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Why the UK pig industry is losing millions

22nd May 2019 / By Alistair Driver

The UK pig industry is losing millions of pounds each month on the back of the failure of pig prices to rise in line with those seen across the EU.

The NPA is being contacted on a daily basis by angry and frustrated pig farmers, who feel they are being treated unfairly by UK pork processors.

The last few weeks have seen a few pennies added to the UK price but despite protestations of low demand and product in storage, this is still far below what would be expected given current global market conditions. The SPP averaged just below 143p/kg in the week ended May 11 – still 4p below a year ago and less than 5p above the early-February figure. 

In contrast, the EU reference price has rocketed by 30p/kg since early February to stand at nearly 147p/kg in mid-May, with major increases seen in all the big pig producing countries. This has been largely driven by increased export demand from Asia, where African swine fever has left huge holes in production. The stark contrast in EU and UK pork prices is illustrated below. 

EU UK prices May 22

The real differential between average UK and EU prices will be larger than the 4p this suggests due to differences in how the published EU and UK figures are calculated. UK levies and haulage costs, plus the difference between hot and cold prices means you can add at least another 10/kg to that differential, NPA chairman Richard Lister said. 

The failure of the UK price to come anywhere the EU equivalent means UK producers are losing millions of pounds each month at a time when they can least afford it.

In the last quarter of 2018, AHDB figures showed producers were typically losing £7/head. Average prices have fallen by a few pence during the first quarter of 2019 and into the second, suggesting these losses will have been growing – and sustained over a long period.

So why aren’t prices rising?

The increases producers assumed were on the way on the back of higher EU prices have simply not materialised.

According to Tulip’s Andrew Saunders, processors have been making their way through thousands of tonnes of pigmeat shoved into cold stores in the first three months of the year in anticipation of Brexit disruption that never came. That has dampened prices, he said, also referring to weak demand. But the increases will come, he added, without putting a timescale on it.

For many producers, this explanation does not give the full picture. Producers have noted, for example, the news that Cranswick posted profits of nearly £90 million in 2018/19, helped by a surge in exports to Asia in the early part of this year. 

NPA view

Zoe Davies1NPA Chief Executive Zoe Davies said: “What I don’t understand is why processors weren’t having the same conversations with retailers about UK product that their EU counterparts were having weeks ago on the expected price increases.

“There also appears to have been little effort made to attract lucrative business from food service companies who are also feeling the pinch, seeing as they import most of the product that they sell through restaurant and catering outlets. The processors could have made a killing here if they were canny enough. 

“This isn’t your typical EU rapid price rise followed by a crash that we have seen many times before – this is an unprecedented event that will continue for as long as ASF continues to run out of control and the Chinese public still wants to buy pork.”

Catching up to do

Lister 6Richard added said: “There is a lot of catching up to do. Tomorrow is just not good enough. We should be getting more now.

“We have spent the last 10 years being told the price can’t go up further because Europe is too far behind. There is no premium now and Europe is well ahead of us, but we are now told prices can’t go up for another multiple set of reasons, from Brexit and the inability to empty stores to weak demand and a lack of China certification. It is very difficult to know what to believe and where we stand.

“The pitiful price increases seen by the UK’s pig farmers seems at odds with national media reporting of ‘rocketing pork and bacon prices’. As the rest of the EU’s pig producers return to profitability on the back of China’s escalating ASF problems, pig producers in the UK continue to face mounting debts and increased borrowing.

“The level of frustration and anger continues to grow – the reassurances that increases are around the corner mean very little. These losses won’t be recovered. I am having a lot of conversations with producers who want to talk about exactly what we can do remedy the situation.”

What producers have said…

“Whatever the reason for the slow response in pig price, we can all agree something does not seem right. If nothing else, it highlights the inability of our pricing mechanisms and contracts to respond to market movements.”

Lee Chafer

“We used to have a pretty good response to this sort of thing!! is it time to start shorting pigs again?! Just asking.”

Ellen Furby

“The situation is frustrating and unnecessary. More importantly, it is holding back much needed investment at farm level.”

Meryl Ward

See the NPA forum for more producer comment