LMC: Consumers Buying More Beef Than Last Year
NORTHERN IRELAND, UK - Stronger farmgate prices have been a feature of the trade throughout 2011 and the strength of the trade is underpinned by the current demand and supply conditions.The
reduced supply of beef in the British Isles has
been well documented over the course of the year.
In ROI cattle supplies were particularly tight in the
first half of the year, with NI supplies tightening
from April onwards.
It is expected that GB
supplies will be coming under more pressure as
the year progresses.
The potential for reduced
supply to deliver an increase in price will only be
realised however if the demand conditions are
right and while beef supplies have been under
pressure, retail beef demand has remained robust
in GB with sales of beef significantly higher than
previous year levels.
The increase in demand for beef over the 12
weeks ending 4 September was impressive.
The latest Kantar Worldpanel data shows that in
that period, sales of beef were seven per cent
higher than in the same period last year.
However,
this increase in sales came despite a two per cent
increase in retail beef prices relative to the same
period in 2010 (see Figure 1).
As far as beef cuts were concerned during the
summer, the standout performer was stewing
beef. Stewing sales increased by 19 per cent year
on year, with frying / grilling sales up by eight per
cent.
Mince sales increased by six per cent, with
roasting sales, which were generally under
pressure in recent years, up by five per cent
compared to the same period last year.
In August
it was roasting, frying and grilling which drove the
increased sales of beef with reports of increased
promotional activity for these higher value cuts.
The Kantar data shows that consumers became
more likely to buy beef on a visit to the shop and
those that purchased beef were buying more of it.
Almost 53 per cent of consumers purchased beef
on their shopping trips during the summer. This
figure was four per cent higher than in the same
period last year. The average weight per purchase
during the summer was 1.5kg, three per cent
more than last year.
Greater demand despite higher prices
Higher retail prices would generally have a
dampening impact on beef demand, so an
increase in sales, despite rising prices ought to be
seen as a positive phenomenon.
While price is one factor that affects beef
demand, there are a range of other factors,
including income, consumer confidence,
population issues, the weather and the price of
substitute proteins that can cause changes in
overall beef demand.
Rising demand despite
higher prices would indicate that some of these
other factors are at play, helping to create the
conditions for stronger demand.
Beef is certainly an income sensitive product and
the industry is rightly concerned about the
prospects of a double dip recession and its impact
on the beef trade. But if consumer confidence
has been impacted by the recent bad news
emanating from international economic agencies,
it is not coming through in the demand statistics
from Kantar.
One of the positives about the poor summer of
2011 has been an improvement in demand for
beef. While a barbecue summer might drive
demand for higher value cuts, it was demand for
stewing that was strong during the cool weather
which was a feature of this summer.
Price of alternative products
The strong performance of the retail beef trade
may also have been driven to some degree by
changes in the competitive environment. Pork
and chicken are recognised as two cheaper
alternatives to beef and many consumers were
reported to have been switching to cheaper
proteins during the recession in 2008/09.
Lamb
is another more expensive alternative.
Over the last year however, it has been reported
that the chicken sector has managed to secure
retail price increases and the price of fresh
chicken was around eight per cent higher in
August / September 2011, compared to the same
period last year.
In the four weeks ending 4
September, the retail pork price was five per cent
higher than previous year levels (last year pork
was more heavily promoted). Over that same
period retail beef prices were up by a more
modest two per cent.
This relative improvement in the market position
of beef relative to alternative products may have
caused some producers to change their shopping
behaviour, particularly earlier in the year when
chicken prices rose sharply. The beef sector has
probably benefitted from these developments to
some extent. The rising retail price of lamb may
also have led to some switching from lamb to
beef.
Retail prices relatively subdued
The relative stagnation in the retail beef price, is
in stark contrast to the developments in farmgate
prices in 2011. In the last week of September
2011, the average cattle price (all categories) was
23 per cent higher than previous year levels.
In
comparison the retail beef price was only two per
cent higher in August / September.
With rising input costs, farmers have required
farmgate price increases in 2011. Producers are
clearly taking a greater share of the retail price
and given that the consumer is not absorbing the
higher farmgate prices, it is likely that processor
margins on their retail business may have been
impacted as a result of these developments.
However, this will probably have been offset to an
extent by ongoing developments in export markets
and in the market for the fifth quarter with trade
in these areas reportedly strong.
However, some
beef processors may be looking enviously at the
poultry sector where there were strong increases
in retail chicken prices earlier in the year.
Greater expenditure on beef
The current retail beef situation is broadly positive
and is in contrast to the situation back in 2009
when the trade came under significant pressure
due to general economic concerns and stronger
retail beef prices.
According to Kantar, beef
expenditure in the 12 weeks ending 4
September 2011 was 10 per cent greater than in
the same period in 2011 (see Figure 2 ).
The fact
that volume sales have risen in an environment
where retail price has increased is an added
bonus which reflects the relatively healthy state
of the trade at retail level.
Given what has happened farmgate prices over
the last year however, there has to be some
prospect of further increases in retail prices and
the potential impact of these are difficult to gauge.
However, it is clear that demand is impacted by a
whole host of factors beyond price, and
developments in the wider economy, the weather
and in the chicken, pork and lamb markets will
combine to determine the performance of the
retail beef trade in the future.
TheCattleSite News Desk