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MACROECONOMICS ASSIGNMENT DANISH PORK INDUSTRY PEST ANALIZYS

Group members:

/ Jakub Zarzycki / Hanna Luberadzka / Laura Sokolovska / / Simona Dorobat / Ewa Kwasniewska / IV semester / International Branding and Marketing Management / TEKO DESIGN + BUSINESS / March 2013


INTRODUCTION

The following report is an analysis of macro-environmental situation of the pork production industry in Denmark. In order to complete deliver, as a tool we used the PEST analysis, which is a framework of macro-environmental factors, that is commonly used as the environmental scanning component of strategic management. PEST name derives from the first letters of the items listed in the basic areas of the environment : 1. Political factors - are basically describing to what degree the government intervenes in the economy. Specifically, political factors include dry areas such as tax policy, labor law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include merit and demerit goods. Furthermore, Governments often have great influence on the education, infrastructure and national health policies. 2. Economic factors - include such factors as economic growth, interest rates, exchange rates and the inflation rate. For example, interest rates affect cost of capital and influences decisions as to what extent a business grows and expands. Exchange rates have a huge impact on the costs of exporting goods and the supply and price of imported goods in an economies. 3. Social factors - include the population growth rate, age distribution, career attitudes aspects, health consciousness and emphasis on safety. Trends in social life affect the demand for a company’s products and the basis on which a particular company operates. Furthermore, companies may change and fit various management strategies in order to adapt to the changing social trends. 4. Technological factors - various technological aspects sucg as R & D activity, automation, technology incentives and the rate of technological change. They have a power to determine such spheres as a minimum efficient production level or barriers to entry, as well as influence outsourcing decisions. Furthermore, technological shifts relate to costs, quality, and lead to innovation within production.

We have isolated the specific areas that will be a subject of the following analyzis, from the general environment of the danish pork industry. Furthermore, we have identified various factors in specific areas that have or may have an impact on the functionalities of the industry as a whole. The following section provides a summary of selected areas of environmental factors :


POLITICAL FACTORS

- In Denmark there are a common agricultural export refunds which include processed products like dried sausages, cooked sausages, cooked hams and cooked shoulders - Temporary pig meat export restrictions are usually connected with the threat of the meat being infected or with the lack of safety inspections. The restrictions are usually made by 3rd countries. - There are countries where consumption of pork is banished because of religious character of countries (Islamic countries) - Each country has specific regulations about export of meat and poultry. Except the regulations from each country there is an “European Union Requirements� found elsewhere in the FSIS Export Library. - There are also legislations about the conditions how the pigs are maintained, for example requirements that pigs be given environmental enrichment or that they will not be held in too small spaces. Denmark is under the EU legislation law regulations since 2003. - High costs in Denmark made Danish farmers outsource the process of fattening and slaughter to countries like Czech Republic, Slovakia or Poland. European Union regulation in the East European countries helps Danish farmers to outsource the above mentioned processes. ( ---> It is estimated that approximately half of the workers in Danish pig industry comes from Eastern Europe which slows down the wages increase in the Danish pig production. ) - Denmark is 5th Pig meat producer in Europe and export approximately 85% of pork produced. 65.3% of Denmark export goes to European Union countries (EU27) and 34.7% to the 3rd countries.


ECONOMICAL FACTORS

- Low interest rate in Denmark is a positive factor for big pig farms in Denmark - Denmark is 5th Pig meat producer in Europe and export approximately 85% of pork produced. - Costs: medium-high housing costs for the pigs , high hourly wages for the emplyees - Cost of production is high ( due to the expense of labour, facilities and lighter slaughter weights) => low profitability - The price is highly dependent upon exchange rates and a low U.S. dollar, consequently, has weakened the value of Danish pork - The demand is increasing, therefore there is the supply curve goes upward - As the Danish pork industry is already very concentrated, increased competitiveness must come from economies of scale, flexibility, proximity to the market, and increased internationalisation. This is regarded as an important strategy for future growth for Danish slaughterhouses - The major differences in pig production costs between European countries lead to differences in competitiveness - The swine industry in Denmark is an important part of the national economy - About 60,000 people are employed in the pork industry and pork exports represent nearly six percent of the country’s total export value. - For the past three years, profitability in Denmark has been low - Although the past few years have not been profitable, many Danish pork producers have expanded, with much of the growth occurring in sow herds. - Every year, the pig price gets higher, and so does the bonus payment - The total pig production in Denmark has been growing from year to year, getting to 2.008.000 in 2011 - The total export of pigs has grown with 11,4 % compared to last year, and the export of pigmeat production with 8,5 % - The ratio between the price for slaughter pigs and compound feeding stuff has lowered in 2010 compared to 2009, but then in 211 it raised again, reaching 5,38 - The gross margin in 2011 was 91 for slaughterpigs and 124 for piglets,almost the same as the year before


SOCIAL FACTORS

-Population demographic ( low amount of domestic population) -explosion of knowledge - increased awareness of food (including meat) production -Lifestyle changes, healty food awareness, number of articles about healthy diet -investing in new and often innovative ways of using resources more efficiently to produce high quality meat protein -generating alternative energy sources and replacement inputs such as fertilisers -Consumerism, increased amount of intake also pork meat -Cheap labor hands -Customer loyalty -customer are more attached to domestic products rather than to the brand however the price is always the most important factor -Lifestyles trends, need to follow foreign trends, “American breakfast: bacon and eggs� -Changing social values, ethical values and customer awareness of for example ecological issues(Green House Gas (GHG) emissions), eco-technologies -Corporate social responsibility, responsible and fair animal treatment.


TECHNOLOGICAL FACTORS

- Food production interacts with environment which is one of the biggest threats. Pig industry acknowledges the impact of modern pig farms on the environment. - More efficient pig producing systems, advanced technologies as well as government`s strict regulations help to reduce emissions of ammonia and odour. - IT operations systems which include operations, quality control, maintenance, safety and surveillance help run business more efficient. - As one of the biggest issues is environment new technologies must work environmentally safer and it has to work with highly energy efficient. Producers need to improve technologies which allow producers optimise their use of inputs such as feed, energy and water, and transform waste in the production of energy to make production process more environmental friendly. - Denmark`s pig producers are working on producing method changes and continue to improve animal welfare conditions. New methods and new technologies help producers operate more efficiently, produce more and increase sales it means meeting new requirements and reach and development (R&D) work. - New technology and improved management and storage would help increase the utilization of pig slurry as well as innovation of feeding process and innovative pig housing units and equipment would help producing process more efficient in order to meet demand. - To improve animal feeding processes and innovative pig housing units and equipment producers could use for example more advanced software which allows optimisation, planning of production and also helps traceability of goods through the production process in meat processing. - By fallowing technology development and possibilities to use it in production process industry is able to produce more and meet increasing demand. Pork industry still needs to keep eye on environmental issues by using latest technologies in the same time produce more efficient.


CONCLUSION

In summary, we have compiled the most important factors for the industry and divided them due to their positive or negative impact on the situation on the domestic pork market. In the Appendices, further in this report, are the most important data sets that have helped us in making the PEST analysis. Below is the result of the analysis, the factors were divided into two groups: Threats and Opportunities. This simplified version of the SWOT model can be read as the conclusion on the current state of affairs within the industry, as well as the basic forecast for the close future.

OPPORTUNITIES - new harvest facility at Horsens that has implemented a high level of automation in its processing line - Danish producers have started to export live pigs to Germany - All forms of technology have a huge potential to increase efficiency and profitability due to the level of sophistication, accuracy and intelligence it provides to the pork industry - Denmark has strong research capacities within primary production and processing of pigs. Much research has been carried out to develop the efficiency in pig production and the breeding material. This research has made Danish pig production competitive despite the relatively higher level of costs. - The Danish Meat Research Institute (DMRI) carries out research on processing technologies for the meat industry including automisation. Cooperation between slaughterhouses, the DMRI and producers of equipment has brought Danish meat technology at the forefront of the industry in an international comparison. - The strongest growth was in exports to Korea, up by 256% to 4,098 metric tons after the setback to Korean pork production from foot-and-mouth disease. About 29% more than in 2010 was sold to Ireland, while sales to France and to China increased by 13%. The destination buying much less Danish pork this year was Australia, with purchases down by 32% in volume at 19,318 metric tons and 30% lower in value at 362 million Danish kroner.


- Around 15,000 persons are employed in the primary stage of production of pigs in Denmark. - Around 48,000 people are employed in the Danish pig industry overall, including primary production, processing and associated industries. - The demand is increasing, therefore there is the supply curve goes upward - The high quality level of Danish pork is based on the continuing work carried out to improve the pigs supplied, both as regards breeding, meat quality and health, work also including the environment and welfare. - As the Danish pork industry is already very concentrated, increased competitiveness must come from economies of scale, flexibility, proximity to the market, and increased internationalisation. This is regarded as an important strategy for future growth for Danish slaughterhouses. - Environmentally sustainable pig production is a central strategic element in the development of the production of pigs in Denmark. Danish Pig Production aims to be at the forefront of environmental technologies, and will, in co-operation with research partners, develop and investigate new technologies for reduction of ammonia emissions, reduction and recycling of phosphorus, purification of air for odour and unwanted particles, reduction of the energy consumption and of CO2 emission, etc. Danish Pig Production is also working for a better working environment. New technologies must be accompanied by increased reliability and a cost level that does not reduce our competitiveness.

THREATS

- Costs: medium-high housing costs, high hourly wages - Cost of production is high( due to the expense of labour, facilities and lighter slaughter weights) = low profitability - The price is highly dependent upon exchange rates and a low U.S. dollar, consequently, has weakened the value of Danish pork. - The possibilities for increasing pig production in Denmark are limited due to environmental regulations and scarcity of land. This is expected to lead to an increasing number of Danish farmers starting pig producing operations in other countries. In this context, particularly Poland, the Baltic States and Ukraine are regarded as possible locations. - The ownership requirement, combined with increasing prices on land, results in increasing capital requirements to the pig production in Denmark. If this is not reduced, the herd economy will become increasingly strained. The ownership requirement is a Danish phenomenon only, and therefore affects the competitiveness of the pig production.


STATISTICS


REFERENCES

Danish Crown – Pork Processing Plan, Horsens, Denmark (2012) [online] Available at: www.foodprocessing-technology.com/projects/danish_crown/ (Accessed 25 February 2013) Danish pig industry optimistic despite challenges by Roger Abbott (2010) [online] Available at: wattagnet.com/Danish_pig_industry_optimistic_despite_ challenges.html (Accessed 26 February 2013) Danish pig producers and the environment [online] Available at: www.agricultureandfood.dk/~/media/agricultureandfood/About%20us/Dansih%20Agriculture%20and%20Food/Danishpigproducersenvironmentashx.ashx (Accessed 25 February 2013) www.danishpigproduction.dk www.agricultureandfood.co.uk/Pig_production/The_Danish_pig_meat_sector. aspx www.foodproductiondaily.com/Supply-Chain/Danish-pork-industry-on-the-rise


PORK INDUSTRY  
PORK INDUSTRY  

DK pork industry - PEST

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