Given its competitive processing sector, the German industry plays a key role in the North European pork industry. Germany is also a significant exporter of pork products to both other EU countries and other international markets.
Despite overall meat consumption levels falling over the last 20 years, pork consumption has remained fairly stable. Germans eat relatively large volumes of pork – consuming around 54kg/person, compared to an EU 27 average of approximately 43kg/person.
Germany is the third largest pork producer globally behind China and the US. Within the EU, Germany accounts for 25% of EU pig production. In 2010, Germany produced 5.4 million tonnes or 25% of the EU27 total. Spain with 3.4 million tonnes (15 %) and France (2.0 million tonnes - 9%) are the next two largest producers.
Producer numbers declining
Like almost all other agricultural industries, the number of German pork producers has declined, as the industry has become more professional and concentrated. Currently there are around 70,000 pork producers managing around 27 million pigs. The industry still has large numbers of small producers, but over 60% of all pigs are raised in farms with more than 1,000 animals.
Pig production in Germany faces a number of challenges. Most farms are located in populated areas, with the inevitable challenges of managing effluent, odours and other externalities. High land costs, often driven by the biogas sector, contribute to the challenges for producers to grow their businesses.
Like the production sector, the German processing sector is large and diverse. There are over 250 abattoirs and 600 cutting plants in Germany, with the largest processor, Tonnies Fleisch accounting for around 25% pigs slaughtered. The top three processors Tonnies, Vion and Westfleisch, account for 55%. The industry has consolidated over recent years, with the top 3 companies growing their share of the market from 45% in 2006 to 55% in 2010. Tonnies for example, grew its production capacity from 10 million to 15 million head between 2006 and 2010.
Germanys processing sector is regarded as being one of the most competitive in Europe and is generally efficient. Large use of foreign (low cost) labour is often quoted as one of the key reasons behind the processing sector’s competitiveness. However, the industry also has some of the most modern plants in Europe and has invested in new technologies, such as systems for the production of case - ready products.
German processing proves attractive
The competitive nature of the German industry has meant it has become a processing sector for the region, with volumes of young pigs being sent from the Netherlands and Denmark to Germany for processing.
The growing processing sector has resulted in Germany’s self sufficiency in pork increasing from 87% in 2000 to over 110% in 2010.
The German industry has also become a significant exporter with over two million tonnes of pork exported to some 120 countries. Although the majority (approximately 75%) of German pork is exported to other EU countries, over 500,000 tonnes of pork is also exported outside the EU.
Like almost all other pig industries, German pig producers have been impacted by the higher grain costs prevalent through most of 2011. This has lead to lower numbers of pigs being produced. However this impact has been modified to a degree during the latter half of 2011 as feed prices dropped back from peak levels and pork prices increased. Over much of the summer and autumn, supply and demand have been in relative balance and pork prices relatively stable.
Consumer concerns regarding the impact of pig production on the environment and the benefits of consuming meat in the diet were given a sharp knock at the start of the year, when so called “technical fats”, which contained high levels of dioxin, made their way into the pork supply chain. Although the contamination was not thought to be critical to human health, the issue gained widespread publicity and resulted in decreased pork consumption and import bans on German pork products from some countries.
Compared with many other European countries, Germany is in a relatively strong position regarding compliance with the new EU Legislation on pig housing. In the North of the country, where most of the industry is concentrated, estimates suggest that between 60 – 65% of sow places are already compliant with all of the new EU legislation. This figure drops significantly however to between 30 – 40% for pig farms in Southern Germany. The exact final impact of the new legislation on the German industry is not known, but it is thought that there will be a reduction in the numbers of small scale and non-professional producers after 2013.
Challenges ahead
While feed prices and EU legislation have a very tangible and clear impact on the industry, there are also a number of longer term challenges facing the industry. Perhaps the greatest challenge is the industry’s relationship with consumers. Although pork is Germany’s favourite meat, pig farms, because of their environmental impact and then health and safety scares (such as the dioxin issue) and exposes on poor animal welfare have eroded some consumers’ confidence in the industry.
Durability and the so-called LoHAS – life style of health and sustainability are high on growing numbers consumers’ agendas. At present, the pig industry is doing a rather poor job of convincing them that pig production is good for them, for the pigs or the environment.
Although the industry has a diverse customer base with a number of less sensitive markets for their products – creating a strong position for the German pork industry, in the minds of German public this is a critical issue.
All parts of the pork supply chain need to work together rapidly address consumers concerns regarding sustainability and welfare issues – effectively setting the standards and the agenda rather than being forced to comply with imposed standards. Clearly the challenge for the German pork industry is to make these changes while still maintaining a viable and competitive industry.
Andrew McLay is a Senior Consultant with Promar International and has worked on a range of assignments in the agri food sector in the UK, the rest of the EU, China, India, Russia, Latin America and New Zealand. Promar International is the value chain consulting arm of Genus plc and he can be contacted at the following email: andrew.mcLay@genusplc.com