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Meat prices must stay high

By Will Verboven

Special to the Advocate

It may be aggravating to meat consumers in North America, but recent increases in beef and pork prices are fair, realistic and long overdue.

Those price increases have worked their way down the supply chain to the benefit of hog growers, cattle ranchers and feedlot operators who actually produce these desirable food products. Those primary producers have endured many years of unstable and depressed prices that have undermined the viability of many in the livestock production industry. That has seen not just massive losses of equity, but also a significant exit of producers from the cattle and hog business. The inevitable result of that process is a reduction in the supply of beef and pork, and price increases for consumers.

Market commentators will add that present high meat prices are just part of the ongoing supply and demand price cycle and that’s true to a point. The traditional response to higher prices sees cattle and hog producers holding back more breeding animals to increase their future production. That then sees increased production depressing prices again and so goes the cycle.

But production circumstances over the past years are affecting how that traditional cycle is working. Weather calamities, a hog disease epidemic, consolidation, producer despair, and equity loss have all abetted the overall decrease in North American cattle and hog herds. Some of those factors will seriously affect future production. But, as in any free market, sooner or later high prices will see a production response. How large that response will be is the question.

What will affect high meat prices even more is the consumer price pain threshold. When that is reached, consumers start to look for alternatives and that is usually poultry products. Chicken in particular has the production ability to quickly fill any increase in meat demand. In Canada, it has the additional benefit of stable pricing for consumers as chicken production is organized by the national supply management system, which controls prices and supply through a quota system. This is when that type of marketing system proves its value. Be that as it may, chicken is different from beef and pork in taste and texture, so substitution only goes so far from the consumer’s perspective.

The industry hope is that consumers will accept higher meat prices and that production will not significantly increase to start the cycle all over again. More production may stall as smaller ranchers exit the business for good, whilst others rent out their land to neighbouring grain growers. One of the economic realities of cattle ranching has been that, 30 years ago, a breeding cow herd of 250 head could support a family; nowadays it takes twice as many cows to support that same family. Due to the nature of the business, many smaller producers are not in a position to double their production. Hence, there are fewer ranchers to raise cattle.

Hog production has seen even greater consolidation: in the past, 300 breeding sows could support a family; it now takes as many as 1,500 sows to support a family. Even then, unstable and depressed market prices have driven out many of the larger producers. That has seen mostly highly-diversified Hutterite colonies being able to stay in the hog business, which they now dominate in most Prairie provinces.

Another factor that is leading producers to leave the livestock business is that the children of ranchers and hog producers are finding that making a living off the farm is a lot easier. Making a six-figure wage in the oilpatch sure beats worrying about the price of calves and hogs or dodging phone calls from anxious bankers. It’s not a crisis yet, but it’s an ominous development and it’s driving a lot of the consolidation in livestock production. “Get big or get out” is now an economic reality in almost every sector of commercial production agriculture.

There is not a lot of sympathy in the agriculture industry for consumer complaints about high meat prices. Canada continues to enjoy some of the lowest food prices in the world. In that light, one also notes that prices for other consumer goods like liquor, vehicles and luxuries have doubled or tripled over the same time period without much complaint from the consuming public.

Cheap food is not an inherent right of consumers in North America, it is a fortunate privilege, and those that actually produce that abundance deserve to be adequately rewarded for their work.

Will Verboven covers rural issues for Troy Media. To see more, go to www.troymedia.com.

 
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