What's behind Quality Meat Packers' demise?

Tuesday, June 3, 2014

Volatile prices and industry downsizing are both contributory factors, says this Ridgetown-based University of Guelph economics professor

by RANDY DUFFY

It is a shock to the Ontario pork industry to see what has transpired with Quality Meat Packers in Toronto. The company has been a strong supporter of the Ontario pork industry for over 80 years with a good reputation for their products, both domestically and internationally. The volatility in pork prices has been a contributing factor. Hog prices increased quickly in a relatively short period of time.

At various times in history, producers and processors have both experienced tough financial periods, not necessarily at the same time. It is unfortunate when any part of the industry goes through challenges, such as disease pressures, increasing input costs or increasing competition from imports.

In addition to volatile pork prices, another contributing factor putting pressure on processors is that both the Ontario and Quebec industries have downsized in recent years. Processing capacity in both provinces during this time has remained relatively similar. This has resulted in increased competition for fewer hogs.

Figure 1 shows the average Ontario weekly federal and provincial hog slaughter for the period 2008 to 2014. Figures for 2014 have been prorated based on the January to April period. Ontario's weekly processing has dropped from 99,000 hogs in 2008 down to about 82,000 in 2014, a difference of 16,000.

Also shown in Figure 1 are the weekly average hogs processed in Quebec and the average hogs that are of Quebec origin. It should be noted that Quebec's processing figures also include hogs from the Atlantic provinces. Quebec's processing has seen a decrease of 14,000 head per week, going from 160,000 in 2008 to 146,000 in 2014. Quebec-origin hogs have dropped from 150,000 per week to 130,000, a difference of 20,000.

Increased competition from Quebec processors for Ontario hogs has been reflected in inter-provincial hog exports. These have increased from an average of 5,000 per week in 2008 to about 15,000 in 2014. It should be emphasized that this does not include any feeder pigs being exported weekly to Quebec from Ontario.

Quebec processors have been able to offset some of the decrease in Quebec-produced hogs by sourcing pigs from Ontario and the Atlantic provinces. Faced with already downsized provincial production, the increased pig exports to Quebec have shrunk the pool of hogs available to Ontario processors even more.

It was speculated that Quality Meat Packers was processing about 24,000 hogs per week on a four-day week. Quality's plant in Toronto is estimated to have capacity for 30,000 in a five-day week.

What is going to be the impact on the Ontario industry if this plant is no longer in operation? Fortunately, so far the hogs that had been going to the Toronto plant have been moved to various plants in Ontario, Quebec and the United States, all of which have capacity available right now.

If this can happen to Quality Meat Packers, then one has to wonder what kind of financial condition the other Canadian and American processors are in? BP

Randy Duffy is Research Associate at the University of Guelph, Ridgetown Campus.