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AHDB European Market Survey

27 February 2012

AHDB European Market Survey - 24 February 2012AHDB European Market Survey - 24 February 2012

Exports of New Zealand lamb during 2011 were 11 per cent lower than 2010 levels, totalling 258,000 tonnes product weight.


Further decline in EU pig herd

Most EU Member States have now published provisional results of their pig censuses, taken between November 2011 and January 2012. The results cover 92 per cent of the total EU pig herd. Across these countries, the overall pig population was two per cent lower than a year earlier. The fall in the breeding herd was sharper, with the number of sows down by three per cent. The number of in-pig gilts was down by four per cent, suggesting that further falls can be expected during 2012.

Over the last year, there have been two main drivers behind the decline in the pig population. In much of the EU, the key factor has been the difficult financial situation facing the industry. High feed costs have meant that many producers have been in a loss-making position for most of the last year. This has particularly hit smaller, less efficient producers, many of whom have quit the industry.

In addition, a large proportion of pig breeders in most Member States have faced the challenge of complying with new welfare regulations which come into force in January 2013, including the partial ban on the use of sow stalls. Many have decided to leave the industry or scale back production rather than make the necessary investment in group housing. Others have decided to move from breeding to finishing.

These two factors have been partly offset by further improvements in sow productivity. This means that the number of fattening pigs has declined less than the breeding herd and the number of piglets under 20kg in weight was actually slightly higher than a year ago. The decline in fattening pigs would have been slower still but for a seven per cent reduction in the number weighing 110kg or more. This was the result of some pigs being marketed at lower weights to reduce feed costs.

Percentage change in EU breeding sow herds,
Nov/Dec 2010-2011

Some of the sharpest declines in the breeding herd were recorded in Member States of Eastern Europe which have suffered from long-term declines due to poor profitability. This includes the Czech Republic, Poland and Slovenia. Large falls have also been recorded in some smaller Member States which appear to have made particular efforts to comply with the new welfare regulations. Examples include Lithuania, Luxembourg, Malta and Finland.

Changes in the larger Member States of Western Europe have generally been more modest. Most recorded small declines in their breeding herds, of up to four per cent, with the total number of pigs little changed. Of those countries who have reported results so far, only the Netherlands, Estonia and Romania have recorded increases in their breeding herds. Provisional figures from Romania show a 14 per cent rise, although an increase on this scale appears unlikely. Nevertheless, the Romanian pig industry has received significant foreign investment in recent years and the lifting of a ban on exports of pig meat to the rest of the EU may have encouraged expansion of the herd in anticipation of better export prospects.

New Zealand lamb exports suffer from lower production

Exports of New Zealand lamb during 2011 were 11 per cent lower than 2010 levels, totalling 258,000 tonnes product weight. This comes as supplies of lamb during key trading periods were severely limited. Overall lamb production in 2011 was six per cent lower than in 2010 with lamb slaughterings down nine per cent. However in the first five months of the year, when sixty per cent of the lamb was produced, production was 11 per cent lower year on year. This five month period accounted for 55 per cent of lamb exports in 2011 and volumes were 17 per cent lower year on year. This is the key time of year for trading with the EU and other Northern Hemisphere markets. With locally-produced new season lambs in very short supply and the Easter celebration (March/April) increasing consumer demand, these regions experience increased demand for NZ product.

With less lamb available during the key trading period with the EU, volumes to this market fell more than the overall total. At 123,000 tonnes, lamb exports to the EU were down15 per cent, with volumes sent to the UK back by 18 per cent, to France by 31 per cent and to Germany by seven per cent.

The lacklustre demand for lamb in Europe, mainly stemming from the financial crisis, has also reportedly limited shipments and led to New Zealand exporters looking to other markets. This led to growth in exports to countries such as China/Kong Kong, up by 12 per cent, Canada by four per cent, Japan by two per cent and Ghana by seven per cent.

With lower lamb production limiting exports, mutton exports increased to compensate on the back of some higher production. In the first six months of the year mutton production was 17 per cent higher but slaughterings fell back towards the end of the year and the figure for the year as a whole was actually five per cent lower than in 2010. With surplus production for much of the year, mutton exports increased by 11 per cent to 70,000 tonnes.

There were a number of markets which took increased mutton volumes, likely as a substitute for lamb. Volumes shipped to the EU were 11 per cent higher and to the US one per cent higher. China/Hong Kong took 90 per cent more mutton in addition to numerous other markets which took increased volumes.

The latest mid season outlook from Beef + Lamb New Zealand indicates that in the 2011/12 season (October to September) lamb production will increase by three per cent to 363,000 tonnes. This increase is largely the result of a two per cent increase in the 2011 lamb crop, a considerable revision from earlier estimates of a six or seven per cent increase. Lamb slaughterings are expected to increase almost three per cent to 19.7 million head with carcase weights expected to increase one per cent to 18.4kg to offset the lower than expected increase in lamb numbers. With increased production lamb exports for the season are expected to be more than three per cent higher.

Dramatic increase in US pork and beef exports

In 2011, US fresh and frozen beef exports were 22 per cent higher than a year earlier. After a slight decrease in 2010, fresh and frozen pork exports increased by 25 per cent. During 2011, the US dollar was relatively weak compared with many currencies, improving the competitiveness of US beef and pork in export markets.

The growth in beef exports was primarily due to increased shipments to Japan, South Korea and Canada, each of which recorded increases of around a third. This was supported by increases to the smaller markets of Russia, Hong Kong and Vietnam. Local production in Japan contracted in 2011 due to a combination of livestock losses and disruption to markets following the tsunami, which lead to increased demand for imported beef. The low value of the US dollar compared with the Japanese yen contributed to the significant increase in shipments.

USDA forecasts that the South Korean outbreak of foot and mouth disease (FMD) in 2010 would lead to stronger growth in US beef exports to the region in 2011 were fulfilled. Higher pork prices in South Korea as a result of the culling of infected pigs have encouraged consumers to switch to other protein sources such as beef. The US Congress has recently approved a free trade agreement with South Korea. Exports of beef to Russia, although historically small, increased significantly to 47,000 tonnes.

During the first half of 2011, South Korea imported more US beef than Mexico. However for the year as a whole, Mexico remained the leading destination for US beef exports despite a two per cent year on year decrease due to Mexico’s slow recovery from the economic crisis. The USDA forecasts that as beef inventories continue to decline and cow slaughter diminishes, beef production will decline in 2012 which could affect export availability. Nevertheless, export volumes are expected to remain high.

For fresh and frozen pork, increased shipments to Asian markets were the key driver of the growth in export volumes. Japan remained the primary market for US pork with shipments increasing by 19 per cent compared with 2010. Following the relaxation of Chinese import restrictions related to A-H1N1 and with rising Chinese prices, shipments to China grew dramatically, accounting for over half of the growth in US pork exports. This made China the third largest export market for US pork.

Shipments to South Korea also increased dramatically in the wake of the FMD outbreak. Volumes sent to Canada, Russia and Australia also increased. This more than offset a 38 per cent (22,500 tonnes) decrease in exports to Hong Kong due to the Chinese government’s new policy regarding product re-exported to China via Hong Kong.

The USDA forecasts indicate that pork exports will continue to increase during the first half of 2012. Shipments to Asia and other North American countries are expected to be particularly strong as the persistently weak US dollar drives up export demand.

Decline in French cattle numbers

According to data from Eurostat, cattle numbers in France in November 2011 were down three per cent on the previous year. This followed a two per cent increase in numbers between 2009 and 2010. Adult cattle slaughterings were up four per cent between January and November 2011 compared with the previous year, entirely due to increased slaughterings of female cattle.

Dairy and beef cow numbers were down one per cent and two per cent respectively on the year. Total cow slaughterings in January to November 2011 were up nine per cent on the same period in 2010, mainly because of culling of beef cows as a result of the drought in the spring and lower profitability. The number of heifer replacements aged over two years was down around seven per cent on the year, suggesting a further decline in cow numbers in 2012. Assuming better grazing conditions this year, female beef production is forecast to decline by five per cent in 2012 according to the Institut de l’Elevage after an estimated increase of six per cent in 2011.

The number of calves for slaughter in November 2011 fell two per cent on November 2010, as did total calf numbers. Calf slaughterings in January to November 2011 were down around two per cent on the year, as consumer demand for veal was weak. The situation was not helped by higher retail prices and veal finishers cut back on their throughput.

The number of cattle aged between one and two years was down two per cent on the year. Male cattle numbers were down four per cent indicating that a downturn in male cattle slaughterings can be anticipated in the first half of 2012. As a result male beef production for 2012 as a whole is forecast to fall by as much as six per cent after an estimated reduction of two per cent in 2011.

In January to November 2011, exports of live cattle weighing between 161 and 300kg and males over 300kg were up on the year, which will have contributed to the lower numbers on farm in November. Total live cattle exports were up 11 per cent on the year to 1.4 million head, driven by growth in shipments to the two largest markets of Italy and Spain and a sharp increase in trade with Algeria. The opening up of access to Turkey in September also contributed to the flow of exports. In contrast, shipments of live animals to Belgium and Greece fell on the year.

Japanese pork imports increase

Imports of fresh and frozen pork to Japan picked up in the last quarter of 2011 and for the calendar year increased five per cent on 2010 levels to 793,000 tonnes. This was mainly due to a 10 per cent increase in fresh pork shipments, although frozen imports also increased by three per cent. The Japanese domestic pig market suffered in 2011 on the back of the earthquake and tsunami and the subsequent nuclear crisis. This resulted in reduced domestic production and food safety concerns in regard to radioactive contamination. This increased the need for imported pork product, driven by steady consumer demand. For 2011 as a whole, total consumption was up two per cent despite a two per cent decline in the availability of domestic product.

The US was the dominant supplier of pork imports, accounting for 41 per cent, a slight increase from 2010. The EU maintained its market share at 28 per cent. In US dollar terms, the average price of Japanese pork imports in 2011 was 10 per cent higher than a year earlier. However, the strength of the yen meant that prices were virtually unchanged in that currency as the price of imports is controlled by the Japanese government.

Frozen product accounted for 68 per cent of total imports in 2011, a slight decrease from the 69 per cent share in 2010. The US overtook Denmark as the largest supplier, with shipments up by almost eight per cent year on year while Danish deliveries fell by two per cent. Canada continued to be the third major supplier, although shipments fell by 10 per cent year on year. Imports of frozen pork from the EU increased by seven per cent between 2010 and 2011, with considerable growth in imports from smaller suppliers such as Poland, Spain and Ireland.

Fresh and chilled pork imports were 10 per cent higher than the previous year at 254,000 tonnes. Volumes from the US and Canada were up nine per cent and 14 per cent respectively, although shipments from Mexico were lower. Imports of fresh and chilled pork from the EU remained negligible given the longer shipping time compared with North America.

Looking forward, it is anticipated that the weak Japanese economy and domestic situation will continue to affect the pork market in 2012. Nevertheless, pork production is forecast to show a small recovery and consumption is projected to hold steady. However, increased domestic pork supply is expected to restrict import demand in 2012, with significant further growth unlikely.

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