The UK inflation figure of 3% in the year to January came as a surprise, when announced by the Office for National Statistics (ONS) during the week. It increased from 2.5% in December and prices have risen at the fastest pace in the past 10 months. The ONS identified food, air fares and private school fees as key, but the ones singled out that will catch the eye of farmers is the 18% increase in a 250g pack of butter, 4% increase in eggs and 5% increase in a kilogramme of a beef roasting joint. The latter will come as no surprise, given what cattle prices have been doing recently, with the increase in the UK farmgate price keeping them well over a euro per kilo ahead of the Irish equivalent. Few things put pressure on government like rising prices, irrespective of what the cause it, and this was one of the reasons for Donald Trump’s victory in the US election. In the UK, the Labour party came into Government last summer and so far has managed to blame the previous government for most of the UK’s woes. If there is a sustained period of inflation starting now, they will not be able to pass the blame for that, even if there is little they can do. In fact, if President Trump decides to include the UK in tariffs, the problem will be made worse.
The UK inflation figure of 3% in the year to January came as a surprise, when announced by the Office for National Statistics (ONS) during the week. It increased from 2.5% in December and prices have risen at the fastest pace in the past 10 months. The ONS identified food, air fares and private school fees as key, but the ones singled out that will catch the eye of farmers is the 18% increase in a 250g pack of butter, 4% increase in eggs and 5% increase in a kilogramme of a beef roasting joint. The latter will come as no surprise, given what cattle prices have been doing recently, with the increase in the UK farmgate price keeping them well over a euro per kilo ahead of the Irish equivalent.
Few things put pressure on government like rising prices, irrespective of what the cause it, and this was one of the reasons for Donald Trump’s victory in the US election. In the UK, the Labour party came into Government last summer and so far has managed to blame the previous government for most of the UK’s woes. If there is a sustained period of inflation starting now, they will not be able to pass the blame for that, even if there is little they can do. In fact, if President Trump decides to include the UK in tariffs, the problem will be made worse.
Supermarket sourcing
UK supermarkets have consistently adopted a strong buy-British policy when it comes to food. For beef, the three largest supermarkets, Tesco, Saisnbury’s and Asda, supplement British beef supplies with Irish, but the remaining seven in the top 10 source exclusively UK-origin beef. These include discounters Aldi and Lidl, as well as what are perceived as the more high-end supermarkets of Marks & Spencer and Waitrose. Historically, milk has been used as what is described as a loss leader, where a staple food product is priced attractively to entice shoppers in with the expectation that they will buy other products as well. Beef now fits into this category.
There could well come a point if high UK, and to a lesser extent Irish, prices continue, where they will review their sourcing policy. Of course they may continue to prioritise British and maybe to some extent Irish for the big three. However, they could present a cheaper imported alternative, giving their customers choice - they could still buy British or Irish, but have the option of a cheaper imported range.
Possible alternative suppliers
If a UK supermarket, or indeed any other customer, wanted a consistent supply of generally good-quality imported beef at a cheap price, the obvious places to look are Brazil or any of their South American neighbours, as well as Australia and New Zealand. Brazil is the world's largest beef exporter, with Australia in second place, while Argentina, Uruguay and New Zealand are also among the top beef-exporting countries in the world.
The big attraction at present of these countries is that their farmgate price is close to half of what it is in the UK. Current beef price for steers comparable to R3 grades is the equivalent of €3.30/kg in Brazil, €3.68/kg in Australia and €3.90 in New Zealand. Supermarkets have a long tradition of carrying a New Zealand lamb range and, therefore, the logistics would be in place to add a New Zealand beef range, should they choose to do so. Australian and New Zealand beef also has the advantage of tariff-free access to the UK with the post-Brexit trade deal, so they present a real option. The one and only barrier faced is distance and the transport time doesn’t enable any of these alternative suppliers to slip seamlessly into the UK supermarket supply chain the way British and Irish beef does.
Rising food price inflation in the UK, alongside a high farmgate beef price, could lead to supermarkets reviewing their UK and Irish-only sourcing policy for beef.
Comment
An additional imported beef range certainly wouldn’t be welcomed by Irish farmers, but sourcing strategy is likely to be under review by UK supermarkets. At a time of rising inflation, a cheaper range can easily be presented as giving their shoppers choice during a cost of living crisis. The distance involved in sourcing beef that has to travel from South America, Australia or New Zealand means that it will never displace a British or Irish product. However, its presence would reduce demand by some extent and additionally would be used in price negotiation.
Read more
The story behind record beef prices
Strong UK red meat sales in January
Beef quotes break the €7/kg threshold
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