The Rural Voice, 1999-08, Page 651
PERTH
County Pork Producers NEWSLETTER
Richard Yantzi, President
519-655-2766
• The Rural Voice is provided to Perth
County Pork Producers by the PCPPA.
The balance of power is tilted toward the processors
Any opinions expressed herein may not
necessarily reflect the views of the Perth
County Pork Producers' Association.
The 26th annual Pork Congress has
gone by and the attendance was
surprisingly high considering the current
economic situation of hog producers. The
USDA report came out on the Friday of
the Pork Congress with more bearish
news that U.S. inventory levels are still
high. Some producers question the
accuracy of the hogs and pigs report of
the USDA and think that we've lost all
the "inners and outers" in the last low
North American hog cycle and now we
are left with the serious, committed pork
producers who have huge investments in
their operations and cannot leave the
industry. Some very Targe hog production
corporations in the U.S. have declared
bankruptcy, but they have been
purchased by other investors for far less
than their book value and the barns have
never been empty.
With all the structural change taking
place to our hog industry, I can't help but
wonder if the traditional highs and lows
of price in the hog price cycle will be the
same as previous cycles. What I mean by
structural change of the hog industry is
the rapid pace of vertical integration
taking place by processors and feed
companies.
At the Annual Meeting in Toronto of
the OPPMB and again at the Pork
Congress we heard speakers saying
"know what your cost of production is"
and "cost of production is king". At other
meetings I've heard that a typical farrow -
finish operation needs about $118 per
hog to break even without considering
personal living expenses. A loop, by
comparison, needs about $135 to $140 to
break even. A large hog production loop
will likely have better market access to
good contracts because of their volume.
I've heard producers will prevail because
of their lower cost of production. In my
opinion, with our present economic
environment, being the lowest cost
producer is still not enough assurance to
maintain confidence. Where is the
satisfaction of being cost -competitive but
losing at the pricing end?
If the cost of production is higher for
the loops, why would a processor want to
invest into a loop? The only thing that
seems to make sense is securing a steady
supply of hogs at close to the cost of
production. By securing at least 30 per
cent of their needs through their own
loops and the rest of their needs met by
direct producer -processor contracts based
on some formula price they will have a
major impact on the price of hogs.
Smithfield's in the U.S. has recently
purchased Carroll Foods continuing to
increase its vertical integration.
Smithfield's have stated that they fully
intend to carry on with vertical
integration. Maple Leaf Pork views
Smithfield as their main competition and
intends to do the same. The only reason I
can think of for feed companies to get
involved in hog production would be to
sell more complete feed. In both cases
processors and feed companies have
other goals than making money on hogs.
As long as they don't lose money on hog
production they will be ahead.
A University of Nebraska study
concluded that if 10 per cent of the pork
production is owned or controlled under
contract by pork packers. they will pay
six per cent less for hogs purchased from
independent producers (non -contract
hogs). If packers control 50 per cent of
production, they will pay 26 per cent
less. Vertical integration has reached the
50 per cent level in North Carolina.
Packers there were paying $51 U.S. per
hundredweight for hogs on contract and
$39 U.S. per hundredweight for hogs on
the open market at the time of this study
— a 24 per cent difference. Currently in
Ontario direct producer -processor
contracts make up 65 per cent.
The Platinum Contracts offered by the
board could give the same benefits to the
producer and the processor as the direct
producer -processor contracts do today,
however 1 doubt it' there will be much
packer up -take because they can now
contract directly with a producer. What
reason is there for them to go for a
platinum contract from the board? A
Marketing Board cannot be fully
effective if direct producer -processor
contracts can undermine its strength. Our
board also has no control over U.S. live
hog imports. The only way there will
ever be harmony among producers is if
the board can provide an equal market
access and pricing. The board can offer
volume and quality to the packers in
contracts ending the price or grid
inequity, that is creeping in to the direct
producer -processor contracts. The board
can never do this with one arm tied
behind its back. Hog producers are
realizing the wisdom of why our fathers
in most cases set up a marketing board
with monopoly control of the marketing
of hogs.
The balance of power to set the price
of hogs has been tilted towards the
processor. The mission statement of the
Farm Products Marketing Commission is
"to lead, supervise and direct the
regulated agri-food sectors so they
effectively respond to market forces". To
date the FPMC has been unwilling to
rescind the 1996 commission order to
allow direct producer -processor
contracts. FPMC claims to help maintain
a balance. of power between sellers and
buyers of agricultural products.
The Farm Products Appeal Tribunal
is an avenue open to the OPPMB
or the processors if they feel that the
balance of power is tilted against them.
The FPMC must abide by a ruling of the
Tribunal.
– Submitted by Gerald H. Kolkman
Where's the future for independent pork producers?
What is the role for independent pork producers in the pork industry of the future?
The Perth County Pork Producers' Association will explore that question at "Co-
ordinating Our Hog Industry for Survival" to be held August 19 at 7:30 p.m. in the
Mitchell Community Centre.
Among the speakers will be Vincent Amanor-Boadu of the George Moms Centre
will discuss the advantages and disadvantages that independent pork producers have
and how they can make changes and work with packers and retailers in order to
compete with the Targe integrate operations.
Also speaking will be a representative of a major retailing company and a major
packing company.
Paul Knechtel, CEO of Ontario Pork, will discuss what Ontario Pork is doing to
assist the role of independent producers.
Everyone is welcome.0
AUGUST 1999 61