I'd like to thank the committee for inviting us here today to speak about the industry.
The Canadian hog producers are facing a financial crisis that is unprecedented in terms of cause and unparalleled in terms of negative outlook. Simply put, prices are collapsing, input costs have increased dramatically, and cash losses are mounting at such astonishing rates that entire communities, including producers and their input suppliers, face financial ruin. Most disturbing is the observation that no positive market correction in the foreseeable future seems apparent.
Losses per pig are now exceeding $50 per head. Equity is disappearing. There is a growing desperation in rural Canada as producers are no longer able to meet their financial obligations or even pay for the feed to sustain their animals. Without some form of interim financial support, the industry faces certain collapse. Should this occur, the financial and social disruption will be profound. Further, the industry’s ability to recover will surely be lost.
Yet the long-term outlook for the pork sector around the world remains positive. World demand for pork is increasing and expected to grow over the next decade, primarily as a result of growing incomes in developing countries that translate into increased demand for high-quality proteins. China alone wants to increase its daily protein intake by 30 grams per person per day. We would have to have a threefold increase in the number of sows in North America to feed that demand.
It must be understood that the hog industry has a decided export focus. Indeed, it is one of Canada’s leading export sectors. Approximately two out of every three hogs born in Canada are exported, either as fresh pork, processed pork products, or live animals that are finished and processed in the U.S., adding jobs to that economy.
On the cost side, feed represents nearly 60% of the variable cost of bringing hogs to market. Feed prices have risen dramatically, largely due to increased demand for corn as a result of the rapidly expanding bioenergy industry in the U.S. midwest. Canadian producers face a double jeopardy compared to U.S. producers with dramatically higher feed grain prices. This is an even bigger issue in western Canada. For example, barley prices have risen nearly 80% in one year. No available byproducts are supplied by the rapidly expanding ethanol industry to effectively offset the price of feed.
The profound losses taking place on Canadian hog farms are creating a liquidity crisis of major proportion. Many producers are reaching the point where they are unable to service the most fundamental of requirements--feed, power, and utilities. A hog production facility is not like a manufacturing plant or a retail store. The machines can’t simply be turned off or the inventory liquidated. Pigs are live perishable entities. An injection of liquidity is required as soon as possible. This injection is required to provide a time within which more orderly decisions can be made.
It must be made clear that not all pork producers will successfully make the transition to be competitive operators over the long term. However, in view of Canadian pork producers’ history as world leading exporters, we are strongly of the opinion that a large proportion of our industry will be able to make this transition. The proposed program provides a more reasonable timeframe in which to deal with this very challenging transition process.
In summary, the choices at the individual farm are as follows: evaluate and restructure individual operations, both financially and operationally, to restore competitiveness, or explore alternative business opportunities. In the meantime, every avenue must be pursued to enhance competitiveness in the sector if it is to survive in the medium and long term. Industry and government must work together to find solutions and at the same time provide mechanisms to help during the transition stage.