRODUCING FOR THIS MARKET 3.1 Beef systems 3.2 Price premiums and carcase quality 3.3 Variability in breed and carcase weight 3.4 Examples of organic beef costings 3.5 Costings data 3.6 Structural issues 3.7 Key issues for organic beef producers 4. CONSUMER ISSUES IN THE MULTIPLE RETAIL SECTOR 4.1 Introduction 4.2 What is the general positioning of organic shoppers in the retail sector? 4.3 What motivates people to buy organic? 4.4 What is the profile of the typical beef consumer? 4.5 What are the distinctive demand characteristics for meat, beef and cuts of beef? 4.6 What is the specific positioning of the various multiple retailers? 4.7 What is the average price premium from different cuts? 4.8 Implications of the consumer information for organic beef suppliers and producers? 5. KEY CONCLUSIONS APPENDIX A APPENDIX B TABLES AND FIGURES Tables 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Figures 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
2
3 3 3 4 4 5 5 5 6 6 6 6 6 7 7 8 9 9 9 10 11 13 14 16 17 18 19 20
Organic Land Existing or in Conversion Estimate of UK Organic Livestock Numbers (existing and in conversion)- 2006 UK Organic Cattle Numbers by Category 2006 Estimated UK Organic Beef Market in 2005 Forecast UK Organic Beef Market in 2010 Summary of Costings Results Organic Shares of Total Market Segment Organic Markets and Growth Rates Retail Outlet Shares within the Organic Market Price Premiums for Different Organic Beef Cuts
4 4 4 5 5 7 13 13 14 16
Total UK Grocery Demographic Map Spend Profile Percentage Percentage of Individuals Agreeing to Statements Lifestyle Indices Total Organic Products Fresh Beef by Tier Demographic Map Percentage Buyers Summary of Over-indexing and Under-indexing Segments for Fresh Beef Regional Index Segmentation of Organic Beef Purchases Total and Organic Fresh Beef by Cut Total and Organic Fresh Beef Shares of Trade Responses of Consumers by Retail Outlet 1 Responses of Consumers by Retail Outlet 2
9 10 10 11 11 12 14 15 15 16
1. INTRODUCTION
1.1 BACKGROUND
This publication results from the initiative taken by Defras Organic Action Plan to explore ways of increasing the home-produced market share of the UK market. It also comes from RMIFs concern about comments from British multiple retailers that they cannot source as much organic beef as they would like from British producers. One such retailer spokesman said recently that When it comes to organic in particular, we know our customers prefer to buy British if it is available (Source: UK Beef Farmer - Autumn 2006). Another said Organic beef could be sold in 400 of our stores but there is (currently) not enough to supply even 200 stores. (Source: Meat Trades Journal November 2006)
1.2 OBJECTIVE OF THE PUBLICATION

The purpose of the publication is: To identify future opportunities for UK produced organic beef by estimating realistic growth areas in the market To establish what the constraints are to producing more organic beef profitably. Having identified these to set out what the key messages are for those producers interested in supplying the market To identify consumer requirements for organic beef and draw conclusions for all players in the chain as they seek to satisfy consumer requirements. The publication is not intended to provide details on how to become an organic beef producer. This is already well covered by publications and information provided by the Soil Association. The publication also does not cover all opportunities for selling organic beef to British consumers; rather it focuses on the opportunities for increasing the UKs share of sales through multiple retail outlets, which currently account for two thirds of total UK organic beef purchases. It is freely acknowledged that there are good opportunities for organic producers through other outlets such as farmers markets, the food service sector, smaller retailers or direct sales; these opportunities are also covered in Soil Association publications.
2. CURRENT & FUTURE SUPPLIES OF ORGANIC BEEF IN THE UK

2.1 PRODUCTION
The total numbers of hectares of organic land (or in conversion) in the UK was nearly 620,000 at the beginning of 2006 (see Table 1 ). This represents a decrease of about 8% compared with January 2005. However, there was a 63% increase in land under organic conversion. Of the total organic and in-conversion land, 85% was either permanent or temporary pasture.
Table 1 ORGANIC LAND EXISTING OR IN CONVERSION Total agricultural area (ha) 584,373 905,086 1,101,450 1,226,476 952,575 1,467,469 1,845,360 1,195,601 9,278,388 1,448,683 5,517,140 1,029,500 17,273,711 % of total agricultural area 6.2% 2.4% 1.0% 1.3% 3.2% 1.0% 6.3% 3.8% 3.1% 4.9% 4.5% 0.9% 3.6%
In conversion North East North West Yorkshire and Humberside East Midlands West Midlands Eastern South West South East (inc. London) England Wales Scotland Northern Ireland UK
Source: Defra
Organic 29,296 18,858 8,978 13,172 27,011 11,782 94,008 35,250 238,355 58,024 231,206 6,317 533,902
Total (ha) 35,939 22,094 11,319 15,606 30,228 14,431 115,988 45,973 291,578 70,832 247,930 9,513 619,852
6,643 3,236 2,341 2,434 3,218 2,649 21,979 10,723 53,223 12,808 16,724 3,196 85,951
There were over 2,500 registered producers of organic livestock in the UK, of which 63% were based in England, with 46% of these being in the South West of England. Table 2 shows that there were 214,000 cattle on organic or in-conversion holdings at the beginning of 2006; this represents just over 2% of all cattle in the UK. Table 3 shows the breakdown of the cattle by category. No official figures exist on the actual production of organic beef in the UK. However, estimates made by the Soil Association indicate that in 2005 almost 27,400 head of organically produced cattle were slaughtered in the UK with a farm gate
value of 19.7 million. (In terms of the total prime cattle in the UK this amounts to just 1.2%). On a per head basis this represents an average price of 720 per head compared with the average conventional price of 602, a differential of 118/head or 20%. On the basis of an average carcase weight of 310kgs, MLC estimates domestic organic beef production in 2005 was 8,500 tonnes. However, between 15 20% of this production was not absorbed through the market as organic so estimated sales of UK organic beef were approximately 7,000 tonnes (carcase weight equivalent). In 2006, it is understood that a much higher percentage of organic production was purchased as organic.
Table 2 ESTIMATE OF UK ORGANIC LIVESTOCK NUMBERS (EXISTING AND IN CONVERSION) 2006 Livestock numbers 214,276 691,000 29,995 3,439,548 544 1,486 % of total for livestock category 2.1% 1.9% 0.6% 1.9% 0.6% n/a
Table 3 UK ORGANIC CATTLE NUMBERS BY
CATEGORY 2006
Cattle Sheep Pigs Poultry Goats Other livestock

Source: Defra
Beef cattle Dairy cattle Suckler cows Calves Other bovine Total cattle
Source: Defra
Head 79,833 58,578 18,626 41,834 15,405 214,276
2.2 CONSUMPTION
Total consumption of organic beef in 2005 was estimated as 11,000 tonnes (carcase weight equivalent), of which approximately 7,000 tonnes was estimated to have been sold through multiple retailers. The remaining quantities were sold through smaller retailers, food service outlets, farmers markets and direct sales. Total organic beef consumption is therefore estimated to amount to about 1.1% of the total UK beef market. Early estimates for 2006 suggest that there may have been a further increase of 15-20% in the multiple retail sector.
2.3 BALANCE SHEET

Table 4 sets out the situation for the UK organic beef market for 2005. It can be seen that out of total beef consumption, imports at 4,000 tonnes accounted for an estimated 36% of the total. In relation to the market share of multiple retailers, imports accounted for 43% of the total.
Table 4 ESTIMATED UK ORGANIC BEEF MARKET IN 2005 (000 TONNES CARCASE WEIGHT EQUIVALENT) Consumption through Major retailers Total 7 Of which domestic 4 Of which imports 3 Total market as % UK beef consumption = 1.1%
Source: RMIF
Other: small retail Direct sales/food service, etc. 4 3 1
Total 11 7 4
2.4 FORECASTS
Forecasts of future consumption and production of organic beef are very difficult to make, and forecasts from different major retailers also vary widely. Some retailers are predicting that organic beef consumption will at least double in the next 3 5 years. One has even said that organic beef will account for as much of 5 10% of their total beef sales by the end of the decade. Others in the industry are indicating that current growth rates will decline and there may even be a plateau in the trend in the near future. Future consumption levels to 2010 are likely to be influenced by the following factors: The extent to which the future growth in demand for organic beef will slow down (growth in 2006 was between 15 and 20%) The premium for organic cuts over other types of beef The ability to balance full carcase utilisation with consumer demand for different cuts and ensure economic viability The improvements in perceived quality of organic product The ability of organic beef suppliers to create further growth in outlets other than multiple retailers Taking account of these issues, Table 5 sets out forecasts for total UK organic beef consumption in 2010. These forecasts can be no more than very approximate estimates from the best current knowledge available. On the assumption of sales through multiple retailers increasing at 10% compound growth - and alternative outlets rising at 15%, the forecasts estimate total organic beef consumption to amount to 19,000 tonnes (within a range of 17,000 to 21,000 tonnes) by 2010. This represents an increase of 70% over current levels and increases the market to 1.8% of total beef consumption. It is recognised that some will still regard these forecasts as very cautious.
Table 5 FORECAST UK ORGANIC BEEF MARKET IN 2010 (000 TONNES CARCASE WEIGHT EQUIVALENT) Consumption through Major retailers 10 - 12 Other: small retail Direct sales/food service 7-9 Total 17 - 21 +55 91%
Total % increase on 2005

Source: RMIF
Forecast of total UK beef consumption = 1.8 2.0%
Future production will chiefly be affected by: CAP/WTO and related import penetration factors The economic viability of organic beef production The extent to which some of the carcase balance issues can be resolved The ability to get a better return on product in the processed product/export sectors The extent to which some of the existing organic dairy calves and store cattle which are sold into the conventional beef market can be sold as organic Trends in organic suckler cow numbers The implications of the consumption requirements are that an extra 15,000 head of organic cattle will need to be slaughtered per year by 2010 if the current domestic market share is to be maintained. If the UK were to supply the whole UK market requirement, the industry would need to more than double its production, with an additional 36,000 head per annum needed.
3. PRODUCING FOR THIS MARKET

3.1 BEEF SYSTEMS
The systems used for organic beef production vary depending on the type of animal being produced. The majority of the potential stock originate in the dairy herd, mainly dairy beef crosses, with the remainder coming from beef suckler herds. However, it is currently uneconomic to rear the pure dairy male calves for organic beef, and even the rearing of beef crosses from the dairy herd is marginal. Many of these are currently sold for rearing as conventional young bull beef, exported as bull calves, or put down at birth. Nonetheless, some are produced as organic Holstein steers. Even then, producers find it challenging to finish these animals properly while respecting the organic feed thresholds (such as the rearing costs associated with feeding organic milk and restrictions on the feeding of non forage feeds). The current (November 2006) organic cereal price is approximately double the current conventional feed price. The net result is that the majority of the organic cattle being finished for beef are from the suckler herd. Organically produced cattle in the UK are produced on predominantly grass based systems; cattle are grazed over the summer months and from a largely grass silage based diet over the winter. The emphasis is on an extensive production system which is reflected in both the age and weight of the animals at slaughter. The majority of the organic prime cattle are finished at around two years of age and, in some instances, close to 30 months of age. With fairly modest daily liveweight gains recorded over their lifetime this reflects the lower level of concentrates fed during the production system and the reliance on forage plus, in many instances, the breed of the animal. Many of the dairy beef cross animals are a mixture of continental and native crosses; many of the suckler cattle are of late maturing native breeds. However production systems are adapting with some feed being fed at grass before housing. This is to ensure stock are finished properly for the normal seasonal lift in prices towards the end of the year. With the change in CAP support arrangements for beef production, even greater emphasis in future will need to be on developing profitable and sustainable organic beef production systems. Furthermore this will intensify in the medium term as the value of the Single Payment Scheme (SPS) reduces. The recent strong growth in demand at a consumer level for organic beef has led some retailers to offer or consider offering producers production contracts. This is so they can secure with more certainty the volume of domestic organic beef that will be coming through their supply chain in the future. However, so far there has been limited uptake of these contracts. Industry specialists indicate that a relatively small proportion of organic cattle have a carcase conformation better than R grade. This would suggest that there are some challenges for the processors in terms of meat yield and (because of the age of some animals) meat quality. However, there is some conflicting evidence on this as at the top end of the market there are a good number of good quality organic prime cattle. Data supplied by one of the main abattoir groups operating in the UK and slaughtering organic cattle confirmed this. The MLC survey of carcase quality in 2005 showed nationally only 11% of prime cattle had conformation better than R; while data from the processor in question had 18% of their organic kill better than R. Nationally in 2005, 75% of prime cattle fell in the target fat class 3 and 4L categories compared with 84% of the organic kill handled by the specific processor.
3.3 VARIABILITY IN BREED AND CARCASE WEIGHT

In the short term, the processing sector faces the prospect of dealing with a wide range of organic cattle of different breeds and carcase weights. In the medium term there would undoubtedly be advantages for the sector supplying major retailers in standardising the range of breeds used and production systems employed in terms of technical and financial efficiency, carcase size, balanced use of the carcase and meat eating quality. The absence of these issues in Argentina is one of the reasons why some UK major retailers and processors look to Argentina as the main source for importing organic beef to meet the current level of consumer demand.
3.4 EXAMPLES OF ORGANIC BEEF COSTINGS

Budgets were done as at August 2006 to examine the profitability of organic beef production in Great Britain. The budgets were prepared from a number of industry sources and were verified through visits to two organic beef farms which made available data from their beef enterprises. The two farms and their production systems are in the Appendix and summarised in section 3.5. Table 6 The budgets have been prepared for finishing dairy cross steers and also suckler steers and heifers, the two main sources of domestic organic beef production and were consistent with the cost structures of the two farms visited. It must be emphasised that given the wide range of breeds, farm types and locations, these budgets will not reflect the circumstances of each and every organic beef producer. Instead they seek to represent a typical finishing costing for the type of animal finished. The results are shown for a range of finished cattle prices but still indicate negative net margins under several scenarios for the two farm situations, particularly the dairy cross system. However, much depended on the levels of fixed costs; also farm income can be supplemented by the Single Farm Payment which can be used to make adjustments enabling cost reductions to be achieved over time. For example, for dairy cross steers, whole milk is costed at the current organic liquid milk price; if alternative sources of whole milk can be secured, such as multiple suckling of some dairy cows, there would be scope
3.2 PRICE PREMIUMS AND CARCASE QUALITY

The current (November 2006) situation is that a shortage of domestic supply has caused finished organic cattle prices to be at significantly higher levels than a year ago. The overall difference in price between conventional and organic cattle is of the order of 20-25%; however, this can vary depending on the classification of the animal and is currently at 50% for some animals of better conformation.
for achieving cost reductions. Nonetheless, there is a clear message that producers needed higher prices than those existing in August to ensure long-term profitability even if the SFP could provide a short-term cushion.
In terms of cashflow, some animals have to be taken through two winters and summers before they are ready for slaughter. This means tying up capital for long periods of time; in these instances, interest on working capital also therefore needs to be considered when looking at enterprise profitability.
3.5 COSTINGS DATA

Table 6 SUMMARY OF COSTINGS RESULTS
Summary of results - beef x dairy steers

Age at slaughter (months) 25 25 25 25 Age at slaughter (days) 761 761 761 761 Finished live weight (kg) 529 529 529 529 Average carcase weight (kg) 286 286 286 286 Finished price (O+4L) p/kg dw 260 280 300 320 Output ( per head) 742.72 799.85 856.98 914.11
Summary of results - suckler steers and heifers

Age at slaughter (months) 25 Age at slaughter (days) 762 Finished live weight (kg) 598 Average carcase weight (kg) 323 Finished price (R4L) p/kg dw 280 Output ( per head) 904.18 25 25 25 762 762 762 598 598 598 323 323 323 300 320 340 968.76 1033.34 1097.93
Variable costs ( per head) Calf cost ( per head) Gross margin ( per head) Fixed costs (62p/day) Total Cost ( per head)
443.53 0.00 299.19 471.82 915.35
443.53 0.00 356.32 471.82 915.35
443.53 0.00 413.45 471.82 915.35
443.53 0.00 470.58 471.82 915.35
Variable costs ( per head) Calf cost ( per head) Gross margin ( per head) Fixed costs (62p/day) Total Cost ( per head)
368.00 0.00 536.18 472.44 840.44
368.00 0.00 600.76 472.44 840.44
368.00 0.00 665.34 472.44 840.44
368.00 0.00 729.93 472.44 840.44
Net margin ( per head) -172.63 -115.50 -58.37 Net margin (p per day) -22.7 -15.2 -7.7
-1.24 -0.2
Net margin ( per head) Net margin (p per day)
63.74 8.4
128.32 16.8
192.90 25.3
257.49 33.8
If calves were purchased as reared calves at 160/head Net margin* ( per head) -165.15 -108.02 -50.89 Net margin (p per day) -21.7 -14.2 -6.7 Break even price (/kg dw) 3.18 2.98 2.78 Liveweight gain (kg/day) 0.64 0.64 0.64
* After adjustment of fixed and variable costs
6.24 0.8 2.58 0.64
If calves were purchased at 308/head (1.40/kg) Net margin* ( per head) -99.06 -34.48 Net margin (p per day) -13.0 -4.5 Break even price (/kg dw) 3.11 2.91 Liveweight gain (kg/day) 0.73 0.73
* After adjustment of fixed and variable costs
30.10 4.0 2.71 0.73
94.69 12.4 2.51 0.73
3.6 STRUCTURAL ISSUES

The organic beef sector is very fragmented and this poses challenges for co-ordinating both the trade in stores and for selling finished cattle. A consequence of this is that there is a significant element of leakage of organic stock out of the organic supply chain. For example a recent organic store sale in England resulted in the vast majority of organic stock (reportedly over 80%) being sold to conventional farmers. If more of the demand for organic beef is to be met from domestic production then more effort needs to be made at retaining such animals within the organic supply chain. A virtual trading platform ought to be jointly developed by the main organic organisations so that willing sellers and buyers of organic stock can trade with one another and reduce this unnecessary loss of animals from the organic supply chain. That same platform could also be used for sales of breeding stock such as cows, breeding heifers and bulls. (It is recognised that some of this is being done in the Organic Marketplace; also the livestock marketing groups are also doing some co-ordination of store supplies and finishers however, uptake appears to be low).
3.7 KEY ISSUES FOR ORGANIC BEEF PRODUCERS
3. PRODUCING FOR THIS MARKET

3.7 KEY ISSUES FOR ORGANIC BEEF PRODUCERS
It is vitally important that producers benchmark their costs to explore scope for cost reduction or value enhancement. In addition, good business practice will ensure greater consistency in carcase size and quality for the abattoir sector. Other points emerging from the costings are: Even at the higher prices prevailing in late 2006, the current technical performance that is being achieved meant that when fixed costs are considered, both the suckler and dairy cross beef systems made a slight loss ( see Table 6 ). Hence the importance of improving business performance where possible. If non-cash costs such as unpaid family labour, rental value on owner occupied land and interest on working capital are considered, that would add an additional 60 - 80 of cost that would need to be recovered. With no change in current performance from the figures in Table 6 , that would raise the break even prices even more. Therefore on the producer side the key must be to set and monitor performance targets for the entire production process. For example, the overall lifetime performance of 0.6 0.7kgs/day gain being achieved today in both conventional and organic systems is no better than what was being achieved 20 years ago. This situation largely occurred because of the significant coupled subsidies applied in this beef sector; it is also despite the fact that there has been significant genetic improvement across both native and continental beef breeds. This latent potential therefore needs to be exploited to the full and could reduce costs of production significantly. Growing the suckler animals at 0.9kg/day would reduce the days to finish by 140 days, save 56 in overheads and realise the positive cash flow benefits. For dairy beef crosses it could reduce the days to finish by approximately 200 days and save 80 per head in overhead costs. Granted there may be some increase in variable costs to achieve the higher performance (mainly extra feed), but better grazing management and better monitoring of technical performance could outweigh this.
4. CONSUMER ISSUES IN THE MULTIPLE RETAIL SECTOR

4.1 INTRODUCTION
It is estimated that multiple retailers account for about 75% of total sales of organic food in the UK and about two thirds of all sales of organic beef. This section attempts to answer questions about consumer demand for organic beef in multiple retail outlets. In particular, to answer the following questions: What is the general positioning of organic shoppers in major retailers? Why are they buying organic? What are the most important issues? What is the profile of a typical organic beef shopper? What are the distinctive demand characteristics for different beef cuts? What is the specific positioning of different retailers? What is the average price premium for different cuts? What are the implications of this for UK producers?
4.2 WHAT IS THE GENERAL POSITIONING OF ORGANIC SHOPPERS IN THE RETAIL SECTOR?
Figure 1 shows that organic purchasers have an above average income (exemplified by the fact these are a higher than average percentage of consumer purchasers in Classes AB and C1). They are also younger purchasers than average. The figures are based on annual purchases in the 52 weeks ending March 26th, 2006.
Figure 1 TOTAL UK GROCERY DEMOGRAPHIC MAP SPEND PROFILE %

65 Tesco Kids 60 Asda Smartprice Sainsbury BPC + Kids
% of Housewives Aged Under 45
55
50
Asda Good For You Tesco Value Asda Healthy Choice Morrisons Bettabuy
Tesco Organic
45
Safeway Savers
40
35
Healthy Tesco Eating Morrisons Health JS Organic = SO Organic Asda Extra Special Sainsbury Freefrom Sainsbury Basics Total Grocery Sainsbury Be Good to Yourself Eat Smart Tesco Finest Sainsbury TTD Morrisons The Best
30 Somerfield So Good 25 30 35 40 45 50 55 60 65 70 75
% of Class ABC1
Source: TNS
52 w/e March 26th 2006

4.3 WHAT MOTIVATES PEOPLE TO BUY ORGANIC? WHAT ARE THE MOST IMPORTANT ISSUES?
4.3.1 Figure 2 shows that environmental issues were of greatest importance with 42% of consumers in 2005 regarding organic foods as better for the environment, compared with 38% in 2003; 37% of consumers agree with the statement that organic food is healthier. Figure 2
% OF INDIVIDUALS AGREEING TO STATEMENTS
Organic foods better for the environment
41.5 38.4 36.5 31.3 20.4 17.3 19.4 17.5 16.9 14.6 15.3 11.5 2005 2003
Organic is healthier
Organic food tastes better
Organic foods better quality
Pay more for organic
Prefer to eat organic
Figures represent the proportion of consumers answering yes to specific questions on a lifestyle questionnaire Source: TNS
4.3.2
Figure 3 shows some of the lifestyle preferences of organic consumers. All the statements in Figure 3 reflect views that organic purchasers feel more strongly than UK consumers as a whole. There are no great surprises for statements such as I am prepared to pay more for organic food or I believe in a holistic approach to medical treatment. However, of particular interest are statements about country of origin Country of origin is important to me when choosing groceries, regionality I try to support regional food producers; also I regard myself as a connoisseur of food and wine and I am prepared to pay more for quality ingredients.
Figure 3
LIFESTYLE INDICES TOTAL ORGANIC PRODUCTS

I am prepared to pay more for organic food I believe in a holistic approach to medical treatment I buy free range products whenever I can Country of origin is important to me when choosing groceries I try to buy environmentally friendly products I try and support regional food producers I regard myself as a connoisseur of food and wine I read the ingredients on the pack before buying I try to avoid products containing caffeine I feel good about buying fair trade products I would actively avoid genetically modified foods I think we should all try to buy more fair trade products I am prepared to pay more for quality ingredients I try to buy local produce whenever I can A natural approach to medicine is the best method My diet is very important to me I look out for the healthy products Inner well being is important to me I think supermarkets are becoming too powerful I try to buy a healthy range of foods these days
Share indexed on All Households 52 w/e April 23rd 2006
341 214 180 179 175 173 169 169 168 168 166 157 154 153 148 141 138 138 138 138
Figures represent the propensity of organic food buyers compared to all buyers to agree with the statement (e.g. organic food buyers are 68% more likely than all food buyers to agree with the statement I try to avoid products containing caffeine. Source: TNS
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4.4 WHAT IS THE PROFILE OF THE TYPICAL ORGANIC BEEF CONSUMER?

4.4.1 Turning from the organic shopper in general to the purchaser of organic beef, certain additional attributes became apparent. Figure 4 confirms that organic consumers are the most upmarket purchasers in the fresh beef sector; the closest retail category to organic is the purchaser of premium categories (such as Tesco Finest or Sainsburys Taste the Difference). Organic beef purchases are less likely to be in the younger age group than is the case for organic food purchases in general. Figure 4
50 48 Value
FRESH BEEF BY TIER DEMOGRAPHIC MAP%BUYERS
Flavoured/Kebab Health
% of Housewives Aged Under 45
46 44 42 40 38 36 34 No Brand Name 32 30 40
Source: TNS
Standard Total Fresh Red Meat Total Fresh Beef
Premium Organic
45
50
55
60
65
70
% of Class ABC1
52 w/e June 18th 2006
4.4.2
Figure 5 which is taken from the Dunnhumby Tesco Club Card data confirms this in a different way. Consumer groupings such as those designated as convenience driven, price sensitive and mainstream underindex on organic beef purchasing, whereas those consumers who have a propensity to purchase finer foods overindex. Unsurprisingly this confirms the TNS analysis in figure 4 which positions organic beef consumers as relatively upmarket and prepared to pay more for quality food. Figure 5
SUMMARY OF OVER-INDEXING AND UNDER-INDEXING SEGMENTS FOR FRESH BEEF

LIFE STAGE Over-index Under-index Young Families, Young Adults Organic Beef Pensioner LIFESTYLE Over-index Under-index Finer Foods, Convenience, Mainstream Price -sensitive Traditional Finer Foods Healthy Healthy Traditional Price-sensitive Mainstream Price-sensitive Finer Foods Mainstream Over-index Southern London REGION Under-index N. Ireland Borders Yorks, Lancs N.East N.Scotland
Standard Beef Lean Beef
Young Families, Older Families Young Families Young Families Older Families
Pensioners Pensioners Pensioners
N.Ireland Scotland N.Ireland Southern N.Ireland Yorkshire E.England N.E E.England Borders London Borders London S.West N.Ireland Borders S.West London
Value Beef
Premium Beef
Young Families Older Families Older Families Young Families
Pensioners
Finer Foods Convenience Price-sensitive Traditional
Healthy Price-sensitive Finer Foods Healthy
Beef Bulk/BPBV Packs
Young Adults Pensioners, Mixed
N.Ireland Midlands N.Scotland N.East
Data derived from supermarket loyalty card purchasing. Types of beef purchased by lifestage and lifestyle consumer typologies. Source: Dunnhumby
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4.4.3 In relation to regional differences in the UK (see Figure 6 ), it is clear that there are proportionately more organic consumers in London and the South East of England than elsewhere. This is partly due to higher average income levels in the South East, but not totally. It is striking that shoppers in London are 30% more likely to purchase organic beef than the average shopper.
Figure 6 REGIONAL INDEX SEGMENTATION OF ORGANIC BEEF PURCHASES (12 WEEKS UP TO 9/07/06)
140 130 120 110 100 90 80 70 60 50
Northern Ireland Central Scotland North East Source: Dunnhumby Borders East England Northern Scotland Southern Lancashire South West Wales and the West London Yorkshire Midlands
Shoppers in Yorkshire, Northern Ireland, Borders and the North East significantly under-index for Organic Beef
Shoppers in London are 30% more likely to buy organic beef than the average shopper
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4.5 WHAT ARE THE DISTINCTIVE DEMAND CHARACTERISTICS OF MEAT, BEEF AND CUTS OF BEEF?
4.5.1 Turning to the demand characteristics for fresh meat and beef, it is interesting to note that whereas organic products account for about 2% of total purchases in the fresh and chilled sector, fresh meat accounts for only 1%. Table 7 shows that dairy products and fruit, vegetables and salads amount to over 3% of their respective sectors with yogurt over 8%. The figure for fresh meat is less than most other categories. Table 7 ORGANIC SHARES OF TOTAL MARKET SEGMENT - 000s BROAD AREA MARKET Total Fresh + Chilled 2.09 Chilled Gravy + Stock Total Ambient Groceries 1.19 Peanut Butter Total Frozen 0.41 Yogurt Total Alcohol 0.25 Herbal Tea Total Household 0.03 Hens eggs Total Healthcare 0.00 Honey Total Toiletries 0.00 Flour Vinegar MARKET SECTOR Cous Cous Dairy Products 3.31 Syrup + Treacle Fruit+Veg+Salads 3.16 Dry Pulses + Cereal Hot Beverages 2.38 Chilled Vegetarian Chilled Drinks 2.17 Liquid + Ground Coffee + Beans Packet Breakfast 2.01 Healthier Biscuits Savoury Home Cooking 1.86 Vegetable Savoury Carbohydrates + Snacks 1.65 Total Milk Sweet Home Cooking 1.38 Dry Pasta Fresh Poultry + Game 1.30 Chocolate Spread Take Home Confectionery 1.27 Fresh Soup Fresh Meat 1.07 Home Baking Biscuits 1.04
52 w/e April 23rd 2006 Source: TNS
37.71 16.10 8.35 7.83 6.99 6.31 5.78 5.74 5.70 5.53 5.42 4.62 4.61 4.22 3.92 3.82 3.34 3.31 3.23 3.20
4.5.2
However, Table 8 shows that the fresh beef category is growing more quickly than the organic as a whole. Over the 2 year period to April 2006, fresh organic beef purchases rose by 57% compared with 32% growth for all organic products. In fact, growth in demand for organic beef greatly exceeds growth for organic lamb and pork. Table 8 ORGANIC MARKETS AND GROWTH RATES - 000s 52 w/e April 23rd 2006 TOTAL ORGANIC 930,681 Vegetables 151,848 Milk-Retail 102,210 Yogurts 75,586 Baby Foods 64,778 Fruit 51,409 Hens Eggs 36,727 Tropical Fruit 36,677 Total Bread 25,461 Total Cheese 24,631 Fresh Poultry 23,220 Fresh Beef 20,464 Breakfast cereals 20,443 Fruit Juice + Fruit Drinks 15,338 Defined Child Mt + Veg Prds 13,244 Instant Coffee 11,539 Chilled Prepared Fruit + Veg 10,957 Cooking Sauces + Condiments 10,195 Wine 10,118 Wet/Smoked Fish 9,564
Source: TNS
2004 to 2006 Growth 32 30 104 42 15 27 11 15 17 22 130 57 60 3 41 40 45 -9 -23 74

13

4.5.3 Figure 7 provides more insight into the cuts that are sold through multiple retailers. Mince and stewing beef account for a much higher proportion of organic beef sales than is the case for the category as a whole. For all fresh beef, mince accounts for 27% of total sales by value, for stewing beef the figure is 14%. For organic beef, the respective figures are 43% for mince and 17% for stewing beef. The figures show that the intuitive concerns on carcase balance are not justified, i.e. the notion that you can only sell steaks and joints as organic and that forequarter cuts have to be sold at a discounted conventional price is not justified by these data.
Figure 7
TOTAL AND ORGANIC FRESH BEEF BY CUT (%)
Other 14.4 28.2 16.8 Stewing 14.8 Roasting Mince 27.2 43.4 Frying/Grilling 28.5 Total Fresh Beef
52 w/e 18th June 2006 Source: TNS
24.9 Organic Fresh Beef
4.6 WHAT IS THE SPECIFIC POSITIONING OF THE VARIOUS MULTIPLE RETAILERS?

4.6.1 The pattern of sales through different supermarket groups differs very significantly. Table 9 shows that some retailers are dominating in their share of total organic sales. For the organic market as a whole Waitrose, Sainsbury and Tesco together account for over 77% of all organic sales. Sainsbury and Waitrose have a disproportionately high share. Table 9 RETAIL OUTLET SHARES WITHIN THE ORGANIC MARKET Organics 30.6 28.0 18.9 8.4 6.8 2.2 1.6 1.2 0.1 0.1 Till Roll 30.3 15.9 3.7 16.5 11.3 4.7 4.1 3.1 1.6 1.6 Index 101 176 511 51 60 47 39 39 6 6
Tesco Sainsbury Waitrose Asda Morrisons Tot Total Co-op Somerfield Tot Indepts Kwik Save Iceland
52 w/e 26th March 2006 Share of Grocers Source: TNS
14
4.6.2
Turning to the situation for organic beef, it can be seen that for the year ended June 2006 Sainsburys have the largest market share followed by Tesco and Waitrose; together with Marks and Spencer these outlets account for 88% of fresh organic beef sales. Other retailers such as ASDA, Morrisons and Somerfield have, by contrast, a disproportionately low share of the market. However more recent figures for the second half of the year show a stronger growth for Tesco than other retailers.
Figure 8 TOTAL AND ORGANIC FRESH BEEF SHARE OF TRADE (%)

Index 130 440 32 55 249 All Others Total Independents Kwik Save Iceland Hard Discounters M&S Somerfield Waitrose Total Co-Op Morrisons Group Asda Total Butchers Sainsburys Tesco
1 2.2 2.7 3.6 4 4.6 10.7
16.8 14.8
3.5
17.6 3.4 7.9
14.3
15.4
43.4
38.4
15.4
24.9
22.5 28.6
127 Organic Fresh Beef
Total Fresh Beef

52 w/e 18th June 2006 Source: TNS
4.6.3
However, Figure 9 shows that there is a willingness amongst purchasers in outlets other than the main organic beef selling retailers to purchase and pay premiums for organic products. This may suggest that there are opportunities for increasing sales in those outlets which are selling below average quantities.
Figure 9 RESPONSES OF CONSUMERS BY RETAIL OUTLET 1
I am prepared to pay more for organic food

Total Independents Waitrose Somerfield Sainsburys Tesco M&S Asda Total Co-Op Morrisons Kwik Save Iceland Aldi Lidl Farm Foods Netto 51 43 120 141 183 159 295 312 364 354 353 337 336 324 447
Outlet Share Index 52 w/e April 23rd 2006 Source: TNS Worldpanel
15

4.6.4 Figure 10 also shows that there is widespread concern amongst consumers in all major retailers on environmental issues; as was seen from earlier tables, this will tend to favour increased purchases of organic products. Figure 10 RESPONSES OF CONSUMERS BY RETAIL OUTLET 2
I try to buy environmentally friendly products

Total Independents Waitrose Total Co-Op Asda M&S Sainsburys Tesco Somerfield Morrisons Kwik Save Iceland Lidl Netto Aldi Farm Foods 42 76 95 112 111 104 160 151 188 178 178 178 174 174 235
Outlet Share Index 52 w/e April 23rd 2006 Source: TNS Worldpanel
4.7 WHAT IS THE AVERAGE PRICE PREMIUM FOR DIFFERENT CUTS?

4.7.1 Price comparisons were difficult to make in retail outlets, particularly as the organic equivalent was sometimes not for sale. Table 10 attempts to compare prices for organic cuts of beef with both the standard and the premium equivalent. Mince and stewing cuts enjoy the largest premiums, whereas organic frying and grilling steak is actually discounted against the premium product. Table 10 PER CENT PRICE PREMIUM FOR ORGANIC DIFFERENT BEEF CUTS 12 weeks to: 14 August 05 Total cuts Organic v standard Organic v premium Frying & Grilling Steak Organic v standard Organic v premium Mince Organic v standard Organic v premium Roasting joints Organic v standard Organic v premium Stewing steak Organic v standard
Source: TNS
12 weeks to: 13 August 06 47 20
48 32
39 -9
37 -4
77 69
66 54
43 25
64 19
59
58
16
4.8 IMPLICATIONS OF THE CONSUMER INFORMATION FOR ORGANIC BEEF SUPPLIERS AND PRODUCERS
There is some evidence that organic product being sold is not always meeting the quality demands of consumers. It is further evident that lower quality cuts of organic beef are currently accounting for a higher proportion of total sales than higher quality cuts. Why not focus on a better proposition for those customers who are disposed to purchase organic products which combines organic with better eating quality? There are some key messages which will benefit from being even better communicated to organic beef consumers - in particular, the positive environmental features and the nationality (and where possible locality) issues. These messages appear to be highly positive for organic - and particularly British (or local) organic. There is a wide disparity between the organic retail performance in the different multiples. This goes way beyond what can be explained by the different customer profiles of the retailers and gives rise to two types of
opportunity. For high-performing retailers, there are opportunities for increasing reliance on British product. For lower performers, there is an opportunity for expanding their total organic volumes, as some of their customers at the upper end of the income range may be potential targets. The imbalance in performance for different cuts (see above) is likely to be exacerbating the problem of carcase imbalance. This serves to emphasise the importance of finding ways of achieving better performance for higher value cuts. The price premiums achieved for organic beef vary considerably in relation to the cuts concerned. There may be a need for better understanding of where organic purchasers are buying their steaks and joints.
17
5. KEY CONCLUSIONS
The UK organic beef market is growing and is likely to continue increasing (but at a slower rate) in the next 3 5 years. This suggests that there is scope for at least an extra 15,000 20,000 head of cattle to be slaughtered per annum by 2010 compared with current levels. Some retailers indicate much larger rates of growth. The multiple retail sector accounts for two thirds of all UK sales of organic beef. This market segment is therefore critical to the success if more profitable organic beef sales are to be achieved. Because of the current rate of growth in demand, major retailers have been unable to source increased supplies from UK producers and are, therefore, in some cases, becoming more dependent on imports. This represents a good opportunity for British producers, but the costings in this publication show that there has been a squeeze on net margins, although the current (November 2006) price levels have represented a significant improvement. Retailers will need to demonstrate long-term commitment to British organic beef producers and at least maintain their current (November 2006) prices if they are going to obtain the additional supplies from UK sources. Some retailers are committed to doing this, but there is scope for others to follow. In turn, producers have scope for achieving cost savings (particularly in the fixed cost area) and need to be engaging in more benchmarking activity to understand where these savings and value enhancements can best be achieved. RMIF is prepared to play a role in assisting producers in this area. The solutions to many of these issues can be facilitated through more effective communication down the supply chain. The marketing groups and the processors have a critical role to play in improving this situation. There is evidence of structural failures in some supply chains which result in insufficient numbers of dairy herd sourced organic animals entering the organic chain. There is a suggestion that the eating quality of some of the organic beef purchased in retail outlets is not as satisfactory as should be the case, particularly for the higher priced cuts. There is enough technical know-how to put this right at minimal cost. Mince and stewing beef are the best performing categories in the retail sector and this is causing some problems of carcase imbalance which in turn affects producer profitability. Organic beef currently only accounts for 1% of the fresh beef sector in multiple retailer sales, much lower than for other categories. This represents an opportunity for growth but there may also be a need to accompany this with better messages communicated to consumers on the merits of British organic beef. There is much variation in the market shares of different multiple retailers in this sector. This suggests that there are different growth opportunities for the over-performing and under-performing retailers. Price premiums for organic product are very variable but the figures suggest there may be scope for better premiums for organic being passed on to producers.
18
APPENDIX A: BEEF X DAIRY STEERS

kgs
FINISHING ORGANIC BEEF X DAIRY STEERS
Days
Age
Date
(months)
90 Weight Weight Weight Weight 286 0.64 0.63 157 247 409 529
01/03/06 01/06/06 KO - 54% kg Lifetime gain kg/day Finishing gain kg/day
0 3
March June
Calf born Calf weaned
Start wt Weight
40 103
214 396 579 761 671
01/10/06 01/04/07 01/10/07 31/03/08 Finishing
6 13 19 25
October April October March
Housed Turned out to grass Housed Slaughter
PHYSICAL PERFORMANCE
tonnes 360 0.03 0.25 0.04 60 Age at slaughter (months) Age at slaughter (days) Finished live weight Average carcase weight (kg) Finished price (O+4L) p/kg dw Output ( per head) Variable costs ( per head) Calf cost ( per head) Gross margin ( per head) Fixed costs (62p/day) Total Cost ( per head) Net margin ( per head) Net margin (p per day) 45.00 30.00 27.90 102.90 per tonne 0.25 260 30
COSTS SUMMARY OF RESULTS

Total () 90.00 7.02 7.50 5.00 2.16 111.68 14.85
Farm A is an organic beef unit that runs alongside a 450 cow dairy herd. The dairy herd is moving back towards greater influence of British Friesian rather than Holstein. A Hereford bull is used on replacement heifers and all the beef cross dairy offspring are taken through to finish at between 18-22 months. All black and white bull calves are retained and finished as steers at around 24 months. Finishing the Holstein steers has been problematic as they need more cereals in the finishing phase than can be fed under the Soil Association standards. Average carcase weights for the beef finishing enterprise are around 280kgs. The finishing diet is influenced by the quality of the grass silage available. Concentrates are fed towards the end of the second summer at grass and are steeped up once the animals are housed. One person is responsible for running the entire beef finishing enterprise.
kg
Calf Rearing to 3 months
Starting weight Livewt gain (kg/day) Days in system Total Gain (kg) Weaning weight (kg)
40 0.7 90 63 103
Whole Milk (4 litres/day) Calf concentrate (0.3kg/day) Straw Vet & Med Hay (0.4kg/day)
Homebred 25 761 529 286 260 742.72 443.53 0 299.19 471.82 915.35 -172.63 -22.7
Bought reared 25 761 529 286 260 742.72 331.85 160 250.87 416.02 907.87 -165.15 -21.7
Grazing Start weight Daily live wt gain (kg) Days in system Gain (kg) Weight at Housing (kg) 0.09 165
103 0.6 90 54 157
Calf concentrate (1.0kg/day)
1st Winter (from 1 October) Daily live wt gain (kg) Days in yard Gain (kg) Weight at turnout (kg) 1.8 1.0 0.2 25 30 155
0.5 180 90 247
Silage 10kg/day Straw (ad lib) Concentrate 1kg/day
Vet & Med Grazing costs Miscellaneous
If calves were purchased as reared calves at 160/head Net margin ( per head) Net margin (p per day) Break even price (p/kg dw) Liveweight gain (kg/day) 5.00 10.00 10.00 25.00 Total concentrates (tonnes) Total concentrate cost () 25 30 155 69.00 30.00 65.10 25.00 189.10 Sensitivity on net margin Calf price Feed price Fixed costs Market Returns Killing out % 5% 5% 5% 5% 1% Difference Difference Difference Difference Difference
-165.15 -21.7 3.18 0.64 0.72 114.87 6.00 4.00 15.00 37.00 14.00
19 2.8 1.0 0.4
Second Summer (from 1 April) Daily live wt gain (kg) Days at grass Gain (kg) Weight at Housing (kg)
0.9 180 162 409
Second Winter (yarded from 1 October) Daily live wt gain (kg) 1.0 Days in yard 120 Gain (kg) 120 Weight at slaughter (kg) 529
Silage 23kg/day Straw (ad lib) Concentrate 3.5kg/day Miscellaneous
APPENDIX B: SUCKLER STEERS & HEIFERS

kgs
Start wt KO - 54% kg Weight Weight Weight Weight 323 0.73 0.73 220 328 454 598 Lifetime gain kg/day Finishing gain kg/day 40
FINISHING ORGANIC SUCKLER STEERS & HEIFERS
Days
Age
Date
(months)
01/03/06
March
Calf born
20 tonnes per tonne Total () 5.00 10.00 15.00
245 396 579 762 517
01/11/06 01/04/07 01/10/07 01/04/08 Finishing
7 13 19 25
November April October April
Housed/weaned Turned out to grass Housed Turnout
PHYSICAL PERFORMANCE SUMMARY OF RESULTS

Age at slaughter (months) Age at slaughter (days) Finished live weight Average carcase weight (kg) Finished price (O+4L) p/kg dw Output ( per head) Variable costs (per head) Calf cost ( per head) Gross margin ( per head) Fixed costs (62p/day) Total Cost ( per head) Net margin ( per head) Net margin (p per day) 103.50 30.00 55.80 25.00 214.30
COSTS
kg
Calf Rearing to weaning
Farm B is an organic suckler unit running 135 suckler cows, 90 of which are spring calving the other 40 cows calving in the autumn. The cows are mainly South Devon or South Devon cross Limousin which are run with high EBV value South Devon bulls. All the progeny are finished on the farm at around 22 months of age. Average carcase weights for heifers are 280-290kgs; for steers 360-370kgs. The vast majority of animals grade R4L; 15-20% grade at O+ and just 5% at grade U-.Cattle are stored over the first winter before being turned out to grass at about 350kgs. To hit the key autumn market, cattle are housed in early September where they are fed a finishing diet comprising grass silage, home grown cereal and beans and some organic stock feed potatoes. The majority of cattle are finished over the period November mid February. A flock of 160 breeding ewes is also run. The finished cattle need to be away by mid-February to allow the ewe flock to be housed for lambing and to provide accommodation for the cows when they start calving in early March.
Starting weight Livewt gain (kg/day) Days in system Total Gain (kg) Weaning weight (kg)
40 0.8 240 180 220
Vet & Med Other
1st Winter (from 1 November) Daily live wt gain (kg) Days in yard Gain (kg) Weight at turnout 2.2 1.0 0.2 25 30 165 54.00 30.00 29.70 113.70
0.6 180 108 328
Silage 12kg/day Straw (ad lib) Concentrate 1g/day
Homebred 25 762 598 322.9 280 904.18 368.00 0 536.18 472.44 840.44 63.74 8.4
Bought weaned 25 762 598 322.9 280 904.18 353.00 308.00 243.18 342.24 1003.24 -99.06 -13.0
Second Summer (from 1 April) Daily live wt gain (kg) Days at grass Gain (kg) Weight at Housing 5.00 10.00 10.00 25.00
0.7 180 126 454
Vet & Med Grazing costs Miscellaneous
Second Winter (yarded from 1 October) Daily live wt gain (kg) 0.8 Days in yard 180 Gain (kg) 144 Weight at slaughter/turnout 598 4.1 1.0 0.4 25 30 155
Silage 23kg/day Straw (ad lib) Concentrate 2kg/day Miscellaneous
If calves were purchased at 308/head (1.40/kg) Net margin ( per head) Net margin (p per day) Break even price (p/kg dw) Liveweight gain (kg/day) Total concentrates (tonnes) Total concentrate cost () Sensitivity on net margin Calf price Feed price Fixed costs Market Returns Killing out %
-99.06 -13.0 3.11 0.73 0.54 85.50
5% 5% 5% 5% 1%
Difference Difference Difference Difference Difference
15.40 4.00 17.00 45.00 17.00

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The UK Market for Organic Beef