Prices Analytical Series
An analysis of recent issues faced by the Canadian pork industry

Introduction

Pork is a staple in the diet of many Canadians and an important component of Canadian agricultural and industrial activity. In 2018, the animal production (except aquaculture) industry supported 139,375 jobs.^Note  Since then, the animal production industry as a whole has seen an increase in both the job vacancy rate and the average offered hourly wage. In 2019, there were 7,700 farms reporting hogs^Note . Canadian exports of live animals and animal products made up 3.1% of total Canadian exports by value in 2019. Exports of fresh and frozen pork represented 21.6% of these, and approximately 0.6% of total Canadian exports by value.

The Canadian pork market is closely tied to the U.S. pork market, and fluctuations in U.S. prices and supply are generally felt in Canada. Large deviations from U.S. prices in 2019 suggest that the African swine fever (ASF) crisis in China, coupled with mounting trade disputes between Canada and China, had a large impact on the Canadian pork market.

The past year and a half was volatile for the Canadian pork industry. The emergence of ASF in China toward the end of 2018, the imposition of a ban on Canadian pork by China in 2019 and the beginning of the COVID-19 pandemic have had observable effects on Canadian pork prices and the Canadian pork market.

The spread of ASF in China led to an increase in Canadian prices in the spring of 2019 because of an anticipated increase in Chinese imports of Canadian pork. This rise in prices was offset by a drop in the fall of 2019, caused by a sharp decrease in Canadian pork exports to China after a trade dispute led to a Chinese ban on Canadian pork. Currently, the COVID-19 pandemic continues to significantly affect food processing and manufacturing worldwide. Employee safety and physical distancing guidelines have impacted the scale of production, leading to substantial processing backlogs. Ongoing temporary plant closures have further restricted pork processing capacity and market supply.^{Note  Note} 

This paper follows work published in 2014 by Statistics Canada, which examined the trends in Canadian hog and pork prices between 2012 and 2014 ^Note , and discusses the issues impacting the Canadian pork industry from 2018 to the present.

Major events impacting the industry

African swine fever

African swine fever (ASF) is a viral disease that originated in Africa. China reported its first case of ASF in August 2018.^Note  By the end of 2018, more than 1 million hogs had died as a result of the virus.^Note  The National Bureau of Statistics of China estimates that 2018 hog stocks were down 3% from 2017, and 2019 stocks were down 27.5% compared with 2018 stocks.^Note 

Reduced domestic supply in China from ASF led to an increase in imports from Canada, the United States and many other countries.^Note  Between the start of 2019 and the peak of Chinese demand for Canadian pork in March 2019, exports to China increased by 82.9%. Over the same period, total Canadian pork exports increased by 28.5%.

Corresponding with this rise in demand for Canadian pork, the Canadian producer price^Note  of fresh and frozen pork increased by 20.8% between February and May 2019 (Chart 1). Canadian consumer prices for fresh and frozen pork show a delayed and moderated response to producer prices. Between April and July 2019, the Canadian consumer price for pork increased by 4.1%.

Data table for Chart 1



Data table for chart 1
Table summary
This table displays the results of Data table for chart 1. The information is grouped by Month (appearing as row headers), Fresh and Frozen Pork (Can, IPPI), Hogs (Can, RMPI), Fresh Frozen Pork (U.S., PPI) and Fresh and Frozen Pork (Can, CPI), calculated using Index (2018=100) units of measure (appearing as column headers).

Month	Fresh and Frozen Pork (Can, IPPI)	Hogs (Can, RMPI)	Fresh Frozen Pork (U.S., PPI)	Fresh and Frozen Pork (Can, CPI)
	Index (2018=100)
2018
January	100.702403	105.392470	105.515239	97.465519
February	99.118035	110.274410	100.798258	98.243546
March	94.808556	100.414805	100.145138	97.960627
April	96.963295	86.151883	97.532656	100.436166
May	99.244785	101.467773	100.798258	99.163032
June	102.983892	124.824505	100.725689	100.860545
July	105.202007	124.345884	102.685051	102.840976
August	97.787167	88.832163	98.548621	101.143463
September	97.597043	82.035737	98.693759	101.850760
October	103.934513	100.031908	101.161103	101.355652
November	102.286771	92.661136	97.677794	99.658140
December	99.371534	83.567326	95.718433	99.021573
2019
January	100.639028	86.917677	97.968070	100.648356
February	98.801162	86.151883	96.661829	97.819168
March	104.378136	91.225271	89.550073	95.697277
April	117.179826	125.686024	99.492017	99.516680
May	119.397940	131.716656	107.619739	100.577626
June	118.827568	124.345884	111.320755	101.638571
July	110.398733	112.380345	105.878084	103.619003
August	121.299181	122.144225	108.055152	100.789815
September	106.786374	93.426930	108.417997	103.619003
October	103.934513	95.149968	107.547170	100.648356
November	103.934513	92.469687	108.708273	100.365437
December	118.257196	92.948309	113.280116	103.053165
2020
January	115.722208	93.139757	112.554427	103.972651
February	100.385529	90.555201	105.950653	104.892137
March	101.716398	93.235482	102.249637	102.982435
April	112.553472	90.268028	101.741655	108.499352
May	147.789807	109.221442	121.843251	106.731109
Sources: Statistics Canada. “Consumer Price Index, monthly, not seasonally adjusted”. Table 18-10-0004-01. [Online] Statistics Canada. “Industrial product price index, by product, monthly”. Table 18-10-0030-01. [Online] Bureau of Labor Statistics. WPU02210444, Producer Price Index by Commodity for Processed Foods and Feeds: Pork, Fresh/Frozen, Unprocessed, All Cuts, Except Sausage. [Online] Statistics Canada. “Raw materials price index, monthly”. Table 18-10-0034-01. [Online]

Canada initially saw an increase in pork exports through the first part of 2019, which was driven by the increased demand from China. However, subsequent trade issues ground Canadian exports to a halt between July and November 2019 (Chart 2).

Data table for Chart 2



TData table for chart 2
able summary
This table displays the results of Data table for chart 2. The information is grouped by Month (appearing as row headers), Canadian total, Canadian to China, U.S. total and U.S. to China, calculated using metric tonnes (1000s) units of measure (appearing as column headers).

Month	Canadian total	Canadian to China	U.S. total	U.S. to China
	metric tonnes (1000s)
2018
January	87.083720	21.739209	172.233277	10.660638
February	90.557583	25.356108	173.821660	14.757693
March	96.162303	23.543398	190.433404	14.802440
April	87.254571	23.004611	194.173945	16.144617
May	99.660240	25.469850	182.525559	10.324549
June	91.900929	23.128399	161.526311	8.424601
July	80.605991	15.592590	151.564671	6.581198
August	85.422195	19.271765	154.994278	5.724538
September	86.311227	19.745232	153.044018	6.071804
October	94.056572	24.172038	178.043828	7.008348
November	95.734492	28.511430	181.656943	7.372331
December	89.914826	27.794886	186.221204	10.677605
2019
January	86.055060	25.518446	169.128857	8.310395
February	89.842745	31.352959	160.134729	10.580130
March	110.592903	46.661157	182.456014	14.980259
April	91.523149	39.245949	185.680251	17.540639
May	101.549170	8.346212	181.048662	20.089931
June	87.278016	3.396493	176.622430	24.420355
July	76.287977	0.654920	191.922613	38.201452
August	79.706806	0.033204	180.039529	33.046641
September	83.147590	0.345973	164.621996	23.921698
October	93.252950	0.310516	184.402035	33.343341
November	91.689850	4.904656	220.632978	55.448436
December	100.621630	29.861334	241.058424	78.590832
2020
January	102.243451	40.722674	234.776694	69.881370
February	140.466841	47.409715	232.996428	68.130486
March	147.005018	58.202451	248.360382	67.387794
April	133.055394	61.847116	227.007810	81.597000
May	156.955892	59.387303	218.704386	89.654394
Sources: United States Department of Agriculture. “Livestock and Meat International Trade Data: Pork trade, 1,000 metric tons (carcass weight equivalent)”. [Online]. Available: ers.usda.gov/data-products/livestock-and-meat-international-trade-data/livestock-and-meat-international-trade-data/. Statistics Canada. “Canadian International Merchandise Trade Database. Domestic exports - Meat and edible meat offal”. Table 980-0002. [Online]

Trade issues with China

In June 2019, a shipment of Canadian pork to China was reported by Chinese officials to contain the banned feed additive ractopamine. However, the position of the Canadian government is that the export certificate was inauthentic.^Note  This resulted in a subsequent Chinese ban on all Canadian pork shipments. Between the second and third quarters of 2019, when the ban came into effect, total Canadian exports of fresh and frozen pork dropped by 14.9%, from approximately CAN$980 million to CAN$830 million (Chart 3). This drop in exports was driven by a 98.2% drop in exports to China. As a consequence of the Chinese ban on Canadian pork, Canada had only a 0.55% increase in total Canadian exports between 2018 and 2019. In contrast with the larger increases seen in other major pork exporting countries, this suggests that Canada did not realize gains from the bump in Chinese demand (Table 1).

Data table for Chart 3



Data table for chart 3
Table summary
This table displays the results of Data table for chart 3. The information is grouped by Destination Country (appearing as row headers), Q2 2019 and Q3 2019, calculated using $CAD (1000s) units of measure (appearing as column headers).

Destination Country	Q2 2019	Q3 2019
	$CAD (1000s)
China	119,848.863	2,153.686
Japan	320,886.045	333,197.568
South Korea	44,072.919	35,893.291
Mexico	50,548.161	72,931.504
United States	225,586.957	231,634.630
All other countries	63,526.612	133,330.754
Source: Statistics Canada. “Canadian International Merchandise Trade Database. Domestic exports - Meat and edible meat offal”. Table 980-0002. [Online]

The distribution of Canadian export partners changed dramatically following the ban on Canadian pork imports into China. Exports to other smaller trading partners rose over 100% between the second and third quarters of 2019, while other major trading partners, such as Japan, Mexico and the United States, all increased their imports of Canadian pork (Chart 3). Canadian pork producers offset some of their lost exports to China with increased exports to other international markets.



The drop in total Canadian pork exports following the Chinese ban corresponded with a 14.3% drop in average Canadian producer pork prices between August and October 2019 (Chart 1).

After a five-month suspension of Canadian pork imports, in November 2019, the Chinese government announced that it would begin accepting Canadian exports. Between November 2019 and January 2020, Canadian pork exports to China rose 730.3%, eventually reaching higher levels than at any point in 2019. Total Canadian pork exports rose by approximately 10,000 metric tonnes, and exports to China rose by approximately 36,000 tonnes, resulting in a drop in Canadian exports to other countries. This reopening of the Chinese market allowed Canada to meet increased Chinese demand for foreign pork following losses in hog stocks as a result of ASF. Following the resurgence in Canadian exports toward the end of 2019, Canadian pork prices rose 11.3% between November 2019 and January 2020, just short of their August 2019 peak. Despite the quick recovery in Canadian pork exports and prices following the Chinese trade issues, prices fell again in February 2020. This is likely a result of the COVID-19 outbreak in China and subsequent worldwide spread.

Price gains in early and late 2019 outpaced mid-year price declines. Despite the 14.3% drop in the third quarter of 2019, pork producer prices remained higher than they were at the same time in 2018. Although farm revenue from hog sales declined between the second and third quarters of 2019, revenue was greater in the second, third and fourth quarters than in the same quarters of 2018. This contributed to an increase in total value per head for hogs in 2019.

Consumer pork prices had an average monthly movement of 0.2% through 2019 and began to rise steadily following the resurgence in the Canadian market. Although consumer prices followed the rise and fall in producer prices, the movements were much less dramatic, and consumers faced relatively small price changes.

The impact of COVID-19 on the Canadian pork industry

There was a 13.3% drop in Canadian producer prices for fresh and frozen pork between January and February 2020. There was a 12.5% drop in prices for pork sold domestically and a 14.5% drop in prices for pork sold internationally. This could have been due to a drop in international demand and subsequent oversupply. Large domestic supplies of pork in the United States would have lessened demand for imports.

Workplace guidelines on physical distancing and health and safety, including the use of personal protective equipment and limitations on worker proximity, created a hurdle for manufacturing facilities. This has likely led to a reduction in production capacity. Outbreaks of COVID-19 among employees led to sporadic closures of some large processing plants in Canada in March and April.

These closures appear to have reduced processing capacity below what was demanded by farmers and led to a supply bottleneck. Closures of processing plants contributed to higher producer pork prices, reflected by a 1.3% increase in the Industrial Product Price Index for fresh and frozen pork in March, a 10.7% increase in April, and a 31.3% increase in May.

The supply shortage of processed pork led to a 5.4% increase in consumer prices between March and April.

Between January and March, there was a 43.8% rise in total Canadian pork exports. This was followed by a 9.5% drop in total pork exports between March and April, driven by a 20.8% drop in pork exports to the United States. This suggests that COVID-19 in Canada and the United States has led to a drop in demand for Canadian pork, or a drop in the volume of pork available for export and secondary processing in the United States. This may be due in part to a drop in demand from restaurants and food services.

Exports to China have increased by 51.9% between January and April 2020, as China looks to substitute for a drop in production from ASF.

Conclusions and looking ahead

The Canadian pork industry faced a volley of issues in 2019 and the first half of 2020. The Canadian government and the pork industry have invested heavily in the protection of herds from ASF. They emerged largely unscathed, and despite a five-month suspension of Chinese imports of Canadian pork, the Canadian industry managed to redirect output. Following these trade issues, the Canadian pork industry made a quick recovery in exports and prices. Despite the variance in prices and exports over the past 18 months, Canadian exports and producer prices were at higher levels in April and May 2019 than at any point in 2018. Although it is difficult to predict how Canadian producer pork prices will move in the future, if Chinese demand remains high, it may continue to have upward pressure on Canadian prices.

The COVID-19 pandemic has hit food processing worldwide. In North America, physical distancing and health and safety measures have caused a shift in working conditions and a reduction in processing capacity across affected meat processing plants. Plant closures because of COVID-19 outbreaks tightened the processing bottleneck and may continue to have an impact on the industry should there be a second wave of closures.

Consumer prices for pork have followed the behaviour of producer prices relatively closely, but have shown more muted movement. Although Canadian consumers have seen some movement in sales prices, they are mostly insulated from the most severe shocks to the Canadian pork market.

Moving forward, it appears that COVID-19 will continue to impact the Canadian pork industry, as domestic and U.S. production is attenuated. It will be interesting to see whether the COVID-19 hotspots in manufacturing facilities continue to impact production and possibly the export of pork by Canada to the United States or elsewhere. Only time will tell whether Canadian pork prices continue their upward movement in the coming months.