Doubts remain over beef industry’s ability to deliver on rationalisation
Those close to the latest efforts who are trying to get the industry to take a hard look at itself in order to and radically cut capacity are far from convinced that the sector has the willingness to deliver on such a programme.
Such is the nature of the business that has 42 EU-approved plants operating in Ireland at this point.
That the numbers of cattle being slaughtered have been falling dramatically, down from a high of 2 million a few years ago to 1.5 million today, has not acted as a deterrent. Slaughtering capacity has risen consistently since the publication of the 1998 McKinsey report that advocated radical reform of the beef processing industry.
Money in the form of Compensation has been the dividing issue ever since the report was systematically leaked when it became obvious that it would take more than the prestige of McKinsey to kick-start the reforms outlined by consultants.
Smaller processors fear that the bigger players will find their balance sheets and their positions in the beef industry doubly enhanced if the reforms, as envisaged under McKinsey, are agreed in the coming months.
There are concerns too that the latest attempts at reform could see the biggest players gaining even tighter control of the industry; this is a sector already dominated by a few key and powerful players such as Dawn Meats, Kepak and Goodman International.
From a processor perspective, however, reaction to these latest attempts at reform raise concerns that some of the biggest players could end up getting even tighter control of the industry.
Beef producers are bemused at the prospect of the plan helping the industry and others are quite furious that the reforms will do much to resolve their dilemma of rock-bottom prices.
It is far from certain that the plan outlined four years ago in the McKinsey report will ultimately be delivered on. It envisages a cut of 25% in overall capacity which, given the new entrants to the sector and the sharp dip in cattle numbers, would no longer realistically require an even bigger cut in capacity at this stage be enough if the reforms are to have any real impact on future costs and profitability in the future.
Beef farmers, however, have a different take on the industry. They still see a cartel where prices quoted across all factories and processors are the same.
While the report into the sector said there was no evidence of a cartel, in essence the end result is the same for farmers that’s what farmers confronted with every week even if it is pure coincidence that every week with plants paying the same for beef.
It has also been argued that the industry is harming itself by running a flat pricing structure. Buyers of our beef need only make one phone call on any given day to know what the factories are paying for beef.
One angry beef producer argues that overseas buyers have the industry against the wall because of the price uniformity in the Irish market. “All any buyer need do is pick up the Farmers Journal any Thursday to know the going rate for beef in Ireland,” he said. In other words, the argument from the producer point of view is that the industry has left itself a sitting duck in overseas markets in terms of the prices it can command at any given time. If it had the wit to vary its prices, then those buying our beef might have less leverage on us because processors could argue that prices vary, thereby strengthening their case for charging higher prices for Irish beef.
Of equal concern among producers is the undeniable truth that the plan, as envisaged, will reduce competition in the Irish beef market.
One angry producer put it fairly forcibly when he said reducing competition would not be tolerated in any other sector of the economy, so why should it be acceptable in a sector he seriously believes operates a cartel in the first instance?
It’s a fair point, but the counter-argument is that, despite the extension of the number of plants in Ireland the price of beef has remained uniform throughout, and it has continued to fall in spite of farmers’ best efforts to force factories to pay better prices for beef.
It has been put to this column, with some conviction, that in the case of lamb, where the price does vary from plant to plant, the sector is more profitable for the simple reason that price variation gives processors more bargaining clout on international markets.
This debate is destined to run on. And while culling plants may be part of the answer, cheesed-off producers will want a better deal from this reform package if Irish beef is to have any real chance of becoming a coherent, dynamic force in the Irish food chain.
Looking back at the sector over the years, that kind of ambition probably sounds starry-eyed to those who know the sector well.
