Prospects for Hog Production and Processing in Canada

Along with the already existing advantage Canada enjoys in hog production costs, the structural changes taking place in the processing industry mean that Canada's total costs will become increasingly competitive.This means that Canada has the opportunity to reduce the flow of live hogs moving into the US and increase Canada's share of world pork export markets.Putting this information together, it would appear that Canada is on the brink of being one of, if not the most cost competitive pork producers in the world.It already has competitive production costs.It is in the process of enhancing the competitiveness of the processing industry.Some competitors face major problems in maintaining their position.The Canadian industry has the natural and human resources that can provide the means to produce pork safely with environmental responsibility.In fact, if the appropriate processes are developed, it is likely that these factors could be a source of price premium from those target markets which value these characteristics, a part of the market that is growing.In a larger sense, Canada is poised to take advantage of these factors at the very time world demand is growing because of falling trade barriers and rising prosperity in some parts of the world.However, competitiveness is not just about cost, so there are some qualifiers that need to be acknowledged in this scenario.Most obvious is the fact that if the Asian economies sustain a prolonged period of recession, the opportunities will be smaller for Canada and its competitors, and it will be difficult for all producing areas to sustain production.This is particularly true because so much capital has been invested in hog production over the past few years.The current capital base is large and very efficient, and was geared for continued growth in the Asian market.If that growth is not sustained, then resources invested in hog production will not likely earn profits based just on domestic demand.While there is little likelihood of a prolonged period of low prices like those of November and December of 1998, neither is there likely to be a prolonged period like 1996/97 unless international markets regain their buoyancy.Second, clearly Western Canada's advantage results from feedgrain prices, but the magnitude of its cost advantage suggests that the feedgrain market in Western Canada may not arbitrage efficiently.When viewed in the context of the other regions, feedgrain costs appear to be lower than what would be consistent with a market characterized by economic efficiency.If the Canadian feedgrain market becomes more efficient, this advantage may be reduced.Third, if the Canadian industry fails to undertake the hard work and complexity required to develop HACCP and environmental processes that allow it to differentiate its product in world markets (ie make it a Lexus or Mercedes), then all Canada will have is a cost advantage.If Canada is willing to make the effort to develop identity preserved product that responds to what many customers want with respect to food safety, the natural environment, as well as product quality characteristics, then it will likely gain a much larger competitive advantage than that conferred by its cost advantage.vi