EU-27 Livestock and Products Semi-Annual Report 2011

by 5m Editor
26 April 2011, at 12:00am

Lower feed prices in the first half of 2010 sparked piglet production and encouraged farmers to slaughter cattle and hogs at higher weights, according to the USDA Foreign Agricultural Service. As a result, the EU’s domestic supply of beef and pork rose significantly during the second half of 2010.

Executive Summary

In 2010, EU piglet production recovered as the sector benefited from the lower feed prices, increased demand for pork in Russia and Asia, and a weak Euro. Following the increase in piglet production, EU slaughter increased during the second half of 2010 and is expected to remain high through the first half of this year. Elevated slaughter numbers and the dioxin crisis in Germany have led to a temporary oversupply, some of which will end up in export channels. During the second half of 2011, slaughter will fall because fewer piglets have been produced and fattened. Currently, many breeders and fatteners face negative margins due to the high feed prices. In addition, a large percentage of pig farms do not yet comply with the EU environmental and animal welfare requirements entering into force in 2013. A number of farmers are expected to exit the business. Under a scenario of continuing high feed prices, the pork supply will fall and will in resulted in reduced exports in 2011.

Animal Numbers, Swine

Piglet production recovered temporarily in 2010

As anticipated in our Annual Livestock Report, EU piglet production recovered in 2010 (see graph below). The upturn took place mainly in Denmark, the Netherlands, the UK and Poland. The Danish and Dutch sector benefited from lower feed prices, increased demand for pork in Russia and Asia, and a weak Euro. In the UK, the low Sterling/Euro exchange rate increased profitability, and farmers responded by increasing sow stocks and piglet production. In Poland, the cutbacks in piglet production in 2008 and 2009 were followed by a recovery of 1.6 percent in 2010. This rebound is supported by better market conditions, lower feed prices, and higher prices for piglets and hogs. Following the increased piglet production, EU slaughter increased during the second half of 2010. Another factor for the elevated slaughter is the reduction of the trade of slaughter hogs to Russia.

Hog restructuring accelerated by high feed prices and the dioxin crisis

A large percentage of pig farms do not yet comply with EU environmental and animal welfare requirements entering into force in 2013 (see Policy section). As margins have been tight since 2007, farmers are reluctant to invest in their farms, and a significant number of farmers are expected to exit the business. This restructuring implies an end to the most inefficient commercial farms throughout the EU and a reduction in backyard farming, in mainly the New Member States (NMS). High feed prices and the fall in slaughter hog prices caused by the recent dioxin crisis in Germany have accelerated this process. In February, carcass prices recovered but remain under the level on which most fatteners in Northwestern Europe could achieve positive margins. As a consequence, the 2011 pig crop forecast is lowered, and the 2011 total and sow slaughter numbers increased over earlier forecasts. Total swine ending stocks for 2011 are lowered accordingly. The negative fattening margins are expected to force farmers to slaughter their animals earlier and at a lower weight. As a consequence slaughter will peak during the first half of 2011. During the second half of 2011, slaughter will fall significantly due to a reduction in the number of animals.

The most significant production cuts are expected in Denmark, Spain, France and the Benelux countries. Although the Danish pig industry is well prepared for the implementation of new EU regulations in 2013, the profitability of the Danish swine sector will be lower during the first months of 2011. Feed costs have increased, while piglet and carcass prices fell more than expected due to the oversupply situation in the EU and the dioxin crisis in Germany. In Belgium and the Netherlands the situation is similar. Also, the Spanish hog sector is facing negative margins as a result of increased production costs and falling carcass prices. French pig producers blame higher feed costs as well as competition from Germany (due to lower labour costs – German slaughters tend to use more immigrant labour) for their decreased production. French producers recently launched an unfair competition complaint against Germany at the EU level.

Piglet production and slaughter is expected to increase in Germany, the UK and Poland. In Germany, the industry hopes that the low prices will soon encourage domestic consumption and exports once the dioxin topic moves out of the media. Increased slaughter will mainly be driven by increased imports of piglets and slaughter hogs from Denmark and the Netherlands. In the UK, the size of the pig herd is expected to further expand, driven by increased breeding efficiency and disease control. The total EU pig herd is forecast to decrease during 2009, 2010 and 2011, respectively by 0.6, 1.2 and 2.7 per cent.

Sustainability and Animal Welfare

Housing requirements for swine

By 1 January 2013, the EU swine sector will need to comply with additional 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 emissions from 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 significant percentage are expected to exit the business. For instance, a study of the Dutch Agricultural Research Center (LEI) did not give exact figures about the impact on the Dutch pork industry but concluded that a double-digit percentage decline in pig numbers is possible before 2013.

Industry initiative for banning pig castration by 2018

On 16 December 2010, the EU pork sector announced an industry initiative to end the surgical castration of pigs, on animal welfare grounds. At the instigation of the EC, various organizations across the entire EU pork industry chain signed a European Declaration on alternatives to surgical castration of pigs [1] . The EU farmers union, Copa-Cogeca and EU associations for meat, veterinary, animal breeding and animal welfare all pledged to collaborate on finding alternatives to castration of pigs. They further pledged to stop all castration of pigs without the use of anaesthesia as of 1 January 2012 and work to have a total ban of the practice by 2018. The EC launched an on-line initiative for endorsing the declaration. [2] This initiative was triggered by concerns that many different initiatives by various retailers and Member States were threatening to break up and divide the EU pork market, leaving the major pork processors with huge logistical problems and costs to handle many different schemes.

The EU Pig Crisis

At a presentation on the difficulties facing pork producers at European Parliament’s Agricultural Committee on February 7, 2011, DGAgri concluded that the EU was “shooting itself in the foot.” The pig crisis was reportedly the result of high production costs, as a consequence of EU policies on biotech (GMO) crops and feeds, and not the result of low pork prices. Many of the current difficulties in the EU pork sector were in fact forecast in a 2007 Commission report titled, ‘Economic Impact of Unapproved GMOs on EU Feed Imports and Livestock Production’ [3]. The EC has formed a special expert committee to study the situation in swine sector and they are expected to finalise recommendations in April.

Animal Disease Situation

Romanian exports of live animals and pork to EU Member States have been prohibited since 2003, when the first outbreaks of Classical Swine Fever (CSF) were reported. In December 2010, Romania received a response from the EC regarding a change in their official disease. In order to resume pork exports, the solution proposed by the EC was to create compartments at the county level for both production and processing. Only those farms/processing plants which are under the strict control of veterinary authorities will be allowed to export pork and other meats to EU Member States.

Commodities: Meat, Swine – Pork

Exports recovered temporarily in 2010

In line with elevated slaughter and a higher slaughter weight than anticipated, 2009, 2010 and 2011 pork production forecasts are adjusted upwards. Domestic consumption is accordingly adjusted higher. In the previous Semi-Annual Report, a recovery in trade was anticipated for 2010. In the Annual and in this report, the 2010 export volume is revised further upwards. 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 Kroner against the currency of both competitors as well as of customers. Another factor is the reduction of the trade in EU slaughter hogs to Russia which lowered Russian slaughter and pork production. According to industry sources, the limited number of plants still blocked by Russian authorities had no effect on the export capacity of the EU. For the year 2011, the Russian quotas are set at the same level as in 2010; 472,100 MT for fresh and frozen pork plus 27,900MT for trimmed pork meat. The EU part of the quota is 225,000 MT.

Dioxin crisis drives temporary oversupply

During the first two months of 2011, commercial stocks are expected to increase as a result of the dioxin crisis in Germany. The dioxin scandal reduced German pork consumption temporary by 10 per cent, and led to short-term closure of some export markets. Of these, only Belarus remains closed. Some other countries, like Russia and South Korea, still require additional documents, dioxin testing, or may impose additional requirements on case-by-case basis.

On 1 February, the EC also opened a PSA programme (Private Storage Aid, see Policy section) to support pork producers. The commercial and PSA stocks will increase mainly in Germany and neighbouring countries; Denmark, the Netherlands and Belgium. The current PSA stocks are estimated at about 150,000MT, and are not expected to expand further as carcass prices rose above the level which is requisite for the PSA. It is anticipated that a part of this temporal oversupply will be made available for exports.

South Korea is a potential growth market as a result of the FMD outbreaks in this country. Producers and traders will certainly try to benefit from the South Korean tariff-free quota of 60,000MT to be imported between January and the end of June. The EC is not planning to grant export restitutions but the price fall of pork EU-wide points to increased competitiveness. Depending on the availability of import licences granted, pork exports to Russia are also expected to increase during the first two months of 2011.

Lower supply are expected to press exports.

Overall, EU domestic supply in 2011 is expected to decline as hog fattening operations will slaughter animals at a lower weight. During the second half of 2011, pork production will fall, as slaughter accelerates and thus peaked during the first half of the year. However, if during the second half of 2011, feed prices decline, hogs will be slaughtered at a higher weight, and pork production could be maintained or even increase.

The forecast in this report is based on feed prices similar to current levels. According this scenario, the lower domestic supply of pork will reduce exports in 2011. Taken over the whole year, EU pork exports are forecast to drop from 1.75MMT in 2010 to 1.55MMT in 2011. Due to the limited domestic supply, and associated price recovery, EU domestic use of pork is forecast to stagnate.

The dioxin crisis in Germany and measures of the EC

In response to the dioxin crisis in Germany (see internal GAIN Reports GM1002 and GM1003), the EC opened a Private Storage Aid (PSA) program on 1 February 2011. The text of the PSA is available online [click here].

Under this programme, contracts for pork storage can be taken for 90, 120 or 150 days. Pork that is stored under these contracts is meant to be exported to third countries out of concern that it would otherwise overload the domestic market later this year. No quantity limit has been set for the program, but because of the requirement that only pork below 103 per cent of the EU reference price is eligible, it is likely increasing prices will forestall further storage contracting. On 23 February, the EC terminated the programme. It is estimated that about 150,000MT of pork has been taken out of the market.

Further Reading

- You can view the full report by clicking here.

April 2011