Quality assurance brings value, but who pays?

By Andrew Heck

Quality assurance program materials are a familiar sight for producers.

Financial sustainability in any industry value chain depends on a viable business model in each part of the chain. In the pork industry, quality assurance programming has long been hailed as a victory for the producer, processor, retailer and consumer alike, representing how the industry’s efforts are responsible for delivering a safe, nutritious, environmentally friendly, high-quality product.

Few would doubt the inherent value of an effective quality assurance program whose benefits are realized by everyone affected by it. But in between the barn and the dinner plate, quality assurance both adds to the end cost for the consumer and adds cost for each stakeholder in the value chain.

Processors’ contracts with producers over the years have become increasingly detailed and directly market oriented. In fact, many contracts outline very specific production conditions and assign dollar values to those conditions, which include things like pharmaceutical usage, feed additives and even shelter costs. Quite conspicuously, costs directly linked to quality assurance are omitted.

Historical pork production quality assurance programming

Between 1995 and 1998, the Canadian Quality Assurance (CQA) program was developed as a national quality assurance standard for pork producers. In some jurisdictions, the cost of implementing CQA was jointly shared by producer organizations and processors.

In 2004, the CQA program became more stringent in its criteria, following a review of food industry HACCP (Hazard Analysis Critical Control Point) principles, which were originally created for food processing operations, not production. Nearly a decade later, the Animal Care Assessment (ACA) program, based on the National Farm Animal Care Council’s (NFACC) Code of Practice for the Care and Handling of Animals, was made compulsory for CQA-certified producers, further adding to the rigour.

To the chagrin of producers, by the time CQA had been fully fleshed out, any processor funding to assist with program validations had disappeared. In the meantime, CQA certification had become a requirement for producers to ship pigs to any federally inspected processor in the country. The processors argued that this requirement was becoming necessary to satisfy the increasingly specific demands of foreign markets. For most commercial producers, certification was a given, and processors no longer had incentive to reward behaviours supported by the CQA program that were essential to the industry’s reputation for more than a decade.

Introducing the Canadian Pork Excellence program

After several years of development, in 2017, the Canadian Pork Excellence (CPE) program was launched with a foundation of three pillars: PigSAFE (representing food safety), PigCARE (representing animal welfare) and PigTRACE (representing traceability). The program was created with the intention of phasing out and modernizing the CQA program.

Among many characteristics, the program represents producers’ commitment to the judicious use of antimicrobials and the desire to develop a producer-led quality assurance program, rather than falling back on government regulations or processor requirements alone. The program has also been designed to address Canadians’ concerns for transparency in animal agriculture, which translates into public trust for consumers here at home.

CPE is the basis on which the Verified Canadian Pork brand is being built. You can already find the handy visual identity on select pork products in grocery stores domestically, but its true potential lies in what the brand promise means to global consumers.

The three pillars of the CPE program

The brand is meant to recognize Canadian pork producers’ commitment to high quality and represents a modern approach to addressing consumer habits and beliefs, especially in the lucrative Japanese market, where a certain prestige is affiliated with Canadian pork. To that end, value for the program has been realized and capitalized upon.

And few are arguing against the importance to establishing such a brand. In many ways, the industry has worked for a long time to cultivate a positive reputation in overseas markets, where this brand will further enhance the presence of Canadian pork. The expectation is that the brand will boost sales, thereby turning profits for processors and producers at home.

CPE is actively being implemented across Canada, despite some timing setbacks. Validators are being trained, and producers are being introduced to the program specifics, which is the domain of each province. The program’s objectives are clear in principle, but in practice, CPE implementation has faced challenges in some provinces.

Producers ask for compensation

Producers in four provinces, including Alberta, have sought compensation on a per-head basis.

From early 2017 to late 2018, however, anxieties and questions started to be raised by producers who were still uncertain about how the program would benefit their bottom lines. Exacerbating these concerns was a history of feeling forgotten when it came time to share in the value of quality assurance program implementation.

Compared to their processor contracts, in which every aspect of production is assigned a dollar value, there was no consideration for the new program, despite having overhead costs associated with its implementation. To date, these overhead costs have gone effectively unaddressed by most processors in western Canada.

At various provincial producer meetings, rumblings turned into resolutions, and several provincial producer organizations—including Alberta, Saskatchewan, Manitoba and Quebec—demanded compensation for CPE, anywhere upwards of $9 per pig.

In Quebec, action was taken most quickly, given that province’s unique single desk selling system. The Quebec system also includes the use of a price control mechanism, which helps stabilize the market by raising up or bringing down the amount paid to producers, according to the conditions at any given time.

“Producers in Quebec have been reaping the benefits of shared value for their pigs,” said Vincent Cloutier, Director, Economic Affairs, Les Éleveurs de porcs du Québec. “The price control mechanism has given producers renewed confidence in the system, and the premium paid for quality attributes, including CPE, was independently determined, which was a fair process. At the same time, the result is a renewed relationship with processors, which opens a new growth path, which is desperately needed.”

Under Quebec provincial law, an independent arbitrator was commissioned to evaluate the proposed disparity of cost between producers and processors, and to determine if the ask for compensation was fair. The arbitrator concluded that, while important, producer evidence was insufficient to build a case for compensation at $5 per pig. Ultimately, the arbitrator did recommend an amount of $2 per pig to be added for some specific production attributes, such as tattooing, stomach content and the presentation of clean animals at slaughter. On the other hand, it was decided that the processor could also apply demerits for sub-standard animals.

For pork production in Quebec, $2 per pig accounts for the province’s added favourable market situation. But in western Canada, other underlying factors seem to be lacking in consideration.

“Quality assurance programs have been a contentious issue for producers following years of negative margins. It translates into a drain of our time and resources, with no compensation being offered to us in return,” said Stan Vanessen, a producer near Picture Butte, Alberta. “I consider this highly upsetting since our uniquely Canadian pork brand is so highly appreciated in overseas export markets. Currently, the quality assurance programs add nothing to the bottom line financially for producers, but there is extra value going to and staying with the packer-processors and exporters.” 

He continued, “This is insulting to struggling producers, as many of the program requirements and practices are implemented on the farm level. We recognize the marketing value these Canadian programs have, but our industry cannot afford to support them if there isn’t shared value for the pork producers.”  

Moving the industry forward for mutual benefit

Verified Canadian Pork branding already features prominently on some consumer products domestically and abroad.

While producers have asked for compensation specific to CPE, larger considerations remain on the table that could satisfy all parties.

If the issue of shared value is separated from CPE specifically, all parties may be able to come to the table and negotiate with open minds. Pig producers want to get paid fairly for the pigs they sell. Processors want to pay appropriately for the pigs they receive. But when producers are asked to continuously improve and better their products but experience shrinking and mostly negative margins, it is difficult to consider this a sustainable relationship.

The result of this unsustainable relationship appears to be a push back from producers, as many are now advocating that they and their fellow producers refrain from signing long-term contracts with processors, as a manner for gaining leverage in the situation.

What’s at stake?

When producers see the value of their efforts realized by fair compensation, the industry benefits by encouraging increased production—sorely needed by processors who often operate under capacity at their facilities. And when processors take initiative to reward producers, it fosters stronger relationships for mutual benefit.

In the wake of the current pricing dispute, it is unfortunate the CPE program and the Verified Canadian Pork brand have been caught in the middle. They are universally recognized as important tools for the industry, but they are also readily available targets when it comes to pricing discussion. This has been major stumbling block for producer especially in western Canada, who have felt the need to bring CPE into the discussion. When western Canadian producers see their counterparts in Quebec sharing in the value of their pigs, it sticks like a thorn in the side.

The CPE program is much more valuable to the industry than a sticker on a package. We can only hope calmer heads will prevail and that the entire industry realizes something must be done to address the pricing issue before permanent damage is done to the brand and long-term goodwill that has been developed with global customers.