pork producers are preparing to enter the value-added industry.
Some say they have no choice. To keep freight costs down they need a federally inspected plant closer than Brandon and Red Deer, which will be their nearest alternatives.
However, the Canadian packing industry is struggling with labour shortages, a strong currency, efficiency problems and lack of profitability. Any new packer setting up shop in Saskatchewan would face a challenging environment.
With a million pigs to market each year, Big Sky Farms, the province’s largest producer, needs consistent slaughter opportunities.
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When Maple Leaf said last October that it would not build a new Saskatoon plant and would close its existing slaughterhouse within three years, Big Sky founder and chief executive Florian Possberg took that as a challenge.
“Just because Maple Leaf (thinks) Saskatoon isn’t where they want to be” doesn’t mean a plant wouldn’t survive there, he said.
Big Sky had been a partner with Quebec pork processor Olymel and Manitoba hog production company Hytek Ltd. in a proposal for a large slaughter plan in Winnipeg, but back out when Olymel ran into financial problems and the Manitoba government issued a moratorium on new barn construction. About the same time, Maple Leaf announced its restructuring, putting the spotlight on the need for a Saskatchewan slaughter plant.
“As producers, maybe we need a plant in Saskatoon, and it needs to be very efficient,” Possberg said, citing the use of robotics as a way to do that.
Efficiency is the key.
Canadian pork packers are closing smaller, older plants and focusing on their most modern facilities capable of running more than one shift.
“Maple Leaf says it’s going to double shift in Brandon,” said Kevin Grier, senior market analyst at the George Morris Centre in Guelph, Ont. “Olymel says it will double shift in Red Deer. There is no loss of capacity on the Prairies.”
But finding workers to fill those shifts and maintain the capacity could be difficult.
In a report to the recent Manitoba Swine Seminar, Grier and his colleague Al Mussell cited a study of labour availability in agriculture and food.
The study by R.A. Chisholm Ltd. said Alberta requires 1,500 workers in beef and pork packing, while Manitoba needs 600 people.
Grier said potential employees are naturally attracted to higher paying opportunities in other sectors, such as energy. Packers also have to deal with declining populations in some areas and a workforce that doesn’t want to work in slaughter plants.
Labour shortages clearly lower production, said Grier and Mussell, but more subtle losses include the inability to cut pork to more refined specifications, the lack of asset utilization and the associated loss in return on investment.
The dollar is another obstacle. From its low in 2002 to today, the loonie has appreciated 39 percent against the U.S. dollar and 37 percent against the Japanese yen.
“If you talk to (Maple Leaf chief executive) Michael McCain he will say the Canadian dollar did more damage than anything else,” said Don Hrapchak, general manager of SPI Marketing Group.
Packer profitability was eroded by the appreciating dollar, which lowered pork cut-out revenues and reduced competitiveness relative to the United States.
Despite these problems, Saskatchewan producers say they need a local packer to maintain their own competitiveness.
When the Saskatoon plant closes June 1, they face additional transportation costs of $5 to $10 per hog.
The provincial government stands by its objective of a strong slaughter and processing industry to support the herd expansion it encouraged.
Hog marketings increased to 2.5 million last year, up 150 percent since 1997, but most are slaughtered outside the province.
The government was prepared to invest $35 million in Maple Leaf’s now-cancelled expansion; $22.5 million of that was to go to the slaughter facility.
Provincial agriculture minister Mark Wartman said the government is involved in preliminary planning for a replacement to the Maple Leaf facility, which kills about 850,000 hogs per year.
The cost of a plant that size is about $150 million, Possberg said.
“We (Big Sky) don’t have the capacity to do it ourselves,” he said. “But we do have the capacity to work with other producers.”
A meeting was planned for Saskatoon this month to discuss the idea.
“We need to have slaughter and markets out of here,” said Wartman. “Who can work with us to do it?”
Meanwhile, the province’s other federally inspected but much smaller pork facility remains closed after two years of financial difficulty.
Moose Jaw Pork Packers in Moose Jaw, Sask., would like the government to send more money its way to help it reopen, but Wartman said none is available under current programs. The province owns a small stake in the plant after a 2006 restructuring.
Geoff Aikens produces hogs near Hearne, Sask., and used to ship to Moose Jaw. His hogs now go east through the Manitoba Pork Marketing Co-operative, often to the Springhill Farms plant at Neepawa, Man.
Some also go to a small packer east of Avonlea, Sask.
“We have never been stuck,” he said. “But it does cost five bucks a hog more to get to Neepawa than to Moose Jaw.”
Smaller producers like him wonder if a new Saskatoon plant would have room for their hogs or if its supply would come from the larger players.
SPI Marketing Group markets about 60 percent of the slaughter pigs in the province, said Hrapchak.
Any company, local or foreign, that sees an opportunity in establishing slaughter and processing in Saskatchewan should look at niche markets, he added.
“If someone’s going to come in, he can’t try and be another American large plant that does five or six or seven million animals a year.”
Hrapchak believes targeting a specific need or market, perhaps stressing the value of pork, is a better approach because the province does not produce enough slaughter hogs to serve a modern double shift plant that kills 80,000 head per week.
Former SPI chair Richard Wright also observed that more hogs are necessary to support a large processor.
“In order to support or attract a world-class
plant, (Saskatchewan) needed four million pigs, at least,” he said.
Increasing production won’t be the problem as Possberg sees it. The problem with Canada’s industry isn’t the hog producer; it’s the processor.
The American Midwest is home to 11 plants larger than the biggest one in Canada, and Possberg said they all doubled their capacity by double shifting. They also kept close watch on their competitors, he added.
“They had to keep reinvesting, otherwise their neighbour was going to kick them out of the business,” Possberg said.
Meanwhile, Canadian packers paid less for hogs and benefitted from the low Canadian dollar, allowing them to be less efficient and still be profitable.
That changed as the loonie began its upward swing.
“It really showed that beyond the farmgate industry, slaughter and processing were miles behind the efficiencies that the Americans had built up,” he said. “Now we have to go through the sorting out.”
