As we enter 2022, the Scottish red meat supply chain is continuing to address a number of challenges beyond the control of the producer.

Covid-19 is still circulating among the community and seems like it will do so for sometime yet. What further control measures will be imposed remain to be seen.

Nevertheless, disturbance to out of home eating and work patterns are likely to continue and, consequently, continue to impact how consumers buy and consume red meat. Disruption to work patterns also have the potential to slow down the speed with which abattoirs and meat processors handle livestock and carcases which has the potential to restrict the flow of livestock off farms.

As we progress through 2022, more controls will be introduced on the import of meat and meat products into the UK from Europe. This will add cost to the imported product but may also hinder exports through the risk of hauliers with backloads being delayed at the borders, while documentary and other checks are carried out slowing down their return for another export load.

Although the EU will continue to be the largest export market for red meat, other markets are slowly becoming available. China has grown in importance for the pig meat sector and recent announcements from Washington have cleared the way to explore opportunities to export sheep meat to the US.

Meanwhile, opportunities exist in some Pacific Rim countries where Japan and Hong Kong offer sound opportunities and other countries with potential have been identified, subject to agreeing access terms.

Rising input costs have been a challenge during 2021 and this is likely to be the case through 2022. However, inflationary pressure is building and some pass through of farmgate prices to retail consumers will help to sustain current farmgate price levels.

Last year, 2021, was a challenging year for the red meat supply chain, notwithstanding the generally firm farm gate prices, and next year is shaping up to be equally challenging. But it was generally a positive year for the beef producer.

Farmgate prices throughout the year have been higher than in 2020, although they have lacked direction for most of the second half of 2021. Equally, though, prices for key inputs, particularly fertilisers, animal feeds, and energy have climbed steeply over the second half of 2021 quickly eroding the benefits of higher farmgate prices.

The processing sector found it hard to pass on the increased cost of cattle while still managing the day-to-day effects of Covid-19 controls and Brexit implications on trade administration, plus workforce availability added further operational challenges.

Farmgate prime cattle prices have been helped by a generally tighter supply of cattle. According to Defra, May was the only month in 2021 where ex-abattoir volumes of beef were higher than the year before.

The shortfall in beef volumes leaving abattoirs compared to a year earlier was particularly large in July and also through October and November. Tighter domestic supplies will have contributed to higher levels of imports from April to October.

The end of the Brexit transition period at the end of 2020 led to significant falls in UK beef exports during January and February, 2021, however since then trade has recovered and during the third quarter of 2021 exports where higher than a year earlier.

As a consequence – and despite the increase in imports – the volume of beef arriving on the UK market has been lower than year earlier levels for much of 2021, offering support to home-grown farmgate prices.

As we move into 2022, the indication from the June UK agricultural census is that slaughter volumes will increase as the population of cattle under one year was up by 1.6%. The largest contribution to this growth was female stock, some of which may be intended as replacements.

Nevertheless, it seems likely that as the year progresses UK domestic beef production will increase unless carcase weights fall.

The Republic of Ireland also reported higher numbers of cattle under one year in their June, 2021, census, although a growing number will come from the dairy herd as the Irish suckler herd fell for a second year.

Across the EU not all member states have a June census but using one from December, 2020, the indication would be of smaller breeding herd and therefore a small slow down in prime stock availability. Indeed, the EU forecast a reduction of 0.9% in beef production during 2022 which would provide opportunities for the UK to grow beef exports to the EU.

Elsewhere around the world, the USDA is expecting significant growth in beef production in Australia and Brazil but slightly lower production in the US itself. Meat and Livestock Australia reported its cattle herd was expanding and forecast beef production 12% higher in 2022 than 2021, but this would still be lower than production levels in 2019 and 2018.

Australia is the third largest beef exporter in the world, so expansion in production is likely to be felt in global beef prices. Its main markets are Japan, Korea, the USA and China, and indications are that, despite Covid-19 controls in these countries causing some disruption to demand and political sensitivities between Australia and China, that the Pacific Rim will be able to absorb much of the expected growth in production.

Lamb price strong

Both prime sheep and cull sheep have benefited from strong prices throughout the second half of 2021. One contributory factor has been lower volumes of lambs and cull stock reaching abattoirs. The June, 2021, census indicated that the 2021 lamb crop was smaller than in 2020, particularly in England.

Nevertheless, the decline in prime lamb kill between June and the end of November shows a much larger fall than the estimated lamb crop would suggest. The expectation is consequently that there will be a significantly higher carry over of hoggs into 2022.

Similarly, the fall in the number of cull ewes and rams reaching abattoirs is much greater than the small fall in the national ewe flock would suggest leading to an expectation of growth in the GB ewe flock to be used to produce the 2022 lamb crop.

Brexit caused significant disruption to sheep meat exports at the start of 2021. However, as everyone adjusted to the new terms of trade sheep meat exports recovered during 2021.

Nevertheless, because of lower domestic production the volumes exported did not match those of 2020 although as a percent of domestic production by the third quarter of 2021 exports were similar to year earlier levels.

Although they were larger than year earlier levels in the middle of the year, imports of sheep meat over the first 10 months of 2021 were 16% lower than in 2020. The net effect of changes in trade volumes and lower domestic production is that, compared to autumn 2020, net new supplies reaching the UK market were 10% lower in 2021, helping to explain firm UK prices.

Also, farmgate prices for prime sheep have been firm across the world during 2021 and this may lead to some growth in breeding sheep numbers. The June census for Ireland, for example, showed growth of around 4% in breeding sheep, similarly France and Spain also recorded some modest growth in breeding sheep in 2021.

Despite firm farmgate prices in New Zealand, Beef and Lamb New Zealand reported a decline in breeding ewe numbers of 0.5% in July, 2021, but better weather conditions led to slightly increased numbers and an expectation of a 1% increase in export lamb volumes for 2021-2022.

Australia, meanwhile, is continuing to rebuild flocks after a long period of drought and Meat and Livestock Australia expect an increase in lamb production, with flock expansion in 2021 delivering lambs to the market in 2022. Meat Livestock Australia expect further growth in breeding ewe numbers through 2022.

As a consequence, they may, over time, start to make use of the Free Trade Agreement with the UK that was signed in December, 2021. The UK is only a minor market for Australian sheep meat, partly due to existing quotas, but also the growth they have achieved in sales to China, the USA and several Pacific rim countries.

Australia has seen exports to China triple between 2010 and 2019 and Meat Livestock Australia reported that tariffs on Australian sheep meat trade with China were due to be removed over the next 12 months, which should support Australian further trade. It is interesting to note though that the average carcase weight of Australian lambs is currently more than 24kg, much higher than the typical UK lamb or UK supermarket spec' which may reduce interest from UK importers.

Rollercoaster year for pigs

For pigs, 2021 was a roller coaster year for the Scottish sector. Farmgate prices failed to match the levels seen in 2020 but did firm in the second quarter of 2021.

Since mid-year, though, farmgate prices have fallen while input costs have climbed, thus squeezing margins. Over the past quarter, the pig sector had been particularly hard hit by the consequences of Brexit and Covid-19 as staff shortages in abattoirs and cutting plants have significantly constrained the number of pigs that can be processed per week.

At the time of writing, control measures to manage the Omicron variant of Covid-19 are adding further to staffing challenges among all red meat processors.

Pig prices also dipped across Europe in the second half of 2021, falling well below the five-year average and 2020 levels. Bacon and ham are popular out of home food and the closure of food service across UK and Europe affected demand.

China is a major influence on global pig prices and significant reduction in domestic production due to African swine fever helped support global prices in 2019 and 2020. However, high prices in 2019 and 2020 encouraged expansion in Chinese domestic pork production in late 2020 and early 2021.

Adding to the complication, were problems caused by Covid-19 leading to port closures in China and delays in shipping. These two factors combined with regional outbreaks of African swine fever in Europe constrained exports to China both by the UK and the EU.

However, by mid-2021, Chinese domestic prices had fallen back and the USDA is forecasting a reduction in Chinese domestic pork production in 2022, particularly in the second half of the year.

Measures to control ASF in Europe and weak European prices from mid-2020 will have contributed to the EU sow herd declining by around 1.5% between mid-2020 and mid-2021. The consequence of this is that as 2022 progresses EU slaughter pig volumes will decline.

The June, 2021, UK agricultural census recorded a 2% fall in UK breeding sow numbers, which will lead to a decline in slaughter pig numbers as 2022 progresses.

In the global and local context, there is a general expectation of a tighter slaughter pig supply in 2021 with two major players in the global pork trade, China and the EU, both forecast to have reduced production and holding out the prospect of some recovery in local and global farmgate prices.