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So a whole lot of pigs in Canada are coming to the end of their hog lives. This week, the Canadian government announced it will pay pork producers about 50 million dollars - that's slightly more than 50 million in U.S. currency - to kill 150,000 pigs. Paying farmers to kill their pigs seems, at first blush, to turn market economics on its head, but it's being called an "unprecedented move" by Canada to raise the price of pork by reducing supply.

And that, the government hopes, will help save Canadian hog farmers from going under. Clare Schlegel is president of the Canadian Pork Council, and a hog farmer himself. He has about 50,000 market hogs, and he joins us now from his farm near New Hamburg, Ontario, which is about one hour west of Toronto. Hi, Mr. Schlegel.

Mr. CLARE SCHLEGEL (President, Canadian Pork Council): Good morning.

MARTIN: Good morning. Thanks for joining us.

Mr. SCHLEGEL: Well, thank you for your interest.

MARTIN: So, describe to us what conditions had to come together to make this necessary to ask pig farmers to kill their pigs.

Mr. SCHLEGEL: Well, it's really a perfect storm. We've got three things coming at us together to make it probably the worst situation that I've seen in my 30 years of farming. The first one is the unprecedented rise in the Canadian dollar, very quickly, from an exchange rate with the United States of about 0.62.

At one point, it reached $1.10 last fall, and now, we're trading about par with the U.S. dollar, and that affects us because our prices are set in the United States and simply calculated back into Canadian terms. So our price drops correspondingly, yet our costs only drop by about 50 percent. Secondly, and this is true in the United States as well, feed prices have almost doubled.

We think it's probably due to ethanol demand, to biofuel policies, to a desire to feed our fuel tanks instead of our tummies around the world. And you know, we're seeing food riots and that sort of thing. So that's making a disastrous situation for us. And then thirdly, our industry, not only in Canada, but in the United States, we've had a miraculous cure called a circle-virus vaccine.

Our pigs were suffering from a virus. That vaccine has worked wonderfully. And now we're shipping about ten percent more pigs this year than last year. Our pigs are healthy, happy, they're growing, and they're making it to market. Both three factors combined has put us into this very, very difficult situation.

STEWART: So it's a tipping point. I mean, these - lots of pigs there are too many pigs now. I mean, you had this virus and you developed a vaccine and because you want more pigs and now you have too many pigs. I mean, this is - how do you know what is the tipping point that will send - that will increase supply so much that you would have to go to such extreme measures as to cull in this way?

Mr. SCHLEGEL: Well, the market is dynamic, and people generally don't eat a lot more pork just because it's a little cheaper. And that's what's called an "inelastic market." And so, because we're ten percent more than last year - that's not one percent or two percent. the world's demand for pork is growing at about one percent to two percent a year. so this is way beyond what simply is acceptable.

STEWART: And these are not just any pigs. You can't just kill any pigs.

Mr. SCHLEGEL: These are breeding swines, so these are what we call sows and boars. Sows, of course, make the baby pigs that then grow up into market hogs. And every sow produces about 20 market hogs a year.

So this is a cull of breeding stock. And it compromises - it's about two percent of the U.S.-Canadian market, because we need to look at U.S. and Canada together. So dropping the volume of breeding swine by two percent will certainly have an effect on total market hogs available.

STEWART: For generations, I imagine, then, of pigs, anyway.

Mr. SCHLEGEL: Well, it's dynamic around the world. Canada and the United States are about 50 percent of the world export market, so we're key players. And as the markets turn around and come back then industry - the farms will adjust again.

STEWART: OK, so 150,000 pigs have been ordered to be killed. What happens to that meat? I mean, that's food product, I would imagine.

Mr. SCHLEGEL: And food is - we're very proud of being food producers. We - it's a noble career. it's a noble profession. It's one of the few professions that affects very basic needs for people. So the requirement here is that barns stay empty for three years and the food that the pigs do not go into the commercial food chain so that they don't compete against already over-burdened supplies.

So it's going to go into two different directions. One is to the food banks in Canada. And the food banks can probably use about 25 percent of what's going to be available. And the other 75 percent, we're targeting that toward the pet food industry.

STEWART: The pet food industry. Is there any - because we hear about the food crisis and the rising cost of food, it's triggered riots in Haiti and other countries - what about sending some of this food to other countries where they need it?

Mr. SCHLEGEL: Well, it's a dilemma, isn't it? That's certainly where we'd love to see it go. We certainly want to help out. You know, farmers here are struggling. In Canada, we have farmers who are doing very, very well, the crop farmers, the dairy, the poultry farmers, and then the beef and hog farmers are struggling tremendously. So, yeah, we hear of these food riots. We hear of these needs around the world.

One thing we simply don't want to do is transfer our pain to farmers in other parts of the world. Secondly, moving meat products around the world is complex and difficult for bio-security reasons, for trade reasons, commitments that we've made on the world stage. And as our Canadian government looked at that, they just - we certainly put it forward as a suggestion, they didn't think it was practical in the short term.

STEWART: You, Clare, are the president of the Canadian Pork Council, but were there some members of this community, some hog farmers, who did not think this was a good idea? And what are their arguments?

Mr. SCHLEGEL: Well, certainly some didn't think it was a good idea initially, but the crises for our farm families in Canada has worsened, and now we've become desperate. A number of our farmers are losing their farms. They're getting pushed off their land. They're losing their retirement savings, and it's a little different than simply losing your job.

Because you live where you work, your entire being is tied up in your farm operation. So in worst-case scenarios, it turns into family violence, family difficult situation and sometimes people even think of taking their own lives. So our egos and our sense of satisfaction and accomplishment in life is a very delicate sort of situation.

And many of us have lost our hope for the future. We do know that supply and demand and capitalism works, but we're wondering about Canada's place in terms of being competitive, particularly with the high Canadian dollar, the low U.S. dollar. The competitiveness has swung back in favor of the U.S. farmer.

STEWART: We should also point out, as I understand, this is volunteer. People do not have to do this. They're paid if they agree to cooperate, correct?

Mr. SCHLEGEL: There's an application process. Each of us individually decide if we want to be part of that program and get out of the industry or whether we're going to try and weather the storm.

STEWART: And what have you decided? I imagine you've decided to participate?

Mr. SCHLEGEL: No, I'm going to try and weather the storm.

STEWART: Are you?

Mr. SCHLEGEL: Absolutely, yeah. We've been successful over our 30 years and like I said, this is the worst crisis I've seen, but we're trying to reduce costs. We're trying to buckle down. We're trying to become more productive.

And we believe, long term, that the hog business will be profitable and that pig producers around the world won't continue to lose money. Because this phenomenon goes beyond North America, so Europeans are struggling, Brazilians are struggling and Australians are struggling as well.

STEWART: And just one final question, when these - when the pigs' people, farmers who agree to cooperate, do they take care of the cull on their property? Do they kill the pigs in their own barns? or is that outsourced?

Mr. SCHLEGEL: Our methodology that we're putting forward is to have the animals picked up, taken to a regular processing plant, put to sleep and either head off to the food bank or to the rendering people. I should also say there is a Canada-U.S. dynamic marketplace.

There's other factors that are playing into the risks that we are facing. One of them is called "mandatory-country-of-origin labeling" that is moving forward with your farm bill and will be implemented this fall.

STEWART: So that meat has to have a label on where it comes from.

Mr. SCHLEGEL: It has to have a label of where it's coming from and that has a potential to impact trade flow, and so we're certainly hoping that a reasonable outcome that will allow regular commerce to continue will find its way through the U.S. political system.

STEWART: Well, lots of challenges that you face, Clare Schlegel, hog farmer and president of the Canadian Pork Council. Thanks very much for helping explain some of those challenges. We appreciate it.

Mr. SCHLEGEL: And thank you.

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