Danish Crown: Greater predictability must strengthen the settlement

Danish Crown's slaughterhouses have experienced a rollercoaster ride in three years, when you look at the supply of pigs from the cooperative owners.

Posted on May 15 ,00:30

Danish Crown: Greater predictability must strengthen the settlement

First, unit owners' deliveries increased from approx. 215,000 to 280,000 pigs per week, and subsequently the number has now dropped again to around 200,000 pigs per week. These are fluctuations that barely correspond to the capacity at the slaughterhouse in Horsens. This makes it almost impossible to optimize production, because a stable and predictable number of pigs for slaughter is the focal point in a tight production economy.

"In practice, we have had significant costs for a buffer capacity to be able to absorb the huge fluctuations in inflows that are created when we, as unit owners, simultaneously change our behaviour. In the past three years, when the fluctuations have been very large, it has cost the community an average three-figure million per year, and it is not sustainable in the long run", says chairman of the board Erik Bredholt.

In periods of lack of capacity and periods of overcapacity, average slaughter costs increase. There is thus an urgent need for better coordination between the number of pigs in the barn and the slaughter capacity at Danish Crown. The task is to optimize slaughter costs with respect for the owners' needs to be able to adjust the production of fattening pigs. The stability mask is therefore neither intended to limit the owners' production nor to limit the company's obligation to receive.

The board, with the support of the board of representatives, has therefore decided to change the settlement rules. By 1 July 2023 at the latest, the individual unit owner must have reported his expected annual delivery or A-quantity to Danish Crown at least once a year via four models for deliveries depending on the form of production. 

The expected annual delivery can be continuously adjusted, but the board can immediately lock the A quantity by activating the stability mask. 30 days after activation, the deductions come into effect, and while the stability mask is activated, the A quantity can only be changed with 12 months' notice. In a case where the stability mask is activated due to a lack of slaughter capacity, the A quantity will in that case be locked in an upward direction, and the stability mask will only be applicable for overstocking, just as was the case when Danish Crown introduced B pigs in the winter of 2020/2021.

When the mask is active, a range in deliveries of +/- 10 per cent is accepted. based on 13 week rolling average taking into account normal delivery patterns to account for biological fluctuations. The deduction will be a minimum of DKK 50 per pig and a maximum of DKK 220 per pig.

"The need for a new tool has become even more urgent after the decision to close the slaughterhouse in Sæby, because one of the consequences is a considerable reduction in Danish Crown's total slaughter capacity. Therefore, the need to ensure greater predictability in deliveries is even more pronounced, as it is ultimately the way to ensure both a good settlement and a good service for the unit owners", says Nicolaj Nørgaard, director of owner service at Danish Crown.

The basic idea behind the change in the settlement rules is to return the value to the owners that a pig delivered according to a stable delivery pattern has at all times. In periods when supplies either increase or decrease sharply, both the extra costs and possibly lower sales prices will be attributed to the extra or fewer pigs.

"The possibility of introducing a stability mask has been created after inspiration from the weight mask, which is a well-known tool for us unit owners. The weight mask involves passing on the value of the pigs to the unit owner. This means that the pigs in basic weight have the highest value. The pigs that are either too big or too small have a different value in production or sale. The smaller value is passed on to the individual unit owner in the form of a deduction in the settlement. The stability mask works in the same way. When deliveries and slaughter capacity are in balance, the pigs have the highest value", says Erik Bredholt.

The stability mask is only activated if the board of directors assesses that there is an overall imbalance in the deliveries of pigs to Danish Crown. There will thus only be a deduction in the settlement in the periods when, in the board's assessment, there is no capacity to handle larger supplies of pigs, or that the supplies fall so quickly that the capacity cannot be adjusted without significant negative effects for the community. If Danish Crown's weekly supplies are stable, the stability mask will not be active.

"It is important to emphasize that the idea is only to introduce deductions in periods of extraordinarily large fluctuations in the supply of pigs. There will therefore be no deductions in connection with general biological variation, remediation or exposed/advanced pigs in connection with public holidays. Hopefully there will be no need to introduce deductions at all, and at the same time I would like to emphasize that it is a new tool, so there will probably be adjustments along the way", says Erik Bredholt.

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