There is widespread acceptance among farmers and the wider industry that the beef supply chain is broken.
The primary producer is being squeezed to an extent to where many are questioning their future in the business.
The simple solution would be that farmers are paid a higher price for beef. The industry will argue that they can’t because of the margins that exist within the beef processing business. Farmers and farm organisations argue that the proportion of the final animal value that the farmer receives is too small and needs to increase.
Last week, Meat Industry Ireland (MII) pointed to a Grant Thornton report that stipulated that farmers received 76% of the value that the factory receives for the animal when sold.
Farmers will argue that retailers and processors are pocketing the largest share of margins while retailers and processors will argue differently
The trouble is that the beef supply chain is set up in such a way that it gives very little transparency along the supply chain, from primary producer to processor to retailer to consumer.
Farmers will argue that retailers and processors are pocketing the largest share of margins while retailers and processors will argue differently. The problem is, nobody knows.
A full open book on the margins along the supply chain would benefit everybody in understanding how things work but the likelihood of that happening is pretty slim.
Forward price contracts
What could help take away some of the risk from a beef farmer’s point of view is forward price contracts.
There are some very successful producer groups operating around the country but these tend to work off a set bonus on top of the base grade on a given week which is agreed on an annual basis.
Some selling groups have also popped up in recent times where farmers pool together the number of finished animals they have to get the best possible price.
A lack of trust between farmers and factories and poor price transparency have meant farmers have been very cautious about joining up to factory-led schemes
There are also a number of integrated supply schemes operating such as the Kepak Glanbia 2020 scheme and the ABP Blade programme.
However, farmer participants and animal numbers are low and some of the conditions of these schemes prohibit farmers from joining.
Kepak and Glanbia hold a lot of control over where animals are purchased from for finishing and inputs for the animals must be purchased through Glanbia to get the bonus on the finished animals. A lack of trust between farmers and factories and poor price transparency have meant farmers have been very cautious about joining up to factory-led schemes.
What is Breedr?
Breedr is a UK-based company which has just launched its own integrated supply chain driven by data on animal performance.
Breedr started out as a herd management app and has now moved on to developing a relationship with Dunbia in the UK, which is owned by Dawn Meats. A contract has been developed where farmers can commit cattle 24 months in advance to Dunbia at a fixed minimum price.
Animal performance data is captured through the Breedr app every time the animal is weighed and the app then predicts a finishing date for that animal. Tracking performance of different cattle from different origins can be used by the finisher to focus on certain farms to purchase from in the future.
Medicine usage is also captured through the app and this data follows an animal even if they move to another farm. The network has over 2,000 members and 120,000 registered animals. The group has also included the option to sell animals farm to farm via the app on a liveweight basis. Breedr takes commission of between 1% and 3% on the value of animals contracted through the app.
Ian Wheal, founder of Breedr, said: “By making better use of data, we can buy and sell with transparency, predict growth rates and know that we’re supplying the processor with what they want – ensuring a secure end market and price.”
Speaking to the Irish Farmers Journal, Rob said: “It just gives me more certainty for my finishing business and allows me to plan ahead a lot better in terms of purchasing animals and keeping an eye on costs. The not knowing cripples the beef finishing business.
“We commit the cattle to the processor at a set price based on achieving a minimum specification around carcase grade and weight. It is up to me to do my best to hit that.”
If the price goes beyond the agreed contract price, a bonus is paid to the finisher. If the price reduces, the finisher still gets paid the agreed price.
Integrated supply chains will have a greater role in the future as beef finishers struggle to deal with the financial uncertainty and low margins in the beef business. The current suck it-and-see approach to beef finishing in this country and the “we’ll look after you” mantra has played out and things need to change.
It’s important to remember that both sides, the primary producer and the processor, need to “gain” from the relationship so things like a tight specification, animal data recording and projected sale date are important from the processor’s point of view, while the contract offers security and a bonus payment for meeting the criteria to the primary producer. Farmers can’t continue to accept 100% of the risk not knowing what’s down the road in two years’ time.