U.S. trade harassment presents Manitoba’s weanling hog producers with terrible choices

In the wake of the American decision to double-down on the trade-harassing effects of COOL (Country of Origin Labeling), what should Canada and Canadian hog producers do?

There’s an easy answer for the Canadian government: take it back to the World Trade Organization and get going on the retaliation process. It’ll take months and years to get another ruling from the WTO and to get going on trade retaliation, but those two things have to be done. Flagrant disregard of trade laws has to be challenged, and the best way to deal with a bully is to make him feel the pain too. (The bully here is elements of the Obama administration, some cynical U.S. congressmen and a couple of farm groups who think the best way to get them a better buck is to play sleazy trade games with neighboring countries. Most American hog farmers, the American meat industry and most Americans who are in favour of trade oppose what the administration is proposing.)

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But it’s a tougher situation for farmers who are hurt by this. They live in the real world where they can’t just forever take blocked access to markets and financial losses year after year. Manitoba’s weanling producers are directly connected to the hog feeding industry based in Iowa and southern Minnesota. Manitobans breed sows, produce piglets and then ship them south so they can be fed and slaughtered in the U.S. It’s an industry that helps the U.S. feeding and slaughter industries be bigger than they would otherwise be, and it sensibly divides out parts of the North American industry to where things are done most efficiently.

It’s tremendously efficient – but Manitoba producers are also tremendously vulnerable. American governments again and again have created clever ways of blocking their market to Canadian producers. Since I moved to southern Manitoba 12 years ago I have covered an unending saga of harassing actions launched by the U.S. against Canadian producers. Most have been chucked out for being unjustified – but only after years of litigation, expenses and lost market access.

This has been one of the factors that has caused some farms to fail, especially when added to short term slumps that slash general hog prices. Closing the border can immediately drop prices to zero since there aren’t alternative markets to ship them to. Piglets can’t be sent to other countries because of distance, and Canada has only so much feeding capacity in existing barns. Producers of slaughter hogs going to a Canadian plant will see their prices fall and losses accrue during a downturn, but that’s far less severe than the sudden collapse of the market that happens to weanling producers when the border is shut. Those weanling producers are the ones getting hammered on the anvil of American recalcitrance, and it looks like the hammering’s going to continue for the foreseeable future.

So what should farmers do? Do they limp along, hoping that at some point in the future the market will re-open completely and market principles apply again? That’s a big hope upon which to base multi-million dollar investing decisions and years of one’s life. Would anyone now make the choice of building a weanling barn in southern Manitoba?

Do farmers write-off the U.S. market and focus instead on feeding out every piglet produced in Canada within Canada and then exporting most of the pork overseas? That sounds sensible, but there aren’t enough feeder barns on the prairies to take all the weanlings produced in Manitoba and there are both financial and regulatory constraints on how quickly new feeder barns can be built. The Manitoba government in particular has made it almost impossible to convert barns or add new feeder barns to existing operations, so the weanling industry is more likely to shrivel and die than the feeder barn industry is to expand and develop.

And shipping pork thousands of miles, by train and ship, is obviously more expensive and less efficient than selling it to willing consumers just south of the border. Focusing on domestic consumption and foreign sales will come at a price and will produce more losses and lower profits.

There’s room to develop domestic sales, since American pork now makes up more than a quarter of the pork eaten in Canada. Hopefully Canadian packers will target that market, and it would be nice to see the government launch retaliatory action against U.S. pork imports. It’s obscene that the U.S. is getting away with cramping Canadian pork getting into the U.S. but U.S. pork is flooding across the border. But whatever happens there won’t solve the problem we have of being a sparsely-populated country relying on access to foreign markets for most of what we produce.

There aren’t many easy answers for farmers. Investing in the weanling industry should be a sensible and reasonable thing to do based on the basic economics, but trade reality and U.S. behavior makes it extremely risky.

What’s a farmer to do? Invest and hope? Quit the business and find something else to do? Just linger on with a mixture of hope and despair, until the next downturn wipes you out? That’s the plight of the Manitoba weanling producer, and that situation isn’t going to change any time soon.