"Most" European Union countries are not complying fully with a ban on sow stalls, Rabobank said, as officials threatened legal action against states flouting the curbs, which are expected to fuel a further drop in the bloc's pig herd.

The outlawing at the start of the year for EU pig producers of keeping pregnant sows in gestation crates, or stalls, which limit drastically animals' free movement has been ignored by much of the industry, Rabobank said.

"Due to the absence of measures to stop the trade in illegally-produced piglets and pork, and the lack of clarity from the EU as to how the bank would be controlled, many breeders took the risk to continue production even into 2013" using the illegal technique.

This has meant "most countries" in the EU "not being fully compliant".

'Closing down farms'

The caution comes as the European Commission is preparing legal action against countries which have not met the January 1 deadline, with producers in states including France, Germany and Spain among those believed to be showing low rates of compliance.

"It's now up to these countries to take action, and in some cases that means closing down whole farms," a commission source told Reuters, the news agency.

This may mean a 5% drop in EU pig production by 2014, Commission officials said in October.

Rabobank forecast a drop of "about" 3.5% in the EU sow herd this year, although this would be no faster than the average pace of decline over the last five years.

With productivity improving, this will overall see a 1.5-2.0% drop in pork output.

'Benefit of futures'

The decline in output contrasts with a stable pig herd in top producer China, "very different from prior cycles, when inventory would fall during periods of poor profitability", Rabobank said, attributing the population resilience to industry consolidation.

"The change indicates that large-scale farming has expanded quickly at the expense of smaller farms, improving market stabilisation."

However, it is the US, where farmers have expanded their sow herds a fraction, which the bank singled out as having the brightest prospects among large producing nations, in part thanks to the presence of Chicago lean hog futures, besides grain derivatives.

"Producers in the US, who have the benefit of using futures markets to manage risk, have fared much better than producers elsewhere," Rabo said.

Furthermore, US producers faced less cost pressures in some areas too.

"Relatively, we see the US gaining in competitiveness as labour costs rise rapidly in China and Brazil, and Europe continues to increase regulatory burdens."