LMC Report: Recession Bites a Chunk Out of Demand

UK - This week processors cited reduced demand for beef as the key reason for reducing cattle quotes by 2p/kg. While demand is only one factor that determines price in the market, it is of critical importance, and current consumer trends are of concern for both farmers and processors.

8 May 2009

3 minute read

Europe

For some time now, there has been evidence that consumers, low on confidence and sensitive to higher prices are trading down in terms of quality and quantity. It appears that this consumer behaviour is having an impact on demand for NI beef in GB.

Consumers’ spending power reduced

In GB rising unemployment coupled with a perceived reduction in job security has led to falling spending power and reduced willingness to spend over the last year. Food inflation has compounded the situation by eroding consumers’ real income further. With beef prices increasing by 12 per cent over the last year (52 weeks ending 22/03/09), beef sales are susceptible to falling demand (Source: TNS). These changing economic circumstances have led consumers to:

Purchase beef less frequently
Reduce the amount of beef they buy per trip
Switch to less expensive cuts such as burgers and stewing beef
Switch to cheaper alternatives such as sausages (Source: TNS)

The last year has seen a large decline in the volume of steaks and roasting joints purchased in GB. Instead consumers have been inclined to opt for mince and stewing beef at the expense of these better quality cuts. Hardly surprising given the fact that premium mince was around a fifth of the price of fillet steak in England at the end of last month (Source: Meat Trades Journal). Furthermore, the average weight per purchase fell by four per cent last year.

Profitability affected

These developments have repercussions for the entire supply chain in NI. The slump in sales of premium cuts reduces processors’ profitability. It also raises the question of what to do with high quality hindquarter cuts. Some plants, struggling to market their beef have responded by operating a shorter working week to reduce costs. With overcapacity already an issue, this is not desirable. Four in five not affected by credit crunch In analysing the recession, it is important to recognise that the impact of consumers’ reduced willingness to spend is possibly more damaging than the impact of reduced spending power.

In GB, around 70-80 per cent of consumers have not been affected by the classic symptoms of the recession, such as repossession or reduced income (Source: Trajectory/Sense Consulting). This indicates that in four out of five cases, reduced willingness to spend is the cause of the demand shift. With this in mind it is worth pondering whether consumers will soon tire of being financially sensible and return to typical buying patterns.

Furthermore, with a good summer forecast by the Met Office, the prospects for a strong barbecue season are strong. In the past this has helped to fuel demand for premium beef cuts and this would provide the industry with some welcome relief.