Memorandum submitted by Laurence Gould
Partnership Limited (Pigs 10)
1. SUMMARY
1.1 Budgets were prepared for an organic
pig breeding and finishing system to provide a basis for considering
the options for survival under the current market conditions.
1.2 The budgets were based upon a 300 sow
breeding herd selling organic finished pigs certified by the Soil
Association.
1.3 Organic production has been encouraged
by DEFRA in recent years.
1.4 The two significant problems faced by
enterprises in this sector are:
— Significant increase in organic feed
price—37% in the last 12 months.
— Dramatic reduction in demand for
organic pork—assume as a result of rapid change in market
with consumers moving away from premium products with less money
to spend.
1.5 Potentially a move to conventional free
range pig production could allow enterprises to continue.
1.6 To allow this to happen rapidly it is
necessary to be able to move to the conventional free range system
without the land losing its organic status. This will allow organic
pig enterprises to adapt to the current market conditions. The
organic regulations currently do not allow this and in order for
this to happen a derogation would need to be granted by DEFRA.
The alternatives are to lose significant amounts of money or to
cease production.
2. INTRODUCTION
2.1 I am a director of Laurence Gould Partnership
Limited based in our South West office. Laurence Gould are independent
farm management advisors established for over 40 years working
mainly for farmers assisting with the development and profitability
of their businesses.
2.2 I have been asked to prepare budgets
and comment on ways forward for an organic pig enterprise. I have
used this as a basis to consider options for the future and the
problems facing organic pig producers.
2.3 Budgets were prepared for a system based
upon 300 breeding sows with finished pigs sold at approximately
75kg deadweight to Soil Association standards.
2.4 Outdoor organic pig enterprises form
part of an organic arable rotation. A 300 sow unit typically utilises
between 25 to 40 hectares rotated annually.
3. CURRENT POSITION
AND STATE
OF ORGANIC
PIG INDUSTRY
3.1 The business investigated has been profitable
and had the benefit of a fixed price feed contract to 31 August
2008.
3.2 The pigs were being sold at 240p per
kg deadweight through to the start of September 2008.
3.3 Feed prices have increased rapidly in
the last 12 months with a shortage of supplies particularly in
the organic sector. From 1 September 2008 the change in feed price
will increase the forecast cost of production by 52.7p/kg deadweight
(£189,830 per annum).
3.4 The budget for the year ending 30 September
2009 shows the breakeven price for organic pigs sold to be 270.7p
kg deadweight.
3.5 At the end of July 2008 it was considered
that there was scope for the finished organic price to rise to
cover the increased feed costs and return a small profit.
3.6 In early August it became clear that
the organic pig price was not going to increase from the 240p
per kg deadweight in the short term.
3.7 On the 2 September 2008 the enterprise
was told that their organic pigs were not wanted and that the
price would be 140p per kg deadweight with immediate affect.
3.8 At 140p per kg deadweight continuing
to feed organically would result in a forecast loss of 130.7p
per kg deadweight equivalent to £470,520 per annum.
3.9 There will be situations where producers
currently have sale contracts at above breakeven prices but these
are expected to reduce.
3.10 Clearly the significant increase in
feed costs coupled with the rapid drop in demand has caused a
major financial problem requiring rapid action to rectify.
4. OPTIONS FOR
THE FUTURE
4.1 Options for the future development include:
— finding a replacement organic market;
— producing conventional free range
pigs (non-organic); and
4.2 Demand for organic production appears
to have dropped dramatically and finding a replacement market
for 90 pigs per week is not considered to be possible in the short
term.
4.3 Producing conventional free range pigs
(non-organic) is considered to be the practical way forward in
the current market. This is estimated to reduce the breakeven
price from 270.7p per kg deadweight to 153.9p per kg deadweight.
This option would have the advantage of continuing the enterprise
at a near breakeven price and providing an opportunity to convert
back to organic production at a later date (assuming that demand
for organic pigs returns in the future).
4.4 The enterprise has been built up over
a number of years and stopping the enterprise is considered to
be a waste of a potential opportunity for the future. To stop
this enterprise would take approximately four to eight months
depending upon opportunities to sell weaners. Breeding sows are
likely to be culled and staff would be made redundant. Once stopped
it is unlikely that this enterprise would be restarted (if organic
demand increased) because of high initial setup costs and the
time delay between setup and selling pigs.
5. THE WAY
FORWARD
5.1 In order to progress it is important
to be able to react rapidly to the current market conditions and
convert to conventional free range production quickly.
5.2 Currently the Soil Association have
suggested that the following two potential options are available:
— Feeding the growing and finishing
pigs conventionally with a limit of 120 days on organic land.
This is not considered to be a solution with too short a time
scale to be practical.
— Removing the land used for pigs from
organic production creates a problem in that the enterprise is
part of an arable rotation. Taking land out of organic production
would then necessitate a two year conversion period back to organic
after the pigs were rotated on. The crops grown in this period
would not be organic (for which there is currently a very high
demand). This could also lead to problems in the post harvest
handling and storage of grain (keeping crops separate). There
would be issues with the Organic Entry Level Scheme on the land.
This is not considered to be a practical solution at this stage.
5.3 Allowing conventional free range pig
production on organic land would provide a practical solution
to allow the continuation of this enterprise. Currently the organic
regulations do not allow this. In order for this to be allowed
it is understood that a derogation would be needed from DEFRA.
6. CONCLUSION
6.1 The only practical way for the organic
pig enterprise investigated to continue is for DEFRA to grant
a derogation to allow the use of organic land for conventional
free range pig production until market conditions change significantly.
Mark Shepheard
Director
September 2008
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