EU 27 Livestock and Products Semi Annual Report 2008

By USDA Foreign Agricultural Service. During the second half of 2007, increased supply of pork and rising feed costs induced a “return of the pig cycle”.
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Executive Summary

Swine & Pork: production recovery anticipated in Northwestern Europe

In order to support the EU pork sector, the EC opened a Private Storage Aid scheme and increased export refunds. Despite the refunds, the EU pork sector lost market share in its two most important markets, Russia and Japan. Due to low or even negative margins, EU pig and pork production is anticipated to fall during 2008. The most significant cuts are anticipated in the NMS, where the restructuring of the intensive pig sector has not been finalized yet. Competitive producers in Northwestern Europe are expected to maintain or even increase their production as they expect market conditions to improve during the end of 2008.

2007 Return of the pig cycle induced by high feed prices

As anticipated in the Annual Report (E47060), profitable pig market conditions in 2006 were stimulating further pig production increases in 2007. Increased production was reported throughout the EU, with the most significant increases in Denmark and Germany. While pig production increased by one percent, slaughtering increased by nearly three percent. This can be explained by the fact that piglet production peaked during the last quarter of 2006 and the first quarter of 2007. Because of rising feed costs and carcass prices falling to the five-year average, profitability in pork production became gradually depressed during the end of 2007. Margins on breeding were also cut down due to the oversupply of piglets, which reduced the market price for piglets far below the 5-year average. As a consequence, sow numbers fell from 15.5 million to 15.1 million head. Total swine ending inventories are estimated to be cut down by 1.5 million head to about 160 million head.

2008 Production recovery anticipated in Northwestern Europe

As forecast in the Annual Report, EU pig production is anticipated to fall during 2008 due to small or even negative margins on pig farming (see graph below). Production cuts will be less significant in Northwestern Europe. German and Benelux pig farmers who have invested in new facilities have to continue producing in order to ensure cash flow. Danish farmers even plan to produce more in the hope to outcompete other farmers in the EU. This is possible as the EU internal pork market is still protected from producers outside the EU by quotas and tariffs. The most significant cut in production is anticipated in the NMS (see graph below), where the restructuring of the intensive pig sector has not been finalized yet, and has thus not reached the level of competiveness of the pig farms in Northwestern Europe. The sector in Northwestern Europe considers the NMS as a growth market for both pork and piglets.

2007 EU exports lost market share on the Russian and Japanese market

In 2007, pork production increased due to increased slaughtering and an increase in slaughter weight. This increase in slaughter weight is partly a trend but is also a result of restricted slaughtering in the UK due to FMD related measures, and the burn down of two slaughter plants and strikes in Denmark. The increased supply of pork was somewhat tempered by the EU enlargement, which terminated about 100,000 MT of pork imports by Romania and Bulgaria. During 2007, EU pork exports experienced strong competition from Brazilian pork on the Russian market and from U.S. and Canadian pork on the Japanese market (see graph below). EU pork exports to other Asian markets increased, in particular to China. In order to support the EU pork sector, the European Commission (EC) opened a Private Storage Aid (PSA) scheme, and increased export refunds for pork in November 2007 (see GAIN Report E47104). The pork consumption figure in this report is inflated due to increased commercial stocks.

2008 EU pork exports to Russia are expected to recover

In 2008, pork production is anticipated to decline in line with lower slaughter numbers. EU pork exports to Russia are expected to recover as Russia lifted the ban on Polish meat on December 19, 2007, which had been in place since November 2005. EU pork exports to other markets are not expected to grow significantly. The Chinese government announced plans to lift the import ban on German pork that was installed in response to a currently eradicated classical swine fever outbreak (see GAIN Report GM8010). Danish producers signed export agreements with Chinese buyers; Danish producers regard China as a growth market for by-products as well as for regular cuts. But it is anticipated that EU pork exports will benefit from these agreements at the earliest during the last quarter of 2008. EU producers are increasingly focusing on the domestic market, in particular the market in the NMS, where pork production is expected to fall. The PSA stocks are expected to be released during the summer, when pork prices seasonally increase. Despite the release of these stocks, pork prices are expected to increase above the average level of 2007 as total pork supply will be limited on the EU market.

Further Reading

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February 2008
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