Vion wants to arm itself on the global market

What exactly is the advantage of 'Good Farming Balance' for pig farmers, and what is the benefit for Vion?
'The Good Farming Balance system offers pig farmers tools that offer more (price) certainty. Based on a number of new delivery modules and price systems, a pig farmer has the option of realizing a better and more predictable return for himself. In addition to the Vion weekly price, the Vion price index guarantee and the Vion long-term price will be introduced. The more volatile nature of the weekly price, which sometimes causes unrest, can thus be absorbed. This contributes to more calm on the market. The Vion long-term price guarantees price certainty for a period of 12 months, whereby the price is fixed for a period of 3 months. With the current weekly price principle, every pig farmer tries to score as well as possible on the pay table. This promotes uniformity. New markets require different product/market combinations, which is why we now need different types of pigs. Both mature and lean pigs. For example, we can produce specific meat products from different types of pigs that can also be guaranteed to be delivered to our customers in various international sub-markets. Good Farming Balance ensures more diversity of raw materials and continuity of the influx.'

How are pig farmers, traders and other slaughterhouses reacting to the launch of Good Farming Balance?
'Based on our own observation, I can say that pig farmers are generally positively surprised. People are particularly surprised at the scope and structure of the principle. Of course, the idea takes time for some to land, but on balance the response is positive. The entire system is in principle ready, so we expect to get started shortly. The introduction of Good Farming Balance should be seen as a first step towards gradual change, where pig farmers and Vion find each other in long-term supply and payout obligations. I have not yet heard any reaction from other slaughterhouses to our intentions. Our goal with the introduction of Good Farming Balance is to improve the structure. It's not so much an acquisition strategy. An analysis of our supply shows that more than 70 percent of our pigs come from pig farmers who have been supplying us for many years. Ultimately, I think we will move towards a predictable system, in which slaughterhouses make long-term agreements with pig farmers. With Good Farming Balance we take the initiative to offer pig farmers black and white certainty. The role of the trader is certainly not finished by Good Farming Balance. It is true that the agreements take place directly between Vion and the pig farmer. Sometimes there can be a trader in between. That is mainly the choice of the pig farmer.'

Long-term agreements are traditionally not common in the pig sector, why was this approach chosen?
'A system in which agreements between slaughterhouse and pig farmer are fixed for a year is indeed new, both in Europe and beyond. However, if we look at competitors in the various markets, we have to deal with countries such as Spain and America. In these countries, production is often tightly organized in chain integrations, whereby the entire production from piglet to slaughterhouse is in one hand. These integrations usually have a good estimate of their cost price and can therefore easily make long-term agreements with customers. With the current weekly system, we can hardly keep up with that. The volatile pricing carries risks. If Vion wants to be an interesting supplier in international markets, we have to compete with the US and Spain. The level of self-sufficiency in the Netherlands is over 230 percent. This means that almost 60 percent of our Dutch pork production is sold outside the Netherlands. The level of self-sufficiency in the EU is also well above 100 percent, which means that there is great price competition within the EU. The opportunities for Dutch pig farming therefore lie mainly in the world market. Vion accounts for more than 70 percent of Dutch exports to the world market. On balance, we see a lot of future in Dutch pig farming. The quality of Dutch pork is highly valued internationally. Food safety, but also animal welfare, are better safeguarded in the Netherlands than in most other countries. Our production systems are among the best in the world. We can be proud of that. That is why we are starting with Good Farming Balance from an offensive thought, so that we can acquire a stronger international position and put the Dutch pig better on the map. Both we and pig farmers will probably benefit from this.'

Which quotations form the basis for the Vion price index guarantee, European only or also beyond?
'I can't officially comment on that yet. We first present the design of this price system to our suppliers and only then to others. Whether these are only European quotations, I cannot say yet. I can say that these are a number of representative quotations, such as the German pig price for example.'

What are your expectations in the short and medium term with regard to sales in Asia and price formation in the Netherlands?
'Asia is a growth market for us, with sales in China in particular having a major impact on our volumes. Other Asian countries, including Japan and Korea, are also important markets. In 2016, sales to Asia made a huge spurt, but there too people are familiar with the pig cycle. It is therefore not realistic to only count on pluses from China or other Asian countries in the future. There will also be less demand for pork when self-sufficiency increases. We now see that the growth curve of recent years is flattening and expect volumes to hold up reasonably well in the short term. Whether this will remain the case in the future remains to be seen. When Chinese demand declines, it makes sense to expect pig prices to drop. We too will then not be able to wrestle ourselves from the pricing on the world market. This means that the level of our price guarantees will continue to correspond with the market.'