By Peter Crichton
THIS weeks announcement that Britains biggest bacon group, Malton Bacon, is to slash the price it pays for pigs has big implications for farmers, according to leading pig groups and producers.
Malton will become the first major pig buyer to stop basing payments on guideline pricing information collected weekly by the Meat and Livestock Commission (MLC). Other buyers are expected to rapidly follow suit.
Until now, most live pig contracts have been directly or closely linked to the All-Average Pig Price (AAPP) – the equivalent of the “Footsie” Index for pig farmers.
The idea of the AAPP, first developed by the MLC, was to provide the industry with a relatively stable pricing formula to iron out some of the more volatile movements of the spot market.
But Malton and other pig buyers have complained that the self tracking nature of the AAPP moves too slowly to accurately reflect real values of pigmeat on a declining market.
Maltons decision has therefore been to give 12 weeks notice to all its producers that no AAPP-based contracts will be used after 1 September.
After this date, Unigate-owned Malton will purchase its pigs on a “Malton Base Price.” At this stage, however, there has been no announcement how this base price will be calculated, and industry pundits believe that it may well be halfway between AAPP and spot.
If so, this would value an average 70kg deadweight bacon pig at £60, compared with the current Malton contract price of £65 per head – reflecting a revenue differential of a massive £26,000 a year for an average-sized 250 sow bacon pig producer.
That will be added to the losses already being suffered by the industry. The MLC quotes a break-even cost of production for efficient producers of about 100p per kg deadweight.
Other large-scale pig buyers will be forced to follow the Malton lead if they are to remain competitive at the selling end. This could spell the end of AAPP contracts as we know them, according to meat trade sources.
Worse than this is the second “red card” that Malton has produced. The decision not to renew contracts with certain producers in three months time threatens to put some farmers out of business. Once again, there are no clues who will be sent for an early bath, but trade talk is of contract cuts between 10% & 20%.
Those producers who do find themselves on the transfer market will find it extremely hard to fit in elsewhere, as most other abattoirs are operating at full capacity and the pig market continues to be over-supplied.
- Malton Bacon threatens pig price system, FWi, yesterday (3 June) Click here
- Peter Crichton is a Suffolk-based pig farmer offering independent valuation and consultancy services to the UK pig industry