Improved Economies of Scale Are Key to Competitive Ability

by 5m Editor
23 January 2008, at 10:22am

CANADA - A senior market analyst with the George Morris Centre suggests improved economies of scale are key to restoring the ability of Canadian pork packing plants to compete with their American counterparts, Bruce Cochrane.

The dramatic increase in the value of the Canadian dollar has impacted the ability of Canadian pork processors to remain competitive resulting in a massive restructuring of the industry.

Kevin Grier, a senior market analyst with the George Morris Centre, told those on hand last week for the Banff Pork Seminar the first factor that comes to mind, particularly in the west, would be labour availability.

Kevin Grier-George Morris Centre

Labour availability is probably the main reason why the Red Deer Olymel plant is not running on a double shift.

It's probably the main reason why packers are not able to add value to their byproducts or to add further value to some of the pork cuts so it's a major issue in terms of asset utilization as well as revenue and market share.

Labour availability is a little better in the east although I think packers across Canada would say that there's a challenge.

But again, as I said it's worse in the west.

I don't think there's too many people that would disagree with that.

In the east, particularly in Quebec, labour rates are out of line with many parts of Canada and in particular out of line with the United States.

Other problems that they're having are simply with regard to cost competitiveness against U.S. packers and the main challenge there appears to be the lack of scale economies.

In other words our packers are relatively small compared to their American counterparts and that cost them money on a per hog basis and that's money that they can't afford and the entire industry can't afford.

Grier suggests Canadian packers are aware of what needs to be done and are doing it. He says one positive is the double shift at the Maple Leaf plant in Brandon which will allow that facility to operate on a scale that is competitive with the United States. That's what has to happen in Canada and thankfully it is happening.

5m Editor