At first glance the new pricing grid looks a complicated affair as it contains 60 price boxes.
However, last year about 45pc of all the steers graded R and 40pc graded O, so 85pc of steers are covered by these two conformation grades. On fat, 55pc of steers were in fat class 3 and 26pc in fat class 4 (4L plus 4H). Therefore, the vast bulk of cattle are in the grades R3, R4, O3 and O4.
The new pricing system has come in for a lot of criticism since its introduction. Producers feel that there are more "minuses than pluses", that the penalties are higher than the bonuses and that it is too difficult to get the bonuses.
Before we dismiss the changes to the cattle pricing system, we should take account of the following:
The grid was developed from independent Teagasc carcass dissection trials, where meat yield was recorded and related to conformation and fatness grading.
Carcass value was calculated as the sum of the commercial value of individual meat cuts.
When a U3 carcass was compared to an O3 one of the same weight (360kg), the U3 carcass had 25kg more meat, 17kg less bone, and 7kg less fat.
The result was that the U3 carcass was worth 37c/kg extra, or 6c/kg on a 15-point conformation in grading scale.
In Ireland, U grades achieved 18c/kg higher price than O grades, which was 50pc of the differential that the meat yield trial indicated. Why should the producer of a U-grade animal take 18c/kg over an O-grade when the carcass is worth 37c/kg more than an O-grade?
On continental markets the differential at the time of the trial was 45c/kg in Spain, 66c/kg in France and 80c/kg in Italy. This is part of the reason for the continental buyers being able to pay more for our best weanlings.
The changes are not as radical as they appear on the grid. Remember, before the grid was introduced there was a price difference between the grades. For example, for the week ending December 13 last, the average R3 price was 285c/kg and the average O3 was 270c/kg -- a difference of 15c/kg. The grid gives a difference of 18c/kg between an R=3 and an O=3, which is slightly more than 1p/lb in old money.
The grid gives a nudge towards paying more for the higher grading carcasses. There can't be bonuses for the better grades unless there are deductions on the other side. If every grade was to get a bonus, it is no longer a bonus. The only way of getting a bonus on everything is to get a higher base price, then the price of every grade rises by a relative amount.
I've been assured that the pricing structure agreed is price/cost neutral for both farmers and processors. I also think that the new pricing structure mirrors more closely the prices for stores and weanlings in the marts, where there is a greater differential between the O/P-types and U/R-types of cattle than has been the case at the slaughter stage.
The market tends to even out changes to pricing over time. If the price of an O-grade declines relative to other grades, the price of O-grade stores will also decline, so the trading margin doesn't change. Similarly, if the price of U grades improves, the cost of U-grade weanlings and stores increases in relative terms, which is no bad thing for the hard-pressed suckler producers.
The grid is not perfect. It needs further refinement. Keeping the R=4= and R-4= within the base price box is essential, as these are high value carcasses suitable for most markets.
Keeping the U4= fat score in the base price box will also help a proportion of average carcasses to move from O+ to R-. Processors should give a fair price, based on meat yield, for carcasses that do not fit into the grid specification. For example, I've heard of severe deductions for the U=2= grades, which cannot be justified considering the high meat yield on such carcasses.
The primary objectives should be to get an improvement of the base price and to get the aggravations of the grid addressed rather than ditching the whole scheme. I know the IFA is committed to achieving these objectives.