March 29, 2018
Canada: A number two pork exporter in gradual decline
Output increases depend on falling domestic consumption and productivity gains. Incremental export growth, flat inventories lag world pork demand.
By Eric J. Brooks
An eFeedLink Hot Topic
While it remains the second largest pork exporting nation, Canada's swine sector has been in a protracted, decade-long slump. Due to health scares and aggressive campaigns against red meat consumption, from 2001 through 2017, Canada's population increased 18.6% but its pork consumption fell 8.9%, from a USDA estimated 944,000 tonnes to 860,000 tonnes.
Consequently, from as high as 37kg in 1980, Canadian per capita pork consumption declined to 30.3kg in 2001 and an estimated 23.3kg this year. Thanks to NAFTA, foreign demand for Canadian pork kept the industry growing. Unfortunately, from the mid to late 2000s, an overvalued Canadian dollar gave US pork a price advantage, causing exports to stagnate.
Thereafter, due to a constellation of factors including pork farm indebtedness, US trade barriers, the closing down of pork processing plants and new environmental regulations, inventories have not grown for thirteen years. As a result, post-2005 increases in pork production have come from higher swine productivity. Consequently, Canadian pork output expanded at a 2.1% annual rate from 2000 through 2008 inclusive but by only 1.1% yearly in the ten years since 2008.
The inability to expand hog inventories after 2005 is a big reason why Canada lost its leading place in the world pork market to America. After expanding at a 6.9% annual pace from 0.66 million tonnes in 2000 to 1.30 tonnes in 2008, exports rose at a 1.8% annually from 2008 through 2017 inclusive, when they totaled 1.324 million tonnes. 2018 will bring more of the same, with exports rising 2%, to 1.350 million tonnes.
By comparison, world pork exports expanded at a 4.9% annual rate from 2007 through 2017. As a result, Canada's share of the world pork market declined from 21.7% in 2005 to 19.7% in 2010 and based on USDA projections, 15.9% this year. Once the leading exporter, Canada now only supplies half as much pork by volume to the world market as the United States.
Following the repeal of America's protectionist Country of Origin Labelling (COOL) law, an increase in hog exports to America had been predicted but never materialized. A PEDv epidemic in Manitoba (the province with Canada's largest hog herd) coincided with US swine inventories rising to their highest level in 74 years.
Hence, instead of rising to 6.1 million head, 2016 live hog exports declined to 5.67 million, down from 5.72 million in 2015. Amid an ongoing rapid expansion in US pig numbers, the number of hogs exported again sagged in 2017, this time to 5.61 million head.
With new a lot of new pork processing capacity opening south of the border, 2018 will see live hog exports stabilizing. At 5.68 million head, they will increase 1.2%. but remain far below the 8 to 10 million hogs exported annually before 2008, when COOL legislation was introduced.
On the other hand, a lower than expected level of hog exports helped boost inventories and slaughter rates, making more value-added pork available for export. Closing hog inventories grew for a fifth consecutive year by 2.8% and 14.1 million head. This year, amid near-constant exports and flat sow numbers, closing inventories will rise by less than 0.4%, to 14.19 million head.
Even so, in historical perspective, none of this qualifies as good news. Inventories peaked at 15.1 million head in 2005. Since then, they have mostly fluctuated in the 13 to 14.8 million tonne range. Stagnant hog inventories have prevented Canada from taking advantage of booming Asian demand for pork.
The industry is also hampered by well-meaning but stifling environmental laws that have limited the ability of producers to open up new facilities, especially in key production provinces such as Ontario or Manitoba. The USDA states that "while some critical restrictions on hog barn production in Manitoba were lifted in late 2017, industry sources indicate that barriers to building remain in place due to construction costs, environmental regulations."
Trade-wise, pork exports to China grew strongly from 131,000 tonnes in 2013 to over 312,000 tonnes in 2016. Last year however, with domestic Chinese pork production recovering, they slumped back to 275,000 tonnes. On the other hand, should China make good its threat to impose a 25% tariff on US pork, it could create a windfall export opportunity for Canadian producers.
Going forward, September 2017 saw the start of a new Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU. It lowers from 20% to zero the Canadian import tariff on the first 80,549 tonnes of pork exported to European Union countries. However, the EU is well supplied with pork and its meat consumption is growing slowly. Hence, CETA is not expected to boost long-run Canadian pork exports by more than 5%.
December 2017 saw a chilled pork export pilot program instituted between Canada and China. While it creates opportunities for pork processing plants that gain Chinese government approval, China already has similar agreements with America, Australia, Argentina and New Zealand. Thus, it is not so much the opening of a new market opportunity as the opportunity to compete against rival suppliers.
Canada also signed a version of the Trans Pacific Partnership agreement (minus the US) but under its terms, it will take nine to ten years to completely remove Vietnamese and Japanese import tariffs on Canadian pork.
In conclusion, unless Canadian swine rearing returns improve considerably, environmental laws constraining the opening of new hog farms are liberalized or China puts up trade barriers against US pork, there are few incentives to expand pork output by any means other than falling domestic consumption or improving hog carcass yields. Hence, from now through 2020, we can expect Canadian pork exports to expand into the 1.4 to 1.5 million and its share of the world pork market to stay in the 15% to 16% range.
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