Roomier Pig Pens May Raise Pork Prices as EU Output Ebbs

European Union rules requiring pig farmers to keep animals in larger pens may mean production in the world’s second-biggest pork exporter is set to fall, as farmers choose between barn remodeling or going out of business.

Beginning Jan. 1, farmers in the 27-nation bloc will be required to keep breeding animals together in open pens for most of their lives, instead of confining them individually in stalls that are often too small for a pig to turn around. Pork output in Europe, the biggest shipper after the U.S., may drop as much as 10 percent after the ruling goes into effect, because some farmers aren’t prepared to make the change, the U.K.’s Agriculture and Horticulture Development Board said.

“If European prices go up, that potentially makes European products a little less competitive on the global market,” said Stephen Howarth, a senior analyst at AHDB in Stoneleigh Park, England, who specializes in the pig industry. “That, in turn, may increase demand for U.S. pork, as the other major exporter, which could of course push prices up there as well.”

Global pork output is forecast at a record 104.4 million metric tons in 2012, while production in the EU has only increased by 2.6 percent since 1999, to about 22.6 million tons this year, U.S. Department of Agriculture data show. Still, the EU’s pork exports have surged 33 percent since 1999, and may total 2.13 million tons in 2012, the second highest in at least 14 years, according to the USDA.

‘Significantly Increase’ Costs

Animal rights advocates have argued that the stalls are cruel to sows, while farmers say keeping them separated prevents them from fighting, and allows more pigs to be kept in each barn. Food companies including McDonald’s Corp. and Burger King Corp. have asked suppliers to phase out the so-called gestation crates, while the U.S. National Pork Producers Council, a farmer group, said April 25 that doing so would “significantly increase production costs.”

The new regulations in the EU, which were passed in 2001, will allow sows to be kept in stalls for four weeks after breeding and one week before giving birth. Farmers also may still keep them in different “farrowing crates” for about four weeks after piglets are born, prior to weaning, Howarth said.

Only 16 EU member countries will likely be compliant with the regulations by the Jan. 1 deadline, the European Commission said April 26. Farmer lobby Copa-Cogeca estimates that it may cost farmers about 200 euros ($265) per sow to expand their space.

Farmers in Spain, the EU’s largest pork producer after Germany, may have to pay as much as 300 euros per pig to make the change, costing the hog industry about 700 million euros, according to La Coordinadora de Organizaciones de Agricultores y Ganaderos, a farmer and rancher’s group.

Pork Production

A 5 percent decline in EU pork production would equate to about a 10 percent increase in consumer prices, said Pekka Pesonen, the secretary-general of Copa-Cogeca in Brussels.

“We are bracing ourselves for a production cut,” Pesonen said by phone. “If we have an exodus of production to the extent of 5 percent, on average, there will be an impact. We are afraid we will have even bigger cuts.”

The EU’s pork production, the largest in the world after China, is more than twice the size of the U.S., the biggest shipper globally.

Chicken Cages

The pork regulations will come into effect after the EU implemented similar rules in the egg industry, requiring farmers to keep their laying hens in cages with enough space for them to move. About 14 percent of the EU’s hens were still in cages too small to meet the requirements when the provisions went into effect Jan. 1, the USDA said Feb. 28.

In Italy, which has the EU’s biggest laying-hen flock, spot egg prices surged to 14.49 euros per kilogram (2.2 pounds) on April 8, up about 39 percent from a year earlier, according to ISMEA, a Rome-based public institute providing research, insurance and financial services to farms. Across the EU, egg prices have climbed about 28 percent since January, on average, Copa-Cogeca’s Pesonen said.

European food manufacturers are facing “alarming shortages of supplies of eggs and egg products,” CAOBISCO, the the EU’s association of chocolate, biscuit and confectionery industries, said in a statement March 20. Demand for eggs may exceed the region’s production by 20 percent by June, the group said.

U.S. wholesale pork prices touched a record $1.1019 a pound in August, before tumbling 30 percent since then, according to the USDA. Hog futures traded at 86.6 cents a pound on April 27 on the Chicago Mercantile Exchange, down 10 percent from a year earlier.

Restaurants Respond

McDonald’s, the world’s largest restaurant chain, said in February that it will require its pork suppliers to submit plans to get rid of gestation pens by May. Burger King plans to use only cage-free eggs by 2017 and will only buy pork from suppliers that “can demonstrate documented plans to end their use of gestation crates for breeding pigs,” it said April 25.

At a meeting April 25, 80 percent of shareholders for Ann Arbor, Michigan-based Domino’s Pizza Inc. (DPZ) voted against a resolution, proposed by the Humane Society of the United States, to ban gestation stalls.

“We continue to have conversations with our suppliers on the topic,” Domino’s spokesman Tim McIntyre said in an e-mail today. “We do plan on relying on the knowledge of animal experts, from farmers to veterinarians to the USDA in making decisions about the food products we purchase.”

No U.S. Ban

While there is no federal law in the U.S. banning gestation crates for sows, eight states have legislation barring the practice, according to the Humane Society of the United States. Australia has phased out stalls for about a third of its sow herd, and farmers have committed to ending the practice by 2017, according to Australian Pork Limited, a producer group.

Smithfield Foods Inc. (SFD), the world’s largest pork processor, which is based in Smithfield, Virginia, has said it plans to eliminate gestation crates by 2017.

Some EU countries have made the switch. The U.K., the 10th- biggest EU pork producer, banned hog stalls in 1999, spurring a contraction in the country’s herd, AHDB’s Howarth said. It totaled 4.35 million head in 2011, the smallest since at least 1973 and about 39 percent less than the herd in 1999, according to Eurostat.

Pork prices are still likely to rise in the U.K. next year, as about 60 percent of the meat consumed in the country is imported, Howarth said.

“Retailers are going to be reluctant to pass on prices unnecessarily,” Howarth said. “But it comes to a point where the price increase is too much for the supply chain to bear, and it will inevitably have to be passed on.”

To contact the reporter on this story: Whitney McFerron in London at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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