The financial year has generally been characterised by big, existential and protracted challenges. An economic crisis among pig producers worldwide was superseded by an emerging global financial crisis at the start of the financial year. Everywhere the demand for meat fell while production globally was too high. At the same time, Danish Crown’s supply of raw materials was threatened due to increasing Danish exports of piglets.

We found ourselves in an extreme situation where, as a company, we had to bring our size and capacity into line. Previously we have closed departments, but in the past it has been as part of rationalisations. For the first time ever, we were having to close facilities because our overall production was falling. We have reluctantly had to say goodbye to almost 3,000 employees, but the steps have been necessary to preserve our competitiveness in an extremely tough market, explains Niels Mikkelsen, Chairman of Danish Crown’s Board of Directors.

A number of burdens have been imposed on us politically, while our competitors south of the border have seen a relaxation of rules, in some cases even incentive measures. And this is a tough blow for our competitiveness.

In step with the times
While Danish Crown has been through a period of readjustment, many of its members have endured a long and hard existential struggle. The industry has been tested to the limits, while the entire business sector has suffered a decline in competitiveness. To retain its position as a key player in the global meat market, in May Danish Crown introduced DC Future, which is a nine-point action plan in which the DC Settlement System is part of the overall plan and of crucial significance for the company’s owners.

The DC Settlement System is a brand new settlement system which can be used by all pig and sow producers. It is an open and transparent system that allows producers to freely choose from the available options. Regardless of production type and pattern, it can benefit everyone as long as farmers are willing to adjust their farm operations. They might be expected to think innovatively. But that is par for the course in a rapidly changing world in which we have to adapt to the changes, competition and forces in the market. We do not operate in a static system, and therefore we have listened to the members’ views, says Niels Mikkelsen, adding that the settlement system came into effect on 5 October 2009.

Shared responsibility and common ownership
During the year, a number of dialogue meetings have been held with members at which the running of the Group and the new settlement system have been discussed. The discussion about the DC Settlement System sometimes caused shockwaves among the farmers, says Niels Mikkelsen.

Before, we had a slightly rigid system which was devised at a time when members were more similar. Now we have a system which reflects that things have changed and which considers the interests of all groups of producers. This has been the message when meeting the owners in an open dialogue about the challenges we face as a Group. We have described the situation we are seeing in the markets, and presented a plan for the implementation of the necessary changes. This has occasionally sparked a lively and heated debate, and strong arguments have been put forward. For me, this demonstrates that a lot of owners feel a strong sense of responsibility and ownership towards our joint business, says Niels Mikkelsen.

Unequal terms
While it will be a while before the effects of the DC Settlement System are fully felt, after only three months of DC Future the Board of Directors could detect marked improvements in the company’s economy. Most of these improvements have been achieved through deliberate cost cuts in primary operations, while external costs have still not been correspond ingly reduced. This is particularly true of the costs relating to veterinary activities etc.

Here in Denmark more stones have been placed in the wagon so it’s heavier than before. A number of burdens have been imposed on us politically, while our competitors south of the border have seen a relaxation in rules, in some cases even incentive measures. And this is a tough blow for our competitiveness. The underlying conditions need to be seen in perspective, and if part of the value chain is affected, the rest suffers, says Niels Mikkelsen.

Fewer shoulders to share the burden
The number of Danish Crown producers and owners fell throughout the year, and hand in hand with a smaller circle of owners, it became necessary to look at the distribution of the joint costs.

There are fewer and fewer working farmers, which means fewer shoulders to bear the joint tasks and costs. A natural step has therefore been to consider how we can coordinate our efforts with the organisations and companies with whom we share interests and challenges. This has, among other things, resulted in a streamlining of the Danish Agricultural and Food Council so as to give us more clout vis-à-vis the political system when speaking with a single voice, says Niels Mikkelsen.

Joint benefits
Danish Crown has exports to more than 130 countries. Every time ten refrigerated trucks leave one of the Group’s slaughterhouses, nine of them continue beyond the Danish border. At the same time, growing volumes of meat are being processed outside Denmark. In practice, Danish members control the entire value chain from farm building through to sales in the world’s most lucrative markets. And this benefits all owners, believes Niels Mikkelsen.

Today, we can see the advantages of our international strategy which is based on processing and value creation combined with sales in selected high-price markets such as Japan, the USA and Australia. Our clear presence in the UK and Polish markets has contributed positively to the prices which have been achieved, and most recently our position in the neighbouring Swedish market has also borne fruit. As our overall production has fallen throughout the year, we have managed to obtain higher prices for our products in selected markets, he says.

Safety in sales
While the financial crisis has put a damper on the world economy and caused a temporary halt in Danish Crown’s investments and expansion projects, a number of slaughterhouse companies on the global meat market are experiencing serious problems and being forced to implement cuts. Danish Crown has also had to make cuts and necessary adjustments, but in our case mutual dependence is also an important precondition for both the Group and the members being able to develop over the long term.

There is a basic resilience in our sales system. We are both large and very flexible at the same time, and can therefore adapt to the challenges in the different markets. Othercompanies are pursuing another strategy, but here we see greater vulnerability in relation to changes in the market. Our strength is an international, multi-branched sales system which matches our export trade. Alternatives might, of course, be competitive in the short term but, in my opinion, Danish Crown will win in the long run thanks to its stability. The Group and its owners are dependent on each other, and stability and mutual dependence thus constitute the foundation for joint growth. Therefore, it is of course regrettable that some cooperative members have chosen to leave the company in the course of the year. But I wish them the best of luck. On the otherhand, I would like to welcome all the new members who have joined and who, together with those of us who have been members for some years, have decided to help strengthen Danish Crown. The prospect of developing Danish Crown together in future is exciting, says Niels Mikkelsen.