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American Protectionism good for Canadian beef industry

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Well-known member
Feb 10, 2005
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Southern Manitoba

Canadian farmers of every stripe can be forgiven if they're not overly excited about free trade...some producers won't dispute there have been benefits, they just don't seem to believe many have trickled down to the farm.

Jen: About two years after the U.S. border closed to Canadian live cattle, those in the U.S. cattle industry began to realize that protectionism can have unexpected consequences. On the show today Dr Derrell Peel will explain what he calls the "bizarre logic" of protectionism, adding that it has only served to make Canada a tougher competitor in the world meat trade.

Kev: Peel who is a livestock and marketing specialist at Oklahoma State university, points to the 20-per-cent increase in beef imports and the emergence of Uruguay and Australia as processing beef suppliers to the U.S. meat industry, as examples of how America has shot itself in the foot with protectionism.

Kevin; At a time when many Canadian farmers are questioning the benefits of the various free trade deals with the U.S. …American cattle producers are beginning to realize that protectionism can have unexpected consequences also. Dr. Derrell Peel a livestock marketing specialist at the University of Oklahoma and he joins me today from Stillwater. Thanks for taking the time.
Since May of 2003 there has been a great deal of discussion in this country about how to restructure the cattle industry to be less vulnerable, less dependent on export markets…the assumption being the nafta mechanisms seem to do little to reopen the U.S. While some Canadian farmers struggle to see how they've benefited from free trade deals you're experience shows that protectionism also comes with a cost.
Derrell: it's a big commitment any industry make a decision about we're either going to go a protectionist route or going to go a free trade route unfortunately it when you end up somewhere in the middle that I think there is a problem. If you could achieve pure protectionism and you're willing to live with those consequences that's one thing but in many cases we wind up somewhere in the middle that's I think where it gets confusing particularly when you have an industry as complex as the beef industry where you are talking about a multitude of different products in different forms and so you really have to look at all those as a unit rather than just focusing on just live cattle or just meat or specific products in the market.
Kev: on this side of the border beef producers have seen the record U.S. prices and you believe that this short term gain can also be long term pain.
Derrell; I think ya the transition from a more restrictive environment to a less restrictive environment in many cases is where most of the challenges lies, where most of the problems lie. And sometimes unfortunately that can be a relatively long process and of course what happens now is we tend to get into situations I think on all sides of the border where there is a tendency for bit of a reactionary mode and we do things based on the immediate pain without really thinking through the long term consequences so it takes a very strong commitment on all parts to realize the benefits of gain and in many cases when we do things short term there ultimately some consequences that occur.
Kev: you've been outspoken as a critic of some U.S. policy in terms of protectionism in agriculture gives us some examples where you feel the U.S. has shot itself in the foot with protectionist polices.
Derrell: again you have to make that commitment and see it through it does imply in some cases there are short term losers for example the U.S. was very insistent a number of years ago that the Canadians change their grain subsidies which was part of their process of trying to facilitate grain exports without debating whether or not the subsides should go one of the unintended affects I think ultimately was the fact that when you don't have the subsidies in the interior of Canada to move grain to the coast it made grain cheaper it did a lot to facilitate over the last ten to fifteen years the development of the cattle and pork industries and to some extend the poultry industry in Canada so you have to think through those consequences its not so much a question of right or wrong its more an issue of whether you think through all of the linkages and anticipate the results that are going to happen
Kev: some of what I'm seeing in the U.S. media is that there is beginning to be some realization with producers in various pockets of the U.S. that this entire protectionist approach is costing them. Do we know how it's costing them? Will you lose packers?
Derrell; I think in the most immediate case if you look over the past 18 months since may of 2003 when the first Canadian bse case happened where we stand today lets talk about 2004 as a calendar year, the net result was we have an increase in fed beef imports Canadian beef imports or U.S. imports of Canadian beef in 2004 were basically at pre bse levels on average and all of that now is under thirty months of age which means there is a net increases in fed imports were not getting thirty percent of that or thirty five percent that used to be cow beef out of that so there has been a net increase in fed beef imports and at the same time we've had a tremendous demand for the processing beef because of our hamburger meant demand in the U.S. so we've had an increase in imports from other places in the world to offset the meat that we're not getting from Canada that's cow beef and at the same time there are very strong indications that we are going to lose some infrastructure ultimately one or perhaps more than one packer may wind up closing as a result of this.
Kev: the old saying is there is never an ill wind that doesn't blow somebody some good. In this case what has partly happened is because the Canadian industry has been forced through the fire forced to reinvent and reexamine itself comes out the other end in your opinion will they be a stronger industry a stronger competitor to the U.S.?
Derrel: I do believe ultimately they will be a stronger competitor. One of the things we try to emphasize it whatever trade polices whatever political approached anybody decides to take underneath that there is the economic reality of the supply and demand forces and I do believe those things work and so regardless if we have barriers that prevent some or all of the Canadian products from coming into the U.S. it doesn't change the fact that there is so much cattle and meat being produced on the north American continent so we have to recognized and I think we are slowly beginning to recognize that even if we don't permit Canadian cattle and beef into the U.S. or if we should go down that road completely it doesn't change the fact that Canada is going to be a very strong competitor and Mexico and japan and other global markets so there is just a reality there Canadians are going to have a cattle industry so is the U.S. ultimately we have a lot more in common that we have to gain by these short term spats against each other
Kev; how do you feel protectionism impacts the American producer. Ultimately does it make them more dependent?
Derrell: I think as an industry if you make the decision that you're going to go the protectionist route a couple of things have to be the case and again that's a viable alternative as an economist it's not really my job to say we shouldn't do that but to make sure we understand the consequences. One is have to be able to effectively achieve it and that's not always as easy as it seems partly because those economic forces are still there regardless whether you have political barriers and the second one is its kind of all or nothing you can't just do it half way again we're talking about an industry that is very complex very many different products so what were' really doing here is not talking about total protectionism in most cases we talking about pushing on one side and anticipating where it's going to pop out on the other side that ultimately hurts a lot of people because it causes changes in the industry but it doesn't really change the overall end result in terms of what the market is going to achieve.
Kev; just out of industry outside the beef industry I know you tend to stick to the beef industry but how has protection ism impacted other sectors like the hog industry?
Derrell: I think there are some of the same issues. I don't follow the hog industry as close but again some of the same things some of the hog industry in Canada has grown because there are certain resources and advantages available there that implies some transition so the U.S and Canadians have to ultimately decide whether or not we're going together or whether we're going to continue to do it its much the same issues because you've got live animals you've got meat so the tariffs that are currently in place on the hog side probably won't stop hog production in Canada what it will probably do is force the Canadians to make additional investment in the infrastructure there and the net result probably that you have a bigger industry in total when you look a the whole continent.
Kev: when you hear that someone else is struggling as a result of currently policies I guess in this case we have seen some of the packers in the U.S. I guess in the North west that are struggling as a result of the decision to keep that border closed I guess in the end it's cool comfort to many producers who have really been struggling since may of 2003
One last one article and I'm off to hit the hay for a couple hours.

Canada aims to carve out new market

By Bernard Simon

Published: March 7 2005 02:00

Even as Canadiancattlemen vent their frustration over fresh setbacks to the resumption of live cattle exports to the US, some are seeking to turn the increasingly bitter cross-border dispute to their advantage.

Bernard Kotelko, whose family owns one of Alberta's biggest feedlots, predicts that with the two-year ban on exports encouraging a big expansion of domestic slaughtering capacity, it will not be long before processed meat from Canada starts displacing US products in some parts of the world. For example, says Mr Kotelko, "once our beef is in a box, Mexico loves it, and Mexico loves dealing with us".

Whether or not the future unfolds in that way, there is little doubt that the US ban is bringing big changes to Canada's cattle industry.

The US-Canada border was closed to all cattle and beef products in May 2003 when a case of bovine spongiform encephalopathy (BSE, or "mad cow" disease) was discovered on a ranch in Alberta.

The US lifted the ban on imported beef from animals younger than 30 months in August 2003. These products made up about 40 per cent of the value of total Canadian beef and cattle sales to the US prior to the mad cow crisis. Trade in semen and embryos has also resumed.

The US Agriculture Department was set to open the border today to young live cattle, considered least at risk to BSE. However, these plans were derailed last week by a Montana court injunction. Underscoring the growing political sensitivity of the issue, the US Senate voted last Thursday to block the resumption of cattle imports from Canada.

The Montana court and others opposed to reopening the border contend that conclusive proof has yet to be offered that Canadian cattle are free of mad cow disease. Three more cases, including two in the past three months, have surfaced since the initial outbreak.

US ranchers also fear that a resumption of trade could drive down domestic prices. Many Canadian ranchers and feedlot owners have held on to their livestock, fattening them more slowly in anticipation of the border reopening. According to Statistics Canada, the cattle population grew by 11.9 per cent in the two years to January.

Following the latest setback, "the guys with cattle on feed are looking at pretty huge losses", says Kevin Grier, analyst at the George Morris Centre, an Ontario-based agri-food research group.

The damage from a continuing border closure is not confined to the beef industry. Large numbers of dairy animals also used to be exported, either as breeding stock; calves to be turned into milk cows; or older animals, known as "cull cows", slaughtered for hamburger meat. Before the border was closed, seven out of every 10 Canadian dairy cows ended their lives in either the US or Mexico.

The expanding domestic dairy herd has caused a milk surplus. As from this month, Ontario dairy farmers have to pay a penalty of C$30-C$40 ($24-$32.40, €18-€24.50, £12.60-£16.80) for each hectolitre of milk produced above their quotas.

"We couldn't wait and build more stocks of butter fat and skim milk powder that we couldn't use," says Bob Bishop, chief executive of Dairy Farmers of Ontario. The group is also looking at ways to promote consumption.

The latest delay in reopening the border has bolstered the argument that Canada needs to expand its slaughtering and meat-processing capacity. For more than a decade prior to the ban, the trend was in the opposite direction, with a growing proportion of Canadian cattle being killed and processed in the US.

All four of Canada's biggest meat processors, including US-based Cargill Foods and Tyson Foods, are now expanding their processing plants.

The Cargill and Tyson facilities in Alberta will soon be among the biggest and most modern in North America. Several smaller projects are also on the drawing boards. Meanwhile, several processing plants south of the border have closed and more may follow, as the US industry adjusts to the loss of a major source of cattle.

Like Mr Kotelko, many Canadian cattlemen are confident that higher exports of processed meat will eventually offset at least some of the losses from live cattle sales.

"Canada has to work harder on markets outside the US," says Ben Thorlakson, chairman of the Canadian Beef Export Federation.

Citing a lucrative potential market for tongues, upper bellies and boneless short ribs in Japan, Mr Thorlakson says the cattle industry's credo now is to "aggressively seek out all potential markets for every part of the carcase".

Take care.

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