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Cover Story: Lining up with other groups on agricultural stabilization

Monday, April 5, 2010

When Ontario Pork goes lobbying for financial aid in Queen's Park next time, it won't be alone. And it will be carrying with it a position that some producers, like Gerald Kolkman and John Nyenhuis of Perth County, find to be on the conservative side.

Last fall, Ontario Pork signed on as part of the Ontario Agriculture Sustainability Coalition (OASC). The other partners include grains and oilseed growers, beef, veal and fruits and vegetables that aren't grown under glass and plastic. All these agriculture sectors are under financial stress.

"If we are going to get anywhere with the province it will not be as a single commodity," says Wellington County producer Steve Illick, chair of Ontario Pork's safety nets committee. "It is not just pork that is in this dilemma."

Going to Queen's Park by itself last spring didn't work for Ontario Pork, he says. "We were foiled, to put it simply. The minister (Leona Dombrowsky) said 'we have helped the pork industry before. We are running deficits. We don't see that we will help you any more than we already are . . . As long as it doesn't cost us money, we are happy to be supportive, that kind of thing. And you can now leave my office.' We kind of recoiled from that."

Through the summer, Illick says, Ontario Pork commiserated with leaders of the other non-supply-managed commodities, who felt they had been treated the same way. The result is the Ontario Agriculture Sustainability Coalition and a common position.

In January, the OASC asked the province of Ontario for two things – help for commodities that have suffered in the last two years, and a cost of production-based business risk management program that is retroactive two years. 

All commodity members are looking for a business risk management program, with contributions from federal and provincial governments, as well as producers. Every group will have an agreed-upon cost of production, says Neil Currie, general manager, Ontario Federation of Agriculture. The program will pay when returns don't meet costs. The federation is taking the "'ask" (as the request for financial help is called) to the provincial government.

Each commodity's approach will be a little different. "We are going in with what we knew would work for grain and oilseeds," says Leo Guilbeault of Essex, grains and oilseeds representative on the OASC. Three years ago, provincial agriculture minister Dombrowsky promised grain and oilseeds growers a pilot business risk management program with 40 per cent funding from the province, and encouraged them to lobby federal government to contribute its 60 per cent share. Ottawa never came through and the pilot project expired recently.

That's exactly why Perth County Pork Producers President Gerald Kolkman and vice-president John Nyenhuis aren't fans. They have spent months talking to grassroots producers and developing a recovery program for the industry. They wish Ontario Pork and OASC were asking for a program funded by the province alone.

Their view of sustainability looks a lot like the controversial, and at least until recently well-funded farm program in Quebec widely known as ASRA or "programme d'assurance stabilisation des revenus agricoles." They would be happy to see a similar program that was perhaps toned down a bit because cost of production for pork is lower in Ontario than in Quebec. 

"A cost of production-type system would work really well as a backstop to the federal government's AgriStability program," says Ontario Pork's Illick. While pork producers in Perth County in particular, who have been very active, would like to see a program similar to ASRA in Quebec, grain and oilseeds and beef leaders don't see it is Ontario's job to pick up 100 per cent of the cost of a program, he says.

Ontario's costs lower
Kolkman and Nyenhuis cite the number of producers using the federal buyout package to bail out of the industry as a sign that Ontario producers aren't as well supported as their Quebec counterparts. They believe that Quebec will dominate and grocery stores will be replacing Ontario pork products with meat from Quebec.

Ontario's production costs are considerably lower than in Quebec, says Kolkman, quoting from last year's report by Paris-based meat industry consultants Gira which was commissioned by the Canadian Pork Council.

Also, according to GIRA's researchers, pork production costs in Ontario are no higher than in Iowa, the lowest cost production area in the United States, and lower too than North Carolina, where giant American integrators do business. A 100-per-cent funded cost of production program for Ontario modelled on Quebec's ASRA isn't in the cards, says Illick. "We had no buy-in from any other commodity group."

Grain Growers' Guilbeault agrees that a 100-per-cent support program from the province is too much to ask for. "They are going to tell us to fly a kite. They aren't even going to look at it."

This frustrates Kolkman, who has talked to a lot of farmers and says they "share the same sentiment. If you go into negotiations, you ask for what you want. You may not get it. But you don't' go in beaten down right out of the gate."

But, counters Illick, "we would not be a coalition today if we had pushed that." He believes that an ASRA-like program may not be necessary and claims that ASRA is on the way out as Quebec pares down its agricultural budget. "What they spent on the pork industry last year is what they intend to spend on all of agriculture" annually for the next five years. ASRA hasn't been good for the pork industry, he asserts. "It has created inefficiencies. They are going to have to deal with those demons themselves."

However, Kolkman and Nyenhuis aren't that optimistic that competition from Quebec is going to fade away. A new five-year ASRA agreement was signed last fall.

Gib Drury, who represents Quebec beef producers at the Union Producteur Agricole table, says the Quebec government has set a firm budget of $650 million annually for five years for agriculture. There are specific limits for each commodity, he says. Crops are capped at 850,000 insured hectares and pigs at six million hogs a year. Currently, there are seven million hogs fed and slaughtered annually, but Drury says the million or so that originate out of the province, mostly from Ontario, won't be eligible for the insurance program any more.

Nyenhuis and Kolkman like Quebec's scheme that keeps stabilized hogs out of export markets. Only as many are eligible for ASRA as there is provincial capacity to slaughter.

Illick thinks the Ontario government is risking a lot by allowing the pork industry to weather the storm by itself. Getting the federal government to pitch in 60 per cent of the funding for a support program won't be easy, he says.

He notes that agriculture and food have now surpassed the automotive sector as the largest driver of gross domestic product, a major economic indicator, in Ontario. "There is a crumbling effect going on in the (agricultural) economy that is ultimately going to affect the government of the day," he says.

AgriStability's weaknesses
Like its predecessor, the Canadian Agricultural Income Stabilization program, AgriStability doesn't work to help farming sectors when they are in a protracted downturn. Other emergency programs aimed at pork producers haven't helped farms that were diversified.

Kolkman says a lot of livestock producers didn't bother to take part, since the provincial payout, not to mention a substantial insurance premium, would have been deducted from AgriStability payment anyway.

"If you are a medium-sized producer or a larger producer, you aren't getting the money out of the system when you need it," Illick says. That said, "we believe, in time, that industries can get back on their feet and reference margins (a key part of both CAIS and AgriStability programs) can work for people," Illick says.

Kolkman still worries about Quebec and an inter-provincial trade agreement Ontario and Quebec leaders signed last Sept. 11.  "I would say that (agreement) is the catalyst that brought this all about," Kolkman says.

The next day, Kolkman and Nyenhuis brought a copy of the agreement to an Ontario Pork policy meeting and then made copies for the other producers there. Parity with Quebec producers immediately became a major issue, Kolkman says.

The agreement would break down inter-provincial trade barriers and it included agriculture. Kolkman argues that, if trade barriers are coming down, Ontario and Quebec need a common farm support program.

He and Nyenhuis say they contacted three-quarters of the producers in Ontario within three weeks last fall. More than two thirds of those producers agree with the general direction of the industry recovery plan, which has changed several times over the months. One of the authors of the GIRA report told them Canada has among the widest spreads between wholesale and retail prices for pork of the countries they studied.

"The GIRA report says we have been boy scouts and we have allowed this to happen," Nyenhuis says. The report also criticizes Ontario for basing prices on markets in the United States that reflect the prices paid on relatively few pigs.

Kolkman and Nyenhuis found out that Quebec diverts AgriStability monies into ASRA and then pays out producers. "We asked (Ridgetown College economist) Ken McEwan at the November policy days if Ontario can do that and he said 'yes'."

Carol Mitchell, the new Ontario minister of agriculture, presented a proposal from the sustainability coalition for the 60-40 split in paying for farm supports to the federal-provincial-territorial meeting in late January. Then Mitchell announced that she wants to listen to "concession farmers." Kolkman found that disconcerting. "That was a big disappointment," he said. "Perhaps they were surprised we spoke with one voice."

John Nyenhuis says "we need financial help, as soon as possible," noting that industry reference margins are inadequate. In spite of heavy losses, he says he hasn't gotten money out of the current program in two years.

He says the industry needs a business risk management program that protects pork producers from fluctuations in the dollar, the risk of higher interest rates and higher inflation, and there needs to be a salary included in the costs, as there is in ASRA.

Nyenhuis maintains that the long-term goal is to make the industry self-sustaining and that producers need to work with Quebec to counter overly powerful retailers. They point to the Metro grocery chain's acquisition of A&P as a new distribution network for Quebec pork in Ontario.

Won't work on the Prairies
Through discussions with ASRA staff, Nyenhuis and Kolkman learned that the United States took a trade action against ASRA in its early days. It failed because hogs raised under ASRA are not shipped to the United States, and the Americans were unable to prove that ASRA program supports were transferred to the meat that was exported. The ASRA program requires that Quebec hogs be marketed through their packers. Nyenhuis would like to see pigs produced under a business risk management plan be slaughtered in the province where they are raised.

But, adds Kolkman, it's not going to work on the Prairies where too many weaners are produced to be processed. According to 2008 production numbers, Canada would need two more plants like that in Brandon, Man., to process all of the pork that would be produced by the sows in Canada, he says.

Kolkman and Nyenhuis' view of a recovery plan isn't just about government money. It's also about policies. Pork needs to be marketed with a registered Ontario label. Ontario may even need its own version of country-of-origin labelling to counter the mandatory program in the United States. They want legislation to force Ontario retailers to clearly identify Ontario products from imported ones.

They want legislation that forces a percentage of product on store shelves to be from Ontario so as to drive demand for domestic production. They are looking for a pricing system that gives producers a percentage of the retail dollar. And they are seeking protection for family farms by following the Quebec example, where large corporate farms pay a 50 per cent premium to get ASRA insurance while family farms pay only a 30 per cent premium.

A pork industry round table with a neutral chair appointed by the Ontario government and representatives from all aspects of the food industry, including retail, is another tool Kolkman and Nyenhuis say is essential. BP

SIDEBAR

Ontario agriculture is crumbling

The agrifood sector has become more important than auto assembly in the Ontario economy but it is under tremendous pressure, says Ontario Pork safety nets committee chairman Steve Illick. "It has started to crumble because it can't sustain the game. This will have an impact on the economy which is ultimately going to affect the government of the day," Illick says.

"Economics 101 say if you are a low-cost producer you get to stay in the game," he says. "But that is not working in agriculture. You've got players like Smithfield (Foods) in the United States who have just raised a billion dollars to stay in."

He puts ASRA-funded pork producers in Quebec into the same category. They've been subsidized to stay in business at costs of production that are far higher than in Ontario, he says. "We are saying to the province of Ontario, wake up. This is happening and you need to pay attention. I think (governments) are just hoping that it's like days gone by and things will turn and you will have lost a few people. But it isn't feeling or looking like that."

"We (the coalition) will make it a hill to die on."

Illick predicts that Ontario's weekly kill of 90,000 hogs in late February will drop to the low eighty thousands in the spring. He says hog slaughter numbers have stayed high as the influx of cheap weaner pigs bought from Manitoba last year works its way through the system. "We know the cull sow numbers," Illick says. "Guys have started to decide they have got to get out."

Ontario Pork expects hog slaughter numbers to fall below 90,000 in the summer, Illick says, putting the provincial kill capacity of 100,000 at risk. He says packers are already making contingency plans.

"Quality Meats has leased facilities at West Perth. They probably won't renew that," Illick says. "Everybody will start to pull back their kill as far as they can. The concern is that if this thing doesn't turn the corner now, a processor will say it's not worth keeping his doors open."

He predicts that fabrication plants that package meat for retail stores will also close. "There is a whole trickle-down effect. We have seen it happen in the beef industry." BP
 

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