Executive Summary

As of January 2010, the swine herd is pegged at 11.6 million head, the lowest in 12 years and down 4.5 per cent from the year before. A further decline to about 12.7 million head is forecast by the end of 2010.

Exports of hogs totalled almost 6.4 million head in 2009, down 32 per cent from 2008. The largest decline was in slaughter animals, totalling 1.1 million head compared to 2.3 million head in 2008. Due to the continued strong Canadian dollar the forecast for 2010 is 6.0 million head.

After totalling 1.12 million metric tons (mmt) in 2009, 2010 the pork export are forecast up slightly to 1.13 mmt reflecting the reopening of the Chinese market as well as overall expectations that world wide pork consumption will trend upward as recessionary pressures soften and consumers look for lower priced meats.

Details of the C$75 million Hog Farm Transition Programme (HFTP) were announced in December 2009 with the first three (of four) tranches resulting in a total reduction of 671,250 head of which 105,358 are sows. The aim of the programme is to reduce the herd by the equivalent of 250,000 sows. The highest proportional reductions are in the small producing provinces of British Columbia and the Atlantic region. The largest reduction, Ontario, represents about 3.6 per cent of the province's total 2009 production. The last tranche is in March 2010. These payments require vacating production facilities for three years.

Production

The Statistics Canada year-end livestock report adjusted the pig crop numbers ups slightly in both 2008 and 2009. As of January 2010, the swine herd is pegged at 11.6 million head, larger by about 250,000 head than had earlier been forecast but the lowest in 12 years. The breeding herd showed a further drop of 4.3 per cent. The industry is showing further retraction with the size of the remaining operations increasing in size. The number of hog producers dropped to 7,360 at the end of 2009 with the number of hogs per farm increased from 1,482 to 1,580, or 6.7 per cent, indicating a continued exodus of mixed farms and concentration of managed hog operations.

The production forecast for 2010 is unchanged at 28 million head reflecting continued downsizing in the industry as returns remain below the cost of production and some producers opt to accept the new government buy-out programme. The 2009 slaughter total was adjusted according to the Statistics Canada data to 21.8 million head. The 2010 forecast is reduced by 500,000 head to 21.2 million based on the adjusted herd size data.

Hog Market Prices

Hog prices continued well below previous years throughout most of 2009 but perked up in December, suggesting a strengthening trend in 2010 due to tighter supplies and improving consumer demand for pork as a lower priced meat. Producers continue to face prices below the cost of production with one estimate from Manitoba indicating the margin remains C$13/head below the break even point and C$33/head below the amount needed to cover debt loads.

Consumption

Of the three major meats – beef, pork and chicken – over the last decade, the share of pork in the Canadian per-capita meat consumption is the only one that has decline. In 2000, pork represented 32 per cent of total consumption and by 2008, it had dropped to 28 per cent despite the fact that that other two are generally higher priced (chicken prices benefit from the supply management system). According to Statistic Canada, per capita pork consumption in 2008 declined 4.8 per cent from 2007. The pork industry is battling against consumer perceptions that pork is not easy or fast to prepare and lack of perception that pork is a ‘healthy’ meat. Pork has also made limited inroads in the food-service market. The expectation is that the 2009 figure will show a further decline, estimated at 22.9 kilograms per person, primarily due to the recession and overall downturn in meat consumption. Uncertainty about the linkage with H1N1 also pushed pork consumption down. With lower prices consumption is forecast to rise slightly in 2010.

Trade

Hog exports

Total exports of hogs totalled almost 6.4 million head in 2009, up compared to earlier estimates by about 100,000 head, but down 32 per cent from 2008. The largest decline was in slaughter animals, totaling 1.1 million head compared to 2.3 million head in 2008. Due to the continued strong Canadian dollar, the forecast for 2010 is pulled down to 6.0 million head from the earlier forecast of 6.2 million head.

Pork imports

Canadian pork imports totalled 180,260 mt in 2009, up about 10,000 mt from the earlier estimate and down slightly from the 2008 record high of 194,541 mt. Total imports are forecast at 210,000 mt, up 10,000 mt and in line with a rebound in consumption as Canadian consumers continue to seek out value prices for protein.

Pork exports

Pork exports fell slightly in 2009 to 1.12 mmt as the drop in exports to Russia were almost completely offset by gains in sales to the United States and Taiwan. For 2010, the export forecast is raised slightly to 1.13 mmt, reflecting the reopening of the Chinese market as well as overall expectations that worldwide pork consumption will trend upward as recessionary pressures soften and consumers look for lower priced meats. After significant fluctuations and a marked rise in 2009, the value of the Canadian dollar has been relatively stable, at a higher level, in the last few months. This stronger Canadian dollar is a drag on export potential and any further strengthening could hurt overall export competitiveness in 2010.

Policy

Canadian hog buy-out programme launched

Despite the 2008 programme to reduce the breeding herd, producers appealed to the government for additional assistance, arguing that returns to the swine industry were further hampered by the strengthening of the Canadian dollar, high feed prices, reduced consumer demand due to the mislabeling of the H1N1 virus as 'swine flu' and the US Country of Origin Labeling (COOL) laws.

In mid-August, 2009 the Minister of Agriculture’s announced a new suite of three programmes totalling C$92 million. The details became available in early December. The C$75 million Hog Farm Transition programme (HFTP) assists farmers who see no viable alternative but to cease hog production for three years. HFTP provides funding through a process of four tenders, the last of which requires bid submission no later than 10 March 2010. Just under C$14 million remains of total funds available. The aim of the programme was to reduce the herd by the equivalent of 250,000 sows. A table summarises the results of the first three tenders. Because of the timing of the programme (retroactive to 1 April 2009), some of the liquidated animals would have already been removed by the inventory numbers for 1 January 2010. The total reported for the first three tranches represents about 2.3 per cent of the 2009 total pig crop/production. The highest proportional reductions are in the small producing provinces of British Columbia and the Atlantic region. The largest reduction, Ontario, represents about 3.6 per cent of the provinces total 2009 production.

The second tool made available is the Hog Industry Loan Loss Reserve Programme (HILLRP), a loan guarantee programme that assists producers who wish to continue in hog production address their liquidity problems. Producers applying for the loan must demonstrate to lenders that their businesses are or can be viable as well as have a reasonable prospect for loan repayment. The Government of Canada will share loan loss risk with the commercial lenders. The loan terms will be negotiated between lenders and applicants and shall not exceed 15 years. Maximum loan amounts will be passed on number of animals produced in past year or tax year at rates of C$85 per market hog, C$30 per weaner and C$25 per iso weaner. Producers cannot receive benefits from both the HILLRP and the HFTP programmes. On 24 February 2010, citing request from producers who need more time to develop business plans, the deadline for this programme was extended from 1 March to 26 March 2010.

The third part of the plan is the C$17 million International Pork Marketing Fund (IPMF) to bolster market development in critical markets and fund activities to capture greater value from export markets. In addition, the fund allocates resources towards resolving trade restrictions. This programme is being carried out by Canada Pork International, the export promotion arm of the Canadian pork industry.

The new suite of programmes followed the 2008 Cull Breeding Swine Programme. That programme was announced in April 2008 to cover period of 1 November 2007 to 1 November 2008 and later extended to cover period to 1 August 2007. The programme required producers to agree not to house breeding swine in at least one barn for a period of three years from the last cull date. The programme resulted in a reduction of 110,000 breeding swine or about 7.3 per cent of the total. The extension contributed at least 21,000 head to the total and the accounting for the last submissions may further add to the total. The programme was aimed at a 10 per cent reduction.

Agreement reached to resume pork exports to China

In the spring of 2009, China shut off imports of pork and hogs from countries affected by the H1N1 virus, including Canada. For Canada, pork shipments had reached a height of 23,000 mt in 2008. The Canadian Food Inspection Agency negotiated with their Chinese counterparts and on 25 February 2010, Canada announced that agreement on the wording of a veterinary certificate had been reached. Shipments are expected to resume immediately.

Canada launches WTO dispute

In late 2008, Canada and Mexico filed dispute at the World Trade Organization (WTO) on the interim rule of the Country of Origin Labeling (COOL). Consultations were held twice and a new case was filed in May 2009. On 19 November 2009, at the request of Canada and Mexico, the WTO Dispute Settlement Body established a single panel to consider the complaints regarding US mandatory COOL. The process to select panelists is still underway. The substance of Canada and Mexico’s claims remain the same, and include allegations of inconsistency with the General Agreement on Tariffs and Trade 1994 (national treatment and transparency provisions), the Agreement on Technical Barriers to Trade (technical regulations provisions) or in the alternative, the Agreement on the Application of Sanitary and Phytosanitary Measures, and the Agreement on Rules of Origin (Article 2).

Further Reading

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March 2010