The fall and rise of the Irish pig sector

Every week, we hear that the world has become more interconnected and how an incident on one side of the planet can now have a ripple effect across the globe.

Traditionally, the pig sector has been one of the most ‘connected’ agriculture sectors, as a change in the weekly pig price in Beijing very quickly hits the pockets of pig producers in Ballyjamesduff.

Over the last three years, the Irish pig sector has experienced the full gamut of global shocks, ranging from weather events to the outbreak of war.

This resulted in pig feed prices rising by 48% between 2020 and 2022, to an all-time historic high of €451/tonne. This was more than double the lowest feed price back in the far distant year of 1999.

High feed costs provide a significant problem for pig producers, as 75% of the cost of producing a pig is attributed to feed cost and, unfortunately, ‘opening the shed door and letting them out to graze’ isn’t an option for pig producers.

So, what are three of the global events that caused this historic high?

1. Weather

The weather will obviously affect all domestic animals, but it has a more severe effect on pig production. The global pig sector uses a very small number of feed ingredients for diet formulation.

The bulk of dietary energy is provided by just three ingredients – wheat, barley and maize – and dietary protein is provided predominantly by just one single ingredient: soya beans.

The feeding of 770 million pigs globally, primarily on just these four ingredients, inevitably results in a significant amount of speculation regarding supply and demand.

Monthly crop updates and harvest forecasts from across the world are now keenly awaited by many Irish pig producers.

The initial source of the current high feed prices can be attributed to drought conditions in North America during 2020 and 2021. This period of drought and excessive high temperatures (40oC+) across the United States and Canada resulted in significantly lower wheat and maize crop yields.

This was a big problem, as although North America contributes a modest 10% total global wheat output, they contribute 41% of total wheat exports.

Similarly for maize, the US is the largest maize exporter at 35% of total global exports. The restriction in the volume of wheat and maize being available for export created ‘future market’ speculation, resulting in a sharp ingredient price increase during the closing months of 2021.

Global warming may increase the incidence of these weather effects in the short term, but hopefully, plant breeding may produce more resilient crops in the longer term, eg, drought-resilient wheat varieties.

2. China

The surge in the Chinese economy during the 1990s and 2000s dramatically increased the living standards of the Chinese consumer. As a result of this, an estimated 200 million Chinese became categorised as ‘middle class’, with a resultant higher volume of meat consumption per capita.

This higher meat consumption stimulated greater investment in agriculture, with the consequent production of pig feed quadrupling in the space of a decade.

While the rate of growth in Chinese pig feed production has stabilised since 2014, this new higher level of production has resulted in China maintaining the highest feed ingredient stocks in the world.

The Chinese hold these large feed stock volumes to ensure their own domestic food security. Unfortunately, this results in a smaller volume of these ingredients being available on the world market for free trade, and therefore, a relatively small decrease in global output, eg, soyabeans, will generate a greater price volatility effect.

We witnessed this in 2023, when a reduction in the Argentinian soyabean harvest, relatively small on a global scale (-25m tons), resulted in a spike in global soybean prices (+€100/tonne).

The Chinese philosophy of maintaining large feed ingredient stocks is unlikely to change in the short term, so Irish pig production must adjust to the resultant increased market volatility landscape.

3. War

The outbreak of the Russian-Ukraine war dramatically accelerated feed prices (+€86/tonne) in the three months after the war began (March-May 2022).

The major logistical issue from an animal feed perspective was that Ukraine and Russia were two of the largest global wheat exporters (32% of total) and Ukraine also exported 32m tonnes of maize (17% of global total).

Global ‘markets’, in general, don’t like large shocks – and if shocks are to occur, then the ‘market’ likes plenty of notice to adjust to the expected shock.

In this case, the ‘market’ was exposed to both at the same time; the potential effects on wheat and maize supply were very large and the ‘market’ received little notice.

In the interim, feed ingredient prices have slowly started to decrease, largely due to the devaluation of the Russian ruble, allowing Russian wheat to undercut other global suppliers; and also due to an adjustment in the Ukrainian supply chain, allowing exports to continue through Romanian ports.

While a war of this nature is rare, when it does occur, it has a dramatic effect on supply chain and feed prices.

In summary, the Irish pig sector has experienced the highest pig feed price increase in living memory, which caused very severe financial losses and a 10% reduction in the national pig herd.

However, the sector is very resilient and its high level of efficiency – achieved through accurate data analysis and very effective management – has resulted in the sector beginning to rise and rebuild, and start to look to a positive future.

The Irish pig sector has experienced the highest pig feed price increase in living memory, which caused very severe financial losses and a 10% reduction in the national pig herd

Hopefully, for Ukrainians, the ongoing war will soon be resolved; if this occurs, it will remove one of the current factors affecting volatility in the pig sector.

Nevertheless, the other two factors – weather and global warming, and global ingredient supply – will remain ongoing sources of volatility.

The Irish pig sector needs to develop better market mechanisms to allow it to absorb these inevitable shocks into the future.