Fair price for Organic pig meat

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• Fair price for Organic pig meat
• in the Netherlands
• Robert Hoste
• Agricultural Economics Research Institute (LEI)

Presentation for Swedish Pig Expert
Group Raalte, The Netherlands October 15th, 2003
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Fair price for Organic pig meat in the Netherlands

• Agenda
• Introduction
• Cost of Organic pig production
• Market price mechanism
• Arithmetic model Organic pork production chain
• Discussion

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Fair price for Organic pig meat in the Netherlands

• Agenda
• Introduction
• Cost of Organic pig production
• Market price mechanism
• Arithmetic model Organic pork production chain
• Discussion

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Fair price for Organic pig meat in the Netherlands
2. Cost of organic pig production Organic
Starter (25 kg) 97 Pig meat 2,63 Year 2002
Standard 49 1,51
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Fair price for Organic pig meat in the Netherlands

• 2. Cost of organic pig production
• Method
• 10 farms in study group (representative)

• Individual data collection (management system and
  fiscal administration)

• Calculation of production cost per farm

• Standardization on Fixed costs (Housing, Labour)
• Variable costs of individual farms

• Selection of appropiate farms (data available,
  normal)

• Weighed for production volume per farm

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Fair price for Organic pig meat in the Netherlands

• 2. Cost of organic pig production
• Method
• Standardized farm
• Family farm
• Breeding, rearing and fattening
• Without arable area
• Complies with rules and laws Level EU plus 5
  supplemental requirements

• Demands on
• Quality level
• Farm management
• No diseases or calamities that seriously
  influence production level and costs

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Fair price for Organic pig meat in the Netherlands

• 2. Cost of organic pig production
• Supplemental requirements
• Piglets eventually purchased should be of organic
  production system
• Pasture for empty and pregnant sows is obliged
• Weaning age at least 40 days
• At final fattening stage also space outside is
  required
• Litter material at least 50 straw

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Fair price for Organic pig meat in the Netherlands
2. Cost of organic pig production Assumptions on
Fixed costs Investment for housing Breeding and
rearing 4734 per sow place Fattening 653
per fattening place
Labour Breeding and rearing 23
hours/sow/year Fattening 1,70 hours/av.pres.fatte
ning pig/year Tariff according to Collective
labour agreement 18 - 19 per hour (on
average) (New assumptions for calculation of
2003)
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Fair price for Organic pig meat in the Netherlands
Feed
Labour
Housing
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Fair price for Organic pig meat in the Netherlands
2. Cost of organic pig production Difference
between farms Production cost per starter
97 -- range 37 Production cost per kg
2,63 -- range 0,73
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Fair price for Organic pig meat in the Netherlands

• 2. Cost of organic pig production
• Production cost in agriculture
• In practice, production costs are not paid 100
• Equity
• Labour
• Farmers are content with a reasonable income

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Fair price for Organic pig meat in the Netherlands

• Agenda
• Introduction
• Cost of Organic pig production
• Market price mechanism
• Arithmetic model Organic pork production chain
• Discussion

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Fair price for Organic pig meat in the Netherlands

• 3. Market price mechanism
• Fair price principle
• COMMON INTEREST interdependence
• SHARED RESULT financial result, plus and minus,
  is divided FAIRly
• Farmers investments are SUPPORTed by the
  Government

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Fair price for Organic pig meat in the Netherlands

• 3. Market price mechanism
• Slaughter house De Groene Weg (market share
  90-95) use a contractual price mechanism as
  follows
• Basically, market price production cost.
• Production cost is calculated objectively and
  independently

• Negotiations to adapt payment to actual market
  situation

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Fair price for Organic pig meat in the Netherlands

• 3. Market price mechanism
• Part B Negotiations, 4 steps
• The Influence of current Quality payment system
  is calculated
• Then market situation and potential payment are
  discussed
• Strategic and operational plans are made
  throughout the whole chain
• Finally a package deal is made, consisting of
• market bonus or minus on the production cost
  figure
• eventually an adaptation on the quality
  payment scheme
• eventually miscellaneous agreements

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Fair price for Organic pig meat in the Netherlands
3. Market price mechanism
Step I
Step II
Step III
2,70
2,65
Market situation -/- 0,254
Qual. 0,024
Production cost 2,63 / kg
2,60
2,55
2,50
Net price 2,40
2,45
2,40
2,35
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Fair price for Organic pig meat in the Netherlands
3. Market price mechanism
Step I
Step II
Step III
Production cost
Quality System -/- 0,111
Net price
Market Situation 0,01
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Fair price for Organic pig meat in the Netherlands

• 3. Market price mechanism
• Quality system is extended to more quality
  stimulans
• to reduce bad quality pigs (that cause high costs
  at processing)
• To stimulate good quality, fit for retail pork
• To better fulfill the demands of retail buyers
  and prevent complaints

• Consequences for farmers
• Farmers with high quality pigs have a high income
• With moderate quality have good income
• With bad quality have no future

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Fair price for Organic pig meat in the Netherlands

• Agenda
• Introduction
• Cost of Organic pig production
• Market price mechanism
• Arithmetic model Organic pork production chain
• Discussion

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Fair price for Organic pig meat in the Netherlands
4. Arithmetic model Organic pork production
chain Fair price-Lovely price Arithmetic
computer model for the organic pork production
chain R. Hoste and J.J. de Vlieger, 2001
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Fair price for Organic pig meat in the Netherlands

• 4. Arithmetic model Organic pork production chain
• Production chain from farm to supermarket
• Physically (cut out) and financially (costs).
• Participation of farmers, slaughter house and
  processing company
• Activity Based Costing method
• Activities are slaughtering process, cutting out
  of Bacon out of the carcass, portioning,
  labelling, transport etc.

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Fair price for Organic pig meat in the Netherlands
4. Arithmetic model Organic pork production
chain Overview of Cut-out scheme (kg per
slaughter pig And Part of live weight)
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Fair price for Organic pig meat in the Netherlands
4. Arithmetic model Organic pork production
chain
THE COMPUTER MODEL WILL BE STARTED NOW FOR
DEMONSTRATION PLEASE WAIT A SECOND
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Fair price for Organic pig meat in the Netherlands
Questions?
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Fair price for Organic pig meat in the Netherlands

Thank you for your attention!
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Fair price for Organic pig meat in the Netherlands
Reference Robert Hoste Pig production
economist Agricultural Economics Research
Institute (LEI) Wageningen University and
Research Centre P.O.Box 35, NL-6700 AA
Wageningen, The Netherlands Tel.
31-317.479762 Fax. [phone] E-mail
robert.hoste_at_wur.nl Internet http//www.lei.dlo.n
l