How concerned should the pork industry be with the level of imports?

Monday, August 9, 2010

Pork imports have risen from about 31 per cent of consumption volume in 2005 to 44 per cent in 2009. And imports fetch a higher price than exports do

by RANDY DUFFY

Since 2005, annual per capita pork consumption in Canada seems to have stabilized at 23-24 kilograms per person. The one exception was in 2007 when it increased to 25 kilograms. These figures are on a carcass basis.

Retail sales in Canadian grocery stores for the 2005-2007 period show that the majority of pork purchased by Canadians can be classified as fresh rather than further processed.

Concern has been expressed with the volume of pork being imported into Ontario in recent years. Figure 1 shows monthly volumes of pork imports from all countries into Ontario (blue line) compared to the Canada-U.S. exchange rate (red line).

In 2009, almost 99 per cent of pork imports were from the United States. Figure 1 shows that import volumes tend to move in the same direction as the value of the Canadian dollar. As the Canadian dollar increases relative to the U.S. dollar, so do imports.

In 2009, it was estimated that the volume of Ontario imports represented an amount equal to about 44 per cent of Ontario's consumption volume, compared to about 31 per cent in 2005. So, as a percentage of total consumption, imports seem very high.    

However, Ontario is likely a major landing spot for imports that may be distributed to other provinces. In 2009, imports into Ontario were estimated to be 75-80 per cent of total Canadian imports. It is not known how much of this product stays in Ontario, but since Ontario has 39 per cent of Canada's population, a lot of it must do so.

How concerned should the industry be with this level of imports? The ideal situation is for Ontario consumers to eat Ontario-raised pork, but the threat from imports will continue long term as long as the Canadian dollar remains strong and the domestic pork industry continues to shrink. The concern is that the long-term result may be an increase in the volume of imports.

What product does Ontario import compared to what it exports? In 2009, 75-80 per cent of the total volume of imports and 80-85 per cent of exports were considered fresh, frozen or chilled. Total dollar value shows that 65-70 per cent of imports and 75-80 per cent of exports were from fresh, frozen or chilled.

In 2009, Ontario imported a total of 133.8 million kilograms of pork at a value of $496.7 million. Total exports were 256.9 million kilograms at a value of $595.2 million. This resulted in a positive net trade balance of 123.1 million kilograms and $98.5 million. This net trade balance likely is understated, as some of the imported product may end up being consumed in provinces other than Ontario.

From the perspective of Canadian retailers, is the issue of increasing imports over time more related to the product volumes of specific cuts required during certain periods of time or more related to the price?

If it's simply price-based, then in theory the unit value ($/kg) of imports should be cheaper than the unit value of exports. This is not the case, though. In 2009, the average unit value of all Ontario pork imports was $3.71/kg while exports averaged $2.32/kg. Looking specifically at fresh, frozen or chilled products shows that imports averaged $3.15/kg while exports were $2.20/kg. Why are imports of fresh, frozen or chilled products $0.95/kg higher than exports? There must be factors other than price that account for this, one of which may be volume required by retailers.

While there might be some concern that export values are lower than import values, it does show that despite operating within a high dollar environment, the Ontario pork industry remains extremely competitive in the world trade market.   Although the dollar has strengthened in recent years, causing import volumes to rise, there has also been an increase in total export volumes.

As long as Ontario has a net positive trade balance in terms of both volume and dollar value, that is a positive sign for the industry. The ability to be competitive in export markets is a reflection of the overall competitiveness of the entire Ontario pork industry. BP

Randy Duffy is Research Associate at the University of Guelph, Ridgetown Campus