Contact

Photo of How big is your premium? – comparing UK and EU pig prices

Bethan Wilkins

Analyst

AHDB Pork Market Intelligence

email

Email Bethan

T: work 024 7647 8757

How big is your premium? – comparing UK and EU pig prices

Home \ Prices & Stats \ News \ 2016 \ October \ How big is your premium? – comparing UK and EU pig prices

Since June, AHDB has been reporting that UK pig prices have fallen behind the EU average price. This represents a significant change from last year when UK prices averaged almost 30p/kg higher than EU levels. These conclusions are based on analysis of the reference prices published by the EU Commission, which are intended to provide a like-for-like comparison between prices in different countries. But do they really do so?

Before answering that question, it is worth pointing out that the EU Commission actually publishes three sets of reference prices, for pigs graded S, E and R. The latter only has a few countries contributing and is dominated by Italy. However, most Member States contribute to the S- and E-grade prices. Traditionally, comparisons have been based on the E-grade price, as publication of S-grade prices only began in 2014. However, given that over three-quarters of UK pigs are S-grade, this might provide a more meaningful comparison. In reality, though, there is little difference in the gap between UK and EU prices, as both UK and EU S-grade prices average around 3p/kg higher than the E-grade prices.

undefined

When comparing GB prices with those in the EU, it is also worth remembering that the UK reference price includes pigs from Northern Ireland, where prices are typically lower. We estimate that if it was based on prices in GB alone, the reference price would be 2-3p higher than the current UK one.

The main issue when comparing prices across EU countries is that the reference prices are ‘gross prices’, before deductions or retrospective bonuses. In some countries, such as the UK, significant amounts can be taken off the price received by producers, such as for transport, meat inspection, classification and levies. In other countries, some or all of these are paid for by processors.

Furthermore, in some countries, such as Denmark and France, many producers receive annual bonuses from processors, typically where they are producer-owned co-operatives. As these bonuses are not paid until the end of the year, they can’t be included in the gross price reported each week. Therefore, the reference prices for these countries understate the true price received by producers – in Denmark, this can amount to nearly 10p/kg in some years.

AHDB is currently undertaking work to understand the impact of these bonuses and deductions on the reference prices and, hence, on the gap between UK and EU prices. However, we can use data from the InterPIG group to estimate the effect. Although the group does not cover all EU Member States, it does include most of the main pig producing countries. Based on the group’s data, in 2015, GB producers received around 26p/kg more than the EU average for their pigs, after accounting for deductions and bonuses. This is around 2-3p less than the premium reported by the UK reference price.

In other words, the reference price comparison appears to overstate the GB premium (or understate the deficit) by around 2-3p. However, this is not the full story. The GB/UK price includes premium pigs, mainly outdoor-bred. These face much less competition from EU pork than ‘standard’ indoor-bred pigs. Based on comparisons between the APP and SPP, these premium pigs will inflate the reference price by around 3p, on average.

undefined

Based on this initial analysis, it appears that when comparing EU pig prices with those for standard GB pigs, the UK reference price should be reduced by an estimated 5-6p/kg to provide a more valid like-for-like comparison. This estimate will be refined further once we have completed further analysis. Nevertheless, it would mean that for 2016 to date, GB and EU prices were roughly on a par, on average, and since June, EU prices have been even further ahead of GB ones than indicated by the reference prices.

undefined

Stephen Howarth, Market Specialist Manager
Stephen.howarth@ahdb.org.uk, 024 7647 8856