Second Look: Where is the best place to raise pigs?

Tuesday, June 2, 2009

Low-cost feed grains are not the only factor giving one region the edge over another. Exchange rates, market access, environmental legislation and government policy can be equally important

by KEN McEWAN

Do you remember the buzz about Western Canada a few years back? This part of the country was going to take over the pig business primarily because of low-cost grains.

When Canada discontinued the Crow and Feed Freight Assistance programs, feed grains became relatively inexpensive in the West. The Crow freight subsidy made grain expensive in the Prairies and the Feed Freight Assistance program subsidized feed grain movement to Eastern Canada.

However, is access to low cost grains really all that is needed to be successful in the hog business? It would seem more likely that many other factors need to be considered before determining if one region has a clear advantage over others in raising pigs.

Typical factors one might consider include the level of animal productivity, building costs, labour availability and costs, environmental regulations and costs, land prices, tax rates, government policy, and so on. Furthermore, many of these factors can change, which may cause the relative advantages or disadvantages for a particular region to alter.

Some examples of competitive factors changing over time include the weakening of the Canadian dollar against the U.S. dollar, which makes Canadian pork production more competitive relative to Iowa. Lately, the corn basis has changed in many parts of North America due to increased demand for corn from the ethanol industry. It is not uncommon to hear how corn basis has gone from minus US$0.20 a bushel to plus US$0.20 in various parts of the U.S. cornbelt.

When sow and gilt numbers are examined for the 2004 to 2009 period, they show that the major hog-producing regions of Canada have all been downsizing. Alberta numbers have decreased 17.9 per cent, Saskatchewan by 21.1 per cent and Manitoba by 4.2 per cent. Ontario dropped 18.5 per cent and Quebec declined by 8.3 per cent.

At present, each province is experiencing considerable turmoil from a variety of factors, including packer capacity uncertainty, Country of Origin legislation, changing exchange rates, or rising input costs. While the magnitude of the challenges may differ by province, it would appear that no region is immune to change, even if they have historically had access to low-cost feed grains.

For example, in 2008 Canada exported 8.95 million pigs to the United States, or approximately eight per cent of the U.S. slaughter of 114.6 million. Of these live pig exports, Manitoba alone shipped 5.25 million feeder pigs and 1.04 million market pigs.

However, given the current situation with COOL, whereby many U.S. packers are no longer willing to take pigs of Canadian origin, it would appear that considerable rebalancing between production and domestic slaughter capacity will be needed in this province. 

In summary, while access to low-cost feed grains is an important ingredient in raising pigs, it would appear that several other factors, including exchange rates, market access, environmental legislation and government policy can be equally important. BP

Ken McEwan, College Professor and Research Co-ordinator, is an agricultural economist with the University of Guelph at the Ridgetown Campus.