Farm Ireland

Saturday 18 November 2017

Factories secure €9.6m windfall from QPS grid

Martin Ryan

The beef quality payment system (QPS) delivered a €9.6m windfall to factories last year, an analysis of factory grading patterns and payments has shown.

The beef grid gave a lift of €2.36m to producers of U grade steers and heifers in 2012 – compared to the pre-QPS pricing system – but the losses for O grade steers and heifers stood at €12m.

The calculations are based on the statistics compiled by the Department of Agriculture for the kill numbers, grading, weights and prices at the country's beef export plants last year.

After the higher return on U grade supplies is deducted from the lower payment for O grade, a net loss of €9.6m to beef producers is found.

This falls far short of the declared launch objective of the QPS in 2009 when supporters of the system said it would be 'cash neutral' relative to the old payment mechanism.

Traditionally beef producers were paid a premium for U grade animals of 6c/kg (2p/lb) over the R grade price and O grade were paid for at a penalty of 6c/kg (2p/lb) less than the R grade price.

However, between 2007 and 2009, the incentive to produce U grade stock was ramped up to 7-8c/kg, while the penalty on O grade animals was also increased to 11-13c/kg. These incentives and penalties were further increased by the QPS introduction in 2009.

Supporters of the grid would argue that changes to the bonuses and penalties ahead of its introduction altered the pricing structure to better reflect the actual market returns for the various cattle grades.

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However, an analysis of last year's kill shows that for both steers and heifers, the average penalty on O grades was more than double the average premium for U grades. In addition, there were many more O-grade cattle killed, with the O grades out-numbering U grades by up to 4:1.

Last year, 48,090 U grade steers were slaughtered under the QPS and farmers were paid €24.97/hd more than they would have received just before the QPS was introduced, amounting to a gain of €1.2m for farmers.

However, the 184,582 O grade steers were paid €42.50 less per head on the QPS, amounting to a loss of €7.84m for farmers compared to what they would have received before the QPS was introduced.

It was a similar story for heifers in 2012, where U grades gained €11.6m under the QPS system but O grades lost €41.5m.

The 2012 total gains under QPS was €2.3m for U grade steers and heifers but the total loss on O grades was €11.9m, giving an overall loss of €9.6m on the QPS system compared to the old system.

The analysis is based on fat scores 2-4 for both U and O grade steers and heifers. Fat scores 1 and 5, which carry the heaviest penalties, have not been taken into account as these are outside of the preferred grades.

The prices published by the Department show the actual return to producers and include quality assurance (QA) bonus payments, where they were applied to stock and penalties for over 30 month animals.

The results show that U grade steers (at score range 2-4) received an average bonus of 11.7c/kg over the average R grade price, but less than the 16.8c/kg (average) provided for under the QPS, for which the bonus over R grade ranges 6-24c/kg.

However, the average penalty – compared to R average price – paid for O grade steers (fat score 2-4) was 18.8c/kg, less than the average of 21.2c/kg provided for under the QPS. Under the system penalties range in band of 12-30c/kg.

U grade heifer prices for fat score 2-4 averaged 13.8c/kg over average R grade price and O grade heifers were paid for at an average of 22.2c/kg less than the average for Rs.

Irish Independent