Canadian producers must band together and push for a made-in-Canada pricing system for their hogs, says the chairman of Alberta Pork.

In his address to the membership during the group’s Annual General Meeting on Nov. 9, Frank Novak described the pitfalls if producers continue to ship on a cash-based pricing system that has made it more practical for large-scale operators to finish their hogs in the United States.

“Somebody is going to get run over, and I would rather it not be us.”

Novak said that, with the bulk of U.S. hogs now being sold on contract, the cash market pricing model is becoming thinner and more volatile. He predicted that it will be slashed in half within three years and disappear altogether in five.

He proposed changing the model in Canada to tie the price producers receive to the processors’ cut-out, thus giving Canadian producers more appropriate and reasonable returns.

“Right now, the cash prices are extremely low and our losses are big. Nobody likes taping a $50 bill on the back end of every single hog that they put on the truck. Unfortunately, we seem to be in that situation again.”

Historically, the cash price in the U.S. has averaged about 92 per cent of the cut-out, said Novak.

Right now, there is a huge gap between the two, he said.

“In the U.S., there are fewer and fewer and fewer pigs priced on the cash market today. Every single little thing that happens gets accentuated and magnified in that cash market.”

The cash market in the U.S. is down to about three million pigs and continues to dwindle, said Novak.

“Pretty soon, we’re going to have tens of millions of pigs priced off of one or two million, unless we do something different,” he said.

In support of his position, Novak showed figures indicating that the net return to a producer finishing pigs in the U.S. is about $6.70 per head higher than if the same pigs were slaughtered in Canada.

“Why would you finish here?” he said, backing his numbers with similar findings by Manitoba Pork.

Canadian producers need to be aware of what is happening as new packing plants come on-stream in the U.S. and most all of them include producer investment. “

It was not very many weeks ago that I was sitting across the table from some large American producers and having this very conversation. They say the exact same words that we say: ‘The cash market is broken. The world has changed. We have to do something different,’” said Novak.

U.S. producers are investing in processing because they know they have to, he said.

Things are going the other way in Canada, where processors are salvaging herds from producers who have gone out of business to secure hogs for their lines.

“We need those plants to be full. We need them to have the supply and we need them to be successful, and quite frankly, we need them to be profitable,” he said.

“But, I would much rather they be profitable along with me than despite me.” In response to a comment from Rocky Mountain House hog producer John Middel, Novak said work to bring the packers to the table is going on at the national level through the Canadian Pork Council and the national roundtable, with various models being considered.

“We need political will in Canada to put it in place,” he said.

“If the producers don’t push the processers and if the producers don’t push their MPs and push everybody else in the system that needs to be pushed, it’s very easy for them to ignore this. It has to happen from the grass roots. It will only change if all the producers push all the right buttons in all the right places and work really hard to make it happen.”

BRETT STUART OUTLOOK

Market analyst Brett Stuart, a founding partner of Colorado-based Global AgriTrends, picked up Novak’s call for change in Canada’s hog pricing model.

Canada’s packing industry cannot go head-to-head with the U.S. on chain speed, but can differentiate itself through its ability to accommodate niche markets, which could benefit through continued negotiation of trade agreements, said Stuart. “

You guys are the clean, green friend of the world. Who doesn’t love Canada?”

Globally, the Organization for Economic Co-operation and Development (OECD) reports that the middle class will rise from two billion to five billion people over the next 15 years, he said.

“I think that is earthshattering. That is market changing, if that’s right. That will drive demand for value-added, pre-packaged, high-quality foods, including Canadian pork.”

Stuart then asked if Canadian pork producers are prepared to evolve into suppliers of pigs for finishers in the U.S. or if they are prepared to make the necessary changes to benefit from producing a high-quality, value added product at home.

In the short term, American packing plants are “this close to a capacity disaster,” which Stuart said will change when as new plants come on-stream.

However, America’s industry has not stated what it plans to do with the anticipated increase in pork production. Stuart’s data indicate that the U.S. will produce 4.5 per cent more pork next year, an estimated 180 million pounds of meat, with exports to grow by only 0.7 per cent.

“We are not keeping pace with exports next year. I don’t know where we can find a market to absorb this extra expansion and the challenges around China,” he said.

“This is a sell it or smell it business. It all gets eaten, it’s just a matter of, at what price?”

Canada, in the meantime, has done very well marketing pork to Japan and has the means to supply additional niche markets that the big plants in the United States cannot.

“What your industry has done in Japan is impressive. Over the last eight years, Canada has taken 14 per cent of the chilled market from the U.S. It’s a different industry than the U.S., and I know there are challenges. Look over the last 10 years. Our farmers would not have survived this. You’re a tough bunch up here.”

Canada’s differentiation includes innovations in welfare standards that Stuart believes will pay dividends. “You don’t want to be competing head to head with a U.S. industry that’s just absolute full-out, full-bore chain speed production.” As an example, he told of a Canadian plant that secured a contract in Taiwan because it could cut pork bellies to suit the customer’s needs, where the American plants were not.

He also said Canada is well positioned to outgun the US on trade agreements, including potential for a deal with Great Britain in the wake of Brexit and a bilateral deal with Japan in the likely event that the Trans Pacific Partnership fails.

CHANGING GEARS

Forming partnerships with other producer groups and putting less emphasis on courting retail are among the tweaks Alberta Pork has applied in updating its Strategic Plan.

In an abbreviated address to the AGM, executive director Darcy Fitzgerald described how the strategies have changed and the results that are expected from the tweaks.

Some changes arose from contentious new legislation announced by the Alberta government’s pronouncement of new farm safety statutes inscribed in Bill 6 and the introduction of a new carbon tax to start in January.

Amid the wave of protest that arose when the contents of Bill 6 were made public, Alberta Pork and 29 other producer groups banded together to form AgCoalition, on which Fitzgerald sits as a member of the Strategy Committee.

“How do we measure up . . . when it comes to this whole Bill 6 issue that’s before you?” said Fitzgerald.

“Before the NDP government ever arrived in town . . . we were working on farm safety. We as an industry, as the pork industry, we as all commodities were working on this issue. We were looking at it from a safety perspective,” he said.

Farm safety is not just about workers, it also involves farmers, family and visitors, he said. However, the bar on farm safety had not been raised and the industry “kind of got stuck” with Bill 6.

“We tried to explain to a new government what we did, and there it is. We’re stuck with it. We’re working on it, and we have to do some things about it,” said Fitzgerald.

Alberta Pork has curried good relationships with staff at Alberta Agriculture and Forestry and with some of the sitting MLAs, but must try to continue that relationship with new members, he said.

“Some of our bigger challenges become when we have new politicians on board and they really don’t know anything about the industry. How do we get to them and get that message across?”

Fitzgerald announced an evolution involving the pork board’s magazine, formerly known as the Western Hog Journal. It has now spread its wings across the country under a new name, Canadian Hog Journal.

While Alberta Pork continues to work with the food service industry, efforts previously spent on engaging retailers have been moved to an increased role in community engagement, said Fitzgerald. As an example, he brought to the podium a spokesman for Edmonton-based Ronald McDonald House Charities in Northern Alberta (RMHCNA).

KYLER’S STORY

Martin Dugas, CEO of RMHCNA, arrived at the stage wearing his “bacon shirt,” a red T-shirt with a caricature of an energetic little boy named Kyler. His family had stayed at Ronald McDonald House during extended treatment at the Stollery Children’s Hospital.

Kyler was a delight to staff at visits at the hospital and at the house. He could not eat much bacon because of his illness, which required 12 hours of dialysis every night. He would relish in the aroma, loving bacon so much that he would smuggle it into the house and his mother was finding it everywhere.

“All he was, was a little boy who wanted his bacon,” said Dugas.

Kyler eventually got a new kidney and is now a much healthier boy. “We would like to think that we were a part of that,” said Dugas.

People in the crowd could be seen wiping tears from their eyes as he went on to talk about heroic measures some staff at WestJet took to temporarily reunite a Saskatoon family while their child was taking treatment in Edmonton. While mom stayed at the Ronald McDonald House to be close to their sick child, dad and brother stayed at home so dad could keep working.

One of WestJet’s staff was secretly trained in the man’s job, and then replaced him for two weeks so he could fly to Edmonton and join his family.

After accepting a vacuum-sealed bacon shirt from Dugas, Fitzgerald described how food issues resonate in facilities like RMHCNA, which don’t have much budget for food.

“Well, what if we got together with one of our processors? Maybe there’s an opportunity for us to actually partner up. The fire department comes there quite often and they make meals. If they had product, or we went there, or our partners went there – we have a number of chefs, I showed pictures earlier – all it takes is a little bit of product,” said Fitzgerald

“This is where we want to go in community engagement.” •

— By Brenda Kossowan