Retailer Market Share in Ireland - DOC

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					                                                                               MEAT INDUSTRY IRELAND SUBMISSION                      April, 2010


                                                     2020 STRATEGY – Beef Sector

                                                  Submission from Meat Industry Ireland



National & International (Beef) Context
Beef Production – remains the dominant enterprise on majority of Irish farms – 100,000 farms have beef enterprise – 68,000 farms involved in
specialist beef production.

The Irish beef processing industry has been transformed from a frozen commodity business in the early 2000’s to a key fresh food supplier to blue-chip
retail and food service customers across the UK and Europe. This transformation has seen an unprecedented increase in producer prices from an
average €2.44c/kg in 2003 to a high of €3.34 in 2008 before a combination of sterling devaluation and the recession saw prices fall to €3.05 in 2009.

Outlook: Income challenges and Competitiveness issues

The current recession and in particular the re-emergence of consumer demand for value and increased retailer competition for market share has
highlighted the buying power of large food retailers by comparison with a fragmented supply chain. It also suggests that securing increased revenue
from the marketplace will be difficult.

The second source of income for producers, direct payments under the CAP, faces significant challenges arising from CAP Reform proposals that will
seek to transfer an increased share of the overall CAP budget to “new” member states.

For producers and processors the key medium term focus must be cost reduction and production efficiencies.


Supply

        Irish Beef Production currently in decline;
        Short term (2012) projections: Beef slaughtering -10%;
        EU beef production to fall by 5% by 2015, with modest reduction in consumption;
        Some traditional beef exporters (e.g. Argentina) withdrawing from export trade;
        EU beef imports currently restricted;
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Demand

      Global demand for protein increasing (population growth);
      FAO forecast global food production needs to increase more than 40% by 2030 and 70% by 2050;
      EU beef market deficit set to increase to 600,000 tonnes by 2015;
      Threat of cheaper imports to EU under international agreements;


Productivity / Competiveness

   Farm:
    Poor technical performance/farm structure & related lack of profitability;
    Undoubted potential comparative (with EU) production cost advantages (grass);
    Better beef farming will increase productivity, profitability and reduce emissions.


   Processing:
    Business costs (labour, energy, waste, etc.) out of line with target markets;
    Over-capacity adding further cost disadvantage;
    Modern processing infrastructure operating to highest technical standards;
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Beef Sector Strategy Analysis
                            Factor Influencing Growth:                                    Actions Required:

1. Currency                    30% devaluation in sterling since 2008                       Intensify efforts to increase proportion of exports to euro zone
   Fluctuations:               53% of Irish beef exports to the UK                          At EU level, Government needs to highlight unique impact of
                               Strong Euro also impacting on sales to Sweden &               €/£ exchange rate on Irish food businesses
                                Eastern Europe and on international ($) sales (hides,
                                offals etc.)


2. Policy & International      WTO - a deal like one on the table will undermine Irish      Current EU offer on Agriculture should be withdrawn – global
   Trade Agreements:            and EU beef production                                        environment for food has changed.
                               EU advancing with bilateral Free Trade Agreements            Any new import quotas confined to manufacturing beef
                                (FTAs)                                                       Maintain ‘fixed + ad valorem’ structure for duties.
                               CAP Post-2013 outcome uncertain                              FTAs – offer greater scope for control / SPS issues need to be
                               Irish negotiators must recognise high net-value               addressed
                                added/low import content of Beef sector and its key          Protect CAP budget, maximise Ireland’s share of CAP payments
                                contribution to the economy                                   & ensure allocation that supports active producers
                                                                                             National discretion on CAP is important


3. Funding/Capital             Maintenance of Suckler Cow herd critical                         Need SCWS retention based on ‘national’ value added
   /Incentives                 Fiscal/tax measures to support high labour intensive              analysis.
                                industries                                                       PRSI rates tiered for intensive labour industries
                               Low cost long term working capital needed                        Need for mechanism to provide affordable working capital
                               Producers being starved of working capital                        for producers (Agri-bank, CAP payment coupons, reduce
                                                                                                  dependence of feed/fertilizer supplier credit)
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4. Demand           Growing global populations will drive protein demand          ABB Marketing strategy – Increase proportion of total sales to
   Marketplace      Beef demand growing; Declining EU availability                 euro zone;
                    Management of EU beef imports critical                        Focus on differentiation of Irish product & offer-this should
                    Trend towards convenience formats                              lead to ‘premiumisation’ of beef sales
                    Retail buying power v/s fragmented supply chain               Grow by-product sales to international markets
                                                                                   Access to Asian growth markets
                                                                                   Functional foods / Bio-actives
                                                                                   Health issues – product reformulation (fat, salt, etc.)
                                                                                   White List status & export certification
                                                                                   Retail buying/supply chain - EU policy to address need for a
                                                                                    ‘level playing pitch’.

5. Supply           Producer Profitability is the critical determinant of
                     future growth potential                                    Farm Structure
                     Only 20% of beef farms economically viable, when           Demography and fragmentation; need fiscal incentives to
                     the value of family labour and capital invested in            hasten change.
                     livestock and machinery, is considered (Teagasc NFS)
                    Without producer adoption of technical innovation          Farm profitability: –
                     the outlook for beef profitability at farm-level remains    Need to address productivity
                     poor                                                        Reduce calving interval
                    Significant difference in performance between farms         Technology/Knowledge transfer – refocus
                     and compared to Teagasc optimum beef system                 Incentivise new entrants
                     blueprints                                                  Share farm resources
                    Demography - only 6% of specialist beef producers           Need re-appraisal of beef production systems (Steer v Young
                     under 35 years (ave. all farms 6.9%); 28% over 65             Bull; age of finishing; calving patterns)
                     years (ave. all farms 24.8%)                                Feed costs – adopt GMO technology
                    Fragmentation - ave. beef farm size: 27.5 ha (ave. Irish    Genetic improvement programme
                     farm: 32.3 ha); Fragmentation of most holdings
                     increases costs and reduces uptake of modern               Processing:-
                     management practices                                        Focus State assistance on jobs retention and recovery of value
                    Live export drain – potential jobs and value added             added being ‘exported live’
                     being ‘exported live’                                       Continue focus on production of in-spec cattle
                                                                                        o QPS in place
                                                                                        o BQAS maintenance & expansion
                                                                                 Winter finishing - Supply contracts
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6. Competitiveness        Irish labour, energy and ‘business’ costs are out of line      Re-align business costs with competitors – labour, energy,
                           with those of target markets                                    waste…
                          Over-capacity increasing fixed cost burden (40-50%             Over-capacity – further restructuring at slaughtering required;
                           over-capacity at slaughtering level – 3 days weeks              two ‘factories’ exported ‘live’ in ’08- four in ’09 and six in ‘10(f)
                           unsustainable)                                                 Need assessment (quantification) of impact of live exports on
                          Live export growth exacerbating situation                       national balance sheet to support basis for investment in
                          Value added opportunities contingent on ‘profitability’         adding value at home.
                           (Profitability will be a function of margin/costs)             Continued investment in processing efficiency – State Aid
                          Currently more attractive to develop business outside           rules.
                           ROI                                                            Waste-to-Energy initiatives


7. Regulatory Burden      One of the most regulated sectors in the Irish                 Service contract/charter needs to be established between
                           economy                                                         Competent Authorities and Processing Industry and meat
                          Over-regulation generating unacceptable cost burden             inspection service needs to be aligned to charter.
                          Processing facilities operating above legislative
                           standards to satisfy customer demands                          Cost/Benefit analysis needs to be incorporated for all future
                          Meat inspection regime out-dated                                legislation
                          EU regulatory framework too slow to change/revise
                                                                                          Regulatory reform/simplification process needed


8. Research               Research & training resource critical for advancing            Teagasc beef advisory & research resource to be sustained;
   Training                farm productivity and production system change                 Support for Beef Discussion Groups
                          Unique attributes of Irish beef to be researched               Cooperation of Stimulus & FIRM funding
                           further.                                                       Food safety & revision of meat inspection
                          Potential for bio-actives from beef/beef by-products           Functional foods, Bio-actives from by-product stream, product
                           to be exploited                                                 reformulation
                          Recent advances in beef and dairy breeding and their           Sustainability & Food for Health
                           communication to producers in a tangible manner are            The ICBF breeding programme needs to be at least sustained.
                           critical for future advances in productivity.
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Conclusions

   1. In the absence of a suite of complementary measures/policies to address above issues the ‘quality’ red meat sector will not grow but will
      contract by 20%.

   2. Growth in the Dairy sector will partially cushion the decline in total beef production. However, appropriate finishing systems for dairy progeny
      will have to be investigated. Need to monitor also any negative impact of dairy breeding changes on the beef merit of dairy progeny.

   3. It is difficult to make Beef Sector growth predictions without guidance on planned policy in a number of key areas affecting production and
      processing economics. Annex 1 displays output predictions for the Beef Sector, for 2012 (for which the outcome is already pre-determined)
      and for 2020 based on two scenarios (Scenario 1 is a ‘no change’ position and Scenario 2 explores the potential growth in the Sector with
      appropriate policy formation and delivery on production, processing and marketing objectives).

   4. If the impediments to growth were removed and necessary ‘enablers’, including access to credit/investment, were put in place, the production,
      processing and export marketing/demand capacity exists to grow the beef slaughterings by 18 -20% by 2020 using 2009 as a base year. This of
      course is against a background in which the beef sector will contract by up to 10 % in the short term so a reversal of this and a growth of 18-
      20% by 2020 would represent more progress than the 18- 20% suggests.
                                                                              MEAT INDUSTRY IRELAND SUBMISSION                        April, 2010


Annex 1: Growth Prospects in the Beef Sector
                                                                                                               Scenario 1                 Scenario 2
                                                                                                               No Change                 Strategy 2020

         2009                             2010                                  2012                              2020                        2020

   Finished Cattle                  Finished Cattle                        Finished Cattle                   Finished Cattle             Finished Cattle
     Availability                     Availability                           Availability                      Availability                Availability

        1,575,000                        1,635,000                             1,425,000                         1,225,000                   1,870,000
Kill: 1,525,000                Kill: 1,570,000                        Kill: 1,355,000                     Kill: 1,075,000             Kill: 1,800,000
L.E.: 50,000                   L.E.: 65,000                           L.E.: 70,000                        L.E.: 150,000               L.E.: 70,000

Other Live: 236,000            Other Live: 335,000                    Other Live: 350,000                 Other Live: 400,000         Other Live: 300,000




       Availability pattern to 2012 already decided


                                                                 Beef Export volumes:                        320,000 tonnes              540,000 tonnes
                                  Impact of Scenarios
                                                                 Potential change in value of
                                     compared to                 exports:                                     - €420 million             + €250 million
                                      2009 levels
                                                                 Employment implications:                   2,000 job losses             1,000 new jobs

Scenario 1:                  Continued decline in suckler cow herd to 850,000 head.
(No Change)                  Growth in dairy cow numbers (approx. 7.5%) - little meaningful contribution to beef output (due to breeding decisions and lack
                             of appropriate dairy beef finishing systems)
                             Further development in live exports to NI/GB and the Continent

Scenario 2:                  Restoration of suckler cow herd to 2005/06 levels (approx. 1.15 million head)
(Strategy 2020)              Growth in dairy cow numbers (approx. 7.5%)
                             Development of appropriate finishing systems for dairy progeny.
                             Improvement in calving intervals to boost calving percentage to 95%.
                             Redesign of beef productions systems (improved output/hectare, earlier finishing, bull beef production, once-bred heifer
                             system)
MEAT INDUSTRY IRELAND SUBMISSION   April, 2010

				
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