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Between now and 2021, Danish Crown will be raising the settlement price paid to owners by DKK 0.60 per kg. At a meeting of the Board of Representatives, Danish Crown’s management presented a new strategy which includes an extremely ambitious objective. The settlement price paid to Danish pig producers is to be raised by a further DKK 0.60 compared to an EU index for settlement prices which Danish Crown has exceeded by more than DKK 0.20 in the past year.
- The new strategy is to enable Danish Crown to increase future earnings – for the sake of the company’s owners. Therefore we want a stronger, more profitable and focused company which, between now and 2021, will be able to pay settlement prices that are an additional DKK 0.60 per kg above the EU index, says Erik Bredholt, Chairman of Danish Crown’s Board of Directors.
In future, Danish Crown’s settlement price will be benchmarked at all times against a basket of pig prices from the other four large pig producing and pig exporting countries in Europe. The German pig price will have a weighting of 44 per cent, while the pig prices in Spain, France and the Netherlands will account for 28, 17 and 14 per cent.
- In the past, we have almost exclusively compared our prices with the prices paid in Germany, but looking at a single country does not, I feel, paint the right picture, neither for our owners nor the Danish Crown management. Due to the impact of one-off events, the German pig price is at times a poor yardstick, says Erik Bredholt.
In the past financial year, the EU index was DKK 0.10 below the German pig price, whereas in FY 2014/2015, the EU index exceeded the German price by DKK 0.12 per kg.
- One of the biggest challenges facing Danish Crown is the decline in the supply of slaughter animals in Denmark, where supplies are dropping by 2-3 per cent a year. The diminishing supply of slaughter animals is basically a cost for the company. If we can guarantee a settlement price for pigs which makes it attractive for our cooperative owners to produce pigs in Denmark, I am convinced that we will see an increase in the supply of slaughter pigs and thus job creation at the slaughterhouses, says Erik Bredholt.
The specific initiatives that need to be implemented for Danish Crown to realise its ambitious targets will be announced on Wednesday 9 November. Group CEO Jais Valeur will first present the strategy to the group’s employees, after which a Q&A session will be held for the media.
Facts about the EU index
So far, Danish pig prices have almost only ever been benchmarked against the prices paid for slaughter pigs in Germany. This tradition arose 10-15 years ago, when for a period of time, it was attractive for Danish pig producers to sell their slaughter pigs to German slaughterhouses. The reason for replacing the German pig price with an EU index is to avoid a situation in which extreme fluctuations in the German pig prices – due either to hikes in demand or a critical outbreak of disease – end up determining whether Danish Crown’s five-year strategy plan is realised or not. This is why we want to use an average of prices from several countries which, like Denmark, and thus Danish Crown, have significant exports of pork.
The index comprises the four EU countries with the biggest pig productions apart from Denmark: Germany, Spain, France and the Netherlands. All four countries have considerable exports, and thus a settlement price for slaughter pigs which to varying degrees is influenced by the global market for pork. This is not the case to the same extent for Poland, Sweden and the UK, for which reason these three countries are not included.
The pig prices are weighted, based on the individual country’s production in 2013; the index therefore reflects the total pig production in the four countries. The German pig price will thus be weighted 44 per cent, while the prices in Spain, France and the Netherlands account for 28, 17 and 14 per cent.
In the past financial year, the EU index was DKK 0.10 below the German pig price, whereas in FY 2014/2015, the EU index exceeded the German price by DKK 0.12 per kg. The figures for the past six years are shown in the figure above.
In the four countries, cooperatives operate cheek by jowl with private slaughterhouses, just as they do in Denmark. The index thus reflects a mix of pure pig prices and a combination of pig prices and supplementary payments (return). In Danish Crown’s case, the total settlement price per kg is shown inclusive of supplementary payments.
November 2016/ Danish Crown/ Denmark.
http://www.danishcrown.com
