Farmscape Article 2665  December 1, 2007

The Canadian pork industry is expressing confidence that those producers who are able to survive the current crisis facing Canada’s livestock industry will be able to thrive down the road.

Representatives of the national and regional pork organizations across Canada have been meeting with federal and provincial governments over the past several weeks to discuss options that might see pork producers through the current economic crisis.

Combination of Factors Contribute to Cost-Price Squeeze

“There’s really three or four different factors that have all come together at the same time,” says Canadian Pork Council (CPC) President Clare Schlegel. “One is increased feed costs due primarily to ethanol. The second would be the very rapid rise in the Canadian dollar over the last three or four months. The third would be the normal price cycle. There’s an abundance of pigs this fall.”

He estimates prices have moved down about 20 cents U.S. or 50 cents Canadian over the past three months creating a very severe cash shortage in the industry.

Prairie Pork Producers Losing Up To 60 Dollars Per Hog

Bryan Ferris, the CPC’s executive representative for Manitoba, estimates producers in his province are losing an average of $45 to $60 per hog. “The reason the range is that broad is simply because of the different cost structures that producers have from one operation to the other.”

The situation in Saskatchewan is similar. Saskatchewan Pork Development Board (Sask Pork) director Ross Johnson estimates producers in that province are losing on average anywhere from $40 to $50 per head. “Obviously that’s going to be a big drain on equity and any other resources that they have,” he says.

Producers Request Changes to CAIS and Short Term Loans

In an effort to help producers cope with the losses until the situation turns around, industry leaders have called for a series of improvements to the Canadian Agricultural Income Stabilization (CAIS) Program to make it more responsive and the creation of a short term loan program to help producers cover their costs until prices recover.

CPC safety net committee chair Stephen Moffett explains, “We’re asking that the CAIS money for 2006 be distributed as quickly as possible, that the targeted advance money be allowed to flow as quickly as possible and that caps be removed.”

He says producers are also asking for the choice of moving to the AgriInvest program or staying with CAIS for at least 2007 and 2008 and the choice of using the previous three year average or the five year Olympic average to set their CAIS reference margins, which would be acceptable under the WTO (World Trade Organization). The main and most urgent request is the creation of a short term loan program.

Trade Friendly Programs Considered Key

Ferris stresses that the premise on which all of these recommendations have been developed is that they would have to trade friendly as far as WTO or NAFTA (North American Free Trade Agreement). Pork producers don’t want to ask for something that would be either countervailable or subject to an antidumping duty should the U.S. Department of Commerce investigate.

Moffett agrees, “We’re probably the ones that are the most paranoid about countervail duty so we’re not asking for any kind of a handout but we are asking for a loan program that would help cash flow.”

Schlegel acknowledges that, from a transitional perspective, until there is some stability in terms of competitiveness and positioning primarily related to the dollar that there may be some producers who choose to exit the industry. At that time the groups feel there should be some consideration for making part of the loan forgivable.

Prices Expected to Rebound

“We do believe there will be a major rebound in price at some point within a few years,” Schlegel stresses. “It’s not only Canadian producers that are suffering this kind of catastrophe. Producers on four different continents Europe, Australia, Africa and North America, and even now the U.S. industry is suffering.”

Prairie Provinces Well Positioned for Recovery

Ferris is convinced producers in Manitoba are uniquely positioned to take advantage of the turn around when it does come about. “The reason for that obviously is that we do have a world-class packing plant in Brandon that is moving to a double shift. They should complete a double shift by about the end of 2008, early in 2009. As well everyone is aware of the change of ownership of the plant at Neepawa where Hytek has purchased it. Certainly that would auger well for that plant as far as stability is concerned.”

He notes the future of Ontario’s one major packing plant, owned by Maple Leaf, is certainly not secure. Saskatchewan’s plant has closed and, while there are rumblings about a new plant out there, nothing has started yet. And in Alberta the future of the Olymel plant is not that certain.

Johnson believes Saskatchewan producers can compete with producers anywhere in the world if the playing field is level. “Obviously there are factors that distort that playing field, different subsidy levels in different parts of the country and in other countries more so than within Canada.”

However, he believes, there are several advantages in Saskatchewan and, in the big scheme of things the province is still an ideal place to produce pigs. “It has lots of area, space. We are in a bit of an anomaly in the feed situation right now but long term the prairies will always be a feed excess location so there will be access to feed. Water is what we’re seeing as a limiting factor in a lot of jurisdictions throughout the world. Water is not an issue in Saskatchewan in most locations.”

Johnson concedes, one of the things that does need to be addressed long term is access to a packing facility. “Obviously you can’t take a $7 to $10 to $15 hit on transportation moving your pigs outside the province. It puts you at a disadvantage right up front so, long term viability of the industry, we’re going to need a packing facility in the province for sure.”

He says producers are quietly optimistic with the latest developments in the effort being led by Fishing Lake First Nation to locate a new packing plant in Saskatoon but he admits that effort still has a way to go.

Current Crunch Considered Critical

At the same time Johnson stresses the importance of getting out the message to both government and the public that producers aren’t talking about having programs in place six to 12 months from now. “We have to have a commitment to programs within weeks, literally by the end of the year for sure.”

Schlegel adds, “Producers are constantly reviewing their alternatives and making business decisions and we feel it’s urgent.”

“We think that there needs to be a cash infusion before Christmas and we’re certainly calling on government and ourselves as leaders to have some indication out to producers hopefully within two weeks.”

Moffett agrees, “We need to get something to happen quickly. We see Canada producing pork for a long time. We see people eating pork for a long time. The world market for export pork has to grow and we’re forecast to fill an increasing percentage of that.”

Staff Farmscape.Ca