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CANADA PACKERS LIMITED REPORT TO SHAREHOLDERS . The fourteenth fiscal year of Canada Packer* Limited closed March 17th. 1941. Net Profit, after Bond Interest, Depreciation and Taxes, was $1,555,028.47 Equivalent (on 200,000 Share* of Common Stock) to $7.77 per Share. Previoug year $8.84 per Share. $1,667,809.78 DIVIDENDS The Company was organized in August, 1927. Until April, 1935, no Dividends were paid on the Common Shares. At that time Dividends were begun at the rate per year (payable quarterly) of $3.00 per Share In July, 1939, and July, 1940, an extra Dividend was Pid of _ $1.00 per Share This brought Dividends for each of those two years to $4.00 per Share The Directors have decided the Working Capital position is now such that $4.00 per Share may be adopted as the regular Dividend. To give ffect to this decision an extra Dividend was paid April 1st, 1941, of 50c. pr Share, and until further change, regular quarterly Dividends will be t the rat* of $1.00 per Share. Preceding year Increase Sales for the year were $110,291,839.97 $88,205,039.76 25.4% Weight of product sold, Ibs... 1,091,263,352 913,251,116 19.5% Net Profit ($1,565,028.47) was therefore equivalent to 1.4% of Sales 1.9% of Sales and to 14c per 100 Ibs. 18c per 100 Ibs. that is approximately ....1/7 cent per Ib. 1/5 cent per Ib. The following analysis of the Profit & LQSS Account expresses the operations of the year hi comparison with those of the previous year: Year ended March, 1941 Sales $110,291,889.97 % 100.0% Year ended March, 1940 % $88,205,639.75 100.0% Cost of products, chiefly Live Stock Cost of materials and packages 8,279,579.72 Salaries and Wages, Including Bonus .. Expenses. Selling, Advertising, Re- pairs, and general operating costs .... Bond Interest Taxes . 88,959,695.61 80.7 8.0 8,879,264.87 8.1 4,612,388.85 69,825.00 1,675,637.94 Total cost of product, plus Expenses 107,376,391.89 Wartime Inventory Reserve 380,000.00 Depreciation on Fix- ed Assets .. Profit from Opera- tions Income from Invest- ments Write-off of Invest- ments .. 907,656.60 108,664,047.99 1,627,791.18 4,087.00 76,800.61 4.1 .1 1.4 ~~ 97.4 .8 98.6 1.6 69,767,159.3 2,461,790.30 7,738,780.98 3,808,775.20 95,564. 79 1,194,515.18 85,066,585.76 579,000.00 898,081.71 86,543,667.47 1,661,972.28 5,837.50 N*t Profit _ $ 1,565.028.47 1.4% $ 1,667,809.78 79.1 2.8 8.8 4.8 .1 1.8 96.4 .7 1.0 1.9 1.9* The increased volume was due to war conditions. Export volume showed the greatest increase. This WM due to demand from Britain. In th domestic field, the increase wa less, but still substantial. The follow- ing table sets up the comparison with the previous year; COMPARISON OF VOLUME Exports To Britain To other countries Domestic Volume 1941 138,682,968 Ib*. 27,954,290 1940 In Canada _ 892,782,340 In U.S __ 81,863,766 76,693,288 Ibs. 18,623,124 789,638,081 28,296,623 13% 12% 1,091,363,368 913,261,116 19.5% The increase of 13% in Canadian volume is probably a fairly accurate measure of the increase in domestic food consumption. It is due to the Increase of purchasing power, resulting from expanding industrial activity. The increased volume to Britain WHO due almost entirely to heavier shipments of Wiltshire Bacon. And since thi* Report will deal largely with tile subject of Bacon exports, it Is well to sot up a framework for the 'discussion. The factors involved are: (1) Number of Hogs marketed in Canada. (2) British requirements since the beginning of the war. (3) Contracts between the British Ministry of Food and the Canadian Government. (1) NUMBER OF HOGS It happened that just at the time war wag declared, Canada'* Hog population stood at (to then) a record level. (Space dues not permit a review of the causes of this, but the subject was dealt with fully in the two previous Annual Reports of this Company.} As the war began September 1st, it will assist in measuring it* effect en Hog production if marketings are quoted in years September 1st to August 31st. (In any case this is the natural crop year, as the heavy Fall marketings begin in September.) Following is a table of Hog marketings for crop years 1929/30 to 1940/41, inclusive: Crop Year- Sept. 1 to Aug. 81 Hog Marketing* 1929 1930 _ 2,493,33!) 1930 1931 2,884,320 1931 1932 3,201,916 1932 1938 _.. _.. 3,097,048 1933 1934 3,073,251 1934 1935 2,975,316 1935 1936 . 3,195,056 1936 1937 .. 4,141,158 1937 1938 8,429,857 1938 -- 1939 3,264,856 1939 1940 . 4,640,762 42.1%" 1940 1941x 6,100,49!) 3l.3% Increase over previous year. x August 1941 estimated. FIRST YEAR Sept. Ui. 1939 to Auff. .11.1, 1940 Tho increase in marketings during the first war year (42.1%) derived from breedings dating September 103H forward. It was due to causes ntdrcly unconnected with the war. However, it was fortunate the Hogs were available. For there was need of them all. In the early months of thq war this need seemed by no means certain. Until April/ May 1940. when Denmark and Holland wore overrun, Britain ooniin',1 .' to receive large quantities of Bacon from the Continent. In addition, because of the heavy Canadian marketings, very large quantities of Bacon were going forward from Canada. Total arrivals in Britain Kceeded current consumption. The surplus was placed in freezers through- put Britain, to be held as a food reserve. By February, 1940, all available frteier space was filled. The Mm Utry was actually embarrassed by the quantity of Bacon it had on hand. Instructions were cabled to cut down Canadian shipment* to 60,000 cwts. weekly. Tho surplus over 50,000 cwt*. had to be placed in freezer* in Canada. The quantity stored a* a result reached it* peak (31,000,000 lb.) IB May PJ40. For several months there wa* serious doubt as to whether t not those Canadian reserves could be cleared before the beginning of the Mw crop season In September 1940. When Denmark and Holland were overrun (April/May 1940) it was ted that increased quantities wouW soon b* needed from Canada enac Ht r reserves In Britain were so larfe that this demand w lonjr A* late as July 1940, the Ministry advked they wished, and would con- ;inue to wish, from Canada, not more than 50,000 cwts. weekly. This advice was very disturbing. Not only had Canada heavy reserves .n the freezers, but all forecasts agreed that in the approaching crop year (beginning September 1940) thi increase in ti;e number of Hogs marketed would be not less than 25%. If those forecasts proved true, Canada would need an export outlet for 70,000. cwts. of Bacon weekly. (It was under these conditions the second Bacon Contract, referred to in the next section, was negotiated. ) The situation was finally cleared. In early August, 1940, the dian Bacon Board received permission to step up shipments to a which would clear Canadian storage stocks by the end of September. The fear was thus removed that heavy reserves would have to be carried into :he coming crop year. SECOND YEAR Sept. 1st, 1940 to Aug. 31*t, 1941 _ ! An increase in marketings was expected of approximately 25%. Actu- ally, the increase proved to be 31%. Total marketing (second year) were .... 6,100,499 hogs Total marketings (first year) 4,640,762 Increase 1,459,737 After providing for normal domestic consumption, this made avail- able for export approximately 70,000 cwts. weekly. THIRD YEAR Sept. l<t, 1941 to Aug. 31it, 1942 Owing to conditions to be mentioned later, no increase in production is expected in Ontario and Quebec. In these Provinces some well-informed persons look for a slight decrease. In the West there will undoubtedly be another substantial increase, except insofar as it may be limited in certain areas by an unfavourable An average estimate of the total Canadian increase for the coming crop year (over the second year) would perhaps be 15%, quivalent to, approximately 915,000 Hogs. If this estimate proves accurate, marketing* during the crop year September 1941 to August 1942 will be, approximately .... 7,000,000 Hogs (2) BRITISH REQUIREMENTS SINCE THE BEGINNING OF THE WAR crop To some extent this subject has been dealt with in Section (1), so that a brief recapitulation will be sufficient. (a) From September 1939 to February 1940, the British Ministry of Food accepted all the Bacon Canada wished to ship. (b) From February 1940 to early August 1940, the Ministry rigidly limited Canadian shipments to 50,000 cwts. weekly. During this period it was frequently stated no larger shipments would be required. (c) In November 1940, the Ministry agreed to take 70,000 cwts. weekly. The Ministry stipulated the sum paid for the 70,000 cwts. should not exceed that formerly paid for thi 50,000 cwts., but in the end. the sum paid was somewhat higher. (d) By May 1941, the situation had been transformed. Although Bacon was rationed to 4 ounces per person per week (one-half pre-war consumption) Britain was receiving from all sources less than sufficient to fill the ration. From that date forward, Can- ada was urged to produce and to ship all the Bacon possible. This bald summary of the facts may appear to imply a criticism of the Ministry of Food. This is not intended. In wartime, conditions change with great rapidity, and policy must be adjusted to the changes. Perhaps there was some delay in recognizing the inevitable implications when Denmark and Holland were overrun. If so it is easy to understand. It must be remembered, Bacon was only one of score* of food products, for the supply of which the Ministry had to lay its plans. (8) CONTRACTS BETWEEN THE MINISTRY OF FOOD AND THE CANADIAN GOVERNMENT Soon after the declaration of war. the British Ministry of Food asked the Canadian Governmer.t to quote a price on 40,000 cwts. weekly. After exchange of cables extending through several weeks, the first contract was completed: Its terms were as follows: FIRST CONTRACT (A) Term November 17th, 1939, to October 31st, 1940. (b) Quanity Minimum 50,000 cwts. weekly. The Ministry prom- ised to take a* much more as cuuld be used. (c) Price 91/1 per cwt. (112 Ibs.) equivalent to $18.02 per 100 Ibs. f.a.s. (free alongside) Atlantic Seaboard. When the contract was made, it was estimated that, for its total period, the price would work back to approximately ....!>c per Ib. live weight, Toronto (for Bucon Hogs). Actually the average price throughout the contract period was almost one-quarter cent per Ib. loss. It was ... 8.77c. This was due to the influence of conditions in the domestic field. From April to August, 11)40, the apparent surplus was such that product had to be 'forced' upon the (b) That the price should be in no way influenced by the urgency oJ British need for Bacon. This war is Canada'* war a> well as Britain's, and to suppy the sorely needed Bacon i* one of Canada's first duties. In the discussions, Canadian negotiators will also hav in mind con- siderations which go beyond the immediate contract. When the war is over, Canada will be producing Hogs on a .scale far exceeding all previous experience. Prior to the war, Canada's Bacon quota (under the Ottawa Agreements) was _ 48,000 cwts. weekly. But her heaviest shipments in any one year had been (1937) 33,000 cwts. weekly. In the two war years, shipments have been: September 1st, 1939 to August 31st, l'J40 50,000 cwts. weekly. September 1st, 1940 to August 31st, 1941 (August estimated) _ _ 74,000 cwts. weekly. And in the coming (third) year Canada expects to deliver 115,000 cwts. weekly. At the end of ihe war, Canada will have a surplus production of at least ....100,000 cwts. weekly, and for that surplus Great Britain will be the only outlet. Canada will then need a quota in the British market such as (in peace time) has never before been thought of. In the main, quotas are fixed as a result of discussions involving economic give and take; but also an important element in such discussions is 'good will'. At that time good will on the part of the British Government will have a high importance for Canada. There is another type of good will still more important. That is the good will of the British consumer. In the past, Canadian Bacon has held 'second' place in the favour of the British housewife. Danish Bacon came first. In this respect, the present is Canada's opportunity. 'Canadian' is now the only imported Bacon the British housewife can buy. More than ever before, it is important that now, during the war, Canadian Bacon should become established on the highest level of quality, flavour, and sizeability. Toward this objective a good deal has already been accomplished. In spite of difficulties in transportation (due to the slow speed of convoyed ships), Canadian Bacon to-day stands higher than ever before in British estimation. The improvements have been brought about by co-operation between Producers and Packers under very expert guidance by Officers of the Federal Department of Agriculture. Though little has been heard of it, this is one of the most important and far-sighted achievements of the war period. The amount of space devoted, in this Report, to th Bacon contracts seemed necessary, because of the interest in the subject on the part both of Producers and pubic. In the carrying through of these contracts, the Packing Industry had a vital part to pay. And this review would be incomplete without some reference to the manner in which the job has been done. It is especially called for by the fact that not infrequent criticisms of the Packing Industry have been heard. The reasons for such criticisms are easily understood. The Producer is constantly told that the price of Hogs hinges chiefly upon the outlet for the country's surplus. This is equivalent to saying that, during the past year, the price of Hogs has depended chiefly upon the British contract price. That price has been constant. And yet the price of Hogs has not been constant. At times it was higher than the contract parity. At other times it was lower. When the price is above the export parity, producers may not fully understand the reason, but they naturally do not complain. On the other hand, when the price is below parity, producers whose Hogs are then being marketed feel they have a grievance. In both cases the explanation lies in the fact that other factors also have an influence on Hog prices, at times a quite important influence. During the past year such factors have been: (a) The dramatic advance in American Hog prices. (Between April and July, 1941, top prices at Chicago advanced from....8c low to....!2c high.) (b) Fluctuating conditions of supply and demand in the domestic field. Within the past fifteen months there wan one period in which Canadian housewives were urged to consume all the pork pro- ducts possible. Supply exceeded demand. During that period Pork products sold as much as ....2c per Ib. below the export par- ity. At a later period exactly the opposite happened. In order to make larger quantities available for Britain the Bacon Board restricted the amount of Pork product whch could be offered for sale in Canada, first by ....25% and later by a further ....25%. By reason of these curtailments, domestic susfply was much below demand, and the price advanced above the export parity to a maximum of -c per Ib. As to the manner in which the Packing Industry has discharged its obligations, certain facts are essential, and they are clear enough: (1) The Packing Industry performs a vital sen-ice in processing the Live Stock and distributing the resultant meat products. (2) Its obligation is primarily to the Producer. That obligation is: to produce good meats by the most efficient processes, and to perform this service at a reasonable margin of profit. It can fairly be claimed the Industry has measured up to these obligations. In the year under review an unprecedented volume of Live Stock was handled. The product was admittedly rood, particularly the vital export product. The reputation of Can- adian Bacon in Great Britain today stands higher than ever before. The margin of Profit for the whole Industry is not known, but in the case of thi* Company the margin was .... 1/7 of a cent per Ib. For the total Industry, it would perhaps not be higher than 1/10 of a cent per Ib, (3) Most of the anomalies which puzzle the Producer are caused by the highly competitive character of the Industry. Nevertheless, it is this highly competitive feature which is the Producer's chief safeguard. Although this review is already long, a section must be added in iomeVUc market " During this "period "domestic pnces \\ere on "a leVefmuch respect of the Cattle Industry. Within the Live Stock field. Cattle are below the export parity. I second in importance only to Hogs. The contract price was a fair one. On the surface, the war has not seemed directly to affect Cattle For the five years preceding the war, average prices of Bacon Hugs, prices. No Beef has been shipped to Britain. As in past years, the outlet Toronto, had been as follows: 1985 8.94c per Ib. 1936 _ .4^ 1!)37 8.1)2 1938 _ 9.4. r 1939 to Sept. 1st H.62 Average - 8.89c It may appear that a price of ....8.77 in a war year. was low in com- parison with 8.8!) for the five pre-war years. But two countervailing factors must be kept in mind. (a) But foi the wur, liucau.se of heavy deliveries, Canadian pricea would undoubtedly have been lower ; perhaps much lower. (b) Throughout the whole term of this contract. Hog prices in United States were much below those prevailing in Canada. for Canada's surplus was to United States. And if numbers alone were considered, even that outlet seemed less important than in the immediate pre-war year. Shipments to United States for the last four crop years have been ai follows: Crop Year Cattle Shipmenta Sept 1 to Aug. 31 to United States 1937 1938 81,245 1938 1939 -... 292,078 1939 1940 _ 134,071 1940 1941* 158.000 'August estimated. Although numbers have been reduced, thee exports to United States have been vitally important. It was because the Beef \vas needed in _ . . _ U" O Tit til lll ^ VmSH * i VMI i j ifv* vuii i >-.iiriVUVM As against a Toronto price for tho year of .. $8.77 per 100 Ibs.. c, nai i a tna t fewer Cattle were exported. Nevertheless the outlet top Chicago HOST ( average) in the same period sold for SECOND CONTRACT Term November 1st, 11)40, to Octoljei Hist. 1941. Price _ 80; per cwt. equivalent to $15.2 per 100 Ibs. l.n.t. Atlantic Seaboard, tjuautity 70,000 cwts. weekly. . the United States for the surplus has been the factor which i-hiefly deter:u- o.J4 per 100 Lbs. ine<1 llrices Tne United States-Canadian Trade Agreement of 1935, aud the subsequent modified Agreement of 1938. have had a value to Car.- adian Cattle Producers corresponding (in respect of the Hog Industry > ta the Ottawa Agreements and the later war demand for Bacoit. Throughout the two war years. Cattle prices have steadily aiviiict-<L Cattle breeding and Cattle feeding have both been much more proftnbte than at any time since 1930. The following table indicates the ad\auce in prices: Crop Year Sept. 1 to Auj. 31 Average price for year. Good to Choice Steers 1,050 Ibs. down, Toronto The conditions, under which this contract was negotiated have already I been explained. i An 'apparent' surplus of Hogs existed, aud the price was fixed accord- I ingly. The reduction in price proved discouraging to Canadian I'ig 1'ro- j ducers, especially in Quebec and Ontario. In these 1'rovinces many sows i were marketed which otherwise would have been bred. To some extent tho situation was relieved by bonuses paid by thu Provincial Governments of these two Provinces. Hut t the end of six months the contract had to be revised. The immediate cause of the revision was an ad\unct! in the price, of American Hogs. In April the American market reached a level at which Canadian HOJJ.S began to move South. This movement had to b* I This rather dramatic advance was due to two major causes: stopped, and on May 2nd, 1)141, the contract was amended. | (1) Demand for Beef was greater than normal. For this there were to The Ministry of Food rattM its price from 80/ per cwt. ! reasons: to 85/ per cwt. I (a) Exports of Bacon were heavy, and a domestic 'vacuum' was 1934 1935 _. 1D35 1936 1936 1987 1DH7 1938 11)38 193!) 1939 1940 1!>40 1941* August estimated. $5.27 per 100 Ida 5.21 6.38 fi.io 6.28 7.55 8.45 Tho Canadian Government undertook to pay whatever additional sum | was necessary to prevent the Hogs moving to United States. To implement this clause, the following payments (by the Canadian Government ) have, htten necessary :- created for Beef. (b> The very large number of men in military camps set up a new and important 'demand' factor. ' On Juno 2nd, 1941 On June 24th, 1941, a further 75c per 100 Ibs. On July 23rd, 1941, a further $1.00 per 100 Ibs. At th present time, on every Hog exported from Canada, the Domin- ion Government 6 contributing ...2Vtc per Ib. (Wiltshire weight). This contribution amounts to approximately --$150,000.00 per week. (2) In the face of this extra demand, supplies were barely normal, as will 7uc per 100 Ibs. | be seen from the following table of Inspected Killings*- Crop Year Sept. 1 to Aug. 81 Killings in Inspected Houses THIRD CONTRACT Negotiations for the third contract are now in progress. Tho terms ar as yet unknown, and only general commont in regard to it would 1937 1988 912355 1938 1989 870,006 193!) 1940 _ 884,053 1940 1941* 15.000 *Au?ust estimated. nlac much be <aid-- such as to Insure maximum k t. Canadian Prodcers.-indeed. jrn !'. t ; rn. in Ho C .ndV Cattle"' TndTe aS$J Th'^ ." u I r ' l|u * >' oth f ^ l-attle. And the prosperity of her Airlcolturt depend* UP n * satisfactory export outet for those surpluses. (Continued on following page) J