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Canada's Pork Producers Look Forward to 2009

by 5m Editor
5 January 2009, at 7:28am

CANADA - Canada's pork producers are bidding adieu to 2008 and looking forward to improved fortunes in 2009.

Jurgen Preugschas, a Mayerthorpe, Alberta area producer and president of the Canadian Pork Council (CPC) recalls, producers struggled early in the year with the Canada-U.S. exchange rate, very high input costs and low prices paid for pork.

He acknowledges, while the situation did change somewhat toward the end of 2008 with the exchange rate falling back and input costs dropping, all factors added together made for a very difficult year.

2008 Outstanding as a Difficult Year

“I think 2008 will be remembered as one of the really outstanding awful years in the hog industry,” observes Florian Possberg, a Humboldt, Saskatchewan area producer and the Canadian Pork Council's representative on the Canada Pork International (CPI) board of directors.

Possberg describes 2008 as “an extremely challenging year for hog producers financially” as they had basically everything thrown at them.

“We bid 2008 adieu and look for better things in 2009.”

Preugschas notes initiatives have been introduced provincially to help ease the situation, such as the Alberta Livestock and Meat Strategy (ALMA) and, on the pork side nationally, there's the Pork Value Chain Roundtable.

The whole value chain, he explains, is working together to figure out what the new world might look like in terms of getting more value out of the end product and to ensure all of the players throughout the supply chain get a fair amount of money.

Global Sow Production Declines

Recent hog and pig reports in Canada, the US and around the world, have shown sow numbers have been reduced.

Preugschas observes, “In Canada, of course, we've had significant reductions in production and it's still taking place today as our producers are hurting. To a lesser degree there's been some reduction in the United States. Certainly in other parts of the world, as well, there's been significant reduction.”

He hopes that will translate into profitability in 2009 but, he concedes, with the economic crisis all bets are off in terms of trying to predict where exactly the situation will end up.

Possberg believes 2009 will have to be a profitable year for the hog industry.

“Our industry can not sustain another year of significant losses. Producers are just in a very weakened state and it's time for the turn around. The sooner the better.

Profitability Projected in 2009

“We are expecting a return to profitability, for sure, in the third or fourth quarters of this year,” says Preugschas.

“We're hopeful that it might even occur sooner. The hog producers are eternally optimistic and they feel it will eventually happen. We believe that we're getting close to that but there's a lot of factors that are beyond the control of the hog producers of this country and that's the challenge.”

He concedes further economic collapse could affect what people eat and that is very hard to predict this year.

Financial Crisis Tempers Expectations

Possberg agrees, the financial melt down is creating a great deal of uncertainty.

“There's an issue with trading meats internationally and we're a big exporter. We have to trade and so we do have to have a financial climate that facilitates trade,” he says.

CPC executive director Martin Rice notes, the economic melt down actually did spell some relief in the form of lower grain prices and the decline of the Canadian dollar below 80 cents US by the end of the year (2008).

He acknowledges, the world market is still facing a lot of economic uncertainty and a recession which is not good for meat prices generally so we're not seeing the strength in that meat sector that would have been expected by this point. While there's been some narrowing of the gap, the industry is still not back to profitability.

Financial Crisis Expected to Re-Invigorate WTO Negotiations

“The economic recession has put a lot more focus on keeping the world economy working.”

Rice believes that will require finishing the WTO negotiations.

“We would expect the new US administration will, on balance, be favourable to getting back into those discussions. We see it (restoration of growth in trade) as being a big part of the economic recovery for the world economy for the next couple of years.”

Rice admits in difficult times people do tend to become more protective of their own interests. However he believes there is a recognition of the strong interdependence in the world economy.

“There's going to be a lot of pressure to utilize that trade route to help get back to the economic recovery that we're all looking forward to.”

New US Food Labelling Rules Cause Continued Concern

Meanwhile, US Mandatory Country of Origin Labelling (COOL) also continues to create a great deal of uncertainty for the Canadian pork industry.

“That's front and foremost on hog producers' minds,” says Preugschas. “Two out of every three pigs that are born are exported either as pork or as live animals and that has a very big impact on us as the US is a major customer for our live animals.”

“There's a lot of guessing going on out there and we do hope, in the next little while, to see a US final rule come out,” says Rice.

He notes, “There's been a lot of representation made to the U.S. government to have that final rule reflect as much flexibility as possible so that Country of Origin Labelling doesn't unnecessarily interfere in the normal business practices that have evolved in the last ten years in the North American hog industry.”

Clarification of Rules Necessary

Possberg notes Canada and Mexico have challenged the new US labelling laws through the World trade Organization.

“What we need to know is what the business relationship will be in the US.”

None the less he remains convinced there will be a business based solution found.

“If the rules written for the enforcement of Country of Origin Labelling are such that a number of major packers will continue to source United States and Canadian hogs then the business can go forward with some certainty that there's going to be a reasonable market for the hogs at the end of the day.”

Possberg stresses, “There's negotiations at very high levels going on to help sort out and make sure rules that end up being enforced will be ones that allow business to continue to happen with as little disruption as possible. The challenge is we just don't have those rules yet and the sooner we get them sorted out the better.”

Possberg suggests, “The ironic thing is that there's probably 4,000,000 Canadian born hogs in the US that are at one stage or another of being finished and these hogs are going to go for slaughter there. The only question is how big a discount and how big a market disruption they're going to cause?”

Canadian Position Still Strong

Despite the challenges of 2008, Preugschas is convinced Canada has an industry that's lean and very good with the right fundamentals in place.

“It's a matter of working together as a total supply chain and with the assistance of consumers, especially Canadian consumers, that they buy Canadian pork to assist us through these difficult times so those jobs don't disappear from Canada.”