Farm Ireland

Sunday 27 May 2018

Beef farmers need transparency on what happens after the factory gate

What happens between the animal entering the factory gate and ending up on the consumers' plate largely remains a mystery.
What happens between the animal entering the factory gate and ending up on the consumers' plate largely remains a mystery.

Alan Renwick

Over the last year we seem to have lurched between periods of extreme optimism and extreme pessimism in our beef sector.

Just before the end of last year the beef roundtable was held in the context of the spectre of an increasing price gap between the UK and Ireland, with concerns since over the slide in sterling.

I have always been an advocate of bringing players from across the value chain into the same room as it is often a lack of communication and understanding that leads to mistrust and failures within the chain.

Ahead of the forum I noticed that Minister Simon Coveney was reported as saying: "Prices paid for cattle are determined by supply and demand market dynamics and by a range of other factors such as disposable income, consumer preferences and competition from other meats."

While acknowledging that these are important factors, it is also necessary to emphasise that the configuration of the supply chain, including the existence of market power, is also important in determining the level of prices paid.

Within this context, research evidence highlights that improved supply chain co-ordination and cooperation among the different segments of a supply chain can improve efficiency and effectiveness, and therefore its competitiveness and long term sustainability.

The same research highlights that good communication, trust and a fair distribution of returns all contribute to a strong supply chain.

Clearly these are all areas where there is ample room for improvement in the beef supply chain.

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On the side of the Government much seems to have been made at the roundtable of the benefits of transparency on factory prices and the establishment of producer organisations.

While arguing against improved transparency or greater cooperation between producers is a bit like arguing against mother's apple pie, the overall benefits in terms of securing better prices may be questioned.

Staying on the issue of transparency, efforts to increase the level of transparency in terms of the prices paid by the factories is a positive step but this is of course only one aspect of transparency.

What happens between the animal entering the factory gate and ending up on the consumers' plate largely remains a mystery and it is this which is the source of much of the mistrust within the chain.

In addition, it may be questioned whether transparency as to factory prices actually leads to better prices for producers. In situations where there are relatively few firms dominating the market as in beef processing in Ireland, it can be shown that forms of price signalling are used as coded warnings to others.

For example, retailers vowing to be 'never knowingly undersold' signal to their rivals that it is not in their interest to cut prices as these will be matched and therefore there will be no gain in terms of new customers and only lost revenue.

So what seems a reassurance to customers of competitive prices is actually exactly the opposite.

A corollary may be drawn with processors - there is little to be gained in terms of securing supply by paying a higher price as this will be matched and the only impact may be reduced profitability.

Therefore just because we know the price paid to farmers does not make it any more competitive.

The issue is whether or not market power exists rather than one of transparency - competition is the key.

More generally, as highlighted above, we know what is needed for well functioning sustainable supply chains, the question is how do we move the beef sector towards this?

There needs to be an overall change in mindset within the sector away from 1970s style industrial relations to value chain thinking.

The beef forum can focus the participants' minds as to their roles and responsibilities in achieving this.

This said, if it is any consolation these challenges are not only an Irish issue: when I made a presentation on the Irish beef 'crisis' in New Zealand last year I was met with the response that many of the issues exist there as well!

Alan Renwick is Professor of Agricultural Economics, Lincoln University, New Zealand

Indo Farming