The Canadian Pork Council’s proposal to use increased debt to get a portion of the industry through its financial crisis is a reasonable plan, says one of Canada’s leading sector analysts.
Some critics have questioned whether more debt for an industry that cannot pay its bills is a viable solution.
Even CPC president Jurgen Preugschas conceded it is a gamble because producers who survive will have to service far higher debt loads than their international competitors.
But Kevin Grier, an industry analyst at the George Morris Centre in Guelph, Ont., says the proposal that Ottawa guarantee loans so producers can cover losses suffered in H1N1-related market resistance to pork is a sensible one.
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After more than two years of losses, producers had a reasonable expectation of profits in the first half of 2009, he said July 20. Those expectations died when the H1N1 virus became widely known as swine flu and pork markets suffered.
“So I think it’s possible to consider that a new loan program will provide some assistance to those producers who likely would have survived if not for the unexpected flu development and its impact on the industry,” said Grier. “To that extent, debt as a form of bridge financing makes sense.”
However, he said the loans would not slow down industry contraction and would not be intended to slow it down.
“The industry is rationalizing and that rationalization is going to continue,” he said. “In fact, H1N1 is going to accelerate it further.”
In its proposal to federal agriculture minister Gerry Ritz, the pork council projected that within five years, industry production will fall 18 percent to 25.5 million hogs from 31 million in 2008.
It said the smaller industry also will be far less focused on the United States as a market, reducing live exports to the U.S. to four million by 2014 from 9.3 million last year.
It also predicts the Canadian hog and pork industry will pay more attention to the Canadian market, increasing domestic sales 25 percent to 730,000 tonnes in 2014. The more robust domestic sales will come from increased Canadian consumption of pork and displacement of imports, says the industry organization.
The CPC calls it a transition strategy for the beleaguered industry.
“We believe that the right combination of government policies and programs, industry initiatives and farmers’ actions will establish a foundation of success,” said the CPC proposal.
“During this period, there will be a significant amount of pain for farmers, their employees, their customers and suppliers.”
Grier said it appears to be an industry game plan with a chance of success.
“The CPC tends to think things through well and take responsible positions,” he said. “I think this is an example. They are not going to get grants. Loans could help those with an operation base and farm management skills to recover if not for the hit from H1N1.”
The Pork Council also has asked Ottawa for $500-per-head sow payments plus market value for farmers who want to sell their breeding stock and get out of the business.
Agriculture minister Ritz says government is analyzing the proposal from the industry and has promised a government response soon.
Preugschas has said help must come within days or weeks at the latest.
