The Pig Crisis Begins!

by 5m Editor
19 June 2008, at 8:57am

UK - Feed wheat was 3100 a year ago, then it rose to 3200. Now it has dropped back to 3150. This poses a problem for the industry, which is faced with the task of explaining to retailers, processors and consumers why producers’ costs will not fall back proportionately.

Soya averaged £170 a tonne in the year to September but is currently trading at £285 a tonne and is expected to go to at least £290 a tonne, probably even higher. Other ingredients have also shot up.

  • Fat blend has increased from £300 to £595, which adds an extra £9 to a tonne of pig feed.
  • Phosphate has increased from £198 to £600, adding another £4.
  • Methionine has increased from £1,500 to £3,486, which adds a further £4.70.
  • Vitamin E has increased from £2.50 a kilo to £16, adding £2 to a tonne of feed.

The overall effect on pig production in Britain is that most producers will be paying half as much again for their feed in the next few months, which is why retail prices, and the percentage paid back to producers by processors, needs to increase.

"Retailers must not expect that the industry can now accept a reduction in the pig price."
Andrew Knowles, of BPEX

Throughout the industry’s survival campaign so far, producers have highlighted the £200 increase in the cost of wheat.

What has not been explained — because up to now it hasn’t been necessary — is that any producer who has had to pay the full £200 is no longer with us.

Nearly all producers have faced swingeing increases in feed costs since last August, but most have had fixed term contracts for some feed ingredients, for some of the time.

But most feed contracts will be ending between now and autumn, which means producers are faced with having to lock into the next six or twelve months at higher prices.

As has been reported on this page in recent weeks, around 80 percent of producers would normally have locked into 100 percent of their feed requirements for next year by now.

But because they cannot see any point in committing to a loss, so far only 20 percent (if that) have locked in. Wheat has come down to c.£150 but producers say they need to see it at c.£130 before they will make their move.

This means, in effect, that the real pig industry crisis is only just beginning, and if the pig price doesn’t move forward quickly and substantially, the ten percent sow herd reduction predicted by BPEX will be greater.

Industry campaigners say that retailers need to understand that although feed costs make up about 65pc of pig production costs, wheat makes up only 45pc of a typical pig diet.

Other ingredients include barley (c.20pc), soya (c.15pc) and vitamins and minerals (c.20pc).

“We need to explain that the wheat price may be lower in the coming year but the pig feed price will be unchanged, if not higher, compared to the last nine months,” said Andrew Knowles, of BPEX today.

“Retailers must not expect that the industry can now accept a reduction in the pig price.”

The aim of the Pigs Are Worth It campaign continues to be to seek a rise in prices not as a result of shortage of supply caused by producers quitting, but as a result of the supply chain recognising the costs of raw materials has increased. These costs are likely to remain at at least current level for some time to come.

Last autumn, at a meeting in East Angia, processor John Norris said he had never seen higher costs of production influence the retail price, so there would have to be a reduction in output before the market responded and prices increased sufficiently.

“The fact is that we are now at that point - not just in the United Kingdom but in most of mainland Europe as well,” observed producer Chris Fogden last week.

This is not to say the Pigs Are Worth It campaign has been in vain. Speaking at the same meeting last autumn, BPEX chief executive Mick Sloyan acknowledged that getting better prices ahead of supply shortages was never going to be easy. “But let’s not just admit defeat and leave it to the market. Let’s have a crack at changing their minds in the first place,” he said at the time.

The Pigs Are Worth It campaign has successfully created an environment where prices have risen without (so far) creating consumer resistance. But perhaps its greatest challenge lies ahead...

5m Editor