Meat factories and dairy processors have managed to keep production going, but with constraints. However, it is becoming increasingly clear that the markets and the value of produce leaving farms is becoming a problem.

Route to market

There is now just one route to market – through retail, whether that is a large supermarket, a small local butcher or anything in between. The dairy sector approaches peak production season with apprehension and EU support mechanisms have been requested.

The meat sector has different challenges, with beef and lamb particularly vulnerable. Pig prices have fallen but remain reasonable, so long as supply lines to China are kept open, which is difficult with shipping. There is also good retail demand for poultry meat.

Sheep meat

Sheep meat had been performing well so far this year, until last week when it came to a sudden stop. The effective shut down in France has scuppered both the Irish and UK markets. It should be peak season for sheep meat, with the religious festivals of Easter in the Christian church and Ramadan in the Muslim faith coming up, but instead the market has been in freefall.

Collapse in steak value

For beef, some of the carcase has been performing well, with high demand for mince and dice from supermarkets and butchers largely offsetting the loss of restaurants and fast food outlets.

However, the steak meat trade is in meltdown, with huge stocks building across the trade as restaurants are closed across Europe. Steak meat is a small part of the carcase in terms of volume at around 14% ( see Figure 1), but typically it is 30% or more of the carcase value. Fillet, which would expect a wholesale value in the region of €18/kg, is currently being offered for as little as €6/kg and still not selling any volume.

Impact of currency devaluation

The EU has been an attractive market for South American exporters, especially as currencies in Brazil and Argentina have devalued over recent months. Brazil’s currency, the Real, is trading at BRL 5.70 against €1 this week, compared with BRL 4.50 just three months ago. The Argentinian peso was at ARS 47 in July 2019, compared to ARS 71 this week for €1. This makes their steaks much cheaper in EU markets, though even with this, sales from South America to the EU have also ground to a halt and importers are looking to renegotiate terms for beef in transit.

Market support measures

Options for beef and sheep meat support are more restricted than for dairy. Dairy products can come off the market through EU intervention or, as is preferred in industry with private storage aid, be resold later at market price. Freezing beef or sheep meat devalues the product by between 20% and 50%. In any case, there isn’t a better global market for steak meat than the EU. While some beef products can compete globally, sheep meat trade outside the EU is essentially divided between Australia and New Zealand.

One support option suggested is suspending imports of beef and sheep meat from outside the EU. This would remove a significant competitor in the steak meat sector, but it is an option that the EU would be loath to take, given the role they have adopted as leaders of global trade.

The DG’s of the FAO, WTO and WHO have also issued a statement urging countries to “ensure that any trade-related measures do not disrupt the food supply chain.” Also, the wider Irish economy is one of the most open and trade-dependent in the world. Heading into such an uncertain economic future, building trade barriers to support Irish agriculture may not be seen as an option.

No good option for beef or sheep meat

Like so many things around coronavirus, there doesn’t appear to be any good option. The one small positive, as pointed out in last week’s editorial, is that there is breathing room with livestock as spring advances.

There is also a good retail market for several products and numerous reports indicate China is getting active in buying meat of different types again. There is still a deficit in pigmeat from the African swine fever outbreak and demand for imported meat in the coming weeks will depend on how quickly the Chinese economy recovers.

The most optimistic view is that it will recover and absorb huge quantities of South American beef and Australian and New Zealand lamb, as was the trend in 2019. Europe and the USA are a further three months at least behind China in any recovery, so retail is likely to remain the only meaningful route to market for several more weeks. Problem markets and unsuitable EU supports for beef and sheep farmers may require direct farmer support payments, similar to those provided for workers that have been laid off.

In brief

  • Steak meat values collapsed to one-third.
  • EU market supports are unsuitable for beef and sheep meat.
  • Brazil and Argentina’s currencies are making their beef cheap for EU buyers.
  • EU importers are looking to renegotiate deals for product in transit from South America.
  • China is getting back to business and will be an important customer.