Second Look: The Canadian Hog Industry's Plan for Success

Wednesday, December 2, 2009

by JURGEN PREUGSCHAS

Hog production practices and productivity improvements, as well as the exports of live animals and pork meat have been a Canadian success story for the past two decades.

Before the 1990s, Canada produced primarily for its domestic and the American market.  However, commencing in the mid 1990s, a steady rise of exports to other world markets became so significant that by 2008 they represented over 70 per cent of the total exports; more than double those going to the United States.

During the same period, producers have increased sow productivity such that pig production increased from 1995 to 2008 by 79 per cent which only required growth in the breeding herd by 23 per cent.  It is noteworthy that efficiency gains were achieved from innovation, increased scale of operations, and modern capital investments. These same attributes have been applied to genetics, feed and plant processing.

During that period there were low price cycles but the industry adapted to market conditions and prospered accordingly. However, no producer could have foreseen the latest challenge facing pig farmers - the impacts of a world pandemic caused by the H1N1 virus.

Hog producers have already been whipsawed by the cumulative impacts of swine health challenges (circo-virus), wildly fluctuating currency exchange rates, U.S. policies affecting feed costs, a massive recession, and a damaging piece of trade legislation (the United States' Country of Origin Labeling (COOL)).

The sector is currently unprofitable, highly leveraged with debt, and it is facing imminent catastrophic implosion. The status quo is not an option. Consequently, industry leaders, under the guidance of the Canadian Pork Council, undertook an extensive review of the current situation and have developed a Strategic Transition Plan. They recognize that changes are required in both scale and strategy to ensure a transition that results in a sustainable business model. The plan respects the prudent role and capacity of government, while underscoring the primary responsibility of agricultural entrepreneurs to succeed or fail based on the merits of their efforts.

The Strategic Transition Plan envisages a leaner, greener, and more innovative industry to emerge by 2014; one that is prepared to capitalize on domestic and international opportunities. In the meantime, it is critical that the productive capacity is not allowed to recede to a level that is damaging to Canada's interests in terms of its economic prospects and rural viability.

The fundamentals of hog farming in Canada remain strong but the industry is suffering from a number of factors that have lead to serious liquidity issues. Along with our Strategic Transition Plan, the three federal aid programs announced will further strengthen those fundamentals, help right-size the industry for future viability and encourage growth in demand.

Let me be very clear that not all hog producers in Canada will survive even with the programs announced by the minister.  Downsizing of our industry must, and will, occur.  Those willing and able to take on a higher debt load and at the leading edge of productivity and innovation will be those who will be most successful in the future.  Producers must embrace new technologies that link to "greener" production to assist in moving Canadian pork into more branded and value added products around the world.  Value chain cooperation needs to be enhanced so that producers are not forced to carry the total risk in the pork production chain.  All partners, starting with suppliers, right through to the retailers must all share in the risks and rewards of our business. The challenge is for hog producers in Canada to lead the development of this new model as other players historically have never shared in the risk but always shared in the rewards.  Therefore they do not have the motivation to change the way of doing business as do hog producers after the experience of the last three years.  At this time, more than ever, producers must unite and band together to develop a business model that will take us through the next generation in a profitable industry. BP

Jurgen Preugschas is Chair of the Canadian Pork Council and is a hog producer in Mayerthorpe, Alberta.  He has produced purebred breeding stock since 1972 and now is a principal in Peak Swine Genetics.