Danish Crown likes pork potential in China
Nov. 9, 2011
by Bryan Salvage
RANDERS, Denmark – Growing demand for pork in China is proving to be a boon for Danish Crown.
“The Chinese are crazy about pork,” said Søren Tinggaard, deputy chief executive. “When such a heavily populated country demands a particular product, we experience a unique situation, the likes of which we haven't seen since our bacon sales to the UK in the 1930s and to Japan in the mid-1970s.”
Tinggaard has been watching developments in China closely in recent years, and he said the market is limitless at the moment. If Danish Crown had two million more pig's heads, the company would also be able to sell this volume to the Chinese market, he added.
Pork prices since this summer have increased by 30-40 percent, which is one reason why inflation in China is running higher than the rate forecast by the government in Beijing. In the long term, these increases may be significant for Danish consumers, as the price increases in China will push up pork prices in Europe.
“Initially, Danish consumers will not notice anything as the Chinese usually demand other parts of the pig,” Tinggaard said. “However, the greater purchasing power of Chinese consumers means they will, to an increasing extent, start demanding the same meat cuts as Europeans, pushing up prices in Europe — a situation we may well soon be facing.”
During the past several months, the Chinese have been buying spare-ribs, streaky bacon, trimmings and fore-ends, which are often used by European meat-processing companies to produce sausages and minced products — in addition to the usual products they buy such as pig's heads and ears. This will inevitably lead to more expensive bacon, sausages and spare-ribs, Tinggaard said.
China represents significant extra earnings for Danish farmers. By selling pig's heads to China instead of Europe, pig producers can get more money per kilogram. This is further supplemented by trotters, spare-ribs, lungs and other parts of the pig for which the Chinese are willing to pay more.
Chinese pork production in the future is expected to increase, as Chinese farmers are paid well for what they produce. But once this happens, more feed will be required, with the risk of food prices hitting new highs. Initially, an increase in Chinese production will lead to lower imports resulting in a decline in Danish sales to China. But continued growth in the affluent middle classes will help to safeguard the considerable need for imports.
“A growing middle class is increasing pressure on the government for a floating currency,” Tinggaard said. “It might happen tomorrow — or in 25 years. This would send pork prices through the roof, and ensure even better returns. So, there is every chance of yet another boost. I think next year China will become Danish Crown's second-largest market after the UK.”