Germany's Swine Industry - Outlook for the Coming Years.
In an article written exclusively for Feedinfo News Service, Hans-Wilhelm Windhorst, emeritus professor at the University of Vechta, discusses current trends and future expectations in the German pork production industry.
Table 1: The ten leading exporting and importing countries for pigmeat in 2007 (source FAO database).
As can be seen from the data in table 1, Germany ranked in top positions among the leading pigmeat exporting and importing countries in 2007.
With a contribution of 12.4 % to global exports the country ranked at second place behind Denmark. In terms of pigmeat imports Germany ranked as number three with a share of 10.2 % behind Japan and Italy. The export surplus in 2007 was only as high as 280,000 tons. But this is worth mentioning as Germany showed a high import surplus for several years and it was not before 2005 that the trade balance was even.
The continuous increase in the number of slaughtered pigs led to a growing self sufficiency rate and fast rising export volumes. In 2009, exports reached an all-time maximum with 2.12 MMT. Imports increased only slightly to 1.2 MMT so that a trade surplus of 900,000 tonnes resulted. The USA and Germany became the leading pigmeat exporting countries, with Denmark in third place.
Table 2: The ten leading countries of destination for German pigmeat exports in 2009
(Source: AMI 2009, Statistisches Bundesamt, ISN)
While at the beginning of the decade German pigmeat exports were mainly targeted at EU member countries, non-EU countries became more important customers in the following years.
As can be seen from the data in table 2, Russia and Hong Kong ranked as number 3 and 5 among the leading countries of destination and together shared 18.2 % of the overall exports. Nevertheless, intra-EU trade is still dominating with Italy and the Netherlands in the top two positions. The regional concentration of German pigmeat exports is rather high for the ten leading countries shared almost 77 % of the German export volume. It is worth mentioning that neither Japan nor South Korea, two important Asian pigmeat importing countries, are to be found among the major customers.
For 2010, AMI in its Agrarmarkt-Report 2010, projected an increase of hog slaughtering to 57.5 million. Pigmeat production was estimated at 5.4 MMT and the export volume at 2.25 MMT. If these volumes are reached, Germany will become the leading exporting country for pigmeat and further processed products. The export surplus will be as high as 1.1 MMT. This will, however, lead to a higher dependence of the German swine industry on the dynamics of the global market for pigmeat.
Because of the volatility of the global pigmeat prices such dependence has to be assessed as a growing risk, in particular when floating exchange rates lead to sudden turbulences in the market. This was a bitter experience which, for example, Spanish egg producers had to face in recent years.
Can German pigmeat producers in the long run be competitive in the global market?
The ability of the German pigmeat producers to be competitive in the global market will depend on a number of factors.
• Production costs and the average size of pig herds
• Competitive sizes of slaughterhouses
• Organisation of the supply chains
• Product innovations
• The installation of large sow and fattening farms
• Legal regulations of animal welfare and environmental protection
• Risk of the introduction and dissemination of highly infectious diseases
• Development of feed prices
Table 3: Average size of pig farms in selected German states in 2007 (Source: Statistisches Bundesamt)
In terms of average herd sizes in pig farms, Germany ranked far below other major pigmeat exporting countries. In Denmark, the average herd size in 2007 was 1,903 pigs, in the Netherlands it as 1.342 pigs, and in the USA 898 pigs. The mean values, however, do not give a correct impression of the sectoral concentration. In the Netherlands, only 9 % of the farms (> 2,000 places) shared 40% of the Dutch pig flock. In Denmark, 21% of the fattening farms (> 2.000 delivered hogs per year) contributed 62% to the total number of slaughter pigs in 2008. In the USA, only 2.2% of the pig farms (> 5,000 places) held 79% of all pigs according to the 2007 Census of Agriculture. Besides the slaughterhouses and further processing companies, farms of this size are deciding the dynamics in the global market.
A comparison with the situation in Germany (table 3) shows that only in a few states pig farms reach a similar herd size. Nevertheless, a considerable number of pig farms in the centres of production have a competitive size.
In contrast to poultry meat production, there are hardly any vertically integrated companies in pigmeat production in Germany. Besides an efficient primary production, slaughterhouses and further processing companies of sufficient size are necessary to be competitive in the global market. Otherwise they will not be able to offer products in certain volumes and a defined quality regularly.
Table 4: The ten leading German pig slaughterhouses in 2009 (Source: AGRA-EUROPE 12/2010, Markt und Meinung, p. 3)
From table 4 one can see that the three leading German companies in pig slaughtering in 2009 shared 52.4 % of the total number of slaughtered pigs. Tonnies was in a dominating position with 13.2 million head. The company's capacity came close to that of Danish Crown (16 million), but was considerably lower than that of Smithfield (about 21 million).
It is worth mentioning that in Germany in 2009 ten companies with an annual slaughter capacity of more than 1 million pigs were still in production compared to only two in Denmark and six in the Netherlands.
In addition, ten more companies had an annual capacity between 400,000 and 1 million. Slaughterhouses of this size are no longer of any importance in the two neighbouring countries. This may be a result of the comparatively small domestic market in Denmark and the Netherlands and the high self sufficiency rates. It can be expected that the consolidation process will lead to a sharp decline of slaughterhouses within the next decade in Germany.
Major factors that will influence the future development of the swine industry in Germany will be the competition between the farms that produce maize for biogas production and farms that produce feed for livestock farms, as well as the limited area of arable land which can be used for the application of slurry from pig production. Additional costs for feed and the renting of land can reduce the competitiveness of pig farms as the examples of the Netherlands and Denmark show.
The preceding analysis could demonstrate that the German production and export of pigmeat has shown a remarkable dynamism since the beginning of the decade. The continuous growth of the domestic primary production and the import of slaughter pigs led to rising production volumes so that from 2005 on exports of pigmeat surpassed imports. A trade surplus of more than a million tonnes is expected for 2010.
Germany has become a major player in global pigmeat trade. On the one hand this has been a remarkable economic success, but on the other hand it includes considerable risks which must not be underestimated. The increase in annual slaughter volumes was only possible through imports of piglets and slaughter pigs. For 2010 AMI (2009) projects an import of 15.7 million live pigs with more than 11 million piglets expected to be imported from Denmark and the Netherlands.
Besides the growing dependence on the dynamics of the global pigmeat market, the fast increase of trade with live animals heightens the risk of the introduction and dissemination of highly infectious diseases. In addition, the land use conflicts between farms which produce feedstuff and those that mainly grow maize for biogas production limit further growth in the centre of pig production in north-western Germany.
Germany will only be able to hold its position among the top pigmeat producing and exporting countries if the emerging new organisation of the supply chain and the new spatial organisation can be realised without major disturbances.
References and additional literature
Arden, M.: Export: Pole-Position fur Deutschland. In: SUS 2010, no. 2, p. 8-16.
FAO Datenbasis: www.faostat.org.
Windhorst, H.-W.: Die Dynamik ist ungebrochen. Eine Analyse der regionalen Strukturen der weltweiten Schweinefleischproduktion. In: Fleischwirtschaft 89 (2009a), no 2, p. 65-71.
Windhorst, H.-W.: Europa bestimmt weiterhin den Welthandel. Eine Analyse der regionalen Dynamik des Handels mit Schweinefleisch. In: Fleischwirtschaft 89 (2009b), no 11, p. 24-28.
Windhorst, H.-W.: Das Ende einer Erfolgsgeschichte? Die Dynamik der danischen Schweinefleischproduktion in den zuruckliegenden beiden Jahrzehnten (Teil 1 und Teil 2). In: Fleischwirtschaft 90 (2010), no 2, p. 16-24 and no 3, p. 45-51.