Highlights

During 2010, beef and pork exports are expected to recover due to increased domestic availability, a weak Euro, limited competition, and recovering demand on the world market. In the second half of 2010 and 2011, EU beef production is anticipated to fall following the long term trend contraction of the herd. While piglet and pork production is expected to peak in 2010, a reduction is anticipated in 2011 as a result of rising feeding and investment costs and increasing competition on the world market. Between 2009 and 2011, the EU cattle and pig stock are projected to shrink 2.3 and 1.6 per cent, respectively.

Executive Summary

During 2009 – 2011, the EU pig stock is forecast to decrease by 1.6 per cent, from 153.1 million head to 150.7 million head. EU piglet and pork production is forecast to recover temporarily in 2010. During the first half of 2010, the sector benefitted from the low feed costs, the increased demand for pork in Russia and Asia, and the weak Euro. During the second half of 2010, and during 2011, EU exports are expected to face increased competition, in particular from Brazil and the US In addition, EU domestic supply is expected to fall due to shrinking margins as feed prices are anticipated to increase and EU legislation is requiring more investments from swine breeders and fatteners.

Swine

Restructuring of the pig sector continued

After the cutback of the EU pig stock in 2008 (-4.2 per cent), the stock is forecast to decrease further during 2009, 2010 and 2011, respectively by 0.7, 0.5 and 0.3 per cent. In 2009, feed costs were significantly reduced from 2008. But the financial crisis pressed carcass prices and as a result fattening margins remained tight. As a consequence, the restructuring of the intensive pig sector continued. Restructuring implied termination of the most inefficient farms throughout the EU and a reduction in backyard farming, in mainly the New Member States (NMS). As a result, the piglet/sow ratio and the loss ratio improved significantly in 2009.

Piglet production is expected to recover temporarily in 2010

In the Semi-Annual Report, the 2009 sow slaughter number was overestimated. Due to the high piglet prices farmers kept their breeding stock, by which the number of sows declined only 0.35 per cent. In addition, the piglet/sow ratio increased significantly in 2009. For that reason, piglet production is adjusted to a higher number than was previously estimated in the Semi-Annual Report. As anticipated in the Semi-Annual, EU piglet production is forecast to recover in 2010. An upturn is believed to have taken place during the last quarter of 2009 and the first quarter of 2010 and mainly in Denmark, the Netherlands, the UK and the NMS. The Danish sector benefitted from the increased demand for pork in Russia and Asia, and the weak Euro.

In addition, the economy in Danish pig production improved due to lower feed costs, higher carcass prices and increased efficiency. Danish slaughterers paid higher prices to the farmers to be able to compete with German slaughterers. In the UK, the low Sterling / Euro exchange rate benefited profitability to which farmers responded by increasing sow stocks and piglet production.

In the NMS, cutbacks in piglet production of eight per cent in 2008 as well as in 2009 are expected to be followed by a recovery of 1.2 per cent in 2010. This rebound is supported by better market conditions; lower feed prices and higher prices for piglets and hogs.

Increased slaughter is expected to follow increased piglet production

Following the increased piglet production during the first half of 2010, EU slaughter is anticipated to peak during the second half of the year.

Another factor for the elevated slaughter is the reduction of the trade of slaughter hogs to Russia. Due to the new customs union of Russia, Belarus and Kazakhstan, import duties on live pigs were raised from five to 40 per cent. As a result, the trade of 1.1 million slaughter hogs to Russia in 2009 is expected to be reduced by 40 per cent in 2010. These animals are expected to be slaughtered on the EU domestic market. Production of pork is anticipated to increase significantly in Germany. The German production expansion is mainly based on piglets and slaughter hogs sourced from Denmark and the Netherlands. German slaughter numbers have increased steadily since 2000 and are currently nearly a quarter of total EU slaughter.

Tight profit margins and stringent regulations will force many farmers to stop

In the second half of 2010 and in 2011, increasing competition on the world market for pork and slacking domestic demand is forecast to pressure carcass and piglet prices, and thus lower piglet production.

Also, feed prices are expected to be on a higher level than during 2009 and the first half of 2010.

In addition, a large percentage of pig farms do not yet comply with the EU environmental and animal welfare requirements that will enter into force in 2013 (see Policy section). As margins have been tight since 2007, farmers are reluctant to invest in their farms, and a high percentage is anticipated to stop. This trend is in particular expected to take place in France. The French pig crop was in the downward cycle in 2009 and the trend is expected to continue in 2010 and 2011. While the major competitors – Denmark, Germany and the Netherlands – have restructured their industry, France has not and has lost competitiveness. Germany is expected to further expand in slaughter capacity, while further specialization of breeding is anticipated in Denmark and the Netherlands. The NMS are forecast to remain a good market for piglets. The sector in Poland, Hungary, Romania and the Baltic Region is expected to rebound in 2011. High feed prices could, however, impede this revival.

Pork

Exports are forecast to recover temporarily in 2010

In line with increased slaughtering, EU pork production will rise by 0.4 per cent in 2010.

As domestic pork consumption is stagnating, this additional volume of pork is destined for exports. During the last quarter of 2008 and first quarter of 2009, EU pork exports to Eastern Europe and Asia plummeted, mainly due to the economic recession. In the Semi-Annual Report, a recovery in trade was anticipated in 2010. In this report, the 2010 export volume is revised further upwards from the forecast in the Semi-Annual Report.

Pork exporters benefitted from the economic growth, and thus demand for pork, in Russia and Asia, the low supply from the US and Brazil, and the low value of the Euro and Danish Kroner against the currency of both competitors as well as of customers.

Another factor is the reduction of EU trade of slaughter hogs exports to Russia (see Swine section), which lowered Russian slaughter and pork production. According to industry sources, the limited number of plants still blocked by Russian authorities has no effect on the export capacity of the EU.

Lower supply and increased competition are expected to press exports

In Russia, a low grain crop will possibly result in an increased import demand for pork. Relatively good grain harvests and high grain stocks in the NMS could be a competitive advantage.

Another positive sign for exports is that the EU increased access to the Chinese market. While Denmark, France and Spain already export directly to China, the Netherlands is expected to receive eligibility this year. Even if China reaches self-sufficiency, import demand for pork by-products is expected to grow. However, during the second half of 2010 and during 2011, EU exports are expected to face increased competition on the world market, in particular from Brazil and the US In addition, EU domestic supply is expected to fall due to shrinking margins as feed prices are increasing and EU legislation is requiring more investments. Overall EU pork exports are forecast to drop from 1.68 million metric tons (MMT) in 2010 to 1.55MMT in 2011.

Animal Welfare

Housing requirements for swine

On 1 January 2013, the EU swine sector needs to comply with environmental (Council Directive 2008/1/EC) and animal welfare regulations (Council Directive 2001/88/EC). Council Directive 2008/1/EC sets limits on the ammonia emission of intensive livestock farms and in many cases will require adjustments in animal husbandry and/or investments in air treatment systems. Council Directive 2001/88/EC imposes specific requirements for the housing of pigs related to animal welfare such as introduction of group housing for sows, and the expansion of the living area for weaned piglets and fattening pigs. A large percentage of pig farms do not yet comply with the EU environmental and animal welfare requirements that will enter into force in 2013. As margins have been tight since 2007, farmers are reluctant to invest in their farms, and a high percentage is anticipated to stop.

New animal welfare strategy 2011-2015

The European Commission (EC) is working on the follow-up plan of the Community Action Plan 2006-2010. Key elements for the new plan include upgrading animal welfare standards, introducing standardised welfare indicators and promoting animal welfare on the international scene.

Animal welfare labelling

On 28 October 2009, the EC adopted a report COM(2009) 584 on animal welfare labelling. In this report, a range of issues is presented concerning animal welfare labeling and consumer education campaigns, and the possible establishment of a European Network of Reference Centers for the protection and welfare of animals.

The reports suggest that labels should inform the consumer of the ethical factors related to production and the way animals are treated. With this report, the Commission seeks to facilitate a political discussion with other European institutions, including the Parliament. The outcome of the political debate will function as the basis for a future animal labeling system as part of the Animal Welfare Strategy 2011-2015.

Pig castration

The debate about pig castration is raging in Europe. Several retailers in different Member States (MS) have already banned pork from classically castrated pigs from their shelves. Farmers are gradually applying anesthetics for castration. The most common method is castration under gas anaesthesia. In other EU MS, pigs are slaughtered at lower carcass weights before boar taint develops. While a vaccine for immune-castration has been approved, it is controversial as retailers are not eager to accept pork from vaccinated pigs. EFSA has adopted a Scientific Opinion on the welfare aspects of the castration of piglets. The EFSA report concludes that the use of anesthesia offers the best practical prospects for pain alleviation in piglets. Other options discussed are immuno-castration, specific management practices and genetic selection of animals.

Salmonella in Pigs

The EC is working on a salmonella reduction target in pigs. The EC expects to adopt a proposal by early 2011. On 11 March 2010, EFSA published a Scientific Opinion on a Quantitative Microbiological Risk Assessment of Salmonella in slaughter and breeder pigs, which will serve as basis for the EC reduction targets.

TSE Road Map 2010-2015

In the Agriculture Council of 22 February 2010, Commissioner in charge of Health and Consumer Policy, John Dalli confirmed that the EC was working on a new TSE roadmap for 2010-2015. New proposals would include an increase in the age limit for the testing from 48 to 60 months or to limit the testing requirement only to cattle born before January 1, 2004.

Relaxation of the total ban on animal protein feeding in the EU will likely be another area of interest. See GAIN E50041 - EC planning TSE Roadmap 2010-2015 as decrease in BSE cases continues^[7].

CAP Post-2013

The EU Common Agricultural Policy (CAP) faces a budget-driven reform after 2013, as the current EU budget was set for the 2007 – 2013 financial perspective. The financial crisis is affecting the underlying decision making for the new budget and politicians are now keen to spend greater amounts on climate change, research and development, and employment. As a consequence of the Lisbon Treaty, CAP Reform is now subject to co-decision, meaning the European Council and European Parliament have equal weight in the decision-making process. While no Commission Communication on the post 2013 CAP Reform is anticipated before September 2010, new Agriculture Commissioner Dacian Ciolos has made statements that there would be no reversals of previous CAP reforms.

Further Reading

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September 2010