your survival

14 August 1998

Setting out the options for

Radical action may be

required to survive the pig

crisis and help stem losses.

Emma Penny reports

FINDING a solution to surviving the pig crisis is anything but simple; radical action – including considering giving up production altogether – must be considered.

According to Jamie Gwatkin, partner in Andersons Bury St Edmunds office, some businesses are already in receivership as unsecured creditors such as feed companies and breeding stock suppliers take action to reduce debts.

"We have to find solutions to survival now the market is in free-fall. Contracts are being torn up and the spot price for weaners has fallen to 40p/kg liveweight.

"Clearly, losses are unsustainable, and so options have to be considered to improve profitability. There will be a bounce-back at some point, but we do not know when; it might not be for another year. The question to ask yourself now is whether you can afford to stay in pigs."

To assess losses from the price slump, and how different options for survival might affect profitability, Mr Gwatkin has looked at a typical outdoor unit running 400 sows producing weaners to 35kg on 20ha (50 acres), with a further 200ha (500 acres) of combinable cropping (tables 1,2 and 3).

At current prices, the farm stands to lose £63,620. "If we assume an opening overdraft of £100,000, which is erring on the optimistic side, negative profitability, depreciation of £23,000 and drawings of £30,000 will see the overdraft rise by a further £70,620 by the end of the year."

This cash deficit is clearly unsustainable, warns Mr Gwatkin. But he has looked at five options the business could take to help offset losses.

Finish weaners

Finishing weaners will help cut losses, he says. "It is possible to rent additional building space – for instance, unused beef housing – and convert this for housing all weaners produced."

Mr Gwatkin estimates that converting the building to finish weaners could cost about £20,000, and means they could be finished at 100kg liveweight. "Contracts are available at 70p/kg deadweight, and selling them at 76kg DW would give a price of £53.20 a pig, assuming 5% mortality."

Including marginal costs of £23.41 a pig (table 4), additional costs – for instance, labour – at £8.95 a pig, and writing-off the cost of building conversion over five years with interest at 64p a pig would leave a marginal profit of £5.46 a pig sold, he says.

"That might not seem much, but it results in a net margin of £43,580. There is more risk involved, but it would aid survival at current prices."

Change breeding replacement policy

Reducing replacement rate from 40% to 20%, and buying in only 80 replacements rather than 160 could reduce costs to only £3200 rather than £19,200, a net saving of £16,000, he says (table 5).

"This is down to reducing losses from selling fewer culls and the fact that breeding stock is significantly cheaper than it has been. Some producers may also choose to retain gilts as replacements rather than finishing them.

"But this is a short-term option only; I would not recommend pursuing it for any length of time because of disease risks and reduced productivity," he warns.

Challenge feed costs

Look closely at feed bills, and try to take advantage of current low cereal prices (table 6).

"If not under contract, I would suggest going uncontracted for August and September to make the most of good prices. After that, look around to fix a winter price."

Renegotiating feed contracts should also be possible, he says. "Manufacturers are open to negotiation. Aim to cut costs by £10/t for both sow and weaner feeds. This will help save £8360 for the breeding herd," says Mr Gwatkin.

Increase performance

This is a longer-term option, but should be pursued, he says (table 7). "Improving performance from 21 pigs produced a sow a year, which is on the low side, to 24 pigs a sow a year will improve overall profitability by £6720."

Although that improvement does not seem much for the effort involved, where the increased number of weaners are finished on-farm, profitability will improve by a further £19,188, an overall benefit of £25,908.

Consider marketing options

Alternative markets may provide better prices, says Mr Gwatkin. "Again, this is a longer-term option, but consider niche markets and local initiatives.

"Organic production is just not viable for pig producers, as supermarkets are not offering a big enough premium to cover additional costs. But it may be an option to consider when profitability improves."

Cease pig production

"If none of the options for improving profitability – either on their own or in combination – are likely to boost profitability, and there is no long-term commitment to pig production, then seriously consider selling up," advises Mr Gwatkin.

"It is a difficult decision to make, but it is better to be in charge of it, rather than handing control over to someone else, for instance, the receiver. As the first loss is likely to be the least loss, this might be the best option, as at least the arable business remains profitable."

While the sale of culls sows and boars will realise only about £12,000, he says this is preferable to having the pig business draining all farm profits and reducing the farms net worth.

&#8226 Next week – do the options work on-farm?

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