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Weak loonie helps, COOL hinders meat exports

(Resource News International) — Canada’s exports of pork and beef have been helped along by devaluation in the Canadian dollar, but the recent implementation of the U.S. government’s mandatory country-of-origin labelling (COOL) has negated some of the benefits, according to industry participants.

“Canada’s pork and beef producers get paid in Canadian dollars and because all of the international transactions are in U.S. dollars, the rate of return has improved significantly,” said Brad Marceniuk, a livestock economist with the livestock development branch of Saskatchewan Agriculture in Saskatoon.

“On paper, it definitely makes Canada more competitive on the world market,” said Kevin Grier, a senior market analyst with the George Morris Centre in Guelph.

However, he cautioned, the benefits are not always felt right away.

“The main effect of a weaker Canadian dollar is that domestic pricing is impacted,” Grier said, noting that in most cases values for those products in Canada climb.

However, as time goes on, Canada in theory will become more competitive in certain export markets, he said.

Using Japan as an example, Grier said Canada should be able to compete more effectively in that market than the U.S., because of discounting that Canadian processors can offer due to the cheaper Canadian currency.

“Canadian processors can undercut their U.S. counterparts, or even Australian competitors, a bit and still make some money given the exchange rate,” he said.

Grier cautioned that the benefit of a weaker Canadian dollar can also be illusory and fleeting.

“When the Canadian dollar was trading at US65 cents, it did not result in Canada being more competitive, but rather meant Canadian processors were able to price the product lower,” Grier said. “The way a company becomes more competitive is not through the depreciation of a currency, but rather in the investment and in the increase of productivity.”

“The market bears what it bears and that means a weaker Canadian dollar does not always help move product,” said Chenier La Salle, vice-president of international programming for the Canadian Beef Export Federation.

“Canadian beef processors have indicated to me that a weaker Canadian dollar does not always help, as international buyers have got used to paying a certain price for Canadian and U.S. product,” La Salle said.

Processors, he said, were currently selling Canadian beef products at the same price they were prior to the Canadian currency weakening.

The margins at the beef processors in Canada haven’t changed, La Salle said.

Pork competing

Marceniuk, meanwhile, felt that while the beef processors were not necessarily benefiting from the weaker Canadian currency, the better exchange rate was allowing the pork sector to better compete.

“There has been some pork production ramp-up at Maple Leaf and Olymel with the increase in slaughter associated with the weaker Canadian dollar,” Marceniuk said.

Normally, when the value of the Canadian dollar declines, live hog and live cattle producers are more likely to sell their livestock directly into the U.S. in order to take advantage of the exchange rate, the analysts all agreed.

However, with the implementation of mandatory COOL in the U.S., those sales have declined significantly, Marceniuk said.

Part of the problem is that U.S. packers are unsure of exactly what the new rules mean, and because of that they have not renewed or, in some cases, have cancelled contracts with Canadian weanling producers, he said.

Weanling shipments from Canada to the US are down 50,000 animals a week due solely to the implementation of COOL, Marceniuk estimated.

The inability of the Canadian producer to unload weanlings, meanwhile, depresses the domestic market.

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