The U.S. border closure to imports of live Canadian cattle following the discovery of a single case of BSE may prove to be a blessing for the Canadian beef industry. That is, it may result in more processing independence for Canada.
Prior to BSE being discovered in an Alberta cow in May 2003, Canadian cattlemen shipped the vast majority of their harvest-ready animals to U.S. plants. The loss of access to U.S. plants due to the border closure, however, created a huge backlog of cattle north of the border.
With few signs the border would reopen anytime soon, tremendous pressure arose in Canada for the expansion of existing plants and construction of new ones.
“There are about 15 proposals to construct new plants and many of these have a good chance of going ahead,” says John Ross, director of Agriculture and Agrifood Canada's Red Meat Section in Ottawa. “Most Canadian plants are expanding. Small plants are getting bigger, large plants are expanding, and old mothballed plants are reopening.”
At the end of October 2004, weekly cattle harvest numbers at Canada's federally and provincially inspected packing plants exceeded 80,000 head for the first time since 1978. By the end of 2005, Ross estimates there will be enough harvest capacity to handle all of Canada's fed cattle.
“We'll have the fed-cattle harvest under control within the year,” Ross says, “and should be making headway on the cull cows and bulls. There will still be a backlog, but at least the numbers won't be growing.”
A change in the '80s
Until the early '80s, most of Canada's cattle processing needs were handled domestically, says Sandy Russell, a beef economist with Saskatchewan Agriculture, Food and Rural Revitalization in Saskatoon.
“As plants aged, they weren't replaced. Slaughter slowly shifted to newer plants in the U.S.,” he says. “It was lucrative to supply these U.S. plants and no one was thinking about what was being lost.”
Lack of domestic harvest capacity has cost the Canadian industry dearly. That lesson was borne out after the U.S. border closure when the supply of harvest-ready animals in Canada glutted the market. Prices to producers fell dramatically.
Today, cows and bulls are almost worthless, Russell says. Horror stories abound of cattlemen receiving paltry checks for older animals.
“We've had to pay a very severe penalty for not having enough domestic capacity,” he says. “Reopening the border is still the No. 1 priority but there's been a real shift in attitudes over the past few months.”
More people, he says, are talking about the need for a strong domestic packing industry to keep the gate-to-plate benefits of domestic cattle at home.
“It's a testament to producers' strength that they're able to take control of this horrible situation and move forward,” Russell adds.
One of the larger units under construction is owned by Ranchers Beef on the outskirts of Calgary. Planned for an initial harvest capacity of 800 head/shift, or 4,800/week, it's designed to easily facilitate a second shift, which would double production.
Rancher's Beef was formed by a group of 50 investors, almost all of them beef producers representing every production segment, director Doug Price says.
“This (the border situation) has taught us we can't continue to operate our business in a way that leaves us so dependent on what will happen at the U.S. border,” he says. “You don't have to be American to harvest an animal, and we have a freight advantage. We're one of the closest suppliers to the California market.”
Vertical integration was another major attraction for Rancher's Beef investors. Cow-calf operators still get full market value for their animals but have access to feedlot and packer profits, as well.
“Our research shows we need to be able to harvest at least 500 head/shift to be competitive with the bigger players out there,” Price says. “At 800 head, we think we can be very competitive.”
Price says the project's lone disadvantage is in capturing drop value, something he thinks can be remedied with improved marketing.
“Having a smaller scale plant with full traceability will allow us to do things the larger plants either don't want to do or can't do,” Price says. “We will fill some niches that will let us be more profitable than if we were just selling a commodity.”
The improvements, Ross says, should allow Canadians to be more competitive buyers of cattle once the border reopens.
“There will be a strong pull (once the border opens to live cattle) to take the animals south, but all the modernization going into these plants bodes well for the future,” he says.
Ross admits the risk is significant but believes Canadian producers are going in with eyes wide open.
“They know they can't run with the big packers on price, so they're looking at specialty markets,” he says. “Packing margins are normally razor thin; the guys watching the pennies will be the winners.”
Ross believes that, even with a reopened border, Canadian ranchers will prefer to sell to domestic packers but will continue to sell to whomever offers the best deal.
“Canadian plants will be competitive and aggressive,” Ross says. “Plants like the Cargill plant in High Prairie and Lakeside Packers in Brooks, Alberta, are major players. They're not adding new capacity just to idle it once the border reopens.”
Though the border will reopen some day, Russell says, “it won't mean a return to the status quo. Producers now understand how risky it is to do 80% of your business with one customer. There's a growing belief we'll have a far stronger industry if we keep our steers at home and ship boxed beef.”
“The U.S. and Mexico threw the Canadian industry a big lifeline by reopening their borders to Canadian boxed beef in August 2003,” Ross says. “Canada harvested 80,000 cattle last week, which certainly wasn't just for domestic consumption.
“Before the borders reopened, we were only harvesting 30,000 head/week. As tough as it is for producers in Canada today, it would have been disastrous without their help,” Ross says.
Lorne McClinton is a freelance writer based in Yellow Grass, Saskatchewan, Canada.