I must heed Business Studies 101

Whenever I post about the cost of producing pigs or pork, pointing out the huge gulf between the costs we incur and the price customers expect to pay, I always get responses pointing out the errors of my ways and my failure to understand the economics of the market.

Today was no different. I published our new costs, which have risen because we had to change both abattoir and butcher, then asked how potential and existing customers would react to a price risen given that our existing prices were already a bone of contention.

I quickly attracted the first of the Business Studies 101 responses: be innovative, cut costs, be efficient and subsidise production from other income.

I laughed when I read it.

I’ve had it pointed out to me many, many times before. And it is true.

To get prices down to the level consumers have been led to expect, farmers have to be innovative, be ruthless in cutting costs, be hyper efficient and be prepared to subsidise production from other income.

It’s why agriculture has moved to intensive, industrial farming. It’s why agriculture has moved to low input, high yield breeds. It’s why agriculture has stripped out labour and replaced it with oil (whether machinery, fertilisers, medications etc). It’s why agriculture has moved offshore to countries with ultra cheap labour, more constant climates, and much less in the way of regulations covering labour, the environment, animal welfare, food hygiene etc. It’s why agriculture seeks to become ever more industrialised, ever more lean, ever more efficient and ever more intensive. And it’s why farmers go bust.

What the consumer society can’t and won’t accept is that cheap abundance is in varying degrees of opposition to the other things that are said to be desireable—local produce, high welfare standards, low stocking levels, traditional breeds, genetic diversity, organic standards, small scale, less environmental impact, etc.

No matter how much people proclaim the market has set the price for pork and farmers must produce down to it, the fact is the price is so low as to be barely achievable even with the might of super-efficient industrialised agriculture thrown at it.

I say barely, because British pig farming is in dire straits, as typified by Scotland’s longest established pig farm closing recently. The family who own Dourie farm hope to reopen in the future, but they will only be able to do so if they can persuade the government to subsidise an even more industrialised unit than they had already.

We could do the same. We could build a couple of big sheds with computer controlled feeding, watering, climate control, odour control and more. We could stock them with ultra lean, ultra fast growing, ultra productive modern breeds. We could cut staff to the minimum and use immigrants prepared to accept the minimum wage. We could do the minimum necessary to meet the standards of one of the big name ethical food schemes. We could come up with innovative marketing schemes designed to exploit fast moving niche sectors.

But we’d not be a local food producer rearing rare breed pigs outside anymore, would we?

And would we turn a profit after doing all that? Let alone one that our financial backers, if we could find some, felt to be “enough”?

I think not.

As for our pork sales being subsidised, it’s not going to happen.

There’s no money to be shifted from elsewhere on the croft, we’re certainly not using the OH’s salary to subsidise pork production, and I fail to see why money should come out of our pocket to give customers artificially cheap pork because that’s what the market demands of us.

The Government is never going to support small fry like us. We don’t get Single Farm Payment or any of the other money paid out under various schemes aimed at keeping the consumer sweet with both artificially low food prices and nice touchy-feely messages about preserving the countryside as an eco-friendly leisure facility.

Anyway, the reason our immediate costs have risen is not because we’re gouging customers or trying to upset the market price applecart.

Our costs have risen because, firstly, the costs of feed, straw and energy (both diesel and electricity) have risen steadily for several years. There have been short-term dips but the trend is steadily upwards.

We produce some of our feed, source the cheapest off-farm feeds that we can while still getting the result our customers demand, use less straw than we’d like, and have severely economised on energy costs. But the trend is still upwards.

Secondly, there’s been an immediate spike in the costs because we had to change abattoir and butcher.

We’d prefer to use the abattoir that’s closest to the croft to keep transport costs down. We’d prefer to use the village butcher to the croft to keep transport costs down. We’d prefer to use a village butcher whose charge is one-quarter that of a big processing plant.

If our local, cheaper abattoir and butcher won’t take on our pigs, there’s nothing we can about it but go to the next nearest businesses that will provide the necessary services. And that is going to cost more because they charge more—we haven’t added anything to our costs except the additional amounts we’re being charged.

As for diversifying into other areas, yes, we have sold other produce and investigated many more.

Customers want free-range chickens reared outside but they want to pay industrial chicken prices for them. Customers want eggs from free-range chickens but they want them at battery hen prices.

Customers want fresh, seasonal local produce with few carbon miles and no chemical inputs but don’t want cabbages, kale, parsnips, carrots, beets, neeps, apples and the like. They want tomatoes, aubergines, bananas, avocados, peppers, courgettes, sugar snap peas, French beans, nectarines and the like. But they want their exotic produce in the middle of a Scottish winter. And they want it cheap. And how many will object if we seek planning permission for several heated polytunnels/greenhouses to grow some of their desired produce?

Customers want hand-made jams with no additives and preservaties, but they want them at supermarket prices.

Customers want artisan beers and ciders, but they want them at mass-market, supermarket prices.

The list goes on and is extensive.

No, it’s not easy doing what we do. I didn’t expect it to be. I didn’t even expect to make a living wage out of doing this. My wages come in the form of pork, chicken, eggs, vegetables, fruit, jams, chutneys, pickles, beer, cider, wood and the like. I also get a large amount of muck from the pigs and poultry to invest back in the croft. And I get to live in a beautiful location, side by side with nature.

All I do expect is to get a fair price for what we produce—enough to cover the costs and put a small margin back into the croft.

However, that’s not a price the market will withstand.

Instead, I should count myself fortunate that I can fill my belly with mother nature’s beauty and my pockets with muck. But I am left wondering how many price-sensitive customers would be prepared to accept a pocket of shit as their wages for a hard day’s work?

32 Responses to “I must heed Business Studies 101”

  1. I feel for your situation and hope you can continue to produce pork in the way you do, but sadly I think it is unlikely. I understand the difference in price to produce the meat you offer and I really hope that if I had the money I would buy from a producer like you, I am sure your meat is much better. I am not in a position to choose however and admit to being pleased to afford leg of pork which last week was on offer at £4.50 a kilo in our local Co-Op (and that isn’t a cheap shop) even people who can afford your meat will find it hard to resist the price, especially when most people believe the Co-Op to be an ethical food supplier.

    It is shame.

    • Yes, the ethics label is a good one for a business to apply. I spotted a Tesco Finest Pork Leg Joint recently. The label read: “Our outdoor reared Finest pigs are exclusively reared in Norfolk to RSPCA Freedom Food Standards on approved farms. The pigs are initially raised outside with their mothers then moved to warm dry straw barns. ”

      In other words, they are only outdoors until they’re weaned. Weaning age under the RSPCA’s standard is 28 days, except when they’re being moved into specialised housing in which case they can be weaned at 21 days. So Tesco’s “outdoor reared finest pigs” spend most of their lives indoors.

      As for “dry straw barns”, they’re probably what the RSPCA call “straw yards”: deep litter systems that are mucked out less frequently than once a week. Depending on their size, the pigs get 0.54-1.54 square metres of space each in systems mucked out monthly and 0.5-1.72 square metres of the bedding is topped up but not mucked out.

      How many customers reading the ethical label would be aware of that detail and if they were, how many would be comfortable with it?

      Incidentally, that’s quite a high standard compared with those in other countries and contributes to the higher cost of British produced pork compared with imports. It’s also a lot more efficient and cost effective than our approach.

      But the customer feels good about buying an “ethical” product and pays a price that, while not rock bottom, is still cheap. Win, win.

      As for the people “who can afford” our pork, you shouldn’t jump to conclusions. We have several loyal customers on very low incomes who buy our pork and who are the most likely to continue doing so. They’re the most keenly aware of our customers when it comes to the issues involved in food production, especially where livestock is concerned. They tell me they accept local producers have to get a fair and sustainable price for their produce. If that means eating less meat, eating all of the animal and keeping the most prized cuts for special occasions, then that’s worthwhile. Customers like this are the ones I value the most and the ones I fear we’d really let down if we stopped producing pigs and pork.

  2. I genuinely fell sorry for you in your predicament, but given that you are competing with other award winning outdoor reared rare breed pork producers fear that you are a hiding to nothing.

    Chris who produces pigs in Wales charges far less…

    http://www.welshpigs.com/

    …to convince people to pay a premium for yours may prove difficult.

    However, I wish you well whatever you do.

    • It’s hard to work out if he’s so much cheaper than us as you proclaim as he doesn’t include some butchering costs—they’re optional extras. For example, to have a joint boned and rolled costs an extra £3. I did spot he sells four slices of dry cured back bacon for £4. Our local butcher does 6-8 slices for £2.60. We couldn’t produce bacon sell to the same price point as our butcher, so we don’t.

      But in many ways it’s immaterial what he charges as his cost base is going to differ to ours. If it’s the chap I think it is, he’s doing it on a commercial scale, albeit not industrial. As such, he has efficiencies of scale that we don’t have. In addition, how far does he travel to take his pigs to slaughter? How many pigs does he take in one consignment? How much does his abattoir charge? What are his butchering costs? What are his feed costs? What are his straw costs? What’s his cost of diesel? Does he subsidise his cost of production from other sources of income?

      Many of our costs are higher because we’re in North-East Scotland, which means higher transport costs are incurred in getting things up here. Some western parts of Scotland have higher costs still, the north faces higher costs again, and the Islands face the highest costs of all. A Welsh pig producer is going to have a lower cost base from the off as his inputs have to travel much less further. It’s that simple.

      Then there are things like breed factors. Our Berkshires go to slaughter at 28 weeks to give customers an average of 22.5kg of butchered pork from half a pig. Chris’s pigs go to slaughter at 16-18 weeks and produce 22kg of butchered pork from half a pig. By using a faster growing breed, he can save 10-12 weeks of feeding. Other breeds are slower still: Tamworths take longer to reach those sorts weights.

      I’m fully aware that it’s very easy to take the easy option and accuse us of overcharging or gouging the customer, but those are our costs. They have risen with the change of abattoir and butcher. And we can’t absorb those rises. If customers don’t want to pay a price that reflects those costs, fine. They just have to accept they can’t have the pork they desire. And if we can’t sell the pork for a price that reflects the real costs, then we’ll move on to something else.

    • Are you doing a bit of free advertising for your cheap award winning friend Chris?

      • Oh you cynic. I don’t know the man and have never met him. I’ve seen his products on small holding forums and he just sprang to mind as an example of what Stoney is up against.

  3. Sorry, that’s meant to read, “on a hiding to nothing”. If you wish would you please correct the original and delete this post.

  4. I don’t see how you can keep doing what you’re doing, despite my best wishes that you could.

    But what I think doesn’t really matter, where do YOU see this heading? What if the customer refuses to pay higher prices, will you lower them and eat into any savings you had?

    I think it’s pretty obvious your costs can’t/wont go down unless you do go industrial/GM/lower quality, all of which have their own problems. So what are your thoughts Stoney, no-one can answer this but you, really.

    • Yes, I know that only I can come up with answers specific to us. I’m posting about it and posing questions because people are in complete denial about the real cost of food. I’m constantly told I should subsidise food production from other income. I’m constantly told the answer is to be more efficient, be innovative and cut costs because that’s the market mantra. And never mind the inherent contradictions in the mantra. Take the super dairy unit proposed for Welshpool. It will be much more efficient than other dairies, it is innovative and it will cut costs compared to existing units. It has attracted strong opposition because of its scale. But you can bet the very same opponents would squeal just as loudly if they were told their milk, cream, cheese and other dairy produce was going to cost more because dairies refuse to cut costs, be more efficient and be innovative. Many of them will almost certainly believe farmers shouldn’t be subsidised, too. But if subsidies are removed and food prices go up, they’ll squeal about that too. It’s infantile.

  5. Amen to every word, Stoney.

  6. If I lived in Scotland, I would buy from you. I source my beef and sheep from local farmers and it’s well worth the extra cost.

  7. It is the same the world over folks; here in NSW the two huge supermarket chains have just dropped their milk prices to Austr $1.00 per litre! The effect on the dairy farmer producers looks like being terrible as their current contracts with such retailers/middle men run out.

    Big business does not care about the producers of any goods; just take all and to hell with the rest.

    Yes, the consumers are delighted with such a “cheap” product. They do not seem to worry what happens if/when the dairy farmers sell up due to loss of income.

  8. This attitude covers not just food but anything that isn’t mass produced. People expect cheap, and don’t see the quality.

  9. I dunno,It seems like if you could get yourself licensed as an abbatoire man and a one man butcher aswell, you could do the whole Hog yourself. I imagine it isnt so simple as that though.

    • Most of the UK’s small abattoirs have closed: they couldn’t meet the increasingly onerous regulations nor were they efficient enough compared with the big ones. Trying to start a mini-abattoir would be nigh on impossible.

      There’s also a peculiar quirk in the legislation that prohibits a licensed slaughterman from doing his job outside licensed premises. It means that a slaughterman who owns livestock can’t kill his own animals on his holding‚ although non-slaughtermen can kill theirs provided its for their own consumption.

      As for the doing the butchering, as I’ve said before, I can and do butcher meat for our own consumption. But if we sell the meat, it has to be butchered in a licensed cutting premises.

  10. What a predicament to be in!

    Whatever you decide, my best wishes to you.

  11. Dont think that whining on about the costs does anything. Like all things business it has to make sense. Maybe it’s time to hang up your boots regarding selling your product and carry on as a play farmer for your own recreation and produce just what you need for your family. No point beating your block off a wall so to speak.

    • There are downsides to crofting and smallholding, as well as upsides. I write about both. I also write about the real costs involved. That’s not whining. It’s simply giving people an understanding of the reality, which is especially needed when most people think it’s all the Good Life of cute cuddly animals, lush fruit and vegetables, pretty houses, nicely rustic neighbours and a bit of cash on the side. As for using my blog to beat my block off a wall, if I want to, so to speak, then I will.

  12. I know exactly what you’ve encountered re: slaughter/licensing/inspection/facilities, etc. The requirements are onerous everywhere – so you’re not alone. I’ve been reading a Diana Gabaldon (fiction) book around ~1745 Culloden and what the crofters had to do to survive from year to year on limited land with limited food “crops” (they had just started experimenting with potatoes). The limitless globalized food selection presently available in the market today does not in any way reflect reality. Corps are given tax benefits and loopholes, immigrant (illegal much of the time) labor is employed to perform the work, bribes may even influence the mix, etc. An organic farmer using quality inputs (feed, rotated pasture, hay, etc.) cannot begin to compete with crazy industrialized food production because the “externalities” aren’t figured into the bottom line.

    Keep up your good work and maintain your standards. If/When people become hungry enough, they will give you your proper due for all the work that goes into providing wholesome farm products… or you can always revert to subsistence farming until people come to their senses.

  13. My two cents from a daughter of a pig farmer (in the US) – have you considered high-end pates and sausages? My dad raises Mulefoots for a friend of his who specializes in that. (The friend started out raising his own pigs, but demand for his product rose to a point where he couldn’t do both. So he got my dad interested in the Mulefoot breed and now Dad does the pig raising for him.)

    • A single pig will have a liver weighing 0.9-1.2kg. For argument’s sake, I’ll call it 1kg. The same pig will contribute 500g of pork belly. The pâté will also need an onion, herbs, breadcrumbs, wine and seasonings. The pâté needs to be processed, cooked, chilled and packaged. It then needs to be sold and consumed within a week. Say that it’s sold in 100g packages, then one liver will produce about 16 packages of pâté.

      To sell 16 packages of pâté a week, we’d need to kill a pig a week. To double sales, we’d need to kill two pigs a week. And we’d then need to find outlets for the other 43.5kg of meat from each pig. (We get 45kg of meat per pig, less 1kg for the liver and 0.5kg for the pork belly.)

      Over and above that, we’d need to convert part of one of the buildings into a meat processing facility that met the current regulations. Either that, or find a butcher that was prepared to rent his facilities.

      The list of inputs goes on. Employees, insurance, taxes, etc. And then you need the customer base for pâté.

      Pâté works either on a very small scale for your own consumption or on a scale where it takes “waste” products and turns them into high-value items. If we had pigs going through weekly, with a suitable premises and staff in place, and decent outlet for the pork, then pâté would make sense as a high-margin addition. We don’t and it doesn’t.

  14. “To get prices down to the level consumers have been led to expect, farmers have to …be prepared to subsidise production from other income.”

    Doesn’t that mean a farmer is effectively paying the customer to eat their product?

    As a family on the other end of this merry-go-round we’re rapidly becoming veggie because our income isn’t up to buying meat.

    We don’t begrudge you a fair price for what you make. I may add that writing is as bad in this area: everyone wants your work free…

    We are working towards some kind of smallholding/crop producing garden but that will mainly be for our consumption.

    • Yes, many farmers, smallholders and crofters are paying the customer to eat their product. Some do it in the hope that things will pick up next year, or the year after, or the year after that. Others do it out of naivety, stupidity or poor business sense. And others find themselves forced into it through the controls and contracts imposed by processors and supermarkets.

      Dourie Farm at Fort William closed its pig unit last week because it was on track to lose £250,000 this year. The family that own the farm said they could re-open if they went even more intensive but would need a government grant to build a new facility. In other words, they can only produce pork that’s cheap enough for the market if they or the government foot the bill. Naturally, they’d prefer the government, for which read the taxpayer, to do so.

      Or have a look at the Pigs Are Still Worth It campaign. BPEX calculates that the average British pig farmer is losing £26 for every pig sold. That’s £3.6 million a week. The larger processors and the supermarkets are still doing well out of it, so for the consumer to get ultra-cheap prices farmers foot the bill, taxpayers foot the bill and financial backers foot the bill when farms go bust.

      Similarly with poultry. The British Free Range Egg Producer’s Association is highlighting the fact that feed prices have gone from £230 a tonne a year to around £300 a tonne now. Energy prices have also rocketed and, to make matters worse, there’s an oversupply of free range chicken so prices are actually being depressed.

      And it’s not as if meat, or indeed any other food, is actually that expensive in historic terms in the UK although the trend is upwards from a recent low base. I’ll have to dig up the figures but from memory, we’ve gone from spending about 30% of household budgets on food to spending 10%. Similarly, the “real” price of food has plummeted over the past 50 years—think about the quantity of meat that’s eaten in Western countries for example. Or the amount of exotic produce formerly sold as luxury items, now sold dirt cheap, and readily dumped if it doesn’t sell: bananas are a classic.

      On the smallholding side, Rosie Boycott is one of the better known casualties. She lost £200,000 trying to pursue the “good life” on a West Country holding. Even when it was obvious it was going down the tubes, she persisted until even she and her partner couldn’t afford the losses. And people who think “oh, you just diversify and get efficient” is the answer should consider Ms Boycott’s experiences.

      We’ve seen many people come and go in the same way since we’ve been doing this: they think “live in the country, work for myself, have nice animals and fresh food, and make shed loads of dosh”, then discover it’s grimy, grotty, relentlessly hard work and money flowing out three, four or five times faster than it comes in. Weaners are the classic. People come to us for weaners, moan about the price, reluctantly part with their £40, £50 and currently £60, and going thinking “hee hee he, I know what to do, sell 100 weaners a year and I’ll be quids in too with £6,000 in my pocket”. They then ignore all the money they spent on housing, trailers, tools, vets etc, only factor in feed costs, and after a year or two wonder where all the money went. And sell up.

      Food is cheap for the end consumer, but someone, somewhere is paying for that cheapness.

  15. I have been reading Simon Fairlie “Meat, a Benign Extravagance” in which he highlights the massively increased costs of feed caused by the removal of catering, slaughterhouse and processing waste from pig feed.

    I am not advocating the sort of practices that were found in the big F&M outbreak, but the reality is that pigs are very good at converting vegetable and animal wastes into food edible to humans. Right now if anything is processed in the same room as meat, then it cannot go into animal feed.

    Yet seasonal confectionary, unsold meat and poultry, meat pies etc all get rendered for cat food!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 754 other followers

%d bloggers like this: