U.S. pork industry keeps a beady eye on Canadian support programs
Monday, December 3, 2012
Some way, somehow, U.S. pork producers 'are going to get these programs disciplined,' says a spokesman for the National Pork Producers Council. But Canadian industry insiders challenge some of the NPPC's conclusions
by DON STONEMAN
Canada's pork producers are looking to governments to help stave off yet another financial crisis. Meanwhile, the pressure is on from their competitors south of the border to get rid of the safety nets that are already there.
The Americans may be getting their wish, more from budgetary concerns in Canada, than from trade considerations.
"For hog producers, the safety nets are not there like they once were," says Ontario Pork director Bill Wymenga as he looks over an unharvested corn field from the front seat of his SUV beside his Chatham-Kent hog barn.
The province has imposed a cap on spending under the Risk Management Program. The meat producing groups and horticulture have an agreement in principle to divide up a paltry $100 million, Wymenga says. Moreover, he warns that the federal support programs AgriStability and AgriInvest, which have helped pork producers in the past, are certain to be cut in 2013 and beyond.
Federally, the Canadian Pork Council is working with Agriculture Minister Gerry Ritz to come up with a solution to the crisis brought on by the drought in the American Midwest. The Advance Payments program is one option. Another is the Hog Industry Loan Loss Reserve Program (HILLRP), a federal loan guarantee introduced during the last financial crisis.
"The federal government has made it abundantly clear that it doesn't want a program that is countervailable," Wymenga says; they want to work with existing programs.
Regardless of whether Ottawa considers a program to be subject to a trade challenge, it is grist for the anti-Canadian pork industry mill at the National Pork Producers Council (NPPC) office in Washington.
The Americans have one eye constantly on Canadian pork support programs. Even before Canada made an official bid to take part in the Trans-Pacific Partnership (TPP) talks earlier this year, the NPPC was rattling sabres about Canadian farm support programs that American pork producers allege distort trade in pork and hogs between the two countries.
Recently it became clear that subsidies to agricultural production are not on the trade talks table, although American pork producers say they would like them to be. And they still intend to try to use these trade talks to get rid of programs like Ontario's Risk Management Program (RMP) and Quebec's Assurance Stabilisation du Revenu Agricole (ASRA). Americans hope something will be achieved through a side deal. "If they are not successful through TPP, I can't rule out producers filing more trade cases. Some way, somehow, they are going to get these subsidies disciplined," warns Nick Giordano, the NPPC's vice president and counsel for international affairs.
"They threw everything they had at the wall to see what would stick," says Wymenga, referring to a document that the NPPC sent to the Office of the U.S. Trade Representative last January.
After slamming Quebec's ASRA program, and Ontario's RMP, the Americans took aim at a wide variety of Canadian agricultural programs, from the federal business risk management programs to agricultural loans, wildlife compensation programs, Farm Credit Canada's "low cost financing to Canadian hog farmers," the Ontario Farm Property Class Taxation Program, its equivalent in Manitoba, and even various provincial retail sales tax exemptions on purchases for farm use.
U.S. should be happy
Gary Stordy, communications manager for Canadian Pork Council, points out that the programs cited in the document to the U.S. Trade Representative apply to many aspects of agriculture in Canada, but NPPC ignored sector-specific assistance, such as hog transition programs and cull breeding sow programs. "They were all intended to get people out of the industry. They (the Americans) should be pretty happy about that, but maybe not."
A June NPPC press release urges Canada to quit pork subsidies before taking part in the TPP. The release states that Canadian farm supports do far more damage to the American pork industry than Mandatory Country of Origin Labelling (COOL) did to Canada, a claim that the Canadian Pork Council disputes.
"You did not see a lot of COOL comments about whether it is good or bad until the World Trade Organization (WTO) made a decision," says Stordy. The WTO decision went against the United States and the NPPC began lobbying their tardy government to end the COOL program before the Canadian government took retaliatory trade measures.
The NPPC's Giordano is quick to warm up to a favourite subject, bashing what he refers to as Canada's subsidization of its pork industry. "Clearly, the Canadian producer has no interest whatsoever in renouncing the benefits they get from the federal and the provincial governments.
"I guess it is hard to blame them, particularly in the difficult financial circumstances that producers find themselves in these days."
Giordano predicts that Canada's federal "countercyclical" programs are going to pay out more now that producers in Canada are really hurting. ASRA is "the most egregious," he says. "But both the federal and provincial programs, taken together, are outrageous and they are benefits we don't have in the United States."
What about subsidies that American farmers get for growing grain, boosting production and keeping the price down: haven't American pork producers benefitted from them? Yes, but "so have Canadian grain producers," Giordano counters, because the lower prices are felt world-wide. "That is straightforward economics."
Subsidies for grain producers in the United States have the effect of pushing down on grain prices worldwide. "We don't benefit disproportionately. Every livestock producer that feeds grain to his animals benefits from those subsidies."
Big farms benefit most
Some livestock producers will benefit more than others, especially some producers in the United States. Douglas D. Wolf of Lancaster, Wis., an NPPC past president and chair of its trade committee, received cheques from the American government totalling $694,382 between 1995 and 2006. Then, starting in 2006 and through 2011, Wolf L&G Farms LLC, of which Wolf is on record as a 45.89 per cent owner, received payments totalling $251,796. The majority were corn subsidies.
The payments to Wolf and the farming corporation his family controls, as well as to other NPPC directors, are revealed on a massive website database maintained by the Environmental Working Group (EWG), based in Washington. The EWG launched the website (www.farm.ewg.org) after sending a series of Freedom of Information requests to the U.S. Department of Agriculture (USDA) 10 years ago and the organization continues to update it. The EWG argues that the largest farms get the lion's share of farm subsidies, regardless of their need, and that the "industrial" farming it encourages leads to environmental degradation.
When Better Farming asked for an interview with Wolf via the NPPC office in Washington, Dave Warner, NPPC's director of communications, replied by email that "Doug deferred to economist Dermot Hayes to convey the differences between U.S. crop payments, which have nothing to do with hog production decisions and hog pricing in North America, and Canadian hog subsidies, which have a significant impact on production and prices in North America."
Hayes is the Iowa State University economist the NPPC quotes in documents critical of ASRA, RMP and Canadian farm supports such as AgriStability and AgriInvest. He says the cropping "subsidies" outlined in the EWG website do not subsidize hog production in the strictest sense of the word and are not subject to a trade challenge. "A hog producer can use the payments to recover from the crisis they are involved in now," Hayes allows.
Farm support programs in the United States were generally "decoupled" from production in the 1996 Freedom to Farm Bill, Hayes says. Farmers began receiving "direct payments," also known as Market Transition Payments, that were linked to historical cropping patterns. The land where the grain is grown gets the benefit. The grain operator gets a cheque if he rents and actively farms the land. Typically, the grain operator factors in the benefit of the direct payment into the rent. Payments are made even if fields were left fallow, Hayes says.
Over the years, there have been "coupled" payments called loan deficiency payments, as well as Market Transition Payments from the 2006 Farm Bill and Market Loss Payments (LDPs) from the 2002 Farm Bill. These programs only kick in if corn prices fall below US$1.90 a bushel. Hayes says they are not relevant in today's market with the ethanol mandate, which demands that gasoline contain a certain amount of ethanol.
Another program that still pays out, the Conservation Reserve, actually works against hog farmers, Hayes argues, because it encourages farmers to take land out of production.
Relatively new on the scene is the ACRE program which, says Hayes, "is an optional program that kicks in if grain revenues fall significantly. This is somewhat coupled, but it has not proven popular because farmers have to give up 20 per cent of their direct payment."
Hayes asserts that farm subsidies are being phased down. The direct payment program is under scrutiny and may be eliminated. "We will see what happens in this farm bill," he says. And he maintains that the ethanol mandate is equally unfair to pork producers on both sides of the Canada-U.S. border because it puts upward pressure on grain prices.
Replacement plans are not all that lucrative. Hayes says that, as an economist, he developed and "owns" a program called the Livestock Gross Margin Insurance Plan for Swine. Under an agreement with the USDA, he gets paid every time a producer uses it. Hayes says the plan "is neutral" to the market. "It doesn't sell very well for that reason."
Grain subsidies benefit
The Canadian Pork Council's executive director, Martin Rice, doesn't disagree with Hayes' last statement. However, he argues that grain subsidies in the long term have ensured that the United States had an exportable surplus of grain and soybeans and that hog producers had the best prices in the world for their feed supply.
Randy Duffy, a University of Guelph-Ridgetown Campus-based economist, also disagrees with Hayes' conclusion that those American pork producers who also got cheques for grain they may, or may not, have produced, didn't benefit. "A U.S. pork producer who receives grain subsidies, if you look at his entire farming operation, is still receiving subsidies. So it is going to benefit him as a pork producer." How, he asks, is that any different than whole farm programs in Canada that Americans criticize?
Duffy and Rice also agree that COOL took a much greater toll on the Canadian pork industry than the Americans will publicly admit, and that a tremendous downsizing took place north of the border in spite of "subsidies" that Americans claim prop up the Canadian industry and threaten their producers.
Rice says Canadian producers "lost at least $1.5 billion of swine exports following the implementation of COOL in 2008, and probably more than that."
Live hog exports from Ontario to the United States have dropped to one quarter of the level of four years ago. Live feeder pig sales have remained stable, at about 14,000 a week, mainly as a result of long-term strategic alliances between Ontario and U.S. producers, says Duffy.
In 2011, Ontario hog production was down 14 per cent from three years before, to 6.1 million hogs.
Quebec total pig production decreased four per cent to 7.5 million head in 2011 in the same period and is on pace to fall another three per cent this year.
The Canadian hog production base has shrunk by 25 per cent since the most recent trade investigation by the Americans in 2004, which cost Canadian producers $12 million. That investigation didn't find anything wrong with ASRA, Rice says. With a shrunken industry north of the border, the Americans should have even less to complain about now.
Nevertheless, Canadian pork industry leaders will always be looking over their shoulders, as will the Canadian government, as they try to deal with any financial crisis. "It is always something we keep in mind whenever we talk about any change in Canadian safety net programs or anything that is being contemplated to help the hog industry cope with the challenges that we've had in the last few years."
Back in Chatham-Kent, Wymenga is parked overlooking a corn field and contemplates the options that can be negotiated with the federal government to keep the industry going. The pork industry is looking to get help under AgriRecovery (the Agricultural Disaster Relief Program), which is normally used regionally to cover things such as a drought. The pork industry is in trouble because of a drought, largely in the United States, Wymenga argues. That drought caused the recent, sudden increase in feed costs.
"The feds tell us it doesn't it doesn't quite fit their parameters." Wymenga says. "We are looking for some flexibility in how they define a disaster."
And, undoubtedly, the Americans will be watching, too. BP
