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Adapt or let Canada take trade from U.S.

United States may be the world’s low-cost producer, but that does not ensure profitability in a changing world.

I think the Canadians are on to something. Aside from perfecting the arts of shivering and curling, their approach to marketing pork may be something we can learn from in the United States.

I am just back from the annual conference in Banff. For those of you who have never been there, this may be one to put on your list for future attendance. Aside from the obvious question of, “why would I want to go to Canada in January?”, there are some good attributes of this conference. It is a great educational opportunity that may expand your thinking in another country, one where you don’t have to learn a new language to communicate, eh. The Canadians are generally very nice people, the exchange rate favors your currency, clearing customs is not a big ordeal. They have some very interesting views on gun ownership and the role of government, and they do have better walleye fishing than anything we can find in the States.

The conference itself was well attended and the speaker lineup (sans the commodity guy) was interesting and diverse. My big take-home from the conference is that we in the United States may be the world’s low-cost producer, but that does not ensure profitability in a changing world. David Hughes did a great job of articulating the changing food consumption patterns around the world. His work would validate what you already know — generational changes and shifts mean we are unable to keep doing what we did and expecting the customer to adapt to our bias. This goes well beyond whether we use stalls or pens for gestation, whether or not Paylean is in the ration or whether a Duroc is better than its alternative. This is about marketing and packaging and presentation and convenience and shifting demographics. Consider this:

  • By 2050, 2 billion people will be added to the planet. Africa will account for half of this number, doubling from 1 billion to 2 billion people.
  • India, Pakistan and Bangladesh will account for roughly 0.5 billion.
  • The populations of China, Japan, Russia and South Korea will decrease over this timeframe.

Graph: World population

Does this represent a challenge for the pork industry? Yep. When 1.5 billion of the projected 2.0 billion people are of the Hindu or Muslim faith — AND — our traditional pork-consuming areas are losing population, you could say we have some interesting times with exports on the horizon.

The story is equally interesting when we get closer to home. Forty-five percent of meals in the United States are consumed alone — not exactly the formal meal structure that most of us grew up with. Further, the concept of breakfast/lunch/supper has given way to more of a perpetual grazing throughout the day. These two concepts taken together necessitate the shift to smaller packaging and something referred to as “meal solutions” — not exactly conducive to the purchase of a 15-pound pork loin from the local grocery store. Starbucks will be doubling its selection of premium food choices over the next two years in response to this trend.

The interesting trend, to me, is on health. Most folks want to be “healthy” and yet they have little idea of what that means. Protein is currently the star on this front and our pork products fit nicely into that segment. Here is what I think it means right now. Have a story; any story. We are currently in such an era of confusion with the emergence of blockchain technology (which most of us can say and have no idea what it really means) which allows the promise of transparency for those who think they want such. We get the privilege or onus of setting the parameters of the upcoming debate. It may be work and effort to establish the platform, but I suspect it will be a profitable venture for those who engage in the forum.

Poultry is seen as a winner in this scenario on account of its lack of religious restriction and better conversion (environmental impact). Fish is also a winner based on conversion and perceived health benefits. Pork is currently the king of protein across the world (see graph) and will likely be a beneficiary recipient of the rising tide of population and world income. We will have to adapt to keep our status.

World protein production

Which brings me back to the contrast between the Canadian approach and the U.S. approach to the pork market. We tend to concentrate on efficiency and pride ourselves by being a low-cost provider/producer. Those silly Canadians run slower line speeds, sort product and provide the end consumer with what they ask for. Ridiculous. Maybe that is one of the reasons we continue to slip in market share to our most valuable market, Japan. (graph attached, courtesy of AgriTrends) The exchange rate component is another area where Canada shines. We generally put things in U.S. dollar delimited terms to keep a common denominator. When you get 1.32 loonies per greenback, the higher value sale gets exacerbated even more.

Chart: Japan chilled pork imports

As stated previously, the Canadians are nice folk and actually get along with other people across the globe and that results in trade agreements with favorable terms. It is not too late to adapt our practices and mindset in the United States, we have the scale and physical ability to compete on any stage if we decide to do so. Deciding may be the hardest part.

Comments in this column are market commentary and are not to be construed as market advice. Trading is risky and not suitable for all individuals. Joseph Kerns515-268-8888.

Source: Joseph Kerns, who is solely responsible for the information provided, and wholly owns the information. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.

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