FIRST-mover companies across the world are taking steps to meet their emissions reduction goals and beginning to release climate-neutral beef products on to shelves.
But with consumers already paying more for beef, Rabobank has been analysing whether the market will be able to support a further lift in beef prices to support a premium zero carbon in its latest quarterly report. Beef Central has found premiums have been hard to come by for the early movers in the carbon neutral market. (See yesterday’s story)
Rabobank senior animal proteins analyst Angus Gidley-Baird said it was a tough time to start carbon-neutral brands.
“We are starting to see positioning of low-emission and climate-neutral beef products on shelves around the world, but it is not an easy time to translate sustainability and emission commitments into action,” Mr Gidley-Baird said.
“In our view, the full cost of production (sustainability initiatives aside) is not currently being passed on to consumers. Consumers’ willingness and ability to pay is likely to be tested in 2022 as inflation levels climb around the world.”
With all of the first movers in the carbon-neutral beef market purchasing offsets to make the product, the report says careful consideration was needed by companies in the market.
“The reduction of emissions, while saving the costs of offsets, has its own costs, and for businesses to implement carbon-reduction practices, a return on investment or revenue to cover these costs is going to be needed,” the report says.
“Theoretically, such a return needs to sit somewhere above business as usual to incentivize change but below the cost of purchasing offsets to maximize efficiencies. A return on this investment may take many different forms.”
The report labelled access to the market, access to finance, improving productivity, premium prices and new revenue streams through carbon credits as the possible return on investments.
Consumer confidence softening
The first signs of softening consumer confidence are already apparent in most markets, the report says, with wholesale prices for beef coming under pressure even though production costs are higher.
Mr Gidley-Baird said a downward adjustment of cattle prices and upstream input costs will be needed to restore processor margins and to maintain beef’s competitiveness among consumers.
“We expect ongoing adjustments of consumption and margins in all markets as we head into Q3 2022,” he said.
For the Australian beef sector, the Q2 2022 Beef Quarterly says substantial rain across many parts of the country, including Queensland, has provided support to the cattle market.
“Although not necessarily season breaking, it may allow just enough pasture growth to encourage producers to hold or possibly even pick up some additional cattle,” Mr Gidley-Baird said.
The report says although Australian cattle supply is increasing, the favourable seasonal conditions are enough to maintain producer restocking demand.
“While we believe prices will drift down for the remainder of the year, the good seasonal conditions may mean prices remain relatively static into Q3 before producers reassess their buying appetite as summer approaches,” Mr Gidley-Baird said.
The report notes production volumes remain constrained – with Australian cattle slaughter numbers dropping to their lowest level in over 35 years in Q1 as processing plants contended with Covid-restricted workforces and a general lack of skilled labour.
Australian biosecurity operations are on high alert after official reports of lumpy skin disease and foot-and-mouth disease in near-neighbour and trading partner Indonesia, with the high-infectious diseases not only having potential impacts on cattle productivity but also trade implications.
- To read Rabobank’s report click here.