8th Belgian Meat Roundtable: Speculation and volatility in the meat sector

Launching the debate, Joris Coenen, marketing officer for Belgian Meat Office (BMO), which organised the roundtable, pointed out that prices of major feed crops have increased in recent years, and become considerably more volatile. In contrast, meat prices have remained relatively stable, resulting in volatility of profit in the sector. “Volatility is nothing new, and healthy, as long as it doesn’t become excessive,”​ he said.

Coenen identified speculation as one of the main factors contributing to the volatility of world cereal prices, pointing out there was a considerable gap between the financial market and the actual economy. Philippe Van Damme, owner and managing director of pork processor Locks International, agreed. “Speculation in itself is no problem,” he said. “But in the last few years the financial institution has not been playing fairly.”​

Luc De Lille, of pig and feed producer Danis NV, pointed out that biofuels have also increased the volatility of feed prices, making it hard for the market to manage profitability. “Forty to sixty per cent of US corn is going to the biofuels industry – that is amazing,”​ he said. With feed accounting for 70% of total pig production costs, the impact of biofuels on meat industry profitability has been significant.

Energy costs were identified as another factor impacting the profitability of the sector. Van Damme said his company had reduced its energy use considerably over the past five years, but its energy bills had become 25% more expensive. He pointed out that energy was actually getting cheaper, with US prices falling dramatically, but energy tax was driving end prices up. “Political issues affect the sector more than raw material costs,”​ he said, claiming that taxes in general were very high in Europe, particularly in Belgium, putting producers at a disadvantage to international competitors.

Market problems​

Inputs aside, carcase balance was highlighted as another challenge to profitability. “As soon as we break a pig up into many pieces, we start to have low prices for some pieces and margins come under pressure. We must ensure the whole carcase is used on the market that will use it,”​ said Jos Claeys, director of slaughtering and processing company Westvlees.

De Lille agreed that while the pig sector was extremely efficient in using all parts of the pig, it was vital to find the best markets for those parts in order to maximise profitability. “A lot can be sold in Europe, but not all,”​ he added.

The experts agreed that the Asian markets offered a good outlet for parts of the pig not consumed in Europe, such as offal, but added that international markets had become increasingly challenging recently. “The euro is much too strong to the dollar, which gives the US and Canada an advantage to export to the Far East,”​ said Van Damme. “In addition, these countries are making it more and more difficult for exporters by introducing trade and veterinary restrictions.”​ He gave the example of Japan, claiming the country was “clearly using its power to support domestic producers”.​

Meat consumption​

Although concerns were raised over the impact that the anti-meat movement might have on meat consumption, the experts agreed that there was unlikely to be a drop in global demand for meat any time soon. Van Damme said consumption in Europe would probably drop, but added that meat was vital to a healthy diet. “I agree with vegetarians that we need a balanced diet, but I cannot agree that it is based only on vegetables. If we can work together it will be much more healthy for citizens than being exclusive,”​ he said.

De Lille pointed out that meat was also much more than just a protein source. “Meat has its place in a healthy diet, but I also eat meat because I like it. I don’t know if that pattern will change much in the coming years,”​ he explained.

Everyone agreed that the trend in falling consumption was also unlikely to be repeated in Eastern Europe, Asia and South America. “We still talk about hundreds of millions of people shifting into a better economic situation and we have seen that, as soon as people have more money, they want more protein,”​ said Claeys.

Van Damme pointed out that the Western world tended to put too much emphasis on “politically correct”​ issues, such as animal welfare and the environment, which were not viewed as priorities in developing economies. “We must not lose sight of the real world,”​ he said.

Bright future​

Looking to the future, the experts agreed that although volatility would prove challenging, Europe’s meat sector was capable of meeting those challenges. “Europe is so well-organised and professional in the way we are running our industry and farms. I am very positive that we have a big future,”​ said Claeys.

“EU livestock production is very productive and still winning every year on productivity. It is a way for producers to resolve fluctuations and increasing prices,”​ added De Lille.

Van Damme pointed out that the introduction of robotics had resulted in an excess of processing, deboning and slaughtering capacity in Europe, with everyone fighting over volumes. However, he said the impact of this on the industry would be “temporary”.​

“The companies strong enough to survive the crisis will be stronger. Unfortunately, the smaller and less organised will disappear – it is the law of economics – but afterwards I am sure we will see the bright sun again,​” he said.

De Lille agreed that consolidation would be no bad thing for the sector. “Feeding the world will be a huge challenge in the coming 10-20 years and we must be organised and fit when the sun comes through the clouds again.”​