Cost of pig production – a stress test by InterPIG

The following is based on analysis by our InterPIG partner in Denmark. Please note that the financials quoted are in Euros on a hot deadweight basis.

Theory

According to economic theory the farmer should keep having pigs as long as the EBID (earnings before interest and depreciation) is positive, since the capital cost is considered a sunk cost which the farmer has whether he has pigs or not.

Stress test using InterPIG economic figures

A stress test can be performed to see what the EBID is per kg slaughter weight. If EBID is positive the farmer should keep having pigs in the period, even though investment in pig buildings wasn’t profitable during that time. If EBID is not positive, the farmer is better off with no production during that period.

InterPIG 2021

According to InterPIG average figures, the average farmer in GB, Czech, Germany, Netherlands, Belgium, and Italy should not have produced any pigs in 2021. The negative EBID is so significant in some countries in 2021, that it would be expected that production in 2021 should have significantly fallen.

We know from France33 and Denmark33 (top third producers in those countries), that the top third producers have a production which is €0.11/kg slaughter weight cheaper than the average. If this difference is assumed to apply to the top producers in other countries, then not even the top producers should have produced pigs in some countries (Germany, GB IN, GB OUT, Netherlands) in 2021.

The chart below shows the average EBID for the last 10 years in each country. The chart shows that average EBID is positive over that period. Several countries (Austria, Brazil MT, Denmark, Finland, France, Spain and USA) are positive each year; some countries (Belgium, GB IN, GB OUT, Italy and Sweden) are negative in one year during that time; Brazil SC, Germany and Netherlands have been negative in two years during that time; and Canada, Hungary and Ireland have been negative in three years over the same period.

Average EBID being positive is good news and explains why, once pig farmers have invested in their infrastructure, farmers have found it beneficial to continue producing pigs.

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