The industry needs to manage ‘systemic risks’
Despite hog industry calls for help in the midst of massive losses, governments should stand back and let the business fix itself, says a University of Guelph analyst.
“To save the hog industry in Canada, governments should leave it alone and let it figure out how to better manage and mitigate systemic risks or else it will continue its journey toward a slow and certain demise,” says Sylvain Charlebois, associate dean in the university’s College of Management and Economics.
He recently issued an analysis called “the hog industry’s slow death” in the wake of recent high-profile industry failures and government promises of a search for solutions.
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In a later e-mail, he softened his prediction about industry “demise,” but insisted the sector should and can fix its own problems.
“Canada will always have a hog industry,” he wrote in the e-mail.
“The Canadian industry is highly integrated but not well co-ordinated. It can build on its current competitive advantage to broaden its strategic (position) through genetics, production, slaughtering, processing and better market orientation.”
Charlebois argued that the Danish hog industry has developed an “unparalleled competitive advantage” over other countries by creating a harmonized system from breeding and genetics through production, slaughter, processing and marketing.
“As a result, we buy pork from Denmark, but Denmark rarely buys from us,” he said.
Charlebois argued the Canadian industry is too “producer-centric.” As well, while it is cost-competitive, the industry is not equipped to deal with shocks such as a spike in feed costs or a high-priced dollar.
Another government bailout simply would delay the required industry reorganization.
“The Canadian hog industry will have to work itself through this difficult predicament,” he wrote.
“Higher feed costs likely will trim herd sizes over the coming months.”
And that will increase prices, easing the crisis.
“It is a shame that all this will happen without a long-term strategy for the industry in place.”
Some hog sector leaders argue that part of the problem is producers’ lack of market power. Other links in the industry chain make money from the hog sector but not enough of that system profit makes it back to the creators of the commodity.
