With Canada now the second-largest exporter of pork in the world, the question of how the Canadian pork industry can capitalize on new opportunities has become a timely discussion. Key to that discussion is how to develop a system which both supports a sustainable supply chain and fits within Canada’s corporate culture.

A veteran consultant, who has worked with several major pork industry projects, recommends that most Canadian of approaches: picking and choosing from the ideas of competitors. “There is much to be learned from what other leading exporters of pork have done to seize opportunities and sustain their industries,” says Jerry Bouma of Edmonton-based Toma & Bouma Management Consultants.

“The U.S. integrated model seeks to maximize efficiency by placing decision-making among a few key players. The European co-operative model has an advantage in managing environmental risk and distributing margins across the entire supply chain. The collaborative model, which has found success in France and the United Kingdom, combines features of both.”

The question is which of these, if any, is appropriate for the Canadian pork industry. Each has a philosophy rooted in the culture in which it has had the most success and there’s no guarantee that they will work in Canada. Even if one proves successful, the industry should always be ready to adapt to changing realities. “History reveals that the very factors which enable growth can also be the same ones that eventually cause the system’s downfall,” says Bouma. “The same advantages which caused an industry, a country or even a civilization to change and grow can cause it to falter without the ability to adapt.”

Whichever model Canada’s pork industry chooses, the “sustainability agenda” will be a driving force behind it, with success most likely coming about through a progressive approach to sustainability Bouma calls “the triple bottom-line.” “There will be a need for more than single-dimension sustainability; sustainability must encompass the environment, the economy and human resources — a broad field of social sustainability.”

Not if we expand, but how Although Canada is the second-largest exporter of pork in the world (the U.S. recently eclipsed it as the largest), in some areas the Canadian pork industry is far behind competing countries. “Look at hog density, for example,” says Bouma. “The Netherlands have 38 times the density of hogs per square kilometre than Alberta. Denmark has 30 times more density, while there are two counties in North Carolina which are 183 times greater.

“There is definitely room for the pork industry to grow in Canada. It’s not a matter of ‘if’ we can expand, but ‘how.’ That’s why we need to look at the strategies which have promoted industry growth in other countries.”

Models of success

Three models of pork production and marketing have captured the industry’s attention in recent years: the vertically-integrated model, the co-operative model and the emerging collaborative model.

All three of these systems reflect the culture from which they originated. The challenge for Canada, says Bouma, is to find the one, or a combination of all three, which best suits the temperament of the Canadian pork industry.

The vertically-integrated model

The U.S. pork industry is currently the world’s leading exporter of pork. Key to this has been its success with a vertically-integrated system which puts decision-making in a small number of hands and emphasizes efficiency.

“This model is centred on concentrated ownership,” says Bouma. “In the U.S., four corporations account for 65 percent of the total hog slaughter capacity, 30 corporations represent 50 percent of the total production and a handful of processors own and control 25 percent of production. The result: large quantities of pork of similar quality and based on a definitive genetic and production system.”

Vertically Integrated Model

• Concentrated ownership
• Tremendous efficiencies
• Allows quick response to crisis
• Depends on political benevolence

This system drives tremendous efficiencies which are echoed throughout the entire value chain, says Bouma, enhancing the industry’s ability to make sizable input purchases, attract investment, and offer opportunities for employee advancement and training.

“This model is all about capturing the entire range of profits throughout the supply chain. In Canada, we often find producers fighting the processors for the profit margin.” Because of its focused management structure, the verticallyintegrated model allows the industry to respond quickly to crisis and exert political influence. “The growth of the U.S. pork industry has relied, to a great extent, on political benevolence,” says Bouma.

“But as the economic and political conditions which favoured this model change, the industry may face some serious challenges. Their biggest strength may become their greatest weakness.”

The co-operative model

The co-operative model is, in many ways, the opposite of the vertically-integrated system. While a relatively small number of stakeholders collect the value in an integrated system, the co-operative model strives to share profits with a large number of participants. And just as the integrated model echoes a distinctly American economic sensibility, the co-operative model is deeply embedded in the culture of several European countries.

Co-operatives have their roots in the geographical and historical realities of countries such as Denmark and Holland, says Bouma. “At the beginning of the feudalism era, when landowners from countries across Europe were seeking prime land, Holland realized it didn’t have enough good land to compete in that market.

Co-operative Model

• Shares profits with large number of participants
• Offer uniformity of purpose
• Work well in single-product markets
• Have trouble attracting investment capital

“This caused individual landowners to group together and find solutions in the best interests of everyone involved. It’s an ethos which has had a huge impact on how they’ve approached business ever since.”

Athough co-operatives offer uniformity of purpose and generally work well in single-product markets, Bouma says cooperatives have limited perspective in a fast-moving, dynamic marketplace. “As a result, they have difficulty attracting investment capital. That’s the reason why many co-operatives are switching to more corporate structures.”

The emerging collaborative model

The collaborative model is a “greatest hits” package which takes elements of both the integrated and co-operative systems. Most prevalent in the UK and France, the collaborative model involves the strategic collaboration of organizations to meet market objectives which benefit all stakeholders. Although independent from each other, the organizations share the same vision, objectives and quality standards.

Not surprisingly, the collaborative model meets the needs of a marketplace wanting a window into the food production process. The ability of companies to share a common goal, find solutions to problems and understand each other’s costs aids transparency. “But let there be no mistake — the challenges of this system are considerable and manifold, particularly when translated into our own culture,” says Bouma.

“First, North Americans operate in a predominately commodity culture where optimizing one’s own situation is the prevailing ethos. We have a long way to go from maximizing the values of our own operations to maximizing the value of a chain, which requires a great deal of agreement among everyone involved.” “Secondly, we have a history of confrontation between producers and processors which limits the model’s potential.

Canadian pork producers typically do not have a lot of power where it comes to pricing; that power usually lies with the buyers and processors and there’s not a lot to offset that.” That doesn’t mean a greater degree of collaboration is not a worthy goal. “We need to get out of the same-old, same-old. Let’s look at how we can create more value, distribute that value more evenly and create price discovery mechanisms which reflect where that value is being created.”

Collaborative Model

• Borrows elements from both integrated and co-operative models
• Involves the strategic collaboration of independent organizations to meet common objectives
• Very transparent system
• Requires substantial co-operation

Sustainability the key

If growth is predicated on conditions, what are those conditions and what drives them? “The first and foremost driver is sustainability. This agenda will be huge and will involve multidimensional sustainability encompassing the environment, communities, business, and human resources. Political platforms will likely spring up around these issues and the result will be a ‘triple bottom line’ comprising environmental, economic and human resource sustainability.”

The food market is also becoming an increasingly qualitydriven one, with consumers making decisions based on “soft” attributes, says Bouma. “This provides an opportunity for the pork industry to expand and build on unique strengths such as quality assurance.

“We need to recognize the value we bring to this country. We need to link to consumers, understand what they want and build new value based on that customer focus. We also need to develop price discovery methods that aren’t based on cash price alone,” he says. “Let’s dream a little together and see how we can develop these new methods.”

August 2006