Pork basks in a popularity wave
Published:  26 June, 2009

Pork sales are buoyant, the UK pig herd is stabilising and exports are being boosted by a favourable exchange rate. All in all, the category is having a much better time of it than a year ago. Alyson Magee reports

Pork is proving a piquant choice for consumers in the current economic climate and producers are now welcoming the highest returns and best herd stability in 13 years. Swine flu has failed to put a dent in sales, as price-conscious shoppers appreciate pork's affordability in comparison to beef and lamb and experiment with other cuts on the advice of celebrity chefs.

With the government response to the H1N1 outbreak clearly stating that consumers were not at risk from cooking or eating pork, UK producers saw no significant impact beyond an initial drop in share value for Cranswick and Devro and an import ban from Russia, the Ukraine and Thailand.

And, following lobbying by the global pork industry, the World Health Organisation subsequently agreed to drop the term 'swine flu' when referring to the H1N1 virus.

Meanwhile, lower feed prices, limited supply and favourable exchange rates have boosted returns for British pig farmers, making the enterprise profitable for the first time in years.

Hull-based producer and processor Cranswick has attributed the popularity of pork in the recession as a major driver behind its latest set of buoyant sales figures. In the year to 31 March, Cranswick posted 9% increases in both sales and pre-tax profits to £653m and £36.7m respectively.

Pork is viewed by consumers as competitively priced, according to Cranswick chairman Martin Davey, despite higher retail prices which, together with improved productivity, cancelled out higher input costs.

Cranswick continued to expand its presence in the UK pigmeat sector this year with the acquisition of Bowes of Norfolk, contingent on Competition Commission approval expected in late June. The group supplies multiples (with own-label and Lazenby's-branded products), processors and the food-service sector, as well as export markets on the Continent and in Asia.

Meanwhile, Danish Crown, owner of the UK's biggest pork producer Tulip, recently announced plans to increase pig production in Britain by a quarter over the next three years on the back of robust demand. In line with Tulip's increasing move towards a British-produced proposition, plans are in place to either rear more pigs itself or attract more farmer-suppliers in the UK.

The British processing sector has also seen consolidation over the past year following the Dutch Vion Food Group's acquisition of Grampian Country Foods in 2008. An efficiency-driven restructure saw fresh pork and bacon processing moved exclusively to Malton and sliced cooked meats activity to Haverhill, with significant job losses resulting. Grampian's Ashton bacon site is also likely to be closed.

"The aim of the restructure has been to improve efficiencies and get the business on more solid foundations," says Bill Thurston, MD of Vion's pork business unit. "Feed prices have come down, but there are additional input costs which we haven't been able to get through the chain."

While Vion's pork imports into the UK have also been hit by the impact of sterling's near parity with the euro, the challenging market conditions have been group-wide. Vion's profits for 2008 were down by 57%, year-on-year, to €54m (£45.7m) as a result of rising input costs and the impact of the weak sterling and US dollar on the market. Turnover was €8.6bn (£7.3bn), bolstered by acquisitions.

 

Adventurous choices

Budget-conscious shoppers are keeping pork sales buoyant, and have become more adventurous in their choice of cut, following the urging of celebrity chefs and retail promotions.

In the 12 weeks to 17 May, shoulder roasts were the clear winner, with volume sales up by close to a quarter as consumers responded to the Jamie Oliver TV programme, Jamie Saves Our Bacon, and subsequent retail promotions urging shoppers to try lesser-known cuts of pork.

The figures suggest consumers' uptake of less common pork cuts is outlasting the initial spike following the TV programme. Back in February, Waitrose reported a rise in total pork sales of 20%, including pork belly joints up 66% and pork shoulder joints up by 270%, while, according to Tesco, its sales of affordable pork hock and shoulder steaks were already growing rapidly pre-programme. Over the 12 weeks to 17 May, volume sales rose by 4.5% for leg roasts and 2.2% for chops and steaks.

AHDB category development manager Richard Cullen says: "Pork is the strongest of the red meats and is performing well overall. It has always been the best value for money, but there is more experimentation with it now; people are doing more with it."

The volume market share of the biggest cuts are approximately 29% for fine grilling steaks; 14% for fine grilling chops; 22% for leg roasts; 14% for shoulder roasts; and 8% for belly pork, sales of which fell by just over 2% in the 12 weeks to 17 May. Smaller sub-categories, such as minced and diced pork, make up the balance.

Total retail sales rose by 3.5% in volume and 11.5% in value over the period, with the average price up by 7.7% on the same period in 2008. For the year to 17 May, volume sales fell by 2.3% to 158,300t, while value climbed 8.3% to £778.6m on the back of a 10.9% year-on-year increase in the average price to £4.92/kg.

"Pork is still the cheapest of the three red meats," says Cullen. "It has been increasing in price, but the others have been increasing faster, with lamb expensive anyway."

Average prices for pork, lamb and beef were £4.87/kg, £6.17/kg and £6.73/kg respectively, over the 12 weeks to 17 May. "Meat does not appear to be showing any real recessionary effects," says Cullen. "There may be some trading-down, but generally sales are holding up very well, and pork is the best of the three red meats - probably because it is cheapest. People are looking for the best offers, and there are some good deals around."

Marks & Spencer has reported that cost-conscious shoppers have been switching from lamb to pork roasting joints, and has boosted volume sales of fresh pork mince and cuts for frying or grilling, with sales driven by promotions in the pork category.

Market analysis commissioned by Agricultural & Horticultural Development Board (AHDB) highlights divergences in the shopping patterns of the different socio-economic groups in the recession. While ABC1s are still taking advantage of multi-buys, C2s and DEs are paying more attention to reducing the end total of their shopping basket and looking for discounts on single items.

"Shoppers aren't noticing the price increase on pork in the same way they are with beef, which started out expensive," says Cullen, "but they are noticing what their shopping basket used to cost and how much it has risen. Everyone is watching what they are spending, even though 75% haven't been affected by the recession, and many are better off given interest rate cuts."

What consumers are doing, he says, is "managing their expectations" and reacting to food inflation by changing stores, shopping for promotions or trading down a tier in their purchases. "There has not been as much trading-down in meat as in other categories," says Cullen. "Some shoppers are trading up and some are trading down despite heavier inflation in meat."

Organic, while a very niche sector at only 1% of retail meat sales, has also held up well. Buyers of organic meat "tend to be people really into organic food, so it has declined a bit but not as much as other organic markets", he says, with free-range following a similar pattern.

Duchy Originals is launching a new co-branded organic and rare-breed pork, beef and lamb range, from Elizabeth Hurley's Gloucestershire farm in October 2009.

Scope still exists to expand the market for fresh pork, says Vion's Thurston. "Young consumers don't know what to do with it, which remains a challenge," he says. "We need to get it on their radar. We also have to look at whether we are guilty of selling things using industry jargon. These challenges were there before the recession and they remain."

Vion is now working on projects across links in the supply chain aimed at making pork more relevant to consumers. "Fresh pork isn't renowned for NPD," says Thurston, "but NPD is not just about the product; it's also packaging, production and logistics, so our scope on that is fairly wide."

Provenance and labelling continue to be topical issues. BPEX published a study looking at supermarket pork in April, ranking Waitrose and M&S as clearly labelling 100% and 96% of their products respectively. Lidl and Aldi were found to be the worst offenders, stating origin on only 40% and 22% of pork lines, while Budgens had fallen from 100% the previous year to 65%. At Sainsbury's, Tesco and Asda, origin was stated on 94%, 72% and 64% of pork products respectively (source: TNS, supplied by AHDB).

 

Pig prices

While debatable in the economy, the green shoots of recovery are more evident in the British pig industry in 2009, with prices at a 13-year high and signs of stability at last in the national herd. Behind the turnaround in the sector's fortunes are strong consumer demand, tight UK supplies and a combination of higher prices prevailing in the EU and the weakened sterling boosting export opportunities, says AHDB senior economic analyst Tony Fowler.

The deadweight average pigs price (DAPP) has increased steadily throughout the year, reaching 150p/kg deadweight for the first time since 1996 in early May and continuing to climb to 152.8p by the end of the month (up 22% year-on-year).

Average carcase returns (£117) even exceed the 1996 figures, with pigs weighing in at a mean 77kg, 10kg heavier than in 1996, when the average pig netted £103. In 2008, the DAPP stood at 126p/kg, a 17% year-on-year increase, peaking in July at 135p/kg. Retail prices were up by a quarter in 2008.

"British farmers have had a tough time, but over the last few months prices are up and returns have improved significantly, which is important for investment in the future," says Thurston. However, there is a limit to what the market will pay and prices will level out at some stage, he cautions.

While carcase balance has improved, there is still a long way to go and Vion is looking at best-practice among its Dutch farmers, and how that can be extended through to the UK operations.

 

UK production

AHDB figures for June 2008 highlight a 7% decline in the pig breeding herd to 421,000 head. Yet an improvement in net margins over the year bolstered producers and, by December 2008, the herd was estimated at 427,000. Stabilisation at around 425,000 head is forecast for 2009, with some growth in 2010 to 430,000 breeding sows.

Clean pig slaughtering, meanwhile, was down 1% in 2008 to almost 9.2m head. Improved sow productivity - to a record average of 20 pigs sold per sow - boosted the slaughter figures, alleviating the impact of the reduced breeding herd. "There have been significant declines in post-weaning mortality," says Fowler. "Also, the incidence of post-weaning multisystemic wasting syndrome (PMWS) has fallen due to the distribution of PCV2 vaccine by BPEX last year."

A further influence on the minimal decline in total 2008 slaughtering was a backlog, pushed from late 2007 into early 2008 as a result of foot-and-mouth-related restrictions in 2007. The backlog also bolstered carcase weight averages for 2008 and this, along with more sow cullings, led to total pigmeat production of 739,600t last year.

In April 2009, clean pig slaughtering was down by around 4% on the previous year, and had fallen by 12% in Scotland, with abattoir throughputs for May following a similar trend. However, greater stability in the breeding herd and improved sow productivity is likely to boost slaughtering in the second half of the year, says Fowler.

For the year as a whole, clean pig slaughtering is expected to fall to 9.1m head and pork production to 606,000t, with productivity gains to some extent alleviating falling sow numbers and the impact of the additional sow cullings in early 2008. Forecasts for 2010 build on continued confidence in the sector, with clean pig slaughtering estimated at almost 9.5m head and pork production at 628,000t.

Falling feed prices have been key to a return to net margins for UK pig producers. Feed prices peaked during the first six months of 2008, resulting in producers losing over £20 per pig and pushing up the number of sow cullings, says Fowler. An improved harvest lowered feed costs in the latter half of the year, which, together with producer prices at a 12-year high, resulted in some return to profit.

Feed prices have been down in 2009, but are expected to pick up again later in the year, albeit at a lower level than the same period over the last few years. l

In April, the levy paid by producers was restored from 75p to 85p per pig slaughtered, recognising the new industry confidence and profitability. The levy was reduced last year in recognition of the feeds cost crisis in the sector and its restoration brings the total levy paid by producers and processors to £1.05/pig.

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International performance

While stability appears to be within the grasp of the UK pig sector, a downward trend is continuing globally with the EU, US and Brazil all seeing consolidation of their industries.

Driven by the high feed prices over 2007-2008, EU pig numbers have dropped by around 6%. Eastern European countries - particularly Poland - have taken the worst hits, along with Denmark and Germany. EU supplies became tight, pushing up prices, in the third quarter of 2008, says AHDB senior economic analyst Tony Fowler, and an even greater impact is expected in 2009. Production is forecast to decline a further 5% in the first half of 2009.

The UK's premium over EU pig prices has fluctuated throughout 2009, from only 1p in January to 29p in May.

The weakening of sterling has been beneficial for export trade from the UK, particularly to the rest of the EU, with British currency virtually on a par with the euro at one point. Germany, the Netherlands, Ireland and Hong Kong were the biggest markets for UK producers and processors in 2008.

British exports were boosted by the additional sow slaughtering in early 2008; accounting for close to a third of pork exports, which rose by almost a fifth to 118,300t for the year as a whole. Value rose by 42% to £133m. Slightly lower volumes are forecast for export this year before a return to growth in 2010.

However, a weak sterling is creating a less favourable trading environment for imports and pushing up the price of imported feed, such as soya, for producers.

Pork imports, excluding pork for bacon production, fell by 12% to an estimated 366,000t in 2008, with supplies - notably bone-in shoulders - down by 22% from the biggest importer into the UK, Denmark.

Most imported Danish pork goes into manufacturing, but Tulip does supply some supermarket shelves with Danepak-branded pork, says Danish Bacon & Meat Council marketing director John Howard.

Tulip, the biggest importer of Danish pork, is increasingly focusing on UK production (see above). Imports from Germany and the Netherlands, again major suppliers into manufacturing with limited retail presence, have also fallen, while Irish supplies of pork into the UK were stable in 2008 despite the dioxin scare at the end of the year. A further decline in pork imports is forecast by BPEX for the year as a whole, continuing in 2010. "The exchange rate is a major driver in the UK and European pig markets," says Fowler.

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Promoting pork: BPEX CAMPAIGN PROVES ITS WORTH AFTER BUMPY START

BPEX kicked off 2009 with controversy, when the Advertising Standards Authority upheld complaints from animal welfare groups over claims in one of its ads promoting British pig production.

However, in May, the promotional body's 'The Pigs Are Worth It!' campaign was recognised at the SABRE PR awards in Stockholm, Sweden.

Other BPEX pork promotions this year have included a tour of catering colleges in England by Celebrity MasterChef winner Liz McClarnon with the 'Love Pork' team. The promotional body has also been pushing pork's health credentials with a report highlighting the protein's role in a balanced diet, 'Pork and Healthy Eating'. Only 4.3% of saturated fat in the average diet comes from red meat, according to BPEX.

BPEX's Love QSM Pork summer campaign, Not The Ashes, was launched in June and features Phil Tufnell hosting a morning of local radio interviews with BPEX home economist Clare Greenstreet encouraging consumers to be more adventurous with pork on their barbecues and try, for example, shoulder and belly. A video barbecue segment will also be supplied to food and lifestyle websites.




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