The drought is having a bigger impact on Australia's pig meat industry than increased imports, a Productivity Commission report has found.
The commission also warns that the pig industry could suffer “serious injury” next year through reduced production.
The report was commissioned by former treasurer Peter Costello in October.
While the market share of imports of processed pork has doubled to 67 per cent from 33 per cent in 2002-03, the commission says rising feed prices are what are actually causing the industry serious injury.
Feed costs account for 55 or 60 per cent of a pig producer's total costs, with grain representing 80 to 85 per cent.
Drought and growing worldwide demand for ethanol, and strong economic growth in China and India, lifted grain prices to record highs in late 2007, it said.
Feed wheat peaked at $480 a tonne in October, and while it has eased back slightly from there, the commission says even $400 represents more than a doubling in price since May 2006.
“There is not clear evidence that increased imports have caused or are threatening to cause serious injury to the domestic industry,” the commission said.
“The principal cause of serious injury to the domestic industry would appear to be higher domestic feed prices.”
It says most pig producers are suffering reduced profitability and many are suffering financial losses.
This is resulting in reductions in breeding sows and employment levels, and will have a negative impact on production in early to mid 2208.
“In the commission's assessment, the pig farming part of the industry is accordingly suffering serious injury,” it said.
It said the results for the meat processing industry are less clear with some operators reporting increased profits and others lower profits.
However, the threat of reduced pig production levels next year will reduce profitability, it says.
A final report is due in March.