The real cowspiracy
Politicians fiddle as a beef cartel leaves farmers in existential crisis
It has been a strange year on british farms, when the gap between the metropolitan elite and the rural classes has never seemed wider. While the Westminster bubble has obsessed with the politics of Brexit, a drama has been unfolding out in the real economy with all the ingredients of a Brexit debate: intrigues on the Irish border, the effects of EU regulation, trade disputes and arguments about competition. It isn’t hypothetical, the effects are already being felt.
The least edifying moment was when, after all the fuss made about proroguing parliament, the House did return, there were empty green benches for the debate on the Exiting the EU Agriculture Bill on 1 October, while back in rural MPs’ constituencies farmers were in difficulty. Farming industries are notorious for crying wolf — and there has never been a week when the agricultural press has not used the word “crisis” to describe some minor blip in the markets — but this year is already the worst in living memory for many.
It started one morning last spring when the lorry didn’t turn up to pick up the fat bulls. Irritation turned to fear when a call to the haulier revealed that the abattoir had turned round at the last minute and said that they didn’t need any cattle that week after all, or in fact the next week either — and maybe not even the one after that. This had never happened before.
There had been times of poor demand when there had been a backlog and a queue to book cattle in for killing but it had never been like this. And usually it had been driven by the value of sterling being too high, but this was happening when the pound was near an all-time low. Suddenly the reassurances that doing without EU subsidies would be more than offset by devaluation didn’t look so reassuring. Beef farming has a long lead time. Production of those animals had started 22 months earlier when the cows had been bulled.
There is a window of about six weeks to have them at the right specification before they go over the 16-months age limit and overweight, and start to lose money rapidly. I shared my anxieties with neighbours and discovered we were all in the same boat.
For beef farmers it was the start of a sinking realisation that rather than being an explicable downturn this was something more existential. The demand and supply imbalance swiftly led to a 15 per cent drop in the farm gate price of beef, a devastating fall in an industry that traditionally operates on wafer-thin margins. Farmers lost confidence and responded by culling more breeding cows, flooding the marketplace with mince and driving the price even lower.
Nearly five decades of EU regulations means there are only 249 abattoirs left in the UK
Farmers were already concerned about Brexit and it came as no consolation to find that uncertainty over a possible no-deal was behind the crash. The Project Fear prediction of empty shelves in supermarkets had real resonance, not least with the supermarkets; nothing dismays a retailer as much as having no food to sell. The supply of beef has always partly relied on imports from the Republic of Ireland. Ireland sells two-thirds of its beef exports to the UK. So it did not take much to persuade the supply chain to fill every available cubic metre of chiller space with Irish beef in case a no-deal Brexit on 29 March suddenly disrupted that supply.
When Brexit didn’t happen, there was a bigger than usual buffer in the supply chain and the price has suffered ever since. The irony is that our no-deal preparations have badly damaged one of our biggest food industries through carelessness, leaving it in poor shape to take advantage of any opportunities that arise from leaving the EU and going after world markets. The British beef herd has contracted again, and farmers are going into Brexit with large overdrafts following losses estimated at £200 per cow this year.
Irish farmers couldn’t believe their luck and sent more animals for slaughter than might otherwise have been the case, driving prices lower. You might think that the British processors would have protested as it hit the throughput at British abattoirs. But it so happens that most of them are Irish-owned. Three Irish food businesses, ABP, Kepak and Dawn Dunbia, have been quietly buying up British abattoirs for years and now dominate the market. If it seems that our politicians have been dancing to an Irish jig through the Brexit negotiations then that is nothing to the vulnerability felt by British farmers to what many fear is now an Irish cartel. Chris Mallon, CEO of the National Beef Association, estimates that the three Irish companies own more than 70 per cent of UK processing capacity. All three are privately-owned and based offshore: consequently their accounts are not available for scrutiny.
Nearly five decades of EU regulations have had a dramatic impact on the number of abattoirs in the UK. According to the Sustainable Food Trust there are only 249 left, down from 1,890 before we joined the EU. That has welfare implications, as animals have to travel further for slaughter. But the lack of plurality may also be having an impact on competition: there is hardly any price differential between what abattoirs offer. Farmers are price takers and have to pay high charges, including a slaughter fee for animals they no longer own.
In the month of extinction rebellion the immediate assumption might be that consumers are going off beef but in fact demand has stayed relatively solid; British housewives have taken the hysterical claims of climate change activists with a healthy dose of scepticism. Leonardo DiCaprio’s highly dubious claim in Cowspiracy that 2,500 gallons of water are required to produce 1lb of beef clearly hasn’t had much traction: the price of beef in the shops has barely shifted, possibly because much of the UK was under water in the summer. It was this suspicious divergence in prices that has made farmers think that the real cowspiracy story is in asking where the missing profit has gone.
In a perfectly functioning market the price of beef on supermarket shelves would fall by a similar amount, demand would go up and the price would swiftly find a level that accurately reflects the underlying supply and demand. The asymmetry in the beef market in 2019 would have Adam Smith spinning in his grave. The inference is that either the retailers or the processors, or both, have been quietly profiteering on the backs of the small businesses that produce cattle in some of the most vulnerable parts of the country. And, what may interest politicians more, consumers are probably paying well over the odds for their Sunday roasts.
The processors’ response is that they are not making as much money on the “fifth quarter” by-products of the meat, such as the hides and the offal, and can’t afford to pay any more. It is true that these have gone down in value. But Mallon points out that the big processors usually pass these on through intra-company trades so what the group’s abattoir may be losing the group’s dog meat factory may be gaining. He is frustrated by the lack of transparency in the supply chain which allows the processors to use unverifiable excuses to keep the price down. “If hides are back £10 that is no excuse for cattle to be back £200,” he argues.
The asymmetry in the beef market in 2019 would have Adam Smith spinning in his grave
The situation has led farmers to ask where the missing 15 per cent has gone and to call for regulation of the supply chain and better competition. Since the appointment of a Groceries Adjudicator in 2013 by the consumer and competition minister in the coalition government, one Jo Swinson, unfairness in the supply chain is supposed to be a thing of the past. But what really irritates the industry is that the adjudicator, currently Christine Tacon, former head of the Co-op’s farming division, has no mandate to interfere beyond the last link from supplier to supermarket, and no authority to look at prices, leading to accusations that Swinson’s move was a cynical piece of politics that salved consciences in Westminster but did nothing to address the huge disparity of power between the big food processors and farmers.
It is relatively simple to monitor key statistics like the farmer share of retail price, which has fallen from an historic norm of 55 per cent to 46 per cent this year, which equates to 71p per kilo or around £250 on a typical carcase. Another way to look at it is that the rural economy has been losing out on £7 million per week since May in beef revenue. But despite soothing noises from successive governments there is no mechanism to intervene.
Rubbing salt into the wound, and no doubt to keep the Irish government on message during the negotiations, in May the EU provided a €100 million Brexit compensation package for Irish farmers. If this was a dog whistle to British farmers to remind them what they would be missing without the protectionist blanket of the EU then it was very effective. And it fuelled resentment towards the Republic. British farmers accuse the Irish multinationals of manipulating price by switching sourcing to create imbalances in the market.
The irish border may have re-entered the public consciousness as a result of the late unlamented backstop but for British farmers it has always been regarded as a very sore Achilles heel. When I was a young officer serving in South Armagh it came as a shock to find that the leading IRA men along the border were beef farmers. Smuggling was rife, with cattle going into sheds on one side of the border wearing Irish tags and reemerging wearing British ones. There had also long been a suspicion that some Irish beef was anything but. Some of the Irish processors have plants in Poland and it is suspected that inferior Polish beef is sometimes relabelled in Eire. The Horsegate scandal of 2013, when horse meat labelled as beef from Poland was found to have permeated British supermarkets via Ireland, reinforced mistrust.
As a result farmers were already approaching Brexit day with confidence and trust at an all-time low when the Department for International Trade dropped the bombshell. Probably it was a double bluff intended to scare everyone into supporting the deal that emerged on 17 October. But the announcement of the tariff arrangements in the event of a no-deal Brexit left farmers angry and confused by a markedly skewed approach. It set a Tariff Rate Quota (TRQ) of 70,000 tonnes of beef imports that could enter Britain at zero tariff.
Beyond that, beef crossing the Irish Sea would incur a 48 per cent tariff. Conversely, any British beef being exported would be charged a whopping 88 per cent with no zero-rated TRQ. This would have a devastating effect as, although we are not self-sufficient in beef, some parts of the carcase for which there is no market in this country have to be exported. At the time of writing no-deal seems unlikely, but farmers worry that these arrangements are symptomatic of a rigid free-trade dogma that will advocate a unilateralist approach when it comes to pursuing free-trade deals around the world. With costly wages, welfare and environmental standards, British beef is particularly vulnerable to cheaper overseas products.
The DUP may be angry at Ulster remaining in both a customs union with the EU and in the UK customs area. But maybe those with more to fear are British farmers, who see the potential for beef finding its way into the UK via Northern Ireland and further opportunities for the Irish-controlled supply chain to manipulate prices in the UK. Mallon fears that the customs infrastructure won’t be adequate to control what is coming in. If conditions don’t improve, stand by for farmers manning barricades at Stranraer.
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