Farmscape Article 3241  July 12, 2009

“It's vitally important to make sure that efforts to help don't provoke devastating trade challenges,” says Gerry Ritz Canada's minister of agriculture and agri-food. “We have to make sure the cure isn't worse than the disease.”

Canada's Agriculture Ministers Discuss Proposed Transition Plan
A request for government support for the implementation of a “Canadian Hog Industry Strategic Transition Plan” to address the crisis facing Canada's pork industry was among the key issues discussed when Canada’s federal, provincial and territorial Ministers of Agriculture met for their annual meeting last week in Niagara-on-the-Lake, Ontario. The transition plan, developed by the Canadian Pork Council (CPC), outlines the situation faced by pork producers, the factors that led up to the crisis and proposes strategies for restoring profitability to the industry.

“The Canadian pork industry is making a difficult transition to new market realities and all of the ministers gathered here in the last few days are working hard to make that transition as smooth as possible,” Ritz told reporters during a conference call following the agriculture ministers’ meeting. “We all know there are no easy solutions.”

Canadian Pork Council Proposes Transition Plan
The strategic transition plan, billed as “The Canadian Hog Industry’s Plan for Success,” was developed by the CPC following an intensive review of the current situation and is intended to create “a leaner, greener, and more innovative industry” that will be  prepared to capitalize on domestic and international opportunities.

The transition plan consists of three key pillars, including adjustments to the Advance Payments Program (APP) emergency advances, a special H1N1 Recovery Plan Loan and the establishment of a Hog Farm Transition Payment Program.

Hog Producers Face Cash Crunch
“We're in a severe liquidity crunch at the present time so the crux of our ask is a loan structure to give producers money and solve immediate liquidity problems,” says Alberta pork producer and Canadian Pork Council president Jurgen Preugschas.
“Producers are on the edge,” he says. “As we speak the melt-down is beginning so the need of getting the money to our producers immediately is critical. Producers are going out of business as we speak. Timeliness is the number one issue right now.”

Stephen Moffett, a New Brunswick pork producer and national chair of the Canadian Pork Council's Business Risk Management Committee, observes, “We've gone through a tremendously long down-cycle, very much longer than we would normally expect to see and we've got a lot of producers that are just at the point where it's getting harder and harder to hang on.”

Transition Plan Contains Three Pillars
With regards to the Advance Payment Program, Preugschas explains, producers are requesting that existing debt be re-financed and termed out over 10 to 15 years to accommodate the current shortage of cash flow and to allow a second draw on the program to put cash into producers' pockets and allow them to become current with their payables right now.
Moffett notes, although repayment of existing advances has been stayed until September 2010, setting aside the old loan in another institution would clear the way for another advance payment. He points out only about 40 percent of producers took advantage of the first payment because of issues around the relatively low maximum for loans.

“The second phase is the H1N1 loan,” says Preugschas. “That is to deal with the losses that are specific to the damage that H1N1 has caused to pricing.”
He estimates a loan of $30.00 per slaughter hog, pro-rated  for weanling and grower pigs, will be required for April, May and June.
Moffett adds H1N1 loans for the subsequent quarter would be something less than the $30.00, depending on the level of price recovery.
Preugschas stresses it would be important to have no cap on that program to ensure the ability of larger producers to access adequate funding.

The third pillar, a hog industry transition program, would provide a per sow payment based on commitments to leave barns empty for specified minimum amounts of time to allow producers to exit the industry.
Moffett believes, “That would serve two or three things.”
First of all it would allow producers the ability to shut down, pay their bills and then move on to something else in life. That would also help reduce supply addressing the concern that there's an over supply in North America.

However, Moffett stresses, “We in Canada want it to be known that we're doing our share. We've already reduced our production significantly. We're 20 some percent lower production than we were three years ago. We're doing our share as far as reducing the supply and this would certainly show our trading partners that we're continuing to do that.”

Agriculture Minister Appears Supportive
“In speaking to the federal agriculture minister (Ritz),” says Preugschas, “He has assured me that the government is looking at our proposal very seriously and he is hopeful cabinet will approve some sort of a program for us in the near future.”

Moffett agrees, “The minister has indicated that he's supportive. At the fed-prov meeting he certainly indicated that he's supportive of our industry and we're in hopes that he'll be able to get support from his colleagues to do something for us. At this point we don't know what they'll be able to do but we're sitting with baited breath waiting to hear.”

“We think that there's three kinds of farmers left in our industry,” says Moffett.
There's already producers who have decided to or been forced to exit the industry and there are producers on the verge of that. There are producers who have lost a lot of equity but, with some support to prop up their cash flow, would carry on. And there are producers who, with a little help to make the transition, would exit the industry and carry on with life.

Ritz Promises Serious Consideration
“Certainly we'll be looking at it seriously,” says Ritz. “We realize the urgency of this. I have told Jurgen personally to stay tuned. I want something to come to him within days as well. We recognize the urgency and continue to work hard on that file.”

He notes CPC is very cognizant of countervailability and the proposed transition plan is within program.

“My officials and officials from CPC have been working day and night to promote that forward to see how we make that work, what the actual cost to the fiscal capacity of the federal government and some of the provincial governments will and could be.”
He says, what is being talked about is terming out anything that must be paid back over a longer period and officials are examining what can be done in that regard.

Support Forthcoming through Existing Programs
He insists existing programs will kick in and there will be cash going to the hog sector through those programs and those are not loans.

As well, he says, “We are looking at some other venues for the hog sector as well. They've come to grips with the fact that in the last ten years we've doubled our production with a shrinking market around the world. They've analyzed that, they've realized that. We're stating to talk about how do we bring the sector into the realities of the new market place?”

“We know that we have already lost a lot of producers and we know no matter what we do we're still going to lose some more of those producers,” Moffett concedes. “We're trying to manage that transition so that it doesn't adversely affect any one region too much, so it doesn't adversely affect some of the abattoirs and some of the other supply industry. We don't want to just see our industry fall off a cliff. We need to try and manage this crisis and I guess we're calling on the government to step up to the plate do their share.”

Long Term Future of Canadian Pork Industry Bright
Preugschas points out, “North America makes up about 50 percent of the world trade in pork so therefore the long term outlook, I think, looks relatively bright for our Canadian industry.”
He is convinced the market is going to come back and will be there once the economic recovery takes place and once the effect of the H1N1 damage is behind us.
“We have to remember that pork is the preferred protein around the world. All the studies we read, all the analysis that we read and people we speak to indicate an increased pork consumption around the world in the future.”

Staff Farmscape.Ca