18 June 1985 New Zealand pig industry analysed

Unless New Zealanders can be encouraged to eat more pigmeat, the New Zealand pig industry faces the prospect of having to reduce the growth of production, according to Dr E.A. (Ted) Attwood, a visiting research fellow with the Agricultural Economics Research Unit at Lincoln College.

Dr Attwood, who is chief economist with the Irish Department of Agriculture, gives his view in a discussion paper just released by A.E.R.U.

He sees the prospect of pig output reaching 900,000 in 1985-86, making the need for reducing the rate of growth in output unavoidable.

This would be so unless markets could be developed at a rate "optimistic in prevailing conditions."

If markets could not be expanded sufficiently, adjustment would mean a substantial decline in the real price for pigs and possibly even in the
current price, he said.

Dr Attwood carried out research into the present situation and future development of the New Zealand pig industry last year.

How to dispose of 900,000 pigs in 1985-86, by intensive marketing and significant exporting, should be given urgent consideration, he said.

If marketing prospects continued to indicate likely serious overproduction, the Pork Industry Board should look to incentives for some producers to stop production.

Lower prices were inevitable if production continued to grow at a faster rate than consumption at current prices.

Producers earning poor margins from pig farming should assess the benefits of withdrawing from producing while prices for breeding stock were
still reasonably buoyant.

Dr Attwood said more research was needed on margins in different systems and levels of production, the economics of processing, and analysis
of the main factors determining the level of pigmeat consumption.

The best locations for production and processing, and a standard format for pig farm accounting should also be researched further.

Further development of the pigmeat industry would depend on the success of a drive for a remunerative market at home or overseas.

Development would also depend on the consequences of lower pigmeat prices on production and consumption levels.

Lower prices could facilitate development of export opportunities, particularly on markets where competition had not been distorted by producer subsidies.

Dr Attwood said that during the last few years the average efficiency of pig production in New Zealand had improved rapidly.

This improvement, along with a growth in the market for pigmeat, had brought about higher profitability and growth in output.

There was considerable potential for further improvement in production efficiency, and this would continue to be exploited by farmers.

Growing efficiency was linked to a growing concentration of production, and in 1983 the largest 200, out of the 5423 producers, produced 68 per
cent of output.

If this trend continued the 200 producers could soon be producing 75 per cent of total output.

These large producers have the incentive and opportunity to integrate new technology into production systems.

The costs of pig production vary widely, with producers having access to good-quality by-products, from dairying or food manufacturing,  producing at the lowest cost.

Such producers could more readily withstand a drop in profitability without suffering severe financial hardship.

Some producers might produce more to limit the effect on their net incomes of a decline in profit margins.

Producers with no access to cheap feed have seen the relative prices of inputs and output move against
them in recent months.

This has eroded some of the extra profitability from more efficient production.

Continued expansion in the industry indicates that the economic benefits of greater efficiency have not been so severely affected as to lead producers to restrict output.

The traditional relationship between feed prices and profitability has been partly off set by the financial consequences of changes in efficiency.

Processed pigmeat, particularly bacon and ham makes up 70 per cent of pigmeat sales, so effective marketing development should result in increased sales of processed products.

Sales of bacon and ham have steadily declined in recent years, and 18 per cent less bacon is eaten by each New Zealander than 20 years ago.

If the local market for pigmeat is to expand, processors will have to produce products to meet quality and price objectives,

Bacon curers must also look to developing new products at prices competitive with substitutes in household spending.

Marketing pigmeat has seen changes paralleling improvements in producing pigs, with supermarkets taking a larger share of the retail food market.

Greater benefits go to those able to supply high-quality pork and pork products in the quantities required by large retail organisations.

Interaction between market promotion and changes in retailing have been important in increasing sales of pork and pork products.

Spending on market promotion is well supported by producers who pay a marketing levy on the pigs they sell.

Growing pig production in recent years has come about because of higher productivity from each sow, and this is likely to continue.

At the same time there has been a steady increase in the volume of pigmeat because of higher average weight of pigs at slaughter.

However, Dr Attwood emphasises that "further expansion of total consumption of piqmeat is essential to the continued prosperity of the industry."

The major unknown in the marketing of pigmeat is the level of sales and the net prices that can be achieved on export markets.

Further information from Mr Ron Sheppard, Assistant Director, Agricultural Economics Research Unit, Lincoln College 8150, Canterbury,
New Zealand.