Evidence of meeting #38 for Agriculture and Agri-Food in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was pork.
A recording is available from Parliament.
3:45 p.m.
Conservative
The Chair Conservative Larry Miller
Thank you very much.
We'll now move to the Canadian Pork Council. We have Mr. Moffett and Mr. Preugschas here.
Jurgen, I understand your plane was late, but thanks for joining us.
Please present for 10 minutes or less.
November 5th, 2009 / 3:45 p.m.
Jurgen Preugschas President, Canadian Pork Council
Thank you very much, Larry. I appreciate the opportunity. It was actually a train, not a plane, and it wasn't late. It's just that the schedule was very tight. I do appreciate your putting us at the end of the schedule so I could make the presentation.
You do have PowerPoint slides in front of you. I want to go very quickly through that, particularly the first few pages, just to set the stage a little bit. As I've presented to this committee in the past, you are well aware of some of the shocks our industry has experienced over the last three to five years. For example, there's been the circovirus, the currency fluctuations, the feed costs, the recession, and the U.S. COOL regulations, and then, of course, there is the latest challenge of the H1N1 virus. That has had an absolutely devastating impact on our industry.
If we look back at where the hog industry has gone over the past 20 years, it has actually been a true success story up until the last three. Over the years, we've had increased sow productivity and tremendous export growth, as you've just heard; at one point, we were the largest exporter in the world, and now we're in third or fourth spot. So the export market is still a big part of our industry and probably accounts for some 40,000 jobs in Canada—just the export part alone.
But today the situation is vastly different. We are experiencing the worst economic returns ever in the hog industry. We've also had some market declines. Domestic consumption is at best levels, but is starting to drop a little bit from imports of a lot of cheap U.S. pork being dumped into our market. That's affecting us. In fact, 25% of our consumption right now is U.S. pork being brought cheaply into this country. On top of that, our market of live hogs into the U.S. has been eroded due to the implementation of COOL. So one thing piles on top of the other.
But having said that, our international opportunities have been maintained, as you've just heard from Edouard. Our exports have actually stayed level, whereas the U.S. exports have dropped some 30% year to year. So that does speak well for the product that we produce and how we are recognized around the world.
The next slide shows you where the prices have gone over the past number of years. The blue line there shows you how low we are. These are Ontario prices, but prices are the same across Canada. You heard from Leza that getting $95 or $100 when it costs you $150 or $160 to produce just plainly doesn't cut it.
So we are an industry in transition. We did take a look at where we feel our industry should be. So we put a five-year plan in place and targeted where our industry would be comfortable being—and not losing too many of the jobs so desperately needed in this time of economic recession, when we really don't want to lose a lot more jobs. We have recognized that live hog exports are going to go down; we expect them to go down to about some four million hogs, from the ten million where we were. We expect our exports to stay roughly where they are, at about one million metric tonnes. As for our domestic disappearance, right now only 75% of consumption in Canada is from our own production. We would like that to go back up to about 88% to 90%, or an increase of about 150,000 tonnes in Canadian pork eaten in Canada rather than U.S. pork. This would give us a domestic slaughter of about 21.5 million animals from where we are today, and total production of about 25.5 million hogs.
On the international trade front—and I'll go over this very quickly, because you just had a very good report—the pork trade is going to remain critical for our industry, and certainly government can play a very big role in that to give us that market access. We represent some 20% of the world trade in pork meat, so we're a significant player on that side of the market. So it is absolutely vital to retain export market access, and we certainly have always been pushing for a conclusion to the Doha round of the WTO, but I think most of us have to admit that doesn't look very promising these days.
We do believe that our government needs to concentrate on bilateral agreements, in light of the fact that the WTO is stalled. We have a country like Chile, for example, which is much smaller than we are. They have the most bilateral agreements of any country in the world. Why can't we do that? We need to do that. It is part of the government's responsibility and job to go out there to see to it that we have market access by working with countries such as Chile, which has really helped its access around the world—which we don't have.
A message I do want to leave with you is that we're happy about the deals signed, like the trade agreement with Colombia and the work on a Canada-EU trade agreement—which is critical—and the agreement with Korea has to be pushed ahead and signed, but there are many more. The agreements like the one with Jordan aren't really going to make much of a difference, so we do need to reach ones that have some value to us.
Moving on from that, as you know, we came to the government last spring to talk about how we can transition through this, and in 2008 we got the advance payment program and the cull breeding swine program, which were helpful, but certainly with the continued difficulties, they didn't solve everything. But in 2009 we have the hog industry loan loss reserve program, the hog farm transition program, and the international pork marketing fund. Those are things that we, in a way, asked for, albeit a little bit differently, but those are what the government decided to come out with, together in negotiations with us. And we feel there is some value in each of these programs.
So I want to go very quickly through the key elements of the hog farm transition program.
It is not a buy-out, but a program to assist producers to transition out. It's operating through a tendering process, and so you do a bid process. In fact, we had our first bid session yesterday, which went quite successfully and worked well, and the next one is going to be on the 18th. We feel that it's not an answer to everyone, absolutely, but it is helpful to some producers who plan to transition out.
Then the hog industry loan loss reserve program, unfortunately, has taken three months until we finally now have the banks signing. They still haven't all signed, but I do understand that a number have now signed. The FCC signed on Thursday, and some of the other banks have signed this week, and others will do so today and next week. While that is positive, some of the messaging I'm getting back is a cause for concern, so we do need to stay right on top of that and make sure producers have access to these funds. We may be talking to you again if it isn't working, because it is critical that our producers, in the tight cashflow situations they're in, have the ability to draw these funds to help them out.
In summary, we have a role here. The industry association and the government need to work together and be a little flexible and fluid as we move through in order to make sure these programs work well. Ultimately we accept the fact that the primary responsibility is with our producers. With your assistance, we need to develop a sustainable plan so our industry becomes strong once again into the future.
3:55 p.m.
Conservative
The Chair Conservative Larry Miller
Thank you very much, Jurgen.
We will now move to our last presenters. From the Animal Nutrition Association of Canada, we have Mr. Cooper and Ms. Latrémouille, for 10 minutes or less, please.
3:55 p.m.
Graham Cooper Executive Director, Animal Nutrition Association of Canada
Thank you, Mr. Chairman.
Good afternoon, ladies and gentlemen.
The Animal Nutrition Association, ANAC, is the national trade association of the livestock and poultry feed industry. Our membership comprises about 170 members across the country, including feed manufacturers and distributors, suppliers of feed ingredients, and providers of a wide range of services to the industry. Collectively our members account for 90% of commercial feed manufacturing in Canada.
I don't want to burden you with a whole bunch of statistics, but there are a few key ones I want to put in front of you to give you an idea of some of the scope we're dealing with.
Total Canadian feed production averages just under 30 million tonnes a year. It varies from one year to the next, but is generally between 25 million and 30 million tonnes. Commercial production, which is the membership we represent, makes up approximately two-thirds of this total, with a balance of about 10 million tonnes produced by on-farm facilities.
Hog feed represents a major share of overall production--about 40% nationally. However, the national ratio doesn't give the full picture of the potential impact of ongoing contraction of the hog market. In Alberta and Manitoba, hog feed represents over 60% of total production, while in Ontario and Quebec it is closer to 50%.
At the individual mill level, the impact of the hog industry crisis is potentially much more damaging. Depending on the makeup and size of local livestock herds, it is not uncommon for some manufacturers to rely on hog feed for two-thirds or more of their overall production--and we've heard numbers up to 80%. Of course, at the opposite end of the spectrum relative production volumes for hog feed will be much lower for individual facilities, depending on local demand factors.
Feed represents the largest input cost for hog producers, accounting for up to 75% of the total cost of raising an animal. Traditionally much attention has been focused on the prices paid by livestock producers for their feed supplies. But it's actually the cost of feed ingredients--the input cost to feed manufacturers--that is the principal determinant of feed selling prices. Corn, wheat, barley, soy, and the co-products of processing these grains are the main ingredients used to produce hog feed, along with a number of micro-ingredients--vitamins and trace minerals--that add nutritional value to the feed.
While agricultural commodity prices are typically volatile when viewed over the short term, recent annual averages reported by Agriculture and Agri-Food Canada show a generally stable trend. For example, the price of corn rose by about 7% from 2007 to 2008, but it is forecast by AAFC to decline at a similar rate from 2009 to 2010. The price of soy has shown general stability over decline, as is also the case for wheat and barley.
The key point, however, is that no matter what happens with the price of individual commodities, the feed industry continues to operate on extremely tight margins--typically under 15%. Of course, just the cost of production is taken into account here. Therefore, manufacturers have no choice but to pass cost increases on to their customers when they occur. However, producers will also benefit when commodity prices trend downward. It is worth noting that AAFC's forecast of farm input prices estimates a 1% average annual decline in feed prices over the period from 2008 to 2017.
On the impacts of the hog crisis on the feed industry, there is currently a process of rationalization taking place in the feed industry resulting from a shrinking customer base, reduced livestock inventories, and surplus feed manufacturing capacity across the country. Of course, this applies not only to the hog industry, but to livestock in general. Some economically unviable feed mills have already closed, and others will do so in the near future. Acquisitions and mergers, accompanied by the shutdown of redundant or under-producing facilities, are a fact of life in the feed industry.
As I mentioned previously, hog feed production is a major component of our industry's business. At the individual feed mill level, where hog feed accounts for two-thirds or more of total production for many facilities, the consequences of deep reductions in the herd will be acutely felt by feed manufacturers over the near to medium term. However, our industry is well aware that the effects of the recession, a rising Canadian dollar, the imposition of COOL on hog and pork producers, and the fallout from H1N1--often misnamed “swine flu”--have all combined to create an extraordinarily difficult environment for the hog industry.
Recognizing that the prospects for the feed industry rise and fall with the health of its customers, feed manufacturers are working with hog producers to provide the support they can while the market gradually recovers and the hog industry puts its transition plan in place. A large part of the assistance provided by feed mills involves extended credit terms to hog producers.
Although necessary, often to help keep their customers in business, credit practices being seen today are exposing some feed manufacturers to significant losses. ANAC estimates that under current market conditions, the Canadian commercial feed industry is carrying between $550 million and $730 million in accounts receivable from hog producers. Given the variation in hog feed production volumes from one manufacturer to the next, this credit risk is not borne evenly across the country, so the risk of loss or even failure is creating significant concern for feed mills with higher hog feed production rates.
The question arises whether the financial assistance available to qualifying hog producers under the government's hog industry loan loss reserve program, which we've heard spoken of earlier, and the hog farm transition program will be sufficient to protect feed manufacturers, which to a large extent are sharing with their customers the risks facing the hog sector.
The loan loss reserve program in particular seems to be intended to deal with the type of situation described here. In its August 15, 2009, news release, AAFC stated that “producers with sound business plans will be able to access short-term credit for operating costs such as feed and payroll”.
As the government and financial institutions involved in delivering the program begin the process of evaluating applications, ANAC proposes that they consider the impact of their decisions not only on the hog industry, but also on feed manufacturers, which in the majority of cases will be the largest unsecured creditors.
Those are my comments, Mr. Chairman. I'd be happy to answer any questions that I can.
4:05 p.m.
Conservative
The Chair Conservative Larry Miller
Thank you very much, Mr. Cooper, for staying under the time.
We now move to questions of seven minutes.
Mr. Easter.
4:05 p.m.
Liberal
Wayne Easter Liberal Malpeque, PE
Thank you, Chair; and thank you, everyone, for coming.
I think Leza's words at the beginning spelled out what we already know, that the industry is virtually being destroyed in this country, and the beef industry, who we heard from on Tuesday, isn't far behind. Everything that so many people have worked for is basically going down the tubes.
In November 2007, just two years ago, one of the fellows with the Canadian Pork Council, Curtiss Littlejohn, had this to say when he was here as a witness, and it's in our report of December 2007:
Simply put, prices are collapsing, input costs have increased dramatically, and cash losses are mounting at such astonishing rates that entire communities, including producers and their input suppliers, face financial ruin.
I think Mr. Cooper makes that point. That's where we are. If I were to put it simply, I don't think the hog industry has ever seen a crisis as bad as this, or one that has been so sustained, and never, ever have we had a government do less. Quite honestly, the farm leadership--
4:05 p.m.
Conservative
Pierre Lemieux Conservative Glengarry—Prescott—Russell, ON
On a point of order, Mr. Chair, I would encourage our colleagues to not turn this into a partisan attack festival. We had this happen on H1N1. What we are hearing is that the hog sector is in crisis. What everybody wants to hear is that Parliament is working together, not lobbing grenades at one another.
Mr. Chair, I do encourage my colleagues--
4:05 p.m.
Liberal
Wayne Easter Liberal Malpeque, PE
On a point of order, Mr. Chair, I hope that's not coming out of my time.
4:05 p.m.
Conservative
4:05 p.m.
Liberal
Wayne Easter Liberal Malpeque, PE
Let me re-emphasize the point: never have we seen a government do less. I'll explain why.
I'm also concerned, Jurgen, about the farm leadership being so quiet. You requested $800 million, which I think would have gone much further than the current programs. The current programs could have been in addition to that, but you seem to have backed away from that request.
On these two programs, my concerns are these. On the second program, in which the bid process is in place for people to transition or be out of the industry for three years, it's a process in which people are bidding neighbour against neighbour for who'll get the lowest price and get out of the industry. It's almost inhumane.
I want to talk extensively about the other one, the loan one, or ask you some questions on it. The concern I have there--and this is why I criticize the government--is that the only one gaining on this whole proposal is the government, which gets paid on its APP, while you're left holding more debt. I'm told now that the banks that are coming in are not going to charge prime plus one, but prime plus extensive interest rates, with a government guarantee. That's unacceptable.
In our report in December 2007, we as a total committee made what I think were good recommendations. We asked that the reference margin calculations be changed, we asked that the viability test be eliminated so that the industry could use positive margins, we asked that the annual contribution limit of the AgriInvest program be increased, and we asked that the government look at the whole regulatory regime. That is where our cost structure in Canada, under regulations, is much higher.
Have those recommendations come through from the government in terms of reference margins, viability tests, or annual contributions to the AgriInvest program? Has the government dealt with the regulatory regime, which would make one hell of a difference?
4:10 p.m.
President, Canadian Pork Council
Well, thank you.
When we initially asked for the $30, which amounted to $800 million, as you're very well aware, we lobbied government and opposition members on it, but it became clear very quickly that we weren't getting any support from any members, whether opposition or government. Also, in our discussions with the Americans, it was very clear that there was going to be an immediate launching of a countervailing action, which ultimately would have meant that the $30 a hog would have probably just been transferred straight from the government taxpayers' coffers into the American taxpayers' coffers. That ultimately was not acceptable to any of us. It wasn't acceptable to opposition, and it wasn't acceptable to government. We also understood that just transferring money to the U.S. maybe wasn't in our best interest either.
We therefore took another look at it, and that's when we came up with a system whereby we could at least get the APP loan paid down as well as getting access to another APP under the emergency situation. That's what we had asked for. The government came up with something different. Initially $1 billion was going to be available to hog producers. Unfortunately--and I'm going to be a little bit critical here, certainly of the banks and maybe to a certain degree of our government as well--they negotiated that down so significantly that now there may only be as little as $620 million available to our producers. That is quite disturbing to us. And the APP comes out of that, so in actual fact, the $312 million that comes out in APP money is replaced, and then if it's only $620 million in total--you are right--it is not enough, and it isn't going to do the job that it needs to do. But the banks negotiated down. They pushed hard, and they got it.
Now the question is, as I stated in my initial presentation, whether or not we're even going to be eligible to get these funds. We've been hearing that banks aren't that excited about lending this money to any of the producers. This started only last week with the FCC, on Thursday. I actually put my application in on Monday because I wanted to find out first-hand whether it even worked. I was told some things. I've been talking to other producers who are being told different stories. That is concerning. We need to ensure that this program works. If it doesn't, it needs to be fixed.
As far as the interest rate goes, we were promised by the minister that we would not be penalized for being hog producers. If we are, we'll be coming back to address that issue.
You're absolutely right, we cannot afford to be penalized 3%, 4%, or 5% because we're hog farmers in trouble.
4:10 p.m.
Conservative
The Chair Conservative Larry Miller
Thank you.
Your time has expired, Wayne.
Mr. Bellavance, you have seven minutes.
4:10 p.m.
Bloc
André Bellavance Bloc Richmond—Arthabaska, QC
Thank you, Mr. Chair.
There is no need for you to be nervous about testifying before the committee, Ms. Matheson-Wolters. There is no need to be shy. On the contrary, some of the best testimony given to members of the Standing Committee on Agriculture and Agri-food often comes from people who work in the field, from people with first-hand knowledge of the crisis in the sector. People like yourself are in the best position to relate their experiences to us. I very much appreciated your testimony.
At this time, I would like to share with you the comments of a Quebec farmer regarding the crisis in the pork industry. He had this to say:
We should not delude ourselves into thinking that the new federal plan announced a few weeks ago will rescue hog producers. The plan gives them the option of either going into debt even further or abandoning hog farming altogether, with $75 million in outgoing premiums having been set aside for producers across the country! What a dismal outlook for the future... Over the years, the UPA has consistently been critical of the Canadian Agricultural Income Stabilization Program, now called AgriStability, and its failure to intervene effectively after three years of depressed prices, as evidenced today by the current situation in the pork industry.
He concluded his remarks on the following note:
We would not be in this situation if the federal government had listened to our concerns. How many times has the UPA demanded an AgriFlexibility program worthy of the name and with sufficient funding to cover the cost of our income security programs when the need arises?
These comments were made by Mr. Christian Lacasse, a farmer and the President of the Union des producteurs agricoles du Québec.
It's true that the federal government has announced some measures. No doubt you will hear government officials claim that millions of dollars have been spent on trying to resolve the crisis in the pork industry.
What is clear to me from Mr. Lacasse's comments is that we—and by we I mean the opposition parties as well— have long been calling for a genuine AgriFlexibility program that includes an income support component. In the last budget, the minister announced the AgriFlex proposal which is devoid of an income support component.
I would like to hear what you think about Mr. Lacasse's comments and about how useful a real AgriFlex program would be for producers.
4:15 p.m.
Producer, Seaside Farms
Thank you very much.
I appreciate your comments. It is difficult to sit here, because no one wants to air the dirty laundry of their home front for everybody to see. It is not masked behind policy; it's real, and we live it every day. So thank you very much. I appreciate that from the heart.
It's not that the government has not come up with programs or CPC hasn't worked hard on programs. It's not that I think the $5 million AgriFlex initiative isn't worth it. The problem is that in Atlantic Canada we're not big enough producers for this program to work for us. It may benefit farms that have larger sow numbers and production—I'm not sure of the number—but we're too small. That's the problem.
We had a 500-sow operation and were one of the bigger operations in Prince Edward Island. We've gone down to 350. I've already decreased; I'm already efficient enough. What I need is the APP program to be reinstated for those in severe economic hardship, not standard cases. If I get APP, I don't have to get a first priority agreement with the bank even I were participating in the HILLRP program. For the HILLRP program, $85 a hog for a small producer isn't enough. If I were a larger producer and had $1 million and paid my $400 APP off.... I've had $600 to do three years of paying my mortgage, doing my expenses, and what not over those three years. But I can't do that: it wipes me out. It wipes my genetics out. I think that's a big loss to Canadians and to the Canadian hog industry to have my genetics gone, in my opinion.
I think in respect to Jurgen, I'm tired of the Americans holding a stick over us. Guess what: their stick has turned into a cane. They're at war. They're bullying us. We're tired of being bullied. They never want countervail, and I'm tired of hiding behind what I've heard my whole life--that we can't dump money into the feed program because we're scared of a countervailing duty. We need to decrease our costs.
Then, to decrease my COP, as we heard from Mr. Cooper, we need some subsidy for our feeds. And if we don't have subsidies for our feeds, which keep people employed and all the things Mr. Cooper referred to, then we have to have money—taxpayers' dollars—to subsidize us so we can break even.
It's frustrating, because I see the quality of our meat, I see how hard we work, I see our production, and yet we're being asked to slaughter that production for three years. If you guys lost your job today, could you pay your mortgage for three years? Could you feed your family? No, I can't do it.
Under the current program for Atlantic Canada, and specifically for my farm, I can't do it. If I do that program, I exit; I'm done. I will lose my restaurant, because of my personal guarantee. I will lose the home I've had since we were 23. We worked so hard. I got educated. I will lose everything—everything. This program, I beg you, doesn't work for Atlantic Canadian hog farmers. It doesn't work for me. I'm not saying it's a bad program or that it was negotiated poorly, but it just doesn't work for my farm.
4:20 p.m.
Conservative
The Chair Conservative Larry Miller
Thank you.
Your time has expired, Mr. Bellavance.
Now we have Mr. Atamanenko for seven minutes.
4:20 p.m.
NDP
Alex Atamanenko NDP British Columbia Southern Interior, BC
Thank you, Mr. Chair.
Thank you to all of you for being here.
Madam Matheson-Wolters, I have a question for you. You mentioned that your cost of production is $1.55.
4:20 p.m.
NDP
Alex Atamanenko NDP British Columbia Southern Interior, BC
If all of a sudden you could get the price you needed to make a half-decent living, how much should you be receiving? What would you need to make a go of it?
4:20 p.m.
Producer, Seaside Farms
By simple math, if my COP is $1.55 and I'm getting 95¢, that's a 60¢ loss.
If I have sow production of 340 sows and the farm yields on average 10—though we yield a little more than 10 because of genetics, but let's say that we yield 10—and the cycle of birth on a hog is 2.3, that math times your loss would give you a break-even point.
I shouldn't say that we're not looking to make money. We'd be happy just to be able pay the bills and not stare at the ceiling at night wondering who we're going to pay tomorrow.