Consumers bite back on high meat prices

Thursday, July 31, 2014

by SUSAN MANN

The North American-wide protein shortage has chomped into the retail level with higher meat product prices, says a beef industry spokesperson.

Dave Stewart, Beef Farmers of Ontario executive director, says worldwide demand for protein is increasing “and our supply across North America shows the cow/calf herd is down about 26 per cent.”

Stewart made the comments in response to Maple Leaf Foods Inc. CEO Michael McCain remarks on Thursday. In Maple Leaf’s second quarter financial results showed double-digit sales losses in their meat sales, such as for sausages and bacon, after they boosted prices for those products. Maple Leaf is Canada’s largest pork processor.

Porcine epidemic diarrhea (PED) has affected both Canadian and United States pork producers. In a July special report called ‘Sticker Shock at the Meat Counter,’ BMO Capital Markets says PED virus has killed about seven million piglets in the United States since the disease first appeared in April 2013, equivalent to more than six per cent of the annual slaughter.

In beef, Stewart says there are two trends in different directions. One is the supply of calves is smaller, while the other is the surging worldwide demand for meat protein due to growing populations and people in emerging economies, such as China, Viet Nam and Indonesia, moving to an income level where they can afford to buy meats. As people’s incomes in those countries rise, “they’re shifting their diet to meat proteins so that’s putting a new floor under the price of meats.”

Ontario beef farmers sell to the highest bidder, he explains. “In Ontario there are a limited number of processors and those processors bid what they have to so they get the cattle and even with that they aren’t getting enough cattle to run the plants efficiently. Sooner or later that has to be passed on” to the retail level and “that’s what we’re finally seeing,” he adds, noting the price for beef calves has gone up fairly substantially and then for feeder animals and finally for finished animals.

The BMO report says red meat prices on grocery store shelves have surged “on the back of cattle and hog prices, both of which charged to all-time nominal highs in 2014.” The farm price for hogs averaged US $85 per hundredweight between April and June, which is up nearly 24 per cent from the same period last year. Cattle prices averaged US $146 per hundredweight during the same period, which is nearly 18 per cent higher than last year, the report says.

“After adjusting for inflation, hog prices are now at their highest since the mid-1990s, while real cattle prices are higher than they’ve been since the early 1980s,” the report says, noting lower feed costs have put herd expansion on farmers’ agendas for the first time in nearly a decade.

About higher red meat prices at supermarkets, the BMO report notes in Canada the depreciation of the loonie during the past year has contributed to an even sharper rise in consumer meat prices than in the United States, with beef in Canada up 12.8 per cent and pork up 16.6 per cent year-over-year in June.

On the consumer demand side, the BMO report notes “consumers have shown themselves unwilling to raise their food budgets to accommodate higher meat prices.” Consumers are shifting towards less expensive cuts of meat and other non-meat protein options.

Stewart says with rising meat prices “it’s likely that the consumption might fall by about one pound per person over the year in beef.” Consumers may also shift to cheaper beef cuts and products.

“I don’t see beef as a luxury item but certainly it’s a special occasion meal if you get that big prime rib roast,” he says.

The BMP report says consumers aren’t the only ones being affected by rising prices. “Food processors, grocery stores and the restaurant services industry have all seen margins come under pressure as wholesale meat prices have risen,” the report explains. “Hog and cattle farmers, on the other hand, are enjoying a much-needed renewal in profitability after several extremely tough years.”

Stewart says Beef Farmers of Ontario is concerned about the supply of calves and finished animals in Ontario. The organization is in the final stages of finishing a report on ideas for growing the provincial cow herd “based on increasing production in the north.” That report is slated to be released at the end of this month or early September.

Ontario Pork declined to comment for this story. BF