Pork Industry’s Chickens Come Home To Roost

One by one, hog farmers trooped to the microphone, struggling with a balky sound system to tell stories of financial ruin and to appeal for government aid.

“At least give us some dignity to retire after working for 45 years,” Menno Bergen pleaded with a speakers’ panel of politicians and industry officials.

Bergen put his heart, soul and equity into a 1,100-sow operation near Plum Coulee. Now he’s losing $30 to $40 on every hog he sells and hasn’t seen a profit for three years.

“We’re waiting for an announcement from the government. If the government doesn’t come through, we will just shut it down,” he said later.

Jeff Friesen of Grunthal said debt-burdened farmers can’t even sell their operations for lack of buyers. “Our equity in our barns is gone. It’s sitting there with the bank,” he said. “There has to be a debt reduction.”

STRESS

Stress and anxiety prevailed among over 500 producers who filled a Manitoba Stampede and Exhibition hall June 22 at a rally staged by the Manitoba Pork Council.

There was also anger at a perceived lack of response from the federal government.

“Get the money out. Right now,” shouted weanling producer Larry Friesen. “Get those people to write those bloody cheques.”

The meeting reflected an amazing reversal for an industry which a few years ago was hailed as a main driver of Manitoba’s agricultural economy.

To be fair, not every hog farmer in Manitoba is verging on bankruptcy. Many also grow grain and use returns from crop sales to effectively subsidize their hog operations.

“But that doesn’t take away from the fact that they’re losing gobs of money,” said Gerry Friesen, himself a former hog producer and now a member of the federal farm debt mediation board.

It wasn’t supposed to be this way.

Back in November 1996, the future looked promising as the then Conservative government launched the Manitoba Pork Advantage at a posh reception in a downtown Winnipeg hotel.

The government had just abolished the hog-marketing

“The days are gone when two people can make money off the same pig.”

– james hofer

board’s central sales desk in an effort to attract state-of-the-art pork-processing plants to the province.

But that was only step one in a strategy to make Manitoba’s pork industry a big-league player on the world stage.

GLOBAL PLAY

A government information package offered “a vast land of promise” for people willing to invest in barns aimed at greatly expanding Manitoba’s pig production.

“It’s the goal, it’s the game plan, let’s go out and do it,” exhorted premier Gary Filmon.

And they did.

Lured by promised annual returns of 20 to 25 per cent, doctors, lawyers and other professionals began plowing money into investor barns. Individual farmers ramped up their own output. Hog farms expanded into mega-operations. Production soared, eventually topping nine million pigs in 2007 and making Manitoba the largest pig-producing province in Canada. Maple Leaf Foods built a world-class slaughter plant at Brandon. The hog sector became the biggest contributor to Manitoba’s farm income.

HICCUPS

There were hiccups along the way. A sudden market crash in 1998 put some producers into a hole some never escaped. But markets soon bounced back and the sky again seemed the limit for Manitoba’s booming hog industry.

But testimonies at last week’s meeting spoke of farmers shutting down barns, feed companies closing mills and construction companies laying off staff.

Producers close to tears described crushing debt loads and farms whose values have shrunk to less than 20 cents on the dollar.

A hoped-for market recovery this spring has evaporated. Futures markets suggest profitable prices may not occur until early 2010. If so, that’ll mark the fourth straight year of financial losses for hog farmers.

A feared wave of bank foreclosures looms this fall as producers’ loans become increasingly unserviceable.

The Manitoba Pork Council says it receives phone calls from desperate farmers threatening to commit suicide.

DESPERATE

How did it all go so terribly wrong?

Producers blame “the perfect storm” – a combination of high costs, low prices, a robust Canadian dollar, U. S. trade restrictions and now the H1N1 swine flu – as the reason for the crisis.

But the root causes really go back to the province’s expansion strategy itself.

Increasing livestock production in Manitoba made sense in the mid-1990s after Ottawa eliminated the Crow benefit, forcing farmers to pay the full freight bill on export grain and producing (at least initially) lower feed grain prices.

Indeed, a 1999 study by the George Morris Centre concluded Manitoba was probably the cheapest place in the world to raise pigs because of its feed cost advantage.

That didn’t last long.

A followup study two years later found Manitoba’s feed cost competitiveness had lessened because of fusarium in grain, drought in Western Canada, higher U. S. hog prices and a U. S. Farm Bill which ensured an abundance of cheap American corn.

SHIFTING ADVANTAGE

The feed cost advantage shifted from Manitoba to southern Minnesota and northern Iowa. From a purely business standpoint, it became more economical for Manitoba producers to sell weanling and feeder pigs into the U. S. than to finish them at home.

That wasn’t the intention in 1996, according to Harry Enns, agriculture minister at the time of the Manitoba Pork Advantage launch.

“The vision was, we would retain more and more of the production,” said Enns, now retired from politics, although he still insists abolishing the central desk was the right thing to do.

Barns sprang up solely to produce isoweans and weaners for U. S. finishers. Weanling exports eventually outstripped exports of slaughter hogs by four to one.

There were other reasons for the export boom, according to Perry Mohr, Manitoba Pork Marketing Co-op’s general manager. A low-valued Canadian dollar made it more lucrative for producers to sell into the U. S. than domestically. Also, U. S. buyers preferred Canadian weanlings and feeders because of their superior genetics and high health status.

U. S. BOUND

Because sow barns in Manitoba could outproduce U. S. barns, pigs born north of the border were finished in the south where feed was cheaper and large packing plants were close at hand, explained Mohr. It was all very win-win.

Fast-forward eight or nine years to a different world.

Today, the Canadian dollar is stronger and the export advantage weaker. Soaring oil prices have spurred ethanol production and greatly increased feed grain costs. The world economic meltdown has consumers pinching pennies and buying less meat. Negative consumer perceptions about the H1N1 swine flu have further eroded pork purchases.

See more hog-related stories on pages 8 & 9

Above all else, the U. S. country-of-origin labelling (COOL) rule wreaks havoc on Canada’s swine exports. According to the Canadian Pork Council, total exports of live hogs since January 2009 are down 40 per cent compared to the same time last year. That includes a 65 per cent drop in market hogs and a 30 per cent decline in feeder pigs.

LOST EXPORTS

“On an annual basis, this represents a loss of $250 million worth of exports,” said Jurgen Preugschas, CPC chairman.

Some producers today rue their decision to raise pigs on the strength of the U. S. market.

“I would have been a smart man if 2-1/2 years ago I would have gotten rid of all my pigs and sold the grain,” said Tom Leppleman, a Steinbach producer.

Was it wrong to build an industry on the assumption that the U. S. market would always be there?

Bruce Campbell thinks so. Campbell is the former president and CEO of Elite Swine Inc. and the pioneer of an integrated approach to swine production in Manitoba.

“It’s a dangerous market to be in because these people can shut the border,” said Campbell, now retired, who sold ESI to Maple Leaf Foods in September 1999.

“Our company never went that way. But a lot of other companies did. And independents. And Hutterites.

MISTAKE

“That was a mistake, to overrely on the U. S. market. They had to be far more conscious of developing the Canadian processing market.”

Campbell believes the industry may have to downsize drastically and concentrate on supplying the domestic market more and the export market less.

It’ll mean fewer producers and more blood on the table. But that’s happening now and it’ll only get worse. As a result, dire measures are needed to restore order to the industry, Campbell said.

“How you salvage a bad situation is really where we’re at. Maybe you’re better if you can be profitable on 60 per cent of your production (than) unprofitable on 100 per cent.”

Mohr says the days of “governments waving their pompoms and saying, produce pork, there’s unlimited demand” may be over. He suggests the pork industry could follow the potato model, in which farmers grow for processors on contract. The same could apply to pork. If you didn’t have a contract with a packer, you wouldn’t raise pigs.

QUASI-SUPPLY MANAGEMENT

It’s a radical idea – a sort of quasi-supply management without actual quotas or cost-of-production formulas.

Ed Tyrchniewicz, a University of Manitoba senior scholar, doesn’t buy it. The co-author of a 2003 report which presciently foresaw the industry’s current problems, Tyrchniewicz says pork exports are essential because the Canadian market is too small to absorb the double-shift output from plants like Maple Leaf in Brandon.

“We don’t come close to eating that much pork in Manitoba, or Canada for that matter.”

The question is, who would produce pork if hog barns continue to close and producers exit the industry?

One possibility is integrators such as Maple Leaf and Hytek, which manage their own production through a closed loop. Another are Hutterite colonies, responsible for roughly a quarter of the market hogs raised in Manitoba.

James Hofer of the Starlite Colony says some colonies are mothballing their barns but most will probably stick it out until markets recover.

WAIT IT OUT

He says colonies may offer a model for future production: a land-based, farrow-to-finish approach in which farmers feed their own grain and sell slaughter hogs locally. Corporate investor barns are no longer the way to go, said Hofer, a Manitoba Pork Council director. “The days are gone when two people can make money off the same pig.”

All of this assumes “the production side of the model is sound,” as Campbell puts it, and a different approach is unwarranted.

But, fairly or unfairly, hog production has taken a public relations beating lately over environmental concerns, animal welfare issues and sustainability.

The time is right for a different production model instead of pouring more money into a system that doesn’t work, said Glen Koroluk, a Winnipeg community organizer for Beyond Factory Farming.

The organization advocates for “socially responsible livestock production,” according to its website. It promotes smaller straw-based units, loose housing, humane handling and, where possible, organic production.

GROWTH AREA

While some may consider this a backward step, Koroluk believes an environmentally conscious public wants alternatives in agricultural production.

“It’s all the buzz right now among consumers. And that’s the growth area,” Koroluk said.

“People are becoming more aware about how livestock are raised and crops are grown. They’re making choices and they’ve got the right to do that. Producers have to be wary about what consumer trends are right now.”

No one is seriously suggesting the Manitoba pork industry will return to the small-scale family farms of the 1950s.

Markets will eventually recover, as they always do. The producers who remain will be efficient and technically advanced, as they are now.

But there’s a growing consensus that the industry cannot continue to do things the way it has done in the past.

It’s also apparent, as Bruce Campbell notes, that Manitoba may never again produce nine million pigs a year.

“And that’s a good thing.” [email protected]

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