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The hog industry in Canada is recognized as being one of the most cost-competitive in the world, and maintains second-to-none standards for product quality and safety. The Canadian Pork Industry is now in the midst of its greatest crisis ever due to the perfect storm created by the following unprecedented and unanticipated setbacks:
The current climate has resulted in the loss of many leading and resilient producers. More such losses are anticipated in the coming months. Complicating any recovery plan is the need to maintain high quality processing infrastructure for Canadian pork. Continued processor viability is contingent upon adequate supply of quality hogs. Producers must be viable and supplies adequate in order for processors to profit and grow. Should Canada’s pork production diminish below critical capacity for industry sustainability and viability, other countries will quickly and aggressively move in and capture the market share.
Preserving our pork industry is key to protecting our national interests of food security and food safety.
Previous programs have not been able to avert this crisis and repeating such programs now is unlikely to produce different results. Some methods of government assistance that have already been tried include:
The recently announced Federal Program to aid Hog Producers is helpful, although urgent clarification of the details is needed so that the funds can flow to producers. There are significant concerns about the hog reduction program and its likely deleterious effects upon the processing industry. Many processors of all sizes are working on wafer thin margins. Any reduction in hog supply to such operations is a threat that could easily result in plant closures and job losses. Indeed there is already anecdotal evidence of such closures or pending closures amongst provincially-approved plants resulting from reductions in hog numbers. The lack of response from producers in taking advantage of the federal cull program speaks for itself.
The packers and the producers are mutually dependant. The packing industry is already operating below a sustainable threshold. Federal dollars being spent to reduce hog production in the medium term could further erode slaughter capacity, which will undermine the viability of the industry as whole. This "domino effect" potentially could negate the benefit of the federal program and even accelerate the decline of the industry. Government support for the packing sector must be sufficient enough, and be approached with a long-term perspective, to maintain capacity within reasonable distance of the main hog producing areas of Canada. It should be noted that there are both financial and animal welfare concerns when live animal transportation is significantly extended, which will be a definite reality if current trends are allowed to continue. Although recent signs indicate that things are improving for the industry, this is likely to be the upswing of the cycle, and not the end of it. Only long-term measures will end the cycle and stabilize the industry.
It is imperative that the government work closely with producers and processors to ensure compliance with WTO and NAFTA regulations. The industry cannot be expected to bear all of the impact of the aforementioned setbacks, which are completely outside the control of producers and processors, nor can they bear that impact and survive.
Canadians be expected to eat our way out of this crisis either. Ultimately, as Pork is part of the Red Meat complex, it substitutes for other red meats in Canadians' diets. Nationally we will gain very little if consumers eat more pork at the expense of beef or chicken - unless it is just imported beef or chicken they cease buying. There is limited scope to influence Canadian Consumers' buying choices by nation of origin within WTO rules. Therefore the impact of efforts to stimulate the consumption of Canadian Pork within Canada, while laudable, may not have much desirable impact for the Ag industry as a whole. Fundamentally, the only long term strategy likely to lead to a sustainable improvement in the viability of all parts of the Canadian Pork industry will be that of securing real growth in pork exports. Focusing on the hundreds of millions of consumers outside Canada will provide better results than upon the food choices of 31 Million Canadians.
A new approach is needed.
Establishing an industry/producer-driven price stabilization fund could provide new and innovative avenues to support pork industry sustainability.
Elements of this fund could involve:
Quick action is needed to create this producer driven, government-backed fund in the present climate. This would give the fund opportunity to grow and become self-sustaining. The BEP could be instituted at the abattoir gate, since BEPs at that point in the production stream are well understood and easily calculated. Establishing a payout maximum of 90% of BEP (or pricing coverage based on risk premium) would maintain market pressure on producers. Less efficient operators would have to improve efficiencies of production or exit the industry, ensuring Canada’s continued competitive position in world markets.
The Government of Canada would have an important role in supporting the liquidity of the fund, through creating an environment conducive to the development of private investment and developing incentive vehicles that attract outside capital (existing examples of this include “Flow-Through” share programs such as those utilized in the oil & gas industry, and Exchange Traded Funds).
In addition to participation in the creation and establishing of this fund, federal government support for enhanced marketing initiatives that promote Canada’s superior product and create awareness of the fact that Canada maintains the highest international food safety standards, would also be meaningful and support long-term success.
Consequently, the Red Deer Chamber of Commerce recommends that the Government of Canada:
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