News Release

MANITOBA PORK CALLS FOR

STRATEGY TO COMBAT ECONOMIC CRISIS

Manitoba pork producer losses expectedto exceed $19 million in six-week period before Christmas.

Winnipeg, December 4, 1998 — Manitoba pork producers, faced with the lowest hog prices in 27 years, are calling for the implementation of a six-part recovery strategy to address the economic crisis facing the province's pork producers.

"The collapse in hog prices, and farm incomes overall, must be addressed on a united front by all the key players in the Canadian pork industry, including consumers," said Gerry Friesen, Chairman of Manitoba Pork.

"The farming community in Manitoba is fearful of its future and seeking provincial and federal leadership and assistance in addressing its plight, both over the short term and the long term," said Friesen. "The immediate need is for our farmers to be able to extend their operating line of credit until market conditions improve," he said.

"If we are to pull together and come out of this crisis equipped to build one of the most prosperous pork industries in the nation, we will need to take decisive, prompt action on a variety of fronts," said Friesen. "The long-term outlook for the sector remains promising."

PORK INDUSTRY RECOVERY STRATEGY

1. Financial Aid

Pork producers need federal and provincial governments to jointly develop and finance a national trade-friendly, whole-farm disaster assistance program. Pork producers need to know immediately the details of the package so that they can make financial arrangements and come to management decisions with lending agencies before reaching complete financial destitution. Time is of the essence for pork producers.

Canada's pork producers support the national disaster program developed by the Canadian Federation of Agriculture. Under the program, all farmers would receive compensation when their gross margin falls below 70 % of a 3-year average. The program would be based on the gross margin for the entire farm and thus be in accordance with World Trade Organization (WTO) agreements.

Trading competitors who view financial assistance as an unfair trading advantage have, in the past, imposed trade barriers. Trade sanctions of any form would be a grave imposition to Manitoba's export-dependent pork industry.

2. Lending Agency Consultations

Pork producers, who have not already done so, need to approach their lending agencies to work out a reasonable financial strategy to carry them through difficult times ahead. Producers need to assure their lenders that they are managing their operations wisely and are committed to the pork industry over the long term.

Producers can be assured that financial institutions have a high degree of confidence in the viability of the pork industry. However, lenders need to be assured of producer competence in areas of financial, production and marketing management.

Financial lenders in turn are being urged to be fair, compassionate and accommodating with produces during these difficult times. Lenders would do well to meet with producers around kitchen tables to reduce stress levels.

The Manitoba Agricultural Credit Corporation (MACC) and Farm Credit Corporation (FCC) have come forward with deferred payment options for cash-strapped producers. Banks and credit unions need to announce their assistance positions.

3. Risk Management Strategies

North America hog prices are cyclical and, like weather conditions of this decade, they have fluctuated widely. While the cycles are predicable, the radical difference in extremes, coupled by an ever-declining profit margin in hog production, has made the use of risk management strategies an integral part of every farmer’s financial management arsenal.

The wake-up call for producers and lending agencies in this latest deep dip in hog prices is that forward price contracting and other risk management tools are assuming ever-increasing importance in financial management matters. As such, producers are encouraged to familiarize themselves with the advantages of locking in feed and hog prices to guarantee a fixed return on a reasonable amount of production as an ongoing business strategy.

4. Pork Supply and Demand Balance

In large measure, the prolonged collapse in hog prices is the result of an oversupply of hogs brought to market in Canada and the United States, coupled with a need for increased processing capacity. As Canada's hog prices are based on North American markets, the price setting mechanism is out of our hands.

However, pressure can be partially alleviated by national pork organizations and governments on both sides of the border by encouraging major packers to increase throughput and move more pork. Reduced demand for North America pork is also impacted by the economic downturn in Asia and Russia and the export subsidy programs available in the European Union. National governments on both sides of the border are encouraged to extend foreign food aid assistance to needy countries such as Russia to help move pork out of the country and help address a desperate social situation.

5. Producer Profit Erosion

Consumers need to understand that farmers’ incomes are continually being eroded. According to the National Pork Produces Council, the retailer share of the consumer dollar has increased from 47% to 60% through 1986 to 1998. During that same 12-year period, the pork producer share dropped from 36% to 21%. The packer share increased marginally from 17% to 19%.

A comparison of recent trends in retail prices and hog prices clearly indicates that the economies of food production are disproportionately skewed in favour of the retail end of the food chain. A review of price comparisons shows that, when Manitoba farmers received a 28% increase in hog prices during a nine-month period commencing February 1996 (from $154.64 to $198.17), the retail price of pork rose by 21%. When hog prices dropped on average 34% over a one-year period beginning October 1997 (from $168.30 to $109.66), the retail price of pork dropped only 8%. In the last 16 months, hog prices have dropped 67%, with pork price declines less than 10%. Clearly, the consumer needs to be getting a better break at the supermarket.

6. Trade Barrier Discrepancies

Canadian producers need to continue to have unbridled access to processing plants in the United States. Our federal government and pork organizations need to continue to exert pressure on the United States to allow free flow of hogs and pork across the border. Unfortunately, pork producers in the United States are lobbying strongly to gain preferred treatment over their Canadian counterparts at the packing plant.

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