Meat market in deadlock
Retail demands the impossible from the pig sector
A pig price above 1,70 euros per kilo. A virtue for some and a necessity for others. The German meat processors are having the greatest difficulty in keeping their heads above water at this price, so they lament: 'The retailers have unrealistic demands, but refuse to pay.'
Pig farmers are also faced with the changing wishes of German retailers. However, the ISN (the representative of the interests of German pig farmers) calls not to fall too quickly for a market concept.
The core of the problem
Germany has about 400 meat processing companies, which produce approximately 1,5 billion kilos of meat products annually. These "sausage makers" are mostly medium-sized companies with long traditions. Together they realize a turnover of 18 billion euros per year. However, due to the high pig price, the water is now on the lips.
The problem lies in the poor negotiating position. Meat processing companies are "poorly" positioned in the chain. On the purchasing side, they have to deal with strongly consolidated slaughterhouses that exercise their market power. The same problem arises in sales. There, the market is determined by a few major players in the retail sector.
Rapidly rising pig prices, while consumer prices remain the same, are at the expense of margins somewhere in the chain. Currently, sausage makers are child of the bill. Sausage makers who supply to discounters in particular are having a hard time. Even dire situations arise.
The German pig price has already risen by more than 20 cents this year to 1,76 euros per kilo. Compared to 2015, the difference is even greater. Meat prices from slaughterhouses are rising, more or less, at the same rate. This means that the sausage makers are confronted with considerably higher purchase prices, while retailers refuse to pull out the wallet. As a result, even 2 German meat processors, including Lutz, have been forced to buy one to file for bankruptcy. Lutz is a former subsidiary of Vion and is seen as a major player.
Price is not the only thing
The problem is that the German discounters refuse to adjust the purchase prices. Especially the Schwarz Group, which Lidl belongs to, invariably rejects price increases. Other companies, including Aldi, have some space. That's just not much. Incidentally, the price is not the only thing that there are struggles about.
The retailers have a wide range of wishes and requirements that are often unrealistic. Requirements about piglet castration, welfare, antibiotic-free and GMO-free feed are imposed under great pressure. Often not a word is said about the additional price. The retailers set strict requirements and adjust the tendering procedures accordingly. The sausage makers and slaughterhouses are therefore more or less obliged to participate in this. In fact, pig farmers can only say 'yes'.
Risks are decent
It is not that the German pig sector is against a change. After all, new markets offer new sales opportunities. However, it is how the changes are enforced. Other wishes sometimes have major consequences for the other parties in the chain, such as sausage makers, slaughterhouses and pig farmers. This is not well accepted by retailers.
According to the ISN, participating in a market program entails risks and uncertainties for pig farmers. An example: Will a supplement for antibiotics-free pigs also remain a supplement in the future, or will treated animals only be reduced and the supplement will disappear?
With long-term agreements, pig farmers can make the wrong choices, while the additional cost is often only limited. According to the ISN, flexibility is a great asset. Practice has proven that pig farmers who bet on one horse do not always come out on top.
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Wouter Job
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