Trump’s trade war with China is already having an impact on the European pork market, the boss of Danish Crown warned as the company posted “satisfactory” half year results.
The Danish pork co-operative, which owns UK processor Tulip, increased operating profits before special items by 1.5% year on year to 1,041 million DKK in the first half of FY 2017/18, it revealed today.
However, while the number of pigs slaughtered by the group was up 1.5% for the half year, the average price per kg paid to its farmers was 0.76 DKK lower than last year.
“We have seen very adverse market conditions during this half year, particularly outside Europe”, Danish Crown’s group CEO Jais Valeur told The Grocer.
“We have a strong business in Asia and one big challenge has been the decline in the US dollar against the euro, which has hurt our competitiveness.
“At the same time, the trade war introduced by the US on China has led to much lower pig prices in the US. That, in combination with a low exchange rate, has simply strengthened the American offering into Asian markets, which has put pressure on the whole European market.”
Sluggish demand
Weak demand from China had also hit European pork exports, driving down prices and contributing to “sluggish demand” in the UK since the New Year, he added. “The supply imbalance in the European market has impacted the UK market and there has been some headwind.”
After strong trading in the first quarter of the financial year, Tulip experienced lower than expected demand since the beginning of 2018, resulting in a “setback for the turnaround” of the British processor, Danish Crown warned.
The recently announced merger between Sainsbury’s and Asda, and the “continued advance” of Lidl and Aldi was strengthening competition in the UK market, putting pressure on suppliers, said Valeur.
However, he was confident Tulip would remain a “strong UK business”, with its recent acquisition of British pork producer Easey Holdings a big step forward in efforts to ‘Brexit-proof’ the business.
“No matter whether it’s a hard Brexit or a soft Brexit, we think Brits will still like British meat, which is why we’re strengthening the business in that direction,” he added.
Overall group revenues fell 30.7 billion DKK to 30.1 billion DKK for the period, but Danish Crown said that was “mainly the result of the divestment of Plumrose in the US”, which accounted for revenue of 1.7 billion DKK during the same period last year.
Combined earnings from its processing businesses - including Tulip - were up 171 million DKK on the same period last year. DAT-Schaub, which produces natural casings for sausage production, posted “significant” growth in both revenue and earnings.
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