The supply chain grants have, in particular, been very successful for the businesses involved and also for British pig farming in general; raising the awareness of the industry to consumers, the press and the public in ways that could not have been envisaged beforehand.

Business models: Vertically integrated

This is where all (or predominantly all: processing, compounding, genetic improvement and some farms) of the supply chain is in one ownership. This can bring good overall control to the business, but does require high capital investment that may not easily be adapted to changing market requirements. It also requires expertise in a diverse number of skills. The processor is often the major partner and also controls feed compounding and a proportion of the production. Frequently, the breeding company role has been brought in-house with their own geneticists and breeding programme designed to supply unique products for their consumers.

Again, the veterinary component is supplied by an in-house veterinarian who manages the health strategy for the company. Rendering is also an integral part of an overall animal protein business. This is one area the UK industry has been lacking awareness of, recently coming home to roost with the fiasco of the Fallen Stock Scheme.

Co-operative businesses

The Danes provide an obvious example of a business that is co-operative in nature with many farmer-owners. The co-operative business model potentially cannot react as swiftly to market changes.

A non-co-ordinated supply chain is predominant in the UK situation

There are few benefits for any player in the chain, poor control throughout the chain, poor signals to producers and no process improvement. As a result, UK producers have been driven to become larger to increase or maintain their incomes or face declining returns for those unable to invest.

There has been an increase in farm diversification or direct marketing and – for the successful – an increased market share. The important aspect to remember regarding the UK pork chain is that it affects everyone within the chain. Currently, “highly vertically-integrated” is the buzz phrase which everyone within the UK seems to be claiming. We should not kid ourselves! We’re generally not anywhere near a vertically-integrated company and where there are contracts in place, they are more or less just that, contracts.

The consequences for the UK pork chain, and importantly for ALL the partners in this chain (producers, processors, retailers and allied industries) is that we cannot effectively compete with our competitors who are more integrated. People will say that we are integrated and there are examples of where there is partial co-ordination, but we have to do more than what we are doing. Even the larger businesses in the UK pork chain are not large global businesses. They need to collaborate if they and the UK industry are to compete against overseas competition. The UK is a market without boundaries so it is easy for some sectors within the chain to source product from overseas.

What should we be doing in the UK?

We have to draw upon elements of the vertical integration model and work towards more supplychain integration for the benefit of the whole UK pork chain.

Benefits of scale through collaboration

All producers, processors, feed compounders, and in fact, everyone in the pork chain in the UK, must work together in ways to achieve benefits of scale. Importantly, collaboration must go far beyond just the producers because there is an advantage to all within the chain. For example, there could be rewards from exploring pooled purchasing of utilities and other supplies, such as feed and medicines.

There could even be greater collaboration with other farm species, particularly in responding to regulations. There also has to be an equitable economic benefit for all businesses in the UK pork chain for long-term success and sustainability.

Rationalisation

We like to make things complicated, but what we need to do is to simplify our businesses. Complexity adds cost, time and enormous waste. We need to be managing the process of working with fewer suppliers of feed, genetics, buildings, veterinary advice, medicines and sundries, etc. This is already happening before our very eyes: there are fewer feed, genetics, processing and retail companies! But it needs to be organised.

Innovation and quality

Real involvement by all in the pork chain structure will enable better understanding of each sector of the chain. Better comprehension of each sector’s needs will enhance the innovation that we are able to make. The BPEX R&D strategy is a useful starting point to involve the various sectors of the pork chain and build innovation. Quality? Quality is what the customer perceives. It is only by improving the understanding of each other’s role in the pork chain that we will really deliver quality.

Adding value and lean thinking

The Food Chain Centre and the Red Meat Industry Forum manual “Cutting Costs – Adding Value” provides many examples of continuous improvement programmes. All of these are very useful and probably will become a “must have”. However, if we do not achieve the benefits of the business model that vertical co-ordination brings, we will still not be able to compete with our global competitors.

End Message

There are a number of aspects of vertically integrated operations and improved supply chain collaboration that the UK pork chain increasingly needs to evaluate and exploit. Striving for operational excellence is more than ever imperative, but grasping the right business model is success or failure.

Source: ACMC - March 2006