Perennial raw material prices

... and not only in Switzerland

The discussion about the raw material prices in the meat market is a real long-running issue - especially in the heavily subsidized Swiss agriculture. It is obvious that producers want the highest possible price, while processors and retailers prefer a low price. Either way, the so-called "pig cycle" always causes hot heads.

The meat business in Switzerland is anything but easy. The farmer takes on a certain risk by housing the animals. Although he will certainly be able to sell his animals when they are ready for slaughter, he does not yet know at what price. He can react by waiting a bit before going to the slaughterhouse. Joint production is the key word for Swiss processors. A pig does not only consist of filet or chops, a beef not only of entrecôte. Unlike abroad, where trade exists at this level, a large processor must purchase the entire animal and not just the required parts. This means that all usable parts must be sold regardless of sales or seasonal peaks.

In trade and to a lesser extent also in processors, the demand elasticity of consumers comes into play. If the price rises, consumption shifts to other types of meat. If the prices of all types of meat rise, this restricts consumption. The consumer reacts quickly and directly, often with purchases in neighboring countries. The comparison with our neighboring country Germany is interesting. In calendar week 28/2004, the average price for conventional cow meat was around CHF 3,50/kg (Switzerland CHF 6,80/kg), for conventional beef around CHF 4,15/kg (Switzerland CHF 7,50/kg ) and for conventional pork at CHF 2,40/kg (Switzerland 4,80/kg)1).

In the heavily regulated Swiss market, even slight changes in supply or demand can trigger large fluctuations, as the graphic with the long-term price development of pork and cow meat makes clear. These strong fluctuations are problematic for all market participants.

Source: Basel [Bell]