Covid-19 or not, people still need to eat. Aside from difficulties reorganising supply chains, you would expect this reality to offer a degree of protection to the food industry – yet the disruption caused by the pandemic has also changed the way people eat, and Ireland’s beef sector is once again emerging as the most exposed to this new shock.

There is no straight line connecting the volume of beef consumed here or in export markets – where 90 per cent of Irish beef is sold – with revenue and profitability in processing, and on to farmgate prices. Cattle entering the front gate of a factory go out the back in the form of a multitude of products destined for different markets.

In simplified terms, the top and hind sections of the animal’s carcass yield the most tender meat and are used to produce the most prized cuts – steaks, and less valuable roasts. The lower sections and the forequarter largely go for budget mince and diced beef. Offal and hides, while less valuable, bring some additional income for all players in the chain.

Beef demand is already under structural pressure from reduced consumption in Europe in the midst of health and climate change debates, and Brexit uncertainty in the UK where half of Irish beef is sold. The value of Irish beef exports fell by 10 per cent last year to €2.1 billion. In this environment, the industry increasingly relies on every single part of the animal to find a profitable outlet. This is where the pandemic comes in.

“Freezing it poses a great difficulty because it devalues it by 30 to 50 per cent.”

Kevin Kinsella, IFA

“It is a substantial disruption to markets with a carcass imbalance and a shift in cuts,” says Cormac Healy, Senior Director of the Ibec branch Meat Industry Ireland (MII). “Foodservice, now including quick-service restaurants, has stopped across Europe. This has been particularly problematic for steak cuts.”

According to industry figures, 30 per cent of Irish beef is sold through the foodservice channel. For steak, this doubles to 60 per cent – mostly to restaurant tables in the UK and on the continent. These are volume figures, but the higher value of steak cuts suggests a higher financial impact than 30 per cent from the global ban on dining out.

“There’s a lot of steak building up,” says the Irish Farmers Association (IFA)’s livestock executive Kevin Kinsella. “Freezing it poses a great difficulty because it devalues it by 30 to 50 per cent.”

By contrast, mince or diced beef can go into the deep freeze without much of an impact on price. These cheaper products have also benefited from short-term increases in retail demand and Kinsella estimates they form the bulk of the 20 to 30 per cent increase in beef sales to supermarkets since Covid-19 restrictions started. 

Bulk buying no match for steady trade

“We have seen some bulk buying, which has eased off. None of these spikes replace steady trading conditions,” says Healy. While increased demand has lifted sales at both Irish and British supermarkets, he added that it had not offset losses from foodservice customers in volume nor in value.

Individual beef processors are reluctant to discuss the impact on their own business. All are in the same boat when it comes to steak cuts. Some high-profile contracts on the mince market, however, may cause additional losses.

Dawn Meats is a major supplier of burgers to McDonald’s, which closed all its outlets in the UK and Ireland on Monday night. The fast-food chain is the single largest buyer of Irish beef with 40,000t in annual purchases representing one in five of the burgers it sells across Europe. Supermac’s, too, pulled down the shutters last night. It sources its beef from Rangeland Foods and Liffey Meats. According to company figures, the Galway-based fast-food chain buys €40 million worth of Irish food products annually.

Both Healy and Kinsella say that the balancing effect of larger retail orders in other EU producing countries, such as France and Germany, is most likely to benefit their domestic industries rather than Irish imports. Some Irish processors have better access to these markets through local subsidiaries, especially Dawn Meats in France and ABP in Poland.

The only short-term indicator we have of the beef industry’s financial health is the price factories pay to farmers for cattle. “The mix change is beginning to impact on base price,” says Kinsella. Excluding various bonuses, this price was €3.65/kg for male cattle and €3.70/kg for female cattle a week ago. It equalised at €3.65/kg for both earlier this week, and quotes going forward are now around the €3.60/kg mark.

Still not as bad as the price crash below €3.50/kg observed during last autumn’s farmers’ protests, but a long way from the €4/kg they say they would need to return a profit without EU payments.

 “We’ve been putting workers in pods, staggering work and break times and spreading out people in canteens.”

Cormac Healy, MII

While there has been panic buying among consumers, the risk is now panic selling among farmers – increasing supply in anticipation of falling prices, and compounding overproduction. “With orderly marketing, cattle supplies are expected to tighten over the next number of weeks and this should help steady the trade,” says the IFA’s livestock committee chair, Co Mayo suckler and beef farmer Brendan Golden. 

Farmers would normally bring fewer animals for slaughter from this time of year as grass growth picks up and it becomes more profitable for them to keep feeding cattle on this cheap resource. The IFA reckons reducing supply from 34,000 a head per week currently to 30,000 would meet the drop in demand.

Supply to factories is not affected by this week’s closure of livestock marts. The mart trade, especially in the spring, mostly serves farmers between themselves, to transfer stock to areas with stronger grass growth, and exporters of live calves.

The Republic’s processing industry has managed to navigate Covid-19 prevention requirements so far. Healy says intake procedures have changed to keep farmers and hauliers delivering cattle inside their vehicles. “We’ve been putting workers in pods, staggering work and break times and spreading out people in canteens,” he adds. 

While the Unite trade union reported walk-outs at ABP and Moy Park factories in Northern Ireland on Wednesday over physical distancing concerns, it had no plans for similar action south of the border at the time of writing.

EU to the rescue

As on previous market weakness occasions, both the IFA and MII are turning to the government and the EU for help. The existing intervention mechanism would allow the European Commission to buy beef on the open market, but it has not been used since the mad cow years. Current rules mean it would kick in only when prices drop to around €2.50/kg.

Instead, the industry is betting on the model tried and tested repeatedly in recent years: losses are passed down the chain to the farmers, at which point taxpayers pick up the tab – making those beef farms who stay in business less profitable and more dependent on public support each time.

European Ministers for Agriculture held a video conference on Wednesday night to assess the damage across the EU’s agri-food industry and prepare the next round of support schemes. While it is too early to talk millions and billions, they have already agreed to quadruple the maximum amount national governments can distribute under state aid rules – to €100,000 per farm and €800,000 per processing or trading firm.

The farm ceiling was last increased just one year ago.

Lamb market hopes pinned to religious festivals

While lamb prices have dropped by more than eight per cent in recent days, this is from a high base and on low seasonal volumes – and there are hopes that demand will pick up for new season animals (pictured above) around Easter.

“One week ago, I’d have said it’s OK, but now exporters are seeing a dramatic drop-off in orders due to the complete shutdown in France and Germany,” MII’s Healy says. The main market for Irish lamb is France, where the government closed all restaurants on March 14 and ordered a full lockdown from St Patrick’s Day.

“The closure of the restaurants and foodservice sector has been somewhat compensated by a stronger retail trade, with many more people eating at home,” says the IFA’s sheep committee chair Sean Dennehy. The crucial Easter trade on April 12 is traditionally led by domestic home consumption and less exposed to restaurant demand. 

The religious calendar is favourable with an early Ramadan starting shortly afterwards on April 23, which may sustain demand through the Covid-19 peak. Muslim consumers throughout Europe drive the Irish lamb trade during the month-long festival every year.