Just when we thought it was safe to peek out from behind our favorite politician's banner — bam! — we're hit with opposing arguments about the Canadian anti-dumping controversy.
As I write this, telephone calls, news releases and e-mails from both sides are pouring in.
At issue is the U.S. Department of Commerce's (DOC) preliminary decision to levy a 14% tariff on all live hogs from Canada. The 14% figure reflects the difference in price between the two countries. If a hog that sells for $114 in Canada sells for $100 in the U.S., the difference between them becomes the “dumping” margin between the two markets.
Mary Staley, attorney for the National Pork Producers Council (NPPC) explains: “There are many ways for Canadian producers to minimize their dumping margins. Our view has been that if the Canadian government were to eliminate the subsidies, then this dumping case would not be necessary, because then you would have a free and open market. At that point, we believe prices would reach an equilibrium between the two markets.
“Just so everyone's clear — the dumping duties that were calculated are not about simply selling below cost. They are the price-to-price comparison between the two markets,” she adds.
Then the Pork Trade Action Coalition (PTAC) introduced the “Don't Tax Our Pigs!” advertising campaign in the Des Moines Register, signed by 77 Iowa farmers.
The PTAC ad explains how U.S. farmers rely on 10-lb. weanling pigs or 50-lb. feeder pigs from Canada to support their finishing operations. Iowa farmers bought over half of the five million Canadian pigs imported for finishing in the U.S. in 2003.
The NPPC-PTAC bickering is sounding like the presidential campaign.
The final decision about the anti-dumping suit is now in the hands of the U.S. International Trade Commission (ITC). Their decision is expected next March.
Iowa State economist Dermott Hayes estimates Canadian producers received $4-6/pig through the federal subsidy program. The result has been 23 straight quarters of sow herd expansion in Canada with a corresponding number of sow herd contractions in the U.S.
“The attempt here is to ask pork producers in Canada to get themselves out of the subsidy programs,” he explains. “As the price of feeder pigs falls in Canada, that would encourage the Canadian sow herd to fall, and a slight increase in the U.S. feeder pig price would cause some movement upwards in the U.S. breeding herd. We then move back to the situation that would have occurred had the Canadians not used the subsidy programs in the first place.”
To be fair, the U.S. sow herd cutback cannot be laid solely at the feet of the Canadians. Other factors — PRRS, employee shortages, cost and difficulties siting breeding-farrowing units — have trimmed the U.S. sow herd and turned some producers to finishing Canadian pigs.
Things We Know
Using mid-October prices, the anti-dumping tariff will levy an entry tax of $4-5/head on weanling pigs, $7-8/ head on feeder pigs, $18-20/head on market hogs and $20-30/head on sows from Canada.
Canadians will be looking for finishers to avoid deducting the tariff from the delivery price. U.S.-Canadian contract talks will be strained.
Canadian packers will face larger runs of slaughter hogs. “Even if Canadian packers can run steadily at their record pace (just under 470,000/ week), they will be able to absorb less than 75% of the slaughter hogs they are now sending to the U.S,” explains Missouri economist Ron Plain.
Larger runs will put downward pressure on Canadian slaughter prices, while lighter runs in the U.S. may see packers bidding more aggressively.
Canadian finishers will find pig supplies plentiful and cheaper. Their U.S. counterparts may face a pig shortage and higher prices as they scramble to fill finishing barns.
While the anti-dumping tariff may slow the flow of pigs across the border — it does not change the number of pigs in North America. Fewer Canadian hogs slaughtered in the U.S. will likely be offset by an increase in Canadian pork exported to the U.S. and a decrease in U.S. pork exported to Canada.
“When you have an industry as mobile as pork production, it is important to have exactly the same policy in both countries,” Hayes states. “Otherwise, you will get a movement, either north or south, depending on which subsidizes greater.”
I am not qualified to judge who is right and who has been wronged. Like our elections, it depends on the accuracy of the information. Regardless of the ITC decision, the long-term implications are somewhat like the recent elections — we'll have to live with it for a while.