Newly published international pig production cost comparisons in Europe highlight the damage that was inflicted on producers’ profitability when feed grain prices escalated in 2008 and also explore the relative competitiveness of the various European Union countries in producing organic pork.
Year of Pain
To find a graphic illustration that 2008 was a Year of Pain for pig producers internationally, you do not need to look any further than the latest comparison of pig production costs between countries published by the InterPig group of agricultural economists.
Their eighth annual report covers 2008, and highlights the hugely damaging impact on producers’ costs in 11 member states of the European Union that came from unprecedented price levels for feed grains on the world market.
A chart from the European Commission (see Figure 1) shows how EU feed prices followed the global trend by moving sharply upwards in the second half of 2007 and reaching a peak in the early part of 2008. As Figure 2 from the same source confirms, Europe’s pig prices responded to the higher cost only after a delay.
This particular annual analysis from the group was unable to include data from outside the European Union, the most notable absences being Brazil, Canada and the US. However, the comparison has since been extended through a Danish report by also incorporating some costings from Brazilian markets agency Embrapa, Ontario Pork in Canada and US university source Iowa State.
It indicates that the comparable national cost averages to add to Figure 3 would have been approximately 112 Euro cents per kilogram for Brazil, 118 Euro cents for Canadian producers and 117 Euro cents for US units.
In the British version of InterPig results published by BPEX, senior economic analyst Tony Fowler has commented that pig production costs in the European Union in 2008 rose on average by 24% compared with 2007. EU feed costs as an annual average were 18% higher in Euro terms. Even so, he added, 2008 eventually marked the return to profitability of the European pig sector as feed prices weakened in the later months, while further improvements in technical efficiency helped to keep costs down.
How will 2009 look by comparison when the next InterPig assessment appears in the latter part of this year?
Farm economists in Europe have been offering some clues already, such as when Martin Andersson of the Danish Agriculture & Food Council told a European Pig Producers meeting that the average pig production costs per kilogram of carcase in the first six months of 2009 continued to be lower in Brazil, Canada and the US than for the member states of the European Union. Within the EU, costs during that period were lower in Denmark, Spain, France and the Netherlands than in the UK, Ireland and Germany.
Nonetheless, calculations shown by the council's 2009 annual report suggest that producers in all of the countries made losses in the January to June period as feed costs were restored only slowly to lower levels after the high grain prices of 2007/08.
Expressed in terms of US dollars, in Denmark it meant a production cost of slightly over US$2 per kilogram, leaving a negative margin of about 40 cents. For Germany, it gave an average loss of about 44 cents from a production cost of approximately $2.43. The same rate of loss per kilogram was calculated for Canada due to low pig prices, even though the Canadian production cost was lower at around US$1.64.
Danish prices just about covered costs in the third quarter of the year, says Finn Udesen at the agriculture/food council, before margins slipped into the minus zone again in the final three months. On balance, therefore, there had, in fact, been some improvement in profitability in the second six months of 2009.
The Danes have since calculated that their fall in feed prices in 2009 was greater (at 27.9%) than in any other EU country. So they estimate that Denmark achieved the lowest pig production costs in the European Union last year. Their calculation of DKK10.11 per kilogram is shown in Figure 4 as equating to about €1.36 (US$1.89).
As the other national averages on the figure suggest, the dramatic drop in feed prices internationally in 2009 meant big reductions in production costs in each of the countries reviewed. But the Danish assessors point to an apparent narrowing of the cost gap between EU producers and those in North America and Brazil.
Among major reasons, they comment, has been that the feed price last year dropped less in North America than in Europe. With a rising exchange rate for the US dollar preventing any greater fall in grain prices, American feed costs per kilogram carcase weight were only 5% lower in 2009 than in 2008. The overall effect was that the average cost of producing pork in 2009 was only about 33 Euro cents (46 US cents) more per kilogram in Europe than in North America.