BPEX Imports ReportAn Analysis of UK Pork and Pork Products Import Trade

With implications from 2013 of EU sow stall ban

October 2011

Contents

Introduction 1

Executive Summary 2

Background 2

Main Concerns 3

EU-wide Implications 4

Battery Cage Ban Example 6

Current UK Imports of Pig Meat 7

Main Sources of Imports 9

Where Imports are Sold 10

Possible Scenarios after January 2013 11

In the Meantime 12

Imports to the UK of pigmeat have risen steadily since 2002 despite the fact that retailers and foodservice operatorsexpressed support for the UK pig industry when it adoptedhigh welfare standards in 1999.

The UKs major retailers in particular (they account for about 75 per cent of sales of importedpigmeat) have continued to suck in available, cheaper imports produced to lower standardsof animal welfare indeed such production would have been illegal in the UK.

The commitments of 1999 have been ditched in the pursuit of profit and at the expense ofa sustainable industry. The UK pig herd has shrunk by 40 per cent in the past decade andcurrently faces another loss-making crisis that will inevitably forcemore producers out ofbusiness.

Previous BPEX Imports Reports have reported on the levels of imports and the impact thesehave had on the UK industry. They have urged retailers and caterers to specify product thatmatches the high welfare standards of UK production. In promoting themerits of Red Tractorpork and pork products, we have also advocated dedicated supply chains as the way forwardfor a sustainable future.

We have long argued that the extent to which retailers and caterers rely on cheaper porkproduced to less-demanding welfare standards at the expense of high-welfare pork from anassurance scheme such as Red Tractor or equivalent can only be a short-term fix and a long-term disaster. It was inevitable, when the EU eventually compelled the adoption of higherwelfare standards, that their production costs would rise and any price differential wouldtherefore be eroded. Operators would no longer be able to turn to cheaper imports, indeedsupply at any price would become tighter and the challenge would be to secure a guaranteeof supply from a sustainable industry operating to high-welfare standards.

This years Imports Report brings a renewed urgency to that message. Higher welfarelegislation in the pig sector, in the form of a partial stall ban, comes into force throughout theEU at the end of next year. The high costs of meeting that legislation come after several yearsof negative returns for most European pig producers. Its a double whammy on costs for EUproducers. As we report here, progress towards compliance inmost Member States is tardyandmany countries will not, as they are required, be fully compliant by 1 January 2013.

We expect many producers throughout the EUwill quit the industry, that supply will tightenand prices will rise. Its a spiral of decline that needs to be resolved by the whole of the supplychain. Retailers and caterers, together with processors, need to work with producers toensure a sustainable future for the pig sector. Its no exaggeration to describe it as amatterof saving our industry. Its that serious.

Stewart Houston, CBE, FRAgSChairman, BPEX

1

Introduction

Sow stalls for use in pig production were banned completelyin the UK in 1999, when the UK industry adopted loose-housing production systems to raise animal welfarestandards

EU legislation introducing a partial ban on sow stalls willcome into force on 1 January, 2013 in all Member States

It is acknowledged that a considerable proportion of pigproducers in other Member States have yet tomove to awelfare-friendly pig production system.

Some producers will have to cease production as they willbe unable or unwilling to invest in new buildings and converttheir systems by 1 January 2013

Production of pigmeat in the EU can be expected to declineas a direct result, leading to higher prices (assuming there isno significant downturn in demand associated with theeconomic problems in the EU). Such developments couldwell impact on both the price and quantity of pigmeatimported into the UK

However, the probability exists that some non-compliantproduct will be produced illegally andmight be tradedafter the 1 January 2013 deadline and that some of thatcould be exported to the UK

This is not only unacceptable in itself, it will continue toprolong the competitive disadvantage under which theUK pig industry has operated since 1999

For the processing industry and the retail and foodservicesectors, security of supply will assume greater importance.With the expected disruption to supply and/or price, theneed for UK businesses to establish dedicated supply chainsto ensure the guaranteed supply of high-welfare porkbecomes imperative

On balance, though, it would seem that for UK pigproducers, futuremarket developments should offer somehope for a sector that has been under pressure for sometime

BPEX will continue tomonitor and report on the degree towhich EUMember States comply with Council Directive2001/88/EC.

2

Executive Summary

New partial stall ban EU pig welfare legislation CouncilDirective 2001/88/EC comes into force on 1 January 2013.Themost significant element of the new legislation will be toban the use of individual stalls for pregnant sows and giltsduring a period starting from four weeks after service to oneweek before the expected time of farrowing.

In 1999, when it introduced its own legislation, the UK choseto prohibit completely the use of sow stalls. The UK alsoended the practice of castration and banned completely theuse of blood plasma-based feed products both of whichwill continue to be allowed in the rest of the EU.

The legislative change now facing the rest of the EU will stillnot quite match the standards adopted in the UK, therefore,but will nevertheless require EU breeding pig farms tochange their buildings, which demands considerableplanning and investment.

At present, a significant proportion of EU breeding farmshave not yet been converted to comply with 2001/88/ECand it is certain, therefore, that many pig producers andmost countries will not be fully compliant by 1 January 2013.

Some producers will simply choose to cease production asthey will be unable or unwilling to invest in new buildingsand convert their systems by 1 January 2013. It is expectedthat this will result in falling supplies of pigmeat in the EUbeginning in 2012.

It is interesting to note that corresponding welfarelegislation was introduced in the laying hen sector where aban on battery cages is due to come into force on 1 January2012 (under Council Directive 1999/74/EC: theWelfare ofLaying Hens). Despite having had 12 years to prepare for thisban, some countries still want to delay it by asmuch as 10years: their egg industries are lobbying against it becausethey believe it will be economically damaging. The UKgovernment has publicly declared its support for the ban onbattery cages coming into force in 2012.

It is important for the pig industry that it followsdevelopments in the laying hen sector and the extent towhich egg production, with the ban on battery hens, will becompliant from January 2012.

In the pig sector, even if themajority of EU countries are notfully compliant by January 2013, the European Commissionhas stated (in February 2011) that it does not propose anyderogation to anyMember State. While Member States areprimarily responsible for implementing the new EU legislation,the inspection service of the European Commission Healthand Consumers Directorate General, through its Food andVeterinary Office, regularly carries out audits in MemberStates to assess the implementation of the legislation. Inaddition, the various Quality Schemes in place across theEU can also be used to ensure compliance with EU law.

Background

When the UK pig industry moved to loose housing in 1999,the countrys major retail chains supported the change and,importantly, made a commitment to support the British pigindustry initiative to produce high welfare pigmeat.

In the following years, UK production declined, in part dueto outbreaks of classical swine fever in 2000 and foot andmouth disease in 2001. This left the retail and foodservicesectors more aware of the risk of supply disruptions of Britishproduct and they turned increasingly to pigmeat from otherEU countries. Availability on the Continent was high andprices lower as there was over-supply in the EUmarket,especially in the 1998 to 2000 period.

The past decade has been notable not only for the way inwhich retailers have continued to suck in cheaper imports,but that most of the product imported would have beenillegal to produce in the UK because of its high-welfareconditions. During this time of increased imports, the UKpig herd has declined by 40% amajor structural change.

The concern now is that not all pig farms in the EUwill moveto full compliance with 2001/88/EC by January 2013. As aresult, the supply availability of compliant EU product willdecrease. This would impact on UK pigmeat imports, withall types of product affected to varying degrees, and restrictretailers and caterers ability to import as easily and cheaplyas before. The need for UK businesses to establish dedicatedsupply chains to ensure the guaranteed supply of UK welfareor EU compliant pork becomes imperative.

Given the twin challenges experienced by EU pig producersin recent years of a difficult financial climate and theconsiderable capital investment required to comply with theincoming EU legislation, there are already indications that anumber of producers in the EU are choosing to ceaseproduction rather thanmake the necessary and onerousinvestment in loose housing. This will certainly lead to areduction in the overall supply of pigmeat in the EU.

However, it is also probable that a number of farmersin some countries will continue to produce pigs incontravention of the new high welfare regulations withthe consequent danger that these will enter export marketsdespite not being EUwelfare compliant and potentiallytherefore at significant discounts.

Such a situation is clearly unacceptable to British pigproducers. Nor should it be tolerated by others in the pigmeat chain and all steps should be taken to ensure that itstays within the producing country and does not reachconsumers in the UK.

The question also arises whether the EU, faced with potentialshortages of high welfare pigmeat, could turn to importsfrom the global market such as North and South America the danger again being that not all such product mightcomply with the EU legislation. There is some scope for thisalthough import levels would be restricted by high EUimport tariffs unless product is imported under the limitednumber ofWTO quotas that apply. Also, some countries arenot allowed to supply the EUmarket for other reasons; forexample on animal health grounds as is the case for Brazilor where there is use of pharmaceuticals that are banned inthe EU.

Many in the EU pig industry, mindful of the substantial tradethat takes place in the EU, are calling for robust auditing bynational governments and Quality Scheme owners of tradedproduct to ensure it meets welfare legislation. Such checksand safeguards should cover all types of trade to include,for example, the estimated 7.5million weaners importedeach year by German finishers through to further processedproducts and to cover pig stocking densities as the newwelfare legislation will necessitate reduced densities.

Main Concerns

3

Published reports

A report published earlier this year from Rabobank1

(the Dutch-based financial services provider with officesworldwide) assesses the EU-wide implications of adoptingCouncil Directive 2001/88/EC. It points out two criticalfactors:

five years of negativemargins between 2007and 2011 have accumulated into amajor problemthroughout the EU pig industry

only an estimated 40 per cent of sow units complywith the new 2013 welfare requirements.

The report predicts there will be a decline of 1.2milliontonnes equivalent to a fall of five per cent in porkproduction over the next ten years.

This fall in production will in turn impact on the EUslaughtering and processing sector and the report statesthat supply security for this sector will become amoreimportant issue than price. Processors will need to developstrategies to overcome expected shortages.

A second report from ABN AMRO2 (the Dutch State-ownedbank) concentrates on the Dutch pig industry but its authorhas been quoted as saying that the total sow herd in Europemay shrink by asmuch as 30 per cent when the new pigwelfare rules come into place. He added that even if itwould only be 15 per cent this could be a significantreduction.

Developments in individual EUMember States

Different industry sources give some indication of the extentto which individual Member States are and will be compliantwith Council Directive 2001/88/EC but no official data(for example, from the European Commission) has beencompiled. The following summaries serve as the bestunderstanding currently available of progress towardscompliance.

Denmark is the largest supplier of pigmeat to the UK anduntil recently it was widely assumed that it would be fullycompliant with 2001/88/EC by January 2013. However, theDanish Pig Producers Association has reported lately thatnearly one third of producers will not be able to comply withthe newwelfare requirements, themost-cited reason beingthat many have had their application for loans to finance theinvestment required turned down by the banks. InSeptember 2011, Danish Crown, Europes largest pigmeatprocessor, even announced that it is increasing the premiumfor England pigs, clearly demonstrating the value of higherwelfare production.

Unannounced inspection visits of farms are beingundertaken by the Danish Ministry of Agriculture tomonitorprogress towards compliance.

The Netherlands is the second largest supplier of pigmeatto the UK. The ABN AMRO report mentioned above statesthat the current lack of profitability in the Dutch pig industrymeans that funds are not being generated to enable farmerstomake the investment necessary tomeet the new EUwelfare requirements.

ABN AMRO points out that one third of producers havealreadymade the investment to become fully compliant;it estimates a further third should be able to achievecompliance; but believes the remaining third will havemajordifficulties and some of these will be unable to finance theupgrade.

The report goes on to say that not only pig welfare but alsoenvironmental issues will constrain production and furtheradd to costs. Dutch industry sources confirm the reportfindings especially with regard to current compliance levels.

Germany is by far the largest pigmeat producer in the EU,yet the Rabobank report indicates that only 20 per cent ofthe national sow herd is produced to the higher welfarestandards demanded by 2001/88/EC. The country is now

4

EU-wide Implications

1 EU Pork Industry on Threshold of Changes, by Albert Vernoooij, Foodand Agribusiness Research, Rabobank.

2 Varkenshouderij: De kracht van ondernemerschap byWilbert Hilkens,Sector Manager Pig Sector, ABN AMRO Agricultural Business.

5also the third largest supplier of pigmeat in total to the UK,having increased its shipments of both pork and bacon inrecent years but a considerable proportion of those exportsat present would notmeet the 2001/88/EC standards.

Germanys pig census of May 2011 indicated a six per centfall in German in-pig gilt numbers and an 11 per cent drop inmaiden gilts. AMI, the Germanmarket information agency,reports that some pig farmers are ceasing production ratherthan investing in new housing required tomeet 2001/88/ECstandards a situation exacerbated by the negativemarginsin pig production over recent years.

Belgium is the third largest supplier of fresh pork to the UK but, again, Rabobank estimates that only 20 per cent of thesow herd is 2001/88/EC-compliant.

The gravity of the situation for producers in Belgium can begauged by the fact the Flemish pig producer organisation(VEVA) has presented a plan to Government to remove100,000 sows (20 per cent of the national herd) from theindustry to enable remaining producers to obtain betterreturns given the current bad economic situation. Thisincludes citing the fact that the industry still needs tomakeheavy investment tomeet the newwelfare requirements.

In the Irish Republic, varying reports indicate complianceranging from 20 per cent to 70 per cent of the pig herd, withmany of the countrys smaller producers yet to invest inloose housing, a situation further complicated by difficultiesin obtaining funding.

At the time the Rabobank report was published, only 30-40per cent of the pig sector in Francewas compliant. Industrysources there indicate that around 60 per cent of farms willhave converted to the newwelfare standards by the end ofthis year and that the industry aims to be fully compliant byJanuary 2013. However, they will face the same financingproblems as other countries.

Spain has the largest sow herd in the EUwith 2.4millionhead and yet the Rabobank report considered the industryto be only 30 per cent compliant in early 2011. The June2011 Spanish census indicated that sow numbers are indecline: they are down seven per cent on a year earlierindicating an inevitable decline in slaughtering to come.

Industry sources indicate that only 30 per cent of producersin Italy are currently thought to be compliant. The Italiancensus of June 2011 showed an eight per cent year-on-yeardecline in sow numbers, pointing to declining output from2012.

In Poland the breeding herd is declining sharply with sownumbers in June 2011 down 13 per cent on a year earlier.A further decline is expected as loss-making producersdecide to quit the industry.

Although breeders are inefficient compared with those ofDenmark and the Netherlands, it is understood that manysmall andmedium scale farms in Poland have converted toloose housing. Perversely, meeting the newwelfarerequirements of 2001/88/EC is less of an issue in Poland atpresent than the poor financial situation of the industry.

It should be noted that Poland has emerged as amajor playerin the EU since accession and is one of the top five producersand amajor importer and exporter. So the sharp falls inproduction expected to begin later this year will have asignificant bearing on overall EUmarket developments.

Of the other Eastern European countries, sow numbers arealso falling in the Czech Republic, Hungary, Bulgaria andRomania.

6Council Directive 1999/74/EC: theWelfare of Laying Henswhich prohibits the use of conventional cages (commonlyreferred to as battery cages) for laying hens comes intoforce on 1 January 2012.

In the case of the battery cage ban only 10 of the 27 EUMember States, including the United Kingdom, have so farconfirmed they are on course to be fully compliant with thiswelfare legislation by January 2012.

The question has been raised as to whether the EuropeanCommission will allow producers who are not compliant toflout the ban with impunity especially as it is up toMemberStates themselves to implement and enforce the legislation.

Industry pressure to ensure enforcement is building up fromthose countries that are already fully compliant as theywould be at a competitive disadvantage if those producersthat are not compliant were allowed to continue tomarkettheir eggs.

The British Retail Consortium has stated that British retailersare pledging strong support for high-welfare egg productionand are reassuring consumers that they will not stock eggsor own-brand products if they do notmeet the newwelfarerequirements.

In the UK, a report3 from the House of CommonsEnvironment, Food and Rural Affairs (EFRA) Committeemade a number of recommendations, not least that anaccurate assessment of the likely level of compliance inadvance of the 1 January 2012 deadline bemade so thatthe European Commission can implement the necessaryenforcement action.

The EFRA committee expressed its concern about theevident complacency of the Commission in ensuringcompliance across the EU by January 2012 and the need forit to have a plan tomanage the anticipated non-compliance.It called on the Commission to boost the powers andresources of the Food and Veterinary Office.

In calling for an intra-EU community ban on the exportof shell eggs and egg products from non-compliant eggproducers, the EFRA committee also wants the EU to pushfor the recognition of standards of production withininternational trade agreements which it says would be inthe interests of fairer trade in the long term.

UK Government Position

In response to questions in Parliament about the stepsthe Government is planning to take to protect British eggproducers from competition by producers in other EUMember States who do not fully comply with the provisionsof EU Directive 1999/74/EC, Jim Paice, Minister of State atDefra, confirmed that the Government had been at theforefront of efforts to convince the Commission that simplyrelying on infraction proceedings against Member Stateswill not be enough to deal with the negative impact that alarge-scale non-compliance would cause. We are keepingthe pressure on the Commission to put in place additionalenforcementmeasures to prevent market disturbance, hesaid.

Mr Paice also revealed that information from the EuropeanCommission received earlier this year showed that only 13countries are expected to be compliant by January 2012.SevenMember States failed to supply any data on thematterwhen asked by the Commission.

In September, Mr Paice told Parliament that TheGovernment are totally committed to the 2012 deadline tohave phased out the use of conventional cages in the UK andacknowledge the sterling job the (egg) industry has done inpreparing for the ban.We are currently developing a UKenforcement strategy which I will be discussing with industryand retailers later this month.

Battery Cage Ban Example

3 TheWelfare of Laying Hens Directive-Implications for the eggindustry, Published on 2 September 2011.

7AHDBMarket Intelligence divisioncalculations4 indicate that the UK importsabout 950,000 tonnes a year of pigmeatand live pigs in carcase weight equivalent(Chart 1). Imports increased by almost 50per cent between 2000 and 2007. Sincethen the UK industry, through its higherwelfare standards and relative stability indomestic production, has been able tohold import volumes steady.

Pork imports are themost importantcategory and accounted for 43 per cent ofUK total pigmeat imports in 2010, thoughvolumes have declined since 2008 (Chart 2).Such pork is almost entirely fresh with lessthan 20 per cent frozen and includesproduct for curing into bacon and ham inthe UK.

Bacon accounted for a further 33 per centof the total and these volumes haveincreased since 2007. Trade in processedproducts, such as canned hams, hasdoubled since 2005 while imports ofsausages have been relatively stable since2006. Processed products and sausagesaccounted for 18 per cent of total importsin 2010.

The UK is also an importer of live pigs andhaving averaged 35,000 tonnes carcaseweight equivalent in the 2005 to 2009period, increased to 50,000 tonnes in2010. These are almost entirely slaughterpigs from Eire which are slaughtered inNorthern Ireland. UK production of homefed pigs5 currently amounts to about700,000 tonnes per annum of which about150,000 tonnes is exported, leaving550,000 tonnes for the domestic market.This means that UK pig farmers accountfor around 35 per cent of domestic pigmeat consumption.

Current UK Imports of Pig Meat

4 This is based on trade data fromHMRevenue and Customs which isgiven in product weight and converted to carcase weight by AHDB-MIusing accepted conversion factors determined by the Statistical Officeof the European Communities.

5 Excluding live imports slaughtered in the UK.

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0

200

400

600

800

1000

1200 000 Tonnes cwe

Home fed production Imports

UK pigmeat production and imports

Source: DEFRA and AHDB-MI import calculations based on HMRC trade data

Chart 1

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Live

Sausages

Processed

Bacon

Pork

0

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400

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1000 000 Tonnes cwe

Total pork and pork product imports

Source: AHDB-MI calculations based on HMRC

Chart 2

An analysis of market requirements by individual primal cutshas been undertaken by the Retail and Consumer InsightSection of the AHDB-MI (Chart 3). It is based on a wide rangeof data sources including KantarWorldpanel data, thePorkwatch survey and industry itself.

Themarket in the UK creates a carcase imbalance becausedemand for pigmeat varies by cut. For example, productionof loin and leg primals fromUK-produced pigs is well belowthe demand requirement for the UKmarket while there is anover-supply of belly, shoulder and trim. UK pig farmerscurrently produce about 9million pigs for slaughter. Theillustration below shows the demand in the UK for pork loinrequires the equivalent of 23million pigs; our demand forpork leg cuts needs 19million pigs while 6million pigs areneeded to satisfy the demand for shoulder and otherremaining cuts.

8

AHDB estimates indicate that all domestically produced loinand leg is used in the homemarket and is generallyidentifiable as British. However, the import requirement foradditional loins and leg is considerable, accounting for anestimated 60 per cent of the total market for loins and legsin the UK.

In theory, there is enough UK-produced pigmeat to satisfythe demand needs for all the other cuts. However, these cutsare imported if they are available at a lower price and thebuyer does not have a high-welfare specificationrequirement such as the Red Tractor Pork standard orequivalent.

The AHDB-MI analysis indicates that 85 per cent of importsof all types of pigmeat are either in the form of legs and loinsor products that use them. Retailers tend to use importedlegs and loins muchmore extensively in promotional activitywith relatively little domestic product used in promotions.This is facilitated by the fact that retailers can sourceimported product more cheaply than home-produced.

The bacon sector accounts for the largest share of the pigmeat imported to the UK taking 47 per cent of totalimports. A further 12 per cent goes to the fresh pork sectorwith sausages and other processed pork products eachaccounting for nine per cent. Sliced cookedmeats (usinglegs) represent the remaining 23 per cent of total imports.

Loin Leg Belly Shoulder Trim0

50

100

150

200

250

300 000 Tonnes product weight

Total

Imported

UK annualmarket requirements by cut

Source: AHDB-MI Consumer Insight estimates

Chart 3

23,000,000Pigs

6,000,000Pigs

19,000,000Pigs

Demand for pigmeat

9In product weight, pork imports amounted to 363,000tonnes in 2010 (based on HMRC data) and weremainlyfresh with less than 20 per cent frozen. It includes increasingquantities of product used for curing in the UK. Denmarkis the largest supplier with a 27 per cent share of all porkimports in 2010 (Chart 4) followed by the Netherlands with18 per cent. Other significant suppliers are Belgium,Germany, Ireland and France. Denmarks share of UK importshas fallen steadily in recent years: in 2006 its market sharewas 45 per cent. In contrast, the other main suppliers, withthe exception of France, have all increasedmarket share overthe last five years.

Main Sources of Imports

Total bacon and ham imports into the UK amounted to313,000 tonnes in 2010, with the combined volumes fromDenmark and the Netherlands accounting for 81 per centof total UK trade (Chart 5). Imports fromGermany nowaccount for 12 per cent of the total with shipments up 120per cent in the past five years. This is partly explained by theincreased involvement of Dutch companies, notably Vion,in bacon curing in Germany. Italy and France both shipped6,000 tonnes in 2010 with only 4,000 tonnes from Ireland.

For imports of sausages and processed productsGermanyand Poland are the largest suppliers to the UK, with a 40 percent share of total trade, followed by the Netherlands.

Other

Spain

Fran

ce

Irelan

d

German

y

Belgium

Nethe

rlan

ds

Den

mark

0

20

40

60

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100 000 Tonnes product weight

Pork imports in 2010

Source: AHDB using data fromGTIS, HMRC

Chart 4

Other

Irelan

d

Italy

Fran

ce

German

y

Nethe

rlan

ds

Den

mark

0

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140 000 Tonnes product weight

Bacon imports in 2010

Source: AHDB using data fromGTIS, HMRC

Chart 5

AHDB estimates6 indicate that in terms of total sales ofimported pork and pork products, retail outlets dominateand in 2010 accounted for 740,000 tonnes carcase weightequivalent (cwe) or 82 per cent of imported product sales.Imports account for 61 per cent of total pigmeat productssold in the retail sector. The smaller foodservice sectoraccounts for only 17 per cent of imports, but this represents66 per cent of total pigmeat sales volume in foodservice.

The quantity of imported fresh pork sold by retail outletswas estimated to have amounted to 74,000 tonnes cwe in2010 representing 27 per cent of fresh pork sales. Britishpork sales have held their own in recent years with volumesamounting to 199,000 tonnes in 2010.

The volume of imported bacon sold by retailers amounted to280,000 tonnes cwe in 2010. This includes imported porksubsequently cured in the UK. When the foodservice sectoris included, 65 per cent of UK bacon sales were of importedorigin in 2010. Bacon supply would bemore vulnerable thanfresh pork to any disruption to imports after January 2013.

Sales of processed products are dominated by sliced cookedmeats and sausages with the overwhelmingmajorityaccounted for by imports. In the retail sector, for example,only 28 per cent of processed product sales are of Britishorigin.

Some retailers are inevitably more dependent upon salesof imported pigmeat than others and thus their degree ofvulnerability to any disruptions to imports from January2013 would also vary. The analysis of market requirementsby individual primal cuts undertaken by AHDB-MI ConsumerInsight included estimates for the retail sector of the use ofdifferent types of imported product relative to home-produced (Chart 6). Data should be treated with care assome British products may not have been identified as suchand hence would have been categorised as imported.

Of the top four supermarket groups, Tesco, Sainsbury andAsda all sell imported fresh pork to varying degrees. Tescoand Asda are themost import-dependent. In contrast,Morrisons and alsoWaitrose, the sixth largest retailer,stock only British pork.

In bacon, all of the four largest retailers are heavilydependent upon imports.

Sainsbury andMorrisons sell sausagesmade only fromBritish pork, unlike Asda and Tesco, a high percentage ofwhose sausages aremade from imported pork.

In the case of sliced cookedmeats only Sainsbury sellsalmost entirely product from British pigs while the threeother major retailers are all heavily dependent uponimported product.

10

Where Imports are Sold

6 AHDB-MI undertakes annual estimates of product flows in the pigmeatmarketing chain taking the supply of product available (productionplus imports minus exports) and how it is distributed through thedifferent parts of the chain based on industry surveys and estimates.

TescoAsda SainsburyMorrisons

Fresh pork

Bacon

Sausages

Slicedcooked meat

0

20

40

60

80

100 % Total sales

Top 4 Retailer shares of imported pigmeat

Source: AHDB-MI estimates

Chart 6

11

It is difficult to predict with certainty what will be the importsituation in pigmeat after January 2013. It will dependinevitably upon the extent to whichmajor supplyingcountries have successfully converted to welfare-friendlypig production by that date.

However, some shortages and increased prices on the UKmarket seem probable. For example, in Germany, the EUslargest producer, even if there is a rapid shift to complianceit is acknowledged this will be at the expense of a fall inproduction in both 2012 and 2013 given the decliningbreeding herd at present.

While Denmark could be largely compliant, its sow herd isalso declining at present and production will probably belower by 2013. This will not be helped by the fact thatDenmark is amajor supplier of piglets to Germany and thattrade will not decline in future despite falling sow numbers.This is because a number of smaller German breeders willcease production because they will not invest in loosehousing and so German fatteners will continue to buyimported piglets by offering attractive prices.

Lack of compliance and producers quitting the industry willapply to other Member States including the Netherlands,Belgium and Spain.

Three scenarios for post 1 January 2013 are, therefore,possible and outlined below.

Scenario 1. This is a best-case scenario and assumes thatproducers will movemore quickly towards full complianceby January 2013. Nevertheless, withmanyMember Statesstill not 100 per cent compliant it is inevitable that someproducers will cease production, even under themostoptimistic assumptions. The result could be that UK importswould be only marginally affected as UK buyers wouldensure they source product only from compliant farms.Prices, though, could be somewhat higher to secure productthat is compliant.

Scenario 2. This is considered to be themost likely scenario.It assumes an ongoing gradual shift to compliance by the EUpig industry but that many producers will be forced out ofbusiness not least by the lack of available funds to invest inthe new buildings necessary under the newwelfareregulations. Even with the possibility that non-compliantproducers are given a derogation and allowed tomarkettheir product on a local basis, the result will be a significantcutback in EU production, possibly bymore than the five percent predicted in the Rabobank report.

EU prices generally and specifically the price of pigmeatexported to the UK could well rise from as early as Spring2012 onwards as cutbacks in sow numbers on the Continentstart to impact on production.

It should be noted that the price response to a change insupply is very high in the EU and so only small supplychanges can have a considerable impact on pig prices.Demand, however, could well remain subdued and evenedge back given the ongoing economic problems anduncertainty facing the Euro zone. This might reduce anyupward pressure on prices.

Scenario 3. If there is little improvement on the currentstate of readiness in EUMember States to be totallycompliant with 2001/88/EC by January 2013, the impacton UK imports from that time could be considerable. Thisassumes that imported pigmeat is allowed to come onlyfrom compliant farms. The significant lack of compliantproduct implies that substantial price premiums would benecessary for UK buyers to secure sufficient supplies.Product from farms that are non-compliant would beexpected to remain in a countrys domestic market.

Trade with some countries, especially Germany, could,therefore, be greatly affected.

Possible Scenarios after January 2013

12

BPEX will continue to study EUmarkets carefully in thecomingmonths. Plans are also in hand to work incollaboration with industry bodies in a number of Europeancountries tomonitor closely the progress beingmade by thepig industries towards compliance and the steps being takenbyMember States to ensure enforcement of the newwelfareregulations. We shall report regularly on that work.

The experience of the egg sector under theWelfare of LayingHens legislation will act as a useful template for the pigsector as it faces the challenges of implementing its ownwelfare legislation.

BPEX will also work closely with Defra as it formulates thenecessary enforcement strategy to ensure the integrity ofthemarket here for pork and pork products and that thoseconsumers opting for high-welfare product can be confidentthat all such product comes fromwelfare-compliant farms.

Not least BPEX will continue to work with the retail andfoodservice distributive trades in the UK to ensure as littledisruption as possible to their supply chains and their abilityto guarantee the supply of high-welfare pork and porkproducts to UK consumers. To that end BPEX will continueto promote the benefits of high-welfare pork such as RedTractor Pork or equivalent to consumers via proactivecommunications programmes.

In the Meantime

Published by AHDB Copyright reserved byAgriculture and HorticultureDevelopment Board 2011

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BPEX is a division of theAgriculture and HorticultureDevelopment Board While the Agriculture and Horticulture Development Board, operating through its BPEX

division, seeks to ensure that the information contained within this document is accurateat the time of printing, no warranty is given in respect thereof and, to the maximum extentpermitted by law, the Agriculture and Horticulture Development Board accepts no liabilityfor loss, damage or injury howsoever caused (including that caused by negligence) orsuffered directly or indirectly in relation to information and opinions contained in or omittedfrom this document.