Source: Manitoba Cooperator
How NAFTA, the end of the Crow Rate and the end of single-desk marketing shaped the sector, and what got lost along the way.
Ian Smith’s hog farm hasn’t changed much since his family began raising pigs in the late 1960s.
t has no pit system. Smith scrapes the pens and spreads straw twice a day. His 10 to 15 sows spend time outside. On his 160 acres near Argyle in Manitoba’s Interlake, he raises his own barley and hay with ancient farm equipment, keeps about 100 laying hens and sells purebred Shorthorn cattle.
“I’m a working museum,” he said.
Why it matters: Manitoba’s hog sector looks vastly different than it did 30 years ago. The number of farms has dwindled, the number of hogs has surged, and the average business model has undergone a major shift.
A new economic study, which Manitoba Pork released earlier this summer, shows that at about the time Smith’s family started raising pigs, they were one of 15,000 to 20,000 hog farms in Manitoba that each raised a few hundred animals.
Today, there are 556 hog farms in Manitoba, according to census data from Statistics Canada. In 2021, the number of animals per farm reached its highest yet at just over 6,100, the agency reported.
According to Manitoba Pork, the province collectively raised nearly five million hogs in 2022 and the sector provides some $2.75 billion to the provincial economy.
In terms of processing capacity, Manitoba ranks behind only Ontario and Quebec, and it’s the second-largest live pig and pork exporter in Canada.
Location, location, location
The hog sector had already been on an upward trend since the late 1970s. Then, in 1996, the Crow Rate was removed. It was a federal subsidy on rail transport of grain implemented near the end of the 19th century.
“The Crow Rate had the effect of shortening the distance between Manitoba’s wheat farmers and their markets, which, of course, made the farmers more competitive in the world market,” wrote Brandon University researchers Doug Ramsey and John C. Everitt in their paper, “Post-Crow Farming in Manitoba: an analysis of the wheat and hog sectors.”
When the federal government ended the Crow Rate, costlier rail transport incentivized Canadian farmers to keep feed grains close by.
That was especially applicable in Manitoba, which was far from many ports, said Cam Dahl, Manitoba Pork’s general manager.
With pressure on crop prices throughout the ‘90s, there were few other options for farmers in southern Manitoba, wrote Ramsey and Everitt.
Manitoba had (and has) the additional advantage of diverse cropping, Dahl noted. Important feed crops like corn, canola and soybeans are all popular choices in the region, and all that cropping means many fields are also ready to take hog manure as fertilizer.
Location was another key advantage after the North American Free Trade Agreement was signed in 1994. Dahl noted the deal “thinned the border” between Canada and the United States.
For the Manitoba pork sector, sitting above key pork-producing Midwest states and with the international border just a stone’s throw away, the trade doors blasted wide open. In 2022, American producers bought 2.9 million Manitoba weanlings, according to Manitoba Pork’s numbers. The U.S. also buys significant amounts of pork from Manitoba.
Consolidation and vertical integration
The sector was also shaped by the arrival of Maple Leaf Foods, which opened a major processing plant in Brandon, and the takeover and expansion of another plant in Neepawa by HyLife Foods, a company with Manitoba roots that now boasts a global reach. HyLife Foods was bought by a Thai firm in 2019.
The emergence of those companies paved the way for more local processing, as well as a drift toward vertical integration of hog operations. The elimination of single-desk hog sales in 1996, which then allowed farmers to contract directly with packers, helped kick off the trend.
Until that time, Manitoba Pork marketed all hogs in Manitoba, allocating, as a November 1995 Western Producer article put it, “hogs to the province’s four packers and [negotiating] prices on behalf of about 2,200 producers.”
A March 1995 report from the same publication said a Manitoba Pork phone survey of 422 producers showed 62 per cent were against removing the marketing board, while 83 per cent said it did a good job of marketing hogs.
The Progressive Conservative government of the day had commissioned a report that called for removal of the single desk agency “in the interests of doubling production,” the newspaper noted.
The Manitoba Pork chair of the time, Ken Foster, disagreed.
“They seem to have this idea that there’s a bunch of investors sitting at the border of Manitoba willing to come in here and spend millions of dollars in the processing industry if we would just allow this to happen,” he was quoted as saying. “But they have never given us any evidence of this happening.”
Foster would prove incorrect.
Prior to 1999, wrote Ramsey and Everitt, 45,000 hogs per week were processed in Schneiders plants in Winnipeg and 20,000 hogs were processed each week at the Springhill plant in Neepawa.
In July 1999, Maple Leaf Foods began processing in Brandon with 45,000 pigs slaughtered in a week. HyLife – then called Hytek – bought the Springhill facility in 2008 after failing to get approval to build a processing plant in southeastern Winnipeg due to resident objections, a 2011 Co-operator article reported.
The two facilities now account for 90 per cent of the nearly five million hogs processed per year in Manitoba, according to the recent Manitoba Pork report. That’s a 35 per cent increase in processed hogs from about 3.7 million in 2007.
However, to contract with the big packers, farmers had to provide hogs at scale.
“Early contract offerings [after single-desk was eliminated] began at 2,000 hogs per year and promised a scant $20 net profit per hog,” wrote southern Manitoba farmer Les McEwan in 2011. “For anyone who could not meet those requirements, contracts were not an option. Low margins meant big units would have to think bigger to maximize returns.”
According to Statistics Canada, the average number of animals per Manitoba pig farm in 1991 was about 430. By the 2001 census, the average herd had grown by several orders of magnitude, hitting just over 1,500.
The large packers have increasingly become vertically integrated, bringing genetics, feed, hog farms from farrowing to finishing, processing and marketing into their fold, either through ownership or contracts with producers.
In 2022, there were 204 registered hog producers in Manitoba and 624 farms, according to Manitoba Pork.
The farm group’s chair, Rick Préjet, is one of the remaining independent hog producers in Manitoba. Préjet and his family began hog farming with 150 sows in 1989. In 1993, Préjet saw that he’d need to grow to be financially viable.
With a group of local investors, he began to expand the farm. Today, his operation comprises 5,000 sows, farrow to finish.
Within those decades, the hog sector has seen multiple booms and busts, and sometimes both in the span of months.
In 2019 and 2020, the hog sector cycled through both boom and bust. In early 2019, as China’s hog supply was devastated by African swine fever, the Asian country ramped up Canadian pork import.
Trade in those goods jumped by nearly 83 per cent from January to March, said an August 2020 report from Agriculture Agri-Food Canada. Between February and May, prices for fresh and frozen pork increased nearly 21 per cent.
In June 2019, a trade dispute led China to ban all imports of Canadian pork. Total pork exports dropped about 15 per cent as Canada was forced to look elsewhere for customers. In November of that year, China said it would take Canadian pork again.
In early 2020, as outbreaks of COVID-19 closed packing plants in the U.S. and Canada, the hog market backed up. Exports to the U.S. dropped nearly 21 per cent between March and April and prices dropped over 13 per cent in January and February, according to AAFC. Plant closures led to higher fresh and frozen pork prices over March, April and May.
The Manitoba pork sector has also had to contend with new animal diseases, such as porcine epidemic diarrhea, which was first detected in the province in 2014 and has since led to several serious outbreaks, starting in 2017.
And not all policies have been friendly to the sector. In 2018, the province’s Red Tape Reduction Act removed a stipulation that newly constructed barns include an anaerobic digester, among other policies that had restricted barn construction.
That stipulation, which had been in place for over a decade, was introduced as an environmental measure for manure treatment, with an eye to phosphorus levels in Lake Winnipeg.
Among the hog industry, however, the restrictions became known as a ‘moratorium’ on barn building due to the expense and hassle of replacing barns or building new ones. Many barns were pushed near or past their expected lifespans.
The volatility has not made it easy to stay in business, Préjet acknowledged. He attributed his farm’s success to good people, from his group of co-owners to employees, accountants and advisors.
They’ve also had to keep a sharp pencil for production costs, and that’s how all remaining independent producers have stuck around, he said.
Many farmers who left the industry were excellent businesspeople who got caught flat-footed by market swings, he added. His farm’s success was, “partly plan, partly luck.”
Today, hog prices are good, but the cost of production, particularly the price of grain, is significantly cutting into profits, Préjet said.
Packers have also struggled this year. Quebec’s Olymel Foods announced permanent closure of a hog plant in Quebec and HyLife shut down its facility in Windom, Minnesota.
Pork prices at the store are high, Préjet noted, and the industry seems to be imbalanced.
Reasons for optimism
Dahl said there are reasons for optimism. The location-based advantages still stand and the demand for pork worldwide is increasing.
“The world needs more protein. We produce a lot of protein,” he said.
While packers have struggled lately, they’ve also made recent large investments in Manitoba facilities, including a $212-million expansion of HyLife’s Neepawa plant and a $182 million investment in a “Bacon Centre of Excellence” cited by the Manitoba Pork economic report.
The report also noted a downturn in the European Union’s pork production, which could open doors for Manitoba to capture market share.
“Manitoba can position itself strategically by highlighting its disease control measures, sustainability practices, and competitive pricing,” it read.
Meanwhile, smaller producers like Smith are carving a niche through direct, local sales. Smith highlights his collaboration with the Winnipeg Humane Society to verify his animal handling practices and says he can command a premium for his pork.
“It hasn’t been easy, but being a true mixed farmer has helped,” he says, adding that he’s debt-free and feels no need to compete with the big guys. “If it’s not broken, why change?”