Interview Rene Veldman
Pig production is shrinking, but there is a future
Rabobank recently published a report on the consequences of African swine fever (ASF) for the European pig market. Although it is logical that much attention is paid to the short-term effects, the presence of ASF can cause structural production shifts and contraction within Europe. We spoke with René Veldman, sector manager Food & Agri, about the report, of which the Dutch version will be published today (25 November), and the implications for our own country, among other things.
After the first finding of ASF in a wild boar in Germany in September 2020, there was a belief that the authorities would succeed in quickly containing the virus disease. It turned out to be a vain hope, especially now that the virus was found last week on a modern pig farm in the province of Meckelenburg - Vorpommern. The short-term effects are clearly present in the form of a deteriorating German export position and thus distressing price formation for producers. At the moment, especially on sow farms, the current account position is 'going well', says Veldman.
In a recently published report, however, Rabobank also points to the possible long-term effects of the presence of AVP in Germany. Production is being restructured. Veldman: "Spain is a big deal, they benefit from a relatively low cost price. The shrinking sector in our region will also have an effect on other parties in the entire chain, such as slaughterhouses and feed suppliers. Processors will have to make more effort to provide sufficient input. This also offers opportunities for primary producers."
On the short term perspective, do you see any signs of recovery or will it only occur with a smaller pig herd?
"In our view, the European Union's degree of self-sufficiency is too high at the moment. This has made our pricing very dependent on exports. We have certainly benefited from this in recent years. However, we also have to be realistic that the enormous quantities that we have been able to export in recent years will probably not be structural in the future - barring temporary revivals - that does not mean that we should stop exporting altogether, but that we should look for a healthy degree of self-sufficiency, or that 115% or 105% nobody knows (current is 127% ed.). The pig cycle is still working and a new balance is being sought between supply and demand. So it means that the production of 'conventional' pork at European level has to be reduced."
Will the number of companies with liquidity problems increase rapidly in the coming months and even lead to a decline in the Dutch pig population?
"Things are going fast at the propagation companies, indeed. However, this does not necessarily mean that companies perform poorly. A large number of entrepreneurs have invested in major maintenance in recent years, which of course has required a considerable amount of liquidity. It is important to sound the alarm in good time. There is no generic policy in this matter, it remains customised, but we can still finance companies that are healthy in the core. I doubt whether the bad situation in the Netherlands will lead to a acute reduction of pig herds However, in the course of next year we will have a new buy-out scheme (National Livestock Termination Scheme ed.), and without market recovery, some pig farms will probably opt to participate in this buy-out."
The report hints at a significant and structural contraction of the German sector?
"The German sector is indeed under heavy pressure. A series of factors is causing low margins for farmers, but also for processing companies. We have to think of the impact of corona, the availability and costs of labour, stricter animal welfare requirements and high feed costs. All of them have a significant impact. Apart from the possible weakening consequences of the corona impact, we foresee that they will continue to cause pressure on margins for the other factors in the coming years. In view of the healthier European self-sufficiency rate, we therefore foresee a contraction in Germany in particular , Eastern Europe and probably also our country. In addition to the negatively developing cost picture, the presence of AVP is causing a worsening German export position. We saw last year after the first outbreak that the country's volumes, although at lower prices, were reasonable within Europe. However, now that China has been demanding less pork since this spring and the European market is filling up with meat from other suppliers is even more difficult for the Germans."
The report hints at opportunities for the Netherlands, can you explain this?
"I have to say that this is a bit twofold. The lost volumes from Germany to China have also been filled by Spain. Moreover, the Chinese demand has largely disappeared, so that we as the Netherlands can no longer benefit from this. However, we have the idea that the African swine fever situation in China is not yet fully under control. We expect a temporary revival in Chinese buying interest by the middle of next year. At that time, as a domestic sector, we are in a good position to meet this demand We foresee, however, in the medium term, opportunities for Dutch companies to serve certain international markets with more added value.Especially because the situation regarding ASF in Germany will probably last a long time, countries such as the Netherlands will also be able to meet this demand better in the long term. ."
Next year there is only a temporary rebound in Chinese demand?
"We do indeed foresee a more stable situation in China in the longer term. The need to import meat will therefore decrease again next year after a possible temporary recovery. That is why we emphasize once again the importance for producers to aim added value."
The report also states that we can learn lessons from the situation in Belgium. Which?
"In the case of Belgium, it shows how important it is that everyone in the sector, but also nature managers are aware of the situation. Belgium has managed to prevent the virus from spreading by very rapid detection of the first cadavers and by taking the right measures. far. Everyone has a responsibility to act quickly in the event of a suspicion. Better ten false alarms than not recognizing a real case just that one time."
So is there still a future for pig farming?
"Absolutely. We also see a large group of companies within our own country that are able to produce for very low costs. This group will certainly be able to continue to operate for the European middle segment. Moreover, a contraction will create new dynamics for companies further down the chain. It will become increasingly important for parties to bind suppliers for the longer term in order to be sure of sufficient input, which may also provide opportunities for primary producers. If we can still partly add value, there is still plenty of room for our pig farms in the future."
Steve Wissink
© DCA Market Intelligence. This market information is subject to copyright. It is not permitted to reproduce, distribute, disseminate or make the content available to third parties for compensation, in any form, without the express written permission of DCA Market Intelligence.
