Bill Clinton once won a US presidential election under the slogan “It’s the economy, stupid”. With the IFA and Meat Industry Ireland (MII) issuing almost identical press releases this week, we could adapt that phrase to become a slogan for the Irish beef industry - “it’s exports, stupid.”
Exports to the USA have failed to take off yet, though the Irish Farmers Journal understands from industry sources that sales are much healthier than official statistics suggest.
In addition to the US export licences obtained by ABP, Foyle and Dawn earlier this year, Slaney Foods recently appeared on the US Department of Agriculture’s official list of “plants eligible to export meat to the United States”.
Until the stream of Irish beef exports to the US reaches a significant scale. However, there is real concern about how we will handle the extra cattle coming into the system from the end of next year.
We have been protected so far this year by the dramatic fall in the value of the euro against sterling. Although we lag dramatically behind UK-branded beef, we are by far the best of the rest. We get half our production into that market plus another 10% into the high-value Scandinavian market that has sustained Irish beef prices.
The biggest problem facing Irish beef exporters at present is the weakness of the historically strong mainland European markets. Italy, France, Germany and the Netherlands buy almost one third of our production, but their farmgate prices lag dramatically behind ours.
Polish competition
Irish factories correctly highlight that they are paying 112% of the EU average. If that was achieved on the back of a successful branding campaign or unique Irish processing efficiencies, then we could expect it to be sustainable. But at present, the only real competitive advantage we have is access to the UK market and we need a real strengthening of the mainland European market.
This could be some way off, as the second-largest exporter in the EU after Ireland, Poland, is selling beef all around Europe, including into the UK and Ireland, sourced at a farmgate price of €1/kg less than ours.
US opportunity
Hence the urgency with MII and the IFA in pushing the Minister on getting full access to the US market and opening the Chinese market. The market opportunity in the US is best illustrated by the growth in Australian sales there in recent years.
In 2013, Australia exported 212,000t of beef to the US, mainly lean forequarter manufacturing beef for use in burgers. In 2014, that figure almost doubled to 398,000t. So far this year, 258,000t have been landed with supplies running 56% ahead of the same point last year. Australia is expected to fill its US quota of 418,000t long before the end of the year.
To put these numbers in context, Ireland’s total beef production is around 520,000t. The reason for this dramatic growth is well documented, with an American drought followed by herd building. This means this market opportunity will not last forever, but it is expected that there will be a strong US market for manufacturing beef for the rest of this decade.
High price
The other great attraction of this market is the price that is paid. High-quality, really lean manufacturing beef was making $2.72/lb last week in the US, which equates to €5.28/kg. Top-quality lean manufacturing beef is not the worst-selling product in Ireland at present, yet the US price represents a €1/kg top-up.
Irish factories are finding higher-fat content manufacturing beef almost impossible to sell at present, with most going into store and offers where they exist in or around €2. Yet 80c to 100c/kg more was available in the US last week.
When the Australian quota is filled, there will be a serious gap in supply in the last eight to 12 weeks of 2015 and almost 35,000t remain on the quota under which Ireland ship into the US under. Imagine if we could get real, meaningful access in time to use that opportunity.
The Minister travels across again in September. That could be an indication that progress has been made on agreeing certification. The real bonus would be if he was to announce a commercial deal substantial enough to demonstrate that technical issues have been sorted.
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