Jim Power – one of the country’s foremost economists – is of the view that “no evidence of collusion” exists within the Irish beef industry.

Power has come to this conclusion following his 13-month independent assessment of the sector – from primary producer, to processor, to retailer – for the Irish Farmers’ Association (IFA).

But in order to categorically set the record straight on long-running allegations that collusion is prevalent in the sector, Power says the Competition and Consumer Protection Commission (CCPC) must urgently launch a full-scale investigation of the sector – a capability he did not possess during the conduction of his highly-anticipated 106-page report, published last week.

Sitting down with AgriLand in Terenure, Co. Dublin, the former chief economist with Bank of Ireland – who also worked as treasury economist with AIB Group and Friends First Group – explains how he arrived at this position; while also outlining incremental gains that the country’s troubled beef industry must target over the next two years.

Otherwise, he says the consequences will have “horrendous” implications for rural economies and will “exacerbate rural decay” from an environmental perspective.

Mistrust

To begin, Power says beef farmers and meat processors “need to realise” that their interests are fully aligned.

“Farmers are producing a quality product that processors are taking, selling on and making money out of – without farmers producing a quality product, processors have a problem; without processors doing a decent job, farmers have a problem.

Yet the level of mistrust that exists is just dangerous; it’s bad, it’s negative.

For Power, who engaged with all stakeholders throughout the process of his assessment, the only way to address that mistrust is through transparency.

“The CCPC should launch a formal investigation into the allegations of collusion within the processing sector. That needs to be buried once and for all.

“We need to try and repair what is a pretty dysfunctional supply chain; it should not be difficult to achieve.”

Power, who hails from a farming background in Co. Waterford, says an investigation could be completed within six months.

Although the CCPC already stated last June that an investigation was not needed as the agency said it had “not uncovered evidence of a cartel operating in the sector”, Power says “flexibility” is now needed on that decision.

“The chairperson for the CCPC said that they did not see signs of collusion in the beef industry; but farmers would believe that a number of complaints have been made to the competition authority.

“Those complaints were not formally investigated because the CCPC believe they do not warrant a full investigation.

But we need flexibility on that; it would really serve the interests of farmers and processors.

In order to analyse any market, Power asserts that robust data is needed; but he says there is a “marked absence” of “trustworthy data” in the beef sector at the moment.

While there is “some price transparency” in terms of factory prices published weekly by the Department of Agriculture; and in terms of what retailers charge on supermarket shelves, in Power’s experience transparency on margins “is not so forthcoming”.

The table below outlines average prices paid by factories for the week ending January 5, 2020, as outlined in Jim Power’s report:

Image source: DAFM / Jim Power IFA report

“The one bit we have no idea about – and I could not delve this information – is how much the retailer is paying the processor; so in other words, what sort of margins are the processors getting and what sort of margins are the retailers earning?

“An investigation of that, by an agency who is legally empowered to do that, is wanted; and the competition authority is the authority with the legal right to investigate any industry.

“Once you address that issue you’re going some way to restoring trust and transparency in the system,” he said. (There will be more on this topic later in the article).

For Power, there is no doubt that retailers are using some beef products as “loss leaders” to get into supermarkets.

This is why he’s also recommending the implementation of a ban on below-cost selling, or a ban on unfair discounting – similar to considerations being made in France and Spain.

He contends that the fundamental problem with the industry in Ireland is that retail prices have been flat over a decade, therefore everything underneath is being squeezed – be it the processor or the farmer – whose costs are constantly rising.

He also warns that a cheap food policy would be bad for everyone in the supply chain; and could have seismic consequences down the line.

“Consumers need to be convinced that they need to pay a fair price if they want to get a quality product.

“A cheap food policy in the UK gave rise to BSE; there is no doubt about that because farmers were forced to cut corners in order to make a living, so if you have a cheap food policy you are going to end up with an inferior product.”

Suckler brand

Turning to suckler beef, Power describes it as “a premium product that is treated as a commoditised product”.

He recommends that the Government seeks Protected Geographical Indication (PGI) status for the product under European Union law – which he believes would have significant knock-on benefits, including addressing issues around the volume of beef coming into the sector via the dairy herd.

The table below shows a breakdown of suckler cows by region in Ireland, as outlined in Jim Power’s report:

Image source: CSO / Jim Power IFA report

“The suckler cow herd is becoming a smaller and smaller proportion of the total cow herd; so the suckler herd is under pressure.

“With the expansion of the dairy herd, 50% of those calves are going to end up in the beef herd – and that poses a massive problem for suckler farmers.

“That is why the PGI is so important because it gives a special status to the suckler calf.

“We really need to build a strong brand for the product because the only possibility you ever have of achieving higher value-added is to create a strong brand.”

This goal is doubly important in the context of the UK’s departure from the EU.

“If there is a crash-out Brexit come next January 1 – which is a distinct possibility – and if WTO tariffs go on beef going into the UK, the ones that will have any chance of surviving will be those with a very strong brand.”

‘No problem with 30-month rule’

Power contends that farmers who buy into Bord Bia’s Quality Assured (QA) scheme are not being awarded adequately.

“If a farmer kills an animal at 29 months they get 20c/kg bonus; if the animal goes to 31 months they get an 8c/kg bonus – to lose 12c/kg in going from 29 to 31 months is grossly unfair.

“It needs to be a much more gradual process. You should be rewarded for being part of the scheme.

“If farmers start opting out, the quality of the product is going to diminish; that is going to negatively impact on what is a very important export.”

However, when asked about calls to scrap the 30-month slaughter age limit entirely, the economist explained that he can’t see any meaningful gains in such a move.

If we want to have any chance of having a professional beef sector there has to be an imperative to finish beef as quickly as possible.

“Personally, I did not have a problem with the 30-month rule, regardless of whether retailers insist upon it or not – and they told me that they do.

“The whole argument has been overtaken by environmental concerns; that is the reality. It would not be a lasting win,” he said.

‘Some farmers love feedlots’

The other central part is the importance of CAP payments to beef farm incomes.

“Direct payments make up a disproportionate percentage of family farm income in either ‘cattle rearing’ or ‘other’ beef systems and that has always been the way.

The table below shows average direct payments per capita by farm system, as outlined in Jim Power’s report:

Image source: Teagasc National Farm Survey / Jim Power IFA report

“€1 in direct payments to a cattle farmer generates about €4.20 in the broader economy – that is huge.

“Under the next CAP, direct payments need to be at least maintained in real terms, or ideally enhanced. If you do not support the suckler herd a lot of it will disappear – and unfortunately most of the marginal suckler farmers are in the west of Ireland.

“This will lead to land going wild or you will see more trees planted or wind turbines being built.”

On feedlot operations, Power stated that there are pros and cons.

“Some farmers say they love the feedlots because they create demand in the mart and push prices up.

“But there is a two-way argument. Growth in feedlots would risk undermining our grass-fed image of Irish beef – that is the only thing we really have going for ourselves and we really need to protect that.”

He says the Government must do whatever is possible to sustain the sector – including encouraging the setting up of producer groups to strengthen the position of the farmer.

“The last 12 months have been monumental and it has really brought to the surface the crisis.

There is a huge sense of despair and hopelessness out there; and that despair turns to anger. We saw that being manifested over the last six months particularly.

“Deep down most thinking farmers recognise that what they do, the economics as they stand, are really difficult.

“There needs to be a hell of a lot more concerted effort form the department to support it. But I don’t buy the criticism of Bord Bia – Bord Bia is doing a superb job of marketing; they are a marketing agency.

“Ireland is the fifth largest net exporter of beef in the world, yet we account for just 0.65% of the animals in the world – that is a huge achievement,” he said.

Low-margin / high-throughput business

Power assesses that the industry has about a two-year window to turn the ship on its current economics. However, he says a review such as his should have been carried out a decade ago.

“I knew coming into this that the economics were challenged; but I was actually astounded by how challenged and I was astounded by the contribution that direct payments make to the incomes of beef farmers.

“As a kid growing up, I realised that beef farming was incredibly tough – you got a good year, you got dreadful years, but it was challenging always.

“So many farmers have said to me that they are ‘just on the edge’; that they ‘can’t take it for much longer’; if you look a the age profile of beef farmers the next generation are not going to take that on.

My bottom line is that I do believe it is an industry worth saving and worth supporting full-stop. Everything possible has got to be done to help farmers.

“There is no silver bullet; but there is a series of small incremental steps that can help their position.

“In my view, for the mental and psychological impact on farmers, a full investigation by the CCPC could be a positive start.

“Yes the processors are very profitable; but it is a low-margin / high-throughput business.

The table below shows cattle throughput at export meat plants, as outlined in Jim Power’s report:

“The market share on the processing side is an oligopoly – where a small number of firms dominate a huge percentage of the market – there is nothing illegal about that.

Three Irish meat processors – ABP, Dawn and Kepak – control 65% of the market in Ireland.

“What is illegal in a oligopoly is if there is collusion. I don’t believe there is collusion; but farmers do.

Farmers need to be convinced of that, because they don’t believe me. I may be wrong, but all I can say is I didn’t see any evidence of collusion.

“Farmers don’t appear to have the right information and that is why this investigation is so important.

“If the competition authority went in and found there is evidence of collusion, then farmers would feel vindicated; but if they went in and found there is no collusion, well at least they now know.

“Then that might shift the focus to the more important areas,” he said.

Just as the interview reached its conclusion Power left a question for readers to ponder: “If beef processing is so god damn profitable why don’t farmers do it…?”

Jim Power; IFA;

'No evidence of collusion in beef sector; but farmers need to be convinced' - Jim Power