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Speech: Michael McCain Provides a North American Outlook at the Banff Pork Seminar

Michael McCain, President & CEO

Michael McCain Speaking Remarks, Banff Pork Seminar, Jan. 13, 2016, 8:30am:

The pork industry has experienced transformational change since this event began in 1970. It has gone from one characterized by a large number of mixed family farms to one of consolidation and specialization. It’s gone from relative obscurity to being an important economic contributor.

The Canadian pork sector has prevailed against many challenges – fluctuating commodity prices, seismic shifts in currency, disease outbreaks and trade and regulatory barriers that we have met with fortitude and resilience. They have strengthened us and made us a formidable global competitor.

In addition to economic challenges, what we face today is mounting social pressures. In many respects, how we respond to the challenges and opportunities these present will shape the health of our future. I will group these forces into three areas: nutrition and health, animal welfare, and environmental sustainability.

Let’s start with health and nutrition. Those of you familiar with the recent history of Maple Leaf Foods will know that we used to own Canada Bread. Because of this, we experienced first-hand the impact of the demonization of wheat that started a number of years ago and continues today.

Gluten-free and wheat-free products are filling store shelves with more than $6 billion in sales in 2014. Fifty-six percent of Canadians say that they are cutting down on foods such as bread, breakfast cereals, pastas and pastries. Yet the number of people intolerant to wheat – those with celiac disease – represents less than 1 percent of the population. So why are so many giving up wheat? Largely because of a dose of questionable science that has fuelled celebrity endorsements and a monumental marketing opportunity.

Many of you will know of Joe Schwarz – he heads McGill University’s Office for Science & Society which is dedicated to demystifying science for the public. When he was asked about the growing concern over gluten, he said it is has one smidgen of scientific fact which then exploded into a whole blob of nonsense! The Canadian Celiac Association, the American Heart Association, the Obesity Society and the American College of Cardiology all refuse to endorse gluten-free diets for anyone who does not have celiac disease, yet over half of Canadians are cutting back or eliminating wheat.

So why am I speaking about wheat at the continent’s biggest pork event? Because the vilification of wheat could happen to fresh and prepared meats. This was highlighted late last year, when the International Agency for Cancer Research – or IARC – part of the World Health Organization, declared that red meat was “probably carcinogenic” and prepared meats were “carcinogenic”.

IARC’s findings were not based on new research – rather, it was a meta-analysis of a number of epidemiological studies with very mixed outcomes. Aside from the complexity of trying to isolate the impact of one single food group and establish its causal relationship to a disease that often takes decades to manifest itself – the classification system of IARC placed prepared meats in the same risk category as smoking or exposure to arsenic. Other elements in this category include alcohol, engine exhaust, outdoor air pollution, Chinese-style salted fish and sunlight.

Let me be very clear – I am not advocating people over consume meat or any food group for that matter. But according to IARC, if you did eat two hot dogs a day for the rest of your life, your chance of getting colorectal cancer would be about 6 out of 100. If you never ate any prepared meats, your chance of getting colorectal cancer would be about 5 out of 100.

Even if the IARC position is correct – and it is something many scientists are questioning – this would increase your overall risk by about 1 percent. IARC believed evidence of even weak associations warranted a classification of “carcinogen” and once it communicated that position, the media took over.

It got so blown out of proportion that even the WHO tried to clarify things by acknowledging that there were some “shortcomings” in the classification system that puts prepared meat in the same category as arsenic and smoking. But it was too late. The headlines and stories ballooned and those stories recorded approximately two billion impressions worldwide.

Now, a lot of people love red meat and bacon, so it’s not like one report is going to immediately change what people eat. But the effect is cumulative.

Research conducted by the National Cattlemen’s Beef Association in the US found that before the IARC report, 27% thought eating processed meat increased the risk of cancer. Post IARC, 30% thought this. Pre IARC, 26% thought eating processed meat caused cancer and post IARC, 28% thought this.

So we are now living in a world where almost one-third of consumers believe there is a relationship between eating meat and cancer. One-third.

And we know there will be more studies coming. In fact, IARC only published an abstract in 2015 and it is due to release its full study later this year.

So how do we deal with this? We must come together and speak out. If we learned anything from the escalation of gluten from a nutritious protein to a panacea for all that ails you, it is how quickly a minor or negligible risk can turn into a food movement.

As an industry we need to do a much better job of getting balanced information out so that people can make informed choices. This includes reaching trusted advisors like dieticians, nutritionists, doctors and nurses. Meat is nutrient-rich, providing many essential vitamins and minerals and is a high quality complete protein making it an important part of a balanced diet.

Through our Canadian and US industry associations, we are building a fund that will support a much more robust effort to counter misinformation and reinforce the important benefits of meat. We are preparing a video series highlighting the importance of meat protein in a balanced diet. And we have commissioned comprehensive research to better understand people’s views on meat, positive and negative. What we learn will help our industry to respond with credible information and much more aggressive efforts to balance the message. People need to see meat for what it is – a highly nutritious protein that is an important part of our diet.

We know that people want more transparency regarding how food is raised and processed. In a recent US study, 60% of respondents said antibiotics and hormones used in pork and livestock production are a health concern. 34% believe that pork and poultry is less safe today than when they were a child.

As an industry we are responding. We are continuing to adopt animal husbandry practices that reduce reliance on antibiotic use. Food processors are reducing sodium, sweeteners, and artificial flavours and migrating to simpler, more natural ingredients. At Maple Leaf, we are taking leadership in these areas through significant capital investment, hiring expert staff and reformulating products. The result is expansion of categories like sliced meats that had remained static for years, and a stronger and growing, Canadian-based meat sector.

Let’s turn to the subject of animal welfare. On this topic I’d like to recognize my colleague – Dr. Greg Douglas – our head of Animal Care who joined Maple Leaf last year and is here today. Animal welfare is a significant part of our business and culture and Greg has the important role of establishing a world class program at Maple Leaf, working with our highly experienced team, our suppliers and external experts.

It’s been just over 10 years since the Canadian Pork Council launched its Animal Care Assessment – or ACA – certification program, based on the work of the National Farm Animal Care Council. While it is a voluntary program, Maple Leaf only contracts with producers who adhere to the ACA standards.

But in our industry, from a public perception and trust perspective, we are only as good as the weakest link. And even following regulatory requirements is often not good enough. The rise of undercover videos exposing some alarming practices show gaps in the duty of care to treat animals ethically and humanely. They have been highly successful in elevating media and public attention regarding animal welfare.

A recent study by the U.S. Center for Food Integrity found that consumer concern over the humane treatment of animals is at a seven year high. Yet only 25% of people surveyed strongly agreed that meat comes from humanely treated animals.

From a market perspective, virtually every existing or potential retail or foodservice customer we meet with identifies animal welfare as their #1 concern in meeting societal expectations. And within this, conversion of gestation crates to loose housing is their top priority.

Blaming the activists and reverting to a defensive posture will not solve this challenge. This is not a fleeting issue and defending the status quo is not a viable option. As an industry, we need to rally together to advance higher standards and higher expectations of each other. This is going to require regulatory reform, public and private sector investment, and operational protocols that embed humane and compassionate husbandry into workplace culture.

It is also going to require more transparency about how we communicate our business, our goals and our progress relating to animal care. The only way to take the surprise factor away is for us to take more control of both the practice and the communication of animal care.

Last month, Maple Leaf launched a formal Animal Care Commitment that articulates the principles, goals and actions our company is taking to become a leader in this area. We have committed to enhancing animal wellness practices in a manner consistent with the Five Freedoms, the most widely accepted global standard for responsible animal care.

In our pork operations, this includes:

  • Transitioning all sows under our management to loose housing, converting a minimum of 37,000 sows by 2017 and accelerating conversion of remaining sows under our management.
  • Requiring all of our pork operations to undergo an annual independent audit by company-approved auditors, and expediently correcting any deficiencies.
  • Seeking ways to further enhance current approaches to pain management and potential alternatives to procedures such as surgical castration and tail docking.
  • Continuing to reduce or eliminate antibiotic use across our supply chain, while recognizing the importance of providing the necessary medication to sick or injured animals.
  • Implementing remote video auditing in our processing facilities and piloting similar technology in our hog production operations. Video footage and detailed reports will help us to advance training and operating practices and respond swiftly to any animal welfare incident.
  • And finally, advancing transparency in our communications, including reporting on our goals, progress and gaps, and seeking to establish constructive relationships with animal rights organizations.

This is a very significant organizational mandate for us which requires major capital investment.

Within our Animal Care Commitment and strategy, changes are largely focused on operations we own. But clearly there are broader industry changes required to conform to customer and consumer expectations. This is particularly evident in the elimination of gestation crates, where there has been nominal progress made.

Both the Pig Code and Retail Council of Canada have established deadlines – the Retail Council voluntary member commitment is to source only gestation crate free pork by 2022…only six years away! Maple Leaf and the industry will be expected to meet this requirement and it also represents an important and exciting competitive differentiator for us both nationally and internationally. A plan of action needs to be developed to overcome the very real financial, infrastructure and operational barriers that are impeding progress. In all areas of advancing animal care, as a company we will lend our expertise and our voice to support broader industry progress. And let’s be mindful of the fact that others are moving forward in this area, creating the risk of us being left behind if we do not act. Smithfield, the world’s largest pork producer, has committed to group housing on its company owned farms by next year while requiring this of its contract producers by 2022.

Let me turn to the last of the three topics – environmental sustainability and the impact of food production.

One of the greatest challenges for the agriculture industry is to meet the increasing global demand for food while dramatically decreasing the environmental footprint of food production.

Forty percent of the world’s landmass is used to keep seven billion people fed, and about 30% of the world’s ice free surface is used to raise livestock.

According to a 2013 report published in the National Academy of Sciences, global livestock production, which includes meat, milk and eggs, contributes approximately 40% of global agricultural gross domestic product, provides income for more than 1.3 billion people and uses one-third of the world’s fresh water.

The world produces an estimated 285 million tons of meat, or 80 pounds per person. That is, if it were all divided evenly, which it’s not. Americans eat on average about 270 pounds of meat a year, while someone living in Bangladesh eats about 4 pounds a year. If the entire planet adopted our western diet, the environmental impact would likely be catastrophic.

It has often been cited that there may be no other single human activity that has a bigger impact on the planet than the raising of livestock.

Feeding the world accounts for approximately 25-30 percent of total greenhouse gas emissions of which meat and dairy production represents as much as 18 percent. On a positive note for us in the room, the most climate-friendly meats comes from pigs and poultry, which account for only 10 percent of total livestock greenhouse-gas emissions, while providing more than three times as much meat as cattle. Pork and poultry also require up to five times less feed to produce a kilo of protein than a cow, a sheep or a goat.

That said, let’s put our small advantage into context. At the recent UN Climate Change Conference in Paris, Canada signed the global agreement to set a goal of limiting global warming to less than 2 degrees Celsius compared to pre-industrial levels. Achieving this goal will have profound implications for our collective future. It is incumbent on our industry to do much more to reduce our environmental footprint.

Our farmers and food industry are well positioned to feed a growing global population. We are a food exporting nation. We have a large amount of arable land. We employ sophisticated technology and scale farming techniques. These are our best allies in the quest to combat climate change. And they also provide us with significant competitive advantage.

The trend towards small scale farming is not the path to more sustainable agriculture. A kilo of lamb protein produced on a British hillside farm can generate the equivalent of 749 kilos of GHG emissions, more than a passenger flight from London to New York. That’s because this form of husbandry is so resource intensive.

Scale agriculture, which efficiently converts feed into animal protein, is the path to feeding more people, while reducing our environmental impact, but we have to do it better and smarter.

Maple Leaf has committed to reducing our environmental footprint by 50% by 2025. We believe that this is one of the most ambitious goals of any food company in North America. It encompasses three areas where we have the most material environmental footprint – our climate change impact, water usage and waste generation.

We have recently completed comprehensive utility and water usage audits across 13 facilities, with the balance to be completed this year. What we found, which is common when you dig into energy and water consumption, is that there are material financial as well as environmental gains to be had from increasing efficiency and reducing waste. What’s good for the environment is also good for business.

The Canadian Beef Industry has taken very positive and concerted action through the formation of the Canadian Roundtable on Sustainable Beef. Its mandate is to advance existing and new sustainable practices across the Canadian industry through a multi-stakeholder approach including producers, processors, retailers, environmentalists and government.

The Canadian pork industry, through the national Pork Value Chain Roundtable, should establish a similar coordinated and proactive approach to identifying impacts through a comprehensive pork life cycle analysis, advancing more sustainable practices and communicating its goals and progress. Maple Leaf would be pleased to participate in this type of process and would be committed to its success.

The only caveat I would place is that governments need to set clear, achievable, measurable and enforceable science-based targets for carbon emission reductions. No company can afford to take on a cost burden that makes them uncompetitive. But if the cost is equitably placed on all players—a level playing field—then there is no economic disincentive.

Before I wrap up and respond to your questions or comments, I want to touch on the economics of our industry.

There are some structural challenges that continue to beset us. It’s a simple telling fact that it still costs more to produce pork in Canada than the US. Our labour, construction and utility costs are higher, we are subject to greater regulatory costs and because of our size, transportation costs are higher. We are also working with aging infrastructure. There have been very few new barns built in Canada over the last few years and most of the existing barns, particularly in western Canada, will soon need to be replaced. By comparison, more barns have been built in Minnesota or Iowa in a single year than we have seen in western Canada in many years.

While our Brandon processing plant is a scale, technologically- advanced facility, it is underutilized compared with large US plants. This is the consequence of diminishing hog supplies in Western Canada, although we are mitigating this through increased shipments of pigs from Ontario.

To sum it up, we lag our US competitors on some key economic indicators.

But there are factors working in our favour. We’ve experienced another roller coaster currency ride, with the Canadian dollar dropping to a 6 year low in 2015. And it’s not expected to rise anytime soon, with the Bank of Canada Governor suggesting we should get used to a low dollar. As our industry exports over half of what we produce, with the majority sold into the US, we should continue to benefit from a low Canadian dollar. It’s a big advantage that Maple Leaf is leveraging; we are landing new US business and aggressively seeking more opportunities.

There are also important areas where we are growing market share. Maple Leaf and other hog producers have removed Ractopamine from our operations, which has opened up new and sizable export markets.

Canada has natural environmental advantages that reduce animal disease which, combined with advanced animal husbandry methods, are propelling our progress in reducing or eliminating antibiotic use – again, another growing market opportunity. Maple Leaf, working closely with our producer partners, is now one of the largest producers of raised without antibiotic pork products in North America. This is an area where our country can develop a competitive advantage.

And lastly, “100% raised by Canadian farmers” is now an increasingly important proof point on Canadian menus. There is a welcomed trend to purchase Canadian grown products, and to repatriate pork produced in the US and sold in Canada, back to Canada. We have the quality, the food safety, the environment and the strict regulatory requirements to make this a strong differentiator.

Like most of you in this room, I’ve spent most of my career in the pork industry. We’re a multi-billion dollar industry exporting to over 100 countries. We contribute some 10% of all farm cash receipts and provide a living for tens of thousands of people.

I feel very confident about our future as a sustainable, profitable industry, but this will require embracing the social and environmental factors I discussed, which if done well, can provide opportunities for all of us. Secondly, we need to address the structural cost issues in Canadian hog production.

With a new federal government, the time is right to assert the importance of our industry to Canada’s economy and to our role in providing high quality, safe and nutritious food grown right here in Canada. Our industry has exciting growth potential but it will always be capital intensive and cyclical. Therefore I would strongly urge the new government to update and strengthen the national programs supporting risk management and cash flow stabilization, while also working with lenders to ensure the availability of capital financing for new barn construction.

The path to establish a cost competitive industry, with the infrastructure, research and technology to support this, will need to engage government and industry support. Working together, with the expertise and commitment of all of us in this room, I am both confident and excited about the success we will deliver.

Thank you for your attention and I’d be very pleased to respond to any questions or comments.