The next few years are likely to be a stressful time for slaughter plant managers and labour representatives as they struggle to adapt to the rising Canadian dollar.
Contract negotiations in the packing house sector are often fractious affairs, but they could become more so because of the loonie’s appreciation.
As noted in Sean Pratt’s story about beef packer capacity in this week’s livestock section, the rising dollar increases packers’ labour costs relative to their American competitors.
Indeed, the strong loonie puts the spotlight on the Canadian packing sector’s competitiveness generally.
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A study on exchange rate impacts on the Canadian beef industry, written for the National Beef Industry Development Fund by Kurt Klein of the University of Lethbridge and Dennis McGivern of Informa Economics of Memphis, Tennessee, describes the linkage between exchange rates and labour costs in the following manner.
They put direct and indirect plant labour costs at about $125 per head. When the exchange rate is at 75 cents US, the equivalent cost is $94 per head. When the exchange rate climbs to 85 cents, the U.S. equivalent cost is $106 per head. Although the Canadian worker has not received an increase, the plant’s labour costs have increased 13 percent relative to the competitor across the border.
Packing plant workers’ standards of living are already much reduced from what they were in the 1960s and 1970s. Trying to push them lower in the middle of a severe worker shortage in Western Canada won’t be easy.
But labour costs are only part of the productivity issue brought to a head by the strong loonie.
With the United States once again sucking in a sizable number of Canadian fed cattle, Canadian beef slaughter plants are working at only 70 percent capacity, and per head operating costs soar when utilization rates fall.
On the hog side of things, productivity is affected by the fact that Canadian plants tend to be smaller than American plants that can use significant scale economies to lower slaughter costs.
Also U.S. pork plants tend to double-shift to reduce costs but Canadian plants have had a hard time reaching that level, due to hog supplies.
The weak Canadian dollar gave manufacturers and processors, such as meat packers, an edge in the early part of this decade, but with some forecasting the two currencies might reach par soon, there will be much effort in Canadian boardrooms to ensure plants here are as productive as those south of the 49th parallel.
