Pig farming in the Netherlands: from added costs to added value
Dutch pig farmers have fallen on hard times due to low prices in international markets. But Rabobank looks beyond the present and sees many opportunities for the sector that is at the forefront of innovation, product quality and sustainability. However, there are two conditions if the sector is to remain viable in the future: lower production costs and a stronger market position.
Dutch pig farmers rely on international sales for 60 percent of their production and currently their main export markets are Germany, Italy and Belgium. If they are to increase their revenues, these farmers will need to both open up new export markets and offer products for which supermarket chains and consumers are willing to pay a little extra. 'The sector is facing the challenge of ensuring that investments in quality and sustainability actually translate into added value above and beyond other, competing pork products available on the market and to do so in such a way that customers can really tell the difference. This means offering products that are so superior that consumers will come to develop a preference for Dutch pork and are willing to pay higher prices. There are already several Dutch retail chains that sell pork known for being extra tasty or sustainable, but the quantities are too small at this stage to really make a difference. We need more of these superior-quality products, both for domestic sales and for our export markets', says Ruud Huirne, Director of Food & Agri Netherlands at Rabobank.
High production costs
If pig farming in the Netherlands is to remain viable in the future, farmers will need to curb production costs. Dutch pig farmers spend a relatively large amount on production compared to their counterparts in other countries. As Huirne explains, there are multiple reasons for these higher overheads. Although Dutch pig farmers employ highly efficient production methods and lead the way in terms of quality and sustainability, they are having to pay higher costs in areas such as manure, environmental measures and animal welfare. One of the most pressing questions is how the sector is to implement these changes and who should take the initiative in doing so. The 'Vital Pig Farming' project, an alliance between Rabobank, the Producer Organisation of Dutch Pig Farmers ('Producenten Organisatie Varkenshouderij') and the Dutch Ministry of Economic Affairs, led by former cabinet minister Uri Rosenthal, has been initiated for this purpose.
Commenting on the current woes in the Dutch pig farming industry, Koen van Bergen, Pig Farming Sector Manager at Rabobank, says: 'Peaks and troughs are simply part and parcel of this industry. Remember that this is where the term hog cycle originated. Returns in the pig farming sector will remain significantly below the long-term average in 2015. Both our customers and we, as their bank, are feeling the pinch.' The Netherlands is home to around 5,000 pig farms with a combined population of more than 12 million pigs. A total of 80 percent of these farmers are Rabobank customers and the bank has 2.4 billion euros in loans outstanding in the sector.
Russian import ban
The prices pig farmers receive for their animals dropped sharply in the late summer of 2014, to below the long-term average, on the back of the ban on Russian imports. Dutch pig farmers collectively produce more than the home market can absorb and farmers rely on exports for 60 percent of their output. After losing their major export market Russia virtually overnight, European pig farmers were forced to look to the European Union to sell their 800 million kilos of pork products (which Russia had sourced in the EU up to 2013), putting an immense strain on the European market. Van Bergen: 'With the Netherlands being so dependent on exports, this comes as a massive blow to our domestic pig farmers.'