Thank you very much, Mr. Chairman. I do appreciate the opportunity.
My name, actually, is quite simple. You put a “P” in front of “righteous” and you have it. I'm not saying I'm righteous.
We would like to thank the committee for asking us to attend again and make a presentation to you to update you on the competitive issues facing pork producers.
The competitiveness of the hog sector has been severely impacted by various shocks that have hit the sector over the past three years. While we remain optimistic about the long-term potential for the Canadian hog sector, it is increasingly difficult to be prepared for and manage the impacts that continue to face our industry. High feed costs, the strong Canadian dollar, low hog prices, the economic crisis, reducing access to credit, and country-of-origin labelling have all conspired to dramatically harm pork producers. And now we have been slammed with negative consumer perceptions around the H1N1 influenza A virus.
While Canadian hog producers are accustomed to managing the normal fluctuation of hog prices, the last three years have offered absolutely no relief. Hog producers no longer have the funds or equity to finance these losses, and we should all be concerned with the survival of our pork industry in Canada.
The fact is that many producers have left hog farming, and this exodus shows no signs of slowing down. The number of farms reporting hogs across the country continues to decline. Since 2006 there are nearly 30% fewer farms reporting hogs to Stats Canada. One of the most pressing obstacles to the future of this sector is the increased debt load producers are now burdened with.
Continued losses over the past few years have eroded any funds or equity within the industry. The increased producers' debt load is to a point at which the industry is going to have difficulty moving forward and competing with other markets. The hog sector recovery from the various shocks will depend on how well the industry and government react to this extraordinary situation. Producers are doing everything they can. Governments now need to act.
The introduction of mandatory country-of-origin labelling in the U.S. has wreaked havoc on a sector already suffering from financial losses. Since 2009, exports of live hogs are down 40% compared with the same period last year. This breaks down as follows: 30% fewer Canadian weaner and feeder hogs going into the U.S. and 65% fewer Canadian market hogs being exported to the U.S. On an annual basis this represents a loss of about $250 million worth of exports. The loss of this market is creating significant structural change in the Canadian hog sector.
COOL is eroding market signals. The market indicated that there was an economic advantage to breeding hogs in Canada and raising, slaughtering, and processing them in the United States. This created the most efficient and profitable production system in North America, and it was competitive with producers around the world. With country-of-origin labelling artificially causing discounted pricing for hogs with Canadian contacts, this system is no longer viable.
Let me be clear on this point. We support the federal government's efforts to address COOL and initiate the WTO challenge. However, COOL is severely damaging the Canadian industry right now, and the pork industry is bearing the brunt of COOL, so many producers will not be able to adjust their business structures.
The outbreak of the H1N1 influenza A virus, unfortunately named “swine flu” in the early days and still accepted broadly, has had a dramatic impact on the market for pork. Hog prices tumbled with the news and many export markets closed their borders. Luckily, Canada's main export markets have remained open.
Let me expand on that just a little bit. Hog/pork sales in Mexico dropped by 80%, virtually wiping out the sale of pork in Mexico, and of course we export a lot of product into Mexico, as does the U.S. Then all of a sudden we're getting a piling up of pork in North America.
However, the uncertainty the virus has created is causing more market disruption. In addition, the discovery of the virus in pigs on a farm in Alberta has made Canada even more vulnerable to trade restrictions and consumer confidence issues. The futures market dropped as much as 17% upon the announcement of H1N1 influenza A. Futures prices for the spring and summer months are still struggling to recover. Historically, these months bring the highest prices for our producers. The likelihood of profitability for hog producers in 2009 has evaporated due to the H1N1 virus.
Canadian hog producers have been responsibly adjusting to market signals as best they can, and that was illustrated by the drop in our hog producer numbers. Our breeding herd numbers have been reducing since the second quarter of 2005 and have had the desired effect of reducing hog production numbers. Producers have also been adapting in many other ways, using every avenue at their disposal to try to remain competitive. They've tightened expenses as tight as they can go.
As we make it through this very difficult time, we know we need to be working in the most efficient system possible, and this will involve the regulatory environment in which we operate. We can no longer afford to be catching up to our competitors. We need to be ahead with the most effective, streamlined, and cost-effective regulatory environment possible. This means having access to the best veterinary products available on a timely basis and ensuring that grains are developed and grown for livestock feeding purposes, ensuring that government policies do not disadvantage livestock production to benefit the production of fuel. Governments have to be committed to providing the most competitive environment possible for production to succeed. As well, our supply chain must work together to create the most efficient production chain in the world, and this work has begun with the pork value chain round table.
But our focus now is really the short term. The hog sector recovery from various shocks will depend on how well the industry and the government react to this extraordinary situation.
Thank you.