Fri, 16 Jun 2017
The Russian pig Price continues to remain high at 115 Roubles ($2.01) per live kg. Good producers have a cost of production that should be 65 Roubles per kg (all costs). On a 125kg live-weight pig at slaughter means profits of over $100 per pig.
No wonder the process of building new farms continues!
Russia Market Report
General Manager Russia, CIS, and Europe
High profitability is of course very nice. However, it comes with one large danger, complacency! More new farms mean more pigs. More pigs at some point will mean market saturation. Sanctions also will not last for ever. At some point, European meat will hit the market place in Russia. Ultimately pig prices will fall.
Many Russian business’s take a high sales price for pigmeat for granted. There is an assumption it will last for ever, and if and when prices do fall the government will give direct support to pig farmers. I hear talk about cost of production when I visit farms, but do not actually see anything being done to reduce it.
There is now generation of pig farmers and farm managers who have never seen a pig price lower than the cost of production. There is no knowledge or experience of what can be done in that situation, no understanding of really cutting cost!
When low prices do come, I can already see the teams of economists, statisticians, accountants, directors, lawyers and security that all Russian farms have, calculating and deciding they can reduce production staff, stop buying essential supplies, or buy the cheapest supplies they can find, regardless of quality. But, they will also calculate the need to increase their own numbers, because low prices mean more control is required!
For those who are reading this and not from Russia, yes Russian pig farms do have economists, many accountants, lawyers etc.…… What do they do? In reality, as the rest of us can run farms without, the answer is, I am not sure, other than to add to cost and enable the business to comply to Russian legislation. I visit many farms where there are as many and even more non-production staff than people actually working with pigs!!!
This week Russian Minister of Agriculture, Alexander Tkachev, in an important speech at the St Petersburg Economic Forum, announced Russia must target export markets to continue to grow its pig business and to bring important foreign revenue into Russia to replace the reliance of the economy on oil and gas. This is very true.
To become a net exporter, Russia has to become globally competitive on cost of production. Many pig farmers I speak with are ready for this challenge, but need help lowering the massive administrative burden on their business.
Of course, there is another side to cost cutting to grow markets and to make a business profitable. That is to increase sales and sales price. This requires producing a product that people want to buy more of and are happy to pay more for!
In Europe and North America pig meat consumption is at best static. We are clearly failing as an industry to increase sales. I do not believe this is really an issue with cost. For several years in the UK, the amount of money spent outside the home on food is greater than 50%. The USA reached this benchmark this year. Eating out is much more expensive than making food yourself at home. Of course, there is an issue with convenience (or perception of convenience) in our modern busy lives. Even then, if you look at the time it takes to drive to a restaurant and drive home again, it would take longer then cooking something yourself!
Europe has spent the past 10 years or more increasing legislation on animal welfare and the environment, because of the perception that this is what people want. Any effect on sales? Zero. If this is really what the consumer wanted then sales would increase. There have been and continue to be surveys asking people if they would pay more for food raised to a perceived standard. In a world of political correctness, where people no longer state their real opinion of course the answers are yes. Look at the contents of the same peoples shopping trollies and there is a totally different picture.
Now Europe wants to ban castration. The result will of course be more pig meat with boar taint in restaurants and shops. What will this do to pig meat consumption. Only one thing, reduce it! Our forefathers who farmed animals did not start castrating pigs, cutting teeth and tails because they enjoyed torturing animals. They castrated, because many people do not like to eat boar tainted pig meat. Teething and tailing was to reduce damage caused by pigs on each other.
So why are people not eating more pig meat, maybe taste! As an industry, we need to look at where we have placed ourselves in the market place for farmed meat.
At one end, we have cheap lean and often dry and tasteless meat, that needs sauce and flavouring to be tasty. Chicken and turkey fill this part of the market very successfully. One of the most ill-conceived marketing plans of all time was in America, where pork was branded as ‘the other white meat’. This was only surpassed by a marketing plan in the UK aimed at showing the public that they should by British pork that was not fed meat and bone meal. The slogan, ‘when the sow has finished feeding her piglets she will not be fed to them’. All this type of marketing does is make people question eating pig meat and as a result they eat less.
At the other end, other end of the scale we have prime beef. For many people, a luxury item for special occasion.
Where does pig meat sit? Today, sadly nearer to chicken. A lowish cost dry and also often tasteless product that does not feature on many restaurant menus. Of course, there are pig meat success stories. Bacon for example. Nobody can recreate from any other meat something that tastes as good as a crispy rasher of bacon! It is the number one thing that vegetarians revert back to meat for!
A well marbled pork steak cooked medium (pink in the middle) is as good as any beef steak you can buy. It is just as juicy and tasty, but with a much lower cost of production. Marketing pork as tasty as beef, but at a slightly lower cost seems the obvious way to grow pig meat consumption and price.
Of course, marketing a product to be something means it actually has to come up to the standards expected. Genesus as a breeding company is unique in its pursuit of better meat- eating quality. For most of our industry still today (understanding we are not increasing pig meat consumption) the measure of quality is lack of backfat. Our consumers are clearly telling us that this is not what will them to buy more pig meat.
Real meat-eating quality is tenderness and taste. pH, intra muscular fat, shear force are all measurable factors that contribute positively to pig meat eating quality. Since 1998 Genesus have been measuring these traits within its Duroc population. For several years Genesus have been able to select sires with premium meat-eating quality for specific markets that require this (Ibirica production in Spain). For the first time, meat quality is now part of the standard Sire Line index.
Genetic companies are having to look at where the market is expected to be in 5 years-time. For many years Genesus has believed that to increase pork sales requires superior tasting pig meat. That is why the shareholders have invested in measuring these traits for many years, when there has been no economic return.
The market has spoken. It says that it will buy the lean tasteless pig meat that reducing fat has produced, but it is certainly not going to buy more of it! In the United States many slaughter plants have realised this reality and no longer pay farmers to produce leaner pig meat.
Will the market respond to tastier pig meat. Today all of the indicators are yes, but time will tell. For sure continuing down the leaner and leaner route has not increased sales.
A simple life rule. ‘If you change nothing, then nothing will change’. Ultimately as pig farmers our customers are the consumers who eat the meat we produce. A slaughter plant makes its money doing a process. Supermarkets want to maximise sales and profit per m2 of shelf space. Our slaughter plants and supermarkets still tell us leaner pigs. Our ultimate consumers say different!