Market impact of EU regulations on group housing of sows

New EU pig welfare legislation â Council Directive 2001/88/EC â comes into force on 1 January 2013. The aim of this report is to improve understanding by setting out the latest progress towards implementation
and enforcement of the regulations and by developing scenarios for the market situation both before and after implementation.

⢠The partial sow stall ban due to take effect throughout Europe from 1 January 2013 is highly likely to
have a major impact on the EU pig meat market
⢠Pig production is likely to fall by between 5% and 10% and processors and retailers are likely to
face substantial price increases
⢠Similar animal welfare legislation in the laying hens industry which came into force on I January 2012 has caused serious disruption to the egg industry where the price of shell eggs is 75% higher than a year
⢠The EU Commission had made it clear there will be no derogation granted and that the onus is on
Member States to enforce the new legislation from 1 January 2013
⢠To date, only three Member States have told the Commission they are already compliant with the
new legislation; nine Member States have indicated they expect to be compliant by the end of this
year; 12 countries have not been able to assure the Commission they will be fully compliant by
I January 2013; three countries have not replied to the Commissionâs request for such information
⢠A number of Member States have indicated they expect a âsignificant numberâ of producers to quit
the industry or at least to stop breeding pigs and allow their herds to run down as they will be
unable or unwilling to comply with the new legislation
⢠While enforcement of the new EU welfare legislation lies with Member States, the Commission has
made it clear it will initiate infraction proceedings against those countries which fail to comply with or
enforce the legislation
⢠While robust enforcement will have an effect, it will not be the only measure to have an impact on
the market. Many retailers, especially those in Member States where the pig industry is fully compliant
with the new legislation, will be concerned about the possible adverse effect on their corporate
reputations of being found to be selling âillegally producedâ pig meat products.

To provide an assessment of the range of possible impacts, three scenarios for how the situation may develop over the next two years and beyond are presented below. In reality, the true situation is unlikely to correspond exactly to any of them. However, they should give an idea of the range of outcomes which are possible. The first scenario describes the most probable situation based on current knowledge about likely compliance levels, legislative and market responses. The other two scenarios describe more extreme situations based on rigorous enforcement of the rules from early 2013 and the possibility that the changes may lead to a more fundamental shift in the structure of the industry.

Scenario 1
⢠Total EU pig meat production in 2013 would fall by 5% compared with 2011
⢠This would lead to a significant increase in price for finished pigs from compliant producers â by at
least 10% in all likelihood
⢠Prices for pigs from non-compliant producers would probably fall as many processors and retailers
would be unwilling to take such product
⢠As there is already some overcapacity in the EU processing sector, the expected fall in pig production
is likely to exacerbate the situation and lead to further rationalisation in the sector.

Scenario 2
⢠Rigorous enforcement throughout the EU, leading to pig production declining by up to 10%
⢠Production losses on this scale would lead to real shortages of pig meat in the EU market and would
mean substantial price increases and processors and retailers competing for supply
⢠Securing supply could be a greater priority than price
⢠Price increases would inevitably be passed on to consumers, possibly putting pressure on politicians
to act to increase pig meat supplies (especially in those Member States where per capita
consumption of pig meat is comparatively high)
⢠In that case, the options are to stimulate expansion of compliant production within the EU (difficult in
the current economic climate) or to open up the market to imports from third countries. In this
latter case, there would be difficulty in sourcing welfare compliant product on the world market
⢠Longer term, the implications of such political moves would lead to major structural changes in the
European supply chain.

Scenario 3
⢠The third possible scenario would involve a fundamental realignment of production across the EU
with breeding and finishing concentrated in different Member States
⢠Following the initial fall in the size of the breeding herd in North West Europe, it would recover to
expand rapidly and fill the gap left by production falls in other parts of the EU. Many breeders in
Eastern and Southern Europe would switch to finishing, taking piglets from North West Europe
⢠This might lead to a form of integration â with productive breeders in North West Europe supplying
piglets to lower-cost finishers in Eastern and Southern Europe â and also lead to a reduction in
overall production costs
⢠A major barrier would remain in the form of animal welfare concerns with resistance to large-scale
transport of piglets across Europe.