High expectations versus the real market

Monday, October 3, 2011

Our governments and consumers have high expectations of this industry and its ability to survive, but they place obstacles in the way that make it difficult for it to compete in the actual marketplace

by CURTISS LITTLEJOHN

In his book, "Fixing the Game," Rodger Martin examines the way executives receive compensation based on the expectations market (or stock value) and the real market (or the old fashioned concept that if the company produces products that consumers buy, there will be rewards based on profits.)

He then lines this up with the way the National Football League (NFL) continually tweaks the rules to prevent gamblers (the expectation market) from profiting from players' ability to effect the games' outcome (the real market).

When this type of examination is applied to the Canadian pork industry, there are some stunning parallels. Producers are continually being told that, to remain "competitive" in the North American and world pork markets; we must have product and production systems that are "Best in Class." We must have an extensive and auditable Quality Assurance Program (CQA), and we must have a program that deals with Animal Care (ACA).

Our provincial governments insist on putting rules in place to govern how we deal with the nutrients we produce on the farm and that address the unfounded fears of urban citizens.

With the left hand, the federal government can do no better, as it places restrictions on the products we use to produce pork, while allowing imported pork to be produced and sold to Canadians with these same substances. Then, with the right hand, it refuses to participate in building support programs that assist in levelling the playing field for Canadian pork production. And it ties the hands of our trade negotiators fully and truly engaging in open and earnest trade negotiations with key markets, because they must defend other commodities at all costs.

All of these things are built on the expectation that, if we have a world-class product, we will be able to compete and prosper.

In the real market, however, those who choose to produce the base product for our Canadian pork industry, have to compete with a playing field that our boy-scout bureaucracy keeps tilted in favour of imported pork that is raised with products we cannot use in Canada. They must deal with a support industry that will not adjust to dollar at par (we can buy tractor parts from dealers in Michigan, delivered from the depot in Grimsby, Ont., for up to 30 per less than at Ontario dealers' prices). And they face competition for land from commodities that the federal government insists do not have to compete in the world market under the same rules as the pork industry. (We will leave the food for fuel debate alone for now.)

Despite all of this, our Canadian producers remain competitive in a North American marketplace.

In a June 2011 report to the national Pork Value Chain Roundtable (http://www.ats-sea.agr.gc.ca/rt-tr/por-eng.htm), market analyst Steve Dziver, a consultant with Winnipeg-based Phoenix AgriTec Inc., was asked to look at the competitiveness of the Canadian industry. Simply put, it came back with two major findings – first, that Canadian producers at a high level are competitive with their U.S. counterparts; and, second, that Canadian producers do not have a cost of production problem, they have an income problem. Producers in Canada receive approximately $15 per hog less than their U.S. competitors.

Our governments and consumers have high expectations of this industry and its ability to survive, despite what is thrown at us. The real market may have other plans. BP

Curtiss Littlejohn is an Ontario representative on the Canadian Pork Council.