That's the prediction from an expert from Seges – an advisory service owned by the trade organisation Danish Agricultural and Food Council (Landbrug & Fødevarer).
With 2,400 full-time pig farmers in Denmark, the sector could lose nearly DKK720 million (US$107.5m), Klaus Kaiser, chief business economist at Seges told GlobalMeatNews. And these losses would continue to grow through 2016, although the average loss for Danish pig farmers would be DKK75,000 (US$11,206) by the year end, he predicted.
The industry has suffered bigger losses before, but its debts were not as high as today. In 2007, 2008 and 2009, with Europe reeling from the global financial crisis, farmers in the Denmark pig industry lost on average DKK475,000 (US$70,974), DKK1.2m (US$185,461) and DKK780,000 (US$116,548) respectively – conversions at current exchange rates – Kaiser said.
High debt
He added that the latest problem was the “first time loss is combined with high debt as a result of a political crisis”. The main reason for this, he explained, was the Russian ban on food imports from the EU and other countries imposing sanctions on Moscow over its Ukraine annexation and backing for rebels.
Losing Russia has cost the Danish pig industry dearly: in 2012, Denmark exported 103,561 tonnes (t) of pork to Russia and by 2014, those exports dipped to a mere 7,696t, according to statistics from Landbrug & Fødevarer.
Between January to June this year, Danish pork exports to Russia dropped to a mere 46 tonnes from 7,519t during the same period in 2014, according to statistics. “The EU exports 750,000t of pig meat to Russia every year – of this Denmark accounts for 10%-25%,” noted Jens Hansen, spokesperson for Denmark’s leading pork and beef processing company Danish Crown.
The losses could have been worse. Danish pig farmers have found alternative markets. “Getting this production out of the EU is not a significant problem and there are alternative markets to Russia – such as Asia and Australia,” said Hansen. “We have managed to sell the pork pretty well in these markets. But sale prices are significantly low compared with Russia.”
“Danish … pig meat is sold all around the world except the Middle East, so a lot of other markets are compensation for Russia,” explained Kaiser. “China is one of them. The price however is usually lower.”
Hansen called the current situation “one of the worst crises for the past four decades”, adding: “This comes at a time earnings have not been good since the global financial crisis struck. With good earnings farmers would have survived the recent years easier.”
Worst-case scenario
In the worst-case scenario, “the number of slaughterings will drop”, he said. Already “numbers have been dropping every year”. But on a positive note, however, there was “stabilisation this year” compared to previous years, he added.
In a situation like this, Kaiser said pig farmers “typically scale down investments, private consumption and savings [and] increase borrowing if the former is insufficient”. He added: “The best way to cope with these recessional situations is to be highly competitive on the long run. In that case you have had a good opportunity to build up sufficient reserves to withstand temporarily losses.”
The current situation is a result of a deep recession, but the price is expected to increase gradually through 2016 and 2017, he predicted.