The American hog lobby is warning the Canadian government that any aid package for the Canadian industry, including loans, could trigger a trade challenge.
The potential of a trade challenge has been a key consideration for federal agriculture minister Gerry Ritz as he mulls over hog industry pleas for help. He rejected a request for grants because it would trigger reaction from the United States industry.
The board of the U.S. National Pork Producers Council issued a statement after a meeting in Washington claiming that the proposal from the Canadian Pork Council for a combination of loans and grants that could total up to $800 million would keep Canadian production artificially high and depress hog prices in the U.S.
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“When the government puts money into an industry, you have artificial production and that affects prices,” Nick Giordano, NPPC vice-president and counsel for international trade policy, said in a July 22 interview from Washington.
“We have not decided on a course of action until we see how the Canadian government responds to the request but we have done the analysis and I don’t think there’s any question this would be challengeable.”
CPC chair Jurgen Preugschas from Mayerthorpe, Alta., said in an interview he is “disappointed but not surprised” by the American threat.
“They have a long history of taking trade action that they lose but that costs us money to defend,” he said.
“A lot of the pain we are suffering is because of actions their government has taken to bring in COOL (country -of-origin labelling). What is happening is that we have in Canada reduced our herd significantly over the past three years and the Americans have not.”
The NPPC said Iowa State University agricultural economics professor Dermot Hayes has calculated the Canadian production that would be supported by government-guaranteed loans would depress U.S. hog prices by seven percent from what they would be if the Canadian herd liquidation was allowed to happen without government intervention.
Hayes was not available to explain his calculations.
The CPC proposal is that the federal government offer guarantees for loans equal to $30 per head marketed in the first quarter of the year to allow producers to cover price declines caused by consumer reaction to the fact H1N1 has been called swine flu.
Loans would continue to be available based on previous quarter marketings with the maximum determined by the H1N1 impact on prices during that quarter.
The CPC also is asking for a $500 per sow buyout grant for producers who want to get out of the business.
And it is projecting an almost 20 percent decline in Canadian production over the next five years as well as an almost 60 percent decline in live exports to the U.S. to four million head by 2014 from 10 million in 2007.
But after the NPPC board meeting, president Don Butler called the CPC proposal a cash bailout that would have severe effects on the industry south of the border.
“Such a subsidy program would have a lethal impact on U.S. pork producers,” he said in a statement issued by the council. “NPPC is extremely concerned about such a program, which will shift financial pain to U.S. producers who already have lost an average of more than $21 per hog since October 2007.”
The Canadian herd of more than 30 million hogs is less than one-third the size of the U.S. herd. The CPC says losses in Canada are approximately $40 for each animal sold.
Giordano said the request for aid to the American government is more modest than the Canadian request – a $50 million purchase of pork to be distributed to school lunch programs and the poor. “It would not create extra production, unlike the Canadian ask.”
He said with the state of the hog industry now, lenders would not be willing to put up money without government backing, which makes it a subsidy.
The CPC wants a repayment period of between 10 and 15 years.
Preugschas said it is asking for commercial loans.
“If the Americans think our industry should not be eligible for commercial loans, we have a bigger problem.”
