Even though the Canadian and U.S. pork industries share a border, the neighbors couldn’t be further apart at the moment.
The National Pork Producers Council filed allegations of dumping and unfair trade practices against Canada regarding live-hog exports to the United States. The allegations could cause ripples that change the North American pork industry for years to come.
At issue are subsidies that the Canadian government pays to its pork producers, which have allowed the nation’s sow herd to expand continuously since 1997, says Nick Giordano, NPPC’s trade counsel.
“It began after the cessation of the last round of countervailing duties when Canada began making its farm supports ‘whole-farm’ programs, whether those be income supports, subsidized loans or whatever,” says Steve Meyer, Paragon Economics. “These programs reduce the business-risk level that a farm faces. The effects of these whole-farm programs are hard to separate among the various products, but the effect of reducing risk is clear — it causes output to grow.”
Canada has a different story.
“The Canadian government is not subsidizing pork production, which will be shown and Canada will win the case, whether in the U.S. process or before international tribunals,” says Kevin Grier, senior market analyst for the George Morris Centre in Guelph, Ontario.
If the U.S. Commerce Department determines that Canada used unfair trade practices that harmed U.S. pork producers, preliminary sanctions may be invoked on all hogs (except breeding stock) coming from Canada as early as this summer.
Exporters would have to pay any countervailing duties on every hog crossing the border — similar to a tariff.
Grier expects little effect on the flow of hogs at least initially, because the trade occurs between professionals who are willing buyers and sellers. That’s fortunate, since Canada supplies many Corn Belt farms with nursery pigs.
In 2003, 4.86 million Canadian feeder pigs came into the United States, and there are no signs of it slowing this year. In fact, for the first 13 weeks in 2004, the United States imported 110,700 feeder pigs per week from Canada, compared to 81,275 per week for the same period in 2003, notes Mike Brumm, University of Nebraska Extension swine specialist.
“The United States still has demand for weaned and feeder pigs, and nowhere else can fill that demand,” says Brumm.
Grier agrees, saying that demand for weaned and feeder pigs is what has kept Canada’s sow herd intact.
Meyer points out that one reason why the U.S. feeder pig supply has dwindled is because U.S. producers could buy pigs cheaper in Canada. If that occurred because the Canadians are better at raising pigs or that the exchange rate makes those trades possible, then it is the result of economic differences, which is exactly what trade is supposed to accomplish. But if a portion of it is because income-support programs or subsidized-finance programs cause risk or cost levels for Canadian producers to be lower, then that is a problem. That’s the question NPPC’s filing poses.
Meyer says the impact of the duties could create the following:
1. raise the price of Canadian hogs entering the U.S. market;
2. the flow of pigs and hogs across the border will not decline in the short run;
3. in the long run, the flow of Canadian animals will decline relative to what it would be without the duties.
The trade history between the U.S. and Canadian pork industries goes back to the 1980s, when the United States filed a similar claim. This led to Canada changing its government policies, which ended the duties in 1999. The current case charges that 20 Canadian governmental programs are subsidies. Giordano says some are legal and some are illegal, and the U.S. Commerce Department investigation will determine how many, if any violate U.S. law. If violations are found, duties can be imposed until Canadian policy changes.
“It could take Canada some time before the changes are made,” says Giordano. “The duties will remain in place as long as Canada is engaged in unfair trade practices, which the United States wants to see ended.”
Fact is, both countries are part of a North American pork market today. While prices and duties may have to be worked out, the flow of Canadian pigs to the United States will likely continue. The United States needs Canada’s supply of nursery pigs, and Canada needs the finishing space and the market that the United States provides.