Although the increase in value is welcome for the supply chain, it has had an inevitable impact on consumer spending. Sales of frozen pork have increased 17.8% year-on-year in volume terms, compared to a 1.3% decline in fresh pork volumes. "Fresh sector volume sales are pressured due to rising prices, as a result of reduced promotions and increased costs of production," explains Kantar analyst Ana Sedych.
People are also turning to cheaper cuts in the face of higher prices. "Frying chops and roasting joints have shown the greatest volume decline of all cuts down -2.8% and -6.5% respectively while volume sales of cheaper diced and minced pork cuts have grown rapidly over the period," says Sedych.
From a production point of view, improved prices have helped maintain a stable supply over the last year, with a slight decrease in imports offset by an increase in domestic production, which Stephen Howarth of AHDB Market Intelligence puts down to improved productivity. "The breeding herd has remained pretty stable over the last few years, but improved productivity on farms means that more pigs are coming through," he explains. "Last year was the highest production we have had for nearly a decade and, this year, it looks like being higher again. This year we were up 3% in terms of pigs slaughtered."
He adds that the improvement in productivity has been largely down to poor profitability in the industry over the last couple of years, which has focused producers on getting the maximum out of their existing assets. "They have been more focused on improving health, genetics and feed efficiency, which all contribute to higher productivity," he says. "The profitability issues have forced out some producers at the bottom end of the market, and they tend to be the ones who are less productive."
Of course, the biggest variable for profitability and supply in the year ahead will be the European sow stall ban, due to be introduced on 1 January 2013. The ban will finally bring Europe in line with the UK's welfare standards and should enable the UK to compete on a level playing ground with its European competitors. However, the road to 2013 has been rocky and there are indications that large numbers of European pig farms will not be compliant by the deadline. If this is the case, and non-compliance is not punished, there is a risk that effectively illegal pork could end up on supermarket shelves and restaurant menus in the UK, undermining local production. Failure to reach compliance could also lead to a huge drop in European supply; although a small contraction would benefit UK producers, a big drop would lead to European retailers and foodservice companies forced to import cheap product from outside Europe, which would not be produced to the same welfare standards.
A Bpex report, published in April, said fewer than half of EU Member States are likely to be fully compliant with the EU Directive, with "significant numbers" of producers set to quit the industry, as they will be unable or unwilling to comply with the ban. The report predicted that pig production in the EU is likely to fall by at least 5%, leading to a to a price increase for finished pigs of at least 10%.
A Defra press release last month painted a more positive picture, claiming that 18 EU Member States will be fully compliant with the ban by the time it comes into force. However, Bpex chief executive Mick Sloyan points out that this does not mean that 100% of current pork production in those countries will be compliant. "It doesn't say how many of the existing producers would have left the business," he says. "All it tells you is they are hopeful they will be compliant by the end of the year."
Dr Zoe Davies, general manager of the National Pig Association (NPA), says Ireland is an example that proves this point. "Ireland says it is going to be compliant, but all of our intelligence says there is no way that is going to happen," she says. "It is only about 30% compliant now and they have only got six months." Indeed, Ireland recently asked Brussels for permission to extend a grant aid scheme to help pig farmers upgrade their facilities into the middle of next year.
Other major pork producing countries, such as France, have still made no indication of whether or not they will be compliant. "They are not communicating with the Commission," says Davies. "We are now pushing the Commission to get something out of these countries."
In a bid to get a more accurate picture of the progress towards compliance, Bpex has gathered economists from five different countries across Europe to compile a new report, due out later this year. "They have set up another inquiry in their own member states and we will probably have a far better position on the compliance situation in September," says Sloyan.
Davies says there are significant risks to the UK pig industry if compliance is not achieved and enforced. "The worst possible scenario would be that you have a lot of illegal, cheap stuff coming in and undermining everything else," she says.
With this in mind, the NPA and Bpex are working with EU regulators to ensure the legislation is enforced properly, and with the British supply chain to ensure they have precautions in place to prevent the importation of meat that would be illegal under the new rules. Last month, associations representing retailers, food service suppliers and manufacturers pledged that their members would be prepared and ready for the ban, at a stakeholder meeting held by Agriculture Minister Jim Paice. The NPA is following this up with individual visits to major retailers and letters to food manufacturers and foodservice companies.
Until recently, it looked likely that 100% compliance in the sow stall ban and a commitment from retailers and foodservice suppliers would be enough to improve the profitability of pork in the UK. However, adverse weather conditions in grain-growing regions across the world have resulted in a huge spike in feed prices in recent weeks, which is threatening to plunge producers back into an extremely difficult situation.
"The current feed market has taken off again and we are looking at feed wheat prices now for next harvest, next November, up at the £180/tonne mark which is obviously quite disappointing and adds quite substantially to a farmer's costs," says Sloyan.
Although the prices have not had much impact on producers yet, both Howarth and Sloyan predict that producers will feel the pinch when they start buying in their feed later this year. "It is going to be painful for many of them," says Sloyan.
"What we really need is some public commitment from retail and foodservice buyers that can be translated into a commitment to at least cover the cost of production increases. We are not talking about fancy strategies, we are talking about, maybe, six months to get producers through these higher feed prices." Without a price commitment, there is a risk more UK producers will exit the business, exacerbating the supply issue, he says.
"Profitability is really starting to pinch," says Howarth. "Some people are prepared to stand some short-term pain in the hope there might be gain coming along the line, but there is a limit to how much pain people are prepared to take."
