13 August 1999

Make-or-break time for crisis-hit pig producers

By Emma Penny

PIG producers fighting to stay afloat after recent contract price cuts compounded worries should take a close look at their businesses, despite many already having cut costs to the bone.

Last weeks price cuts of 2-3.5p/kg from several big buyers (Business, Aug 6) will have pushed businesses back below break-even prices, says consultant Geoff Fielding.

"There are some very desperate producers out there – particularly on large units. Some have been in a negative cash flow situation for two years now, and many bankers will be unable to extend credit much further. Its make or break time; most producers will hang on, but its hurting," he warns.

Most units have already cut costs severely in an attempt to survive the crisis, and theres little more that can be done on many farms, says Signet consultant Malcolm Black.

"But there are some producers who could still cut costs and increase unit hygiene to be as efficient as possible."

With feed accounting for a large proportion of costs, Mr Fielding advises keeping a close eye on grain and protein harvest forecasts and prices. "Like pigmeat, grain and protein are at world prices – if they look cheap post-harvest, lock into a six or 12 month contract as prices wont fall much more."

A danger with the latest price drop is that some farmers may be tempted to pull back production, but Mr Black warns against any move to do this. "Keeping units up to scratch is important – the danger is that dropping production will increase overheads/pig, and you will have fewer pigs to sell when the market picks up."

Keeping costs under tight control and meeting market specifications are both vital, he says. "Some producers have low costs but are losing money because their pigs fail to meet buyers specs, while others have high costs but are producing to spec; getting both right is essential."

Suffolk-based Andersons consultant Jamie Gwatkin suggests working out whether units are running efficiently to help minimise losses.

"Work out how many kilos of pigmeat you could sell each week or month, and compare that with what you are achieving. Where you are not managing 100%, ask yourself why. Also, work out how much it is costing to produce each kilo of pigmeat."

He also suggests working out which parts of the unit are most efficient. "In some instances, the weaner enterprise is the most profitable, and finished pigs from the same unit are losing money. Where that is the case, it may be a better option to go back to producing and selling weaners which will automatically release capital."

But Mr Fielding believes that in the long term, producers must become part of a vertically integrated chain from weaner to finished pig.

"Weve got to co-operate to survive. Bigger businesses are now taking pigs from breeding to finishing, and are even considering buying feed mills.

"The industry must co-operate and integrate to survive and we need a fresh approach to the pricing mechanism up and down the chain, for example, cost plus schemes where producers receive a premium over and above their production costs.

"This price cut is forcing change, but restructuring can often produce something stronger; the job will come right for those producers who can hang on," adds Mr Fielding.