At times, in the not so distant past, investment in new meat packing plants has accounted for significant construction activity in some of Canada’s provinces, particularly in the Prairie Region. Current circumstances suggest, however, that not much in the way of new investment in this area of agriculture should be expected for quite a while into the future.

The reason has to do with the age-old axiom that rapid price inflation in one sector of a market can lead to distortions in others. This is currently the situation facing hog producers. The manner in which this is currently working is as follows.

In general, high grain prices are making livestock more expensive to feed. This dynamic, historically, has led to farmers switching out of livestock and moving into other areas of farming. The short-term result is to throw more product onto the market, lowering prices. In other words, cattle and hog prices usually fall as feedstock prices rise. Particularly with respect to hogs, the Canadian government is trying to speed this process up.

The Canadian government will now pay farmers to “cull” their herds. Farmers will receive $225 for every breeding hog that they slaughter, as long as they also agree to wipe out their entire breeding herds and stay out of the business for three years. The total cost of this program will be $50 million. It is anticipated that this action will remove 150,000 hogs, or approximately 10% of the nation’s total breeding stock, from market.

This is a desperate measure viewed as necessary in order to save Canada’s hog farming industry. There are currently 14 million pigs living on Canadian farms, including 1.5 million that are used for breeding. However, the basic economics for hog farmers have turned unsustainable. Too much money is being lost. Hog prices have sunk more than 20% in the past year to $100 per hog. During the same time frame, grain prices have risen more than 50%. Farmers are now losing about $50 per slaughtered hog.

The higher-valued Canadian dollar has also had an adverse effect, as more than half of all Canadian hogs are usually shipped to customers in the United States. Also looming ahead is another cross-border issue. The U.S. plans to introduce new “country-of-origin” labeling laws in September 2008. Some grocery retailers south of the border have become nervous about this extra level of regulation and are already refusing imports.

Manitoba is the province with the most intense pig farming in Canada, with Alberta, Saskatchewan and Québec forming the next tier. Hog producers in those provinces have been facing the most hardship. However, their “squeals” for help have been heard and government assistance is on the way. It bears saying that, in a certain light, politics simply cannot be more “pork barrel” than this.

The foregoing is based largely on an article appearing in The Globe & Mail newspaper on April 15 2008 by reporters Paul Waldie and Joe Friesen.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

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