Big is beautiful in the UK's consolidating meat processing sector, as the major players consume the smaller boys. Only by eating up the competition and becoming 'vertically integrated' can they hope for the economies of scale necessary to compete in an increasingly international business.
While it will be of no consolation to the smaller companies forced to the wall, unable to compete against tougher competition both from home and abroad, those remaining will be pleased to know that demand for meat protein is picking up.
"Meat consumption is now at the highest level it has been for 20 years," says Meat and Livestock Commission (MLC) chairman Peter Barr. "So something is working."
According to figures from the MLC, total meat consumption (red meat and poultry) was just under 4.5mt last year, compared with 3.9mt in 1995.
But, as anyone involved in the meat processing business will tell you, it's a tough old game and only the fittest will survive. Watch out as more casualties hit the headlines.
Consolidation within the sector continues apace, with acquisitive companies such as Grampian Country Food Group and Tulip (UK) taking a greater share of the market at the expense of smaller firms.
The primary processing side has been particularly badly hit in recent years. And more bad news is on the way. Many abattoirs around the country are expected to have problems with the introduction of new hygiene legislation that comes into force next year. Among slaughter houses, cutting plants and game plants "1,200 to 1,400 premises have been identified as might have difficulties applying the rules next year," Food Standards Agency (FSA) veterinary director Alick Simmons told the annual conference of the British Meat Processors Association (BMPA) recently. But others further down the added-value chain are also likely to face problems -- if not in meeting new hygiene inspection routines, then in remaining competitive.
To stay at the forefront of such a tough sector, deep pockets are required. Earlier this year Kerry Foods announced a big marketing campaign in support of its leading Richmond Irish sausage brand, which claims a 15.3% market share worth £62m.
Industry restructuring
More recently the UK's biggest privately owned integrated meat processor Grampian Country Food Group announced a restructuring into three protein businesses. These cover its integrated and add-value chicken at Attleborough and Rotherham and the convenience business at Cambuslang; pork, which now includes Winsford and Elmswell; and red meat -- beef and lamb -- including McIntosh Donald, Welsh Country Foods and St Merryn Meats.
This year Grampian, which operates from 43 sites around the UK employing 21,000 people and has businesses in Portugal and Thailand, plus a sales operation in The Netherlands, made its largest ever single investment in Scotland. The £16m expansion of its pork processing business at Broxburn near Edinburgh, created a 'centre of excellence' for both pork processing and sausage production. Work at Broxburn is expected to be completed by October this year, with the workforce expanding to 1,060. At the same time the company announced the closure of its Buckie facility employing 330 people.
Grampian has spent another £23m at Winsford in Cheshire on new highly-automated facilities including a new packaging plant for the production of primary cuts of pork and lamb and prepared food products. This was completed in January this year.
Elsewhere Cranswick Country Foods, which employs 3,000 staff in the UK and makes own-label gourmet sausages for Sainsbury and Morrison, has opened new facilities at Hull as part of a £20m investment by the group. The 6,039m2factory consolidated two existing sausage production lines and has increased production capacity to around 400t of sausages a week.
Last year Flagship Foods and Danish Crown's UK subsidiary were combined under the Tulip name, creating another large vertically integrated operation within the UK employing 7,500 people across 21 sites and with sales of around £1bn. Flagship comprised Roach Foods, Dalehead Foods, Flagship Fresh Meat -- a business acquired from Glanbia in 2003 -- and the BQP pig farming enterprise. Tulip had several factories in the UK, including Hygrade acquired in 2003.
Cheap imports
But while economies of scale are the name of the game, the problems caused by cheap overseas imports are still unlikely to go away.
The MLC's Barr describes the changes to the common agricultural policy currently being implemented as "the biggest changes for generations". Barr also points to "downward pressure on prices and global competition" which will intensify following the outcome of the World Trade Organisation negotiations.
There are also concerns about high levels of imports of beef and poultry from south America. Brazil is the world's biggest poultry meat exporter, with exports of 2.4mt last year, up 26% on the previous year.
UK poultry imports were valued at £723m in 2004 and the Transport & General Workers' Union had been concerned about the European Union allowing an extra 275,000t of imports of boneless chicken. The TGWU has, however, successfully lobbied the EU's Trade Commission led by Peter Mandelson, arguing that UK jobs were seriously threatened.
One big problem for the red meat sector, however, is that poultry -- on the back of its perceived healthier image -- continues to be the biggest driver for growth, reaching a consumption level of 1.8mt last year. And with competition between the UK major multiples as fierce as it is, cost will continue to be the main issue. For processed foods such as ready meals, for instance, demand for cheap imports will not disappear.
According to MLC figures, last year UK consumption of beef was also up at just over 1mt. Demand for pork and pork products, such as sausages and sausage rolls, was 825,000t, while bacon was 487,000t. But consumption of sheep meat was much lower at 365,000t.
To put the figures into some perspective, while consumption of red meat is around 12% up overall on the figure from 1995, it is now only fractionally higher than it was in 1985, says MLC marketing director Richard Lowe. In contrast poultry consumption has increased by 102% over the same period. "Poultry was the real success story between the mid-80s and 90s," says Lowe. "The gap between chicken and red meat is what we want to close."
But meat processors also face new hygiene legislation next year, which is causing some concern. This will put greater onus on companies to self-regulate and move to inspection regimes based on a risk management approach using Hazard Analysis Critical Control Point (HACCP) principles.
Risk management
"We are committed to making the environment less prescriptive," says the FSA's Simmons. But, while claiming a risk-based approach offers potentially lower costs, he admits there is "a great deal of resistance to change"
On top of this, there is also concern about proposed legislation from the European Commission that would limit the use of nitrates and nitrites used to cure bacon and hams.
And then there is the big issue of salt reduction being called for by the FSA .
The industry has been quite successful in getting its message across about the special role that salt plays in meat processing in protecting against the growth of toxic micro-organisms, but it can expect pressure to grow for further salt reduction without compromising food safety (see panel).
"We shall be concentrating on salt for the next few months," says Anthony Saxby, outgoing president of the BMPA. "Our sector is making progress in this area, but we do still have our concerns about food safety."
As Saxby handed over the BMPA presidential reigns at to Gerry Finley, md of Tulip (UK), he added: "The challenge of fat will be something for us to address over the next 12 months and beyond."
Red meat actually has a very good record when it comes to food safety. "Red meat is a significant source of food poisoning in the UK," says Simmons, being responsible for 17% of all cases of indigenous foodborne disease in 2000. However, when compared on a basis of risk per million servings, red meat at 24 is actually much lower than shellfish (646), seafood (244), poultry (104) and eggs (49), he adds.
On top of the issues above, there is also the return of over thirty month (OTM) beef to the supply chain next year. "This presents us with real and significant hurdles to be surmounted this summer if we are to achieve the current Department for Environment, Food and Rural Affairs timetable," says Saxby.
So processors face difficult battles ahead across a range of fronts. And I, for one, would be willing to put money on the BMPA having fewer members when it publishes its 2006 Yearbook & Directory.FM
Key contacts
- Drinde 0121 521 4300
- FSA 020 7276 8000
- Meat Hygiene Service 01904 455501
- MLC 01908 677577
The pressure is on to reduce salt and fat
Pressure from the Food Standards Agency (FSA) to reduce the salt and fat content of meat and meat products is already having an impact, with companies introducing a variety of new products and ingredients.
While salt reduction in meats presents a greater challenge due to the functional nature of the salt used during processing, it is not impossible.
Dera Food Technology, for example, has developed ingredient systems for brined, bowl-chopped and mince-and-mix products. The Idrobin Reso and Fibretex Reso systems help replace lost flavour and improve the texture and shelf-life of reduced sodium products. Recipes are available for cooked ham and poultry, bacon sausages and burgers.
Meanwhile, TMI Foods has has also responded to government initiatives to lower the salt content of bacon products.
However, TMI's approach to maintaining the traditional bacon taste lies in its curing techniques and it has invested £1m at its Coventry factory over the last two years. "Curing is the secret to taste, and we have worked very hard at developing innovative flavours and products to suit a wide range of consumer tastes," says md David Abbott.
"We source leaner cuts of meat and can fine-tune cures to control salt levels. You have to retain a certain amount of salt and preservatives for it to be proper bacon, but we can provide a wide range of distinctive tastes through our precision curing techniques."
It has installed the latest in smoke ovens enabling it to use natural smoking techniques with beech, apple or oak wood and cure to a variety of flavours including traditional dry cure, sweet, maple, and malt. It produces more than 10m rashers of bacon every week.
TMI Foods produces bacon products in different forms: either as slices or pieces, whether used as a sandwich filling or as a topping for snacks like pizzas. It also markets its own-brand range of products through major multiples and the grocery trade under the Cornhill label. This range includes cooked bacon rollers, crispy streaky bacon and cooked back bacon, all offering distinct convenience benefits to consumers over uncooked bacon.
DERA Food Technology 01954 267567
TMI Foods 1604 583421