The introduction of social distancing measures, due to the global coronavirus pandemic, is causing a significant economic rebalancing, resulting in volatility in household spending patterns.
Although presenting challenges, this also offers some opportunities for the red meat sector, according to the latest market commentary by Quality Meat Scotland (QMS).
With food being a necessity, overall demand has held firm, but the way we buy and consume it has changed almost overnight.
On the downside, foodservice sector demand is reported to have plummeted. Restaurant app OpenTable had reported sharp year-on-year declines in bookings at UK restaurants of around 30% even before guidance was issued to avoid restaurants, clubs and bars and switch to home working on grounds of public health.
“The closure of schools from Friday 20th March will only add to this pressure,” said Iain Macdonald, Senior Economics Analyst with QMS.
On the other hand, the potential for a two-week period of self-isolation has seen many households evaluate food stock levels in cupboards and freezers, resulting in unusually large purchases of long-lasting and versatile goods.
“In the red meat sector, this has reportedly seen the reduction in demand from foodservice and export, the latter facing challenges in part due to delays at EU borders, offset by increased orders from independent and multiple retailers,” said Mr Macdonald.
“Products like mince, roasting joints and burgers are likely to have increased in popularity as a consequence,” he added.
Away from the primary fresh and frozen red meat offer, food manufacturing companies have also reported firm demand for red meat-based products such as steak pies and sausages.
While the scale and persistence of the economic shock is unknown, the sheer number of industries affected points towards a very large contraction in overall economic output. Incomes and spending power will fall as companies lay off workers or place staff on unpaid leave.
However, some businesses will see opportunity in the rebalancing of household spending and will act fast to hire newly unemployed workers to expand existing operations or offer new goods and services, providing some mitigation.
Given strong retail demand, the red meat sector is well-placed to take up some of the slack, particularly by hiring people with food hygiene and food safety qualifications.
“Going forwards, the reduction in eating-out opportunities may help sustain a boost in demand for steaks and other high-end cuts like lamb rack and pork fillet,” said Mr Macdonald. “Ready-to-cook meat dishes are also likely to do well in such an environment.
“Equally, however, there is also likely to be some trading down to the cheaper cuts by budget-constrained households,” he added.
However, according to Mr Macdonald, some households suffering from a reduction in income may be able to maintain their overall spend on food due to reduced opportunities for recreational and cultural activities, and the related spend on travel.
In addition, given that the cost of eating out includes the additional value of labour involved in preparation and serving, demand for this food could, in theory, be maintained if being bought from the retail sector.
Furthermore, government intervention to support family budgets could also help underpin spending on food, such as the £70m Family Food scheme announced by the Scottish Government.
“Once the short-term spending splurge to re-stock kitchens comes to an end, the red meat sector may prove to be more resilient to the economic downturn than other parts of the economy if the need to maintain a healthy balanced diet leads to an increased share of budgets being allocated to red meat,” said Mr Macdonald.
“Nevertheless, the rebalancing of red meat demand is likely to present some challenges to the sector, such as being able to source enough of the correct packaging, machinery and delivery drivers.
“This latter point could prove particularly critical, given the specific qualifications needed to transport livestock, and QMS is subsequently seeking a temporary relaxation in drivers’ hours regulations,” he added.
Meanwhile, businesses will need to prove resilient to the increased likelihood of absences as workers fall ill or self-isolate. In some instances, this could result in temporary site closures.
“Recent episodes of panic-buying demonstrate just how valuable food security is to the population, and the sector’s workforce should be commended for putting themselves at risk to ensure people continue to have access to high quality red meat,” concluded Mr Macdonald.