German pig sector has the necessary headaches

The German pig sector is preparing for the balance sheet. The export growth to China, a rising piglet shortage and the bankruptcy of Vogler Fleisch have had major effects on the Germans. Did the slaughterhouses grow in the past year and what challenges are planned for the coming years?

The year 2016 was a memorable year for the German pig sector. The pig market completely revived as Chinese demand took hold in the market. This phenomenon was also visible on the Dutch market. However, in 2016 there were also signs that could turn out to be negative in the coming years. At least, that's what the slaughterhouses think.

The number of sow farmers has shrunk considerably in recent years. As a result, the pig population is also dwindling. In addition, the approaching legislation and regulations regarding piglet castration creates a lot of uncertainty in the German pig sector.

Tönnies anticipates fewer pigs
For the first time in Tönnies' history, the company is not making a profit from pig slaughter. On balance, the number of pigs slaughtered last year remained stable at 16,2 million. The takeover of the Danish Tican implies that Tönnies is increasingly looking outside the home country.

For example, Tönnies has announced that it wants to grow in countries such as Spain and Russia. That is a logical idea, because it is precisely in those countries that the pig population is growing. In Germany, looking at the shrinking pig population, that growth is not realistic for the time being. That is why Tönnies in Germany mainly tries to work on chain integration and security of supply. 

It is not yet clear whether Tönnies are concerned about the empty slaughter hooks in Germany. However, the company does make this suggestion by increasingly aiming for security of supply. 

Vion, Westfleisch and Danish Crown
2016 was a year of restructuring for Vion Germany. Losing locations were closed and locations with potential were optimized. Despite the restructuring, Vion saw the number of slaughters increase by more than one percent in 2016 to 8,87 million slaughters. 

Also at Westfleisch, the number 3 in Germany, more pigs were slaughtered last year. In total, the counter came to 8 million slaughters. That is a growth of no less than 4 percent. 

In February 2016, the Paderborn site was destroyed by a major fire. As compensation for the slaughter capacity raffled off, the meat company bought a slaughterhouse in Gelsenkirchen. That slaughterhouse has a capacity of 30.000 slaughters per week. All in all, 2016 was a good year for Westfleisch and green figures were again recorded.

Danish Crown achieved the largest percentage growth. The number of slaughters rose by no less than 12 percent to 3 million pigs. Danish Crown is compensating for the lost market share of previous years with this growth.

What will happen in 2017?
A shrinking pig population usually presents a lot of challenges for the slaughterhouses and the meat processing companies. For most slaughterhouses, the capacity utilization is a crucial metric in business operations. Empty slaughter hooks do not cover the costs. 

The sow herd in Germany experienced a significant contraction in 2016, namely more than 5 percent. The pig supply is not expected to be large in the coming period. This statement is based on the shortage of the current piglet market. The piglet supply is also unusually tight in neighboring countries. As a result, prices have climbed to record highs since November.

The current price level on the piglet market, around EUR 60 per piglet, in fact indicates a trend for the pig market. It can therefore become a big job for slaughterhouses to get the slaughter hooks full. Whether it will become a weekly race to get 'each other's pigs' on the hook remains to be seen, of course. It can be said that the cards are currently being shuffled a lot, especially in favor of the pig farmers. Slaughterhouses therefore seem to have no security of supply.

Access to China is crucial
Interest group ISN predicts that in 2017 the German slaughterhouses will have to navigate between a tight supply of pigs and price-conscious buyers on the market. In addition, the meat market usually responds slowly to rising pig prices. This will probably entail challenging market conditions for slaughterhouses. That is why an export license to China is so crucial. The revoked China license also shows why the market leader has tried to slow down the pig market with a boom price.

Incidentally, a number of slaughterhouses and slaughter locations in Germany will probably receive such a China license this year. As a result, the number of export-worthy slaughter locations for the Chinese market will increase. Tönnies also expects to have a China license again in the short term.

Castration ban from 2019
The German pig sector will have a new challenge from 2019 onwards. This challenge will also affect the slaughterhouses. In less than 2 years there will be a prohibition applies to the castration of piglets without anesthesia. Germany is the first country in the European Union to have a clear deadline.

In the run-up to this deadline, the German pig sector still has some major hurdles to overcome. It also remains to be seen how buyers on the meat market will respond to the ban. 

The purport of the legislation is that 3 alternatives remain in Germany, namely: vaccination, anesthesia or no longer castrate at all. Imported piglets from abroad must also meet this German standard from 2019. 

However, where CO2 castration is not allowed in Germany, Dutch legislation does allow this. That causes a lot of confusion in Germany. According to the ISN, the tightened regulations mean that even more sow farmers are throwing in the towel. There is also a fear that German retailers will import more pork from abroad from 2019 onwards. Castration without anesthetic has the effect of increasing costs.

In any case, it is clear that the shortage of pigs is causing a lot of concern at slaughterhouses. The German pig sector will still have a number of challenges ahead in the coming years. These challenges will also have an impact in the Netherlands.

Also read, exclusively for subscribers of Pigs & Feed Pro, this story: DCA BestPigletPrice responds to German surprise† Not a subscriber yet? Click here for the possibilities.

Wouter Job

Wouter Baan is editor-in-chief of Boerenbusiness. He also focuses on dairy, pig and meat markets. He also follows (business) developments within agribusiness and interviews CEOs and policymakers.

w.baan@boerenbusiness. Nl

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