Context Agriculture and agri-food constitute, together, one of the European Union’s main economic strengths. With a total turnover of €1 350 billion per year and 14 million jobs, agriculture and agri-food are not only one of Europe’s leading business sectors, but also one of its principal sources of employment. It is second only to the […]
The European beef sector is one of the most important agri-food sectors in Europe. It is characterized by great diversity and it is at the foundation of the economic fabric of many rural areas across the European Union. It provides a great number of jobs at each step of the value chain, from the farm to the sale point, encompassing a range of intermediaries, supporting industries as well as sales & retailing.
In this context, the suckler herd – an important segment of the EU livestock sector – is a key player, not only because it provides more than one third of the beef consumed in the EU, but also for its strategic role in very specific EU areas, – mainly located in Ireland, France, the United Kingdom, Spain, Italy, Portugal and also, more and more, in Poland. Niche market is also present in many other EU Member States, with demand rising in countries like Finland and Sweden. It is also important to highlight that in many areas, this specialized breeding system cannot be replaced by other farming activities. This is due to the agronomic profile of the land.
However, the contribution of this specific sector to the EU economy is too often underestimated.
When compared to other breeding activities, the EU beef sector production has distinctive traits, which make it particularly exposed to external factors:
- Tight margins, when looking at producer’s prices
- Generally low level of profitability, when considering the complexity of the production systems overall
- Low level of elasticity
- High global competitiveness vs low internal competitiveness (structurally between 70% to 90% of the incomes in the beef sector depend on CAP subsidies)
- Animal welfare concerns supported by activists’ campaigns;
- A mix of positive and negative environmental impacts (biodiversity, carbon sequestration and emissions).
In addition to this, profound changes in consumption, technologies, public policies and international trade are combining together to make the future unpredictable, or at least difficult to foresee, in particular due to:
- the threat of a more intense competition from the bilateral agreements agreed (Canada) or currently being negotiated – namely Mercosur, Australia, New-Zealand, not mentioning the US;
- the lifting of milk quotas, which is disrupting the sector’s equilibria through renewed growth in the dairy herd, which already supplies two thirds of the beef consumed in Europe.
Consequently, the sector is facing a double challenge:
- Building a clear and concrete vision for the future and, to do so, devising a strong market-driven business strategy for the sector as a whole. This strategy must enable the industry to seize opportunities both within Europe and beyond, as well as help it to adapt to changes in demand.
- Designing and contributing to build the most suitable policy tools to support and accelerate the implementation of this business strategy, valorizing the wide diversity of culture and economic models in Europe in this specific sector and laying down the foundations for a common European approach, with flexible and relevant tools developed and adapted to this diversity.
Yet, despite the efforts undertaken, especially through the Common Agricultural Policy, the sector has been struggling with recurring structural crises for almost three decades now. The impacts of these crisis have affected different regions in the EU, at different times and in different ways, depending on their production models.
In this context, it is more than urgent, on the EU market, to valorize better products, to build efficient meat supply chain focusing on modernization, structuration as well as viability and to cope with the challenge of market volatility. While, on the Global market, to ensure effective promotion measures and a meaningful trade agenda, always bearing in mind the high sensitivity of the sector. The EU has definitively a key role to play as a supplier of safe and quality meat products.
The EU beef sector clearly has the capacity to seize the growth opportunities stemming from the increase in beef meat global demand forecasts for the upcoming years.
Main concerns arising from the sector
The current market situation for bovine meat is quite alarming both in terms of economic and societal aspects.
Starting from the last years, a steady increase in slaughtering (linked to the difficulties experienced by the dairy sector), so a production increase, has affected producer’s prices consequently.
The situation in Ireland, the Netherlands and Poland provides an overview of the on going economic developments.
In 2017, Ireland will experience 200,000 more cattle for slaughter than in 2015, in addition to a chaotic situation on traditional export markets (Russia, Turkey) and the sharp fall of the pound in the wake of the Brexit referendum in the UK, which is the biggest export market for Irish beef producers.
The same type of impact is expected in the Netherlands. This is due to the deliberate choice of the NL milk producers to increase the dairy herd in 2015 and 2016, ahead of the implementation of the new domestic regulation on Nitrogenous effluent release. As a consequence, at the end of 2016 data showed that there were already 160,000 more NL cattles for slaughter than in 2015.
On top of this, Poland appeared as a newcomer with strong ambitions in the sector. Because of the milk crisis and the strong competition of western milk producers, many polish producers are converting their milk herd into suckler herd. Between 2004 and 2016, the polish beef meat production register a 66% surged, Poland becoming the 7th EU producing country, exporting 90% of its national production. (Poland being traditionally a pig meat market).
Furthermore, another issue of concern is the surge of young calves from the dairy herd, which are not deemed as suitable for viable beef production system. One of the few options is to export them.
Accordingly, the links between dairy and beef sectors should be tackled thoroughly, since outlooks for the first one are positive, especially in terms of profitability.
The forecasted expansion of the dairy herd should not happen at a detriment of the specialized beef herd.
At the same time, the beef sector is facing two communication challenges:
- On one hand, some big EU competitors – in particular from South-America – are spreading the idea among EU consumers, via aggressive trade and promotion actions, that quality beef = non-EU meat.
- On the other hand, activists are challenging beef meat consumption as such building their campaigns on misinterpretation of nutrition science and hard hitting animal welfare actions.
The EU should work actively against these two highly dangerous and false misconceptions and messages from both an economic and health point of view.
What ingredients would make an effective policy?
A certain number of ideas come up regularly in discussions at EU level and they could be definitely considered and evaluated as a possible basis for a successful European business strategy for the EU’s suckler herd. Specifically, on the basis of currently available information, and bearing in mind the challenges we can foresee, Farm Europe believes that the following could be key ingredients in a common European strategy, and that they could offer a starting point for a discussion on such strategy:
- Market segmentation (ensuring production is demand-driven). The priority must be for the sector as a whole to reflect on remodeling its product offer, in order to make it clearer and closer to consumer demands. This implies a root and branch review of all the parameters that govern the sector, niche market, and supply chain dynamics – from breeds to industry organization, to the point of sale, including research, innovation, and market prospects for European beef products.
The long-term success of this approach remains on ensuring a more harmonious co-existence between suckling and dairy herds.
Three market segments seem to emerge:
- Entry-level: mainly carcasses of culled dairy cows, but also entry-level cuts from suckling livestock of lower quality used for minced beef, processed products, entry-level cuts of beef ;
- Mid-range: mainly consisting of suckling livestock, including, but not limited to, large, well-known and developed meat breeds such as Angus or Charolais (cow or YB meat depending on markets);
- High end: productions anchored in terroirs, with a very high reputation potential, valued at all stages of the chain of production and marketing as an exceptional product. These represents signs of quality (PGI, labels, etc.).
The challenge is to develop economic coherence for each of these segments, both at the level of livestock systems and at the level of the sector, through research and innovation, but also through the promotion, organization and the transfer of value to producers.
- Research and innovation through improved animal genetics and by enhancing farming practices (in buildings, animal feed etc.), it is possible to make advances that will better satisfy consumer demand in terms of products on the market and societal expectations in terms of health, environment and animal welfare. Effective communication, information and decision should be science-based, with a clear commitment of all stakeholders in that respect (from economic actors to medias, from decisions makers to NGOs), while not discouraging research and innovation in this field.
- Structuring the sector will require two types of action:
- greater coordination: between producers, processing and distribution.
It has become an absolute necessity to organize the sector, including coordinating at strategic market segment level or, when deemed relevant also at local producing regions’ level. This coordination should result in a fair return for the first stage of the industry’s supply chain – and an improved awareness across the whole chain in relation to consumer demands.
Such coordination must strengthen the industry’s ability to respond quickly and adapt its products to new opportunities, thereby creating value, and it must accelerate the take up of innovations across the whole sector. Coordination of the sector and its different markets and supply chains, should lead to the uptake of market segment strategies covering breeding and commercialization dimensions.
This enhanced cooperation within the supply chain would lead to an array of positive outcomes for all the actors: improve the production planning on the basis of market demand, organize information/awareness programs to the consumer, as well as product promotion activities/marketing, simplify the uptake of research and innovation for the sector and enhance the export capacity in foreign markets.
- Firm-level re-structuring including farms and industrial firms (slaughterhouses) so that each partner in the chain is able to invest thanks to a fair level of profitability, develop the business sustainably, and be strong enough to play a full part in the devised strategy.
This firm-level and sector-wide re-structuring goal should (1) be managed taking into account the characteristics of each Member State (and also specific cost issues applying to firms) and (2) take into account the particular characteristics of producing regions in terms of their respective models (suckling, breeding, fattening, etc.).
In parallel, enhanced action should be pursued to encourage investments into bio-energies, which can both strengthen the viability of certain farms and contribute to climate change mitigation.
- Commercialization. Effective communication systems and quality labels are needed so that consumers are made fully aware of advances in quality, the environment and animal well-being – and so that operators obtain a meaningful return on investment consistent with the market segment and the production infrastructure in place.
An enhanced communication effort should be encouraged in order to highlight the specific features of the EU livestock sector, in particular to differentiate it from feedlots of the American continent.
In Europe, structurally falling consumption makes it necessary to pursue offensive strategies to defend the positions of EU businesses relative to international competition in each of the three market segments, as well as to promote each cut of beef and each partner in the supply chain as effectively as possible by identifying the segment in which it or they would be most successfully marketed.
Marketing and discount sales strategies should moreover be managed so that:
- beef is not a loss leader, and marketing truly focuses on selling surplus stocks.
- prices in segment A do not drag prices down across the whole sector.
Internationally, real opportunities exist, especially with respect to live cattle, high-end products (segment C) and co-products.
Effective communication and marketing strategies need to be implemented for both the EU internal market and international markets. An ambitious export strategy should be stepped up, based on efficient tools acting as a lever to develop markets such as export credits, and well-targeted promotion actions.
Our recommendations: structure, modernize and promote the EU suckler herd
On top of the usual policy tools included in particular in the CAP, the European Union must mobilize its capacity to strengthen the sector, especially in order to anticipate the impact of trade negotiations that weaken the EU beef meat sector, already confronted with structural and recurring crisis.
Such revitalization plan should not be limited to a policy of budgetary transfers – even though their legitimacy must not be put into question (Coupled Payments, LFA payments). The European Union must go beyond these tools offering levers to structure, modernize and promote the EU suckler herd with the support of well calibrated financial supports.
The objectives of the toolbox could be summarized as follow:
- Organisation, market segmentation and structuration:
- Building a strong market-driven business strategy for the whole sector, based on clearly established market segments;
- At local level: helping producers to invest and make money out of their work (organization, investment, including in bio-energies);
- Building efficient meat supply chain (including via a proper competition policy and the extension of the milk package – see annex) and more innovative and modern slaughterhouses;
- To cope with the challenge of market volatility:
- Building tools, which are able to improve market resilience (ex: mutual funds) to limit the shock in the milk sector, which have in turn collateral effects on the specialized beef sector;
- Coping with sanitary and climate risks, including taking into account grass land model which is an important carbon traps or fattening systems with climate-efficient feeding and effluent management practices;
- Achieving greater coordination in the supply chain (between producers and other partners in the supply chain) with enhanced possibility to discuss and negotiate prices and volumes.
- Triggering, when necessary, market management tools as it has been done for the milk sector in 2016. In certain cases, well organized mandatory storage action could be more easily set up targeting the dairy herd and taking into account the lower level of losses in relation with storage process, than products with higher value. For the suckler herd, possible measure of live storage on the farm might be explored, with the aim to rebalance the market temporarily, covering feed costs, etc.
- To promote the EU model, its positives externalities and the effort already done in terms of sustainability and, especially, to highlight the viability and specific features of the European beef sector via adequate marketing tools and well-funded promotion campaigns.
- To enhance private quality scheme and GIs systems: high quality beef could also move in this direction. The idea could be to develop new quality schemes or new criteria (on grass-fed beef for instance or other breeding practices that have a good impact on fat content) linking it with the idea of differentiation (mid-range market). Certain GIs could be developed, especially for the high-end segment. Quality schemes must be able to address consumers’ concerns as well as they could be developed in relation to animal welfare and industrial livestock production methods, while facilitating the marketing of the products.
- To develop further the sustainability of the EU production systems (innovation, smart policy and consumer awareness), with well-designed climate actions.
Farm Europe strongly believe in the potential of the EU beef and veal sector, both economically and in terms of sustainability, against the current pessimistic visions of the future combining de-growth and abandonment of land currently experienced by producers.
The think tank considers an absolute priority to invest and reflect on the future of this sector confronted with structural economic changes.
Of course, given the complexity of this sector, there is no magic wand. Nevertheless, the objective should be to capitalize on the assets of this strategic sector for many regions in Europe, not adopting a defensive approach. In other words, to focus on a true economic ambition for the future.
Implementation of the strategy should help to secure the internal market and reduce imports. Specifically, it is crucial for the European sector to retain control of the high added value segment, which makes it more necessary to have an ambitious strategy for the specialized sector – and consistency in the commercial strategy of the EU overall.
Measures exist within the current framework of the Common Agricultural Policy, which could be mobilized. Beyond that, a strong revitalization plan must be shaped at EU level.
Additional budgetary resources should be targeted on the key elements of an ambitious policy strategy, complementing existing tools, with the objective of leveraging and accelerating the structuring and modernization of the sector by offering to producers the right tools to build on their future.
Short term: Get on the Omnibus!
The European Commission presented on 24 November 2016 an evaluation report on the milk package confirming the positive effects of the new regulatory provisions for this sector, in particular those relating to Producer Organizations (Article 152 (3)) and to the Negotiations of Collective agreements (Article 149). These measures have helped to strengthen the weight of producers in the supply chain.
To date, meat producer organizations cannot collectively negotiate collective terms in excess of 15% of the total production of the Member State concerned. This threshold constitutes, as such, a real brake to the organization of production, since it remains very far from the purchasing power of industrial operators.
However, the sector is marked by the existence, on one hand, of a major global operator – JBS – in the acquisition phase on the European continent and, on the other, within the EU. Presence of highly concentrated champions at the national level should be also considered. In France, Bigard holds 42% market share; In Germany, Vion concentrates more than 30% and the same is in the Netherlands; In Italy, the recent acquisition of Unipeg has allowed Cremonini to approach the 30% mark, as ABP in Ireland.
In addition to the concentration in the meat industry, which is both at global and Member State level, there is a concentration of distribution, particularly in the fresh meat segment. As a result of the loss of speed of the traditional specialist circuits (butchers’ shops), major retailers now sell up to 80% of the fresh meat sold in some Member States.
A solidarity and integration within the entire sector will be necessary to preserve a specialized breeding in Europe.
In view of the increasing number of structural and cyclical difficulties, initiatives are being taken in Member States to structure the sector, segment markets and value products in order to strengthen the sector’s capacity to invest and look at the future.
However, these initiatives are hampered, on one hand, by the lack of clarity in European rules coupled with unfortunate experiences in some countries, as the sector has been scalded by sanctions for non-compliance with competition rules and fragmentation, and on the other by the lack of solidarity within the sector.
It is therefore important, not only, to review, clarify and simplify as quickly as possible the rules of competition and to ensure the consistency and uniformity of law in this field between two closely related sectors in the European Union, namely meat and milk. In other words: competition law for the meat sector should be aligned with that in force for milk, through an extension of the milk package. In addition, there needs to be an increased consultation within the sector in order to go beyond individual short-term strategies.
In the context of the EU’s trade negotiations, the crisis in the meat sector is expected to get even worse in 2017 in the wake of the milk crisis (due to the increase in culling of animals). For the European Union, it is time to send a clear signal of its will to accompany the sector in its structuring efforts, without waiting for the next reform of the Common Agricultural Policy.