Despite encountering significant challenges over the past three years due to Brexit, the COVID-19 pandemic, the Ukraine conflict, and the rising cost-of-living, the sector has displayed resilience and continued production.

Unprecedented global circumstances resulted in significant inflation of costs for livestock feed and energy, which were inevitably passed onto producers in the form of increased fertiliser, fuel, and heating costs. Borrowing expenses also climbed due to escalating interest rates.

The 2023 report shows that production continued throughout this challenging period and highlights that turnover from red meat processing rose for a third consecutive year – generating an estimated £926 million of output for the Scottish economy.

Iain Macdonald, market intelligence manager at QMS and author of the report, said: “Turnover from red meat processing is estimated to have risen for a third consecutive year, lifting 5% to £926m. Revenue generated from beef, offal, hides and skins are all estimated to have risen, partially offset by reduced revenue from lamb and pork sales.”

After a slow start to 2022 for the cattle sector, farmgate prices for finished stock rebounded through spring before reaching record high levels between April and December. However, store cattle prices were more subdued, struggling to rise above levels set earlier in the year.

Mr Macdonald continued: “A combination of rising input costs, attractive cull cow prices and uncertainty over future agricultural support led to a renewed contraction of Scotland’s beef breeding herd, with numbers down 3.3% year-on-year in December. Calf registrations did, however, prove more stable, with greater use of beef genetics in the dairy herd underpinning numbers.

“Meanwhile, continuing labour supply challenges in Scotland’s abattoir sector and firm demand from finishers based in England, where the suckler herd had contracted more sharply since 2018, resulted in an increased outflow of store cattle, limiting the number of prime cattle available to Scottish abattoirs.”

The report also revealed that market prices in the sheep sector fell back from records set in 2021. Market supply was supported by a rebound in import volumes as COVID-19 control measures in China resulted a rebalancing of lamb exports from Australia and New Zealand towards the EU and UK. However, this trend of rising imports did begin to reverse in the final quarter.

Mr Macdonald added: “Outside of a positive Christmas trading period, consumer demand for lamb struggled given its position as an expensive protein and the pressure on household budgets from a rising cost of living.”

In the pig sector, the report highlighted that the severe challenges continued for the first half of 2022. Mr Macdonald explained: “Elevated feed costs and a backlog of slaughter-ready pigs waiting to be processed weighed on margins and led to further losses for producers.

“By the end of the year, a sharp contraction in breeding pig numbers had fed through to supplies, providing further support to market prices, while feed costs had begun to fall back. A tightening of supply in the EU also pushed up import prices, supporting the competitiveness of home-produced pork in the domestic and export markets.”

The report found that despite employment in the primary processing sector being estimated to have reduced by around 4%, the overall wage bill remained unchanged due to the impact of a tight labour market on wages and salaries. As the year progressed, labour supply challenges began to ease through the arrival of new staff from outside Europe.

Mr Macdonald concluded: “Livestock farming and processing is vital to our rural economy, so it’s positive to see that some input cost pressures are starting to ease back from the highs of 2022.

“What the latest Red Meat Industry Profile does highlight is the industry’s determination to continue producing high quality products while dealing with a wide range of supply chain challenges and economic and political uncertainty. In the first half of 2023, we have seen Scottish households continue to increase their spending on beef, lamb and pork - proving that Scots still have a strong appetite for red meat.”