PORKING OUT
Who stands to win and who's getting creamed in the Hog Crisis

HighGrader Magazine January/February 1999
by Brit Griffin
You'd need more guts than Gainer's to go into the hog farming business these days. As the year ended, Canada was losing an estimated 3-4% of its hog farmers each month. American farmers were throwing up roadblocks to stem the flow of Canadian wheat and hogs over the border. They blamed Canuck farmers for the massive liquidation facing US farmers as the price of hogs plummeted to record lows.
What a change from months earlier when swine experts were more than upbeat. Government, exporters, and market analysts saw nothing but blue skies for hog markets. They were encouraging, even pressuring, farmers to expand. After all, the processors were giddy with growth and the Asian market was the new shangri-la for pork exports. By fall it was all gloom and doom. The media glutted itself on hard luck stories and the government promised aid. Meanwhile, the packers were making a killing.
Yankee Style
When Michael McCain barged into the meat processing business in 1995, he was talking big. McCain (of East Coast McCain family fame) had just bought Maple Leaf Foods, now the largest food processing company in Canada. But it wasn't big enough for Michael McCain. He wanted bigger plants and more hogs. The only thing he seemed to want less of was wages for his workers (see box).
In December of 1997 Maple Leaf unveiled plans to build a world class facility in Brandon, Manitoba that would be up and running by the summer 1999. Maple Leaf snagged $8.5 million in government support with their promise to process over 45,000 hogs per week. McCain promised to unilaterally raise the hog prices for Manitoba farmers to ensure "an adequate return" once the plant was up and running.
In March of 1998, as American hog prices were already netting all time low prices, Maple Leaf announced a $30 million expansion at its Burlington, Ontario plant. In April it announced plans to convert a beef plant in Lethbridge, Alberta to a hog processing plant for niche markets in Japan.
As well, Schneider's Ltd. in Manitoba built a brand new $40 million plant that would virtually double the province's slaughter potential with an annual capacity of 2.4 million. Combined with the Maple Leaf facility in Brandon, the provincial slaughter capacity for the new mega plants would skyrocket from current levels of around 2.5 million to 4.8 million. The future looked rosy.
Then the bottom fell out and the packers who pushed for the expansion haven't seemed to have suffered the loss. Maple Leaf's 1998 third quarter results, for instance, were very good. Taking losses in some areas, Maple Leaf's overall earnings were, in fact, boosted by their meat products group. Sales were down but operating earnings for the third quarter `increased substantially' over the second quarter.
Compare this to hog farmers who were losing as much as $1000 a day. The losses were made worse by the expansion they had undertaken in the previous months.
"A lot of people expanded their hog operations to keep up with what was a real demand in Asia, " explains Jack Wilkinson, President of the Canadian Federation of Agriculture, "I mean, there wasn't enough pork to go around nine months ago. Some farmers made huge investments. But now, all the analysts on the stock side of things, who insisted that this was just going to keep growing and growing, are nowhere to be found now."
What happened to those markets? There is a dog's breakfast of explanations. Some blame an outbreak of swine flu that cut into EU exports to Russia, others contend that it was increased domestic hog production in countries like China, while others insist that economic hard times caused Russians to lose their appetite for hot dogs. And then of course, there is the great catch-all cause of the late `90's the Asian economic crisis.
At the end of the day, though, the export market, which account for some 40% of hog sales, was slower but hardly disastrous. It may have taken some substantial setbacks in places like Korea but it gained in other countries. Exports to the United States, our main market, remained fairly steady.

Farm Crisis Round Two
To Allan Wilford, veteran of the Farmer's Survival movement of the 1980s, all of the troubles afflicting today's hog farmers are depressingly familiar. The same thing, he says, happened to wheat farmers in the 1980s. Wilford maintains that farmers will always lose if they tie their future to export markets. Export markets are actively pushed by the Federal Government because the foreign exchange helps increase their GDP.
"And that's fine, " says Wilford, "for those who benefit from exports, I mean the bankers make some money on the exchange rate. And all the buyers, sellers and traders, export is good for them. But the farmers don't need export, we just need to be paid for what we produce. The need to export is a Federal issue and has nothing to do with the local farmer."
Playing hunches on export markets can bring financial chaos to the farmer with fixed costs and hogs in the barn. To a certain extent farmers took a hit in foreign markets. But it remains to be seen whether there really are too many pigs.
Some industry observers point to the glut of hogs on the American market, saying that the Canadian market is simply being dragged down by market prices set in America's corn belt.
According to the National Pork Producer Council (NPPC) in Iowa, however, the problem isn't an excess of hogs. After all, demand is up 7% or 8% over last year. The problem, they say, is a shortage of slaughter capacity.
Maple Leaf agrees. Recently the company stated that all the demand creation in the world wouldn't solve the current hog problem. They say the problem is a growing bottleneck at the processing plant gates the same plants that only a year ago were wringing their hands that they didn't have enough pigs. How can this be?
Industry observers point to the closure of some plants down in the United States. As well, the expansion of the Canadian plants has had setbacks. After settling a strike at its Burlington plant last March, Maple Leaf announced (in the Meat Industry News) that it would be quickly adding another shift. That never happened.
As well, their Brandon plant isn't finished. But even as hogs backlog at a staggering rate, the Schneider's plant in Manitoba is not operating at full capacity.
Yet despite this seeming lack of kill space, Michael McCain has offered to kill any hogs that desperate farmers are willing to unload to charities.

Brewster Kneen, author of Land to Mouth: Understanding the Food System, is a long-time observer of the food industry. Kneen suggests that the real culprit may be the consolidation that is occurring, with bigger plants pushing out the many small operators.
"Nobody is saying, hey, wait a minute, why are prices down? Well, look at the concentration of processing and buying, why the hell should the buyers pay more? They are in a position to drive the farmer's prices down and hold them down. And the farmers have no bloody choice if they are going to play the game of supplying these companies. You can't supply it at that price, then the company will get it from Thailand, or where ever. That's globalization."
Kneen claims that the pressure on farmers to expand might not have much to do with the promise of growing markets. "Who was pushing hogs? The banks for one thing, just like they did with grain back in the 80s. The banks encourage the farmers to expand because they are looking for a high return. If you want to borrow $50,000 for a small hog barn, well, the banks can't help you, but if you want $5 million, well, that isn't a problem. So you sucker people into over-production."
Allan Wilford has seen first hand the effects of over-expansion on the farming community. "We witnessed, in this part of Ontario (Grey-Bruce County), a program by the packers and feed companies that they would provide interest free loans for ten years to build a hog barn and they would take the hogs on contract. All it did was soak up the farmer's equity, his sweat equity, in building these operations. Now when it collapses, either through bankruptcy or forced sales, somebody else is going to pick up a barn that the original farmer probably spent a half a million on for $100,000. They then have lower costs of production."
Wilford says then the farmer down the road who has managed to hang on through the crisis will then be faced with cheaper competition from these operations bought in bankruptcy fire-sales.
It should come as no surprise that the number of small and medium size farms are the ones going under. And they are disappearing at a staggering rate. In Alberta, over the last 20 years, the number of hog farmers has declined from 26,000 to 3,400. In the early nineties alone the province lost over 650 of its hog farmers. At the same time, the number of hogs produced doubled.
In Ontario, the number of producers plummet from 94,000 farmers 50 years ago to around 6,000. Yet there are one million more pigs being produced today. And the price of pork is less (in today's dollars) than it was half a century ago.
South of the border the situation is even more extreme. A Time Magazine (March, 96) examination of the hog industry claimed that the U.S. has lost 250,000 hog producers since 1981. Huge porkopolies (factory farms) are emerging that can raise up to 450,000 hogs a year (an average Canadian hog farm has 300 - 600 hogs). Some American counties are trying to ban these mega-farms because of the accompanying environmental risks. But the economies of scale have been forcing smaller farmers out and driving down the price for hogs.
Maybe this is good news for the consumer (although pork prices haven't noticeably dropped at the store level) but Jack Wilkinson of the CFA is frustrated. "We are so damned efficient in producing that the margins get driven down, down, down. In 1974 farm income was $5 billion. In 1997 it was $ 1.8 million."
Yet farmers today are feeding more people and food costs have not increased to keep up with farmer's costs.
Says Wilkinson, "You have to pay for this food somewhere along the line."

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