How will Ontario producers respond to the new era of 'marketing choice'?
Monday, December 6, 2010
Ontario Pork estimates that between 40 and 45 per cent of the province's hogs will be shipped through Ontario Pork Marketing Division after Dec. 4. Other producers will have the option of doing their marketing themselves or through the marketer of their choice
by DON STONEMAN
When the hog truck rolled away from his barn on a Friday morning in late October, harvest was the first thing on the mind of Binbrook hog finisher Rick Vandenbos.
The 46-year-old had little time for a shower and a coffee before he jumped into his pickup to deliver fuel to his father operating the combine. Was the coming change in hog marketing on his mind?
Not really. Vandenbos and his business partner of 15 years, Kalass Zeldenrust, feel they have that nailed down. Zeldenrust has a long-term contract with Quality Meat Packers in Toronto. He sells weaners to Vandenbos, who finishes them and ships them. Because the packer contract predates their current arrangement (when they started working together in 1995, Vandenbos custom finished hogs that Zeldenrust owned), the cheques go to Zeldenrust, the weaner producer.
Vandenbos and Zeldenrust say their business relationship works because of mutual trust. Weaner prices rise and fall with the price of finished hogs. "We win together, we lose together. We don't spend any time beating each other over the head," says Vandenbos.
That mutual trust also exists with Quality Meat Packers hog procurer Dan Cohoe, says Zeldenrust.
It's an unusual arrangement in an industry that has been fraught with distrust and fractiousness for many years. Vandenbos says it relates to "strong people skills" that both he and Zeldenrust have.
In Vandenbos' view, people skills are going to be even more important across the industry starting on Dec. 4. Starting then, producers will be able to market their own hogs, or choose an agent to do it for them.
Ontario Agriculture Minister Carol Mitchell's directive last May ordered that the province's hog marketing board be divided into two entities. All producers pay a fee of $1 a hog to Ontario Pork Universal Services and those wishing to continue to use a separate marketing service pay 65 cents. A communication sent to producers last June described Universal Services as "programs, activities and initiatives that not only benefit the individual producer but contribute to the betterment of the Ontario swine industry overall."
"The idea of co-operation and co-operatively working together is going to be re-defined," says former pork board chair Curtiss Littlejohn.
Ontario Pork will no longer stand in the way of better relationships between producers and processors, says Brian Simpson, the West Lorne weaner producer who headed up the Open Marketing Group and petitioned the Farm Products Marketing Commission to review Ontario Pork's marketing powers in 2008.
Producers like Simpson and Rob McDougall, general manager of Paragon Farms Ltd., based in Thamesford, who lobbied for "marketing choice," will be able to market pigs themselves or through their marketer of choice.
Until Dec. 4, all hog producers have paid $1.45 a head, plus 20 cents for research.
Ontario Pork's Andy Marks says the 65 cent-a-hog budget is based upon an estimate that between 40 and 45 per cent of the province's hogs will be shipped through Ontario Pork Marketing Division after the changeover. At press time, no alternative "marketers" had pitched a price for an alternative service.
Both Ontario Pork and its overseer, the Ontario Farm Products Marketing Commission, have been labouring since May on changes to the organization and the regulations. In late October, Commission chairman Geri Kamenz said the makeup of the controversial Hog Industry Advisory Committee (HIAC) committee was in line for change as part of the reworking of Regulation 419. Producer representatives on the current committee are solely from Ontario Pork, but its marketing division will no longer represents all Ontario producers after Dec. 4, Kamenz points out.
"At the end of the day, you want a relevant industry advisory committee that truly does represent industry," Kamenz says. Dairy and Grain Farmers of Ontario also have advisory committees, he notes, and the Commission will be looking at the HIAC "through that lens" with a view to consistency.
Free to negotiate
Like Simpson, Paragon Farms' Rob McDougall signals that he is looking for still more changes. Getting powers away from Ontario Pork is "a really good start," he notes, while saying that he wouldn't be more specific before Dec. 4.
Certain to change are trucking arrangements.
After Dec. 4, Ontario Pork will no longer be in the business of setting rates between assembly points and processing plants, says Littlejohn. Farmers will be free to negotiate their best price.
Freight on Board (FOB) plant pricing, debated by the marketing board, will be a point of discussion between producers, agents and the processor.
If contracts move to FOB plant pricing, "the price to producers should increase," he says, because it will be deducted at another place on the invoice before settlement. Otherwise, "the producer just lost $2, $3, $4, depending upon where he is located."
Salford producers John and Dave de Bruyn, who farrow and finish pigs in Oxford County, are members of Progressive Pork Producers (3P). They bought a truck to haul pigs to Conestoga Meat Packers at Kitchener. "It will be good for everyone to realize what it costs to truck pigs in Ontario," John de Bruyn says.
Vandenbos is also a 3P member, even though he ships most of his hogs to Quality Meats because he gets a higher price there. He keeps his shares in 3P, citing "the Maple Leaf factor." If the Burlington processor closes, Ontario's hog market will be glutted. "It just means I have a ton of money tied up without getting any return on it."
For Vandenbos, "there is no sure thing. Something rolls along out of the blue and everything changes," he says, citing last year's H1N1 crisis as an example. When so-called "swine flu" hit Canada, customer nations cut off imports of Canadian pork and prices plummeted. (He blames the media for this, singling out CBC in particular as deserving "a spanking" for its handling of the crisis. When the disease was seen as a crisis, CBC labelled it "swine flu" Vandenbos says. When the broadcaster did a roundup story after the crisis passed, it was called H1N1.)
Settlement of hogs may, or may not, become another issue for producers who don't use Ontario Pork Marketing Division. Neither Quality Meat Packers' Cohoe, nor Don Davidson, head of procurement for Maple Leaf Pork, the province's other large packer, were available to discuss how their companies planned to arrange for settlement of hogs.
Bob Hunsberger, former chair of the board of 3P, says the co-op has been direct settling hogs at PPP for 15 months. "We still use Ontario Pork as a co-ordinator for trucking and logistics, but we are moving away from that." He sees few other changes coming for the 150-member co-op when Dec. 4 rolls around.
Co-operative structure
Rod de Wolde, president of Peterborough Pork Producers, says 20-25 regular shippers in District 11 and 12, east of Toronto, through yards in Peterborough and Campbellford, still plan to use Ontario Pork Marketing Division. "We signed a two-year contract with a Quebec packer and we worked with Ontario Pork's marketing arm to do that and feel quite comfortable with it." He describes their arrangement as "a co-operative structure . . . for lack of a better term. There's no formal structure to it."
De Wolde says central eastern producers still feel "uncertainty about how the marketing arm will function" and have some questions about the lines of accountability.
Lloyd Holbrook's concern is that hog prices be reported accurately. The Bruce farrow-to-finish operator plans to use Ontario Pork Marketing Division because it scrutinizes contracts. "To me that's worth quite a bit." Holbrook says he asked Ontario Pork to intercede on his behalf three times to enforce contracts to sell hogs to duBreton in Quebec. He no longer ships to the Quebec company.
"I wonder if the packing plants would be better off to hire Ontario Pork to (settle hogs) for them." If more farmers use the system, maybe the 65 cent-a-hog price will go down, he says.
Financial protection for producers is an issue, says Sebringville pork board director Doug Ahrens. Providing a financial protection program is not up to the Farm Products Marketing Commission to put in place, says John Fitzgerald, marketing analyst for pork.
It is up to the provincial government to enact. And pork board directors add that it will be over a year before a financial protection plan can be put in place, at an as yet undetermined cost.
There is no financial protection now, points out Paragon Farm's MacDougall. "I agree 100 per cent," says Ahrens. "But we had a due diligence program and it served the same purpose."
Keeping an eye on payments to farmers was "a miniscule cost that never really came out of producers' pockets."
Ahrens acknowledges that very few processors have gone bankrupt in the pork industry, adding, that he doesn't want to renew the battle over the benefits of the system that ends in December. "There's still a pretty big divide out there" in the industry. He cites a possibility that a packer will deduct fees from the producers and fail to pay fees to Ontario Pork. A June communication to producers warns that "it is still the responsibility of the individual producer to ensure that his/her service fee is remitted."
Producers may end up paying the fees twice. Under the new system, producers will be more liable than they ever were before, says Ahrens.
In the big picture, says Ahrens, "Ontario Pork is exactly what producers have made it . . . The board lost its ability to drive prices on hogs once it went to direct pricing. It's an industry where we have a tendency to look only after ourselves and think only of ourselves instead of our neighbour. . . .It's an industry that tends to be very hard on organizations that work for us," adding that includes Ontario Pork.
Lloyd Holbrook says Bruce and Grey producers have often been critical of Ontario Pork particularly when prices were low.
No dissenters
With the open marketing battle over, Ahrens thinks Ontario Pork Marketing Division may be able to do a better job than in the past "because now we can leave dissenters behind.
They can do their own thing and people who want to work through a system of co-operative marketing can work together for those who want it done because the dissenters won't be there to tear it apart."
Ahrens predicts that within two years there will be one major marketer in Ontario and a number of small ones. He doubts that changes at Ontario Pork will change the price of hogs, but warns "there will be power plays." If some producers get more money for a base hog it will be because money came from other producers who didn't have as much marketing clout.
"We've gone through a lot in the last two to three years. I look forward to the new marketing regimen. Do I see more money in my pocket? No. Do I see higher expenses? Possibly. Do I see my services increasing? I hope so. But ultimately there are fewer dollars to go around . . . In the fight over a few pennies, we missed the big picture."
Ahrens predicts that Universal Services will spend more research money on product development and consumer marketing. In the past, processors said it was their jurisdiction, but farmers now realize that was not as successful as it could have been, Ahrens says.
Back in the Vandenbos kitchen near Binbrook, during that short break between shipping hogs and getting back to harvest, the two partners mull over a few more realities of their industry.
In spite of the good relationship that Zeldenrust has with Quality Meats, he still thinks third party scrutiny of contracts is a good idea for producers. "All packers are not the same," he says, pointing a finger at Maple Leaf Pork. Chief executive officer Michael McCain introduced production loops to Ontario. Maple Leaf built a lot of new barns and created a lot of unrealistic dreams, Vandenbos says. However, the company's direction seems to change every five years or so.
"The challenge I see with producers," says Vandenbos "is that whenever something goes wrong they always try to blame someone else rather than accept their own responsibility.
"If they aren't winning, they assume everyone is winning on their backs."
Zeldenrust points out that retailers' share of the food dollar is gaining while those of producers and processors are shrinking.
Both producers point out that the marketing board is not responsible for the decline of the province's pork industry. That is an international problem, and the challenges of dealing with a strong Canadian dollar aren't likely to go away. BP