03 June 1998
Malton Bacon threatens pig price system
By Johann Tasker
BRITAINS biggest bacon group, Malton Bacon, is to slash the price it pays for pigs and terminate an unspecified number of buying contracts with its farmers.
The cost-cutting measure – expected to save the company at least £5 million a year – 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 will pay less money to fewer farmers for fewer pigs. In doing so, it 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.
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 further to remain competitive.
The cutbacks effectively put paid to predictions that the UK pig industry would flourish in the face of forthcoming welfare regulations, including the stall and tether ban which comes into effect next January.
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.
Mr Hilliard claimed the MLC base price is too high and fails to “reflect the true extent of the current depressed price for spot market pigs in the UK, which is influenced by the availability of plentiful low cost supplies of cuts from continental Europe.” As a result, Malton proposes to use its own base price instead.
The Unigate-owned company, which is the fifth largest pigmeat producer in Europe, will also charge farmers an offal disposal fee of 1.5p/kg – equivalent to £1.10 per pig – with immediate effect. Further price cuts will be implemented during the coming months.
Nobody at Malton could say how the companys new payment system will operate. But industry sources expect the new prices to be lower than those reported by the MLC, forcing other buyers to lower their prices in a battle to attract retailer customers.
“If other factories dont opt out of the MLC pricing system as well, they wont be able to compete with Malton at the selling end,” said pig industry consultant Peter Crichton. “Its a hammer blow to large-scale producers who rely on these types of contracts.”
Economists at the MLC insisted that their pricing system was 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.
“Hopefully well carry on collecting price information, but I just dont know what is going to happen,” said MLC market analyst Jane Connor. “If people are going to shift away from [our prices], then presumably they wont be used in the future.”
The British Pig Association (BPA), whose members represent three-quarters of total UK pig production, is reserving judgement on the Malton announcement. John Godfrey, BPA Chairman, warned that upsetting too many farmers would be a mistake but acknowledged that the pig sector had to remain competitive.
“Were disappointed to hear Malton are going to terminate contracts and disappointed about the rendering charge,” Mr Godfrey said. “But were reserving judgement on the pricing structure until we see where theyre going. It may be disadvantageous, but then again it might not be.”