Targeted Advance Payment Fails to Meet the Needs of Prairie Pork Producers

by 5m Editor
4 February 2008, at 11:05am

CANADA - Canadian swine producers are calling for further adjustments to Canada’s agricultural safety net programs after the latest efforts by the federal government deliver help fell far short of expectations.

Canadian swine producers are facing what many consider to be the worst economic crisis ever to hit their industry. The situation is the result of a combination of high feed costs driven by U.S. and Canadian government policies which promote expanded grain based ethanol production, record U.S. slaughter numbers which have driven down hog prices and a strong Canadian dollar which has further eroded profitability in the Canadian livestock sector.

“If we do a quick walk around the world,” explains Canadian Pork Council President Clare Schlegel, “I think it’s fair to say that most of the rest of us are paying for the weak U.S. dollar. In terms of the strengthening Canadian dollar, this is something that’s also true of our European colleagues, and our Australian colleagues and perhaps to a lesser extent our Brazilian colleagues.”

Pork and Beef Producers Call for Help

Last November livestock producers appealed to the federal and provincial governments for a loan program to help them cover costs and pay bills until markets turn around and for changes to the Canadian Agricultural Income Stabilization program (CAIS) to make it more responsive to their needs.

“When we joined forces with the cattle feeders in November, both sectors were really experiencing a very similar kind of financial distress and for the same reasons,” recalls Saskatchewan Pork Development Board general manager Neil Ketilson.

Hog prices are still low and feed costs have crept even higher. Ketilson estimates pork producers are losing, on average, anywhere from $40 to $60 a head right now, an extremely significant loss when considering that normal profit margins range from $10 to $20 per hog.

New Federal Provincial Program Attempts to Address Difficulties

Although Ottawa rejected the request for a federal loan program, changes were made to CAIS in an effort to get money into producers hands more quickly.

AgriStability, a federal-provincial program launched for 2007, was designed as part of a new suite of Business Risk Management programs to replace CAIS. The new program was intended to include a more responsive inventory valuation, enhanced negative margin coverage, and a new Targeted Advance Payment (TAP). Under the Targeted Advance Payment producers were eligible to receive 60 percent of their 2007 CAIS payment up front.

Levels of Support Increasingly Disappointing

When the program was originally considered in December Saskatchewan pork producers expected to receive about 18 million dollars, Ketilson recalls. “In January, when the program was officially announced, there had apparently been an error within CAIS. When the numbers were re-jigged the estimate dropped to about $7 million for the industry and producers were told to expect letters indicating how much money they would receive.”

“Those letters began arriving late last week but within days producers who had been told they would be receiving payments were informed there had been another error and payouts would be less than indicated. Of the 116 producers that received letters in Saskatchewan 26 percent have found out they will be receiving zero and the majority significantly less than was originally planned for.”

Hollow Promises Add to Frustration

Allen Kilback, who operates a 1200 sow farrow to finish breeding stock farm near Balgonie, Saskatchewan, says, when it started off, TAP looked promising but that changed quickly.

“We’ve got a letter from January 11 stating that they were going to pay 60 percent out under that program which for our particular farm was substantial. It really put some comfort into our lives.”

However, within days of receiving the letter Kilback was informed of the error and was told his payout would be zero.

“It seems obvious to us that the CAIS program, the way it works in terms of its lags, in terms of payments, in terms of its total inability to meet the cash needs of the industry, isn’t going to work for us,” says Ketilson.

“We’re continually told by the CAIS administration that the program will fix the industry or help it out. We don’t believe it for a second and I’m sure they’re coming to the realization themselves that there’s far greater hurt than what they had thought.”

CAIS Fails to Help Diversified Operations

Manitoba Pork Council Chairman Karl Kynoch observes the CAIS program has been particularly ineffective for diversified farmers and he blames its design.

“How they arrive at their reference margin is they take the past five years, exclude the low year and the high year, they average the other three and then they try to bring you back to 90 percent of your reference margin,” he explains.

“What’s happened to a lot of our diversified producers is it’s just been a race to the bottom. Over the past few years, where grain has had low margins and been very poor, it’s pulled their reference margins down. Now we’ve got the opposite scenario. We’re into a real crunch in the livestock industry and producers don’t have margins there to be able to actually receive any funds on it.”

Short Term Loans Offer Some Hope in Saskatchewan

One bright light in Saskatchewan is the short term hog loan being offered by the province.

“We really appreciate the short term hog loan that the provincial government gave to us,” says Ketilson.

“It’s a significant help to our producers. That program will expire in April, but it will certainly get people through the winter period. We understand from producers in the province that it is really the lifeline that has helped a lot of them through.”

Manitoba Pork Council has requested a similar program to help Manitoba producers weather the storm until live hog prices rebound. “Were really sitting here right now hoping to see an announcement come out of government very shortly,” says Kynoch.

Timing Becomes Critical

Meanwhile talks with Ottawa aimed at changing CAIS to address some of the concerns continue.

“As you know when working with government on this type of thing, it’s very slow to get these changes made. One of the problems is that time is of the essence right now. By the time changes happens we will have lost a large number of our producers.”

Ketilson believes it’s time for a shake-up within the CAIS program. “Surely the people that are managing that operation should be able to get a program that meets the needs of the industry. I’m sure if you talk to a lot of people in the agriculture sector, they’re not convinced of that. We’re going to be asking our provincial government to bring that program and the administration of it back to Saskatchewan. Hopefully we can get a program that’s administered correctly, timely, accurately and is a transparent one.”

Longer Term Outlook Appears Brighter

Despite the challenges Schlegel remains optimistic. “It’s fair to say that Canada has the infrastructure, we have the wide open spaces, we have the water, we have good producers, we have exceptional animal health and we should be able to be successful. It’s this major current challenge in an integrated market place where it’s clear that the U.S. reality does have an immediate effect on us. It sets our pig price and it frankly sets our feed prices as well.”

Kynoch agrees, “We’re in a financial crisis right now in the hog industry and in any of the livestock sectors but, to producers, I would say if you can hang in there times should be pretty good in the future.”

Schlegel acknowledges, in the short term up until summertime, it looks like prices are going to continue to be significantly below costs, but longer term he’s convinced there will be some good news at the end of the rainbow.

“There’s significant liquidation that started not only in Canada but in the U.S., Europe, Australia and other places around the world. And thus I think we can have faith in supply and demand and that long term it will work out. We do believe just as it happened in China, just as it’s happening various other places, such as in the grain market, that there’s probably going to be a massive spike and a big price increase.”

5m Editor