5 June 1998

Price and contracts cut as Malton seeks savings

By Johann Tasker

BRITAINS biggest bacon group, Malton Bacon, is to cut the price it pays for pigs and terminate an unspecified number of buying contracts with its farmer suppliers.

The cost-cutting measure threatens to undermine the industry-wide system of deadweight payments based on independently recorded prices. It also casts serious doubts over whether UK producers can compete with cheap foreign pigmeat imports on welfare issues, rather than on price.

Yorkshire-based Malton is expected to save at least £5m on its £700m annual turnover by paying less money to fewer farmers for fewer pigs. It will become the first big pig buyer to stop basing payments on guideline pricing information collected weekly by the Meat and Livestock Commission. Other buyers are expected rapidly to follow suit.

The news puts further pressure on UK producers already grappling with a 25% drop in returns over the past year. But Malton, which slaughters about 80,000 pigs each week and commands almost 30% of the deadweight market, insists prices must fall to remain competitive.

In a letter sent to pig producers last week, Maltons managing director, Max Hilliard, said retailers were continuing to import too much cheap foreign pigmeat -despite the enhanced welfare and traceability standards of more expensive British supplies.

"We anticipate a reduction in the total number of British pigs that Malton will procure on contract and hence we will be serving the required notice of termination of contract to a number of producers in the near future," Mr Hilliard commented.

As well as using its own base price, Malton will also charge farmers an offal disposal fee of 1.5p/kg – equivalent to £1.10 a pig – with immediate effect.

Industry sources expect the new prices to be lower than those reported by the MLC. "If other factories do not opt out of the MLC pricing system as well, they wont be able to compete with Malton at the selling end," said consultant Peter Crichton. "It is a hammer blow to large-scale producers who rely on these types of contracts."

Economists at the MLC insisted the existing pricing system is accurate, but acknowledged that developments over the coming weeks could spell the end of the MLC as the provider of the standard UK pig price.

Malton, which is owned by Unigate, is the fifth largest pigmeat producer in Europe. NFU president, Ben Gill, will meet today with Unigates chief executive, Sir Ross Buckland, in an effort to persuade the company to stick with the MLC pricing system.

But the British Pig Association, whose members represent three-quarters of total UK pig production, is more open-minded. "We are disappointed to hear Malton is going to terminate contracts and disappointed about the rendering charge," said chairman John Godfrey. "But we are reserving judgement on the pricing structure until we see where it is going." &#42

Fewer pigs will be sent to Malton Bacon following its decision to cut prices.