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

Release date: August 31, 2020

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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 hogsNote . 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 priceNote  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%.

Chart 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

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).

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

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).

Chart 3

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

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.


Table 1: Total world pork exports (1000 metric tons carcass weight equivalent)
Table summary
This table displays the results of Table 1: Total world pork exports (1000 metric tons carcass weight equivalent). The information is grouped by Exports (appearing as row headers), 2018, 2019 and Percent Change (appearing as column headers).
Exports 2018 2019 Percent Change
European Union 2,838 3,549 25.1
United States 2,666 2,867 7.5
Canada 1,277 1,284 0.5
Brazil 722 861 19.3
China 202 135 -33.2
Mexico 177 234 32.2
Japan 4 3 -25
South Korea 1 1 0
Philippines 1 1 0
Other countries 358 398 11.2
Total 8,246 9,335 13.2

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.


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