Danish Crown to focus capacity investments abroad

28-Apr-2014 - Last updated on 29-Apr-2014 at 08:53 GMT

Higher local wages may push fhe firm to invest abroad

Meat processing grant Danish Crown has warned meat industry unions that the pressure to pay higher wages in Denmark at its Danish meat processing plants means most future fixed capital plant expansion and capacity investments will take place outside its home country.

The company had earlier announced plans to scale-up its pig slaughtering capacity by 20% to 25 million animals by 2020. Over 90% of this capacity is now expected to take place abroad, a prospect that is worrying trade unions and government officials.

The Danish government, which recently proposed reducing meat plant operating costs by cutting state inspection charges, has asked Danish Crown to rescind its investment plans and re-enter talks, along with union organisations, to "create a more cost-efficient" meat industry in Denmark.

Conceding that the Social Democrat-led government is making efforts to address plant operating cost issues, Danish Crown reiterated that while the new proposals will marginally reduce its factory costs, they fall short of radically altering its cost-base, or causing the company to re-evaluate moving more investment and capacity abroad.

"We need to invest on a commercial basis. While we continue to look for ways to invest in Denmark, we also need to compete internationally. It is vital that we address the high wage component in our cost-base to maintain competitiveness," said Danish Crown’s CEO Kjeld Johannesen in a statement.

Danish Crown’s actions represent a cry for help from the government and the Danish parliament, said Erling Bonnesen, spokesman on food and agriculture for the Danish liberal party (Venstre), which is in opposition.

"The company feels that it has no other choice but to focus on overseas expansion. It is obvious that we have not seen the last of the slaughterhouse closures in Denmark. For a company in this sector, it simply does not pay to invest in pig production in Denmark," added Bonnesen.

He argued that Danish meat processing companies need to have a level playing field as regards costs to continue investing in Denmark.

"That level playing field must mirror costs in key rival markets such as Germany, Poland, Holland and France if we are to compete," said Bonnesen.

Denmark’s food exports reached DKK148 billion (US$24.5 billion) in 2013, up 0.4% on the previous year.