Tag: Sheep

Impact of Trade Barriers on UK Beef and Sheepmeat

Beef and sheepmeat trade with the EU could plummet by over 90% under a ‘No Deal’ Brexit.  This is one of the headline findings of a study recently published by the AHDB in collaboration with QMS and HCC.  The report, complied by The Andersons Centre, looks at the impact of trade barriers on the UK beef and sheepmeat sector post-Brexit.  It examined two scenarios; a Brexit Deal and a No Deal Brexit.  Some of the main points include;

  • Trade impact under a Brexit Deal scenario is relatively small:  total exports would decline by about 1% in volume terms (imports 0.8% lower), driven by EU27 declines.  Sheepmeat exports to EU27 are forecast to decline by 1.5% whilst corresponding imports would be 3% lower. These declines are chiefly due to Non-Tariffs Measures (NTMs) – i.e. the increased trade ‘friction once the UK was not part of the Single Market.  There would be minimal changes to non-EU trade.
  • Significant upheaval under No Deal: trade with the EU27 would plummet (by 92.5%) due to the imposition of tariffs, TRQs and higher impact of NTMs.  Sheepmeat trade with the EU would be almost completely wiped out.  Substantial declines in trade with the EU27 would also ensue for beef – exports down by 87%, imports declining by 92%.  Somewhat better market access for beef compared to sheep, due to TRQs, would permit some UK-EU trade to continue.  The introduction of a new 230Kt TRQ for UK beef imports would cause non-EU imports to soar by over 1,300%.  This would lower prices and drive-up UK consumption by approximately 7%.  Sheepmeat imports from non-EU countries are not anticipated to change whilst consumption is projected to rise by 14% due to declining prices.
  • Price impacts: there would be small declines under a Brexit Deal scenario (-1 to -3% respectively).  Under No Deal severe price declines would be seen.  Sheepmeat is particularly exposed (projected 24% price fall under No Deal).  Downward price pressure for beef (-4%) under No Deal arises due to competition from lower priced world-market imports.  This would be exacerbated if significant volumes of Irish beef enter the UK barrier-free via NI.
  • Value of carcase meat output: under a Brexit Deal, output would decline by an estimated 1.7% whilst under a No Deal the decline would increase by nearly ten-fold (-11.7%) with sheepmeat output nearly 31% lower which would be devastating for incomes in the sector.  Growth in exports to non-EU markets under No Deal would be insufficient to compensate for the loss of access to the EU27.

Projected Impact of Trade Barriers on Domestically-Produced Beef and Sheepmeat (Farm-Gate Level)

Sources: Defra (2019) and The Andersons Centre (2019) *Baseline Figures derived from Defra data.

  • Similar Impacts at Farm Level:  Andersons’ Meadow Farm model projects a 27% decline in profitability (£68 per Ha versus the current £93 per Ha) under a Brexit Deal, but the farm would still be profitable provided it can maintain its current support levels.  Even with support unchanged, Meadow Farm starts to generate unsustainable losses under No Deal with a projected deficit of £45 per Ha, equating to a £7,000 loss.
  • Domestic Market Opportunities: could arise for domestic producers if trade barriers reduce the competitiveness of imports.  However, the proposed access granted under additional TRQs in the beef sector would diminish this.  There are also fears that future changes to standards might make imports more competitive, thus limiting domestic market opportunities even further.
  • Frictionless trade with the EU27 as a third country is not currently possible: and looks set to remain so for at least a decade as the required technology has not yet been developed, let alone tested.  Long-term, technology can contribute to reducing this via e-certification systems, but friction cannot be reduced completely.  Post-Brexit increases in trade friction are inevitable.
  • Most significant non-tariff measures relate to value deterioration: value deterioration (especially fresh meat) arising from border-related delays associated with physical checks and sampling (associated with sanitary and phytosanitary (SPS) regulations) is of most concern to industry and is the biggest contributor to non-tariff costs generally.  Its impact on frozen products is much lower but still a factor in terms of potential penalties imposed on delayed consignments.
  • Uncertainty about future border arrangements:  under No Deal centres particularly on trade on the island of Ireland which the UK Government has claimed would remain frictionless.  If there are also no checks on NI-GB trade, whilst any exports routed from Dublin to Holyhead would be subject to tariffs and regulatory checks, the potential for re-routing meat from the Republic of Ireland via NI and onwards to GB without any checks, could result in substantial volumes of Irish beef being placed on the UK market (beyond the 230Kt TRQ) by the ‘backdoor’.  If significant volumes enter the UK in this fashion, substantial price declines for UK beef farmers would ensue.
  • Disproportionate impact on Small and Medium-Sized Enterprises (SMEs): arising from higher operating costs, fewer loads dispatched and a lower propensity to avail of special authorisations such as AEO status (which confers a lower risk on operators from a regulatory authority perspective).
  • Inflationary pressures: particularly for farm-level imported inputs from the EU27 (e.g. fertiliser, medicines etc.) but also elsewhere.  These costs are unlikely to be absorbed by the supply trade and would be passed on to consumers and/or to primary producers (i.e. farmers).  Any meat price rises are likely to cause consumers to increase their propensity to substitute with cheaper sources of protein, thereby making it more likely that beef and sheep farmers would beat the brunt of price pressures.

The study concluded that a Brexit Deal based on a comprehensive FTA and close customs and regulatory arrangements with the EU would be far preferable to a No Deal Brexit, which could have a devastating impact, especially for sheepmeat.  Whilst developing overseas markets will be crucial to the long-term success of British beef and sheepmeat, close attention must be paid to protecting existing markets, specifically the domestic UK market and the EU27 export market.  The study also found that even if the UK had never entered the EU (or EEC) in the first place, it is highly likely that markets such as France would still be vital to the British sheepmeat industry due to proximity.  To minimise any upheaval post-Brexit, the report states that having a comprehensive mutual recognition agreement between the UK and the EU is crucial.

The report’s findings were similar to several previous studies; however, this study goes into significantly more detail on how non-tariff measures could affect the sector.  It also provides useful insights on the implications of a No Deal Brexit for carcase balance in the sheepmeat sector where it estimates that up to 22% of the annual UK lamb kill (3.1 million head) could be affected.  This would be a major challenge to a sector where approximately one-third of the lamb crop is exported each year.  If it wasn’t already clear, this report underscores the importance of a good Brexit Deal for the grazing livestock sector.  The report is available via: https://ahdb.org.uk/knowledge-library/red-meat-route-to-market-project-report 

Meat Markets Outlook

Beef

The UK cattle price has been above year-earlier levels so far throughout 2018.  Similar to 2017, the price fell steadily from the turn of the year until the end of February, since when it has risen through March, April and into May.  As of mid-May the AHDB all steer deadweight weight price was 4.2p per kg more than the price at the turn of the year and 13p per kg more than for the same week in 2017.  Demand is expected to stay ahead of supplies helping to support prices through the summer.  The latest AHDB beef and veal forecasts (see table below) were released in April and see a marginal increase in production (0.4%) for 2018 compared to 2017.  This is mainly due to higher slaughterings of prime cattle, although fewer cows are expected to be culled.  Both imports and exports are forecast to increase slightly, together with a modest 1% rise in domestic demand.  Looking further ahead, lower calf registrations and increased calf losses due to the adverse weather conditions earlier in 2018, could impact on production in 2018 and 2019, but the uncertainty surrounding Britain’s trading relationship with the rest of the EU is likely to impact on herd investment decisions.

Actual and forecast supplies of beef and veal in the UK – source AHDB
000 tonnes 2017 2018 (f) 2019 (f) 2020 (f)
Production 893 897 886 876
Imports 441 460 456 451
Exports 141 153 125 101
Total Consumption 1,194 1,204 1,217 1,226

Lamb

The UK sheep meat price for Old Season Lamb (OSL) has reached record levels in 2018.  Despite a high carry-over from the 2017 crop, lower imports from NZ and increased export demand helped by strong French farmgate prices, has seen UK values rise to unprecedented highs in the first quarter of 2018.  Global markets remain strong, which should help to keep domestic prices elevated over the next few months.  Looking further ahead, the table below shows the latest forecasts from AHDB.  This shows supplies available for consumption to decline sharply in 2018, and again in 2019 and 2020, albeit at a slower rate, mainly as a result of increased exports whilst imports are forecast to decline.  Imports from NZ are expected to remain much lower than historic levels as it concentrates on exports to China and the US.  In contrast exports are forecast to grow by 3% in 2018; all of which should continue to support prices.

Actual and forecast supplies of mutton and lamb in the UK – source AHDB
000 tonnes 2017 2018 (f) 2019 (f) 2020 (f)
Production 297 298 305 296
Imports (a) 95 84 81 83
Exports (a) 94 97 101 98
Total Consumption 298 285 284 280

(a) Carcase weight equivalent and including processed products

Pig Meat

The UK pig price has seen a steady decline since its high of last summer, but is starting to stabilise; whether this can last remains to be seen.  The EU average pig reference price has declined over the past month due to weak demand both domestically and for export.  Over-supply in China is putting pig prices under pressure and this seems likely to remain the case for the rest of 2018.  The UK and EU average reference price has widened over the last month, recording the largest difference since February.  However, it still remains below that calculated throughout the last quarter of 2017.   As domestic productivity is forecast to improve, an increase in demand is required to lift prices.  The table below shows the AHDB’s latest forecasts.

Actual and forecast supplies of pork in the UK – source AHDB
000 tonnes 2017 2018 (f) 2019 (f) 2020 (f)
Production 905 931 958 983
Imports 1,075 1,060 1,051 1,053
Exports 264 278 291 304
Total Consumption 1,716 1,712 1,718 1,733

Sheep Meat Trade

The sheep meat price has risen sharply since the start of the year.  In the week ending the 14th April the GB deadweight OSL average SQQ broke the £6.00 per kg barrier for the first time ever, to reach 601.9 p per kg; some 189.9 p per kg more than for the same week in 2017.

The dramatic increase in price has been a surprise to many, especially as forecasts were for production to be higher in the first quarter of 2018 than in 2017 (typically exerting downward pressure on prices).  In fact, this has been the case, although not by as much as expected; production was up by 2.7%, but fewer ewes came onto the market than forecast.  But other factors have played their part in the price rise.  In 2017, both the Australian and New Zealand price rose sharply, the GB price did not follow at that time and therefore the gap between GB and New Zealand lamb narrowed.  Imports of NZ lamb into the UK (and the rest of the EU) have consequently fallen, partly due to the decline in supplies in NZ but also due to the narrowing of the price difference, meaning other markets have been more attractive for New Zealand.

GB export demand has also strengthened; in the first two months of 2018 there has been a 16% year-on-year increase which has seen a tightening of domestic supplies.  In addition, the French farmgate price has risen at the same time as the GB price, this is unusual, as typically the French price acts as a ‘ceiling’ to the GB price, but with both rising at the same time this has not been the case.

Looking ahead as to whether prices will hold over the coming months we can see values have already started to fall.  In the week ending 21st April, prices declined to average 578.8p per kg but this is still 168.6 p per kg more than last year’s levels.  It is typical for prices to fall at this time of year as more lambs come to the market, but we are not expecting the price to collapse.  Slaughterings are expected to increase during quarters two and three, applying some downward pressure on prices.  However, the poor weather during lambing across Britain will mean the lamb crop will not be as large as it might have been, given the growth in the national breeding flock.

In addition, imports seem unlikely to pressurise prices greatly.  Although the price difference between NZ and GB lamb has begun to widen since the domestic price rally, import value per tonne into the GB remains less attractive than other markets and therefore volumes from NZ are not expected to recover in the short to medium term.  By contrast, export demand is expected to remain strong in the coming season, and, with reports that domestic frozen stocks commenced 2018 lower than historical values, supplies for the domestic market are forecast to remain tighter than usual over the coming months .  All this should help to support prices.

Livestock Populations

DEFRA has released its latest statistics on Livestock Populations as at 1st December 2017 for the UK.  The total number of cattle and calves has remained similar to earlier levels at 9.8 million head; just a 0.2% decline.  The dairy breeding herd has increased marginally, by 0.3%, to just over 1.9 million.  However the number of dairy cattle aged between 1 and 2 years is down by 6.1% which will have an impact on replacements entering the herd.  Dependent on what milk prices do going forward, we could see a contraction in the herd.

Total beef supplies in the UK were forecast to be higher in 2018 through the availability of more clean cattle slaughterings.  The December survey results support this to a degree, with female beef cattle numbers aged between 1 and 2 years up by 3.1%.  However male cattle between 1 and 2 years of age are down by 1.4%, which may see 2018 production forecasts still higher than 2017, but not by as much as originally expected.

For sheep, the UK female breeding flock has increased marginally, by 0.1% to 14.7 million head, the largest flock size since 2007.  This should mean a large lamb crop in 2018.  However, the AHDB is forecasting a decline in the lamb rearing rate compared to 2017, although still high compared with previous years.  Other sheep and lamb numbers are down by 4.2% on the year, but this is still historically high.  Finished lamb prices have been strong ahead of the Easter market, some 40 to 50p per kg liveweight more than last year.  The deadweight Old Season Lamb (OSL) SQQ broke through the £5 per kg barrier in the first week of March and stands at £511.2p per kg for the week ending 17th March, some 117p per kg more than for the same week in 2017.

The total number of pigs has increased by 3.9% to 4.7 million.  This is mainly due to the number of fattening pigs on farm which has increased by 4.4% compared to year earlier levels.  These figures support the continuing rise in production we are seeing, which is putting downward pressure on prices.  Supplies for the week ending 17th March were 16% above 2017 levels, according to the AHDB.  After two weeks of relative stability, prices fell on the week.  The UK-spec SPP stood at 142.73p per kg for the week ending 17th March, around 6 p per kg less that year earlier levels.

 

Meat Markets

Cattle

Prime cattle prices saw a rise in November as processors geared up for the Christmas procurement period.  There was a drop at the beginning of December, after which prices remained steady for the rest of the month.  January, however, has seen deadweight prices fall quite sharply week-on-week; even so they are still above the previous year’s.  For the week ending 20th January the average deadweight all steer price stood at 358.8p per kg, some 2.3p per kg lower on the week but still 8p per kg better than a year earlier.  Estimated slaughterings are up by 4.3% on the week.  Supply is said to currently be ahead of demand putting pressure on prices.  Prime beef supplies in 2018 are forecast to be higher than 2017, which unless demand also rises we could see prices ease further.

In contrast to prime cattle, prices for cull cows have seen a week-on-week increase.  The all-cow price for the week ending 20th January is 240p per kg, some 23.2p per kg more than the same week in 2017.  This could just be a ‘blip’, but demand for manufacturing beef remains strong both domestically and on the continent and should therefore help to support the price.

Sheep

The deadweight lamb price has started the year well, with the average SQQ for the week ending 20th January standing at 413p per kg, some 2.2p per kg up on the week and 34.1p per kg higher than for the same week last year.  In 2017, prices fell throughout January, where as this year the lamb price started the year higher and has steadily increased throughout the month.  Slaughterings are also estimated to be ahead of last year, suggesting demand for sheep meat is currently strong.

Revised Slaughter Figures

According to the latest DEFRA figures, year-on-year UK beef and veal production was down by 5% in December, to 68,000 tonnes.  This brings the total beef and veal production for 2017 to 901,600 tonnes, a decrease of 1% compared to year earlier levels.  However the reduction was expected to be more significant, but in DEFRA’s latest statistical release it has revised the production upwards for each of the months from August to November, a total increase of 8%.  And, with an 18% drop in production between November and December, and a 5% year-on-year fall, it is possible the December figures could also see a revision upwards.

A similar revision has also been made to the sheep meat figures.  If we look at the number of lambs slaughtered, this sees the numbers between August and November increasing by 10% in the latest release.  Meaning the carry over of lambs into 2018, although still significant, it is not quite as much as first thought.

Pig Meat

2017 proved to be an exceptional year for pig producers.  After a number of years of poor prices the SPP reached a historic high of 164.75p per kg in July, with record margins margins also being achieved in quarter 3.  But price rises were due in the main, to a fall in supply, both domestically and across the EU and not due to an increase in demand.  Consequently as supplies have increased in the second half of the year, prices have also fallen.  In addition, AHDB forecasts, domestic production to continue to rise in 2018 and we may also see a recovery in the EU.  If this is the case, similar to beef, an increase in demand will be required to support prices during the coming year.

For the week ending 20th January, the EU-spec SPP halted its 21 weeks of declining pig prices, by climbing (marginally) by 0.03p per kg.  But with ample supplies it seems unlikely that this ‘stabilisation’ will remain for any length of time.