“The industry is becoming more consolidated in Spain, moving from a model of relatively small scale farming and processing to one based on larger integrated companies and bigger barns, which will feed into greater production efficiency,” Albert Vernooij, industry analyst at Rabobank, told FeedNavigator.
That market also has a competitive export position and low labor costs and, so, the dynamism in its pork sector seen over the past years is likely to continue, he said.
With ample feed availability, strong gross domestic product (GDP) growth and room to expand in terms of production levels, there are also significant development opportunities for the pig industry in Poland and Romania in the medium to long term, said Vernooij.
But further efficiency improvements, especially at the farming level, and disease control are paramount to both Eastern European countries reaching their potential, said the researcher:
“These two markets have all of the characteristics needed to become top ranking pork manufacturing countries but, evidently, improvements in productivity will take some time. Challenges such as African swine fever have to be tackled first,” he said.
Higher overall production in North Western European countries is hampered by limited land availability, consumers’ opposition to large-scale farming and the rising cost of manure disposal, but ongoing productivity improvements will see production increase slightly, said the analyst. “We expect stable productivity in terms of piglet numbers. However, while steadying in the Netherlands, piglet exports are on the increase in Denmark, a trend that will continue to pressure production there,” said Vernooij.
The Netherlands, he said, will be able to leverage the expansion in slaughter capacity in the past and coming few years.
But he said French pork production is likely to continue its steady decline due to ‘relatively inefficient’ small-scale farming and processing. Sectoral recovery is predicted in Italy and the UK, where there is a growing demand for premium products.
Vernooij said investments in capacity expansion and efficiency can bolster a producer's market position, particularly in countries with insufficient slaughter capacity or expected production growth. He said Tönnies in Rheda in Germany and Van Rooi Meat in the Netherlands are examples of companies that made clear cost-price improvements through expansion and inline production.
He said investing in 'connecting activities' can also strengthen a company's position, citing Spanish firm El Pozo's decision to first integrate downstream into ham production and retail access and then upstream into farming and feed production. Vernooij also reported that Cranswick in the UK developed step by step froma specialised feed producer to a pig slaughterhouse and further processor.
Pork quarterly EU snapshot
Meanwhile, in terms of how the EU pig industry is performing right now, this month’s pork quarterly from Rabobank reported production hovering above domestic demand and an increase in export dependency, with a particular focus now on the Asian import markets.
There is rising margin pressure for the whole pork value chain in Europe, said the report.
And it noted the recent allocation of €300m in aid by the EU Commission for both pig and dairy farmers will not cover the losses experienced by both sectors to date.
EU pork production rose by 5.4% YOY to 13.4m tons (carcass weight equivalent) for the first half of 2015. The analysts said higher slaughter rates and productivity growth of 0.4 piglets per sow will result in stable to slightly higher production in Q4 and Q1 in 2016.
But Vernooij said the sow herd is contracting albeit at a slow rate of 0.6% and this will have an impact down the road.“Combined with lower industry profitability, the reduction in sow numbers will likely see pressure on production from mid-2016 onwards,” he said.
Global production pattern
Meanwhile in the US, there has been modest herd growth and positive consumption patterns, both trends supporting higher feed usage, said Vernooij.
But the pork quarterly flagged up US pork industry wariness when looking at 2016 driven by a high degree of uncertainty over the potential impact of such factors as the strengthening US dollar, the possible resurgence of PEDv, continued supply expansion, retaliatory mCOOL (country of origin labelling) tariffs, and the likely level of exports to China.
Nevertheless, the researchers have a ‘relatively bullish’ view on prices and US pig producer profitability for next year.
In China, Vernooij noted that pork prices softened in September after the summer spike. And herd replenishment has started. “You can see the drop in the sow herd is bottoming out now,” he said.
But the quarterly found the pace of that renewal is still slow. Despite current profitability, many Chinese farmers ‘drained their financial strength in 2014 and early 2015’ so have limited ability to scale up herd numbers at present, said the researchers.
In Brazil, the rapid depreciation of the real and the high price of beef are two trends supporting both domestic and export demand, which in turn supports high prices despite the clear increase in production year to date, reported Rabobank. The analysts said that dynamism is expected to continue in coming months, supporting Brazilian pig farmers’ profitability and further production growth.