An article by Bob Collins:
In 1979, my neighbour Norm sold his calves for $1.25 a pound. It was a pretty good time to be in the cattle business. Loans were paid down, equipment was fixed or replaced and there was a sliver of optimism that maybe – just maybe – the business had rounded the corner and better times were at hand.
In 2008, my neighbours J. and L. sold their calves for 85 cents a pound. It is a discouraging time to be in the cattle business. There won’t be any debt retired, the old and worn out equipment will have to be coaxed through another year, and the nagging question in the fields and hay sheds is: why bother?
What happened between 1979 and 2008? Cattle prices have been in steady decline. The traditional cyclical fluctuation has disappeared. When prices are adjusted for inflation, those 1979 calves would sell for more than $2.50 today and we’d have to go back to the depths of the great depression to find prices comparable to the current 85 cents. Why?
In November, the National Farmer’s Union released a comprehensive report that outlines the price decline, explains how it has come about and makes suggestions regarding what might be done about it. The report is well researched and makes fascinating (and maddening) reading.
In essence: beef prices collapsed in 1989. What happened in ‘89? There is quite a list: the Canada/U.S. free trade agreement was implemented, Cargill opened its first plant in Canada, and production began to ramp up as the industry moved from a domestic to an export market.
The arrival of Cargill was the beginning of wholesale consolidation of the packing industry. In 1978, there were 17 packing plants in Alberta, five in Edmonton alone. These plants, and others across the country were owned by a host of processors (remember Burns, Canada Packers, Swift, Intercontinental and others?) who bid aggressively for cattle.
Today, there are three major plants in Alberta. If the proposed sale of the Brooks plant by current owner Tyson to XL goes ahead, almost all of Alberta slaughter capacity will be in the hands of U.S. multi-nationals Cargill and XL.
Nation wide, 80 per cent of the slaughter capacity is now owned by a handful of U.S. firms. These multinationals can control cattle prices through “captive supply,” whereby feedlot cattle they already own can be flooded onto the market to drive down prices. Producers have few sales options and the term “aggressive bidding” has become redundant.
The same handful of processors has taken over the U.S. industry and cattle prices there are similarly depressed. In the climate of free trade, as this processing concentration was taking place, the Canadian cattle industry was being reshaped to satisfy the export U.S. market. Despite the vaunted free trade agreement, Canadian beef does not enjoy free access to the U.S. market and is now between a rock and a very hard place.
Perhaps the best illustration of the clout now wielded by the consolidated packing industry is the graph in the NFU report that shows the price spread between a retail pound of hamburger and the price per pound paid for D1 and D2 slaughter cows. In 1998, the spread was $1.10. Today it is $2.25. The current (Ontario) retail price for hamburger is $2.75. If the price spread were still $1.10, D1 and D2 cows would be selling for $1.65 a pound and not their current 55 cents.
In 1999, the cost of a fed steer as a percentage of the retail price of beef was 25 per cent. It is currently 16 per cent and falling. A return to the 1999 figure would mean an immediate producer price increase of $42 per hundredweight.
So, what’s to be done?
The report admits that any sort of restructuring won’t be easily accomplished. There are numerous hurdles to overcome: the processing industry is largely in the hands of two U.S. multi nationals (Tyson and Cargill); the impoverished state of the producers and small and mid-sized feeders; a sorry lack of political will, and the fiction of free trade.
In speaking of free trade, the report quotes the former CEO of agri-business giant Archer Daniels Midland:
“The free market is a myth. Everybody knows that. Just very few people say it. If you’re in the position like I am and do business all over the world, and if I’m not smart enough to know there’s no free market, I ought to be fired… You can’t have farming on a totally laissez-faire system because the sellers are too weak and the buyers are too strong.”
The report concludes by proposing 16 specific actions that could revitalize the Canadian beef industry. Far too many to discuss here. There is one, however, that sticks out like a sore thumb – number 6: Tailor food safety regulations to encourage local abattoirs.
The executive summary is 31 pages long. It can be accessed on the NFU’s website. It is a must read for anyone with a stake in the cattle industry and worthwhile information for anyone who is or cares about farming. It should be absolutely mandatory for Messrs. Campbell and Hagen. (Pay close attention to recommendation number 6 please, gentlemen.)
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