A major consultancy study is to get under way shortly on the future of the beef industry. The appointment of consultants is the first step in a Forbairt-led initiative to chart a future for the industry which produces £2 billion each year, but is threatened by falling profit margins and reductions in EU aid. Five major international consultancy companies have made presentations to the steering group set up to chart the future of the sector, with two of the consultancy groups co-operating on a joint presentation.

A decision is expected shortly, and the consultants will be asked to look at international experience and advise on how to restructure the Irish industry.

As well as Forbairt executives, the steering group also includes industry representatives from the Irish Meat Association, representatives of An Bord Bia and the Department of Agriculture, and Mr Paddy Moore, adviser to the Minister for Agriculture, Mr Walsh.

Among the key issues to be examined, according to Mr Derek Breen, Forbairt manager for sectoral development, is how to go about developing the sector and what scale of processing operations is necessary. There are 37 export licensed beef plants in the Republic, with about 20 owners, ranging from major plants processing more than 100,000 head of cattle per year to smaller plants with a throughput of just 10,000. The industry is affected by severe over-capacity and by reductions in EU export refunds brought in as part of the reform of the Common Agricultural Policy. A year ago, the industry was paying £1 a pound to farmers for cattle, but this has now fallen to 83p per £1 and will drop further as EU payments fall again.

Beef processors' margins are also being hit, with net profit margins averaging a low 1 to 1.5 per cent over the medium term.

The consultants will examine how the beef industry here should be restructured, drawing in part on international experience.

A key role-model is likely to be the Dutch beef sector, where government policy has led to a reduction in factories from 25 to 17 between 1995 and 1997. As part of the move, the Dutch authorities and four major banking groups set up a fund which was used to buy-out some plants, giving their owners a fair market price for what they were selling.

The resulting liabilities are being repaid through a levy on the beef sector, paid by the remaining processors.

A second phase of the Dutch restructuring scheme is now under discussion.

A key question now for the Irish study, according to Mr Breen, is whether a reduction in capacity in Ireland could improve the industry's performance.

Other issues to be examined will be whether a reorganisation could lead to better marketing and improved use of by-products.

The consultants will also examine how such a restructuring could be achieved and whether a Dutch-type fund, where smaller plants are bought out and closed, would be appropriate for Ireland.

According to Mr Breen, a key part of any restructuring plan will also be the need for further investment in the major beef plants.

As part of this, the sector could be made a priority recipient for future EU funds.