Danish pork sector to lose DKK1.6bn to Russia through Moscow ban
The industry is becoming increasingly concerned that lost revenue could potentially deepen, should the existing trade sanctions escalate into a full-force trade war in the event of a further deterioration in political relations between the European Union (EU) and Russia over Ukraine.
A more fundamental and immediate concern for Danish meat producers and exporters is the knock-on negative impact of current EU-Russia sanctions. Meat companies fear prolonged sanctions could lead to reduced operations or the closure of processing units that largely serviced the Russian market. Denmark is the world’s second-largest exporter of pork to Russia.
Tican was the first major pork producer in Denmark to re-adjust operations in response to retaliatory food trade sanctions by Russia. On 22 August, the company decided to close its Russia-focused pork cuts factory in Fjerritslev, northern Jutland. The decision will result in the lay-off of around 160 workers.
"We had held out hopes that Russia would re-open its doors to the import of pork from the EU, but after the recent escalation of the trade boycott, we recognised that the conflict has all the hallmarks of being protracted. Based on this economic analysis, we decided the correct move is to close the factory in Fjerritslev as it was unprofitable to operate," Ove Thejls, Tican’s CEO told journalists in Copenhagen.
Russia is Tican’s largest export market for fresh and smoked pork products. The company had already scaled down export operations to Russia after Moscow, reacting to outbreaks of swine flu in pig herds in Lithuania and Poland, imposed a ban on all EU pork imports from January.
Tican will continue to export pork to other markets in eastern Europe, although due to cost factors, less of the boning work will be carried out in Denmark. "De-boning costs are between 20% and 25% less in Eastern Europe than in Denmark," said Thejls.
Meanwhile, Denmark’s food and agriculture minister Dan Jørgensen told a government ministerial meeting, held to discuss economic policy and trade sanctions on 28 August, that meat producers needed to utilise the government’s ‘employee investment scheme’ which enables unions or employee groups, on behalf of workers, to trade equity investment by employees in companies against potential job or wage cuts by their employers.
"The scheme is an effective way of motivating meat sector employees to engage more constructively in company plant cost reduction initiatives by investing in these companies and units. Danish producers are resilient, and they will find new markets for their meat products," said Jørgensen.
However, Thejls contended that while the scheme was a worthwhile initiative, asking employees to invest, or even agree to a 10% pay cut, would be ineffective in bridging the wide gap between the Danish cost-base and factory production costs in eastern European EU-states.
Denmark exported food products worth a total of DKK4.3bn (US$758m/€578m) to Russia in 2012. Of this amount, pork product exports were valued at DKK1.6bn (US$282m/€215m). The Russian market accounted for 6% of Denmark’s total exports of pork in 2013.
