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Exit Auction A Bid For Failure

The promise of free market access to American markets without fear of reproach has turned out to be one without profit, and even less access than before.

Acouple years ago, I was involved with an experiment to see if farm program money could be auctioned as a mechanism for making program payments. The premise was quite simple. Many of the Best Manitoba Practices (BMPs) provided within the available suite of Environmental Farm Plans were not being utilized, and it was felt that we needed a format that would allow the market to dictate what farmers needed in order to implement a given practice. The experiment was loosely modelled after an Australian system provincial staff had already looked at and rejected, citing that the system tended to reduce program payments rather than promote new BMPs.

At the end of the day, I had my own concerns as a producer. While I did rather well at the game, it became just that, a game. Like any crapshoot, it was easy to play with someone else’s money, but the smiles would soon disappear when farmers realized it could affect their own bottom lines. The auction system had all the problems that we have heard about agricultural programming since the release of the original APF in 2003. It wasn’t predictable, it wasn’t bankable and it didn’t allow producers to plan for the future.

It’s too bad the proponents of the federal Hog Farm Transition program weren’t able to attend our meeting that day. They might have learned something. What we’ve been left with, is an auction system designed to pit producer against producer in an effort to reduce government payouts. What we have is a system that isn’t predictable, isn’t bankable and

does not allow producers to plan for the future. If the first round of bidding is any indication, it isn’t saving the government much money either. The original request from the Canadian Pork Council was for transitional funding amounting to $500 per sow for animals taken out of production. Loosely translated from Animal Units to productive sows, the first round of bidding would appear to have cost the government about $450 per sow.

Make no mistake about it, what producers are bidding on has nothing to do with the cost of getting out of business, or the loss of productive capacity within their business, but rather what they think the government is prepared to pay. One look at the average age of farmers in this country and the dismal market performance we’ve seen since the demise of single-desk selling will tell you that most of these people have

no intention of ever getting back into hog production.

The real cost of decommissioning these operations will far exceed $1,000 per sow, never mind the $500 the CPC sought. Farmers are bidding to gain access to something, rather than walk away with nothing but more expenses from a program that everyone knows is grossly underfunded. The process has not generated a fair market value, but the least common denominator that bidders think will get them accepted.

What is not well understood by people outside of the industry is the massive demographic shift that is about to accompany the closures of these barns. Independent producers that built Manitoba Pork have been left out in the cold since the demise of single-desk selling. While even contracted production has suffered lower prices, the real losses have been borne on the backs of independent producers. Those will be the ones leaving the industry.

With successive costs being hoisted on them by increased nutrient regulations, Certified Quality Assurance commitments, and general inflation, the straw has been dropped that broke the proverbial camel’s back.

The promise of free market access to American markets without fear of reproach has turned out to be one without profit, and even less access than before. By 2013, we will have very few hogs in this province that aren’t part of an integrated production contract, and that doesn’t bode well for the family farm, or the consumer. The price spread between the store shelf and the producer is already shameful, and is about to get a lot wider.

Bidders in the first round were at a disadvantage. No one knew what to expect from a totally new format. Successive bids may mean the unsuccessful bidders will have to lower their bids to get accepted, but they now know the top end of the range that was accepted.

If more people are shooting for the top end of that range, the average cost per sow is about to increase. Now that the most desperate have been paid out, the remaining bidders may be taking a harder look at actual costs of retreating from a wounded industry.

The only thing that will cause bids to go lower is the fear of missing out on a program that is about to run out of money. If this system is going to set a reasonable value, the number of bids allowed should be determined by the number of producers that want out, not by the amount of money that’s available.

It’s time for our federal government to acknowledge the market value their own auction has determined and inject the money required to let it run its course properly. People from farming country know that you don’t put something up for auction, unless you are prepared to accept the price.

Les McEwan farms

near Altamont

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