The biggest cost in pigmeat production is feed. Feed cost per kilo deadweight in Ireland compares unfavourably with many of our European counterparts. There are two areas to consider when comparing feed costs. Firstly there is the cost of pig herd performance and secondly there is the feed cost per tonne.

Pig herd performance

Both the Dutch and Danish average herd performance figures are better than those achieved in Ireland. Interpig figures for 2018 show the Danes weaned 14.8 pigs/litter and the Dutch weaned 12.9 pigs/litter, giving 31.6 and 28.5 pigs produced per sow per year in Denmark and the Netherlands respectively. The Irish figure was 26.9 pigs per sow per year.

In Denmark, the average carcase weight was 87.0kg and in the Netherlands producers achieved a carcase weight of 95.8kg (in Ireland it was 86.2kg). The growth rate achieved in Denmark is 52g better from weaning to sale and the feed conversion efficiency (FCE) from weaning to sale is also lower in comparison to the Irish figures (Table 1).

This is part of the reason the Dutch and the Danes have a better feed cost per kg deadweight – they produce more pigs/sow/year and their feed performance is also better. When we look at herd performance using the Irish feed costs for 2018 for all three countries (using the Teagasc Pig Performance Model), the Dutch and the Danes have an advantage of 8c/kg and 3c/kg deadweight, respectively (97c/kg and 102c/kg DW v 105c/kg DW in Ireland). This is a significant saving, particularly for Dutch pig producers.

Feed cost per tonne

In the Interpig the feed cost comparison in Table 2, the sow feeds are combined and the starter, link and weaner diets are also combined into a “rearer” diet.

This shows Denmark and the Netherlands have a further advantage in terms of actual feed costs. If we factor these into the calculation, the Dutch have a further 7c advantage. This is hugely significant and is where we in Ireland need to aim if we are to remain competitive internationally. The Dutch feed prices are a useful benchmark, as they are more consistent with the Irish feed prices over the years. The Dutch finisher feed is a cheaper feed by €20/t than the Irish finisher feed.

What is the cost of feed credit?

A significant difference between feed purchased in Ireland and in continental European countries is the use of feed credit. Feed credit or “merchant credit” is not seen in Denmark or the Netherlands as producers in these European countries normally pay for feed within seven days of delivery. However, in Ireland, it may not be paid for until three or more months after delivery.

This has a cost associated with it, of which purchasers of pig diets need to be aware.

Anecdotally it is said that the feed credit cost is €2/t per 30 days. This may well be higher. It is best described with the following example:

A sow unit achieving average performance has an annual feed requirement of 8.226t of feed per sow plus progeny per year.

Therefore, a 500-sow unit achieving average performance will use 4,113t of feed in the year. This is an annual feed bill of €1.25m based upon a composite feed cost of €303/t (average pig feed cost in 2018). Assuming a 90-day feed credit, this amounts to a feed credit level of €307,292. If we assume also that this feed credit costs €5/t, the annual feed credit cost is €20,565.

This alone would fund the repayment of a loan for €92,000 or close to one month’s reduction in the feed credit being carried over (ie €224 is the annual repayment per €1,000 borrowed for a five-year loan at 6% interest). This simple example shows the importance of reducing your feed credit bill as much as possible.

If the pig unit operates as a company, it makes sense to reduce the feed credit rather than carrying a debt that is costing money.

Currently, banks are very nervous of giving loans to pig farms

By doing this the company can avail of the lower tax rates and reduce the debt allowing the net worth of the farm to increase. Currently, banks are very nervous of giving loans to pig farms, as they feel the asset value of a pig unit may not be achieved.

They are also very wary of farms with feed credit bills as this is extra debt on the farm. Therefore, it makes sense to reduce the feed credit bill, especially in times when pig prices are good.

Cost of production is a key factor in determining the cost competitiveness of Irish pigmeat both in competing with imports on the home market and with other pigmeat exporting countries on export markets.

Therefore taking steps to reduce your feed credit as much as possible is certainly justified.