Report Highlights

As a result of a strong export demand the largest Chilean pork producers are expanding production by increasing the number of sows. Production is expected to expand an estimated 14 percent in 2006 and another 20 percent in 2007. Imports also are expected to grow, as exports of pork are likely to outgrow production expansions.

Executive Summary

Chile’s pork industry has based its development on the geographic isolation that has been fundamental to keep an animal disease free environment. Economic stability, along with an open market strategy, has encouraged investments that have had a positive effect on the quantity and quality of production. There is a strong focus on controlling the production process to meet buyer specifications. Pork production has grown extraordinarily during the last decade, at a rate of slightly less than 9 percent yearly. This production expansion is mainly due to increases in efficiency and the transfer of the low grain prices (the main input in swine production) to the consumer, stimulating pork meat consumption.

Production General

Chile’s economic stability and expansion has spurred a continuous increase in meat consumption over the last decade. An average annual GDP growth rate of over 6 percent during the last 18 years and per capita income that has increased three times has positioned Chile as one of the fastest growing economies in the western hemisphere. As a result meat consumption and production has expanded significantly.

The most impressive growth has occurred in poultry. Beef consumption also has increased but production has not kept pace with rising utilization. Consequently, Chile has become a significant beef importer. The MERCOSUR member countries currently are the main suppliers of beef in Chile.

Pork production and consumption also has been increasing steadily for the last decade. Per capita consumption has increased from 12 Kg in 1995 to 19.3 Kg in 2005. Exports also have grown since 1995. The latest statistics show that Chile possesses a total population of 2.3 million pigs up from 1.5 million in 1995.

Pork Production

Chile’s pork production has expanded tremendously during the last two decades, from 66 thousand metric tons in 1985 to 410 thousand metric tons in 2005. Its production expansion and efficiency is a result of a privileged sanitary environment with favorable climatic conditions.

In Chile, the pork industry is very efficient, highly concentrated and vertically integrated. The Pork Producers Association only has 40 members out of 140 producers, but these members produce 92% of the total domestic production. Almost 75 percent of Chile’s pork production is concentrated among 5 large pork packers, of which Agrosuper accounts for 65 percent of total production, followed by Friosa at 15 percent and Valledor accounting for 8 percent. The largest five producers, members of the Association, are vertically integrated. Vertical integration has enabled producers to maintain a strict level of product traceability throughout the process and ensuring product safety, quality and reliability from the production site to the final consumer. Large investments to incorporate state-of-the-art technology that strengthen sanitary and production efficiency levels, as well as an aggressive campaign to expand export markets through the implementation of free trade agreements, are the main factors that explain the Chilean pork industry’s success. Only an estimated 3 percent of total pork production comes from the so-called non-industrial operations.

Close to 97 percent of the pork producers are located in two Regions, Region VI (Rancagua) with almost 68 percent of total production and the Metropolitan Region (Santiago) where 29 percent is produced. Agrosuper’s main operation is concentrated in Region VI with 75% of the total number of pigs.

Industry expects pork production to increase by 14 percent in 2006, as domestic and export demand are still expanding. Industry sources believe that export demand will continue to grow, as demand for pork and pork products in Asia have been growing as a result of avian influenza. Increases in production in Chile will be due to an increase in the number of sows maintained by the largest operations. As a result of increased economies of scale, production costs are expected to fall, which will allow these producers to export part of this production expansion. Additionally, since they are integrated vertically, these companies can transfer their cost efficiencies into the price of the final product, thus stimulating consumption of certain cuts by offering especially competitive prices.

A significant increase in the number of sows is expected in the next 5 years as the main producers are going trough a significant increase in their operations. From the present 235 thousand sows, an industry official has indicated that they expect to have an estimated 491,000 sows in production by the year 2010. As a result pork meat production is expected to increase over 100 percent by the year 2010. An estimated 858 thousand metric tons of pork meat production is expected in 2010.

Consumption

Domestic pork consumption has expanded significantly in the last 20 years. Per capita consumption grew from 6.1 Kg in 1986 to 19.3 Kg in 2005. Additionally its share of total meat consumption in Chile grew from 21 percent in 1986 to 26 percent in 2005. Leaner pork meat, an extensive and aggressive generic marketing campaign, lower prices and increased disposable income are many of the reasons for the significant increase in domestic consumption during the last 20 years. The industry expects domestic pork consumption to reach 22 kilos per capita in year 2010.

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September 2006