November 10, 1997
Saskatchewan Restructures Pork
Next April Fool's Day, the last of the Prairie pork monopolies will tumble as Saskatchewan revokes the "single desk" powers of its hog marketing board. This reversal of long-standing policy is a testament to the pervasive power of free trade and a brave acknowledgement by the Saskatchewan government that prosperity requires changing with the times.
In just five months Saskatchewan Pork International (SPI) will have to prove itself the old-fashioned way-- by paying its own keep. Manitoba opened up its pork markets two years ago; Alberta did the same last year. Sandwiched in by free systems on either side, Saskatchewan producers have been receiving $3 a hog less than their neighbours.
This persistent price differential has sapped the faith that once underpinned compulsory marketing boards. The mantra used to go roughly like this: we need orderly marketing through a single-desk seller to protect producers from the ravages of the market. Tied to it was a misapplication of the principle of democracy-the notion that decisions made by a majority of producers should be binding on all of them.
For a New Democratic government to abandon this cherished ideal is remarkable. In the process that led it to this watershed, it had to do some fancy footwork. The first step entailed new legislation, passed this spring, that enabled the Province to dismantle marketing boards without a producer vote. This move was a significant concession to reality.
If the hog industry is to thrive, the interests of some producers cannot be held hostage to the needs of others. More than half of Saskatchewan's output now comes from farms with 4,000 hogs or more, but these giants number less than 70. Only four percent of the pork originates on farms with 100 hogs or less, but almost 2,000 producers operate on that level. Potential markets for these diverse players may differ radically. Major producers might seek contracts with large packing plants, whereas small-scale operators might cater to smaller specialized markets.
Allowing producers to bypass SPI means that they all have a ready escape hatch when the agency doesn't serve their purposes Further, as SPI expanded, it invested in the packing end of the business. But letting it keep its monopoly power over supply set up a conflict of interest. Was the agency to keep hog prices low and maximize its processing profits at the expense of producers, or was it to be generous to producers and harm its own interests at the packing plant?
Saskatchewan Pork's split- personality dilemma figured in the decision to cancel the agency's single- desk. The province's agriculture minister has said the agency could no longer comply with its commitment to "orderly marketing" once agreements to engage in processing had been signed.
Saskatchewan now joins its sister provinces in encouraging production of high-quality hogs for the niche markets that the single-desk system ignored. In 1995, consultants from Deloitte and Touche pointed out that Saskatchewan hog producers could make 10% more profit if allowed to bypass SPI and sell directly to slaughterhouses. Like its counterparts in Alberta and Manitoba, SPI will now have strong incentives to value efficiency and improve customer service in order to retain its supply.
By the way, have Manitoba and Alberta hog prices collapsed in the wake of open markets, as the critics of competition maintained they would? The reverse has occurred. Ask any supermarket shopper about pork prices, which have risen steadily, along with returns to producers, since free marketing was restored. The industry is healthier than ever.
Recently a struggling Yorkshire coal mine sent an S.O.S. asking for a higher subsidy to Britain's Labour government. Two words came back from the Prime Minister's office: "Wrong decade." Tony Blair's administration was signalling that old ideas no longer rules in its highest councils. They are co-operating with the inevitable.
Congratulations to Roy Romanow for doing the same.
The Frontier Centre for Public Policy
is an independent public policy think tank whose mission is "to broaden the debate on our future through public policy research and education and to explore positive changes within our public institutions that support economic growth and opportunity."