The calculations provide an estimate of the cost of producing a kilogramme of pig meat. This means that as well as being influenced by the price of inputs, they are also affected by how efficiently the inputs are used and how productive the industry is.

Background to calculations – Productivity

A wide range of physical performance data are used within the cost of production calculation. However, there are two key factors which influence the overall cost of production – the amount of pig meat produced per sow per year and the efficiency with which feed is used.

Producing more pig meat per sow means that fixed costs are divided by a larger quantity, thereby reducing the average cost of production. Key factors influencing the amount of pig meat produced per sow per year include:

• The number of litters produced in the year
• The number of piglets born alive in each litter
• The mortality rate, both before and after weaning
• The weight of the pigs when they are sent to slaughter

Feed efficiency is also influenced by a number of factors including the quantity of feed consumed by each sow, how well feed is converted by pigs between weaning and finishing and how quickly these pigs put on weight.

In the past, the physical production indicators have been updated on an annual basis. when the figures used for international comparisons through InterPIG have been finalised.

Physical performance data is now updated on a quarterly basis to reflect an industry average rolling 12 months performance combining indoor and outdoor production system performance.

Background to calculations - Inputs

Among the input costs used in the calculation are:

• Feed
• Breeding (e.g. artificial insemination, gilt purchase)
• Veterinary and medicine
• Energy
• Maintenance
• Levies, insurance and inspection
• Labour
• Interest on working capital
• Financing costs
• Depreciation of fixed assets
• Transportation and other miscellaneous costs

Most of the input costs are updated on an annual basis and we are currently reviewing the sources used to ensure that they are as accurate as possible. However, some elements are updated on a monthly basis. The most important of these is feed prices, which can vary significantly during the year and are by far the largest component of the overall costs. Energy and fuel prices and interest rates are also updated monthly.

Recent changes

AHDB has recently reviewed the methodology used to calculate its monthly cost of production estimates. The calculations are still based on the internationally agreed InterPIG methodology. The main change is that rather than updating the physical performance data annually, it is now being updated on a quarterly basis. Some other changes have been made to the calculations to improve the accuracy of the estimates and all sources of non-feed cost data are currently being reviewed.

Performance data have always been published on the BPEX website each quarter, using data for a rolling 12 month period. The cost of production estimates have now been updated so that historic figures use the quarterly data for the 12 month period ending in that quarter. More recent months use the latest available performance data (the provisional August estimates are based on the 12 months ending in March 2012).

Many aspects of physical performance have improved significantly since 2010. For example, pigs born alive per litter has increased from 11.20 in 2010 to 11.48 in 2011. With around 2.25 litters per year, that is equivalent to over 0.6 extra pigs per sow per year (or around 50kg extra pig meat per sow). There have also been improvements in mortality rates and feed conversion ratios, among other indicators.

The impact of these performance improvements and other changes is to reduce the estimated cost of production. The scale of the reduction varies over time but for the most recent months it is around 10 pence per kg.

Despite these changes, the revised estimates still show that pig producers have been in a lossmaking position since late 2010 and are currently experiencing significant losses on each pig they produce.