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Vertical co-ordination in the Danish hog/pork industry

Author

Listed:
  • Laursen, Christina

    (The MAPP Centre, Aarhus School of Business)

  • Hundahl, Lone

    (The MAPP Centre, Aarhus School of Business)

  • Strandskov, Jesper

    () (Department of International Business)

Abstract

Executive summary 1. This study1 of co-ordination of the hog/pork industry in Denmark is part of a project including the industries in Denmark, Canada, the Netherlands and the United States. The Danish hog/pork industry is export driven, and Denmark is one of the world’s largest pork exporters with over 75% of its output going to some 100 countries. 2. The Danish hog/pork system is a vertically integrated system with integration from the primary producer to the processing companies. The strength of the Danish industry can mainly be attributed to its co-operative nature, that it is centrally organised, and controlled and owned by the industry itself, namely the pig producers. 3. During the last five years, the Danish pork industry has changed, slaughtering is now concentrated in the four largest firms accounting for 95% of capacity. Processing (beyond primal cuts) is also concentrated and is integrated with slaughtering operations. The four slaughtering firms are all farmer-owned co-operatives. 4. To ensure greater stability in the market and to make it easier for farmers and abattoirs in their management activity, prices are set by a committee each week and are based on market conditions on export markets. Using a predetermined processing margin the price to be paid to pig farmers is then set; consequently each producer receives the same price for a given specification. This saves on transportation costs as there is no price incentive for producers to send live pigs over long distances and it eliminates marketing costs such as the need for markets, middlemen or a network of buyers employed by the abattoir. 5. Bonuses will vary from co-operative to co-operative depending on its cost structure and selling activity. A poor performance by one co-operative with a consequent lower bonus will result in producers switching to another co-operative, for large producers the bonus payment represents a significant source of income. It is this factor that ensures the competitiveness of the individual pig abattoir co-operative. 6. The development in the Danish pork industry is characterised by changes in demand, consumption and demographics towards more attention to soft product quality traits such as animal welfare, “ethical products” and product origin. The habits of today’s consumer are changing towards convenience products and foreign eating habits, which among other things has led to an increasing catering industry. Especially in the areas productivity and technology there has been an increasing focus on specialisation in production and other production aspects such as monitoring technology and biotechnology. Over the years, pork production has become more knowledge intensive, which creates a demand for a skilled and flexible workforce. There is also a pressure on the industry to adopt the latest technology to remain cost and product competitive. 7. In order to meet this pressure attention must be paid to increased product development, larger market flexibility and improved responsiveness. Optimisation of the full chain rather than focus on costs at each stage is also required to meet the pressure. At the same time the system management, among other things, has to be focused on meeting the consumer need for information and increasing the quality of farm management.

Suggested Citation

  • Laursen, Christina & Hundahl, Lone & Strandskov, Jesper, 1999. "Vertical co-ordination in the Danish hog/pork industry," MAPP Working Papers 61, University of Aarhus, Aarhus School of Business, The MAPP Centre.
  • Handle: RePEc:hhb:aarmap:0061
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    File URL: http://www.mapp.asb.dk/WPpdf/wp61.pdf
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    Keywords

    Industrial organization; Meat industry; Cooperation; Denmark;

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