It is hard to not feel strong sympathy for our European cousins who are facing major problems in the pricing of their goods in the organic meat sector. If you have ever visited a French market the strength of the "produits du terroir" is compelling. It is less visible in beef, but the cost difference between an organically grown chicken and a battery chicken is about 300%. This is driven by the time it takes the chicken to mature, the type of feed they require and the labour required for raising them. In addition, the cost of chicks has also increased. European organic farmers have seen input costs more than triple while prices have stagnated or even collapsed (e.g. pork).
We have seen the cost of market calves double, and their genetic profile is less interesting. We gravitated to artificial insemination (essential for our milk cows because of the type of cross bread we require for our milk), for our entire herd because of these two issues. We are large enough and we have sufficient staff now, that this is feasible for us. The grain market, which is the core feeding of European cattle (organic or otherwise), and costs have risen tenfold over the past few years. A death blow to the farming community. EU farming subsidies are not keeping up with inflation. Germany has been the biggest source of revenue for farmers since the early 60s. Subsidies have allowed small non-viable farms to not only survive but also provide living wages. Scotland and Wales have similar problems, but they are being addressed through sale and consolidation.
Why have we not been affected? First, we are no longer part of the EU, so less paperwork (Exiting the EU has reduced farmers' administrative workload). Second, the size of UK farms is rising (organic or otherwise), and UK farms rely less on external inputs for their cattle. Third, energy costs in Europe have exploded, and while the UK has suffered, it has been buying its energy mostly from Norway and the Americans under long-term contracts. The UK was never exposed to Russian gas. Fourth, larger farms mean that hay and grasses account for 95% of our cattle's feed requirement.
Part of our European cousins' problem is that the organic meat market supply exploded, hitting prices while input costs were rising. These farmers seldom had a profit objective in mind, it was a social mission. Organic farmers "survived" on reasonable market prices and subsidies (government), while their costs were skyrocketing (market).
The hospitality and high-price market requires a certain beef rating, and we always focus our production with these factors in mind. Our target rating is usually U-,U+ with 4L fat content. In plain English, older cattle, have good marbelizeation and medium to higher fat content. The classification is determined by inspectors in our processing plant. This is what the market considers "premium beef".
I mentioned yesterday, that we had seen a rather important retrenchment in the hospitality sector, but again most of these affected are lower down the food chain. Our heirloom vegetables are mainly for high-end restaurants and hotels that are largely unaffected by economic slowdown (there have been some notable casualties).
We don't see our labour costs as an issue in the cost of our production. Yes, we are introducing labour-saving technologies but usually, it is to ease the load on our pickers, because their most valuable skill is to recognize ripe and unripe vegetables. Last year our mechanics created a small cart on which our pickers sit, specialized baskets in the front, stock of baskets in the back, and motorized with 48-volt batteries. We have more than tripled our picking speed (we needed more staff to move the baskets from the picker to the tractor carts).
Our 2023 revenues and profits exceeded projections. This is why salaries and benefits were so high. Nearly 1/3rd of our wages are variable and dependent on profits. Granted that in the event of a more challenging year, we are more likely to reduce our capital returns (currently set at 18%), than reduce bonuses. But the first month of the year seems to be equal to what we saw in 2023. The reason we are adding to our high tunnels and to our milk herd is that the historical profit in these two areas is by far the highest. The 12 additional high tunnels and warehouses we are building on the farm will cost nearly £ 6 million. The new milking shed will cost £ 250,000 and the new rolling equipment is nearly £ 2 million.
These capital expenditures can easily be justified in the current economic climate because in our entire operating history, we never relied on subsidies, we can afford to go against trends (pork) and we focused on markets which valued our products. Equally, we will not expand our goat herd because there is a glut in cheese, we are happy to produce at the current level and may decide to curtail future production.
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