Manitoba producers sink under an increasing burden of regulation
Sunday, February 6, 2011
Over the past 10 years, the province has introduced at least 40 new regulations that affect the industry, and more are on the way
by MARY BAXTER
Herb Lepp worked 12 years for a hog farmer and then, in 1995, bought his own farm. It was a 250-sow farrow-to-wean operation located near Steinbach in the heart of Manitoba's hog country, the Red River Valley.
He was one of many Manitoba farmers who saw a solid future in the industry. He shifted production to farrow-to-finish and eventually expanded his sow herd to nearly 600. When Maple Leaf Foods Inc. mothballed its Winnipeg packing facility and moved all slaughter to Brandon, he found a way to accommodate the $3 per hog increase in transportation costs.
He weathered two major industry crashes – in 1998 (he still remembers selling market hogs for $60) and in 2007 when prices plummeted, feed costs spiraled and the world's economy failed. Today, Lepp's operation appears to be holding steady. He still has a contract with Maple Leaf's Brandon plant and he's built a spacious new home for his family on the farm.
So, as the hog market begins to recover, you'd think this burly, 48-year-old industry veteran would be well positioned to take advantage. That's not the case, he says. "There is no future," declares Lepp, sitting at the head of the table in his kitchen on a frosty Friday morning early in December. And the culprit isn't high feed costs, low prices or too much debt. It's the Manitoba government, he says.
Over the past 10 years, the provincial government has introduced at least 40 new regulations that affect the industry to varying degrees, says Andrew Dickson, the Manitoba Pork Council's general manager. "Some of them are okay," he says. But some of them "essentially force the industry to incur a whole pile of costs with no ability to recover."
More are on the way, such as allowing greater public input into livestock operation expansion applications and, beginning in 2013, using phosphorus levels for establishing field application rates. (Dickson anticipates that more provinces will eventually consider regulating phosphorus applications. It is already a factor in Saskatchewan. "It's in Alberta and it's a huge issue in Quebec because they import so much grain.")
Rick Bergmann, vice-chair of the Manitoba Pork Council, describes the province's 2008 moratorium on barn construction in southeastern Manitoba, the Red River Valley and the province's Interlake district as having "handcuffed" the province's eastern producers. Bergmann is part owner of a 1,700-sow farrow-to-isowean multiplication operation near Lepp's. The moratorium discourages the next generation from getting involved in hog production, he explains, noting that his two sons are interested in the family business.
"But if they can't make a living at it, what's their incentive to get involved?" he asks. It's a "continual erosion of the family farm," he says.
At Lepp's farm, the moratorium makes expansion impossible and even affects his ability to maintain his current herd numbers. Lepp explains that, when he started shipping hogs, about 220 pounds live weight was the standard. Now, the Brandon plant wants hogs between 240 and 250 and there has been talk of even higher weights. "How do I do that? I have limited square footage," he says. "If you want me to keep my hogs back for another week to make them heavier, I can't expand, so I'm in a real pickle."
Arbitrary cutoff
The handling of nutrient management regulation is another sore point. The winter spreading cutoff date of Nov. 10 is arbitrary, he says. In 2009, he did field work right up until Dec. 1. But on Nov. 10, the regulations "shut everybody down. Why?" (Permits are available for winter spreading, but in a significantly restricted area within fields, he adds).
Lepp feels his industry is being unfairly targeted. There might be a cutoff date for winter manure applications, but commercial fertilizers can still be applied, he points out. Farmers involved in other forms of livestock production in his area can still apply for permits to expand. Concern about rising nutrient levels in Lake Winnipeg drives many of the rules, yet "there's no proof that the hog farm is the guilty one here – or farming in general."
Dickson says a University of Manitoba study indicates that the proposed phosphorus regulations alone will cost the province's hog industry $20 million extra per year. For some, it may mean having to acquire more land to spread manure. For others, it will mean introducing technology to reduce or remove phosphorus and transport it somewhere else.
"That's not cheap," says Dickson, pointing out that some of the technologies are not proven and others haven't been demonstrated to work within Manitoba's extreme climate, where ground frost and pipes freezing are major challenges. Municipal waste systems are not effective because there's a lot more solids in pig manure compared to human sewage. There will be additional costs for storage and transport. Even larger operations will "have a major challenge ahead," to meet the terms of the new regulations.
Dickson predicts that conforming to a regulation that will ban small livestock operations from spreading manure in the winter by 2013 and require them to have at least 400 days of storage capacity will be so expensive it will drive 70 to 100 producers out of the business. (The regulations already apply to operations with more than 300 animal units).
The smaller producers are asking the province for permission to expand their operations modestly to pay for the additional environmental requirements, Dickson says.
Karl Kynoch, the Manitoba Pork Council's chairman, calls the provincial industry "probably the heaviest regulated area in North America." He says the pork council has been pushing the province for direct assistance to deal with the downturn and the adjustments but "it doesn't even seem to be an option."
Support through the $60 million Manitoba hog assistance loan program has not been effective. These loans were so restrictive it was hard for a producer to take them on, he says. Designed to help producers when prices plummeted in 2007 and 2008, the program allowed producers to borrow $35 per slaughter hog and $10 per weanling at low interest rates. Nor is AgriStability effective any more. "The industry has been in such a downturn for a few years now that those have played their time out," he says.
A push to establish all risk mortality insurance recently received the support of the provincial government "but that's not going to save people," he says, and does not cover financial situations.
Business plummeting
Just how much existing and proposed regulations are redefining the industry's preoccupations became apparent in December at Manitoba's biannual Hog & Poultry Days show. On its second day, there was little traffic in the show's aisles with the notable exception of the cluster of farmers and government officials around the Blue Diamond Technologies booth. The Winnipeg waste management company is promoting a phosphorus removal system based on one that was once used on a Hutterite colony near Brandon.
Salesman Ryan Hrabluik said the company has improved the technology, but has yet to produce a working example. At the show, Blue Diamond hoped to attract provincial government interest in helping to develop a demonstration model. Hrabluik estimated the system costs $300,000 to $400,000 to build and will process 100 gallons a minute, suitable for the largest barn out there.
Down another aisle, Chris Hiser, sales director of Southwest Agri-Plastics Inc., a Texas company that specializes in plastic swine flooring systems and other agricultural products, said his company's business has plummeted in Manitoba over the past three years. Barn construction is nearly at a standstill he says. Hiser blamed the moratorium.
In Blumenort, near Steinbach, Reg Penner, president of Penner Farm Services, says what little construction is taking place within the industry is connected to replacements for barn fires or changes to "rebalance" operations. Yet he attributes the lack of activity to the pervasive industry-wide challenges rather than the moratorium. Everyone's affected, he says, pointing out that his Blumenort location now has 35 employees, compared to 78 at its peak. "We had four years of restructuring."
Penner says that, right now, hog barns are so devalued they can't sell. He notes that about 60 per cent of the hog barns in the province are about 15 years old.
Perry Mohr, general manager of Hog Administrative Marketing Services and CEO of Manitoba Pork Marketing, notes that an organization like Farm Credit Canada "probably today has a fair number of barns that they're sitting on and at some point they're going to have to try to get these things back in production, and the way you do that is you sell them off."
Low prices are creating an opportunity for larger corporate farms to expand space, he says, as well as for those who got out of the industry five or six years ago to reinvest. "The guys that toughed it out and incurred more debt and chewed down equity in their operations . . . they're going to be competing directly against these guys that are getting in the industry with low-cost facilities."
Numbers deceptive
Nevertheless, Mohr is hopeful for the provincial industry's prospects. Cost of feed might be rising, but he anticipates pork prices will rise too and with these will come better profit margins.
Dickson estimates that the province currently finishes about 4.5 million to 4.8 million pigs annually and 4 million to 4.5 million weanlings for export. Changes in the number of producers paying a levy to the provincial council may look alarming – three years ago about 1,400 producers paid levies to the council; by November that number had shrunk to little more than 300 – but they can be deceptive. Those numbers include the province's three largest producers, Maple Leaf, Hytek Ltd. and The Puratone Corporation, as well as 90 Hutterite colonies.
Together, the companies and colonies account for 80 per cent of the province's hog production. Moreover, those contracted to feed and house animals won't necessarily pay levies, Dickson adds. There are 1,500 to 1,600 barns in the province. "We're not sure how many of those are in full operation."
Kynoch describes the Manitoba industry's future as "very strong, especially when we have viable packing plants," (Maple Leaf's Brandon plant and Hytek's plant in Neepawa).
Moreover, disease pressure from PRRS is less than it is in eastern provinces and barns are relatively new. A recent study shows that half of the industry is already able to compete with the western Corn Belt in Iowa. "So we've got to look at how we bring the other half of the industry to that level, too."
But assistance from the government is needed to help deal with an increasing burden of regulation, he says. On top of moratoriums and new nutrient management spreading guidelines, there are food safety initiatives to worry about.
"We've got to stay competitive with the rest of the world and the other provinces," he says. "If our government is over-regulating us with no science-based regulation then it puts more pressure on our producers. In turn, Manitoba producers would "endure more cost than other provinces to operate." BP
SIDEBAR: Manitoba adjusts to life after single-desk marketing
It has been nearly 15 years since the Manitoba government divided the organization that represented Manitoba's pork producers into two separate arms – one to deliver universal services, the other to provide marketing services.
"Ninety-eight per cent of producers didn't want it," says Karl Kynoch, chairman of the Manitoba Pork Council.
Today, Kynoch is not sure where the industry would be if it still had single-desk marketing. "Would we have had a big packing plant if we had kept that, I don't know," he says. But the packers made it work for themselves, he says.
Perry Mohr, CEO of Manitoba Pork Marketing, which markets hogs for 300 producers from Manitoba and 50 producers from Saskatchewan, says there was "a tremendous amount of anxiety" when marketing services split off.
Initially, there was no idea how many producers would support the marketing service and it was "really tough to budget and to plan." To get through the transition, the marketing service obtained contracts with producers for one year. "That was the only way we could go to processors and say, ‘look we have x number of hogs to sell.' We needed commitments from producers," Mohr says.
Many former staff continued with the new marketing service and that meant having to "wrap their heads around the fact that producers don't have to use us anymore."
It was a whole different mindset from the single-desk era, he says.
In the first years, there was also competition from different marketers, although that eventually dwindled. Mohr says that the same thing might happen in Ontario, but he predicts that few will be successful over the long term. "In the case of those that do go out of business, there's a pretty good chance that there will be some producers that will be left with money owing to them," he says.
Mohr says that, initially, many producers established direct contracts with packers, but several have since shifted to using the marketing service. The service charges 50 cents per hog and offers marketing of hogs and settlement, risk management services on both hogs and feed, and Internet-based programs to allow producers access to production data and marketing information.
Andrew Dickson, general manager of the Manitoba Pork Council, says the marketing arm eventually became a stand-alone co-operative because of concerns about conflict of interest. At the time, the industry was restructuring and its capacity was increasing rapidly. "There were people on the overall board who were not in the least interested in this group doing well," he says, explaining that they were involved in other marketing organizations.
Today, the council retains the authority to establish another marketing arm but has not seen the need to do so, Dickson says.
Two years ago, Manitoba Pork Marketing began a merger with Saskatchewan's SPI marketing group to create Hog Administrative Marketing Services. The joint venture has kept the cost of services "at a very reasonable price," says Mohr, the venture's general manager. He says there is interest in opening a satellite office in Ontario, "but I think the greatest potential would be to merge with another organization similar to ours because of the economies of scale you gain and then you have an automatic producer base." BP