WESTERN PRODUCER — In the next months, American consumers are going to be getting a textbook case of inflation creation as pork prices respond to recent snags regulated into the industry.
Canadian farmers are going to be experiencing a textbook example of how regulatory inefficiencies often cost everybody money and benefit almost nobody, as well as achieving few of their objectives.
It’s a situation that will worsen the inflation situation that has ravaged millions of families’ incomes and push off the interest rate relief everybody except bond investors are desperate to see.
With California’s Proposition 12 and other state hog production laws balkanizing the U.S. hog slaughter and pork retailing markets, and the proposed “Made in USA” labelling rules possibly having an even more disruptive impact, piglet, hog and pork prices are likely to rise, while profitability and production fall.
If a significant number of packers and retailers decide to embrace the “Made in USA” labels, some Canadian piglets will be sent to barns that will still feed out Canadian-born pigs, while other U.S. barns will choose to switch to only-U.S. born piglets. Some U.S. packers might switch to nothing-but-U.S. pigs, or flip between killing U.S. pigs some days and partially non-U.S. pigs other days. It’s a recipe for inefficiency as pigs begin being sold and shipped and slaughtered in places they wouldn’t “naturally” go.
That could be extra kilometres on the road, extra or fewer days in the barn, further to grocery stores and a host of little impacts that will all end up in higher pork prices.
It’s unlikely these labels will make U.S. hog and beef producers, packers and grocers any more money, but they will increase prices throughout the supply chain as everybody dumps down their costs on the producer and squeeze more money out of the consumer.
Lower profits for farmers, higher costs for consumers, more complications for everybody and a smaller hog herd — that’s what we’re likely to see.
That’s inflation.
Prop 12, and the other state laws mirroring its approach, is likely to have the same impact, as it already has begun doing. That California law stops pork from barns that don’t have at least 24 sq. feet of space per gestating sow (and other vague requirements) from being sold within the state, which consumes a lot of pork.
Packers are separating compliant and non-compliant pigs and pork so that they don’t fall afoul of the law, which became active Jan. 1, and those complications are having an impact throughout the industry, including within Canada, which supplies piglets, slaughter hogs and meat to the U.S. market.
All of that has a cost, hammers farmer, packer and grocer profitability and raises grocery shelf prices.
That’s inflation.
Put those two economic eggbeaters together and watch the foam fly.
The ugly impact of inflation is hitting people today the way it hasn’t for a generation, and in a way reminiscent of the 1970s and early 1980s. Most families’ incomes have dropped by double digits since 2020, businesses are in a vise and many have failed, and the basics of life are becoming hard to afford and obtain.
Housing is the crisis we hear most about, with young people and immigrants struggling to find any housing they can afford. But food affordability has also become a general issue, hitting the headlines in both Canada and the United States.
That’s why it’s odd to see price-raising actions like Prop 12 and Made in USA managing to worm their way into our food systems. Any economist, regardless of political perspective, would tell the public these measures will make things worse in terms of affordability. In fact, they have — often.
But the public doesn’t listen to the economists, nor do politicians. The public will see the price increases and scream really loud, but it’s unlikely most will connect those price increases to Prop 12, Made in USA or any other regulations.
People will yell at grocers and claim there’s price gouging. Politicians will see their opportunity to play for the crowd and hold denunciatory hearings, at which grocers and packers will be dragged onto the carpet to face snotty questions.
Farmers will twist in the loss-making wind, suspect the packers and grocers are screwing them and making all the money and gripe about the unfairness of it all.
It’s just inflation, self-administered.
International trade is getting messed up with protectionism. That’s raising costs and prices.
Now domestic production is getting messed up. That’s going to raise costs and prices.
This is the 2020s. Get used to it. Unfortunately, it’s become the theme of the decade.
