The Northern Ireland Assembly - Report Restoring Profit for the Beef Producer

Thank you for your letter of 10 August. You do indeed raise a number of important strategic issues for the industry and we have attempted, in the attached schedule of responses, to deal with each and every issue which you raise in a comprehensive manner. Your questions are answered in the order and under the headings in which they are asked and although this leads to some repetition, we felt it important to make a comprehensive response.

There are a couple of attendant matters which it is felt appropriate to highlight:

1. The timescale within which you seek a response from us prohibits a debate at Commission level within LMC and it is of course the prerogative of Commission members jointly to determine policy issues in regard to LMC. A number of the issues which we address in the attached schedule are getting into fairly fundamental policy matters for LMC.

2. Your letter suggests that the Committee may wish to take further evidence from LMC and we are happy to respond positively if such is required. We would point out, however, that Friday 8 September is not a suitable date. This clashes with a major "Suckler 2000" event planned at Enniskillen and at which LMC is a major participant.

We are pleased to note your Committee’s detailed interest in the beef (and sheepmeat) sector. We feel it appropriate to debate the issues raised and we hope that our responses will be helpful in the deliberations.

1. Imagine the situation where a strong beef producers’ co-operative was in a position to discuss with the processing industry the regulated supply of quality finished animals coming ultimately from high quality suckler herds. Imagine too that members of this producer co-operative were as organised and disciplined in its approach as, say the members of United Dairy Farmers, albeit without any processing capacity. Imagine that the fifty per cent of top-quality producers at both levels (weanling production and finished cattle production) were co-operating together to create market advantage for themselves, the processors they serve and their retail customers.

The scenario which you have postulated of a co-operative involving 50% of top quality producers would represent a significant change as compared to where the beef (and sheepmeat) industry is currently positioned. As we mentioned in our earlier submissions, there are not many examples of the level of co-operation and co-ordination envisaged in your hypothesis. While you use the term "co-operative" throughout your letter, we are not convinced that the organisation described would function best as a "co-operative" in the strict legal sense. Our understanding is that a co-operative would be obliged to accept all of those producers who are involved in beef production and who apply for membership. The scenario postulated of a restriction to 50% of producers at the top end of the quality spectrum might require a different legal structure.

We would furthermore suggest that the involvement of 50% of beef producers might be over-optimistic. Our experience of running the Northern Ireland Farm Quality Assurance Scheme (FQAS) shows that after ten years of operation and with a minimal outlay on the part of the producers, only 50% of beef producers have become members. Of these members, 50% by definition are above the average in terms of quality of production (equivalent to 25% of total beef producers) and of those above average, we could assume that only 50% of these are producing the top quality of stock (now 12.5% of total beef producers). It would therefore seem realistic that a top quality beef producers organisation should be targeted initially at the top 10% of producers. These might of course account for 20% of production and the number would increase as others met the requirements for being in this top quality bracket.

United Dairy Farmers (UDF), with which you seek to make a comparison, has 3,000 members which represents just over 50% of Northern Ireland milk producers and is marketing commodity milk, whereas your postulated beef organisation will be targeted at the premium market and we would contend must be restricted in membership to those who will sign up to and follow a strict protocol.

UDF as a very recently formed organisation certainly shows some evidence that the price being obtained for commodity milk for its producers is at the top end of the spectrum available within the UK. The fact, however, that the dairy industry within Northern Ireland is so focussed on the production of commodity powdered milk for export to world markets, supported as we understand it by the European export refunds programme, must be of concern in the medium term. We are not familiar with the production competitiveness of our dairy sector but we have already indicated to your Committee our concern that the Northern Ireland beef (and sheepmeat) industry could not survive in its present form if forced to compete at world commodity prices. We know that the export refund support mechanisms for beef are undergoing change and are likely to be gradually eliminated over future years.

As we have already indicated to your Committee, it is our belief that differentiation of our red meat industry is vital if it is to survive in anything like its present form, and against this background we believe that it is indeed worthwhile to explore the concept which you raise.

LMC would support the type of development described and would comment that we have already lent support to groups operating within Northern Ireland which, although much smaller than that suggested in your letter, are seeking to enhance the return to producers through concentration on the quality of animal produced.

LMC is already involved with such a group under the Quality Beef Initiative, a partnership involving DARD Agri-food Development Service (Farm Technology & Business Systems Development Division). The group, under the name Quality Beef Northern Ireland (QBNI), is an amalgam of three local area initiatives and community groups in the north-west. It is co-ordinated by DARD Beef Development advisors and technologists, with LMC offering support and market awareness advice. The current membership is 85 beef producers finishing approximately 1,000 cattle per year. Its objectives are more market-focussed than earlier producer groups and it has contacted some of these earlier groups (South Armagh Quality Livestock, Tyrone Quality Livestock, Strangford Down Ltd, Ulster Quality Livestock) to determine the level of interest in creating one larger group. QBNI has also had discussions with the facilitator of the Ballyclo Suckler Calf Initiative and has initiated a cross-border link with the Donegal Quality Beef Producers Group.

The organisation of QBNI is still in its infancy and very informal. There are no conditions of production required for membership except a broad agreement to comply with its objectives. LMC believes that in due course, when formal arrangements are put in place, a strict production protocol will be needed detailing the conditions for membership, for example:

These conditions would provide also a link to the Livestock Breeding Initiative, another partnership involving DARD, LMC and in this instance Ai Services.

LMC are closely involved with one of the aforementioned groups. Ulster Quality Livestock (UQL), having provided pump-priming funds and administrative support since its inception five years ago. It is disappointing that there has been a decline of interest in the members of this group, now that the funds are depleted. They were used to subsidise AI fees to nominate bulls, to subsidise the costs of oestrus synchronisation to enable AI to take place and to subsidise the costs of pneumonia vaccination to maintain viability of the improved calves so produced. Short-term financial gain to members from these subsidies outweighed any desire for longer-term investment to improve cattle quality. Discussions are currently ongoing to find a way of using the UQL company for the benefit of an expanded QBNI integrated with other groups.

Would LMC be prepared to recommend that farmers make a significant investment in its creation?

Yes. We would suggest, however, that the investment in "creation" of the organisation is in fact not significant. The significant investment is likely to be in the funding of an Executive which can completely lead and develop the organisation, promote and market the livestock produced and, more importantly, to establish production protocols to warrant the quality of animals coming forward and to seriously address branding issues (as covered later).

The significance of the investment required will of course be determined by the numbers joining the organisation and the level of ambition of the group. Suffice to say that several hundreds of pounds per year per producer would be required if any serious consideration was being given to branding or promotion of the output in the years ahead.

What would be the effect of similar organisation in the pig production industry?

LMC have not had an involvement in the pig sector and are not well-positioned to comment on this question, other than as dealt with in response to your next query.

This is again a difficult issue for LMC to deal with. We would comment that in the recent Review of LMC, Government officials queried the respective industries about the possibility of LMC seeking to represent and provide services to the pig sector as well as beef and sheepmeat. As we understand the consultation, the pig sector failed to respond to the inquiry and the beef and sheepmeat sector seemed fairly neutral on the inclusion of pigs.

The merits of the debate are finely balanced. On the one hand, the generic marketing activities are likely to be very similar and could be incorporated within one organisation as is evidenced by MLC in GB. On the other hand, pigmeat is a major competitor (in particular with the sheepmeat sector) and we are aware that tensions do exist within this competitive arena in MLC as they seek to properly represent competing species.

Looking specifically from the producers’ perspective, we would comment that beef and sheepmeat production share in their use of the prime natural resource of Northern Ireland (grass). Pigs, however, other than in the requirement for land for the disposal of slurry, are not dependent on the natural resources of the Northern Ireland agricultural industry. Historically, pig production has represented a useful diversification on a mixed farm. In the current production environment, however, where increased volumes and specialisation have been necessary to be competitive in the pig sector, it would appear to us that pigmeat production is more likely to develop towards the factory production environment and vertical integration typical of the poultry sector.

There are one or two examples of organisations operating across the species but on balance we believe it would be better for the pigs sector to be separately organised.

We believe that the main impediment to the success for such organisations lies in the culture of our farming community. Northern Ireland farmers tend to be strongly independent and, while happy to co-operate in ventures to collect subsidies and other benefits, prefer to retain their independence when it comes to running their businesses.

It would appear to us that there are two aspects where profitability of beef production might be enhanced:

(a) Greater emphasis on carcase quality, in particular conformation, we believe would be helpful in the production of a greater percentage of our output in the form of E, U and R grade cattle. There are many very competent farmers producing superb animals for beef. On the other hand, there are a vast number of very small producers who are not well-equipped in terms of either knowledge or facilities to improve the conformation quality of their production. We believe that joining together with an aspiration to serve the quality needs of processors and their premium customers would help to develop mechanisms to solve the production problems of these small (many part-time) farmers. In preparing for our producer meetings last autumn, we in LMC estimated that conformation grade deterioration over the last few years is now costing the Northern Ireland beef industry approximately £20 million per annum. Much of this may have been brought about by the non-specialist beef animal coming forward as a by-product of the development of extreme milk cow genetics in the dairy industry, but we believe there is immense value to our agricultural industry through addressing this definition of quality in a serious way.

(b) In the current market structure, it is undoubtedly true that producers, relative to processors and retailers, are very weak. It does seem likely that a powerful producer group as you describe could substantially close the gap between the Northern Ireland producer price for beef and that obtainable in England and Wales. There is good evidence within price reporting statistics that processors are already paying better prices to some producers. We believe that these extra rewards are negotiated for a consistent supply of good grading FQAS cattle. LMC has estimated that closing of the gap to achieve average England and Wales prices based on 1999 outturns would yield at least an additional £20 million to Northern Ireland producers per annum.

It is unlikely that the organisation you describe without a major initiative on branding Northern Ireland beef would have much influence on the end prices available from our existing customer base. What it might do, however, would be to influence positively for the producer (and at the expense of the processor and/or retailer) the distribution of the margin available from the chain. Undoubtedly, however, a significant increase in the price payable to the producer is already available if the conformation quality can be improved.

Would it enable the beef producer to have an influence on where and how his produce is marketed?

No direct influence on where and how product is marketed is likely. Indirectly, however, if producers can produce a greater percentage of E, U and R grade cattle, they are more likely to reach premium markets where they are needed.

Would LMC be prepared to co-operate fully with NIAPA/UFU in a feasibility study for such a strategy?

It is LMC’s role to seek to serve the industry and we would indeed co-operate with all bodies interested in the betterment of our industry.

LMC is willing to play whatever role the stakeholders of the industry require of us including, as appropriate, the leading or facilitation of the feasibility study.

It is our belief that such an organisation, if it is to have credibility with either processors or end customers, must set robust standards. It should seek to be inclusive of all who are willing and capable of meeting the standards set but it must also have the absolute capacity to ensure that only those who are willing and able (to achieve the quality standards) are accepted as part of the group. It is of course important to ensure that those who are willing but currently unable are rapidly trained and supported to allow them to achieve the standards set.

Having established the above, we would naturally assume that the organisation would be owned by its members, would be directed by a Board appointed by the members, and would be run by an Executive appointed by the Board.

What role should LMC play in its creation, its growth and its eventual running?

We repeat that it is the role of LMC to serve the industry and to participate in a manner that is supported broadly by the industry. This body could be part of LMC, a subsidiary of LMC or, if the vision of the group were sufficiently innovative, it could eventually indeed supersede LMC (or own LMC) or replace parts of LMC.

It must be recognised, however, that some of these options are likely to entail changes in the current LMC founding legislation.

Models upon which such an organisation might be based are many and varied. The best of the Republic of Ireland co-operatives have long since shed their "co-operative" status and become public limited companies. Interestingly, however, the best of them have now also withdrawn from the beef industry. A good model, we believe, is that of Meadow Valley in central England which appears to be significant in both scale and ambition as well as being financially successful. In examining models for the organisation, it is important to look at not so successful organisations as well as successful ones.

LMC believes that this could represent a useful initiative for the Northern Ireland beef industry. We would reiterate the critical importance of, on the one hand, ensuring that the organisation was open to participation by all producers and yet ensuring that its credibility and success would not be undermined by the inclusion of producers who were not committed to producing only the highest quality of animals.

The evolution of our beef (and sheepmeat) industry at producer level represents a significant conundrum for all. It is our belief that there needs to evolve a clear understanding of the scale of a beef production unit which can be viable and that we attempt to restructure our industry to achieve this scale on each "farm". It would seem that the evolution of small farmer groupings needs to take place, for example, to achieve the viable acquisition of a top class bull or even the level of animal husbandry necessary to achieve successful artificial insemination of suckler cows. This needs to be facilitated by the development of more appropriate animal health controls by DARD which would, for example, allow a small group of producers to come to be regarded as a single unit for animal health purposes (all testing, record checking and DARD supervision to be carried out on this group on a simultaneous basis).

2. The Committee has heard from the LMC in a previous session the imperative of differentiating the beef industry to be able to access the discerning customers who will pay more for a top quality article. How many customers are there?

In every developed country in the world there is a percentage of affluent consumers prepared to pay a premium for virtually any product or service. Beef is no exception in this respect, and arising from the Red Meat Strategy produced by the industry and submitted to Government in 1998, a Market Researcher has been appointed to investigate and quantify this further.

Where are they and how can they be reached at a profit for both the farmer and processor?

It is the brief of the Market Researcher who has been in place since April this year to identify the routes to market. He has begun his task by taking a global view of the meat industry and will proceed to target individual regions on the basis of a "world-map" of the beef industry that he has drawn.

The purpose of this map is to select the most logical targets, and for the exercise the criteria used are:

Servicing such markets profitably will be determined by the ability of our industry to build the total value of the carcase from a mix of markets for the premium cuts, manufacturing cuts and by-products. LMC are currently in the process of investigating the markets for all parts of the animal, with the findings being disseminated to those involved in livestock processing in Northern Ireland. To date a number of countries have been investigated in detail (Denmark, Singapore, Malaysia, Japan and South Korea).

We anticipate that successful development of export markets will create the competitive environment necessary for producers to receive an equitable return.

The programme for opening markets has already been agreed in the Red Meat Strategy, and the funding for this is in place. Of course implementation of this strategy has been greatly frustrated by the continued export ban on our beef.

In the process of opening markets, it is important to recognise that the beef animal is made up from a multitude of individual component parts that can loosely be grouped into three categories:

Promotional activity will depend on which of the three parts of the animal are being promoted. In the case of premium beef cuts, it is necessary to assist the retailer or caterer communicate the attributes of Northern Ireland Farm Quality Assured Beef to their customers.

In the case of the manufacturing cuts of beef, these will be sold either to the large manufacturers McKee Foods (McDonalds), Oakland (Burger King) or pie manufacturers such as Northern Foods. Alternatively, some of the cheaper cuts maybe sold to third countries with the aid of export refunds or possibly in the case of flanks without export refunds as their value is close to world price level.

The by-product or offal market is, like manufacturing, essentially a commodity area where little market support beyond the most basic is required. This is an area of opportunity for development, and certainly one Northern Ireland company was successfully making inroads in the French market prior to the export ban.

Dealing specifically with investment required for opening markets, there are a number of steps that must be taken:

(b) Establishment of Veterinary protocols. Responsibility – DARD/MAFF Veterinary service.

Additionally, before premium export markets can be pursued effectively, it will be necessary for more investment in the production of E, U and R grade cattle.

How long will it take providing the quality product is there to create strong positions in these markets?

The successful re-launch of Greenfields in the Netherlands in the summer of 1999 suggests that in principle there is no fundamental objection to Northern Ireland beef.

There are, however, a couple of major obstacles to re-engagement in export trade to premium customers, namely:

Slaughterings	Total current annual NI slaughterings (period July 1999 – June 2000)
< 30 Months	Under 30 month slaughtering in same period.
820/97	Assumes full 820/97 regulations apply to Low Incidence Status conditions. Figure used is based on full year 1999 and year 2000 to date calf registrations.
FQAS	Proportion of under 30 month slaughterings which are FQAS applied to export eligible numbers.
Steers	Only considered as they are the premium export market specification.
Suckler Herd	The specification of source of cattle for premium export markets.
One Move	Maximum of two farms is the specification of the residency requirement for premium export markets.
Grades	The grade specification for premium export markets.

The lack of suitable cattle for premium export markets is the single greatest obstacle to our successful re-entry; the current Livestock Breeding Initiative, developed by DARD in conjunction with LMC is an attempt to address this.

3. Where on the spectrum of perceived quality does our beef stand in the various markets we currently serve?

Perceived quality of beef involves quality parameters throughout the supply chain. To the markets we serve this includes Farm Quality, Quality of Animal and Product Traceability, Cattle/Carcase Quality, Hygiene Quality, Service Quality and Eating Quality. In most of these aspects our major customers perceive and inform us that Northern Ireland beef is at the high end of the quality spectrum. The evidence that supports this is as follows:

The Farm Quality Scheme is in its tenth year of operation. It is well established with fair standards created with the help of the major retailers that are within reach of the majority of producers. The scheme is highly regarded for its independent administration by LMC, its thorough application and the robust way of dealing with those who do not comply, with a proper appeal procedure for dealing with grievances. This has been identified as a major strength by an International Evaluation in 1999 in which FQAS achieved the greatest number of high ratings for the various elements of the scheme in comparison with RoI’s Beef Quality Assurance Scheme (An Bord Bia) and the Dutch IKB scheme. FQAS is the core requirement for NI beef to supply Tesco, Safeway, Sainsbury, Marks & Spencer, the Co-op and Albert Heijn and most of these retailers have reverted from any of their own specific additional standards, relying entirely on FQAS to meet their due diligence needs.
The Quality of Animal and Product Traceability using the longest established and most highly developed computer traceability system (now APHIS operated by DARD) has achieved wide respect and recognition as the world leader.
Notwithstanding the earlier comments on cattle and carcase quality, and the fact that a high quality pool can be found in NI using tight specifications, on average the quality of carcase as determined from grading results is lower in Northern Ireland than in Scotland, a major competitor at the premium end of the market. There is a strong inverse relationship between grade quality and the proportion of dairy cows in the cattle population of each region as shown in the table below.

REGION	% DAIRY COWS	% E, U, R GRADES
Scotland	32	70
Northern Ireland	48	42

In regard to Hygiene Quality, NI meat plants have the highest (best) HAAS scores in the UK, and their highly regarded Service Quality is indicated by the patience and maintenance of contact of the Dutch supermarket company Albert Heijn who want to do business with Northern Ireland.
Eating Quality of our grass-fed steer beef ranks at the top end of perceived quality, evidenced by the acceptability and uptake by Dutch supermarket customers where it is readily distinguished by the Greenfields brand.

The best of our production will allow us to target the most discerning and affluent customers, and our ambition is to increase the proportion of our cattle which meet their standards.

5. Are the attributes of Northern Ireland Beef such that with good marketing we can expect to earn premium prices in these markets?

Historically Northern Ireland has traded successfully in premium markets on the basis of:

(a) Whilst we have in the past achieved a competitive advantage through our system of traceability, it is unlikely this will be possible in future due to the fact that traceability has become a much abused term. All suppliers of beef refer to it in one guise or another and the concept has become somewhat devalued. It will however remain a cornerstone of the Northern Ireland industry and there is no doubt that the APHIS system has the potential to become an extremely useful management tool for the production and delivery of superior beef.

(b) The one natural resource used for beef production that Northern Ireland has an abundance of is grass. Grass-fed steer beef is not widely produced in the European Union outside of the British Isles, and this gives us something distinctive. Grass-fed steer beef is visually somewhat darker than intensively produced bull beef both because of diet and age at slaughter, but in research conducted in the Netherlands, it was found to have a much higher preference amongst Dutch consumers. Therefore the product has proved to be desirable, and the success of Greenfields supports this. Additionally, grass-fed steer beef production has an environmentally friendly image, although we must be careful not to over emphasise this as research also indicates environmental considerations are a low priority when consumers are making purchase decisions.

There is of course a limited opportunity for niche markets such as that for organic beef, Aberdeen Angus, Hereford etc. While development of niches is to be encouraged and will work for some producers, it is important to recognise that they will not be the remedy for the problems of the entire Northern Ireland industry.

There is an interesting further dimension in regard to grass-fed steer beef production; that is in the role of being a "healthy" food. In addition to beef now being recognised as an invaluable contributor to a balanced diet providing essential protein, iron, other minerals and vitamins recent research has identified a further positive attribute of grass-fed beef, namely that it has a healthier fatty acid profile. Furthermore, there is also emerging some scientific evidence to suggest that grass-fed beef may have anti-carcinogenic properties. We can reasonably conclude that there are features of our beef that can in future be used in marketing and promotion campaigns.

6. The Committee understands that in Holland part of the great success of NI beef was the superior eating quality of our grass-fed steer beef over the intensively reared bull beef hitherto offered to these same customers. Why, if this is so, are we moving into bull beef production in Northern Ireland?

Some NI producers have read the signals of Agenda 2000 in which the subsidy arrangements encourage bull beef production over steer production, and have indicated that they are moving into it. Agenda 2000 ended up in parts as a compromise between Member States, and in regard to factors which encourage bull beef production, the weight of opinion of those Member States which produce bulls (Germany, France, Italy, Holland) prevailed. Bull beef production is encouraged in two ways:

(b) By exerting pressure on livestock numbers carried per farm through extensification payments, the criteria for which can be met by having young cattle continually moving through the farm. Bulls normally finish at half of the age of steers and therefore lend themselves to this.

The demand of all our major premium customers is for steer beef, including that of Albert Heijn in the Netherlands, who in the early days of business with NI removed all their own indigenous bull product from their shelves due to lack of consumer demand because of its inferior eating quality. Now, because of protests from Dutch producers, they retail it as a cheap alternative to our premium product. In our view the only system of bull beef production which should be practiced in NI is with Holstein bulls from the dairy herd. These can be marketed into relatively low value manufacturing outlets. Beef bred male calves are too valuable for the premium grass-fed steer market to contemplate leaving them entire.

There is evidence that some new NI bull production has materialised into a supply onto the market in the last two months, in which young bull slaughterings have increased to 3,000 per month compared to a previous average of 650 per month. The meat plants have indicated that they are having difficulty finding a market for it. LMC are advising that any bull beef producers secure forward contracts before entering into production.

The issue is a stark example of political interference in market signals, encouraging producers to produce something for which there is little market demand. It clearly demonstrates that the subsidy system is out of synchronisation with the market.

Encouragement of Government to be supportive of quality production in the distribution of grants and subsidies.
Improvement in the recognition that quality beef is derived from beef suckler cows, having been bred without crossing to dairy breeds, mated to high beef genetic merit sires.
Encouragement for pedigree breeders to participate in Signet recording schemes, and commercial producers to increase their use of top recorded sires. Ideally this will be achieved through normal market forces if there is sufficient of a differential paid by the meat plants for the higher quality grades. This would encourage finishers to pay more for better quality stores and calves, which would encourage calf breeders to invest in better genetics, thus rewarding the pedigree breeder for his investment in recording.
Acknowledgement that more producers will be forced to become part-time, thus making it more difficult to manage and finance the use of high genetic merit sires. This requires the development of management systems from research and extension work specifically for part-time producers.
Acknowledgement that lack of profitability in the beef industry in the last few years has led to an inability to invest in improved genetics and that some financial assistance is necessary to kick-start the process.
Establishment of disease control protocols by DARD Veterinary Services that would permit neighbour to neighbour herd association to facilitate the creation of viable scale units by co-operation on such matters as sharing high genetic merit bulls.
Application of a condition by all Rural Development/Local Area Initiative/Local Council Community Group funders that grant aid for livestock initiatives will only be given when objectives for long-term cattle quality improvement are incorporated and resolutely controlled.
Development of a mechanism for dealing with the 40% of our beef slaughterings which originate from the dairy herd to enhance the quality and value of beef from this part of the industry. We believe that there are solutions available through current technologies which may be approaching commercial viability that will allow the continuation of the lactation cycle of a dairy cow whilst producing a "designer" beef calf by embryo transfer. This would have real and significant value in utilising the natural grass resources of Northern Ireland in the process of producing a high quality, well-conformed beef carcase.

8. What roles, in bringing the NI beef herd to the forefront of quality, may be undertaken by UFU, DARD, LMC, individual farmers, processors or others?

DARD should complete the development of a "Blueprint for Quality Beef", currently at the consultation stage, incorporating a united partnership approach from all sectors in the production chain.
Research establishments should co-ordinate a programme of action to fill gaps in knowledge appropriate to the Blueprint.
Farming organisations should encourage their members to subscribe to the philosophy and disciplines of the Blueprint.
Individual farmers should take all possible steps to produce the best quality of livestock.
Processors should establish proper differentiation of payments to reflect back to the producer in a transparent manner the market value of the carcase in terms of meat yield, FQAS status and suitability for their customers.
LMC should pursue objective classification and the persuasion of the EU control committee to recognise that EUROP grid classification is beyond its sell-by date in the face of new technological developments.

9. Do you agree that it is necessary to match the consistency of quality in cattle supplied for processing achieved by competitors such as the US and Australian producers? If so, can this be achieved in a 5-7 year period and what steps are needed to ensure success?

We would add to your list of competitors South America, and in particular Argentina. All of these countries are promoting beef that is "naturally produced, reared on the range" which is of course akin to NI’s strength of "naturally produced grass-fed". They have one major advantage over us in the much larger size of production units and thereby economies of scale. They can afford a transport charge of £780/tonne (=78p/kg) and still remain competitive on European supermarket shelves. We therefore cannot compete by merely matching their quality of cattle, we have to surpass it. We have one major advantage over them in that our cattle genetics is further advanced if we would but harness it. The relatively lower level of nutrition afforded by natural range vegetation requires that they use easier kept cattle of smaller type such as Hereford and Aberdeen Angus. Whilst these have their own intrinsic qualities, they nevertheless produce carcases that are smaller (less than 250 kg) than the current European premium market demand for heavier (300-360 kg) continental types, which we can produce through the sire’s genetics from our more nutritious grass systems.
The steps needed are detailed in 8 above. Starting from scratch, it takes 9 months after selecting the pedigree parents to produce the new born improved genetic merit calf; 15 months to rear the male calf to breeding age, slightly longer for the female; a further 9 months for his offspring to be born and then up to 30 months to rear the offspring to beef. This is just over 5 years in total, a period that can be reduced to just over 3 years if currently available high genetic merit sires are used immediately. This period has an added 24-36 months if the pedigree source material is used to produce an intermediate stage beef suckler cow which then produces the finished beef animal. The lack of adoption of modern breeding principles in beef (and sheep) production is in stark contrast to the enormous progress that has been made in the dairy, pig and poultry industries, which would today be struggling even more than they are without improved genetics.

There is a somewhat misguided belief that "branding" is simply a process of putting a name to a product or service and engaging in a high level of advertising, promotion and PR activity to enhance public awareness. This is a highly dangerous perception in regard to the branding of Northern Ireland red meat.

It is vital as a first step in any branding exercise to define the characteristics of the product or service and to define them in a way that will ensure customer satisfaction. It is essential that the use of the branded product by the consumer results in 100% satisfaction from the outset. Only by reinforcing the promotion and advertisement of the brand by consumer satisfaction will the branding project work in the long term.

The second step, once the characteristics (or specification) have been agreed and product/service availability is achieved, is to partake of a launch in the particular market with a sustained campaign of advertising and promotion. This second step does of course require funding. It is important to recognise that in engaging in such an exercise, we would move into a competitive environment with Coca-Cola, Kellogg’s, Heinz, etc. These brands are supported and maintained through multi-million pound budgets for advertising and promotion in every market in which they are offered. In our earlier examination of branding, where the Red Meat Strategy was being formulated by the industry, we concluded that even a modest branding exercise for Northern Ireland beef in GB (akin to Scotch Beef, Danish Bacon, etc) would cost of the order of £3 million per annum.

Some of the characteristics which might attach to a Northern Ireland beef brand might include:

It would also be our view that the brand would be supported by a consumer guarantee of a no-quibble refund on return of the product if the customer was dissatisfied in any way. There may be other characteristics which might be included, for example a number of alternative recipes or cooking instructions, but all should be designed to ensure an absolutely reliable eating experience by the end consumer.

The difficulty of course of writing a robust specification is that a significant proportion of Northern Ireland beef production would be excluded and this might be "unpalatable" for many in the processing sector and perhaps also your Committee. What needs to be recognised is that in parallel with the launch and promotion of the brand, we would need to work feverishly hard to generate an ever increasing percentage of eligible product on our farms.

Given the industry agreement on the above matters, LMC would be of the view that branding of NI beef in a number of markets is both possible and viable.

This may well be associated with the historical way in which beef has been retailed. The potential "Brander" has not been in control of presenting the product to the consumer in its finished state. Retailing beef has long been a specialist trade the preserve of the butcher. If we think of other consumer goods such as clothes and shoes, brands did not exist here either when shoes were made to order by a cobbler or clothes produced to order by a tailor or dressmaker. As retailing changed in this sector during the 20^th century, so also did the growth of brands and styles. Perhaps as beef retailing is now undergoing a major change to the large multiple retail sector away from the traditional high street butcher, the time is opportune for introduction of consumer branding. It is conceivable that the butcher of the future will be a particularly exclusive provider of meat much in the same way as the top fashion house today produce handmade clothes and footwear to a small elite group of consumers at a highly inflated price. There are already some examples of Northern Ireland independent retail butchers developing such specialities.

Additionally, consumer brands tend to be best developed in added value products. Beef for whatever reason has lagged behind other meats and foods in this area, and an additional challenge is for the industry to develop new value added lines from the most expensive of meats. This is a considerable challenge as the often cited example of poultry has the advantage of being both a more uniform product and more cheaply produced. It would be easy to add cost to beef without adding value yet this is something that needs to be achieved to keep beef relevant as a source of protein in today’s consumer environment.

Are there inhibitions within the industry regarding the use of branding to create consumer loyalty?

LMC are not aware of any fundamental objections to branding in the industry. There are, however, a number of practical issues which require consideration.

(b) Given the present structure of the industry, there is absolutely no need, and indeed it could be argued that it would be disadvantageous for the processing sector, to lumber itself with branding of Northern Ireland product irrespective of producers’ enthusiasm. Processors are in the business of taking raw material and producing a product to retailers’ specifications and in the process making a margin for their shareholders. They have no incentive to promote a Northern Ireland brand from a commercial perspective. The real issue is, can the producer have the confidence that he will receive a return if he makes the investment? This is the ultimate conflict of interest between producer and processor: the producer wants to increase the value of the cattle he supplies, while the processor needs to source his raw material, ie cattle, as cheaply as possible.

12. Do you believe that the major GB supermarkets would carry Northern Ireland branded beef either as an individual company brand or as a regional brand or is their store brand policy so firm to make this impossible?

If consumers want a particular branded product, large retailers will supply that product. There are numerous examples of the GB-based multiples reintroducing Northern Ireland consumer brands in the face of such demands.

Additionally the strength of any brand is the willingness of its sponsors or promoters to invest in it. No retailer would dare leave Coca-Cola or Heinz off their shelves or indeed smaller local brands such as Denny sausages or Ormo bread. In the event of the industry pursuing consumer brand for Northern Ireland beef, the industry commitment to promoting that brand would have to be on a scale and duration appropriate to the market.

13. When pigmeat prices moved against the GB producers, the supermarkets appeared to desert the UK producer in favour of cheaper continental pigmeat. Their ownership of the brand made this easy to achieve. Are not our beef producers in exactly the same position should the day ever come when the major retailers can source beef more cheaply from the UK, Australia or Argentina?

This has to be a very real concern for beef producers. There are, we believe, a number of obstacles to wholesale import of beef from outside the European Union in the immediate future.

(a) It is unlikely that the next round of world trade talks will totally expose European markets to the global beef industry.

(b) There are logistical difficulties in bringing fresh produce from the Southern Hemisphere, although these will be overcome in time.

(c) Although we have many concerns about the conformation quality of the Northern Ireland beef carcases, we have equal concerns in other major production areas of the world particularly in South America where it would take a number of years to introduce and develop European blood lines and achieve the average carcase size we currently produce.

14. In the dairy industry, consumers would notice if, say, Dromona butter was substituted by another brand and could demand its reinstatement. Does the absence of brand recognition leave NI beef vulnerable to substitution and what is to stop processors from substituting non-NI beef if the terms of trade move adversely, particularly if processors have no investment in a NI brand? Do you believe this is an issue of major strategic importance for the producer side of the industry? What are your views?

There is absolutely nothing to protect Northern Ireland beef within retailers other than the anxiety on the part of retailers to be seen to be supportive, in our case of Northern Ireland produce, in a GB context of "British Beef".

This policy is something retailers have pursued over the past two years, LMC are unsure if this will remain. The retailers’ long term policy may indeed change, particularly with the arrival of Wal-Mart which is set to have a major impact on how the large GB retails run their businesses. All the evidence to date is that retailers will seek to reduce the cost of their product sourcing, and in this context it is easy to visualise in the interest of consumers, supplies from the lower cost beef producing regions of the world. As alluded to previously, this need not have major implications for the processing sector as Northern Ireland processors could quite easily utilise raw material from any part of the world. It has serious strategic implications for primary beef production in Northern Ireland, and how the industry addresses this will determine the long term viability of beef production in this particular region.

This is the fundamental reason for LMC supporting the concept of branding as a defence mechanism for Northern Ireland producers.

15. What are LMC’s plans to extend the successful Dutch branding experience to other markets in Europe?

Before even considering extension to other European markets, LMC would have to be satisfied that there is an adequate supply of local quality raw material to meet such markets. Whilst we believe there are opportunities to do a similar job elsewhere, there are currently inadequate supplies of suitable livestock available.

16. What restrictions, in terms of EU policy standpoint, are there on the creation of a strong regional brand for NI beef?

At a policy level the EU restricts the use of Government or quasi Government funds in the promotion of agricultural products from designated regions to the benefit of member states or regions