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Pork Industry Overview, February 2003: Canada and Brazil

by 5m Editor
17 February 2003, at 12:00am

By USDA, Foreign Agricultural Service - This article provides a summary of pork industry data from the USDA FAS Livestock and Products Semi-Annual 2003 reports for Canada and Brazil. Links to the full reports are also provided. The full reports include all the tabular data which we have omited from the summaries.

Canada - Hogs and Pork

Canada’s hog inventory reached a record level in 2002 and hog numbers are forecast to continue to grow in 2003 driven by domestic processor demand to satisfy increasing pork exports and by increasing live feeder hog exports to the United States. For 2003, the pig crop has the potential to exceed 30 million head, more than 20% greater than five years ago.

Hog Prices

Weak prices prevailed throughout most of 2002 for Canadian hog producers. The pork sector faces prospects of higher feed costs until at least the fall of 2003. Improved profitability is expected throughout 2003 as a result of higher North American hog market price projections. Some analysts project a significant advance in Canadian hog prices in 2003 in a range between 10-15% above last year.

Live Hog Exports

Live hog exports to the United States reached an estimated 5.8 million head during 2002, a record level. For 2003, slaughter hog exports to the United States are expected to decline moderately reflecting increased Canadian slaughter capacity and growing Canadian pork exports. Although the U.S. Country of Origin Labeling Regulations have added some uncertainty into the future marketing of Canadian feeder pigs to the United States, most industry analysts expect total live hog export volumes to remain substantial during 2003, in the 5.6-6.2 million head range.

Pork Trade

Exports
Canadian pork exports increased an estimated 15% in 2002 to 835,000 metric tons (cwe). Post projects a lower rate of increase for 2003 with total exports projected at 875,000 metric tons. The United States is the major market for Canadian pork accounting for about 60% of total exports. Japan, Australia, Russia, South Korea and Mexico are the other main export market destinations.

Imports
In the January-November period of 2002, U.S. pork exports to Canada ran almost 5% above the level for the corresponding period of 2001 and accounted for more than 97% of total Canadian pork imports.

Policy Update

Mexican Anti-Dumping Action Against U.S. Pork
Mexico’s Secretariat of Economy announced in January the initiation of an official antidumping investigation against U.S. pork classified in tariff codes 0203.11.01, 0203.12.01, 0203.19.99, 0203.21.01, 0203.22.01 and 0203.29.99. The investigation is in response to a petition submitted by the Mexican Pork Council (CMP).

The action could have implications for Canada. Canadian hog industry officials are concerned over the potential affect that a future Mexican duty may have on U.S. hog market prices (and U.S. pork supplies) which would be immediately felt in Canadian hog markets. At this juncture, industry observers do not believe that an imposition of a Mexican duty would result in a sudden surge in Canadian pork exports to Mexico, presently the number six market for Canadian pork exports.

Country of Origin Labeling
Martin Rice, Exec. Director of the Canadian Pork Council told delegates to a Toronto conference on trade and border issues in late 2002 that the U.S. COOL regulations will impose huge costs on the North American livestock and meat sector.

While the expectation of the introduction of U.S. country of origin regulations initially sent a chill through the Canadian hog industry, Rice said that since the publication of the COOL voluntary guidelines his industry is studying whether Canadian pork could gain a premium in the U.S. market. He claimed that the industry has had discussions with major U.S. packers on the feasibility of devoting special times for the slaughter of Canadian origin hogs to simplify auditing and identification requirements.

Rice believed that the additional costs of COOL would be passed down through the supply chain and result in lower producer prices for hogs throughout North America. He said the Canadian Pork Council was disturbed that the COOL regulation sends a signal to other countries to look for means to discourage imports. Rice said that the policy of the consumers right to know can be taken too far. He believes that the COOL regulation weakens the U.S. and the Canada position on GM labeling. Rice noted that the National Pork Producers Council is on record as opposing COOL.

A report commissioned by the Manitoba Pork Council to study the impact of U.S. Country-Of- Origin-Labeling (COOL) on Canada’s hog industry concludes that at best, Canadian hog packers will benefit because pork will trade with the U.S., but hogs won’t and Canadian pork may be able to command a premium. At worst, Canada will either lose a substantial export market or retain it only at a significant price discount. Based on it’s research, the George Morris Centre, an agricultural think tank, identified alternative scenarios under COOL and estimated their economic consequences.

In the negative scenario, it estimates the possibility that the Canadian hog and pork industry could lose over 450 hog farms and farm income totaling over C$350 million; Canadian feed mills would close; a market for 250,000 acres of cropland would be lost; Including grain farms, losses could be up to C$750 million in farm income and losses of over 3,000 farms.

From a Canadian perspective, the Centre believes certain actions can maximize the probability of having the best possible outcome, including:

  • expanding hog finishing capacity in Canada;
  • accessing and training the labor required for packers to move to two shifts; promoting Canadian Brands in the U.S. or Asian countries;
  • replacing U.S. product in either the domestic or export market, preferably at premium prices.
A copy of the full report is available on the Centre’s webpage at:www.georgemorris.org

Environmental Issues and Challenges

Environmental issues and concerns have slowed hog expansion in Canada. In early 2002, the provincial government in Quebec imposed a temporary moratorium on hog barn expansions, seeCA2060, later extended until mid-2004.

On Ontario, the provincial government is developing controversial nutrient management regulations that will apply to large, intensive livestock operations and according to some industry analysts, no large scale hog operations can be proposed anywhere in Canada without attracting local opposition and costly regulatory delays.

The issue recently resulted in the Taiwan Sugar Co. abandoning its plan to build what would have been Canada's biggest hog production operation near Edmonton, Alberta. The Alberta Court of Appeal overturned approvals earlier granted to the company by the County of Flagstaff, cite of two of the proposed five locations.

A well-organized and financed local opposition group carried the case to appeal incurring C$100,000 in legal fees. The operation would have represented an investment of C$41 million with capacity for 80,000 sows, which reportedly would have been Canada’s largest single hog production facility.

To view the PDF report and tables (ideal for printing) Click Here (new browser)

Brazil - Commodity Outlook, Pork

Production

Pork production increased by a surprising rate of 15 percent in 2002 and reached 2.5 million metric tons, in response to exceptional performance of the export sector and firm domestic demand for processed pork products. However, the increase in production was followed by a period of high feed costs, because of higher corn prices, and relatively low producer prices.

Although pork production continues to expand in the center-west regions of the country, most of the increase in pork production in 2002 originated from the three southern states of Brazil, where the largest pork packers and exporters are located. According to our trade sources, these states accounted for 60 percent of Brazil’s pork production in 2002.

Post also revised the outlook for pork production in 2003. Pork production is expected to increase this year, but at moderate rates. However, pork producers also may cut production in 2003 if there is a drop in the second corn crop and if packers fail to meet their export goals.

Trade

Although final data is not yet available, our trade sources indicated that pork exports increased by 75 percent in 2002 to 454,000 metric tons, or 590,000 mt in carcass weight equivalent (CWE). This is an-all time record in exports, and results from two factors: a) a significant devaluation of the Brazilian currency last year of approximately 53 percent; and, b) significant increase in pork exports to Russia (363,394 metric tons, or 472,412 mt - CWE). The total export value increased by 34 percent to US$482 million, but the average export price was down by 25 percent to US$1,012 per metric ton.

Russia accounted for 80 percent of Brazil’s pork exports in 2002. The high concentration of pork exports to Russia is a major concern to Brazilian producers. Russian officials have established an import quota for Brazil of 450,000 MT with a 15 percent import duty (beyond this volume, duties would increase to 80 percent). Also, Russian officials have not yet suspended their embargo of pork from the state of Santa Catarina imposed last year due to the outbreak of "Aujeszky" disease.

According to trade sources, more than 80,000 animals have been killed due to this disease, which is prevalent in some counties of Santa Catarina. Brazilian officials are expecting a Russian Veterinarian Team to visit Brazil in February or March to investigate the situation in Santa Catarina. Brazilian pork exporters also expect to discuss the Russian meat import quota issue during the visit.

Hong Kong and Argentina were the two largest markets for Brazilian pork, despite reduced imports from Brazil in 2002. This has prompted Brazilian pork exporters to look for new markets, such as Japan, the European Union, China, and South Africa.

Policy

The swine sector (producers and packers) have requested from the Brazilian government the following policy initiatives to improve the "financial" situation of hog producers due to over production, lower prices, and higher feed costs:

  1. intervene as a moderator in the sector with the goal of adjusting supply and demand;
  2. control stocks and supply of corn, including suspension of corn exports in 2003;
  3. allocate more subsidized rural credit for hog producers to finance their production costs;
  4. increase funds to the animal health sector to maintain the current "sanitary" status as free of major diseases;
  5. negotiate with the Russian government to open the market for pork from Santa Catarina;
  6. allocate funds to support the industry market promotion efforts to increase the domestic consumption of fresh pork, since 80 percent of domestic consumption of pork in Brazil is made of processed products; and,
  7. to continue to support the market promotion program for pork in export markets.
To view the PDF report and tables (ideal for printing) Click Here (new browser)

List of Articles in this series

Pork Industry Overview, March 2003: Russian Federation
Pork Industry Overview, February 2003: Canada and Brazil
Pork Industry Overview, February 2003: Korea, Hong Kong, Japan and China
Pork Industry Overview, February 2003: Netherlands and Poland
Pork Industry Overview, February 2003: Australia
Pork Industry Overview, February 2003: European Union

Source: USDA, FAS - International Agricultural Trade Report - February 2003