This week, livestock editor Justin McCarthy reports on a visit to Spain. During his tour of the Aragon region, he visited feedlots, meat factories, feed mills and attended the first 'Lonja' held in the town of Binefar
What is the difference between a Spanish beef finisher and an Irish beef finisher? The Spanish beef finisher has a slightly better tan. The reality is that Spanish beef farmers face the exact same problem as their Irish counterparts - a lack of profit. Low margins are estimated to have forced 30% of Spanish feedlots out of business over the past three years with beef production in 2009 having fallen 13.1% on the previous year.
Figure 1 (page 30) details the beef production trend over the past four years. In 2006, production stood at 670,408 tonnes. Over the past four years, this has fallen by almost 100,000 tonnes, or 14%, to just over 575,000.
Accounting for 8% of total production, Spain is the fifth largest beef producer in Europe behind France, Germany, Italy and Britain.
The majority of this beef is produced from the country's three million cows, of which about two million are beef cows, with just under one million dairy cows. Spain has a cattle population of six million head. Production also relies on live imports, although this market can be extremely volatile from year to year, as detailed in Figure 2.
Live imports peaked in 2005, at just over 1.16 million. However, they declined slowly in 2006 and 2007 before collapsing to just 477,556 head in 2008 - a direct effect of feedlots going out on business in the same year.
Live market
France controls about 30% of the live market, with Ireland traditionally supplying 6% to 7%. An increasing number of finishers are now also looking to Poland and Romania as a source of stock.
While these animals tend to be of a lesser quality, this is reflected in the purchase price.
Overall, Spain has traditionally been more or less self sufficient in beef with any beef exports offset by imports.
The most recent figures show that during the January-September period last year, imports stood at just over 78,000 tonnes with exports totalling almost 69,000 tonnes.
Figure 3 give a breakdown of the origin of beef imports into Spain in 2008. The Netherlands was the largest supplier, with 24% of the market, with Ireland securing 9% market share.
Brazil and Argentina each secured 4% and 3% respectively. Uruguay was the main South American supplier, with 12% market share.
Outlook for Spanish beef production
The outlook for beef production in Spain is one of ongoing decline. The rate of this decline will largely depend on two factors:
Support for the suckler sector: The Spanish are very clear on this one. The suckler sector must be supported through CAP post-2013. Any reduction in the level of support would have a significant effect on the size of the countries suckler herd. At one meeting, it was projected that a reduction in support for the suckler cow would result in a 420,000 head decrease in suckler cow numbers by 2015. This would wipe out 25% of the countries beef breeding herd.
The price of barley and maize: The Spanish are in a 'Catch 22' situation in that the profitability of their beef production system is heavily exposed to the price of barley, wheat and maize meal. Therefore, the profitability of the country's beef sector is dependant on low prices being returned to the tillage sector. The almost impossible challenge for the Spanish will be to try and strike a balance, so that both sectors are returning a viable margin. Unlike the Italian feedlots, which can insulate themselves somewhat by growing maize silage, the majority of Spanish feedlots are reliant on feeding a dry concentrate diet largely made up of maize meal and rolled barley or wheat.
The high cereal price in 2007 was one of the main reasons for the exodus out of the business over the past two years.
Depending on the age at which the animal arrives in the feedlot, the intensive finishing period can range from six to 12 months with concentrate consumption per head at over 2.5/t on some systems.
While beef farmers are being called to look at the wider agri sector, and not just their individual enterprise, the reality is that with feed costs making up 40% to 50% of total costs, the future of their business is dependant on cheap cereals.
Beef price increase
Trying to have a vibrant beef and tillage enterprise is going to be extremely difficult without a significant increase in beef prices. However, with the Spanish experiencing a similar economic downturn to Ireland, there is a real sense of commercial reality in the beef sector that price must remain competitive with other products.
It is worth highlighting that with the average industrial wage in Spain at around 50% of that in Ireland, the Spanish consumer does not have the same level of disposable income. It was widely accepted among both producers and processors that any increase in the price of beef on the retail shelf would negatively affect consumption.
The challenge for the industry is to try and get their cost structure in order and improve the image of their product and the manner in which it is sold.
Farmers attending the national Lonja were warned that the industry needed to become efficient and that food was not a luxury product. The lack of integration between processors and finishers was highlighted as a serious barrier to the efficient production of carcases, which meet the needs of the consumer.
It was interesting to see how processors and finishers still struggled to engage and work together in a country where the average supplier was selling more than 600 finished cattle per annum. It clearly exposed the challenge of trying to develop more efficient links between processors and beef finishers in Ireland, where the average supplier is finishing 15 to 20 head per annum.
The costs structure of beef production in Spain was described by one speaker as a complete mess. He produced figures showing that it was costing €3.10 to produce a kilo of beef.
He said the challenge facing the sector was to reduce this cost and the first step was to start measuring the competitiveness of different production systems. Finishers were criticised for not paying closer attention to animal performance and production costs. The duration of the feeding period in relation to the cost per kilo of gain was highlighted as a key area that needed more research.
Farmers & processors meet to set beef price
Part of my visit to Spain was to attend the first national Lonja to be held in the country. Farmers, meat factories and those servicing the agricultural sector were in attendance from all over the country.
Almost every agricultural region in Spain holds a Lonja every week to set the prices for a range of agricultural products such as cereals, pigs, sheep and beef. Basically, you have the buyers and the sellers coming together to determine what price should be paid for each product over the next seven days.
The focus of the Lonja I attended was on setting the beef price for the next week.
Basically, you had the chairman of the regional auction marts calling up a total of 15 beef buyers and 15 finishers. Each delegate gave a two to three-minute speech on where they thought prices should go.
The general mood among processors was that, based on current market conditions, the prices for steers should remain on par with the previous week.
Most processors spoke of a good balance between supply and demand. However, a number of processors argued that the price for the plainer quality O/R grading heifer should be reduced by 3c/kg due to a drop in demand and the fact that an increasing number of heifers were coming heavy.
However, on the basis that price has eased over the past few weeks, other processors stated that they were happy enough to leave prices as they were. After the processors gave their views, the chairman of the auction marts invited the finishers to give their view.
The general verdict from the finishers was that cattle supplies would remain quite tight and that the prices for steers and heifers should remain on par with the previous week's price. They argued that any drop in the price for heifers would bring increased numbers onto the market; therefore, creating an oversupply.
After the finishers had made their representations, the chairman then summed up the views from both sides. He moved into a mediation role between the two groups and suggested that there was a strong case not to adjust prices. This suggestion was then put to both sides again and a general consensus was reached that prices would remain steady until the group met again the following week.
The prices agreed are set out in Tables 1 to 3. While the factories are not bound to pay the agreed Lonja price, it does act as a benchmark figure on which negotiations are based. Some factories may agree to pay the Lonja price plus a bonus, while others may pay the Lonja price minus a penalty.
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