20 November 1998

LOW PIG PRICES NOT EXCLUSIVE TO UK PRODUCERS

DEPRESSED pig prices are not exclusive to the UK, for all European countries are now experiencing chronic oversupply with most farmers unable to cover their costs of production.

"Our market held a small premium over Europe for the first six months of this year but pig supplies in all member countries increased, with UK prices dropping to Continental levels and then below by September," says Mick Sloyan, head of pigmeat strategy at the MLC.

He also explains that oversupply has been aggravated by loss of third country export outlets.

"In 1997 the EU increased its third country exports to over 1m tonnes, equivalent to the UKs total production, with roughly one-third going to Russia and another third to Japan and South Korea combined. Economic collapse in those countries has made Asian outlets difficult and sales to Russia extremely difficult.

"The result is that a lot of major European exporters are now struggling to move surplus pigmeat within the EU which helps to explain why prices has dropped disastrously. Not much is heading in our direction but our own exports, which reached 17% of total production in 1997, have also been hit hard by oversupplied markets and the inevitable reduction in commodity prices. The continued strength of sterling has not helped," says Mr Sloyan.

Not in synchrony

While traditional pig cycles have been converging, the UK and European pig industries are not in total synchrony and, dating back to 1996, British producers experienced 18 months of reasonable prices, while their Continental counterparts had two very good years before returns fell below the costs of production. The consequence has been that they currently have more fat to live off than our own producers.

Mr Sloyan says: "Our average pig price hit 133p/kg dwt in 1996 but the strength of sterling started to come through in 1997 and we dropped to 111p/kg, then plummeted to 60p/kg this September. The recent decline in sterling is having its effect and our prices are moving towards prices on the Continent.

"Contraction of our breeding herd was evident in June. This points to reduced finished pig supplies within the first six months of 1999, followed by a delayed decline in EU pig production. So while we anticipate UK prices slowly climbing back to break-even point, producers cannot escape a long and expensive haul through the winter," cautions Mr Sloyan.

On a slightly more optimistic note, he reasons that price prospects could improve more quickly where strenuous EU efforts to lift the market were to come good. Export orientated aids to private storage schemes have been introduced with the sights set on Russia and anywhere else. This could have a beneficial effect on the whole Euro market including our own, and despite Russias economic difficulties, her people still need to eat.

Meanwhile, UK demand is now moving strongly in favour of home-produced pigmeat, reflecting the near-total coverage by quality assurance schemes and high animal welfare standards on-farm.

"The benefits of quality assurance and traceability are undeniable and are now working to our advantage by maintaining sales volumes of home produced pigmeat, despite oversupply on the Continent.

"Pigmeat exports are still driven by commodity prices to a large extent but I have no doubt that quality assurance attractions will also have a favourable effect on sales abroad in the longer term.

"Our ability to differentiate home-produced pigmeat from imports will be strengthened further from Jan 1, 1999, when the ban on sow stalls and tethers comes into effect," says Mr Sloyan.

Unified support

Despite their differences, he stresses that all organisations and pressure groups, including trade associations, the MLCs Pigmeat Strategy Council, its Pork and Bacon Promotion Council, the British Pig Association, the British Pig Industry Support Group and Crisis in Pigs, are unified in striving to steer pig producers off the financial rocks.

"Pressure groups are not averse to criticising industry organisations, but they are having a positive impact and their efforts in promoting the pig industry are certainly appreciated," says Mr Sloyan.

While the pig has always been considered ideal for turning into a wide variety of processed products, the fact remains that the premium end of the trade is still loin-driven with supermarket customers making a bee-line for chops and the best loin and leg cuts.

The need to make maximum use of the whole carcass and add more value to cheaper cuts by innovative processing is imperative and the MLC is deliberately targeting the catering sector which now takes a third of all pigmeat.

Caterers meet consumers

While catering companies have traditionally bought their meat keenly on the commodity market, many caterers come face-to-face with consumers in pubs, hotels, restaurants and fast food take-aways.

On-farm, Mr Sloyan hesitates to predict market prices returning to 90p/kg dwt, the efficient producers break-even price, before next March or April at the earliest.

"All parties with the interests of pig producers at heart are doing their best to help in extremely difficult circumstances. I also accept that it is nearly impossible to plan for the future when prices drop from £1.40 to 60p/kg dwt in less than 18 months. The downturn has been vicious and unprecedented and, unfortunately, has destroyed some highly efficient producers who invested heavily just at the wrong time.

"All producers are under tremendous pressure just to hang on and it is a question of withstanding the pain until we get a better balance between demand and supply. By working together the whole industry can make this happen as soon as possible," says Mr Sloyan. &#42

UK demand is moving strongly in favour of home-produced pigmeat, reflecting the near-total coverage by quality assurance schemes and high animal welfare standards on farms, despite over-supply on the Continent.