Farmers are going to have trouble finding the money to build new barns, says the Manitoba Pork Council’s general manager.
Andrew Dickson said profits are back, but Manitoba’s hog industry is still trying to figure out how to break the financing grip strangling its badly needed recapitalization.
“Our production capacity is not being replaced,” Dickson told the Manitoba Swine Seminar Feb. 5.
“We’re seeing a slow but general decline in hog production.”
Dickson said the average Manitoba barn is 16 to 17 years old. He said it would cost $1.6 billion to replace all the barns in Manitoba, which will need to be done eventually.
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However, it’s hard to do when banks will lend only a maximum of 65 percent of the appraised value of a barn and barns are much more highly valued than they were a few years ago.
A farmer with an old barn who has lost much of his equity in recent years will have trouble finding the down payment necessary to obtain the financing.
“We are stuck in this problem right now,” said Dickson.
The hog industry is a powerful economic force in Manitoba, employing more than 12,000 people and producing billions of dollars of activity. However, it has lost lots of money in recent years and has faced aggressive regulatory restrictions from the provincial government.
Dickson said Manitoba’s two main packing plants are running at only 80 to 83 percent of capacity because of a dearth of market hogs, while U.S. plants are running at 97 percent.
He said the provincial industry would need to add 250 new feeder barns to provide enough to keep the plants running at near 100 percent. Right now, Manitoba can’t even hang on to the barns it’s got, he added.
“To replace the stock of barns we have, we should be replacing 20 to 30 a year, and we have not been doing that,” said Dickson.
Farmers will want to reinvest and stay in the industry if profitability continues, but they face big problems coming up with the capital after recent tough years.
The pork council is pushing a three-pronged strategy to try to break the financing logjam:
- The council is still trying to persuade the provincial government to agree to a farmer-funded and government-guaranteed hog price stabilization line of credit to cover slumps.
- The council is advocating partially government-guaranteed loans for barn construction.
- The council is pushing for licensing of new hog farms to ensure that they have a contract with a packer before they are allowed to build. A guaranteed place to sell the pigs should help farmers avoid the disasters that occur when packer capacity is exceeded.
Dickson said he thinks those programs would lead to $400 million in new investment and help the industry supply packers with what they need.
