Cranswick Plc (CWK.L), Britain's largest pork processor, expects a severe drought in the United States to drive up pig prices as costs of livestock feed surges.
Cranswick, which supplies to brands such as Weight Watchers International (WTW.N) and celebrity chef Jamie Oliver's food products range, has so far seen sales grow as price-conscious British shoppers opt for lower-priced pork products over beef, lamb and poultry.
But that could change as the worst drought in more than half a century in the U.S. Midwest scorches corn and soybean crops, while driving up prices of wheat and other grains making livestock feed more expensive.
Cranswick, whose supermarket customers include J Sainsbury (SBRY.L) and Tesco Plc (TSCO.L), may soon have to consider raising prices.
"Clearly if pig prices were to increase significantly we would have to start discussions with our retail customers, there's no doubt about that," Cranswick's Finance Director Mark Bottomley told Reuters.
"It would be normal in terms of the annual cycle that we would see pig prices start to increase in the autumn. But it's very difficult to predict at this stage how significant that increase will be," said Bottomley.
Cranswick, which processes and supplies fresh pork, sausage, bacon, cooked meats, charcuterie, pastry products and sandwiches to food retailers, also expects the implementation of EU animal welfare norms in Europe to lower the supply of pigs and push prices higher.
"There is a prediction that we will see the EU herd decline by anything between 5 and 10 percent," said Bottomley.
The EU rules, which call for a more humane treatment of livestock and include banning of sow stalls, are already in place in Britain but will be implemented in the rest of Europe from January 2013.
Sow stalls are caged metal enclosures measuring about 210 centimetres by 60 cm used to confine pregnant sows in intensive pig farming.
"If there's tightening of supply in continental Europe then one would expect that would push prices higher," said Bottomley.
The United Kingdom imports pork on a large scale from Europe to meet domestic demand.
The company, which reported a 7.4 percent rise in April-June sales despite unusually wet weather in the UK that played spoilsport for what is usually the time many Britons fire up their grills, said demand since then had been fairly consistent.
Sales of sausages, bacon and continental products offset lower demand for traditional barbecue and grilling products, the company said.
Hull-based Cranswick, which had sales of 821 million pounds in 2011, is developing a range of savoury pastry products like sausage rolls, pies, quiches and pasties. The company has seen a surge in exports to East Asia and the United States as demand for pork products far exceeds supply.
"Having gained the USDA accreditation we've been able to export ribs at a premium to the U.S. and we are looking at other similar products for the grilling market as well," said Bottomley.
(Reporting by Karen Rebelo in Bangalore; Editing by Saumyadeb Chakrabarty)