October 15, 2004

U.S. Hog Producers Do Not Need Government Protection

Some elements of the U.S. swine industry have asked the government to collect a border tax on hogs entering from Canada, and to distribute the money to them. This protection is unnecessary and counterproductive. Hog prices already are at historic highs, and U.S. hog producers are profitable. Far from hurting U.S. operations, most Canadian hogs are imported young and fattened by U.S. hog growers with U.S. feed. Canadian hog supplies are essential to America's position as a leading pork exporter.

Hog producers do not need special protection. This is the wrong time to restrict hog trade in the United States. Hog prices are very high. August 2004 cash prices were over $52 per hundredweight, more than a 40% increase over August 2003. Dressed hog prices were up 37% over the same time period, to $74 per hundredweight. Prices have been driven up by a significant demand increase: when figures are released, August 2004 slaughter numbers are expected to be about 3% higher than August 2003.

Buoyed by strong prices, major hog producers are reporting large profits. There are two publicly traded companies among the top five U.S. hog producers. The operating income reported by those two companies for the most recent quarter is over $110 million - 300% greater than the income for the same two companies in the same time period in 2003. Profitable hog producers do not need government support from border tax proceeds.

Canadian hogs are a small factor in the U.S. market. This is not a case where U.S. farmers face a tide of imports. Canadian hogs account for only 3.3% of a U.S. market that totals nearly 27 billion pounds. Nor is market share changing rapidly: The market share of Canadian hogs increased only one half of one percentage point from 2001 through 2003.

Canadian hogs help U.S. hog farmers and fill packing capacity. Two-thirds of Canadian hogs that cross the border are actually not hogs at all, but baby pigs: 10 pound "weanlings" and 50 pound feeder pigs that will be raised to market weight by U.S. farmers. Before they come to market, these pigs are fattened to a weight of 260 pounds by U.S. farmers, where they are fed as much as 700 pounds of U.S. feed each. As much as 80% of the value of the finished hogs is added in the United States. Far from harming U.S. producers, these baby pigs are a critical element of many U.S. farmers' operations. Just as important, these baby pigs help sustain U.S. packing capacity, which exceeds U.S. hog supply by as much as 14%.

Barriers to Canadian hogs would undermine U.S. pork production. In 10 years the United States has grown from a net importer of pork to one of the world's three leading exporters. More than 8% of U.S. pork production was exported in 2003, and exports are projected to increase to 10% in 2004. U.S. producers cannot both satisfy U.S. demand and maintain exports of this magnitude without Canadian weanlings. And if the government acts to keep Canadian weanlings out, those pigs will become Canadian pork and compete with U.S. pork in offshore markets - the action will have "outsourced" U.S. finishing and packing operations to Canada.