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

The Assistant Clerk to the Committee for Agriculture and Rural Development wrote to my Department on 11 August 2000 asking for our views on a number of questions relating to the above Inquiry. It was suggested also that I should meet with the Committee on 22 September 2000 and that, in the meantime, my Department should provide a memorandum setting out its view on the subjects raised.

Turning now to the issue raised in the Clerk’s earlier letter, my reaction is set out in the following paragraphs. The Committee appears to be suggesting that processors and retailers are capitalising unfairly on Northern Ireland producers’ lack of organisation and that DARD, because of its heavy involvement with the farming sector, has a responsibility to organise producers in order to restore the balance.

I must say that I would be extremely reluctant to have Government interfere in the free market which exists between producers, processors and retailers. Previous experience with the various marketing boards has taught that Government involvement is seldom in anyone’s long-term interests. There is, of course, no reason why producers should not themselves come together to strengthen their position vis-à-vis processors etc if they see benefits in doing so. My Department has had very few indications that producers do, in fact, see the need for more co-operatives and none at all that the industry wants a single one as is now suggested. There are agencies already in existence by whom such efforts could be facilitated and my Department would of course provide whatever help was within our power. To go further than that and involve Government in sponsoring or funding marketing organisations of the type apparently envisaged by the Committee would be to act in breach of EU law which specifically prohibits such involvement by Government.

I do have to say that there are other risks associated with producers organising themselves so as to improve their bargaining position with processors and retailers. Such efforts will only be fully effective if those organisations have no other sources of supply. The reality, of course, is that many of the major processors and retailers are players on the global stage and will source their producers wherever makes most business sense to them. Indeed, the willingness of processors and retailers to do just that by obtaining products outside Northern Ireland has been one of the main bones of contention I have heard expressed by producers’ representatives since I took up post. What we all need to do is to see that local producers supply products which are of the quality demanded by processors etc at a competitive price, and my Department is concentrating on doing that.

The Committee’s questions really revolve around the issue of fair returns to producers. They will be aware of the group of experts I have set up and charged with delivering a vision for agriculture in Northern Ireland. That Group is looking among other things, at new ways of doing business in the agriculture sector, the influence of the multiples and competitiveness and marketing throughout the food chain. The general issue of fair returns for all parts of the chain is one of the key principles being looked at by the Group.

For my part, I am very concerned to see returns to all sections of the industry – including pigs and beef – improving. There are steps which I can take to help such as trying to re-open beef and cattle exports as I am currently doing, but there are limits to what Government can or should do in this area. At the end of the day, we ignore or try to distort market forces at our peril. Moreover, I doubt the value of hypothetical speculation on what might be good for producers.

To be fully effective any new producer co-operative would need to be involved not just in selling primary produce but in processing and marketing as well. This would require massive investment for which Government would have no resources and would in any event only add to the existing over-capacity in processing in almost all sectors. Furthermore it would not necessarily lead to an increase in producer prices as pig, cattle and dairy prices south of the border adequately demonstrate.

You will recognise from the above that I have very real reservations about the value of pursuing the course which the Committee is considering. Leaving aside the point of principle, the work which you have asked the Department to undertake would have enormous resource requirements. To produce the type of analysis the Committee’s request would require would tie up various sections of this Department, DETI and IDB for months. I could only staff this work by diverting people from other more necessary work. I would be very reluctant to do that.

The Committee also asked a number of questions about the Department’s role in relation to the promotion of beef herd quality. The Department accepts that beef quality measured in terms of carcase classification has declined in the last 4/5 years. This is a matter of concern given the implications for producer returns, the marketing of Northern Ireland beef and the importance of this sector to the industry.

The Department, in consultation with the industry, has commenced work to develop a strategy for improving beef carcase quality. This exercise will now come within the scope of the Vision Group. In the interim, the Department in conjunction with AI Services and LMC has launched a Livestock Breeding Initiative which is aimed primarily at improving quality through the selection and use of genetically superior breeding stock.

I am sorry that I cannot be more positive towards the Committee’s suggestions on producer co-operation but I trust that you will appreciate the reasons why that is so. I hope also that the Committee recognises the value of what we are doing on beef carcase quality. I stand ready to assist the Committee with any further work it wishes to conduct into this important topic.

I acknowledge receipt of your letter of 10^thAugust 2000, seeking answers and opinions to 25 questions by 23^rd August. I have to say that this is a very unrealistic deadline to set for such a demanding letter. Some of the questions are extremely complex and cannot be responded to without a great deal of research. Indeed most of the information you are seeking is all contained in "A Development Strategy for the Northern Ireland Red Meat Industry" [DSRI] which was presented by the industry to Government ministers in April 1998 and most of which is still current. [The index to this is attached at appendix 1 to show the detail of the strategy] However I will endeavour to make some form of response to each of the questions you ask and refer to them as numbered in your letter. As NIMEA’s activities involve only the beef and sheep sectors there will be no input in this reply in respect of the pig industry.

By the way Friday 8^th September is unsuitable for the entire beef industry as an event "Suckler 2000" has been arranged for Enniskillen on that day.

NIMEA would welcome in principle any development that removes the fragmentation of the cattle and sheep chain in NI. Please see page 14 DSRI. Such a co-op already exists in the name of Ulster Farmers’ Investments Ltd. Currently the largest shareholding in one major meat group in NI are farmer co-operatives. Looking over our shoulder we note that in the mid 1970s over 50% of the beef industry in the ROI was owned by farmer run co-ops which have all now disappeared and where less than 5% of the industry is now in co-op hands. It may be wise to look at these previous examples before trying to re-invent the wheel.

2. Would NIMEA or its members be ready to form meaningful partnerships with such a co-op or co-ops?

NIMEA members already have meaningful partnership producer "clubs" in place as this is currently a pre-requisite of doing business with major multiples and a development of DSRI recommendations. Any venture must be an improvement on what is already in place.

3. Would processors be prepared to contribute financially to such a development and if so how?

NIMEA members are already contributing commercially through various quality bonus schemes and year-end bonus payments. NIMEA members have consistently been involved in taking costs out of the industry where possible and streamlining the industry to its current state of efficiency. As already mentioned, if there is a system of more meaningful partnerships than referred to at 2 above then NIMEA members are willing to explore these. Those who are shouting loudest at the moment tend to be those who are not prepared to "co-operate" in producer groups, sign up to production processes or are not prepared to meet the detailed production specifications required by the premium market. They simply value their independence and it is beyond reason how this can ultimately be to their benefit.

4. What obstacles stand in the way of producing an efficient and effective supply chain of this sort.

The question assumes that we understand what you consider to be "this sort" which would be a wrong assumption to make. Therefore in making a reply to this it will be on broad terms.

(a) Perhaps the greatest single obstacle to achieving this is that around 45% of the animal’s return comes from support systems which have no quality requirements. Market demands are therefore not seen as a major factor in production of marketing decisions.

(b) The NI farmer has never been willing to fully endorse the co-operative system and still wants to retain his independence. Take for example, the Pigs Marketing Board, The Seed Potato Marketing Board, and Ulster Beef Producers, which were all producer controlled bodies. Each one ceased to function due to the fact that producers chose to exercise their independence in selling their produce or wanted a flat price for everything irrespective of quality. Co-operation as a theory is excellent and makes sense, but at times the way markets fluctuate it demands dedication and loyalty to make it work. Producers have made it work well to their advantage in other parts of the world, but the principle, although tried on different occasions in NI never really caught on. That of course is no reason not to try again.

(c) Unwillingness to identify to a single market, even though this may ensure premium prices, is often perceived by farmers to be reducing his number of market outlets and thus his independence.

(d) The beef industry requires a more or less consistent supply of cattle 52 weeks of the year. A co-operative venture could well establish control of production to ensure a level of supply of raw material thus eliminating peaks and troughs from the cycle and thus ensuring more consistent returns to producers. However dates and ages of animals under the Agenda 2000 arrangements mean that production is currently focussed on ages and dates of birth, which in themselves have introduced artificial peaks and troughs to the marketing system.

(e) On Farm Quality Assurance, NI is currently losing ground to neighbours both in Scotland and ROI. In the ROI Farm Quality Assurance is in place by legislation and the voluntary conditions in Scotland are higher than those in the NI scheme. The Assembly should consider the introduction of lifetime FQAS to EN45011 standards by legislation, for all who keep livestock.

First of all what is the venture you are talking about? That has not been made clear in your letter.

There MUST be a co-ordinated central strategy, with everyone working towards a single aim. In view of the fact that DARD have the APHIS computer traceability information they must be the central co-ordinating body in such a venture. DARD MUST harness the efforts of all the other funding operations in Leader Groups, Rural Development, District Councils, etc and work together towards a central NI strategy. Your initial question mentioned a fragmented supply chain but there is also a seriously fragmented Government support chain which has spent serious money on many individual projects through the above-mentioned outlets with no co-ordination or single focussed marketing. The net benefit to NI and the NI Meat industry has been negligible.

LMC should continue the role in which they currently operate. LMC are there to service the industry by promotion and to a degree, marketing and the investigation of new markets. LMC must NEVER become involved in commercial activity otherwise they lose a very important role of independence and acceptability from processor to retailer. They have an essential educational and communication role to play, and must be permitted to do that.

A recent Government Review of the LMC, which took over one year to complete, has already published, after widespread consultation, clear guidelines as to its role. NIMEA made a substantial contribution to the consultation and it is suggested that all the answers to this question have already been researched for that document.

7. Is this where our future lies with well chosen European Supermarkets who recognise our superior quality and will be prepared to pay a premium price which can then be shared back down the line.

The short answer to this question is "NO". The future for the NI beef industry lies in dealing with bigger supermarkets [in wherever] who can pay prices above the flat commodity prices. The GB supermarket trade is currently the highest priced supermarket trade in the EU for what we produce. The Dutch supermarket with whom NI traded in 1995 decided to take its beef exclusively from NI. When BSE hit they were in a very embarrassing situation and will never again place themselves in that position. They and others learnt a salutary lesson from that. Future business with that and other EU outlets will still pay a good price but it is currently equivalent to the Irish price. However the "good price" they are paying today is below what the NI industry is securing from the GB marketplace partly due to currency relationships. As is the case at the moment the price relevant to the market will continue to be reflected to the producer. It is evident from the wording of this question that the reality that 1995 has gone for ever, has still not sunk in. In EU market requirement terms, the volume of beef produced in NI is minimal, therefore NI will never be a "quantity" supplier. Indeed if one of the major EU supermarkets decided to buy all its beef in NI we could not supply the quantity. Market share will therefore not be a major factor to the industry here. With the relatively small quantity of beef produced in NI, the industry must concentrate in finding smaller niche premium markets. It should be noted that the Superior quality you mention is for grass-fed STEER beef.

Currently only 55% of all NI beef steers meet the demanding specifications for both GB and EU supermarkets and 100% of these steers are currently being marketed to GB retailers. Any niche markets developed in the EU will have to be supplied at the expense of premium niche markets in GB.

8. Do you believe that in the long term interests of the whole industry we should be finding and developing these high value market niches now ready for the day when the currency and cattle supply problems have been solved.

The question demonstrates an over-simplification and misunderstanding of the way in which current premium niche market procedures in the beef industry operate. The question is rooted in commodity selling like the milk industry, and that day has to be consigned to the past for good. The future can only be secured on a contractual basis throughout the chain, to supply a product, supply it consistently and supply it 52 weeks of the year. Over the past four years the NI meat processors have had to learn the lesson that producers still are unhappy to accept. The future is in constructed partnerships where each party is contracted in and is unable just to pull out and change market on a whim. The entire marketing systems today have changed immensely since 1995 and the new buzz-word is "globalisation".

Prior to 1996 NI meat plants had developed these very kind of markets [over 40 of them] both inside and outside the EU. That marketing process has never been let drop and continuous communication by phone, fax, and personal visits has been ongoing over the past 4 years. The difficulty in all this of course, and now even more so because of beef labelling legislation, is matching the NI production to the available niche markets. There is no bigger marketing blunder than to sell something that cannot be delivered, consistently 52 weeks of the year. That has been a weakness of production in the past that at times of the year there was a supply of cattle surplus to niche market contracts because marketing can only be done to the level of the minimum period of supply. For example if there is a supply of 5,000 cattle a week in April and a supply of 10,000 cattle a week in October, the optimum premium market sales can only be based on 5,000 cattle a week. If more than 5,000 per week are marketed then there is a time of the year when we cannot supply and that is the point at which another supply from elsewhere steps in and takes the niche from us. That is disastrous and to be avoided at all costs.

You state under this point in your letter that "now that the beef ban is lifted". This is a completely erroneous statement and even with Low Incidence Status for NI this will still not be the case. The ban will simply be eased further, and this is what makes those niche markets very nervous, but you assume correctly that the NI meat industry will engage in vigorous attack of those markets when the low incidence all clear is given.

9. What percentage of members’ turnover have you spent this year in researching these critically important new markets for our beef? What is this in percentage of profits?

NIMEA as such cannot answer this question as NIMEA does not get involved in the commercial aspects of marketing. Each company individually develops their own markets and this information is "commercial in confidence". The NI perspective on this is contained in DSRI pages 56 to 61 and is currently being worked at.

10. How many now high value markets will be tested in the coming calendar year and what percentage of turnover will this represent?

As stated under 7 above the entire NI production of beef is relatively small. Last year there were 215,000 steers slaughtered in NI. Due to bureaucracy problems, around 40% of these were export eligible. By specification only 50% of the export eligible were niche market acceptable. Based on last years kill that means that a total of 43,000 steers were export eligible. Currently one GB multiple is taking that amount of cattle from NI annually. Given that these same steers are also those being demanded by the GB premium markets, the remaining pool of cattle available for export at the moment is minimal. Farm Quality Assurance is the minimum standard required for premium markets and yet after all the drive by industry 25% of beef farmers still choose to stay outside the scheme. In the ROI this is being made a statutory condition of farming livestock. Perhaps the NI Assembly should follow suit. It would therefore not be very wise to test markets for something that cannot be delivered. It is also impossible to test markets without samples of the product and under current export restrictions NO beef from NI can be exported, including samples. It may be recalled that the giant food fair at Anuga last year refused to permit samples of even cooked product to be brought to the fair.

11. What percentage of NI beef do you see being sold on export markets in 2000, 2001 and 2002?

No NI beef will be sold on export markets in 2000, as current conditions do not permit exporting from NI. It is not commercially viable for any NI meat plant to become dedicated under the legislation to export. As far as 2001 and 2002 are concerned that depends on the ultimate legislative conditions attached to Low Incidence Status. Under what we observe at the moment it is estimated that exports could soon be built up to 300 tonnes per week but this would mainly be offal as currency values would return lower prices for most cuts than is available on current UK trade.

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

From the integrity of FQAS production and the quality of service by processors the score is at the top of the scale. However for the carcass quality at present the score is around or below the mid point of any scale. The quality image of NI beef is perceived to be above Irish beef, similar to English beef but lower than Scotch beef. The current success is a combination of good animal welfare, environmentally friendly production, meeting customer demand [steers and heifers only] traceability, Farm Quality Assurance and a very high quality customer service. Quality of customer service is the main aspect of maintaining our premium market share t the moment. Please see appendix 2 attached.

13. Where can it be positioned in the niche markets you believe we ought to be serving in the future?

To position it in the rich niche markets NI beef will have to be grass fed and from steers and heifers. EU premium markets are not interested in bull beef from NI, they have all the quality bull beef they want at home. NI must therefore concentrate on the steer and heifer production to have any edge in the currently available markets in GB or the EU. Please see pages 39 to 44 of DSRI.

14. Are the attributes of NI beef such that with good marketing we can expect to earn premium prices in these markets.

Unfortunately NI does not have the quantity of desired quality or the strategy needed to serve EU premium markets at the moment. However provided NI produces steers and heifers from grass, these attributes along with our excellent customer service are what will differentiate NI beef on niche markets. Meat plants buy cattle and sell "pieces of meat" A carcass can sell in as many as 40 different pieces. Some of these pieces are sold far below the cost of production and others are sold at a premium. It is the balancing of all the sales that determines the end result. There is no specific direct correlation between the carcass price and the price of any one of the pieces.

15. 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 NI?

NIMEA has been drawing attention to this situation for some months now and is greatly concerned at the increasing trend of bull production. It is being driven hard by the arrangements of Agenda 2000, on extensification and a different "livestockunit" valuation if animals are held until more than 24 months of age. Indeed Meat Plants have come to the stage where they are asking producers to register bull numbers with them as the market is currently saturated. The current numbers being produced cannot all be marketed. We are back to point 1 above on producers doing what suits them or what maximises the benefits from the system rather than being market orientated. Bull beef prices here will be heavily discounted if more are produced. Currently there is only one of the major GB multiples who will take a very limited supply of bulls, less than 5%, and another GB multiple, has removed bull beef from their shelves three months ago. Even the quality is available Albert Heijn will not be taking bulls from NI. It is ironic that this political interference is doing producers a disservice, encouraging them to produce something for which there is a very limited market.

16. From evidence by the committee there seems little doubt that there has been a deterioration in herd quality on average. Why do you think this is and what needs to be done to reverse the trend?

(a) There is a massive amount of evidence that herd quality has deteriorated and there is no doubt that the start of this decline came in the mid 1980s. With the average age of farmers increasing they are looking for easier calving animals and easier systems as the main reason of the animal is a subsidy earner rather than a quality end product.

(b) Second is the reason of genetics. Over 40% of NI beef animals still emanate from the dairy herd and as the emphasis in the dairy sector has gone to extreme Holstein breeding this has had a major deterioration effect on the beef herd as many suckler replacements come from there.

(c) Feed prices has also been a factor in that due to the entire upset in the agriculture industry and the requisite dates under various EU support schemes, farmers adopted different management policies.

(d) Perhaps also a slow dissemination of market requirements from the customer back through to the producer, and then an unwillingness to react to these requirements.

(e) It is our opinion that market-led research and feedback information to producers can do much to counter the downward trend. That depends on the establishment of a strategy which addresses the following question. "In terms of size, vision and strategy where does the NI beef industry want to be." This aim must be established first and then subsequent decisions will relate to it. NIMEA has not changed it’s opinion of the vision statement contained in page 29 of DSRI and which is attached as appendix 3. All DARD, Rural Development, Area initiatives, District Council ventures and other community-funded projects MUST be brought under one single NI Strategy.

The goal has to be set for everyone to buy into and to work towards. For example, there is no point in developing added value ventures if it is perceived that the long term future for the island of Ireland is simply to become the source of weanlings for the feed lots of Europe! Equally if 50% of the calves go to Europe then the supply base for finished beef in NI is too small on which to establish even premium niche markets. It is therefore essential that all interested parties sit down round the table and decide the vision for the future of the NI beef industry.

17. What roles in bringing the NI herd to the forefront of quality, may be undertaken by UFU, DARD, LMC, NIMEA individual farmers, processors and others.

The single most important factor is firstly the establishment of a ten-year strategy that is market led. Each of the above bodies and individuals will have determined roles to play in that.

18. Do you agree that it is necessary to match the consistency of 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?

Yes. Currently Australian 5 star beef carries a money-back guarantee anywhere in the world. We are a long way from there and we do not have the cattle numbers to be a major world player but we must be professional and expert at what we do supply, and work towards that sort of peak in the long term. The attainment of this will flow out of the strategy designed at 17 above.

19. Does NIMEA believe that brand identity is important or does it pay the processing industry better to sell NI beef as a commodity for others to brand?

Please see pages 39 to 45 of DSRI. One major NI drinks company employed world class consultants to examine this question and advise accordingly. Our understanding of the outcome was "it would be economic suicide". A NI brand was discussed at the Red Meat Strategy meetings and the cost of this was estimated 4 years ago at between £15 million and £25 million. Branding of NI beef can only become a possibility when 100% of the herd is export eligible and FQAS accredited to EN45011 standards. To think along these lines with anything less is purely pie in the sky. Please see the evidence of the efforts made along this line as outlined in pages 45 to 47 DSRI [attached as appendix 4]. The debate then is still the same today. Before the NI beef industry can establish a brand, the criteria for cattle quality, breed percentage, farm assurance levels and other production components would have to be established at much higher standards than exist today. That work must be done first. There is no point in adding cost without adding value. For very small quantities of extremely high quality this may be viable but it would be our opinion that we do not have the scale of quality criteria to brand our entire production.

20. What efforts have NIMEA or their members made to establish a brand on the GB supermarket shelves. Have you ever raised the possibility and if so what was the outcome of your discussions.

The consumer perception is that if Tesco, Sainbury, Safeway, M&S etc are prepared to put their name on a product then that gives considerable confidence to the consumer. NI Branded products carry no weight on the GB market and indeed if branded as such are perceived to be "Irish" and command lower premiums. On the other hand NI beef was perceived to be so far beyond Scotch beef and other competitors as to be demanded from every shelf, then generic branding is a feasibility and worth considering.

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

Doing anything at the moment with a NI Brand would be counter productive. This raises the whole question of market protection which is unacceptable in a EU "Single Market". Please see DSRI pages 49 and 50 attached as appendix 5 for the kind of marketing strategy that will help ensure NI meat is the main choice.

22. Ownership of the brand made it easier for GB supermarkets to source pigmeat elsewhere. 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 US, Australia or Argentina.

The day is already here. The Lidl and Wallmart effect of supplying "cheap food" from whatever source may very well force further change in retailers current sourcing policies in the next couple of years. Due to the good relations and investment by NI processors we have retained the loyalty of the GB multiples but globalisation is around to stay. Under the voluntary beef labelling legislation which has been around for the past few years all NI beef going to retail multiples has been clearly identified and has been validated by third party audit and is traceable through the APHIS computer. This factor becomes even strong from 1/9/2000 when the EU-wide beef labelling legislation comes into force. Further constraints will come into force in 2002 that will very clearly identify every aspect of an animal’s life and the member states in which various aspects of its life history have occurred. The question is therefore somewhat superseded by events. Also do not be under any illusion, Argentinean and Australian beef is already available and they are quality products, and they are our competitors.

23. What is to stop you substituting NI beef if the terms of trade move adversely. [relevant part of question]

The question again displays how far from reality the questioner is. Beef labelling regulations which have been around for some years, EFSIS independent auditing, and trading standards, control this adequately. Further detailed labelling legislation becomes effective from 1/9/00.

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

As NIMEA does not own the brand-mark used for the branding in Holland and in fact it is a legal entity in its own right, NIMEA as such cannot propose any action on that front. Indeed NIMEA is not in any way involved in that brand name but individual companies were involved in the partnership. The owners of that trademark no doubt will become active again when the export ban is further eased and if it is even possible from a currency perspective to do business. The highest ever price that NI beef reached was during the week commencing 6/2/95 when the calculated R3 price was 289.9 Euros. On 1/5/2000 the R3 calculated price of NI beef was 281.9 Euros. From this it is clear that the NI problem is not the price of beef but the values of currency. NI Companies involved in the Greenfields brand have taken serious risks to keep the markets open. NI currently avails of an EU scheme which allows our expertise and customer service to operate in that market.

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

Other than State Aids that prohibits central funding, we are not aware of any. Actually the EU has three schemes under which specific products can be registered. These schemes are outlined in appendix 6 attached.

Working group and Terms of Reference 12
Critical Exercise 12
Strategy Document 13

2.1 Fundamental Process Considerations 14
Teamwork Between Seven Key Players 14
Consensus 14
Unitary Nature of Strategy 14
An Implementable Industry Strategy 14
Step Change 15

2.2 Strategy Development Concepts 15
The Core Process 15
Step 1 Appraising the Starting Point 15
Step 2 The Creation of a Shared Vision 15
Step 3 Creating the Strategic Action Plan 15
Step 4 Implementing The Plan 16

2.3 Acknowledgements 16

3.5 Scale relative to the market 19
Overall 19
Scale Relative to Individual Customers 19

3.6 Product Quality 19

3.8 Markets before 20^{th March 1996} 21
Northern Ireland 21
Great Britain 21
European Union 21
Third (non EU) Countries 21

3.9 The Wider Market Picture 22
Agenda 2000 22
GATT/WTO Uruguay Round Agreement 22
Strategic Implications 22

4.1 Relative Perceived Quality 24
The Industry’s Position Now 24
Reputational Risk 25
Legislation and Controls 25

5.2 Superior Marketing to Maximise Returns 28
5.3 Superior Profits 28
5.4 Northern Ireland Red Meat Industry Vision Statement 29
5.5 Vision into Action 29

6.1 Strategy for Market Focus with Beef and Lamb 30
Level of Focus 30
Matching Scale 30

STRATEGIC TARGET-MARKET FOCUS 31
The European Red Meat Market, Looking Forward 31
Tomorrow’s European Consumer and Customer Profile 31

STRATEGIC TARGET-SERVE THE AFFLUENT CONSUMER 31
The Local (NI) Market – Beef and Lamb 32
The value added component of this opportunity of course exists already,
on a much larger scale, in GB. 32

STRATEGIC TARGETS-BUILDING TRUE PARTNERSHIPS 35
Third Country Markets for Beef 36
Marketing NI Lamb 36

STRATEGIC AIM LAMB 37
Quality 37
Partnerships-the Overall Concept 37
Added Value, Added returns and Added Profit 38
Market Focus 38
Clear Specifications within Stable Partnerships 38
Rationalisation 38
The VAT Anomaly NI/ROI 39

6.2 Strategy for Quality 39
Responsibility for Quality 40
A Window of Opportunity 41
A Quality Culture 41
The FQAS 41
The New DANI Computer System (APHIS) 42
The Herd 43

6.4 Strategy for Adding Value 45
A Brand Strategy 46
Branding with a Retail Partner 46
Supplying Own Label Products 47
Getting Started-General 47
Getting Started-Market Perception 47
Getting Started-Loughry College Food Technology Services 48
Added Value Organisation, Culture and Scale 48

6.5 Marketing Organisation and Funding 48
Marketing Organisation 49
Marketing Defined 49
Marketing Funding 51
Development Funding 51

8.4 Market Research and Market Focus 58
Funding Support for Market Research and Market Focus 60

8.5 Corporate Market Research 60
Opening Export Accounts 60
Funding Support to Accelerate Account Opening Programmes 61
A Real Example 61

8.6 Making and Keeping NI Beef Distinctively Superior in Customer’ Eyes 62

8.11 Implementation, Programme and Costs 67
Funding Costs for Redmeat Total Quality Assurance Scheme 68

8.13 Total Funding Required 70
Funding Support for Export Market Recovery Programme 70

8.14 Industry & Government Contributions 70
Funding Split Proposed £ 000 71

1. The work already under way in the Quality Working Group to update the FQAS Should continue under the leadership and control of LMC. It should move immediately to complete the review of all aspects of FQAS by mid 1998. This review should embrace the following:

future funding needs (on the recommendation of this Group that the scheme’s administration remain in the hands of the LMC) including funding for developments beyond the current FQAS concept into areas where the NI industry can develop a strategic lead by creative use of APHIS or its equivalent.
the steps needed to ensure closer working between DNAI veterinary service and FQAS staff
steps to recruit the remaining farmers into the scheme and the same time to ensure compliance

2. As a first step all other key competing FQAS analogues should be surveyed to ascertain whether:

Northern Ireland is in the forefront, and if so, by how much
Plans to overtake NI are in place, and if so, in what ways, and how soon

3. FQAS should become a basic requirement for all partnership schemes by end 1998.

4. A major recruitment scheme should be designed under the guidance of the LMC and be launched by mid 1998.

5. Ninety percent of NI herds should be in the new FQAS scheme by end 1998 and ninety nine percent should be covered by end 1999.

6. These targets will be progressed aggressively by the full Steering Group starting in Q3 1998. The strategy group should proceed quickly to develop and implement the Advanced Quality Assurance concept set out in Sections 8.7 – 8.12.

7. An LMC led working group should be formed to devise, agree and implement a processor accreditation scheme to mirror the objectives of the FQAS at farm level. Accreditation will become a condition for use of the generic brand for NI meat.

NI Redmeat will be the first choice of customers, in target markets, who will recognise its product superiority from traceable quality assured suppliers. Farmers and processors will be perceived as delivering levels of service and a quality of trading relationship which is the best on offer.

All organisations forming part of the Northern Ireland Redmeat Industry will be, and be seen to be, working as the best focused, best co-ordinated and most efficient and effective Redmeat production, processing, support and marketing force in Europe.

The vision statement provides a unifying guiding mechanism for all that follows. It indicates not just goals to be met by end 2002 but the key areas where action will be needed to meet these intentions. It also rules out many inappropriate options.

The rest of this document is devoted to spelling out the various strands of action needed to take the industry from where it is today to the destination explicitly described in the vision statement

8. Northern Ireland beef should be perceived as superior in quality in all focused markets by end 1999. By end 1999 this should be yielding a price premium of at least one percent.

The industry has had one very impressive generic branding success in the Dutch market. It has also considered carefully the part generic branding might play in the current strategy. In the GB market, dominated by large retailers, the industry has made great strides by pursuing an own label strategy. NI redmeat has created a strong position in the two leading retail chains and in the leading volume food service chain by offering superior product, service and relationships to the retail customers. Generic branding is not a short run option in any of these cases.

In market segments where it is possible to aim for a dominant position, and particularly in export markets, the option of generically branding to maximise consumer loyalty and to secure and maintain a premium for genuinely superior product should be kept constantly open. It will only be when export markets are researched and opened or reopened that decisions on branding versus own label can be finally taken. The most successful competitors on the GB market (Scotch Beef and Welsh Lamb) are excellent examples of the power of branding. The extreme case is that of Angus Beef which is retailing in Northern Ireland in Marks and Spencers at over twice the price of prime NI beef in the same towns.

To keep the generic branding option open as export markets and new home channels are opened.

To choose with great care as between the own label and supplier brand routes to market by carefully researching and assessing the long term costs and benefits of building consumer as opposed to retailer loyalty for the NI product.

If it is decided that genetic branching is in the interests of the NI redmeat industry, the same level of support should be secured as has been made available in Scotland and Wales.

There is no doubt that the industry needs to accelerate the pace of development down the added value road. Together with quality, and branding it is the key to growing market share and profitability. It is also risky and needs significant investment. At both industry and firm level, care must be combined with boldness in devising the optimum added value strategy.

The ultimate form of added value strategy at corporate level is to have an array of leading brands each with sufficient consumer pull to dominate a segment. A food firm like HJ Heinz will have many such brands. Many consumer goods companies are roughly valued more in terms of their brands than their assets. Leading brands are priced by the producer, not the retailer (who will, of course seek a discount in line with his own market share as a retailer). A successful brand has a "right" to be listed because enough customers prefer it.

Building positions like this from scratch in today’s grocery market is possible but it can also be very difficult for a number of reasons:

creating a distinctive product is itself expensive and risky;
launching such a product, even onto a regional market, can be very costly;
creating a new brand on the back of a new untried product is doubly risky (the brand can die with a pioneering product failure);
a successful product, aimed at the supermarket sector, unless it is absolutely unique (unlikely) is always in danger of own brand imitation as soon as its success is evident. If Sainsbury’s can do it to Coke, few new product launches are safe. This is not such a problem in the food service sector.

A much less risky route than launching a solo brand is to combine new brand and product creation with a well matched partnership as follows:

1. Create an overall partnership relationship with a customer at the quality end of the market. The customer should be big enough to generate the scale needed to launch new products and a new brand, and small enough for market dominance to be realistic.

2. Use an existing superior quality commodity product range as the basis for the relationship. Playing from this position of strength, activate the partnership to agree on one or more added value products to be created to meet known demand.

3. Agree, if possible, that both the commodity range of products and the new added value items be sold under the supplier’s brand, with the understanding that the brand and the products may be sold at lease on non competing markets.

4. Edge out from this partnership taking both the brand and the new products to non competing customers in other markets.

Implied (or perhaps better explicitly written into) the partnership agreement would be the undertaking not to imitate the added value products as own brand offerings.

Perhaps the best example of a business based on convenience based added value food product development is Marks and Spencer whose policy is almost exclusively own label. This has been a profitable source of added value business for their best suppliers. Not only have they a secure partnership with M&S they have, as a result, products which can be modified and sold elsewhere in branded form. Furthermore, the cachet of being a Marks and Spencer supplier (because M&S are universally regarded as being the quality leader) is very valuable in launching or promoting a brand. It is equally useful as a marketing tool in approaching other potential own label customers. Own label manufacturer is the easiest route for added value market penetration and, for most NI processors, at least in the short run, probably offers the best risk-reward ratio.

Moving from the supply of essentially butchered products into the added value field is not a natural development in that the skills base, the processes, the raw materials (all except meat), the equipment, the marketing and arguably the culture needed to be successful are all new.

It is, therefore, not surprising to find many companies who are very wary indeed of making a major strategic move in this direction. There have been significant failures in making this move. The decision to do so is not trivial. However neither are the implications of doing nothing (See Section 3.7). The market, especially the affluent thirty percent of the market, is demanding more and more value added as the underlying demand for convenience grows apace.

The industry has no option but to progress down the added value road, if it is to avoid being trapped in a cycle of low profitability and insecure supplies. The strategic choice is not whether to become involved in added value activities, but when, how and how fast.

Specially commissioned market research shows that there is a big mismatch between consumer’s demands (ready to cook, ready to heat, ready to eat) and local capability to produce. Added value in food today, and especially in meat products, is all about convenience for a customer very ready to pay a premium price.

The key multiples are not currently interested in NI as a source of added value products because they believe there is neither the desire nor the capability to produce what is needed. Much of what has been produced has proved unsatisfactory. UK suppliers are seen as much better.

This is in stark contrast to the perception of the same industry when supplying primal cuts or basic portioned commodity meat.

There is an urgent need to close this perception gap by creating and disseminating the market knowledge needed to ensure the industry becomes as skilled in reading the added value market as it is in the commodity sector. This needs to be followed up by measures to create the capability to move sure footedly down the added value road.