Consumer willingness to pay for beef

Sustainability, as we are regularly reminded, comes in many guises. Economic, environmental and social sustainability make up the familiar three-legged stool. That’s enough theory. Let’s bring this sustainability thesis down to practical dimensions in relation to the price of cattle. A global, European and Irish cattle deficit has driven up prices in the past 12 months. It has been suggested that consumer demand dampens with high prices; thus far this has not happened, at least not to the extent that it has put downward pressure on prices at the farmgate. Livestock producers have always been lectured that prices are determined by what consumers are willing to pay. That was when beef prices were €4 per kilo and lower. It seems the willingness of consumers to pay higher prices is a lot more elastic than previously assumed. When beef is in balance or surplus, buyers pay as little as possible, while the producer exists on life-support margins and EU supports. Equally, when supply is in deficit, buyers will still pay, naturally, as little as possible for product. That’s just business. To suggest, then, that beef prices touching €8 per kilo are above what the market can bear, is open to contradiction.
At every stage along the production line, prices have risen, in some cases, to a quite extraordinary extent. The prices on offer for calves, weanlings and stores mean that beef prices must stay at current elevated levels if a reasonable margin is to be secured for finishers. Price is relatively incidental to livestock producers. It is margin that is important. It’s ‘the bit in the middle’ that determines whether a profit is made or not. There is an erroneous belief that, because prices are higher than they have ever been, huge margins and profits are being made by producers. With all the intermediary prices along the production chain at historic highs, the margins are not as impressive as one might have expected. In any case, one season of higher prices and, hopefully, higher margins and profits, is of permanent benefit to producers only if those higher prices are sustainable.
We have discussed the consumer aspect of the equation. The supply end is equally important. With breeding stock numbers reduced, especially in the EU and US, the momentum, if any, towards higher finishing numbers will be slow at best. Neither is Australia, one of the major beef exporting countries, likely to add substantially to supply in the foreseeable future. South America would seem to be the region with the greatest potential to ramp up production and exports quickly. Given the increasingly likely agreement on an EU/Mercosur trade deal in the near future, the resultant increase in low and no-tariff beef imports to the EU from the member states of Mercosur, must put some pressure on European and Irish beef prices. That will, however, take time and, given the relatively small tonnages involved, in the context of total EU beef production and consumption, producers will probably not be negatively impacted for some time. That’s as much as Irish cattle producers can expect in terms of assessing the immediate and intermediate sustainability of beef pricing. While nothing is permanent in food production, a major aspiration must be that the longer higher beef prices last, the more sustainable they become. Consumers, processors, butchers and supermarkets simply accommodate a higher price threshold, and it becomes embedded in the cost of doing business and buying food. That’s the theory. We will await the market reality as the first full season of higher beef prices approaches.