Canadian beef packers under pressure: Cargill CEO
Reuters
September 04, 2007
WINNIPEG, Manitoba (Reuters) - Canadian beef processors are grappling with the strong Canadian dollar, a labor shortage and other costs not faced by U.S. competitors, the chief executive of Cargill Inc's <CARG.UL> Canadian subsidiary said on Tuesday.
"The beef industry is in a relatively fragile position," said Len Penner of Cargill Ltd, Canada's top beef processor, in an interview. "The returns are not healthy at this point in time," he said.
Canada's export-dependent beef sector has struggled since the country uncovered its first case of mad cow disease in 2003, which shut down trade.
After a few months, the United States, Canada's main market for beef, began to allow imports of beef from cattle under the age of 30 months, which are too young to develop bovine spongiform encephalopathy (BSE) or mad cow disease.
Packers, including Cargill, boosted capacity to handle the glut of cattle that had nowhere to go. But after the U.S. border opened to young live cattle two years ago, much of that new capacity was idled.
Cargill is handling about 3,800 head per day at its High River, Alberta, plant that it had expanded to handle 5,000 a day, a company spokesman said.
In July, it laid off workers at a plant it acquired in Guelph, Ontario, to go to a single shift, processing 1,300 head per day, the spokesman said.
The strong Canadian economy is partly to blame for pushing Canadian packers' costs above U.S. competitors, Penner said.
The Canadian dollar has climbed 30 percent during the past four years of beef sector turmoil to the 95 U.S.-cent level. That has decreased returns in Canadian dollars for exported commodities that are sold in U.S. dollars, he said.
Red-hot energy and manufacturing sectors have caused a labor shortage, particularly in Alberta, a key beef producing province.
"We have a booming economy in a big chunk of where our beef is," Penner said, noting Cargill is bringing in workers from Mexico and the Philippines to help staff the High River plant.
"It's not easy, when you're constantly starting the day, every shift, short," Penner said, adding the company is using new technology to cut labor costs and boost productivity.
HIGHER COSTS
In July, new Canadian regulations came into effect that boosted slaughter costs by C$8 to C$10 a head for cattle under 30 months and C$15 to C$20 for older cattle, Penner said.
The rules, designed to eliminate all traces of BSE from Canada's herd in 10 years, force processors to carefully dispose of brains, spines and "risk materials" from cattle, rather than rendering them to use in pig and poultry feed.
Canadian beef exports dropped to 368,000 metric tons in 2006, down almost 20 percent from year-earlier levels. The value of those exports fell to C$1.3 billion ($1.24 billion), the lowest level in nine years, according to industry statistics.
But live cattle exports were up 84 percent from 2005, topping 1 million head. As of late August, the yearly export pace was up 17 percent from 2006 levels.
The next hurdle could come when a proposed U.S. rule takes effect that would allow imports of Canadian cattle born after March 1, 1999. U.S. Agriculture Secretary Mike Johanns has said the department could issue the rule as early as this month, but did not say when it would go into effect
"There is a risk that when the border opens to the (older cattle), that if we cannot remain competitive relative to the U.S. processor, that you will see more cattle go directly to the U.S.," Penner said.
(c) Reuters 2007
Reuters
September 04, 2007
WINNIPEG, Manitoba (Reuters) - Canadian beef processors are grappling with the strong Canadian dollar, a labor shortage and other costs not faced by U.S. competitors, the chief executive of Cargill Inc's <CARG.UL> Canadian subsidiary said on Tuesday.
"The beef industry is in a relatively fragile position," said Len Penner of Cargill Ltd, Canada's top beef processor, in an interview. "The returns are not healthy at this point in time," he said.
Canada's export-dependent beef sector has struggled since the country uncovered its first case of mad cow disease in 2003, which shut down trade.
After a few months, the United States, Canada's main market for beef, began to allow imports of beef from cattle under the age of 30 months, which are too young to develop bovine spongiform encephalopathy (BSE) or mad cow disease.
Packers, including Cargill, boosted capacity to handle the glut of cattle that had nowhere to go. But after the U.S. border opened to young live cattle two years ago, much of that new capacity was idled.
Cargill is handling about 3,800 head per day at its High River, Alberta, plant that it had expanded to handle 5,000 a day, a company spokesman said.
In July, it laid off workers at a plant it acquired in Guelph, Ontario, to go to a single shift, processing 1,300 head per day, the spokesman said.
The strong Canadian economy is partly to blame for pushing Canadian packers' costs above U.S. competitors, Penner said.
The Canadian dollar has climbed 30 percent during the past four years of beef sector turmoil to the 95 U.S.-cent level. That has decreased returns in Canadian dollars for exported commodities that are sold in U.S. dollars, he said.
Red-hot energy and manufacturing sectors have caused a labor shortage, particularly in Alberta, a key beef producing province.
"We have a booming economy in a big chunk of where our beef is," Penner said, noting Cargill is bringing in workers from Mexico and the Philippines to help staff the High River plant.
"It's not easy, when you're constantly starting the day, every shift, short," Penner said, adding the company is using new technology to cut labor costs and boost productivity.
HIGHER COSTS
In July, new Canadian regulations came into effect that boosted slaughter costs by C$8 to C$10 a head for cattle under 30 months and C$15 to C$20 for older cattle, Penner said.
The rules, designed to eliminate all traces of BSE from Canada's herd in 10 years, force processors to carefully dispose of brains, spines and "risk materials" from cattle, rather than rendering them to use in pig and poultry feed.
Canadian beef exports dropped to 368,000 metric tons in 2006, down almost 20 percent from year-earlier levels. The value of those exports fell to C$1.3 billion ($1.24 billion), the lowest level in nine years, according to industry statistics.
But live cattle exports were up 84 percent from 2005, topping 1 million head. As of late August, the yearly export pace was up 17 percent from 2006 levels.
The next hurdle could come when a proposed U.S. rule takes effect that would allow imports of Canadian cattle born after March 1, 1999. U.S. Agriculture Secretary Mike Johanns has said the department could issue the rule as early as this month, but did not say when it would go into effect
"There is a risk that when the border opens to the (older cattle), that if we cannot remain competitive relative to the U.S. processor, that you will see more cattle go directly to the U.S.," Penner said.
(c) Reuters 2007