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BPEX Export Bulletin - May 2011: Week 21

by 5m Editor
2 June 2011, at 12:00am

The British Pig Executive's (BPEX) Export Bulletin for May 2011 reports pig industry trends from around the world.

The four largest British pork processors representing 70 per cent of UK slaughtering will be present at the CIMIE meat exhibition in Beijing next week, an event co-hosted by BPEX and EBLEX. The UK total delegation will count 20 people and shows that the UK meat sector is taking the huge Chinese market seriously.

In parallel, the second Global Pig Forum took place in Qingdao before the CAHE exhibition. Some 20 speeches and presentations including a review of UK genetic developments allowed a good overview of the potential and challenges of Chinese pig production. The main points are resumed below and in the text and a special end section.

The pig world is increasingly linked to China. Half the world pork is already produced there and the Far East will provide 70 per cent of the 1.9 per cent production growth in years to come, with China and, to a lesser extent, Vietnam providing the bulk of the extra pigs.

As far EU pork exports to China analysts are concerned, analysts are optimistic. Chinese production is still inefficient and not competitive against the EU particularly as feed prices have risen. The EU is also able to undercut Chinese offal and low value cuts, fats and bones as it is getting a high price for lean meat on local markets. This is not only a technical, food chain or capital issue (although, technical results even in the top 15 per cent of farms still need improving, the pork chain is inefficient and many units, even new ones, have under-invested) this is a management issue, probably the hardest to deal with. The pig health problems look also intractable. Although, there is no doubt that Chinese pig production will experience a revolution over the next ten years, some analysts go as far to say that the gap with EU production may even widen.

EU

Market management proposal for the ‘enlarged’ pig committee

The Belgian delegation presented a specific proposal to complement the existing instruments (export refunds, private storage) with a compensation mechanism for falling margins. This proposal was rejected by most of the participants, arguing that the mechanism would lead to, other things equal, a higher level of production, prolonging the crisis, and could be burdensome to administer. Other suggestions include amendments of the single CMO so as to streamline pig meat with the other meats to include pig meat under Article 45 (loss of consumer confidence) and in Article 186a (disturbance clause), maintaining the export refund instrument until trading partners agree to eliminate their own export support mechanisms, creating a 'European Observatory of Cost and Margins for the Pigmeat Sector', setting up an EU protein plan and creating a stabilisation mechanism in order to limit extreme price volatility, re-authorising non-ruminant processed animal proteins (PAPs) in feed for monogastrics. The Commission expect to consider many measures for this sector in the framework of the future CAP, notably put in place a mechanism to better anticipate the crises, reinforce the promotion in the EU and outside the EU and try to better balance the power of producers in this sector. However, some member states considered that the conclusions of the enlarged advisory group do not provide sufficient concrete replies to the causes of the crisis in this sector.

Denmark

Market

On the European market fresh legs are sold at falling prices. The same applies to collars, loins and shoulders (production meat). The falling prices are due to declining demand following the deteriorating weather situation and uncertainty in the market in relation to the private storage scheme. The impact will be two to three per cent additional supply over the next weeks. There is a stable trade and an unchanged price level to the British bacon market. With respect to markets outside the EU the market situation remains unchanged compared to the latest weeks. The market for sow meat is also affected by the uncertain atmosphere in Europe, and prices are sagging.
(Sources, Danish Crown, Tican, Danish Agriculture & Food Council)

JBS has increasing earnings

The global number one meat producer JBS, which is situated in Brazil, publishes a profit of Ron$148 million during the first quarter of 2010. It is an increase of 48 per cent compared to the same period the preceding year. The turnover increased by 20 per cent to Ron$12.2 billion. All units of the business had double digit growth rates.
(Markedsnyt for svinekød)

Danish Slaughterhouses - payments week commencing 23 May 2011
Slaughterhouse Danish Crown Tican
Slaughter pigs (70.0-86.9kg)
Difference to last week
Euro 1.307
Unchanged
Euro 1.307
Unchanged
Sows (Above 129.9 kg)
Difference to last week
Euro 0,935
-0.067
Euro 0,935
-0.067
Boars (Above 109.9 kg)
Difference to last week
Euro 0.735
-0.067
Euro 0.735
-0.067

France

No to price index of agricultural products

The President of the French federation of charcuterie processors in France did not accept an agreement suggested by the French Minister of Agriculture in view of negotiating animal feed prices when they increase too much (by 10 per cent). Although the French farmers’ union (FNSEA), the meat industry and the retailers’ federation did sign the proposal, Robert Volut believes the market forces function well and such a measure would reduce the competitiveness of the French charcuterie processors compared with their European competitors. Mr Volut believes the LME (Modernisation Economical Law) allowing the price of raw material to be fixed by the vendor operates as an efficient and sufficient mechanism, he also added that the LME includes a clause allowing a revision of prices when the increase is too high. The indexation of raw material could also threat the margin of processors who, in average, work with a net margin of 1.2 per cent (over the last five years).

Another issue is the contractualisation included in the French LMA (Modernisation Agricultural Law) which, according to Mr Volut, is not adapted to an industry which operators buy raw material at a price which varies on a weekly basis. Finally, Mr Volut believes the know-how of French charcuterie processors who produce 450 different recipes is, with Germany and Italy, one of the most important in Europe also their technology and packaging are very sophisticated. Today, the Federation is not engaged in the VPF scheme, which is a private initiative, Mr Volut believes a product is French when it is manufactured in France and as far as fresh pig meat is concerned the French ‘charcutiers’ specify French or EU origin without using the VPF logo.

Pigs

The tendency will remain the same in this end of the week, in France and for its neighbours. Only the weakness of the offers in the South could contain the drop of the prices. June is expected to be better.

Cuts

The market of the meat remains low. The offers are stable from day to day and fit the needs of the moment. The price difference with our neighbours continues to penalise its origin for export. Retailers’ need for cuts could be higher next week.

Pork prices RUNGIS week commencing 23 May 2011
Cut name Price range (Euro/kg)
Back fat, rind-on 0.50
Trimmings 1.25
Leg 2.28
Loin including chump 3.01
Loin excluding chump 2.70
Belly extra without trimmings 2.46

Germany

Market

On the wholesale markets, hopes are set on demand to increase before the weekend, when sales of barbecue products should strengthen. For industrial marketers, the quotations over the last two weeks have been disastrous. Both pressure on prices as well as very low demand lead to record-breaking negative results.
(Source, AMI)

Dioxin crisis – financial impact

Pig meat producers have suffered most from the recent dioxin scandal. According to the Lower Saxony Chamber of Agriculture, market related reductions in prices that were experienced until the end of January have caused damages in the estimated amount of €100 million, a quarter of which are to be ascribed to the pork-producing sector. Resulting costs and damage to the industry's reputation persist.
(Source, ISN)

Pork Prices Hamburg Market Week commencing 23 May 2011
Cut Name Price range (€/kg)
Round cut leg 2.30/2.40
Leg (boneless, rindless max fat level 3mm) 3.20/3.35
Boneless Shoulder 2.40/2.55
Picnic Shoulder 1.95/2.15
Collar 2.45/2.60
Belly (bone in, ex-breast) 2.15/2.30
Sheet Boned Belly (rindless) 2.00/2.30
Jowl 1.20/1.35
Half Pig Carcasses U class. 1.92/2.02

The Netherlands

Change in sow slaughter

Dutch sows are increasingly exported live to Germany. In 2010, out of 506,000 sows, 329,000 were shipped live whilst 177,000 were slaughtered in the Netherlands. The total number of sows culled has increased from 378,000 in 2004. This would indicate a shorter productive life.

Vion's revenue stable

In 2010, Vion Food Group has focused on the implementation of its long-term strategy ‘Balancing the Future’. With a revenue stabilised on previous year's level of €8.9 billion, the group net income totalled €80 million, which represents 0.9 per cent of the turnover. Vion Food has strengthened its position on the export market as well as on the British market for poultry and the Dutch and German market for beef. The pig meat business, however, has proved very competitive again.
(Source, afz)

Spain

Difficult market for meat products

With domestic consumption stagnating, dragged down by the fall of sales in the HORECA sector and only holding up at the expense of lower prices, exports offer the only solace. Many companies are focusing on exports like Embutidos Turon, Jamón Salamanca, el grupo Osborne, Embotits Espina y Cárnicas Serrano. However, retail distribution still remains fundamental to the industry. Companies remain committed to innovation such as specific formats for the modern distribution, like pre-sliced and minis.

Pork prices Barcelona Market Week Commencing 23 May 2011
Cut Name Price range (€/kg)
Carcasses (secondary grade) 1,684/1,690
Gerona Loin Chops 2,43/2,46
Loin Eye Muscle 3,49/3,52
Spare Ribs 2,76/2,79
Fillets 5,83/5,86
Round Cut Legs 2,84/2,87
Cooked Ham 2,20/2,23
Rindless Picnic Shoulder 1,60/1,63
Belly 1,85/1,88
Smoked Belly with Spare Rib Section Cut off 2,28/2,31
Shoulder chap or Head Jowls 0,96/0,99
Back Fat, rindless 0,73/0,76

Italy

Producers in difficulty

As an example of the difficulties facing Italian pig farmers, Avogadri, one of the best producers with 3,000 sows is reported to face financial trouble.

Sweden

The ‘grisekroner’

Supermarket group, Citygross, is awarding its pig suppliers an extra one krona (SKK; 9.7p) per kilo to help them over these tough times.
(Source, Markedsnyt)

Russia

Russia hopes to move away from the import of pork

Russia plans to completely abandon the import of pork by 2020. This year the percentage of imports is expected to drop to 22 per cent. The tendency of decline in the consumption of foreign pork has been observed within recent years. In 2008, the share of imported pork on the Russian market was 32.1 per cent and in 2010, it dropped to 25 per cent. At the same time, consumption of pork in Russia is growing every year. In 2010, the consumption of pork per person totalled 22kg. Pork continues to be very popular among Russians. According to official figures, more than 90 per cent of the population consumes pork. The Ministry of Agriculture of the Russian Federation and the National Union of Pig breeders have developed a program for the Russian pork industry, the implementation of which will satisfy the needs of the domestic market by 2020. Analysts predict a rise in pig population by up to 23.3 million animals in 2012.
(Source, pigua.info)

Pork Prices Saint-Petersburg (Russia) Market Week commencing 23 May 2011
Cut Name Price Range (€/kg)
Ham (boneless, imported) 3.96
Pig chuck (boneless, imported) 3.84
Offal (heart) 1.69

Ukraine

Russian market has saved Ukrainian pig industry

In 2011, Ukrainian export of pork is one of the few industries that show a sharp rise. And most of the Ukrainian pork has been bought by Russians. Alexander Yaroslavskiy, Deputy Director General of the Ukrainian Agrarian Confederation, reported that in the first quarter of 2011, Ukraine exported 4,300 tons of pork, and virtually the entire amount was purchased by Russia. According to him, this development of the market situation was quite predictable as the growth rate of pork production in Ukraine beat all records. "But the domestic market could not consume such a volume and the purchase prices for pigs dropped, the enterprises engaged in growing pigs in 2010 suffered from financial losses. In this situation, the only salvation for the industry was increasing exports," said the expert. UAC predicted this situation last autumn. Mr Yaroslavskiy added: "The foreign market will not be able to buy all surplus of pork on the domestic market but the trend is sharply upward." According to the deputy director of UAC, the trend of the substitution of import by domestic meat continues. So, in January-March 2011, imports of pork dropped by 50 per cent from the same period in 2010. In addition, the import of sub-products increased by 12 per cent, which confirms the increasing demand of processing enterprises in low-grade, relatively cheap raw materials.
(Source, rosbalt.ru)

Belarus

Ban on pork from Russian Vladimir region

Belarus has introduced a temporary ban on the import of pork from the Vladimir region of Russia. The reason for the ban is the confirmation of cases of classical swine fever in the region. It is prohibited to import live pigs, semen, boars, pork meat and processed products, animal feed and feed additives of animal origin, as well as feed and feed supplements for dogs and cats, made from raw material origin of the Vladimir region.
(Source, agroperspectiva.com)

China

Profitable production

The CAHE exhibition that took place in Qingdao last month, supported by BPEX and BPA, provided a lot of bustle and talks of expansion. With prices of €1.65/kg, producers are making money and are smiling despite the issues of feed costs and productivity. Obviously, this is prime time for sales of genetics and the five major UK players reported brisk business.

Competition: French model farm

Chinese investors are behind the development of a pilot pig farm with French genetics, engineering and management near Beijing, and with staff trained in France. If the technical results follow, the model could be rolled out to more farms. This is a good example to follow for the British pig sector.

Competition: Danbred’s expansion

The Danish breeder now has three nucleus farms including Shanghai and Guangzhou. They plan a steady rate of expansion in China. They admit piglet and store pig survival issues and have been working to resolve it over the last three years.

Competition: Dutch presence

Topigs, the major pig breeder has joined well-known names Nutreco, Vion, Schippers amongst eight companies in a powerful consortium named 'Orange Pig'. They look to offer integrated solutions for producer, a goal also sought by the Danes.

Company news

Cofco, the major food processor with nine divisions including meat, trading and by-products, has now breeding units in Yangsu, Pearl River delta and Hubei and work on an integrated model. It claims 20,000 sows, uses US and PIC genetics and has a partnership agreement with Smithfield Foods. Guandong Wen–BBSC has now 30,000 employees including 230 in the technical team. It operates 123 pig farms, 73 feed mills as well production of broilers and ducks. The company produces currently 5.05 million pigs and plans to increase to 13.6 million by 2014, assuming current rate of growth. They use US genetics for a technical result of 21 slaughter pigs/sow/year and a FCR of 2.9. Tiansow produces breeding pigs using Canadian, US and also some UK genetics from nucleus farms including in Yangsu and Shengu. Productivity is also 21 slaughter pigs per sow per year. Rhizao Shangdong owns a 1,500-sow nucleus unit in the named province with a high reputation for its Large White and Duroc lines sold all over China. They are planning further expansion. Fujian Yunin Agriculture is planning a new nucleus of 1,500 sows.

FMD

A new outbreak of foot and mouth disease was reported in Xintu.

Taiwan

Xiamen Guoshou is expanding

The group was present at the Global Pig Forum and has ambitious plans for development in pig breeding. See www.xmgszz.com

CHINA UPDATE

Trade

Producers are enjoying a period of high prices and all the large integrated producers have expansion plans in place. Meanwhile, processors faced with high pig prices report falling margins from £6.00 per pig to £1.86 per pig and are currently haemorrhaging money (Source, China Business News). The amount of pork imported to China in 2010 rose to 200,000 tonnes plus 700,000 tonnes of offal. Although imports remain relatively small, they allow the Chinese market to function more flexibly. Regarding genetics, some 3,000 pigs were imported last year.

Production issues

The major issue facing the Chinese pig sector is productivity. The unofficial average number of pigs produced per sow per year is still 16.7. Even the best, modern producers only achieve 21 to 22. There are many issues to be resolved: very poor pig health, poor feed conversion (a major handicap with rising feed prices), poor quality of some of the investment and, above all, lack of professional managers at farm level. Although, there are well-trained and qualified pig farmers, some with university degrees, most young people that have left the countryside do not want a career in pig farming and the quality of the rural work-force left poses problems. In addition, environment issues that were not considered important only five years ago are gaining prominence. Productivity is linked to environment. To give an example of the potential for improvement: if the Chinese were raising pigs with Danish productivity, this would save an astronomical 25 million tonnes of feed. Finally, live transport issues are coming to the fore. An increasing number of pigs such as those produced in the North now face journey times of 1,000km, creating issues of loss of value and quality, and ultimately of animal welfare.

Red revolution?

A striking number from China ‘pig revolution’ which should change Chinese pig production over the next 10 years: out of 21,000 abattoirs slaughtering pigs in 2010, only 3,000 will remain in 2020, states the government.

Three leaders emerging

Muyan, Shinaway and Peoples’ Foods are emerging as China’s pork leaders. With their rate of growth, they will join the world leaders from Europe, the US and Brazil over the next five years. Zhongpin now investing heavily in Henan province may join the group. Shineway shares lost more than 10 per cent on the Shenzhen Exchange due to the clenbuterol scandal. Losses are estimated of the order of £1.1 billion. and brand reputation has been damaged.

Pork marketing still underdeveloped

‘Modern’ pork marketing is making only modest inroads in China. ‘Wet markets’ still represent 68 per cent of pork marketing, chilled pork, 17 per cent and processed pork, 10 per cent. Pork presented chilled in supermarket is poised to grow by 15-20 per cent per year over the next few years.

Major drives of pork consumption

Pork consumption rise shows as follows: 2005 – 95 g/day, 2010 – 105 g/day, 2015 – 108 g/day, 2020 - 110 g/day. Growth of output is expected through a joint increase of slaughter numbers and slaughter weights. The increase of population to 1.41 billion over the next few years will play a part, so will the rate of urbanisation. People in cities consume more pork and 12 million still leave the countryside to work in towns every year. For instance, the number of town above one million inhabitants will grow to 221 by 2025. Rising incomes in rural areas will also have a major effect on growth as the gap in consumption between rural and urban areas will narrow. On the other hand, the ageing of the population will have a negative effect, as the elderly consume 30kg/person/year against 39kg for the average Chinese. Although, milk remains the food most feared by the Chinese, nearly half of the Chinese population express concern for the safety of pork due to the recent clenbuterol scandal. Another scandal involves pork soaked in borax and sold as beef(!). Excessive amounts of nitrites in cured meats and heavy metals residues are another issue. In parallel, rising interest for organic food is reported. For instance, one chain of organic shops with 20 stores in major cities quotes a growth of 35 per cent per year.
(Sources, Professor Wang Jun, Zhongshan Un., New York Times, various)

Growth, income and consumption

Incomes are rising. However, this covers a wide range of situations with some regions in the interior remaining very poor. Despite pockets of high wealth, China only ranks 124th for GDP per head in the world. Also, the 12th five-year plan (2010-2015) aims to correct the excessive reliance of economic growth on investment and export towards consumption, which is lagging as a proportion of GDP when compared with most developed countries and even declining, according to Chi Fulin of Hainan-based Institute for Reform and Development.

“Consumption, investment and exports are seen as the holy trinity of sustainable economic growth. China has lacked balance between these three key growth engines for most of its history, with exports and investment constantly picking up the slack created by lukewarm consumer confidence” writes Li Jinglei in China Weekly. Statistics show that China’s labour remuneration declined to 39.7 per cent of GDP in 2007 from 51.2 per cent in 1994. The contribution of investment to GDP growth went from 55 per cent in 2009 to 95 per cent in 2010. Nonetheless, household consumption is still rising by 14 per cent per year. This means a considerable potential for higher consumption in general and meat consumption in particular. For example, car sales are up 30.5 per cent and German car sales have doubled this year. However, the root of the problem is that Chinese remain spendthrift. According to a recent survey, 85.8 per cent of Chinese lean towards saving whilst 14.2 per cent “are more inclined towards spending”.
(Sources, China Daily, China Weekly)

June 2011