The federal government’s latest supports for Canada’s reeling hog sector will just pave the way for still more losses and ad-hoc funding unless Ottawa also rethinks its supports for grain-based ethanol, the George Morris Centre warns.
Al Mussell, a senior research associate with the Guelph-based ag think tank, and research fellow Ted Bilyea, a retired Maple Leaf Foods executive, wrote Wednesday that “consistency would demand” co-ordinated federal policies on biofuels, pork and beef.
“The notion of opening the throttle and applying the brakes at the same time is that something must give, eventually,” the researchers wrote. “Simultaneously assisting the pork and beef segments on one hand, and legislating and subsidizing grain-based ethanol on the other, puts policies at odds with themselves.
“Beyond the insincere treatment of hog producers and the future demand for public support created, the Canadian manufacturing sector is not in a position to tolerate the fallout in food manufacturing that will be created. The recognition of these dichotomies appears not to have reached senior political levels.”
“Consistency would demand that pork (and beef) policy and biofuel policy be co-ordinated,” they wrote in their report. To do otherwise, they said, is “disingenuous to pork and beef producers and a waste of public money.”
The government, they wrote, could move to “stop further funding of new grain-based ethanol development in consideration of the pork strategy, and for that which can be anticipated in beef.”
Mussell and Bilyea said there’s something “singularly perverse about giving false hope and setting an industry up to fail.” Ottawa’s assistance package, may comfort some people who have been losing money in the pork sector and they, along with lenders and investors, may even begin to reinvest in the pork segment.
However, “when the natural comparative advantage is being structurally eroded by policy backing ethanol mandates and subsidies to make ethanol from grain, the investments in pork will later prove less profitable, magnifying existing losses and probably driving a demand for future public assistance.”
As ethanol demand in Canada increases and less domestic feed grain is available, the report noted, Canada must import feed grains. Feed pricing thus becomes the U.S. reference price plus the freight cost, the report said.
And under an import pricing regime for feed grains, “the viability of the export-based livestock feeding segments becomes compromised based on relative feed costs.
“The logic is that with a cost disadvantage to the U.S. on feed grains, Canadian feeders will be uncompetitive for weanling pigs and these pigs will be finished and processed in the U.S., leading to the decline of hog finishing and pork processing in Canada.” But given the current mandatory country-of-origin labelling laws in the U.S., “this adjustment via arbitrage in weanling pigs cannot occur.”
Rather, the report said, “the customers for Canadian weanlings will be Canadian finishers, with structurally lower budgets available to purchase weanlings than customers in the U.S.”
And with the North American market arbitraging in pork rather than hogs, “the ultimate transfer is to lower weanling pig prices in Canada, with a structural decline in the sow herd and a concomitant decrease in hog finishing and pork processing.”
Thus, the report said, “the pork segment should see the grain-based ethanol industry for the menace it is.”
Furthermore, the authors said, “factors that threaten food manufacturing should be a source of broad public policy concern.” Canada’s vehicle manufacturing sector, for instance, provided value added of about $10.6 billion in 2006, compared to $23 billion in food processing, of which red meat processing made up about $4.6 billion.
In terms of straight sales, food manufacturing in Canada generated about $70 billion in 2007, “significantly exceeding” automakers’ sales. Of that $70 billion, the centre’s researchers wrote, red meat manufacturing generated about $15.8 billion.