How much have productivity gains offset the downsizing impacts?

Monday, February 20, 2012

Industry downsizing has been painful for producers but it has helped prices

by RANDY DUFFY

The Canadian hog industry has undergone a restructuring by significantly downsizing. Since Jan. 1, 2005 the total Canadian breeding herd has shrunk by 300,000 sows (19 per cent) from the peak of 1.6 million head. In Ontario, sow numbers have decreased 90,000 head (21 per cent) from the peak of 433,000 during the same period.

The U.S. breeding herd began contracting at the end of 2007 and has decreased 430,000 head (seven per cent) from the most recent peak of 6.2 million head. As a result, pork production in the U.S. peaked in 2008 but decreased in 2009 and again in 2010. The U.S. contraction began later than in Canada as the U.S. hog industry remained profitable longer due to lower feed grain costs combined with a weakening U.S. dollar relative to other currencies.

Combined, the Canadian and U.S. breeding herds have contracted eight per cent since the end of 2007. Total Canadian and U.S. pork production subsequently dropped 3.5 per cent from 2008 to 2010. The difference is due to productivity growth in both the Canadian and U.S. industries. This has somewhat offset the impact of the contraction.

Figure 1 shows the estimated annual productivity growth over the five year period from 2006 to 2010 in the Canadian and U.S. pork industries. Total productivity growth has averaged about 2.1 per cent per year in Canada while the U.S. industry has averaged 2.3 per cent.

The total productivity growth is further broken down into changes in litters per sow per year, pigs weaned per litter, and market hog dress weights. Canada's 2.1 per cent annual growth can be attributed to increases of 0.4 per cent in litters per sow per year, 0.8 per cent in pigs weaned per litter, and 0.9 per cent in market hog dress weights. The 2.3 per cent growth in the U.S. is attributed to increases of 0.3 per cent in litters per sow per year, 1.7 per cent in pigs weaned per litter, and 0.4 per cent in market hog dress weights (numbers have been rounded).

The largest growth for Canada over this time has been in dress weight as the average has jumped from 89.7 kg in 2005 to 93.9 kg in 2010. The largest growth for the U.S. has been in pigs weaned per litter. This has caused the gap between Canada and the U.S. to narrow over time. The Canadian average in 2010 was 10 pigs per litter while the U.S. average was 9.78. In 2005, Canada averaged 9.61 while the U.S. was at 9.02. The gap has narrowed from a difference of 0.59 pigs in 2005 to 0.22 pigs in 2010. The Canadian industry on average appears to still have a slight advantage in pigs weaned per litter.

However, anecdotal information suggests that the top farms in the U.S. are just as productive as the top farms in Canada.

Although gains in productivity have offset some of the downsizing impacts, the good news has been that the resulting pork supply decreases combined with strong demand for U.S. pork exports pushed hog prices significantly higher in 2010 and to record levels in 2011.

While the downsizing that has occurred has been painful for industry participants it was necessary as a relatively small change in pork supply has contributed to much larger price increases. Advances in genetics, health, feed and management programs will allow productivity growth to continue in both countries and this must be taken into account if and when expansion is considered. BP

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