February 9, 2009

Canada pork exporters may face severe shipments decline

A recent report that calls for closer ties between hog and feed grain producers reveal that Canadian pork exporters may face significant drop as US plans to increase ethanol output which may hike hog feed prices.


Al Mussell, a senior research associate at the George Morris Centre said US policy threatens to drive up the price of hog feed - a pork farmer's biggest expense - at a time when Canadian producers are struggling to stay competitive in a global market.


Mussell said the Canadian industry's survival could be at risk, because hog producers and pork-processing plants must locate close to feed facilities to remain profitable.


He explained that when a region has low-cost grain production, livestock costs will follow the competitive grain, which in turn makes processing plants follow the livestock costs.


US has called for more ethanol to be produced from cellulose-based sources, including woodwaste, but such production technology is not yet commercially viable, and most ethanol now comes from grain and corn.


Mussell's report also calls for reconciliation between grain and livestock producers, the former whom are increasingly choosing to sell their products to ethanol producers over pork farmers.


Alberta Pork executive director, Paul Hodgman said if governments go on subsidising ethanol production, it will be a continued strain, because those plants compete directly for our input, making feed prices likely to go up.


He said Alberta Pork is working with the provincial government and grain organisations to figure out how to get access to high-quality feed grains so that hog farmers can overcome their problems and grain producers can make some money.


Mussell said the increasing emphasis on ethanol overlooks the "intensive damage" being wreaked on the red-meat business.


He added that there is a need to understand these things strategically before launching long-term policies, as it would appear that it is an ethanol-blend mandate..


While he acknowledges that it is probably not fair to blame the pork industry's woes - specifically, high feed prices but only modest hog-price gains - entirely on increased ethanol production, the fuel has been a key factor.


And while pork and grain producers are now enjoying the benefits of a low dollar, the short-term gains may not last long and the sectors must co-operate to make their industries mutually sustainable.


Iowa State University economics and finance professor Dermot Hayes said the US dollar and American energy market will serve as guidelines for the Canadian pork sector.


Hayes said while several ethanol-production plants have been delayed or scrapped in the US and Canada, ethanol will continue to be a decisive factor in the price of feed grains on both sides of the border.


He predicted that the US dollar will likely continue to fall, giving the American pork industry a small competitive advantage.


As for offshore pork exports, India could spell new gains, but efforts are only beginning to access that market.


Canada Pork International said sales to China have slowed since the summer, while the Chinese government is now trying to limit imports, as is Russia.


Meanwhile, Canada's pork industry is also waiting for the new US administration to release a ruling on country of origin labelling (COOL), which requires packers to indicate where products have come from.

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