German pig farmers are still stopping en masse

Since the penultimate census of November 2022, no fewer than 1.000 pig farmers have decided to close their businesses. This means that the pace of business closures remains approximately the same. In the period of one year, 1.900 pig farmers decided to close their businesses. This means that the rate at which pig farmers close their businesses will remain the same over two years. Compared to May 2021, 3.800 pig farmers chose to close down their business.

The contraction of the German pig sector has been going on for some time, but seems to have accelerated considerably in recent years. Over a period of ten years, the number of pig farmers decreased by 43,4% to 12.200.

Aging and legislation
In practice, there are two structural causes for the shrinking pork herd: an aging population and increasingly strict German legislation on livestock farming. Moreover, these two causes contribute to each other. About 42% of all German pig farmers indicated in surveys by the German interest group for pig farmers (ISN) in 2021 that they would close their business within ten years. A frequently heard reason is that pig farmers are about to retire and finding a successor appears to be difficult for most of them.

The fact that many young livestock farmers are reluctant to take over their parents' business is due to a lack of perspective, according to ISN surveys. For example, German animal welfare requirements will be tightened in the coming years. Mandatory free range in farrowing crates and group housing are currently hanging over the market. However, these requirements do not only hinder follow-up. The requirements also mean that many livestock farmers choose to take early retirement. German livestock farmers do not seem prepared to invest large amounts in their company for a few years. 

Low exports due to crises
In addition to this structural cause, two major crises seem to be undermining the confidence of German pig farmers. One of the main reasons for the shrinking pig herd is the African Swine Fever (ASF), which has been hanging over the German market for almost three years. Swine fever appears to have spread slowly from the wild boar population of Eastern Europe to Western Europe. On September 9, 2020, the first wild animal tested positive. Although infections among wild animals do not lead to a mandatory export stop, South Korea and China quickly halted imports from Germany. According to Rabobank, it was still possible to divert pork exports to other destinations just after the export stops.

Initially, Germany seemed reasonably able to sell the lost exports to other markets. German pork exports even increased by 2021% in the first quarter of 6 compared to the previous year. However, those channels soon appeared to dry up. In the second year, exports fell by 14% compared to the previous year. On an annual basis, exports outside the European Union decreased from 1,03 million tons of pork in 2020 to 548.000 tons in 2021. This decline is partly due to export bans from China and South Korea. For example, China exported 2019 tons of pork to the country in 106.000, according to Eurostat figures. Exports to China amounted to no less than 600.000 tons.

In 2022, the invasion of Ukraine was added to this. Due to higher costs for energy and feed, the costs for meat production turned out to be 47% higher on an annual basis. The slaughter price increased during this period from €1,23 to approximately €2, an increase of more than 62%. This seems like a favorable development, but in practice the high price made the German pork sector even less competitive on the world market. The German price is now much higher. The VEZG currently records a record level of €2,50 per kilo. 

Due to the large price increase, exports outside the EU fell further to 2022 tons in 389.000. Both crises clearly leave their mark on German pork exports. In 2020, 2,91 million tonnes of pork was exported. By 2022, exports had fallen to 2,36 million tonnes of pork per year, a drop of almost 19% in two years.

What now?
The fact that both the German pig supply and German demand are currently lagging behind puts German slaughterhouses in a difficult situation. Slaughterhouses are used to spreading the high fixed costs over a large number of slaughter hooks. In order to keep the slaughter hooks as full as possible despite the limited pig supply, slaughterhouses are forced to increase their prices.

Time and time again, the increases are only effective for a short time. To prevent shortages, competitors have so far felt forced to go along with the increases. As a result, the pork market appears to have entered an upward price spiral. However, slaughterhouses indicate that their selling prices can only increase to a limited extent due to lower domestic and foreign demand. Slaughterhouses seem to be forced to downsize. To get out of this spiral, almost all major players in Germany, including: Vion, Danish Crown and Tönnies, in favor of limiting German slaughter capacity.

Yet, slowly but surely, some perspective seems to be emerging. Despite the current contraction, there are some optimistic signs for the German pork sector. Earlier this year, South Korea announced that it would agree to a so-called regionalization plan. Under the plan, the Asian country decides per federal state whether imports from Germany will be allowed. It is expected that China is also about to accept such a plan. The new policy appears to be a result of high pork inflation in both countries. This could allow exports to third countries to rebound considerably.

Rising exports probably mean that slaughterhouses can get a better price for their meat. This creates a better balance compared to the high purchasing price. Due to strict German environmental legislation, it seems unlikely that the pig herd will be able to grow in line with the increased demand in the coming years. As a result, the greater Asian demand appears to be creating a firm floor for pig prices.