CANADIAN OUTLOOK: Shaking it off
January 14, 2010
by Leo Quigley
When the Canadian dollar was well below the value of the U.S. dollar and feed-grain prices were low, the livestock business north of the border was booming. But that was before an outbreak of bovine spongiform encephalopathy that closed borders and led to costly animal-waste disposal legislation, followed by a slumping U.S. greenback, feed-grain prices driven up by the biofuels industry and a full-blown recession. Making matters worse, an H1N1 scare in 2009 closed borders for the hog industry, severe drought and country-of-origin legislation significantly thickened the American border.
Today, Canadian farmers in the cattle and hog industries are closing down operations and either turning to grain or oilseed crops for their income – or shutting down entirely. Young people who were supposedly destined to take over the family farm are now leaving for more secure jobs elsewhere that come with less risk and weekends off.
The end result of this continuing malaise in the livestock industry, most of it beyond the control of producers themselves, is that Canada’s national herd was estimated by Statistics Canada at 14.8 million head as of July 1 of this year – a drop of 6.2 percent compared to two years ago and the fourthconsecutive yearly decline.
The agency said in its report: “As the cattle inventory has been declining for the last four years, domestic slaughter of cattle and calves fell 6.8 percent in the first half of the year from 2008.”
CANFAX’s Andrea Brocklebank tells M&P: “2009 has been a tough year for the industry. With the implementation of COOL we’re seeing a direct impact on the basis [the price spread between Canada and U.S.] for fed cattle. Our basis is essentially wider than it would be usually and producers in Canada are getting less than they would otherwise due to COOL.
“Feeder cattle exports are down about 40 percent year-to-date, which is huge for [Canadian] cow-calf producers,” she says.
The downturn has resulted largely from the implementation of COOL and the fact that many packers south of the border now refuse to accept or bid on Canadian cattle due to the extra work and expense involved in handling livestock originating in another country.
This reduction in competition by U.S. buyers due to COOL was made more severe this spring with the exit of Tyson Foods from the Western Canadian market and the US$101.8 million purchase of its Lakeside plant and feedlot in Brooks, Alberta, by Canadian-owned XL Foods Inc. of Calgary.
Feed ban woes
Compounding the problem for beef producers is the fact that packing plants north of the border must now comply with the Canadian Food Inspection Agency’s Enhanced Feed Ban implemented by Ottawa to accelerate the elimination of BSE from the Canadian cattle herd.
Launched in 2007, the program requires that any cattle tissues that have been identified as Specified Risk Material (SRM) be disposed of in a licensed disposal facility and either incinerated or sent to landfill. SRM includes the skull, brain, trigeminal ganglia (nerves attached to the brain), eyes, tonsils, spinal cord and dorsal root ganglia (nerves attached to the spinal cord) of cattle aged 30 months or older, and the distal ileum (portion of the small intestine) of cattle of all ages.
Since some of the materials were formerly sold into the market, Brocklebank says this legislation alone adds about C$20 (US$19) per head to a Canadian packer’s cost of processing an older beef animal.
Jim Laws, executive director of the Canadian Meat Council, which represents packers north of the border, says U.S. COOL legislation affects producers more than it affects Canada’s packing industry.
“Country-of-Origin Labeling exempts the hotels, institutions and the processed meat section. If it were to include that, it would be devastating,” he says.
However, Laws says the Canadian industry generally is being challenged with a strong Canadian dollar and H1N1 with its connections to swine has been very difficult. Several international markets closed their doors temporarily to Canadian product, he says, and it created havoc on the in sales of Canadian pork.
Laws also says that with the strong Canadian dollar, the industry is seeing increased levels of pork and beef imports from the U.S.
“I think that Canada does a pretty good job of generic advertising for Canadian beef. But in terms of pork, we still don’t do a very good job. Canadian pork is not advertised very well as opposed to the beef side where the Beef Information Center has been active in the domestic market for quite a long time,” he says.
The Enhanced Feed Ban is a big problem for the beef-packing industry, he adds. “We have a much larger pile of Specified Risk Materials that now need to be disposed of. They can no longer be fed into the non-ruminant, animal-feed chain so there’s lost revenue from that plus the cost of disposing of it in landfill. “It’s difficult for Canadian processors to compete [with U.S. processors] when they have an extra $50 per head of costs that the Americans don’t have – for the same animals,” he says.
Brad Wildeman, president of the Canadian Cattlemen’s Association, also blames the government’s feed ban and a Canadian dollar that’s approaching parity with the US dollar for the decline in the number of beef animals and in the number of beef producers north of the border.
Compared to 2003, when new packing plants were regularly opening in Canada and the call was for greater capacity, the industry is now losing plants.
“If you look at the cow side,” Wildeman says, “we have this plant in Moose Jaw, Saskatchewan, that’s temporarily shut down and after that we don’t have a federally inspected cow killing plant all the way from Brooks, Alberta to Quebec. We have this massive area of the country that has no place to slaughter these animals other than to take them to a small, provincially inspected plant.”
The downt urn in t he fortunes of the cattle industry in Canada is forcing producers to either turn to other livestock or crops as a source of income or to leave the farm entirely.
“The Baby-Boomers are getting older, so a number of people I talk to are not young people,” he says. “These are Baby-Boomers who say they’re tired of getting up in the middle of the night and calving cows. I was waiting for my kids to come home, but they’ve got a job in the oil patch or some other place. things don’t look too bright for cattle for a while. We’re going to see fewer, much larger, ranches.”
Concerned about the decreasing amount of slaughtering capacity in Canada, the federal government in June of this year put in place a threeyear, C$50 (US$48) million Slaughter Improvement Program. The temporary plan makes repayable contributions available to support investments made by the private sector and other levels of government that will increase revenues and improve operations of packing and processing operations.
When announcing the new program, Canada’s Minister of national Revenue and Minister of State for Agriculture, Jean-Pierre Blackburn, said: “We are addressing regional gaps in this sector by providing new marketing options and lower transportation costs in areas where l i m ited access to meat packing and processing facilities is affecting the growth of the sector.”
One of the early applicants for the program was Winnipeg-based Keystone Processors Ltd., a farmer-owned beef-processing company, which received up to C$10(US$9.7) million to upgrade a former Maple
Leaf Foods pork-processing plant in Winnipeg.
At the time of the announcement Kelly Penner, president of Keystone, said: “These funds are critical for us to move forward with significant plant upgrades, which will eventually allow us to export Manitoba beef across the country and around the world. Our company represents Manitoba farmers taking control of their own destiny by owning every part of the value chain from the farm gate to our customer’s plate.”
While the plant is provincially inspected at present, meaning it can only sell beef within the Province of Manitoba, Penner says the company is pushing to receive federal inspection approval as quickly as possible.
“I’ve been in the cattle business all my life,” Penner says, “and I’ve seen it go through hell since BSE. It’s been one thing after another. That’s why I think Tyson pulled out of Canada and XL stepped in. There’s no competition.”
Penner says the directors of the company recognized early they couldn’t compete against Cargill Foods and XL Foods directly.
“We’ve done a lot of research over the last year-and-a-half on niche markets and our plant will be a full kosher beef plant,” he adds. “We’ve aligned ourselves with the right partners in New York and it’s just a matter of getting this thing built and they will take care of the kosher part.
“We’ve talked to them about the hormone-free, antibiotic-free cattle and they love that and they could develop a premium on the kosher side for what we’ll call ‘natural,’” he says.
Penner adds that Keystone Processors plans to have the majority of the cattle it handles certified as hormone-free and antibiotic-free, and fully traceable right back to the cattle producers – from gate to plate.
Plans are to have the refurbished plant designated as fully EU-certified, as well, he says. The company has already identified several partners in China who are prepared to distribute the firm’s Keystone Beef and Natural Prairie Beef brands
“We’re cattle producers that wanted to own our plant and it will go further than just beef in a box. We want to get into the further processing, fabrication and aging. That’s where the value is,” he says. •
Leo Quigley is Meat&Poultry’s Canadian correspondent.