Warning as farm gate prices fail to keep pace with inflation By ANDREW ARBUCKLE Published on Saturday 14 April 2012 00:00 WITH prices of both beef and lamb bobbing along at unheard of levels, it might be thought that all was well with the Scottish red meat sector. However, Jim McLaren, chairman of Quality Meat Scotland (QMS), posted a few warnings yesterday. First of all, he pointed out that the record prime cattle price which averaged 351p per kilo last month was less than producers were paid in 1995 after inflation was taken into account. He then pointed to the significantly increased costs of production. "The cost of a general "basket of goods" used in agricultural production has increased by 80 per cent, while end prices for prime cattle and pigs have increased by about 60 per cent and lambs around 84 per cent. "So, not only have farm gate prices failed to keep pace with the general level of inflation, input costs have been rising more quickly, with the result that "everything else being equal," producers are, in fact, working on tighter margins than they were in 1995." He then criticised those in the industry who were supportive of the current shortages in the market as "naive" and said the Scottish industry required a certain critical mass in order to operate successfully: "It is vital that we maintain the livestock numbers needed to satisfy the demand for our world-acclaimed brands." Of particular concern was the large number of cows and heifers slaughtered last year. The December 2011 agricultural census results showed the Scottish beef breeding herd down 2.5 per cent, the sheep breeding flock down 1.6 per cent and sow herd down 13.6 per cent year-on-year. Added to that was the notable increase in the number of female cattle being slaughtered, both as heifers and as cull cows, some of which could be put down to the early removal of less productive animals from herds, but increased heifer slaughtering might suggest a different picture, he said. He was also concerned that with producers" prices being strong and retailers finding price resistance from consumers, the pressure was very much on the in-between processors. . In 2010, a sample of processors operating in Scotland had an average operating margin of 2.5 per cent, before tax, depreciation and bank interest - for some this figure was as low as 0.5 per cent. Without commenting specifically on the publicised problems of two of Scotland's processors, he said: "In light of market conditions since then, the likelihood is that margins have eroded further and this has to be a major concern for the sustainability of our industry. Livestock prices have increased significantly over 2011 and, with the backdrop of a weak economy, wholesale and retail prices were unable to rise to the same extent. As a result, processors have had to absorb a large percentage of the increased cost of raw material and at the same time faced increased operating costs. Looking at the positives, he said the Scottish livestock industry had to ensure it took advantage of the world-class science and innovation being developed to improve its efficiency. "QMS currently has around 100 projects under way aimed at improving the efficiency of the industry, and during the past year I have had the opportunity to see how these, and our marketing, economics and health and education activities, are benefitting the red meat industry in Scotland," he added.