Like the pork production industries in most developed countries, the Canadian pork industry is going through a host of changes.
The more significant changes are occurring in western Canada. Some of those changes include:
Continued trend toward fewer, larger and more specialized units. Attrition rate among producers continues at about 3.5-4% per year.
Scale of operation is no longer a guarantee of prosperity or survival. It's not just the small units going out of business. Still, pork production continues to increase in western Canada as the larger units (3,000+ sows) continue to expand.
The Canadian hog industry is one of the fastest-growing in the world. Canadian production increased by 40.8% in the period 1991 to 2001. Sow numbers continued to increase from 2001 to 2002, as shown in Table 1.
Increased emphasis on partnerships, alliances, contracting and integration to achieve the benefits of economy of scale, reduced input costs and guaranteed, unrestricted access to markets to help manage risk.
New technologies, such as multi-site production, segregated weaning, all-in/all-out, split-sex feeding, phase feeding, large group penning and feed budgeting are being adopted. Artificial insemination has grown significantly in recent years. And, there has been greater emphasis on biosecurity, the use of superior genotypes and high-health replacement stock.
In spite of these new technologies and emphasis on low-cost production, western Canada has recently lost its cost of production advantage relative to the U.S. or even eastern Canada. See cost comparisons in Alberta and Minnesota for December 2002 (Table 2).
As the table shows, Alberta producers lost $17 more per pig than their counterparts in Minnesota. The Minnesota advantage was due largely to differences in feed costs, higher pork prices and lower feed processing costs. For the six-month period, July-December 2002, Alberta producer losses averaged $28 per head.
For grow-finish pigs (50-260 lb.), the feed cost/pig for that July-December period was $44.24 in Iowa compared to $54 in Alberta.
Midwest producers currently have economic advantages through cheaper feed and feed processing, more marketing options, access to Paylean (not cleared for use in Canada) and more attractive pricing arrangements with processors.
| No. of Sows | % Increase from 2001 | |
|---|---|---|
| Quebec | .42 | 1.7 |
| Ontario | .38 | 2.8 |
| Manitoba | .34 | 9.2 |
| Saskatchewan | .12 | 2.0 |
| Alberta | .22 | 1.2 |
| Total number sows (millions) | 1.53 | 3.3 |
For the past two years, much of the western Canadian prairies (western Saskatchewan and Alberta) were plagued by a massive drought. Table 3 shows the significant impact on 2002 crop production. Consequently, animal feed became scarce and feed costs increased (Table 4). The effect of the increased feed costs on cost/pig produced and on margins is shown in Table 5.
Whole-herd feed costs in Manitoba and eastern Saskatchewan are $2-4/pig lower than those for central Alberta (Table 4).
Traditionally, grain producers in Manitoba and other eastern Canadian provinces have had to deal with fusarium fungal infection in feed grains. However, in 2002, Alberta and Saskatchewan also faced the problem because of growing conditions as well as the huge importation of U.S. grain.
| Total Feed Cost US$/ton | Feed: Gain | Loss/Pig | |
|---|---|---|---|
| Minnesota | 98 | 2.7 | 15 |
| Alberta | 109 | 3.0 | 32 |
| 10-Year Average | 2002 | Deviation (%) | |
|---|---|---|---|
| Wheat | 26.9 | 15.7 | -42 |
| Barley | 12.9 | 7.2 | -43 |
| Canola | 6.2 | 3.6 | -43 |
| Source: Stats Canada | |||
Fusarium molds produce mycotoxins such as vomitoxin, zearalenone, T-2 and fumonisin. These mycotoxins, even at very low levels, will reduce feed intake and cause reproductive problems in sows. As fusarium spreads further west of Manitoba, the risk of production inefficiencies increases and the reliance on imported grains adds risk to the cost of feed.
Canada exports 45% of its pork production. In addition, approximately 5.7 million live hogs and feeder pigs were exported to the U.S. in 2002, representing roughly 5.5% of U.S. hog slaughter. Most of the feeder pig exports were from Manitoba (62%) and Ontario (36%).
In the May 15, 2002 issue of National Hog Farmer (“Canadian-Born Pigs — A Major U.S. Market Force,” p. 12), Brumm and Prosch discussed the impact of Canadian hog imports on U.S. prices and the U.S. producers' dependence on Canadian-born pigs to fill finishing facilities. The arrangements have worked well for buyers and sellers, particularly as Iowa producers dispersed their sow herds and converted to, or built, more finishing facilities.
| Year | Barley | Wheat | Soybean Meal |
|---|---|---|---|
| 2000 | 61.5 | 62.6 | 167.1 |
| 2001 | 64.5 | 71.3 | 190.4 |
| 2002 | 95.2 | 93.4 | 186.1 |
| 2003 | 110.6 | 122.9 | 194.7 |
Manitoba sow numbers have taken a huge jump to fill those Midwest weaned pig contracts, taking advantage of the feed cost savings in the U.S.
In addition, Canada exported approximately 787,912 tons of pork in 2001 — about 50% (394,000 tons) to the U.S. and about 22% to Japan. Pork exports to the U.S. grew to 436,000 tons in 2002.
The hog cycle continues to function in the Canadian market. Recently, it seems, the 39-month cycle has shifted to two bad years, followed by two years of profit. Unfortunately, since 1996, the loss per pig sustained in the bad years is greater than the profit per pig obtained in the good years. This has made the profitability of hog production lower and less predictable.
| Year | Ingredient Cost | Carcass Revenue 200 lb. | Margin |
|---|---|---|---|
| 2000 | 39.8 | 87.1 | 47.3 |
| 2001 | 44.6 | 100.5 | 56.7 |
| 2002 | 50.6 | 106.7 | 56.0 |
| 2003 | 58.7 | 80.3 | 21.6 |
In spite of the lower profitability, hog expansion continues in the face of uncertainty. It appears that producers in western Canada are determined to gamble on a brighter future even if lenders appear less optimistic.
Perhaps optimism for the future stems from the knowledge that the world population is expected to increase by 1.8% per year from the current 6 billion level to 10-11 billion by 2030.
These changes, along with agricultural policy reform and liberalization of trade, make prospects for increased pork exports realistic and achievable.
Pork is the preferred meat of most of the world population and currently accounts for 45% of total meat consumption. Although per capita consumption of pork has remained relatively static in North America, world pork consumption has increased by 33% in the past 10 years.
Pork consumption is expected to increase by 4.5% per year in developing countries and only 0.4% in developed countries, for an overall worldwide increase of 2.4% per year.
Pig production in western Canada increased by 40% in the last five years. Whether the optimism of western Canadian producers is justified is debatable. A case could be made that western Canada has distinct advantages for a thriving pork production industry, such as low hog density per arable acre (see hog density table in accompanying article, page 30). Low pig densities offer advantages in terms of disease control and environmental impact.
Other possible advantages include:
Strong technical support systems from research institutions and universities.
Availability of motivated, skilled and educated labor force.
High productivity levels.
Under normal circumstances, there is a good supply of good quality feed ingredients at relatively low cost. The drought in 2002 forced most producers to import large quantities of corn from the U.S.
Climate is suitable for intensive, indoor pork production. Heat stress effects on reproduction and feed intake are minimal.
Western Canada is a relatively low disease-impact area.
These advantages and the availability of feeder contracts have drastically increased the export of live hogs to the U.S. from western Canada (especially Manitoba).
Economics suggests that profits increase by producing weaner pigs in western Canada and shipping them to the U.S. for finishing. In addition to feed cost advantages, the strong American dollar relative to the Canadian dollar (currently .68 US$ per CA$) has optimized revenues to Canadian producers. This also allows U.S. producers to buy Canadian pigs at a price equal to or lower than local pig prices.
However, finishing Canadian hogs in the U.S. means fewer jobs in finishing barns and processing plants. Currently, Canadian processing plants such as Maple Leaf in Brandon, Manitoba and Olymel in Red Deer, Alberta cannot find sufficient hogs to run at full capacity.
Like the U.S., Canadian pork producers face ever-increasing regulatory pressures, such as:
Also, the time and effort to receive permits to build new units are extensive, stressful and costly. Public issues of animal welfare, water supply and quality, lagoon and barn odor and nuisance and environmental impacts are frequently used to delay or deny building permits. They are also used in court appeals to prevent the start of construction of permitted barns.
The Canadian pork industry faces significant issues and impediments. However, producers remain confident and positive about their future.
Frank Aherne, now semi-retired, was a long-time professor of swine nutrition in the Department of Animal Science at the University of Alberta. He and Jim Gowans are co-owners of an 8,500-sow operation with pigs finished in Alberta and Iowa. Gowans also serves as president of Gowans Feed Consulting in British Columbia.