Pork cost of production – Indoor and Outdoor estimations

The latest AHDB quarterly cost of production and margin estimations have been published for 2022 Q3 but reflect an “industry average” when, in reality, we have significant numbers of sows kept on  different systems – indoor and outdoor. The production of an “industry average” involves the calculation of separate indoor and outdoor sow cost of production estimation models and this enables me to write this article looking at the difference.

A detailed explanation about how the cost of production is calculated can be found on the AHDB website here.   

For indoor kept sows, the model takes account of specific compound feed for indoor sows and early rearer feed formulated for indoor produced piglets. There is no distinction at grower and finishing feed level. Indoor cost of production uses specific energy and labour use obtained from previous AHDB survey information, updated for current prices; the use of farrowing crates; dry sow housing and straw use (650kg per sow); together with specific sow performance information obtained from AgroVision from over 140 herds. It is assumed that the piglets are reared and finished indoors in specialist slatted pig housing.

For outdoor kept sows, the model takes account of specific compound feed for outdoor sows and early rearer feed formulated for outdoor produced piglets. There is no distinction at grower and finishing feed level for what background the piglet came from. Outdoor cost of production assumes outdoor sow arks and gilt accommodation with straw (1.4tes per sow). It is assumed outdoor sows are kept in electric-fenced paddocks that are rented and that the arks are moved every two years. Specific sow performance is obtained from AgroVision from around 100 herds. It is assumed that the piglets are reared and finished in straw barns (50kg of straw per pig). Energy and labour use are system specific, although the BPEX labour survey concluded that the overall annual total labour use was similar for indoor and outdoor sow systems, with outdoor systems having more seasonal variation.

Piglet performance in rearing and finishing to slaughter periods comes from AgroVision data from around 120 herds at each of these stages.

The cost of mortality, such as fallen stock disposal costs, is system specifically calculated from mortality information and takes account of when mortality occurred. Cost of production also takes account of transporting piglets between units and pigs to abattoir; returns for cull sows; cost of replacement gilts; AI costs; abattoir deductions; professional and book-keeping fees; farm insurance; PPE; V&M; disinfectant, tags, slap markers. Both short-term (working capital) and long-term (building and equipment loans) interest rates are taken into account and all buildings and equipment is depreciated on the basis of new replacement over 20 and 10 years respectively. Labour wage movements are obtained from the Office of National Statistics and include employer national insurance and employee liability insurance costs.

The full economic cost of producing a kg of pork for 2022 Q3 for indoor systems is estimated at 226p/kg and for outdoor-bred systems full economic cost of production is estimated at 227p/kg. Over the past decade, outdoor-bred pork has been more expensive to produce by 1 to 5p/kg on a full economic cost of production basis.

The main reason for the higher cost of producing outdoor-bred pork is due to the lower sow performance when compared to indoor kept sows. On average, indoor sows wean 27.6 piglets per sow per year and outdoor sows wean 25.3 piglets per sow per year.

Net margin estimates for indoor systems for 2022 Q3 are negative at -£25 per pig. The price used to calculate the net margin is the standard pig price (SPP) at 198p/kg.

For outdoor-bred systems the all pig price (APP) is used to calculate the net margin. This is not perfect as by its definition it includes standard pigs as well as pigs that attract a premium. Net margins for outdoor systems for 2022 Q3, using APP at 201p/kg, are negative at -£23 per pig.

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