Pork Barrel Protectionism

Publication, Trade, Rolf Penner

Canada’s hog farmers are the latest exporters to feel the sting of American protectionism. On October 15, the United States Department of Commerce (DOC) announced preliminary anti-dumping duties averaging 14.06 % on hogs being sold from Canada into the States.

The case highlights the absurdity of American trade law at its worst. Despite very little evidence that its hog producers are really being hurt, the U.S. National Pork Production Council (NPPC) was able to trigger countervailing action by submitting a convoluted damage claim to the DOC. As with the softwood lumber tariffs, it is another instance of “Shoot first and ask questions later.”

Initial estimates show that this tariff will take a big bite out of Canada’s successful hog industry, about $60 million a year. That sector generated $3.4 billion worth of receipts for the farm belt in 2003. Hardest hit will be Manitoba, which accounts for 53% of the total exports moving south, with the biggest demand for baby piglets. American farmers grow them to market weight on a diet of heavily subsidized corn and soybeans.

The pork council accused our producers of a ludicrous “crime,” selling their animals too cheaply. According to Jon Caspers, an NPPC past president, “Canadian hog producers unfairly benefit from huge subsidies that cause overproduction in Canada and allow Canadian producers to sell their hogs in the United States at artificially low prices. The flood of low-priced hogs from Canada has pushed down U.S. hog prices and inflicted severe financial hardship on U.S. hog producers.”

The claim of “dumping,” that we sell our product at values under the cost of production, relates almost entirely to our network of crop insurance, the premise being that Canadian governments insulate us from market failure with general insurance programs that charge low premiums. A generous regime in the province of Québec has been singled out for particular attention, with the NPPC alleging that the behaviour of this minor player affects prices in the entire continental market.

In context, the allegation is more rhetorical hot air than substance. Both countries offer a complicated range of insurance programs to their farmers. In a preliminary ruling issued on August 17 by a parallel investigation, the DOC announced that it had looked at 22 such programs and found no illegal subsidies. They determined that Canadian swine industry farm support payments are fully in compliance with both U.S. law and international trade rules. A fair explanation for any Canadian advantage might instead look at American feed subsidies as the reason our piglets are so attractive to American buyers.

The “flood” of imports cited by the NPPC in its complaint is actually a trickle. Measured by weight, Canadian live swine imports accounted for only 3.3% of the US total production in 2003. It is also disingenuous that the American pork lobby would pick this particular time to be crying poverty. Since the closing of the border to live cattle a year and a half ago, record and near-record beef prices have raised pork prices significantly. Combined with this summer’s record-breaking corn and soybean yields, this puts US producers in a position of unprecedented profit margins.

Our swine sector is being penalized for doing exactly it should be doing, properly responding to market signals. The reality in any marketplace is that for any number of reasons, none of which are related to government interference, producers sometimes have to sell their product for less than what it is worth. This is a normal part of the business cycle and is impossible to avoid completely, particularly in the case of live, growing animals, which cannot be stockpiled like lumber or automobiles. When those animals reach their required weights they have to be moved immediately. There is no time to wait for a better price.

Perishable commodities with long production periods, like livestock, are therefore quite vulnerable to accusations of dumping. Too volatile to be subject to conventional anti-dumping rules, they have been eliminated in some free trade agreements, like the one we have with Chile. Far too often, anti-dumping cases are based on normal price fluctuations, not government intervention. They result in a kind of trade terrorism, rather than the assurance of open markets.

Our trade negotiators need to be keenly aware of this and work to root out and eliminate the opportunity for special pleading by protectionists like the NPPC.

This article originally appeared in the Manitoba Co-operator.