The EU May Export Less Pork to the UK after Brexit
The UK has a sizable pork production shortage. To address this shortage, the UK has increased production and imports around 1m tonnes carcass weight (cwt) annually from EU member states. With the EU’s estimated self-sufficiency rate of nearly 112%, approximately 2.6m tonnes cwt of pork needs to be exported outside the EU in 2018 to balance local supply and demand. After Brexit, EU self-sufficiency could grow to 120%. Consequently, in the future EU-27, pork processors will need to work harder to secure opportunities for exporting pork meat and by-products that are not consumed within the EU. In the short-term, increasing Chinese demand will probably compensate for any loss of access to the UK market.
UK production on an increasing trend since 2010
The UK has a large pork production shortage; only half of national demand is covered by national production. However, production is growing. Since 2010, production has increased by more than 100,000 tonnes to almost 900,000 tonnes cwt. This extra production is partly intended for national consumption, but there are also increasing exports. British exports increased by 50,000 tonnes to reach 255,000 tonnes cwt in 2017(mainly cuts), reaching a value of EUR 520m. Over 30% is transported to third countries. Ireland is the UK’s most important export destination in the EU market, followed by Denmark and Germany.
In recent years, UK imports have fluctuated around 1m tonnes, which is supplied entirely by EU member states. Denmark, the Netherlands, and Germany are the most important suppliers, followed at a distance by Ireland and Poland. The value of British imports in 2017 was EUR 2.79bn. Nearly half of those imports are fresh or frozen meat. Additionally, there is a wide range of sausages and other processed meat products that represent 30% of imported volumes, while bacon products represent the remaining 20% of imports.
Each country appears to have its own particular market position (see Figure 2):
●Denmark mainly supplies fresh meat to the UK (68% of total volumes). This is mainly related to the meat processing industry in Danish hands (Danish Crown’s Tulip) and to years of presence in the fresh meat segment.
●The Netherlands supplies 45% of English bacon imports, and Denmark delivers 20%.
●Ireland and Poland are the main suppliers of sausages and other processed meat products.
EU self-sufficiency set to increase after Brexit
Based on preliminary estimates for 2018, the EU has a self-sufficiency rate of nearly 112%. After Brexit, the EU-27’s self-sufficiency will rise to rates between 117% and 120% (see Figure 3). This means that, in the future EU-27, pork processors will need to work ever harder to secure opportunities for exporting pork meat and by-products that are not consumed within the EU-27.
Furthermore, EU-27 production is expected to increase by more than 2% to a total of 24.4m tonnes cwt in 2018. Due to improving technical performance of pig farmers, production continues on a slow rising trend, despite a decrease in the number of sows. Consumption per capita is decreasing, but, due to the population growth, overall consumption appears to be stable.
Trade between EU member states is also very dynamic, especially from countries with surplus production to countries that do not produce enough to meet national demand. Different economic characteristics like labour costs, recent investments, and consumption habits influence these intra-EU trade flows. For example, Germany is a trading platform, exporting close to 2.7m tonnes cwt each year. Due to the efficient processing industry, Germany also imports over 1m tonnes of meat annually (mainly carcasses and primal cuts). To balance EU supply and demand, a total of approximately 2.6m tonnes cwt of pork needs to be exported outside the EU in 2018. Asian destinations represent 75% of EU exports, of which China is the most important market.
China is the obvious alternative for EU exports
Rabobank’s view is that China's pork imports in 2019 will increase sharply to compensate for some of the fall in production as a result of African swine fever. Chinese imports are expected to equal or exceed the volumes observed in 2016. The EU is well-placed to benefit from this increased demand in imports, which could continue for several years.
Without knowing the outcome of the Brexit negotiations, it is difficult for companies to prepare for the future. A ‘hard Brexit’, with border-control for EU member states, could encourage companies to export more to China. This will mainly concern frozen products, i.e. about half of current total UK imports. Such a scenario will most likely attract larger exporters, and, as a result, smaller exporting companies could get a better position in the UK market.
EU bacon exports could be maintained because this product is often traded directly with UK food retailers. Price competition will then play a decisive factor between EU customers in the UK, China, and other world destinations. The strength of the British pound will play an important role here.
Further alternatives for the UK market supply are:
●Imports from non-EU countries. The UK applies strict animal welfare requirements. In the short-term, it seems unlikely that countries like the US or Canada can supply the UK, but North American suppliers are certainly not excluded in the medium-term.
●An acceleration of production growth in England due to better pig prices and good profitability at the national level.
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