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Pig sector needs a new finance deal to survive

The pig industry is third only to milk and beef in importance, but not enough comment has been made about its plight

The Irish pig sector ranks third in importance after milk and beef. It has built a €395m export market and provides employment for more than 8,000 people.

But because most other agricultural sectors appear to be thriving at present, very little comment has been made about the plight of this very significant sector.

Let's take a look at the facts:

• Pig farmers need the margin overfeed per kilogram of carcass to be in the region of 50c. But the past five years have been the worst on record, with margins of only 43.6c/kg.

• The 7pc rise in carcass price (equating to 10c/kg) has been negated by a 20pc rise in feed cost.

• Pig meat prices must rise in tandem with grain prices for profitable pig production.

Feed prices rose by 20pc (from €247/t to €305/t composite feed) between 2010 and 2011 but pig price rose by less than 8pc (140c/kg to 151c/kg).

Margin overfeed cost was 39c/kg, well short of the 50/kg required.

• Despite United States Department of Agriculture (USDA) predicting the highest volume of closing wheat stocks ever, hedge-fund speculators in financial institutions are driving feed ingredient (and thus feed) prices upwards.

• The Irish pig sector is a large consumer of Irish cereal, with an annual requirement of circa 700,000 tonnes.

Any decrease in the Irish pig herd will have a direct negative impact on the demand for these cereals.

• Irish pig farmers have relied heavily on merchant credit to expand and finance their business and average credit is now in excess of four months.

Mills can no longer afford to act as bankers to pig farmers. How much more can we afford to pay for feed?

• A scheme to refinance the Irish pig industry is needed. Discussions within the industry currently centre around the idea of farmers securing term loans from banks in order to pay off some or all of their long term feed credit.

The farmer would then pay back the term loan to the bank over an agreed time period.

If the interest rate charged by the banks for the term loan was lower than the cost of merchant credit, the farmer would have a much better chance of returning his business to profitability.

Irish pig producers have an extremely high technical efficiency but too many of them are being held back by the extra €15/t that merchant feed credit costs compared to credit from a financial institution.

A re-financing scheme, as described above, is being discussed by pig producers, but the banks have so far resisted any move to become involved in an industry-wide scheme.

Instead, they have indicated that any re-financing agreement would be evaluated only on a case-by-case basis. The monthly feed requirement for the Irish pig herd is approximately 86,000t, with a present day cost of €26m.

The €20/t rise in feed prices for May will increase this monthly requirement by €1.7m. Pig meat prices would need to rise immediately by 8c/kg carcass to compensate.

• With co-operation on all sides this scheme could be self-financing and would remove the 'merchant credit' burden from Irish pig farming.

A typical 500-sow integrated pig farm with five months merchant credit could have annual savings of €23,000-25,000 per annum should such a scheme be made available.

The debt could be repaid over a 10-year period and the feed coming on to the farm would be billed as debt-free feed, giving a saving of around €20/t.

Indo Farming