Role of offal in the price of beef

Bord Bia in its annual review of export performance that shared beef offal exports had reached €230m in 2017 has captured widespread attention. Of particular interest to farmers is that this product is harvested by the factory before the animal is weighed and is therefore not costing the factory anything to purchase. In industry jargon this is referred to as the “fifth quarter” because when the animal moves through the slaughter hall, it is split into two sides. Each side is, in turn, split across the middle when it enters the boning room. That means that the original animal is now divided into four quarters while the left over parts removed during the process are described as the “fifth quarter.” When this product is then shown to have an export value equating to €135/animal, it looks like a win-win for the factory.

How it works

Offal is an important source of revenue for meat factories but factories say it is oversimplification to suggest that this figure is an automatic profit. There is a cost to harvesting, storing and selling offal just as there is with prime beef cuts. Also in practice meat factories reflect the value of offal in what they decide to pay for beef carcases, which is what remains of the animal once the hide and internal organs have been removed. Hides are another substantial revenue for meat factories, worth €40-€45 for steer and heifer hides and €25-€28 for cow hides at present.

Disassembly line

Meat processing is the reverse of the normal assembly line process, with the animal that arrives at the factory broken up into over 100 component parts between prime cuts of beef and offal. In deciding the value of a beef animal, the factory will know the yield or weight of each of these component parts and the price they expect to get for each in the market place. Costings are typically produced on each batch of carcases going through the cutting plant in which the weight and yield of the batch across the cuts are captured. At the end of each batch, the expected value of the prime cuts, plus a value for the fat and bones are added up.

Offal is harvested in the slaughter hall and packed or transported to a separate site for further processing. Hides are removed early in the process and taken immediately out of the slaughter hall as there is a high risk of contamination of the beef carcase. They are taken outside into a non-food production area for either onward dispatch to a hide merchant or, in many cases, companies prepare their own for selling into the leather tanning industry.

Total value

When all of these separate operations are complete in the meat factory, they will be able to calculate the amount and market value of each product they have. It is usual practice that this is carried out on a weekly basis by way of management accounts and, in this, the expected value of the beef from the carcase that was weighed is added to the offal, hides and other by-products to establish the overall value of the animal to the factory.

This will then dictate what the factory intends to pay for its next intake of cattle, so the value of offal becomes part of the price paid by the factory per kilo for carcase.

Transparency

Of course all of this process is carried out by factory owners out of sight of farmers. The EU has a fantastic price reporting system that publishes accurate weekly values of beef carcases across each member state.

Unfortunately that is where the information ends until whenever the meat reaches either the butcher’s counter, supermarket shelf or restaurant when the price the product is offered to the consumer becomes known. The bit in the middle is the great unknown but it need not be.

Currently the EU Commission is exploring how to bring greater transparency to what happens in the factory and wholesale sectors of the industry. An off the shelf solution is available by copying what happens in the USA. There, the USDA publishes daily information of stocks and values of all component parts of the animal, including offal. Irish farmers should have the same knowledge and information on what happens the parts of their livestock after they drop them off at the factory lairage.