by Simon Grey, General Manager Russia, CIS and Europe., Genesus Inc.
Too many countries today, have a pig price lower than the cost of production for many producers. This is very unusual, but the obvious outcome of simple supply and demand. There are of course two solutions: reduce production or increase the volume of sales.
As a general rule, low prices reduce production as worst producers either give up or a forced into bankruptcy. The old phrase, the best solution for low prices is low prices is very true…
Many countries are putting a lot of focus on developing export markets as the solution for selling this surplus production. This is of course a solution; however, when you look at the pig price in exporting countries, it is nearly always at the bottom end of the scale globally.
An obvious market for increasing sales is the domestic market. For example, if every American consumer ate pork one more time a month it is equivalent to 7 million market hogs. So how do you increase consumption? There is obviously reducing the price – this drives consumption in the short term but does nothing in terms of increasing the price paid for pigs. Supermarkets like this option as it drives their profitability.
The other way of selling more of a product is to make it more desirable. This is how many branded products manage to sell what are in reality simple and low-cost products to manufacture at high prices
.How do you make pork more desirable? When it comes to food, the driver of sales is taste and eating experience. It does not matter how cheap a product is, if it tastes bad nobody will buy it. People pay more for beef as they believe the taste experience is worth paying for. If you look at the value of different cuts of pork, there is quite significant differences between the lowest and highest cost.
Not surprisingly the highest cost cuts are the tastier/ fatter cuts and the lowest cost cuts are the leanest. There is clear evidence that people do pay more for tastier pork! It, therefore, seems reasonable that producing tastier pork should increase sales volume.
Where does the taste and eating experience come from? Taste comes from fat, in-particular intra-muscular fat (marbling). Eating experience or juiciness comes from better moisture retention. This is in part also due to intra-muscular fat and also actual moisture retention of the muscle itself. This is related to pH of meat after slaughter. Both of these have a strong genetic function and some management functions.
There is in the pig industry a perception that it costs more to produce tasty pork. I was recently told by a representative of a major global genetic company that “nobody can afford to produce tasty pork!”… This is quite an incredible point of view. All parts of our industry from genetic companies, vet supply companies, farmers, and slaughter/processors make money when we sell our final product – pork – to consumers. Not understanding this fairly basic point seems not to be a great business plan.
Focusing just on lowest cost, regardless of the quality of the final product works for no business. Starting with a product that people want to buy and buy more of and then producing that product at the lowest cost makes a lot more sense… Could you imagine how successful Apple, BMW, Boeing would be if they just went for the lowest cost product…
For over 22 years, Genesus has been selecting Duroc terminal boar for superior taste and texture. This is why today it is internationally recognised as the boar that produces the tastiest pork. It has also for the past 22 years been selecting for a competitive cost of production, which for those that do not understand the economics of pig production does not mean the lowest FCR!
This post was written by Genesus