Monday, 6 July 2015

Strong Sterling keeps lamb prices under enormous pressure

AHDB Beef & Lamb chairman Stuart Roberts takes a look at the factors behind the current lamb price and how much the current exchange rate is affecting things.

A perfect storm of strong Sterling, less money from lamb retail sales going to producers and a plummet in the price of skins is the main cause of the current sheep price depression.

Our own figures demonstrate Sterling’s strength against the Euro is accounting for up to 47p/kg deadweight in the differential between the price now and this time last year.

Over the same period, a skin price drop of approximately £3.50 accounts for 18p/kg deadweight and the retail price spread shows retailers have increased their share by 63p/kg since last year’s figures – at the expense of producers.

However, all indicators point to a recovery of the sheep price in the longer term as these issues realign and demand for sheep meat rises with religious festivals, peak domestic demand season, and strategic advertising coming online.

We speak a lot about price volatility. There are some things you can try and mitigate or influence, and others that you can’t. The exchange rate is something completely out of our hands. The situation in Greece is creating additional uncertainty. If all other factors remain unchanged, our analysis shows that if the value of the pound in Euros rises by two cents, the GB lamb price in Sterling will fall by up to 5.5p/kg (just over £1/head).

Another interesting piece of analysis we have recently carried out shows how the farmer share of retail prices fell in June, against what we would perhaps expect at this time of year. At the moment there is a major concern that it could drift even further in July.

Whilst underlying prices are influenced significantly by exchange rates, the importance of increasing demand can't be understated. Earlier in the year we saw a wide range of significant retailer promotions utilising imported lamb, but there is little of that type of activity going on at the moment, when domestic production is reaching its peak with good numbers of lambs coming forward.

The importance of reversing a steady decline in lamb consumption has been brought into focus with the recent launch of our joint consumer lamb campaign, Tasty, Easy Fun. Co-funded by the European Union, AHDB Beef & Lamb, Interbev in France and Bord Bia, in Ireland, it will see €7.7 million invested in promotion of lamb over the next three years.

Separately, significant consumer work to stimulate demand for lamb products is already planned for the autumn, when there is peak supply of domestic product.

The Quality Standard Mark (QSM) also plays an important role in helping to differentiate quality product that has guarantees over the eating quality and provenance among other things.

Alongside these actions we have already decided to fast-track some of the vital trade marketing work we do, engaging with the retailers and food service outlets, encouraging the adoption of new cuts and new butchery techniques aimed at improving the consumer experience and drive up consumption.

We will also be focusing on food service to get lamb on more menus, while independent retailers will be encouraged to prepare and present lamb better and merchandise higher trimmed cuts.

You can find out more about the EU lamb promotion campaign here

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