2006

Introduction

The success of the industry is based on quality, efficiency, productivity and entrepreneurship. This success is manifested by the fact that Canada is a world leader in pork exports.

This paper outlines some of the key variables that have led to Canada’s success in domestic and export markets. The paper examines the trends in the industry with particular emphasis on structure. The paper also identifies some of the challenges and threats that the industry is facing. The purpose of the paper is to examine and analyze those challenges in order to help the industry to move forward and address those challenges.

Canada Pork Industry Success Indicators

There are many ways to measure success but one of them is growth. If an industry is growing over an extended period of time, it is usually a sign that other factors such as profits, productivity and quality are on the right track as well. In that regard, it is of note that in the ten years since 1995, the Canadian sow herd has grown by over 40%. At the same time, the US sow herd has been steady to slightly smaller. From 1995 through 2004, Canadian hog slaughter increased by 45% while US slaughter increased by just 7%.

With that noted, Canada is still a very small, although growing pork producer by world standards. According to the USDA’s Foreign Agricultural Service, in 2000, Canada represented just 2% of total world pork production. By 2004, that world share had grown very slightly to just 2.1%. While the country is very small in terms of production, Canada is the largest single exporting nation in the world. In 2000, Canadian pork exports comprised a 21% share of total world pork exports. By 2004, the Canadian export share had grown to 22% of a growing world pork export market.

Structural Developments: Hog Production

In all sectors of agriculture, and in fact in most industries in general, there are fewer and larger firms dominating the industry. The hog and pork industry is no exception. Based on Census of Agriculture data, and extrapolating data from Statistics Canada’s Livestock and Animal Product section, between 1996 and 2005 the number of operations with hogs declined by nearly 40%.

During the same time, the average size of operation has more than doubled. On the prairies, the average hog farm size increased by over one and a half times. Furthermore, the very largest sized operations are gaining increasing share of the total herd. According to the Successful Farming ranking of top operations in Canada, the largest eight firms in Canada hold about 23% of the total sow inventory. That share would have been approximately 15-20% in the mid-1990’s.

Pork Packing

Structural change in the pork packing industry can be measured by looking at industry capacity as well as plant and firm numbers. Slaughter capacity in the red meat industry is typically defined as the maximum volume that the industry can process over a specific period of time. Within that context it can be very difficult to quantify this maximum number with certainty.

Capacity can be subject to change based on a variety of factors such as cooler space or regulatory changes. Capacity is even more difficult to state with certainty in Canada than in the United States. This is due to the fact that so few Canadian plants operate on a double shift or on Saturdays on a regular basis in comparison to their US counterparts. Therefore the Canadian capacity number can be even more fluid or subject to change.

Furthermore, there is the challenge of how to measure slaughter capacity for an industry. One method is to simply canvass the firms themselves and ask each plant manager for the capacity estimate and then tally the total. Another is to track the largest or maximum kill levels over a specified period of time. With those challenges and qualifications in mind, the following graph shows estimated Canadian weekly hog slaughter capacity based on the maximum weekly slaughter in a given year.

Based on utilizing the largest kill per week method, it is estimated that in 2003, Canadian slaughter capacity reached over 490,000 head per week. This capacity rate compares to just 340,000 head in 1995, which represents an increase of over 45% over ten years. In contrast, US total US slaughter capacity has grown by less than 3% over the same time frame1. Canadian hog slaughter did not reach the 490,000 level during 2004. That is because of production slowdowns at Springhill Farms, a mid-sized Manitoba operation, and the closure of a small plant in Ontario during the summer of 2003.

Nevertheless, this capacity is available, and as such, overall capacity in 2004 and 2005 should be considered equal to 490,000. For perspective, however, it is of interest to note that Canadian weekly capacity is about 90-100,000 head greater than US daily capacity. Looked at another way, US daily capacity is approximately four times greater than Canadian daily capacity.

According to the Canadian Food Inspection Services, during 2004 there were 44 federally inspected hog slaughter operations. There are only 29 plants that the Canadian Pork Council (CPC) tracked in their tabulations of Canadian hog packer capacity for 2004 (Table 1). The smallest of those 29 plants slaughters 1,000 per week. It is inferred, therefore that the CFIA listed plants not counted by CPC are very small operations. Of those 29 plants listed by CPC, the following is a breakdown of size range:

The average weekly capacity of the 29 plants amounts to approximately 16,000 head per week or 3,200 per day. The five largest plants in Canada have an average weekly capacity of 42,000 head per week or 8,400 per day. In contrast to the Canadian plant size, the largest 29 US plants listed by the National Pork Board2 have an average daily capacity of nearly 13,000 head per day. That is nearly 4 times greater than the largest 29 in Canada. The five largest US plants have a daily capacity of over 21,000 head per day or more than 2.5 times greater than the top five in Canada.

As of mid-2005, 19 independent companies operate the 29 plants noted above. Of the 19 companies, Maple Leaf Foods operates seven plants in each region of the country except Quebec. The next largest firm, Olymel, operates five plants with one in Alberta and four in Quebec. The remaining 17 independent companies in Canada each own single slaughter plants.

Maple Leaf possesses about 31% of Canadian hog slaughter capacity while Olymel controls 34% for a grand total of 65% between the two firms. The remaining 17 companies in the business have 35% of the Canadian capacity. The next largest participant is Quality Meat Packers with one plant in Ontario with a listed capacity of 30,000 head or 7% of the total. Two firms, Breton in Quebec and Springhill in Manitoba are the next largest with less than 20,000 head capacity.

The top four firms in Canada have a combined weekly slaughter capacity of 342,000 (68,000/day) head or 75% of federally inspected capacity. The average daily kill of the top four firms amounts to about 17,000 head per day per firm. As with plant size, company size in Canada also provides an interesting contrast with the US. The top four hog slaughter companies in the US in order of size are: Smithfield, Tyson, Swift and Excel. In the US, the top four firms have a total combined daily capacity of about 267,000 head or 65% of the total daily kill. On average, each of the four firms individually slaughter about 67,000 head per day or nearly 4 times more than the average of the top four Canadian firms.

The packer situation in 2005 is in sharp contrast to the situation of less than ten years ago. During the early to mid-1990’s, in addition to Maple Leaf, Olymel and Quality Meat Packers, there were at least eight other independent market participants that slaughtered hogs across Canada. One implication is that there are now eight fewer firms bidding on hogs. This is often argued as a negative to hog producers. A counter point to that however, is that today hog slaughter capacity is much greater than ten years ago and therefore the remaining firms have a greater need for hogs than the smaller firms of the past.

Further Information

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Source: Paper presented during the 2006 Banff Pork Seminar Procedings