Breaking point

In 1999, Maple Leaf Foods’ new processing plant in Brandon sparked hope among many in the pork industry that the investment signaled a prosperous future for pork production in Western Canada.

Now, 22 years later, many have a different view of Maple Leaf. In Western Canada, Maple Leaf operates pig slaughter plants in Brandon and in Lethbridge.

Many independent hog producers across the Prairies are struggling financially because of higher feed costs and contracts with packers that fail to cover the cost of raising a pig.

“There are a lot of (Hutterite) colonies exiting the industry. That’s unheard of,” said Alberta Pork executive director Darcy Fitzgerald. “The one processor that needs to pay attention to all this is Maple Leaf. (It) is having a very large effect on a large number of colonies and independent producers.”

Brent Moen, Alberta Pork chair, estimated that hog farmers are losing $15 to $35 per pig.

Producers are receiving $175 to $190 per pig, depending on the contract.

Maple Leaf’s contract would be on the low end of the range, possibly $175 per pig.

However, the average cost of production this winter is around $200 to $210 because of additional feed costs.

“Today… producers are generally losing money on every pig that they ship out the door,” Moen said.

This situation is not new.

Over the last five years, hog producers have gone through several periods where raising pigs was a money-losing business.

To solve the systemic problem, representatives of the provincial pork associations in Western Canada have been in talks with the major packers — Olymel, Maple Leaf Foods, Donald’s Fine Foods of Regina and others — to boost the price paid to hog farmers. The price of western Canadian pigs is based off the United States Midwest cash market for hogs, but independent producers want a different system.

They have asked the packers to share some of the cut-out value with producers. The cut-out value represents the wholesale price of pork cuts, such as the loin, butt and belly.

“(It) reflects what the pork has actually been sold for on the domestic and international market,” Moen said.

A couple of western Canadian packers are listening.

Olymel, which has a processing plant in Red Deer, is now including cut-out value in its contract with hog farmers. Hylife Foods of Neepawa has also bumped up the price it pays to producers.

Hog producers in Quebec receive a share of the cut-out value, thanks to a new pricing system in the province.

Last year, Maple Leaf did increase its price by $20 to support producers who were suffering through prices of $135 per pig. The $20 bonus lasted for 13 weeks.

However, Maple Leaf is sticking to the old pricing model, even when Hutterite colonies are reducing their sow herds or getting out of hog production because they can’t make a profit.

“These producers have told their packers this is going on,” Fitzgerald said. “Those producers are asking … where’s our ability to stay in business?”

Maple Leaf’s refusal to change its contracts comes at a time when pork processors are making a healthy profit.

According to Agriculture Canada data, the country exported $5.09 billion in pork last year compared to $4.2 billion in 2019, an increase of almost $800 million.

“We did phenomenal, but that didn’t translate back into the pockets of producers,” Fitzgerald said.

“That translated into the pockets of packers.”

Tension between livestock producers and the companies that slaughter livestock is a normal part of the industry, but having a working relationship is critical for success.

“If the packer and producer relationship isn’t relatively strong, then they (farmers) don’t have any incentive to (invest or build barns),” said John Nalivka, owner of Sterling Marketing Inc., a consultancy in Oregon that specializes in the livestock and red meat industry.

“There’s got to be a connection within the supply chain. You’ve got to be able to connect these pieces, from the producer to the packer to the retailer.”

He said the relationship between packers and hog producers has improved in the U.S. over the last decade, thanks in part to cut-out pricing and packers sharing the wholesale value of pork with farmers.

“They need that up there in Canada, too. These old ways of pricing livestock are (dying).”

Many American packers have already adopted a pricing system that includes cutout, which does connect the producer to the value of pork.

Last fall, the Chicago Mercantile Exchange (CME) launched a cut-out value futures contract because of changes to pig pricing.

“Arrangements between hog producers and packers or processors today are diverse and ever-evolving,” the CME says on its website.

“Once based almost exclusively on the value of live hogs, many agreements now pay greater attention on prices further down the value chain, particularly the pork cutout.”

If Maple Leaf and other packers stick with the old pricing system, hog producers on the Prairies will either cut back their herds or shut down barns, Moen said.

“If we lose all of our independent production it will roll back onto the packing plants,” he said. “What we’re trying to explain is we are partners in this operation, from production, through slaughter and selling (of pork). The packers have to understand … if they want to maintain the efficiencies of their plant and maintain their throughput, they have to start to pay for the pigs.”

In an email to the Western Producer, Maple Leaf defended its pricing system for pigs.

“Maple Leaf is confident that the prices it pays for the hogs we purchase are fair and reflect the market. We compete in the North American marketplace and we price based on the U.S. National, which is the broadest measure of hog transactions. Approximately 37-38 percent of the U.S. National benchmark is based upon the cutout.”

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