Prairie hog producers have been getting a consistent message since December of 1998, when the entire industry seemed poised on the verge of collapse.
During the ensuing 25 years, through crash and recovery, disease threats and political upheaval, industry leaders have stressed the need for collaboration, the value of vertical integration, the necessity of a fair pricing model.
At Banff Pork Seminar on the morning of January 10, Arnold Drung the president of Ontario-based Conestoga Meats walked onto the stage to tell fellow producers the story of how his company and its farmer-owners, Progressive Pork Producers Co-operative Ltd., have continued to thrive.
His presentation followed an optimistic outlook by Iowa-based economist Joe Kerns, president of Partners for Production Agriculture.
“It was 25 years ago, as Joe alluded to, that we ran into a train wreck in the hog industry,” said Drung.
“Many of you in the room will remember 25 years ago for what is highlighted in this headline: Farmers are in Crisis.
“It was a very difficult time for the industry with high prices hitting multi-decade lows and a lot of pain in the industry. There were numerous factors leading to the price collapse, including lack of processing capacity.”
In Red Deer, Fletcher’s Fine Foods reported losses exceeding $800,000 at its hog processing plant during the 1998 fiscal year. The sale of the plant to Vencap had been forced just three years earlier after a contentious battle to determine whether farmers should be in charge of processing and marketing their own hogs. It was at that time that the marketing arm of Alberta Pork Producers Development Corp. was carved off to form the Western Hog Exchange.
In the aftershock of that 1998 train wreck, in 2001, the federally inspected Conestoga Meats plant at Breslau, Ont. was sold to the fledgling “3P” co-op, which had been formed by local producers in 1994.
“The co-op was started in response to . . . unfair practices on the part of major processors, while US countervailing duties were in place on Canadian hogs. It was established to build a producer-owned processing plant,” said Drung.
“Eventually, the duties went away, but the dream of owning the plant remained and was fulfilled in 2001. Our cooperative is a new generation Co-op, which means that along with the membership shares, our owners also invested in hook space with our livestock, so they all have significant skin in the game.”
There are currently 157 members, each shipping an average of 12,000 hogs per year to the plant. Its diverse workforce of 1,400 employees processes about 44,000 hogs per week, with more than half of the meat exported to 23 different countries.
“Another marker of our membership is that we are primarily land-based and that’s proven to be a significant differentiator in the last number of years.”
Sitting on 400 acres, the plant has plenty of room to expand, said Drung.
Conestoga’s unique pricing model is also a key differentiator, he said.
“We all know that what ultimately drives pricing in our system is the price that consumers and customers are willing to pay for the meat. Our owners recognized this many years ago and allowed us to set up a system whereby producers are paid for their hogs based on the selling prices achieved for the meat from those hogs.”
Prairie Hog Country asked Alberta industry leaders whether this model is something that could work for producers in the western provinces.
Producer Frank Novak, a former chair of Alberta Pork, said he supports the model, but doesn’t see an opportunity in Alberta for a similar business.
“As a basic business model, for our industry, the coordinated production-slash-marketing idea is the right one, and I think that the evidence would tell you it’s the right one because there’s been a boatload of integration in the industry over the last multiple decades. So I think that the model is right. It’s not necessarily really easy to do,” said Novak.
However, he said “that ship has sailed” in terms of building any new facility of significant size because there are no longer enough hogs available to fill the shackles.
Novak said he had considered whether the divestment of Fletcher’s was a sound move. The Fletcher’s model differed from Conestoga in that producers were granted shares in the business through the sale of their hogs. More hogs sold meant more shares in the plant.
“I’ve thought about that one and it’s really dangerous to do the revisionist history thing on something like what was going on in Alberta a few decades ago and where Conestoga might be today because they are different models in a different time. And a person would be dreaming if they ignored all the years that Conestoga was not a very happy place, right? They had a lot of tough years. They had a lot of history before 2013.”
Novak said that while the models may be different, co-ordination along the supply line is the future of Western Canada’s pork industry.
Darcy Fitzgerald, executive director for Alberta Pork, said he hopes to see some changes in the coming years.
“I think we’ll see some good things and it may be just a different model that we look forward to, even just speaking to the consumers and doing things with consumers, which we haven’t done very well. We used to, but we don’t anymore.”Fitzgerald said the Fletcher’s model was different than Conestoga and may have been ahead of its time, and perhaps producers didn’t understand the business of running a packing plant.
“We always have to remember that running a packing plant, selling the product, being a distribution company, is way different than running a barn. The people at the top, further up the chain, don’t know how to run a barn. The guys that run a barn don’t know how to run a packing plant and you have to separate yourself.”
He said there has to be better collaboration among sub-sectors for the industry to follow a line similar to that of Conestoga Meats.
“We’re coming in here networking and we’re talking and the producers that are here and the businesses that are here, they’re learning new things from each other and maybe new opportunities to work together and do stuff. So why can’t we do that on a bigger scale?”
Moving forward, Canada’s processing industry needs collaboration and government policy support to be more competitive, said Drung.
“Collaboration within Canada’s industry is essential,” he said.
“I look with envy at industry collaboration in countries such as Spain and Denmark and what they’ve been able to achieve. I remember being at a seminar . . . in Denmark about 20 years ago, and they were sharing a lot of the new things that they were doing in the industry. They said there is no reason why we can’t do the same in Canada. We have a lot more going for us naturally than either of those countries, let’s actively collaborate to ensure our industry flourishes to an even greater extent in the future.” •
— By Brenda Kossowan