In 2004, the United States knocked Canada off its spot as the top exporter of pork in the world. Three years later, as the U.S. continues to hold on to that position and gains steam as a competitive force, a reasonable question is what is causing the Western Canadian pork industry to fall behind?

Jerry Bouma

“The Western Canadian pork industry has been strongly competitive in most areas,” says Jerry Bouma, an analyst with many years experience in tracking pork industry trends. “It’s an industry backed by a quality product in an era of spectacular growth. It’s one that has benefited from a productive genetic base, competitive feed grain prices and favourable exchange rates.

“But the fact remains that, despite its advantages, the Canadian pork industry is not keeping up with the U.S. in terms of the bottom line. It’s falling behind in key areas which, if left unchecked, could threaten Canada’s competitiveness.”

Bouma says the Western Canadian pork industry should focus on three key areas in order to address gaps in its ability to compete: new options for processing capacity, new and more efficient feed grain solutions, and a rethinking of the pork value chain. Most important, however, is the ability and willingness to adapt.

“The factors that can cause an industry to grow are the same ones that will cause it to falter if it does not adapt to new conditions,” says Bouma. “And in the case of today’s pork industry, that means the ability to step back, take a fresh look at the industry and develop new strategies for growth.”

Processing vulnerable

Processing is the most vulnerable player in the Canadian pork industry today, says Bouma, with the U.S. holding a significant advantage in terms of capacity and labour intensity.

Comparing the productivity of the top U.S. and Canadian processors highlights this gap. Today, the U.S.’s largest 29 plants process 21,000 hogs per day while Canada’s largest 29 produce an average of 3,200 hogs per day. The result? U.S. producers put an estimated six to 10 more dollars in their wallets per hog sold compared to their Canadian counterparts.

Bouma points out that a significant barrier to industry competitiveness is the continuing challenge Canadian plants face in trying to reach capacity even as U.S. plants double-shift. “The plant closures at Maple Leaf and the cancellation of shifts at Olymel suggest this problem is going to grow worse before it gets better,” he says.

The industry needs to take a look at creating a collaborative system throughout the pork value chain to tackle this processing gap, says Bouma. “Can we work towards an industry model that gives us a true partnership between producers and processors in which resources and benefits are shared? Can we take the best of the U.S.’s integrated model and the more collaborative-oriented models we see in Europe today?

“We need to give producers a sense of ownership when it comes to long term strategy. It does not necessarily have to be a financial partnership, but a fairer, more equitable and balanced system for everyone involved.”

Feed grain options limited

The Prairie hog industry was built on a feed grain advantage that has been lost over time, says Bouma. That’s due in part to a regulatory environment in Canada built around kernel visual distinguishability (KVD) and what many believe is a focus on malting barley variety development at the expense of feed barley development. This has resulted in a lack of competitiveness at the feed grain level.

This is clearly shown when Prairie barley yields are compared to steadily increasing Midwest U.S. corn yields. Over a 20 year period starting in 1985, the per-acre yield of Iowa corn nearly doubled while Alberta barley yield showed little growth over the same time frame. Meanwhile, the cost of production of Alberta barley has been steadily rising since 1999 compared to the cost of production of Iowa corn.

“This means Alberta pork producers’ costs are going up relative to those of Midwest U.S. pork producers, with competitors to the south getting an estimated six to 10 dollar feed cost advantage in the process.”

The only solution, says Bouma, is to identify and develop more cost effective feed and feeding solutions. “However, in order to do that we need a more progressive business environment to stimulate the crop breeding opportunities that can give the Canadian livestock industry the quantity and quality of feed grains it needs to remain competitive.”

Searching for added value

Taken together, these feed and processing factors give the U.S. a $15 to $30 per pig price advantage. And that’s before considering other U.S. advantages such as favourable exchange rates, leading edge management systems, a highly integrated business structure and a highly productive genetic base.

There are a few things the Alberta pork industry can do to close this gap, however. The first, says Bouma, is finding a homegrown value chain model that borrows from the U.S. integrated approach and the European collaborative model. The second is the development of better marketing tools in order to anticipate what consumers want.

“Look at the communications and electronics industry. Why do you think they’re so successful when coming out with new products? They anticipate what their marketplace wants. We also need to learn to anticipate what our customers want and then have the means to market it to them.”

Finally, says Bouma, the industry should take a fresh new look at how it adds value to its product. This will mean keeping an open mind to new, solution-driven ideas such as producing bio-fuel from manure with hogs as a by-product.

“Many people see the pork industry as a problem. What the industry needs to do is change that image into one where we’re part of the solution. We should literally be in the solution business.”

April 2007