Is the end in sight for hog producers in Alberta?

It’s a well-worn headline used by many analysts when trying to find some glimmer of hope in a depressed commodity market – “Is the end in sight?” That is beginning to have a more ominous meaning in this province – the end for many hog producers has been a mass exodus from the industry. Statistics indicate that there were about 1,300 producers in 2002, today just over 375 are still in business. It’s even worse when you compare that to 25 years ago when there were almost 3,000 hog producers in Alberta.

Granted, years ago hog operations were a lot smaller. A hundred sows was a good-sized operation, and 500 sows was big time. Today it seems you need 1,000 sows to be a player with large operators having up to 5,000. Such operations have slowed the inevitable production loss, but will it be enough before slaughter infrastructure begins to be affected. If the Red Deer Olymel plant can’t get enough hogs, its economies of scale will be imperilled. I suggest that a big reason it is still in business is that it is probably paying the lowest prices for hogs in North America. That may be good business and the realities of the marketplace, but you can’t keep on doing that and expect producers to continue to take the losses and still stay in business.

Alberta Pork, the producers’ organization, has done a valiant job in convincing governments to subsidize both those that want to maintain production and those that want to exit or downsize. The last go-around in Alberta saw the government toss a few million at the economic pain producers were suffering. In exchange the industry and their organization were supposed to create a business plan to revitalize pork marketing in Alberta. A lot of thought and enthusiasm was thrown into that process, including pie-in-the-sky schemes about premiums from niche markets for Alberta pork products. I am not sure of the fate of those plans, perhaps the Alberta Livestock and Meat Agency is still financing those dreams.

There is always the time-tested hope that governments will toss more subsidy money at hog producers in the also time-tested hope that the market will soon recover. That’s worked in the past, but price recovery seems to be taking a very long time to come around this time. It also seems all the Agri-Hope programs of the federal government have run out for the hog industry after what seems like years and years of losses.

More consolidation

So what future is there for the hog industry in this province? I would suggest that severe consolidation will continue. However, I would also suggest that the only survivors will be mainly Hutterite Colonies and a few large operators, some with immigrant money propping them up. The colonies are the only business operations that have the diversification base and enough long-term capitalization to stay in the hog business. Their prominent personal participation (almost unheard of just 15 years ago) in the governing board of Alberta Pork (and other commodity organizations) indicates that they are making very serious commitments to the future of pork production.

I would further suggest that once the industry has consolidated enough, the next step will be, for the few and the big, to take up an equity position in the Red Deer pork plant, if not buy it outright. It would seem to be the next logical step in the vertical integration of the industry. It’s a typical marketing approach in the U.S. That step may also be needed to prevent the plant from closing. The other option could see governments get involved with loans or guarantees, that’s never a good sign for any industry.

What’s the other alternative? I would be so bold as to suggest that the industry might want to consider the “back to the future approach.” Yes that would be a marketing board, or rather a new-age marketing board. This approach might take a leap of faith, but think where the total open market approach has brought the hog industry today; that being down to a few hundred producers since the demise of the old marketing board structure. I always thought it was rather curious that the biggest proponents of eliminating hog marketing boards were packers and processors. Perhaps there is a message there.

Granted, the hog industry is not the dairy or poultry industry, the dynamics are certainly different, but perhaps there is something to be learned in revisiting the original concept from a different approach, learning from past mistakes maybe but also from past advantages. Having observed the general economic well-being of the dairy and poultry industries as probably the most successful and profitable sectors of Canadian agriculture, it does cause one to ponder that maybe supply management isn’t so bad after all, even in Alberta. Just food for thought.

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Thereisalwaysthetime-tested hopethatgovernmentswill tossmoresubsidymoneyathog producersinthealsotime-tested hopethatthemarketwillsoon recover.

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