It's been a bloody few years for UK meat processors and while life has been a little better for livestock farmers lately, with prices up - mainly thanks to the weak pound - the sector's consolidation shows no signs of letting up.
Richard Brown of GIRA Consulting says farmers are currently benefiting from prices that are higher than they have been for years.
But how long that will last for remains to be seen. Unless some confidence can be restored to the UK meat supply chain, over the longer term problems will re-emerge. This will result in more companies going to the wall or being acquired while individuals will continue to leave the sector, predicts Brown.
The haemorrhage in the numbers of pig farmers may have slowed; and talk of the disappearance of Britain's green and pleasant land because of the loss of beef and sheep grazing on its fields, may have receded, but livestock farmers continue to disappear and it's becoming an old man's business.
Certainly, the growing momentum for country of origin labelling could offer some respite for Britain's pig producers, who face higher costs due to the UK's higher welfare standards. But the future is by no means rosy.
Even though feed and fertiliser costs have fallen from their highs of last year, there is no getting away from the fact that production costs for UK livestock farmers are generally higher than for their overseas competitors, who tend to benefit from greater economies of scale, plus cheaper labour and feed costs - even before welfare costs are factored in.
Processors getting squeezed
Things may be a little brighter now for livestock farmers, but for abattoirs, primary meat processors and other food manufacturers, life is tough. Raw material and inspection costs are rising, and retailers are increasing pressure to contain costs.
Tight processor margins are identified by Stuart Ashworth, senior business analysts for Quality Meat Scotland, as a particular problem in the UK sheep sector. While farmers have seen significant increases in the prices paid, those commanded by processors have been less, even though they are experiencing higher charges. Poor margins "have the real potential to rock the boat in 2009", he says. "The margins for our industry for producers and processors are still wafer thin."
Similar arguments can be made for the beef sector, where the UK's beef herd is declining by 2.5-3% a year, according to Mark Topliff, economic and policy manager for beef at the Agriculture and Horticulture Development Board (AHDB). Beef consumption is also falling in the UK, says Topliff. "Consumption declined last year and I think it will this year, and again in 2010."
As a direct consequence of the pressure on primary meat processors generally, consolidation continues to gather momentum. Most recently there was the announcement of the takeover of the processing operations of family pork business Bowes of Norfolk by Cranswick (subject to Competition Commission approval) in a deal worth £17.2M and involving the transfer of 620 staff.
Last year chicken processor Moy Park was acquired by the Brazilian Marfrig Group. That followed Dutch meat processor Vion signing a deal in June 2008 to acquire the UK food business Grampian for an undisclosed sum. Vion and Danish Crown are now by far the biggest meat players in the EU as consolidation has steadily progressed. "The UK industry is now substantially owned by foreign players who are interested in route to markets," says Brown. Vion, in particular, with its high degree of vertical integration could set the direction for others to follow, remarks Brown. "It is important that Vion succeeds, since it is leading the charge."
With the global financial crisis still raging, Brown doubts there will be many more significant mergers and acquisitions within Europe for the time being. You only have to look at the problems facing some of the acquisitive meat firms in South America to discover the reason for that.
Other problems ahead
Life is further complicated for meat processors, who get castigated by the public for exploiting their farmer suppliers, while simultaneously getting screwed by retailers on price.
In the black and white world in which we live, it's easy to empathise with the struggling ruddy-faced hill sheep farmer, while demonising the 'middle man', who might equally be a struggling abattoir or, further down the line, sausage roll or pie maker, trying to survive in a rapidly changing world.
Not only do they face the same rising raw material costs, they can expect additional burdens coming down the road to make it even more difficult to do business. Take, for example, demands for more widespread country of origin labelling - including on complex foods, where the mixture of ingredients are often changed to meet price and availability. It's one thing making it clear where your sirloin of beef joint comes from; quite another to comprehensively define the origins of a stewing steak and mixed vegetable casserole.
To compound processor problems, there are the mounting pressures for people to eat less meat because of legitimate medical concerns, which show that too much meat consumption is unhealthy - especially where it is associated with a lot of saturated fats.
And then there is the disproportionate impact on greenhouse gas emissions that the meat supply chain is responsible for. But the sustainability argument is not as simple as it is frequently portrayed, and those representing the industry are right to suggest there are positives to animal husbandry and benefits to humans of meat consumption.
As English Beef and Lamb Executive chief executive Richard Lowe pointed out at a meat industry outlook conference last month, a more balanced debate is necessary. "Agriculture is clearly having to play its part in [greenhouse gas] reduction," he says. But, he adds: "An 'eat less meat and save the planet' message would be too simplistic." His views are supported by Which? chairman professor Robert Pickard, who points to the essential nutrients in meat.
Worldwide demand for meat
On the more distant horizon, the world's population is predicted to hit 9bn by 2050, bringing with it increasing demand for meat from China and India. "The story is of terrific global meat demand growth - particularly of poultry and pig meat," says Brown.
The ability of the world to feed itself in the future is increasingly being questioned. And phrases such as the UK's 'food security' are becoming more common, which UK farmers hope will be in their favour. However, the view from the Department of Environment, Food and Rural Affairs is that food security is not necessarily synonymous with 'local food'. However, AHDB chairman John Bridge is clear: "We need to start championing our food production industry. Which will increasingly become part of the solution to problems rather than the cause of them."
Wherever it ultimately comes from, it is a fact that the days of cheap meat are numbered. But for UK producers to be part of the supply base, further price rises will need to come sooner rather than later. "For us to produce the meat for people to consume, the prices will have to go up," says Brown.
But in the present challenging times, pressure is in the other direction, with consumers trading down in their purchases from premium to value lines and retailers are responding to this demand with discounted products and more price promotions.
"There will be a trading down in the quality of the meat people eat," says Brown. This is supported by the latest figures from market researcher TNS, which show increased demand for mince over prime cuts of meat and a switching from red meat - particularly fresh beef and lamb - to cheaper fresh chicken.
Edward Garner, communications director for TNS Worldpanel, says: "We've got trading down to cheaper cuts - that is the fundamental message. In a recession it is price that rises up the agenda and promotes fresh chicken."
Cheaper versus healthier cuts
But herein lies a major contradiction. If cheaper cuts of meat or overseas supplies are rejected in compound foods because of a headlong response to healthy eating messages and resurgent 'buy British' calls respectively, cost will have to rise. But, as we see, in the current climate many consumers are looking for cheaper food options.
Manufacturers have responded by re-engineering products to reduce the amount of costly meat protein in them. But even this has its limits. So, how exactly do you reconcile forcing costs up when consumers are currently opting to buy more value lines as pressure on their purses increases?
And since cheaper cuts - for example breast of lamb and belly pork - are inevitably fattier than prime parts of animals, how are the calls for more whole carcase use going to be reconciled with healthier eating calls?
In this respect, the government's new TV advertising campaign concentrating on balanced diets and reducing portion sizes should be applauded. As Pickard points out, the problem with beef burgers is not that they contain too few nutrients, it's that they contain too many.