Background to the Survey

A key strategic objective of the BPEX 'Road to Recovery 2006-2009' strategy is to rebuild industry confidence to invest in the future. In order that BPEX is able to assess its delivery of this objective an annual pig industry confidence survey has been established. Surveys were undertaken in January 2007, 2008 and 2009.

The primary objective of the survey is to measure industry confidence. The secondary purpose of the survey is to assess the quality of BPEX services provided to levy payers and other elements of the industry and to identify areas where we can improve our performance in serving our customers.

The survey methodology chosen was to send out a postal survey questionnaire to individual businesses in the following sectors of the pig meat industry:

• Producers
• Allied industries
• Vets
• Processors
• Retailers and food-service companies
• Civil Servants

The structure of the confidence section of the survey was based on the confidence survey undertaken by the Confederation of British Industry (CBI) which is undertaken quarterly and has been in use for over 40 years.

In addition to analysing the overall pig meat sector, the methodology enables us to undertake cross-sectional analyses of differences between the industry groups. Furthermore, now that three surveys have been completed, additional time series analyses are possible.

Summary of Survey Results

Optimism

Question 1: Are you more or less optimistic than you were a year ago about the general financial situation in your part of the pig sector?
Overall, the mood in the pig industry has become more optimistic than it has been for a couple of years, with 52 per cent being more optimistic than a year ago (this compares with 5 per cent in 2008 and 28 per cent in 2007).
The net optimism balance between more and less optimistic is +39 per cent (with a positive indicating that there are more optimistic respondents than negative respondents). In 2008 the net optimism was -73 per cent and in 2007 +13 per cent).
All sectors have a positive net optimism balance particularly vets, but also producers and those in the retail/food-service sectors.

Investment in buildings

Question 2a: Do you expect to make more or less capital investment in buildings in the next 12 months than you did in the past 12 months?
The increase in optimism in the industry is reflected in a corresponding, although not proportional, increase in the expected capital investment in buildings over the next 12 months.
Overall, 29 per cent expect to make more capital investment with 23 per cent expecting to make less. This gave a net confidence balance of +6 per cent, compare with -51 per cent in 2008 and +1 per cent in 2007.
All sectors showed a positive net confidence balance except the producers, where there was a net confidence of -2 per cent. The producers were also the least confident sector in 2008, although their confidence has much improved on their net confidence of -63 per cent in 2008.

Investment in plant and machinery

Question 2b: Do you expect to make more or less capital investment in plant and machinery in the next 12 months than you did in the past 12 months?
These results are very similar to those for Question 2a on investment in buildings. Therefore the same comments apply.

Capital expenditure

Question 3: What are the main reasons for any expected capital expenditure on buildings, plant or machinery over the next 12 months?
Overall, the need to replace capital assets (31 per cent compared with 33 per cent in 2008) continues to be the most important reason for capital expenditure, followed by increased efficiency (30 per cent compared with 31 per cent in 2008). The combined measures of increasing efficiency and increasing capacity are a useful indicator of economic healthiness of a sector as they are not enforced on a business.
Replacement and increased capacity were also the most important reasons for capital expenditure throughout the industry, with the exception of processing where environmental legislation plays an important influence on capital expenditure.

Factors limiting capital investment

Question 4: What factors are likely to limit your capital investment over the next 12 months?
Across the industry, an inadequate return on investment continues to be the most important factor that is likely to constrain capital investment plans (35 per cent compared with 46 per cent in 2008).
Uncertainty over demand remains the second most important factor (27 per cent compared with 26 per cent in 2008).
Lack of internal and external finance have increased as factors likely to limit capital investment (31 per cent compared with 22 per cent in 2008).

Capacity

Question 5: What would you estimate your current level of production as a percentage of full capacity to be?
In a dynamic sector such as the pig industry it would be extremely unlikely to find all units operating at near 100 per cent capacity. In fact, this would not be desirable as it would imply a lack of flexibility to adapt to changing market conditions. However the results do appear to indicate a relatively high number are currently operating at full capacity.
The majority (81 per cent) of respondents are working at between 71 per cent and 100 per cent of full capacity (this includes 12 per cent at 71 to 80 per cent). This is slightly down on previous years when the figure was 89 per cent.
Average capacity (taking the highest figure in each capacity range) in the individual sectors ranged from 76 per cent for retail/food-service to 91 per cent for producers. The maximum reported for each category was 100 per cent for producers, processors and vets but all these also had a low minimum of 20 per cent.
In comparison with 2008 the average level of production as a percentage of full capacity decreased in all sectors, with the exception of producers where it retained the same level. The processors showed the greatest decrease (-14 per cent).

Competitiveness

Question 6a: How would you rate your competitiveness over the past 12 months relative to other UK, EU and non-EU businesses operating in the same industry/sector as you?
The majority of respondents reported unchanged competitiveness amongst both UK and non-EU businesses. It is only against EU businesses that competitiveness has improved more than remained unchanged or worsened.
Where competitiveness has improved, this has been greater amongst UK and EU businesses than non-EU.

Question 6a UK: How would you rate your competitiveness over the past 12 months relative to other UK businesses operating in the same industry/sector as you?
The majority of respondents (54 per cent, compared with 51 per cent in 2007) reported unchanged competitiveness against UK competitors.
However competitiveness between UK businesses is increasing with 38 per cent (compared with 27 per cent in 2008 17% in 2007) reporting increased competitiveness.
All sectors reported an increase in competitiveness of at least 31 per cent (AIG), with the highest being 55% in the retail/food-service sector.

Question 6a EU: How would you rate your competitiveness over the past 12 months relative to EU businesses operating in the same industry/sector as you?
In relation to EU competitors, the overall results show 42 per cent reporting an improvement, compared with only 13 per cent in 2007.
All sectors showed a positive net competitiveness balance, with the exception of retail/food-service, the highest being in the processing (+76 per cent) and AIG (+64 per cent) sectors of the industry.
These results will have been influenced by the weakening of sterling against the Euro over the past year, which would have led to a significant boost to the relative competitiveness of UK businesses, other factors being equal.

Question 6a Non-EU: How would you rate your competitiveness over the past 12 months relative to non-EU businesses operating in the same industry/sector as you?
Overall, the majority of respondents (55 per cent compared with 36 per cent in 2007 and 41 per cent in 2007) reported an unchanged competitive position against non-EU businesses. Giving a net competitiveness balance of +6 per cent
The processors showed the greatest increase in competitiveness, with a net competitiveness balance of +50 per cent.
The retail/food-service sector was the only one to show a negative net competitiveness balance (-12 per cent).

Question 6b: How would you rate your expected competitiveness over the next 12 months relative to other UK, EU and Non-EU businesses operating in the same industry/sector as you?
Overall, there is a positive outlook.
Competitiveness is expected to largely remain unchanged amongst UK and non-EU businesses and improve with EU businesses.
Less than 20 per cent of respondents expect competitiveness to worsen with EU and non-EU businesses and non with UK businesses.

Question 6b UK: How would you rate your expected competitiveness over the next 12 months relative to other UK businesses operating in the same industry/sector as you?
Businesses are again relatively optimistic about UK competitiveness, with all expecting to see either an unchanged or improved situation.
Overall 44 per cent (compared with 33 per cent in 2008) of the sample is expecting to see improved competitiveness and 56 per cent (compared with 17 per cent in 2008) a deterioration, giving a net competitiveness balance of + 44 (+16 in 2008 and +29 in 2007).

Question 6b EU: How would you rate your expected competitiveness over the next 12 months relative to EU businesses operating in the same industry/sector as you?
The improved competitiveness against other EU businesses over the last 12 months is expected to continue, with the majority of respondents expecting either an increase (47 per cent) or maintaining (39 per cent) of competitiveness.
Giving an overall net competitiveness balance of +33 per cent (–17 per cent in 2008 and -11 per cent in 2007).
All industry sectors showed a positive net competitiveness, ranging from +31 per cent for producers to +67 per cent for AIG.

Question 6b Non-EU: How would you rate your expected competitiveness over the next 12 months relative to non-EU businesses operating in the same industry/sector as you?
Although the area with the least optimistic outlook, the situation has improved on previous years.
The majority of respondents 55 per cent (compared with 37 per cent in 2008), expect a maintaining of the competitiveness. 26 per cent (compared with 14 per cent in 2008) expect an increase and only 19 per cent (49 per cent in 2008) expecting a worsening.

Factors limiting output

Question 7: What factors are likely to limit your output over the next 12 months?
Overall, the most important factors likely to limit output over the next 12 months are a lack of orders or sales (24 per cent compared with 25 per cent in 2007) and plant/building capacity (23 per cent compared with 17 per cent in 2008).
Although lack of orders or sales is an important factor across all sectors, it is likely to affect producers the least, the problem of plant/building capacity is mainly limited to producers and processors.

Prices

Question 8: How do your average selling prices in the last three months compare with those in the same period a year ago?
Overall, the picture is positive, with 79 per cent (42 per cent in 2008 and 58 per cent in 2007) reporting an increase in prices over the last three months compared with the same period 12 months ago and only 9 per cent (25 per cent in 2008 and 13 per cent in 2007) a decline, giving a net confidence balance of +70 per cent (+17 per cent in 2008 and +45 per cent in 2007).
However these figures are not consistent within the industry, with producers and processors showed the highest net confidence balances (+87 per cent and +83 per cent), with vets showing the lowest (-33 per cent).

Further Reading

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You can view the full report, including comments on BPEX services, by clicking here.

March 2009