Managing pig production costs key to profitability

A production cost comparison carried out by InterPIG revealsthat countries with a competitive pig industry had production costs around€140-150 per kg.

Pig producers outside Europe (Brazil, Canada and the United States) had a clearly lower production cost level of between €1.00 and €1.10 per kg hot slaughter weight.
Pig producers outside Europe (Brazil, Canada and the United States) had a clearly lower production cost level of between €1.00 and €1.10 per kg hot slaughter weight.

2010 European pig production costs varied greatly with the lowest in France (€1.36 per kg slaughter weight) and the most expensive in the Czech Republic (€1.92 per kg). A production cost comparison carried out by InterPIG reveals that countries with a professional and competitive pig industry had production costs around €1.40-1.50 per kg.

Relatively low costs in France are because of good sow productivity, reasonably priced feed, low manure costs and a good slaughter weight. Pig producers outside Europe (Brazil, Canada and the United States) had a clearly lower production cost level of between €1.00 and €1.10 per kg hot slaughter weight as shown in Figure 1.

As in other years, the Netherlands and Denmark top the sow productivity list. In the Netherlands, 26.5 slaughter pigs are sold annually per sow. Denmark is a close second at 26.2 and France is third with 25.1. Most of the countries in the comparison have between 22 and 24 sold slaughter pigs per sow. At fewer than 21 pigs per sow, the United Kingdom is not quite in last place; that position belongs to the Czech Republic with just over 18 pigs per sow.

Feed conversion rates

The cost of feed has increased greatly once again since 2010. In the Netherlands, animal feed prices rose from approximately €21 per 100 kg in June 2010 to almost €29 in July 2011. The price has fallen again very slightly since then. On average over 2010, the feed price was a little over €22 per 100 kg (the price of the complete feed program for an integrated pig farm). At the feed price level of July 2011, production costs in the Netherlands would not have amounted to €1.40 per kg of slaughter weight but rather €1.64 per kg.

The development of the feed price is comparable for all the countries listed. However, countries with a low feed conversion rate have the advantage that feed costs are rising less sharply. The feed costs in Belgium increased by more than 5 euro cents per kg between 2009 and 2010, whereas those in the Netherlands remained more or less the same. The Netherlands together with Brazil top the list in terms of overall feed conversion rate (i.e. the total quantity of feed at an integrated pig farm divided by the total production in live weight of slaughter pigs).

This overall feed conversion rate amounts to approximately 2.7 as shown in Figure 2. The feed ration in Brazil has a relatively high-energy value, the health status is high and growth promoters are sometimes used. In other countries, the overall feed conversion rate is higher because of lower sow productivity, lower feed conversion rate of the fattening pigs or lower slaughter weight of the fattening pigs.

Feed conversion rates in Italy and the Czech Republic is extremely high. In Italy, this is associated with a high slaughter weight. The pig sector in these countries is extremely sensitive to increases in feed prices because of unfavorable feed efficiency.

Fixed costs

Labor used varies greatly between countries. In the U.S., it is about six hours per ton of slaughter weight (at an integrated farm); in Denmark, the Netherlands and Spain, it is around seven hours per ton. However, in Germany and Belgium, it is approximately nine hours per ton and in France, it is 10 hours.

Labor levels are even higher in other countries, with peaks of 27 hours in Brazil (Santa Catarina) and 52 hours in the Czech Republic. There is a clear link to the cost of labor. In the latter two countries, labor costs are around €4 per hour, while it costs more than €20 per hour in Denmark and the Netherlands. This results in labor costs that vary from 9-euro cents per kg slaughter weight in Brazil (Mato Grosso) to around 15 euro cents in most Western European countries.

To determine pig production costs in Brazil, a distinction has been made between Santa Catarina, the historic pig production area in the southeast part of the country, and Mato Grosso in the west where large-scale integrations produce pigs where feed is produced. Production in Mato Grosso is cheaper than in Santa Catarina, at €1.00 per kg of slaughter weight. The lower production costs are accompanied by higher transport costs for delivering pig meat to population centers or the ports.

Labor costs in Brazil, Canada and the U.S. are all at a similar level. The calculated production costs for these countries, expressed in euros, depend on the exchange rates. The relatively high value of the Brazilian real is unfavorable for exports and for the country’s competitiveness.

Inefficient production costs

The Czech Republic has exceptionally high pig production costs of approx. €1.90 per kg, which is about a third higher than costs in a number of Western European countries. This also explains the shrinking pig population in the Czech Republic. Pig populations are declining in other central and eastern European countries, as well.

The number of slaughter pigs sold per sow in the Czech Republic is just over 18, about a third fewer than in Denmark and the Netherlands. Feed efficiency in the Czech Republic is also much lower.

The overall feed conversion rate (kg feed for all pigs at an integrated farm per kg live slaughter weight) amounts to approximately 4.0 as opposed to 2.7 in the most feed-efficient countries. At current high feed prices, high feed efficiency is of great importance. The feed is however relatively cheap.

Because approximately 6% of the global pork production is traded between continents, the production cost position is primarily of importance within the continents (trading blocks). The major differences in pig production costs between European countries lead to differences in competitiveness. Relatively high costs lead to shrinking production in the longer term.

However, if a pig farmer has high production costs but is able to sell pork at a higher price, there is no problem. That is what happens in Italy, for example, pig production costs are 25% higher than in northwestern Europe, but the heavy hams are a premium product there. The market price compensates for the additional expenses.

In the Netherlands, there has also been a development in recent years towards a higher market standard. Pig production satisfies higher animal-welfare requirements (such as non-castration, increased living surface area, enrichment materials and light) and sells for a slightly higher price than conventionally produced meat. Consumers are prepared to pay more for it.

Pig production costs are only a partial factor determining competitiveness, although they do form an important indicator. Countries that cannot compete on the basis of production costs will have to seek added value upon sale.

However, it remains important to control pig production costs. For instance, at present sharply increased feed costs in Italy are not being sufficiently compensated by the market price, thus placing the pig sector under pressure. It is therefore necessary to control production costs, even in a segment with added value. To this end, both the animal productivity and the feed and labor efficiency need to be further optimized.

 

 

Page 1 of 51
Next Page