Behind the Hog Crisis
Did environmentalists cause the record low prices?
by Dave Juday
Few would disagree the U.S. pork industry is in dire straits, with today’s hog prices not high enough to even cover the corn fed from farrowing to finish! The cause of the record low live hog prices is not as universally agreed upon.
Certainly, economic problems play a role on the demand side: The Asian financial crisis hasn’t helped; likewise, Russia’s economic collapse. Russia is a major pork importer, although most of its imports have come from Western Europe. Nonetheless, these two important export markets have been rocked financially and the resulting reduction in purchasing power has caused downward pressure on pork prices globally. Given a more than 8% expansion in the U.S. swine herd in the past two years, the impact has been felt doubly hard here.
And, of course, rising imports of live hogs from Canada have added to slaughter numbers here. Canadian imports have been running between 200,000 and 300,000 head per month since late 1997, according to the National Pork Producers Council.
Another culprit. But the extreme price devaluation we have seen suggests something more than normal market fluctuations are at work. The likely non-market catalyst to this pork catastrophe is environmental regulations. First, they are a generally overlooked reason why producers expanded too fast. To be sure, over the long term, export growth opportunities are unprecedented: Pork is the world’s most widely consumed meat and is the protein source of choice in many parts of Asia, where population and income growth will lead to a several-fold increase in demand. But the peak of that growth trend is probably 30 to 40 years off.
The reason U.S. producers expanded so much so soon was because they felt they had to if they were to have any hope of capturing a bigger share of the new global market. The environmental lobby in the United States drew a line in the sand over hog farm expansion, lobbying states to enact moratoriums on new hog farms and pushing for other, even stricter, punitive regulations.
Kentucky, Oklahoma, and North Carolina have such laws in place, and similar bans were threatened in Nebraska, Minnesota, and Illinois. As recently as November, Colorado and South Dakota passed strict new statutes severely limiting the growth and economic viability of hog production, following the design of tough new laws and expanded regulation already enacted in Iowa, Utah, Georgia, Missouri, Kansas, Wisconsin, and Pennsylvania.
Caught between a growing market and this tidal wave of costly new regulation—including outright bans on future expansion—many operations expanded production prematurely.
Only two of the top 10 major integrators did not expand—DeKalb Swine Breeders and Continental Grain, both involved in merger negotiations. The other integrators’ erstwhile three, five and 10-year plans were hurried into place so they could be "grandfathered" under new production caps or beat likely new regulatory actions. Absent these government actions—ironically designed to curtail hog farm growth—it is unlikely such expansion would have taken place.
Solutions. Some packing plants are moving toward six- and seven- day weeks and adding extra shifts. At the same time, however, we have lost slaughter capacity. Environmental regulations play a part there too! Consider this: The world’s largest packing plant, Carolina Foods in Tar Heel, N.C., is being forced by state officials, acting under the guise of the federal Clean Water Act, to operate 25% below capacity. The plant is capable of processing 32,000 hogs per day, but the state has set an arbitrary cap of 24,000.
At issue is the National Pollution Discharge Elimination System (NPDES) permit. These permits are authorized under the federal Clean Water Act but are administered by the states. The NPDES permits are meant to be issued and approved based on a plant’s ability to treat its wastewater—not to second-guess its management decisions. While other plants have responded to the market situation, the world’s largest plant is prevented from doing so.
The result of this restriction can be compared to requiring paint manufacturers to eliminate lead from their paint, and then limiting their production to an amount that allows only half the houses in the United States to be painted. The issue is whether paint has lead in it, not how much lead-free paint is manufactured. Likewise, the issue with the NPDES permits is whether the wastewater is treated and free of contaminants, not how much water is run through a plant, treated, and then released. Indeed, in many cases, such water is released cleaner than it was when it was pumped into the plant.
It is also worth noting that in North Carolina, the nation’s second-largest hog producing state, hog production has increased 500% in the Black River watershed in fewer than 20 years. Yet the Black River maintains an "excellent" rating by the state’s department of environmental resources (DNER). Monitoring has shown no increase in nutrient pollution from manure. During the fall hurricanes in the state, municipal sewage treatment plants had a spill rate 100 times greater than that of hog farm lagoons. Yet the Sierra Club has called for "new standards" under the federal Clean Water Act. Given that the "old" standard holds hog farms to a zero discharge requirement, it is unclear how that can be improved upon.
The North Carolina DNER’s decision to use the federal Clean Water Act to cap the number of hogs that can be processed at the Carolina Foods plant certainly appears to be a strategy to stop the hog industry by any means. If it is a calculated backdoor attempt to accomplish what the other regulations did not, it is sinister. Short of that, it is a seriously flawed regulation that is causing the pork industry undue harm. Either way, it should be changed.
Dave Juday is an adjunct fellow at Hudson Institute’s Center for Global Food Issues, Churchville, Va.
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