COOL: Potential Economic COOL: Potential Economic Implications For the Canadian Implications For the Canadian

and US Pork Industriesand US Pork Industries

Larry Martin

Presentation OutlinePresentation Outline

COOL Project I: Impacts in Canada– Manitoba Pork Research

COOL Project II: Impacts in the US– Prairie Producers, Ontario, and CPC Research– Authored by GMC and Virginia Tech

COOL I: Impacts in CanadaCOOL I: Impacts in Canada

Most Important PointMost Important Point

The US represents 35-40% of the market for Cdn hogs/pork

COOL objective is to reduce or eliminate imports

US Imports of Canadian Pork

100,000

150,000

200,000

250,000

300,000

350,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

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BackgroundBackground

It will cost more for US packers to handle Cdn hogs– Trace back to farm of birth– Logistics after slaughter– Many are not going to take Cdn hogs– Undecided

Cdn pork is likely okay– Not a given

US $/Head

Procuring Canadian Hogs or

Pork

Not Procuring Canadian Hogs or

Pork

Difference in Costs for

Canadian or Not

Producer 1 1 0

Packer 5-10 2 3-8

Retailer 2 2 0

Total 8-13 5 3-8

COL Cost Current ThinkingCOL Cost Current Thinking

If Cdn hogs cost more to If Cdn hogs cost more to handle, they will not be handle, they will not be

purchased, or they will be purchased, or they will be discounted by the extra costs.discounted by the extra costs.

How Do We Get At Impacts?How Do We Get At Impacts?

Assume they don’t get exportedAve Manitoba farm sizeNo price effect

COL Implications: NegativeCOL Implications: Negative

At risk:– 450 farms– $350 million farm income– Six feed mills– Market for 250,000 acres

Or $750 million and up to 3,000 farmsManitoba is directly vulnerable

COL ImplicationsCOL ImplicationsNeutral/Positive:

– US system is not rigorous or systems not costly.– US packers figure out how to handle Cdn hogs

without difficulty.– Business as usual.

COL ImplicationsCOL ImplicationsPositive:

– US burdened with costs– Cdn pork is successful

Cda needs finishing and packing capacityValue added, jobs, exports….

Capacity ExpansionCapacity Expansion

Finishing space (1 million)Packing (58,000/week)Capacity expansion has precedent

COOL II: US ImpactsCOOL II: US Impacts

PremisePremise

COOL’s purpose is to impede tradeCOOL may achieve that purposeWhat will be the results if the US is short 6

million head?

11stst: Weaner/Feeder Imports: Weaner/Feeder Imports

Why do weaners/feeders go Why do weaners/feeders go South?South?

Sound economic reasonsHigh qualityStructural evolution in hog beltThey have strong demand and we have

supply

W/F Importers W/F Importers

Variety of methodsFinal user is independent farmer/finisher

– Mostly in Iowa– Average producer

What if 3.7 million are not What if 3.7 million are not available?available?

Jeopardize the livelihoods of 1,000+ farmers

Farm income of $450mEconomic spin-offs (value added)

The hogs will eventually be The hogs will eventually be produced in the US, by….produced in the US, by….

Few integrators replace many farmersIncreased health and disease risk

22ndnd: Market Hog/Packer : Market Hog/Packer ImpactsImpacts

Why do Market Hogs Go Why do Market Hogs Go South?South?

Sound economic reasons– Price– Capacity (here and there)

What will happen if 6M hogs What will happen if 6M hogs don’t go southdon’t go south

Eliminate US packing capacity– 3-4 plants

Increased Cdn pork imports– 1 plant

Lost jobs and $4b in economic activityIncreased manure production

– 2.1 million tons once lost production is replaced

What about price impact?What about price impact?

US production will increaseCdn production will decrease, but not by as

much as US increasesNet increase of 4 million head post-COOL

– 6mil cdn hogs produced in us– Cda reduce production 2 mil

Hog prices will be 30% lower than they would have been without COOL.

Summary US ImpactSummary US Impact

Lower pricesFewer farmersBigger integrator shareLost jobs, plants and economic activitySecurity risk