The problem for pork

But if this is the case, why has the same institution also indicated that EU pig production could decline by a staggering 1.2mt over the next decade? Analysts claim that financial impediments, extensive regulation and the potential abolition of some import levies could be to blame for the predicted decline in production.

In the UK, we have seen producers demonstrate over the divergence between value and volume. They claim that they see the sales of pork increasing but, on the other hand, their returns are diminishing. At the start of the year, pig producers protested on the steps of Downing Street as part of the ‘Pigs are still worth it’ campaign. At that point, it was claimed that producers were losing in the region of £22 per pig — a figure that has since declined — but the campaign seems to have gathered pace. Stewart Houston, chairman of the National Pig Association (NPA), has written to all the major supermarket retailers reminding them of their corporate and social responsibility pledges. This has been backed up by a campaign of letters by producers and a recent demonstration outside the Tesco AGM.

Most recently, the deadweight average pig price (DAPP) increased by 0.5p (in the week ended 2 July) to 152.9p/kg dw. The average price of pigs weighing 70-79.9kg increased by almost 1p to 154.1p/kg. However, as a recent AHDB market report states: “Although at this level the DAPP was almost 4% higher than a year ago, prices remain below the cost of production at 161p/kg. If prices were to remain at current levels, producers would lose around £7 per pig.”

Figures from Kantar Worldpanel show that the fresh pork market was worth £809m in the 52 weeks to 12 June 2011, but value sales were flat in the category, while volumes improved by 2.8%. The reason for the divergence? Discounting. And so, akin to the Sound of Music tune ‘How Do You Solve a Problem Like Maria?’, a number of the industry now sing along to the tune ‘How Do You Solve a Problem like Discounting?’.

As Simon Parnell, analyst at Kantar Worldpanel, says: “The average price paid per kilogram in the pork category has fallen by 2.7% in the last year, which has restricted value sales growth. A change in the category’s promotional mix has contributed to the falling prices. Thirty-eight per cent of pork volume was purchased on promotion in the last year, but importantly a greater proportion of sales has been bought on Y-for-£X deals. These heavier volume-based mechanics encourage shoppers to buy in greater quantities at a reduced price.”

According to Matthew Southam, insight manager at AHDB, these promotions are becoming ingrained in the consumer’s psyche and this will cause problems in changing the model. He says that although the country is officially out of recession, consumers are just now beginning to feel the sharpest end of the pinch. He explains: “If you look, pork is the only species where the average price has actually fallen, at a time when grocery inflation — and inflation in most markets — is relatively high historically.

“And if you look at the non-promoted prices you might see that inflation, but obviously consumers are extra savvy these days and have become used to looking for promotions, especially those on meat. They are actively shopping around retailers for promotions if they do want something in particular. “If they want a pork roasting joint, they will know that there will be at least one retailer that will have a promotion and they are willing now to look around.”

Chris Lamb, consumer marketing manager at Bpex, agrees that discounting is to blame for the lack of growth in the value of sales of pork in the UK. He says: “They [supermarkets] will chop and change, depending on their promotional mechanisms, whether its X% extra free, buy-one-get-one-free or buy-two-get-one-free. They’ll move around. The whole discount market has only exploded in the last 18 months to two years, so it is a relatively new mechanism that came in and they just vary the products that are in it.

“Yes, I understand why they have to promote – firstly, to try and give additional value to their customers and secondly, if they don’t do it, their consumers will ???. But what this does is get the consumers used to buying on promotion. So, there is a big chunk of consumers out there at the moment who are only buying their meat on promotion — and they don’t know the real value of it anymore. Why they are doing any promotion on value lines I fail to understand, because there are very few people you can invite down from standard to value — even if you are giving them a real financial incentive.”

Nourishing Growth with Pork, a recent study of the pork market by Bpex, says more consumers than ever before are eating pork, with household penetration up by one percentage point to 82.3% in 2010. The report says: “The increase has been driven by more shoppers choosing roasting cuts, which have enjoyed year-on-year growth of over 11%.”

And Southam concurs: “We have seen an increase in promotion on shoulder especially. Shoulder roasting joints have had a lot of price discount promotions and pork steaks and chops always feature in the three-for-£10 or four-for-£12 cross species promotions that every major retailer has now been running for over 18 months,” he says.

“Those two cuts — shoulders and steaks — are what have driven this volume increase in pork over the past year or so and that, in turn, has been driven by increased promotional activity and that is why the value hasn’t increased in-line with that or almost declined.”

He adds: “The problem we have at the moment is that retailers don’t fund these promotions; they ask the processors to fund them. That, in turn, puts the squeeze on the farmers and that is why Bpex has been actively campaigning on it. You would think that, at some point, the prices are going to have to increase. But there is such a focus on value at the moment for consumers. And although we have been out of recession for a long time, we are probably now at the tightest period for disposable incomes during that time.

“So really, the pinch is actually hitting now, even though we have been out of recession for a long time. Unemployment always lags a recession — it is a historical fact of other recessions — and I think that, with the rate of inflation, the rise in taxes, cuts in spending  and so on, people are really going to feel the pinch this year. From now until the end of the year is probably going to be the toughest time that consumers are going to have since the whole recessionary period. So there will be more and-more shopping on promotion and trying to be savvy.”

However, the report reveals the connundrum at the heart of the volume increase — in that some of it comes from discounting and some of it comes from cheaper imports from abroad that do not have the welfare standards of the UK. The report states: “It would be remisss not to mention the fact that, most recently, some of the growth has been at the expense of welfare-friendly, quality-assured pork, such as that produced to Red Tractor standards, as some retailers have sucked in cheaper imports produced to lower welfare standards, of which much would be illegal to produce in this country.”

As Lamb says: “The other part of it is how much of that growth comes from domestic product — and how much is from imported? Well, the retailers have not been over-supporting British in recent months, despite the fact the whole issue of provenance and high welfare has moved up the consumers’ agenda.”

The retailers themselves disagree and say they have been supporting the British pork industry. A spokesman for Tesco tells Meat Trades Journal: “We are proud to be British farming’s biggest customer, buying more British pork than any other retailer, with 70% of our fresh pork and 100% of our Finest sausages and bacon from UK farms.

“The impact of rising commodity prices has been felt by suppliers and farmers across all sectors. We are working with the pig industry, just as we do with other producer groups, to help suppliers deal with rising costs, while ensuring prices are competitive for customers in challenging times. In recent weeks, we have increased the price we pay for pork and we are helping to build demand for less popular cuts.”

He adds: “Pork provides great value and versatility. It’s an excellent alternative to chicken and remains a firm family favourite. We continue to innovate with our pork ranges and outperform the market. In the past year, we have expanded our 100% British Finest range. This has proved exceptionally popular with our customers. On our standard ranges, we have placed increasing emphasis through promotions on different cuts of pork, including shoulder, belly and pork fillet. For the barbecue season, we’re launching pork steaks with a choice of sachet sauces, ensuring people can enjoy pork not just as their Sunday roast, but throughout the year.”

Sainsbury’s says it is committed to “sourcing with integrity” and that its fresh ham and sausages are 100% British and that it is largest retailer or Freedom Food products in the UK. “We are equally committed to a sustainable pig industry in the UK, which is why we regularly listen to feedback from our farmers at the Sainsbury’s Pork Development Group — an excellent forum to keep in touch with the issues that matter to our British suppliers,” adds the retailer. We have recently reinforced our commitment to supporting British pig farmers by increasing the amount paid to all our 18 dedicated Pork Development Group farmers, following soaring prices in the global wheat market. These farmers produce 12,000 pigs each week for Sainsbury’s.

“On 18 May, when the DAPP was at £1.42/kg, we confirmed a discretionary payment of an additional 5p/kg until 1 August 2011 or when the DAPP stabilises at £1.50/kg. On 6 July, the DAPP reached £1.50/kg, but we have decided to continue to pay a discretionary premium of 3p/kg until the original deadline of 1 August to ensure that our Pork Development Group farmers are supported while costs are high.”

Recipe book support

Consumer research shows that 75% of consumers are willing to pay a few more pence for a pack of pork, bacon, sausages and ham if it comes from pigs produced to higher welfare standards, such as those attributed to assurance schemes, including Red Tractor. What’s more, 81% of consumers said they were proud of British pig farming and high welfare standards.

While pork remains popular – it is the second highest grossing red meat, behind beef, accounting for £846m in sales annually and consumption has grown by 4% since 2008 – Bpex has launched a new recipe booklet with some of the UK’s leading chefs, which is aimed at inspiring consumers to seek out high-welfare, quality-assured pork, such as Red Tractor, and to try new recipes using this versatile and tasty protein.
Raymond Blanc, Phil Vickery, Brian Turner and Aldo Zilli are among the chefs who have contributed their favourite pork recipes to the booklet ‘Choose It and Use It’, which highlights the versatility of pork, bacon, ham and sausages. The booklet also includes pork recipes from celebrities Christine Hamilton and Liz McClarnon, both of whom are long-term supporters of pig farmers. Jamie Oliver, whose 2009 TV documentary, Jamie Saves Our Bacon championed high-welfare pig farmers, is also supporting the campaign.

The recipe booklet also features stories of pig farmers, many of whom are making significant losses.
Commenting on the current situation, Jamie Oliver said: “Pig farmers still need your help, so when you’re deciding on the Sunday roast why not choose pork – and do please make sure you look for quality marks like the Red Tractor because that ensures high welfare standards.”

Phil Vickery added: “I just love cooking with pork. It’s such a versatile meat and full of flavour too. When you buy pork in the shops, look for quality marks such as the Red Tractor, as this supports farmers with high standards of welfare.”

Brian Turner concluded: “We produce some of the best pork in the world in this country. But it will disappear if we don’t support the farmers.”

The Red Tractor logo ensures that the pork has been produced to exacting food safety and welfare standards, is traceable back to farms and independently inspected at every stage of production. An estimated two-thirds of imported pork, bacon, sausages or ham would be illegal to produce in the UK.
The recipe booklet can be downloaded from the campaign website  www.pigsarestillworthit.co.uk.

EU pork production

Karsten Flemin, market analyst from the Danish Agriculture & Food Council, explains why EU pork production has declined of late.

“There is now clear evidence that pig production is beginning to decline in most EU countries. Production continued to rise in many Member States during 2009 and 2010, but the latest census data indicates that pig numbers are falling, against a background of declining profitability. Although prices have shown some improvement in recent months, high feed costs have meant that most producers are still in a loss-making position.

“The EU market faces uncertain times in the next couple of years, and some restructuring of production is inevitable. Many banks and financial institutions still appear reluctant to support new investment in the industry. This may present something of a dilemma as evidence from several Member States suggests that many producers are still not complying with the new EU rules, which will ban the use of traditional sow stalls for pregnant sows from January 2013.

“We expect prices to remain on a steady upward curve in the next 18 months, primarily supported by the continuation of good demand for imported pig meat in several markets across the world, such as China, Japan, Russia and South Korea. However, currency fluctuations will continue to be a factor and it remains to be seen what effect higher retail prices will have on demand within the EU, where, in many countries, consumer spending will still be affected by the economic downturn.”

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