2005

Executive Summary

The long-term growth and health of the North American pork industry depends on free and open trade. To this end, NPPC has strongly supported and promoted free and open trade.

As a corollary to this fundamental position, subsidies distort free and open trade and wrongfully benefit the recipient of the subsidy at the expense of producers in other countries. In particular, the Canadian subsidies given to Canadian hog farmers have distorted free and open trade. By ensuring that a Canadian producer will always receive a steady level of income regardless of market conditions, these subsidies allow Canadian hog farmers to ignore market signals. By eliminating risks associated with hog production, even during the down period of the hog cycle, Canadian hog farmers continued to invest and expand their herd size.

Given its small size, the Canadian market is unable to absorb the overproduction of the Canadian herd. This excess production has been exported to the United States at prices that were lower than prices in Canada and at prices that were lower than US producers’ prices. The results were not surprising. As low-priced Canadian hog exports increased, US producers lost sales, had to lower their own prices, and were forced to endure sustained losses.

In light of this untenable situation, NPPC’s longstanding and current objective has been elimination of trade-distorting Canadian subsidies. As noted earlier, elimination of these trade-distorting subsidies is critical to the long-term health of the U.S. pork industry. To date, however, Canadian producers have rebuffed NPPC’s proposals to restore free trade and have refused to renounce the subsidies.

NPPC is seeking relief from the injurious impact of the subsidies in two ways. First, in March 2004, NPPC filed a countervailing duty and antidumping duty petition with the U.S. Commerce Department and the U.S. International Trade Commission. Second, in November 2004, NPPC filed a request with the United States Trade Representative, the U.S. Secretary of Agriculture, and the U.S. Secretary of Commerce asking that the U.S. Government engage in consultations with the Canadian Government to reach a bilateral trade agreement that would eliminate subsidies to Canadian hog farmers.

The Canadian Government Provides SubstantialSubsidies

NPPC has long been the champion of free and open trade and has consistently recognized that government-imposed trade measures are harmful to the global pork market – harmful to producers, packers and consumers, in the United States, Canada and worldwide.

The Canadian Government, however, has persisted in providing substantial subsidies to the Canadian hog producers. In response to earlier efforts by NPPC calling upon Canada to renounce these subsidies, the Canadian Government responded not by eliminating the subsidies but by camouflaging the subsidies under the guise of “Whole Farm Subsidies.” Despite the name assigned to these benefits, there is no disguising that Canada’s various income stabilization programs provide a disproportionate benefit to the Canadian hog industry.

Information published by the Government of Canada confirms that, during the past few years, on a per farm basis, Canadian hog farmers have received substantial subsidies. For example, Figure 1 indicates that virtually all of the net income that Canadian hog farmers received in 1999 was attributable to program payments. In 1999, Canadian hog farmers earned an average of $45,000. Of that income, $43,000 was attributable to program payments. In 2002, Canadian hog farmers had a net income of $46,000. Of that, more than half, or $25,000, was attributable to program payments. Consequently, Canadian hog farmers are guaranteed an income regardless of economic conditions.

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Source: Paper presented during the 2005 Banff Pork Seminar Procedings