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EU-27 Livestock and Products Annual Report 2008

by 5m Editor
1 August 2008, at 12:00am

Prepared by Bob Flach USDA Foreign Agricultural Service, The Hague.

Executive Summary

Swine & Pork: Restructuring of the Pig Sector is Expected to Continue

In 2007, EU pork production increased by nearly five percent to a record production of 22.9 million metric tonnes (MMT). Because carcass prices fell to the five-year average and feed costs surged, profitability in pork production became gradually depressed during the end of 2007. These unfavorable market conditions were most pronounced in Central Europe. In order to support the EU pork sector, the European Commission (EC) opened a Private Storage Aid (PSA) scheme, and increased export refunds. As feed prices are anticipated not to fall to the level of before 2007, margins on fattening will not recover significantly. Due to persistent tight profit margins, restructuring of the intensive pig sector is expected to continue. Restructuring implies termination of the most inefficient farms and thus a further cutback of the pig crop. Due to reduced slaughtering, EU pork production is expected to decline from 22.9 MMT in 2007 to 22.3 MMT in 2008, and to 22.1 MMT in 2009. The tight supply is expected to have a downward effect on pork exports during the second half of 2008. As the competition on the world market intensifies, the main net pork exporting countries are increasingly focusing on the domestic market, in particular Central Europe. Due to the limited domestic supply and increasing popularity of poultry meat, however, EU pork consumption is expected to decline.

Swine

Country EU-27
Commodity Animal Numbers, Swine ('000 Head)
USDA
official
[EU-27]
Posts
estimates
[EU-27]
USDA
official
[EU-27]
Posts
estimates
[EU-27]
USDA
official
[EU-27]
Posts
estimates
[EU-27]
Market Year Begin 2007 2008 2009
TOTAL Beginning Stocks 161,526 161,526 160,000 160,006 0 158,000
Sow Beginning Stocks 15,525 15,570 15,100 14,947 0 14,600
Production (Pig Crop) 262,000 266,000 260,000 259,000 0 257,000
Extra EU-27 imports 2 2 1 1 0 1
TOTAL SUPPLY 423,528 427,528 420,001 419,007 0 415,001
Extra EU-27 exports 972 976 1,000 950 0 900
Total Slaughter 254,000 257,971 251,900 251,900 0 248,500
Loss 8,556 8,575 8,601 8,157 0 8,051
Ending Inventories 160,000 160,006 158,500 158,000 0 157,550
TOTAL DISTRIBUTION 423,528 427,528 420,001 419,007 0 415,001
Source: EU FAS Offices

2007 - Return of the Pig Cycle Induced by High Feed Prices

As anticipated in the previous Annual Report (E47060), profitable pig market conditions in 2006 were stimulating further pig production increases in 2007. During the course of 2007, the EU pig crop increased by 2.6 percent to 266 million, the highest production since 2002 (see graph below). This increase is attributable to growth of the crop in the EU-15, in particular Spain, Germany, Denmark and the Benelux countries. While pig production increased by 2.6 percent, slaughtering increased by 4.4 percent. This can be explained by the fact that piglet production peaked during the last quarter of 2006 and the first quarter of 2007. Because of rising feed costs and carcass prices falling to the five-year average, profitability in pork production became gradually depressed during the end of 2007. These unfavorable market conditions were most pronounced in Central Europe, where feed costs make up a larger portion of the total costs and the scarcity of feed stocks could not be relieved by imports from other continents. Lack of demand for piglets in Central Europe reduced the market price for piglets far below the 5-year average. As a consequence, EU sow numbers fell from 15.6 million to 14.9 million head, a reduction by four percent. The total EU swine stock fell from 161.5 million head to 160 million head, still above the average 2000-2006 stock of 159 million. The swine stock shrank most significantly in Poland namely with nearly 1.2 million head, a reduction by more than six percent.

2008 - Margins on Swine Fattening Expected to Improve During 2008

During 2008, the EU pig crop is expected to decline by 2.6 percent, to about the level of 2006 (see graph below). A reduction is anticipated in the EU-15, in particular in Spain and Denmark, as well as in the New Member States (NMS). The negative margins force the most inefficient farmers to quit throughout the entire EU. Another trend is that small and medium-size farms find it more profitable to concentrate on fattening piglets rather than maintaining an integrated farm. In Poland, swine inventories are expected to continue to trend downward after the already significant reduction in 2007. As a result of the shrinking production and thus increased import demand of pork in mainly the NMS, the price for slaughter hogs increased to the highest level in two years. However, feed prices are expected to remain at a high level mainly due to the high price level of soya. Considering a prolongation of the high carcass prices, and a moderate reduction of feed prices, profitability of fattening is expected to improve in most EU Member States during 2008. Due to the reduced supply, swine slaughter is expected to decline by 2.4 percent. Swine ending inventories in 2008 are forecast at 158 million head.

EU-27 Swine Production
('000 Head)

Source USDA / FAS


2009 - EU Pig Production Not Expected to Recover Due to High Feed Prices

As feed prices are anticipated not to return to the lower level of before 2007, margins on fattening will not increase significantly. Due to these tight profit margins, the restructuring of the intensive pig sector is expected to continue in the NMS. To a lesser extent, this process will also take place in the EU-15. Restructuring will imply termination of the most inefficient farms, and thus an increase in the number of piglets per sow, but overall a cutback of the EU pig crop. As a result, EU pig production and slaughter will decline further (see graph above). Possible exceptions to this trend are the sectors in Romania, Bulgaria, Germany and the Benelux region [Belgium, Netherlands and Luxembourg]. In the NMS-2 [Bulgaria and Romania], farmers could be stimulated to rebuild their pig stocks as a result of a good corn crop in 2008. German, and to a lesser extent Dutch, farmers are forecast to increase their supply of pork as well as piglets for fattening to the NMS. In Denmark, the most efficient farmers strive for expansion but are hampered by environmental regulations. Only after 2009 is Danish production expected to increase.

Pig crop production (Top 5 EU member states) '000 Head
2007 2008 2009
Germany 46,400 47,000 47,400
Spain 41,913 40,000 40,000
Benelux 33,785 33,550 33,450
Denmark 28,879 27,800 27,000
Poland 25,400 22,700 21,300

Swine slaughter (Top 5 EU member states) '000 Head
2007 2008 2009
Germany 53,311 54,100 53,600
Spain 41,634 39,500 40,500
France 25,260 25,250 25,220
Benelux 25,557 25,650 25,550
Poland 25,400 22,850 20,500

Swine exports (Top 5 EU member states) '000 Head
2007 2008 2009
Benelux 384 400 500
Germany 157 140 130
Poland 227 60 100
Lithuania 44 120 80
Austria 69 74 73

Pork

2007 - EU Exports Lost Market Share on the Russian and Japanese Markets

In 2007, EU pork production increased by nearly five percent to a record production of 22.9 MMT. This significant rise is a result of increased slaughtering and an increase in slaughter weight. The higher slaughter weight is partly a trend but is also a result of restricted slaughtering in the UK due to foot and mouth disease (FMD)-related measures, and in Denmark the burning down of two slaughter plants and strikes. The increased supply of pork was tempered by the EU enlargement, which terminated about 100,000 MT of pork imports by Romania and Bulgaria. During 2007, EU pork exports experienced strong competition from Brazilian pork on the Russian market and from US and Canadian pork on the Japanese market (see graph below). In order to support the EU pork sector, the European Commission (EC) opened a Private Storage Aid (PSA) scheme, and increased export refunds (see GAIN Report E47104). The stocks in the PSA scheme reached 99,000 MT before the EC stopped this measure in December 2007. The pork consumption figure in this report is inflated due to increased commercial stocks.

Country EU-27
Commodity Pig meat ('000 Head)(1,000 MT CW)
USDA
official
[EU-27]
Posts
estimates
[EU-27]
USDA
official
[EU-27]
Posts
estimates
[EU-27]
USDA
official
[EU-27]
Posts
estimates
[EU-27]
Market Year Begin 2007 2008 2009
Slaughter (Reference) 254,000 257,971 251,900 251,900 0 248,500
Beginning Stocks 0 0 95 99 0 0
Production 22,600 22,858 22,500 22,300 0 22,100
Extra EU-27 imports 34 34 20 50 0 55
TOTAL SUPPLY 22,634 22,892 22,615 22,449 0 22,155
Extra EU-27 exports 1,282 1,283 1,300 1,300 0 1,280
TOTAL Domestic Use 21,257 21,510 21,315 21,149 0 20,875
Ending Stocks 95 99 0 0 0 0
TOTAL DISTRIBUTION 22,634 22,892 22,615 22,449 0 22,155
Source: EU FAS Offices

2008 and 2009 - EU Pork Exports Expected to Decline During the Second Half of 2008

Due to reduced slaughtering, EU pork production is expected to decline from 22.9 MMT in 2007 to 22.3 MMT in 2008, and to 22.1 MMT in 2009, which is still well above the average 2000-2006 level. Significant reductions are anticipated in Spain, Poland and Denmark. Germany is one of the few member states in which production is expected to increase. Driven by the elevated carcass prices and high Euro/US$ exchange rate, EU pork imports are expected to increase to 50,000 MT. During the first five months of 2008, imports mainly increased from the US and Chile, taking advantage of quotas with reduced tariffs. Despite the fact that EU pork exports increased by nearly 50 percent during the first five months of 2008, the annual export volume is not expected to increase significantly. The export refunds, for most fresh/frozen products €100/MT, were terminated on August 8. In addition, with the lower slaughter and diminished PSA stocks, EU pork supply is tightening. Some pork producers have also been affected by a recent Russian ban reportedly related to incidences with antibiotic residues and Salmonella. As the competition on the world market intensifies, the main net pork exporting countries, mainly the Benelux countries, Denmark and Germany, are increasingly focusing on the European market, in particular Central Europe. Due to increased domestic prices, pork consumption is, however, expected to decline, mainly in the NMS. In Northwestern Europe an important factor for the stagnating pork consumption is the increasing popularity of poultry meat for its leanness and convenience.

EU-27 Pork Exports
(1,000 MT Fresh/Frozen, Carcass Weight)

Source: World Trade Atlas



Pig meat production (Top 5 EU member states) '000 MT
2007 2008 2009
Germany 4,985 5,040 5,000
Spain 3,501 3,250 3,250
Benelux 2,363 2,375 2,365
France 2,031 2,030 2,035
Poland 1,850 1,650 1,520

Pig meat consumption (Top 5 EU member states) '000 MT
2007 2008 2009
Germany 4,708 4,760 4,780
Italy 2,690 2,690 2,690
Spain 2,650 2,680 2,650
France 1,928 1,925 1,930
Poland 1,827 1,700 1,700

Pig meat exports (Top 5 EU member states) '000 MT
2007 2008 2009
Denmark 571 549 550
Benelux 149 167 157
France 109 114 120
Germany 107 115 115
Poland 92 51 80

Policy

The EU’s High Cost Structure

The high cost of production results from European legislation for food safety and “societal” demands on food production. The most notorious are the restrictions on GMOs, strict production methods, environmental restrictions and animal welfare measures. While each of these policies individually only has a limited impact on the production cost structure, their incremental combination has led to a serious cost gap with other world producers. This gap was only enhanced by recent increases in costs of production factors like feed (see graph below), energy and transportation. EU decision-makers are increasingly becoming aware of this problem and several mitigation strategies are being considered. A proven approach is through lobbying in international institutions to increase international food (production) standards. Another potential approach that might come to the forefront again was mentioned by the French government at the end of June 2008, as it was preparing for its stint at the helm of the EU: that Europe should invest more in favoring community preference. The alternative is forcing “reciprocity” of European food production standards upon exporting countries. It is, however, difficult to understand how this rhymes with recent Common Agricultural Policy reforms, including the upcoming Health Check, and negotiations in the WTO Doha round.

Compound Feed Prices
(€ per MT, on farm, the Netherlands)

Source: Dutch Agricultural Research Institute (LEI)


Further Reading

- You can view the full report by clicking here.

August 2008