How about one from a Beef Initiative Group prospective. -----
In the past three and one half years, I've written several controversial articles pertaining to the Canadian beef industry, particularly the state of same since May 20th, 2003. The fact that Canadian beef producers are dangerously more vulnerable today than in May of 2003 is undeniable. The obstacles we face today are many fold greater than merely how to best recover from lost markets in our four year BSE debacle. Indeed, if we're willing to take an honest inventory of our strengths and weaknesses, the beef industry does not have many bright lights at the end of the tunnel. The looming challenge now centers around the hype created by the Bio-fuel industry and the havoc it is wreaking upon the beef industry. In this article, I will attempt to explain what I consider to be the answer to the much asked question "how can an industry justify it's existence when it is so obviously dependent on govt. subsidization"? If I am correct, the obvious answer to this question and it's consequences for the Canadian beef industry are going completely unheeded by those of us involved, and most especially govt. and beef industry leadership in Canada.
Some six or seven years ago, while driving down the road in a cattle liner with a friend who, at the time, was the immediate past vice president of Alberta Wheat Pool, I made the statement that if we wanted to increase the value of grain, we should lock a dozen of the brightest minds in the country in a room and let them out only after they'd come up with some alternate use for grain. Little could we comprehend then the future ravages to the beef industry of just such a phenomenon.
Shortly after Washington began publishing it's mandate for U.S. Ethanol production amortized over many years, that nagging question of "how can a business exist dependent on govt subsidy" caused me to do a simple mathematical calculation. I will state before going farther that my arithmetic may be skewed, but if it is, it will be in a way that further supports my conclusion. What I did was to research as completely as a lay person can, the amount of direct U.S. Govt subsidy in U.S. Govt farm bills for the past twenty years which was directed at U.S. grain farmers. This is quite probably where my arithmetic is skewed, as Uncle Sam is more adept at hiding farm subsidy than admitting to it, and I no doubt missed a substantial amount in that time period. Nonetheless, my conclusion supported my theory far more than I'd imagined.
On the other side of the calculation, I simply took the amount of Washington's mandated and amortized ethanol wish list and multiplied by the approximate subsidy, fifty cents a gallon. The results of this exercise prove what I suspected. It no longer surprises me that it was far cheaper for Washington to cause a private industry, albeit through direct subsidization, to be created, than it was to continue to directly subsidize U.S. grain farmers. The result of this brilliant if immoral stroke of political genius was the inevitable escalation of global grain prices, more specifically, U.S. grain prices. The bottom line cost comparison of my arithmetic did not in any way include either the tremendous economic spin off to Washington in terms of employment and development nor the commerce generated by the financing of this ethanol industry. Just the simple fact that it was cheaper to subsidize a private industry into being than to try and continue to directly subsidize U.S. Farmers. Perhaps even more important to Washington than the simple economics of "best bang for the buck" is the fact that post 2007, likely no country in the world in WTO discussions can point an accusing finger at Uncle Sam for unfair grain farm subsidies. Thanks be to ethanol, they are simply no longer needed. We now see that causing a private industry to be created which would very soon vie for thirty percent of the U.S. annual corn production achieved in every way what it was intended to do. Washington saved billions in terms of farm subsidy, Washington and U.S. financiers will benefit immensely from the patriotic camouflage of employment and commerce created, and no longer will any country have a legitimate WTO ax to grind over grain subsidy. Brilliant and all done under the guise of "working toward energy self sufficiency and environmental stewardship" Bullshit! This simply testifies that if one cannot find the answer to a political question, go back to the beginning and follow the money. By properly identifying the reason the ethanol industry exists in the U.S., it makes immense sense. Things are seldom all they appear to be, and the fact that corn based ethanol is "dumb business" in terms of energy value returns means very little in the big picture. The fact that converting food to fuel is quite likely immoral when compared to the economic comparison of, say, sugar cane ethanol, is "tough titty". Other than lip service, when has govt economics ever considered the moral issues around world hunger or the ability of third world countries to buy food? The entire explanation for the U.S. ethanol industries' existence is that it made sound economic sense for Washington. By accident or by extension, Washington did Ottawa, and for that matter, every grain producing countries' govt in the world, a huge favor. Ottawa also will now have all Canadian grain producer's hands out of Ottawa's pockets in terms of taxpayer bail outs for the foreseeable future, since we now have a "politically permanent" third user of grain vying for an ever increasing share of annual production. Forever is four years in politics. Canada really didn't have to spend a nickel on bio fuel development, since Uncle Sam did it for us. I expect we'll follow suit on a "Canada sized scale", just to look good.
Now, as to the beef industry connection. USDA recently released new numbers on expected U.S. agriculture revenue for 2007. The U.S. Cattle industry is expected to generate close to fifty billion dollars, and the U.S. grain industry is targeted to generate close to one hundred and fifty billion dollars revenue. Examining those numbers obviously reveals that the grain industry outranks the cattle industry by three to one in terms of economic importance. Incidentally, USDA couldn't resist pointing out that the reason the grain sector is projecting such a stellar year is due to increased grain prices spurred by ethanol production! Since the U.S. cattle industry sits in the third seat back now, it is simply outranked by the economic benefit foisted on the country by the ethanol industry. However, the U.S. Cattle industry has a few obvious legs up on the Canadian cattle industry, if indeed there exists a Canadian cattle industry. The greatest advantage the U.S. cattle industry has in it's favor is simple demographics. The U.S. cannot produce enough beef to feed themselves, therefore, the U.S. is not dependent on a beef export market. To the U.S. packing industry, an aggressive export market is key to keeping the wholesale domestic price of beef at it's highest possible level. When a small handful of packers "own" eighty or ninety percent of slaughter capacity, they also "own", to a large degree, supply demand. An aggressive export market forces domestic price higher, but the fact that the U.S. is not self sufficient in terms of beef production ensures the U.S. cattle industry of a "demand market". Proof of this was the record high live cattle market experienced in the US even after their Washington state case of BSE caused the loss of their export market. Canada should be so lucky, we must export approximately sixty percent of our production annually, a fact that makes us weak sellers.
The next greatest asset the U.S. Cattle industry has going for it is the fact that U.S. Politics has for four years manipulated Canada into a position of dependence and subservience. The Canadian cattle industry cast it's lot into the hands of Uncle Sam in 1989 when Cargill came to Alberta, and further in 1994 when IBP Tyson came to Alberta. Since May 20 th, 2003, we have twice clapped and cheered when handed a bad deal by the U.S.. Once in July of 2005, and again in Sept of 2007, Rule One and Rule Two. The Canadian cattle industry has now found itself at a new low ebb, being suppliers of cheap beef to the U.S. based on U.S. terms and U.S. demand. We will continue to provide up to six percent of America's beef needs [about eighty five percent of our exports] either in the form of boxed beef or live feeder and fat cattle. Regardless the form these supplies are in, they are always at a discounted price compared to the American price. "Basis" is a fact of life in Canada, basis simply meaning discount. Even as the dollar hit par, basis was widening.
With the development of the ethanol industry, vast amounts of byproduct called "dried distillers grains" came available in the corn belt of the U.S. Thus, it follows that feedlot expansion has similarly became a reality in the U.S. corn belt. When cries of foul came from the U.S. cattle industry accusing the ethanol industry of jacking up feed corn prices to an unmanageable level, Monsanto, Dow, and others came to the rescue with, guess what? Genetic modification! No longer do we hear much fear mongering over GMO. "Sound science" has assured Washington that "we can increase the yield potential of corn by up to forty percent in four years". We in Canada, however, do not grow much corn so are dependent on Barley as the feed grain of choice. Problem is, we seemingly have about topped out on barley yield potential, and the price of our barley is chained in lock step with the price of American corn. Barring drought and plague, the U.S. can theoretically produce enough corn in the near term to get by, considering the vast amount of dried distillers grains available to them. Canada will likely produce enough barley in the near term to finish whatever feeder cattle that stay in Canada, but it will be priced by U.S. corn. Thus, it's a well known fact that the U.S. feeding industry has gained huge economic advantages over the Canadian feeding industry, evidenced by the twenty five percent increase in exports of Canadian feeder cattle to the U.S. in 2007 compared to the same time period for 2006. This at a time when the dollar is at par and Canadian exports are supposed to dry up. Canfax reported Friday, Sept 28th, ironically the same Friday that the Canadian dollar closed a half cent above par with the US dollar, that the US feeding industry now has a cost of gain advantage over Canadian feeders of twenty five to thirty cents per lb. This equates to an American advantage of one hundred and seventy five dollars to take a six hundred and fifty lb steer to thirteen hundred and fifty lbs finished weight. The same Canfax report shows an Alberta avg fat price for the week of 81.97 cents per lb, while Texas steers were 96.25 cents per lb. This with a par dollar. The Canadian dollar has not strengthened as much as the US dollar has weakened, yet the CCA and ABP has cast the future of Canada's cattle industry into the hands of a weakening US economy. "Basis" makes it possible for American cattle feeders to buy Canadian feeder cattle and the cost advantage American cattle feeder's have over Canadian cattle feeder's assures that we will continue to supply cattle to America based on America's terms and demand.
The past four years of political manipulation of Canada by the U.S. has assured the Canadian cattle industry of at least twenty years of subservience judging by the wording of "Rule Two", since it's conceivable that a cow can live for up to twenty years. The post '99 birth date requirement wording of Rule Two guarantees the continuance of the Canadian captive market for live OTM cattle remains. The only passport for OTM beef to America will be held by the packers. Two American based packers operating in Canada own about eighty five percent of Canadian slaughter capacity, and with an expanded market for OTM beef if rule two takes effect, they will now have an expanded opportunity to lever the price of fat cattle in Canada while they slaughter OTM cattle, and vice versa. Canfax reports have clearly shown this trend since Beef Information Centre provided free promotion of Canadian OTM beef for processors. Through partnering with various "eat smart" campaigns, they decidedly increased Canadian consumption of OTM beef, yet the captive market of OTM live animals remains, their value held in check by the landed cost of offshore commercial beef. Producer checkoff's largely funded this promotion. There remains today a spread of about sixteen cents per lb between a cull cow in the US and her Canadian counterpart, yet packers are killing cull cows in Canada at numbers much above pre BSE levels. The trickle down illusion is not working for Canadian producers.
Canada's July 12th, 2007 "enhanced feed ban" further tilted the playing field in favor of the US. The U.S. opted not to implement the same stringent feed ban policy that we chose, thus packers in the US do not encounter the same costs that Canadian packers incur. Let us not forget either that as finished cattle exit this country for slaughter in the U.S., there's a very good chance that they'll be slaughtered in the U.S. by one of the same multi national processors operating on Canadian soil, the very ones who experienced obscene profits from May, 2003 to July, 2005. When you operate on both sides of the line, your bases are fairly covered. It's a little like poker, when caught bluffing, you only lose what's on the table, not what you've already won.
"Mandatory Country of Origin Labeling" in the U.S. is now a dark cloud looming over Canadian producers, set to become law in Sept, 2008. It is not the fear of American consumers choosing to patriotically support American product, but rather the "handed down" cost of the labeling which is going to drive down the value of non American beef. Some have the cost of labeling in the billions of dollars, a price that is certain to be passed down to the producers of the beef, inevitably, the primary producer as he's at the bottom of the economic chain. It would appear that we can decidedly look forward to a further discount of Canadian beef going south after COOL becomes law. We are now not only shrinking the Canadian beef herd, we are losing feeder and fat cattle in historic high numbers to the U.S. feeding and slaughter industries and at a seriously discounted price. If and when Rule Two becomes law, OTM beef will join in the exodus, again at the expense of Canadian producers.
I believe the potentially greatest threat we face in Canada comes from South America. In January of 2007, Tyson parachuted themselves into Argentina, buying an established slaughter industry and all of American based Cactus Feeders holdings as well. The reasons cited were that this gave them turn key access to European and Asian markets, including the lucrative Japanese market. More importantly, they would have access to those markets from a BSE free zone. The OIE coincidentally boosted Tysons position further by announcing official BSE free status for Argentina shortly following their arrival there. Brazil has been the worlds number one exporter of beef and soy for several years. Brazil's beef exports are up substantially to date for 2007 compared to the same time period for 2006. On May 29 th, 2007, Swift announced they'd been bought out by JBS Friboi of Brazil, the buyout being one point four billion dollars [including Swift's debt]. This acquisition made Friboi the largest meat processor in the world, with holdings in South America, U.S., and Australia. The implication for Canada in this scenario is obvious. Since we have cast our dependency completely on the American market, accepting whatever they hand us, what will become of our market when cheap South American beef displaces some of our U.S market share? Eighty five percent of our beef exports are dependent on the U.S. for purchase, yet that amount rarely exceeds six percent of America's annual needs. If our market share of America's requirement shrinks by two percent of their needs due to cheap South American beef, that would translate to about thirty percent of our exports. Where to then, since we've done nothing in the past four years to remove some of our eggs from Uncle Sam's basket? In July, a thirteen hundred lb feedlot finished steer in Argentina was worth about seven hundred and seventy five dollars Canadian, the same steer in Canada was at the depressed price of about one thousand and seventy five dollars Canadian. Even at what we consider a depressed price, there's huge incentive for the processor to flog that Argentine steer into any global market available, even the North American market. Washington will comply. Canadian cattle industry leadership have not uttered a word of this threat other than to shrug it off. They have changed little in four years to help advance Canadian beef into global markets that we have no choice but to court. When push comes to shove, whose cattle industry do we think the Americans will look after first? Certainly not Canada's. We may be genetically integrated, but we're politically segregated.
The above description of Canada's cattle industry post May 2003 is unfortunately fairly accurate. So too, I believe, is the reason given here for the existence of the U.S. ethanol industry. Whether or not you agree with the reason I've stated for the existence of the U.S. ethanol hype, the results for Canada's beef producers are the same. If you think I'm wrong and that ethanol is simply a "flash in the pan" phenomenon, you could argue that common sense will win and all of this ethanol hype will die down, allowing the cattle industry to once again chug along with it's periodic spells of black ink to compensate for the long spells of red ink we've grown accustomed to. However, if I'm right as to why the ethanol industry exists, then we are heading down a very muddy road by casting our fate into Uncle Sam's hands. If I'm right, Washington can not and will not any time soon remove the subsidy on ethanol production in the U.S., nor will it remove the tariff on sugar cane based offshore ethanol, for the obvious reason that U.S. grain prices would then slide back, causing a need for grain farmer support once again. That would put them right back at square one in WTO subsidy grievances, a place they're in no hurry to be. In terms of how we navigate our future in the cattle industry, it matters a great deal which theory you subscribe to pertaining to the U.S. ethanol industries existence. The immediate results are the same either way, the long term results are a huge risk, depending on which you believe. The U.S. has positioned it's cattle industry to triumph over ours by manipulating us to be suppliers of beef and live cattle based on U.S. needs at a discounted price from that of U.S. producers. Our beef will sell second to theirs. Time and the present condition of all classes of Canadian cattle markets suggest I'm right. For four years, we've continued on our downward spiral without a fight. CCA did not utter a word of protest in July, 2005, when handed a border opening for live cattle which was clearly in defiance of both NAFTA and OIE trade guidelines, to the contrary, they cheered. It took the action of an Alberta cattle feeder to launch a court action against the U.S. border closure in 2004. ABP grudgingly were shamed into giving lip service support to it, CCA refused to discuss it. This September CCA was all over the six o'clock news cheering the tentative announcement of "Rule Two", never once describing it for what it is. Canadian Cattleman's Executive Vice Pres thanked Canadian taxpayers for supporting the cattle industry. He was a little premature in that, as taxpayer's are likely not finished supporting this cattle business. It's now fairly evident what we can expect from CCA's "wait and see, walk soft" approach, and ABP appears to be in complete harmony with CCA. In the past, most calves born in Canada had about two and a half Auction Market commissions pinned to their heads, now too many of them will have only one. Commerce in Canada will suffer far more than just at the producer level because of industry mismanagement. As we shrink the Canadian beef herd by any given percent, so too do we eliminate the need for the same percentage of haybines and round balers, cattle liners, large animal veterinarians, auction markets, etc. ABP will doubtless trot out another varnished and optimistic video for their fall election audience, comprised mostly of ABP staff and mostly well intentioned "wanna-be" delegates who dream of "making a difference". Fortunately or unfortunately, about two percent of Alberta's beef producer's bother to attend these meetings, but ABP will insist that they "represent" all. Ask yourself, if ABP and CCA have had it right for four years and four months, why has the only change in the Canadian cattle industry since May 20, 2003, been the steady decay of our position. Never have either organization listened to producers voices calling for change. Every year at this time, we've passed many resolutions in almost every zone at fall election meetings calling on ABP to take the "voluntary BSE testing" argument to all levels of govt and fight like hell for it's implementation. Every year when those resolutions are discussed at the annual general meeting, some voice of authority steps to the microphone and argues against them, and they die.
For every problem the Canadian cattle industry faces today, I can build a very strong case demonstrating that voluntary BSE testing could be part or all of the solution for each. From regaining export market share to the problem of how to keep cattle in Canada for feeding, finishing, and slaughter, to dealing with COOL, and yes, even the Americans' ethanol industry advantage, voluntary BSE testing can play a pivotal role in terms of a solution. In 2004 when Beef Initiative Group was advocating for producer owned slaughter industry in Canada, we also stated that any Canadian producer would be foolish to invest a nickel in a slaughter plant without the inherent right to voluntarily BSE test for market access. Today, Rancher's Beef in Balzac, Alta. stands as testimony to the accuracy of that. More importantly, time has proven that ABP and CCA were willing to look the other way as the Canadian producers invested in Ranchers Beef fell into bankruptcy. Simply because the U.S. packing industry and USDA want or need nothing to do with BSE testing, ABP and CCA turned a blind eye to a genuine Canadian slaughter industry as it went down. Both organizations claim to have taken a "sound science" approach to BSE. The only science applied to our BSE struggle has been political and trade science, and then only insofar as it benefits the U.S. Since producer checkoff dollars fund both these organizations, THEY ARE CLEARLY USING OUR MONEY AGAINST US. Beef Initiative Group has data from a poll of hundreds of producers showing a willingness to test for market access to the tune of over 95 percent in favor. Alta. Beef Magazine shows similar results in a poll they undertook. Who is ABP and CCA representing with our money? There is about to be a controversial discussion to be had in this province regarding the future of the three dollar mandatory checkoff. Clearly, if producers were given the choice, the overwhelming majority would put that money to work for them in a place of their choosing. ABP insists they have operated in a democratic way in the past four years, therefore, I expect they will like the idea of a democratic vote by producers in regards to the future of the Alta checkoff. When that plebiscite occurs', I will also insist that it include the "yes or no" question - "Are you in favor of voluntary BSE testing for marketing purposes?"
Conclusion:
How do we get out of this mud hole? Many an old cowboy has advised on that - "hang onto the old cows tail and she'll pull you through". Perhaps there's more to that than just cowboy logic. It's impossible to have a cattle industry without the cattle, so the first thing to be done now is figure out how to keep cattle in Canada while facing the many hurdles described above. Thus far, hanging on to that tail is only dragging us closer to the U.S. border. I have thought of little else in the past four years, and am now convinced that the road to recovery will be a virtual rebirth of this industry. We'll keep what was good from past experience and invent new ways to succeed as we rebuild for the future. I do not know if the changes we need can happen as expeditiously as we need, but we must try.
In order for producers to secure a future, some things have got to change. I hate gray areas so I will be typically blunt. ABP and CCA are going to have to change direction or face implosion. We require organizations which, through a chiseled in stone charter, can nevermore lose sight of whom they represent, the producers who carry the mortgage for the Canadian cattle industry. I fully recognize the importance of strong provincial and national representation, the type of representation we have not had nationally since 1992. I do not make this statement lightly, and I recognize the gravity of this statement, but I also recognize that the changes we require in order to secure a future will not come through what should be the two strongest voices the Canadian cattle industry have in it's defense - that of ABP and CCA. They must change their direction or be gone before more harm can be done.
Policy change at the federal level must occur before this industry can pick itself up by the bootstraps. First and foremost, CFIA must suffer a setback. We see nothing wrong in CFIA watchdogging Canadian food safety, either for domestic or export purposes. We see nothing wrong with CFIA's presence in food production facilities, processing facilities, or at border points. We as producers are fully cognizant of the need for quality control and health assurances of the product we offer. Where we take EXTREME exception to CFIA is there involvement in the political discussion around the marketing of our product. I've said many times that CFIA are a bureaucracy able to mutate faster than the disease scourges they claim to protect us from. What the hell right has CFIA to tell an industry that they cannot use a world class and globally accepted scientific test for BSE, especially when the very customer we depend on so much has requested it and uses it themselves? We need change at CFIA post haste, and it must come from the federal level. Alberta will likely have to lead the charge since forty percent of the nations mother herd live in Alberta and we are home to the lions share of feedlot capacity. Needless to mention over seventy percent of Canada's slaughter capacity sits on Alberta soil, not that they will assist in pushing for BSE testing, but you can bet they'll clamor on board when it happens.
I have a dream, and that's where all success originates, so indulge me if you will. Imagine that we've accomplished what was just described above, or at least to the point where we have a little latitude. At this point in time, facing what I've described in the last half dozen pages, we really have no choice but to change the way we do business in this cattle business, so we have little to lose but all to gain. So, for the sake of describing my vision for this industries future, pretend that we now have established the right to BSE test our product for market purposes, and we now have a provincial and national organization that promotes the best interests of the producer's they truly represent, plus both levels of govt. recognizing the merits of producers helping themselves. Suddenly the playing field just got a lot more level. The provincial and national organizations are promoting to producers the advantages of vertically integrating themselves into the value chain, quite possibly even franchising outlets at the retail level. We will learn to sell beef instead of cattle, much like has happened in New Zealand in the past twenty five years. As producers invest in their future and succeed, the example will grow into a full blown industry on it's own merit. Now that we will be allowed to use, in fact will be encouraged to use, every potential tool in existence to promote our product, both domestically and globally, we will quickly discover that we are much more adept and nimble and likely better at marketing our product into any market than the present North American status quo has ever been capable of. We will not attempt to go "head to head" with the multi national's , the object is to improve our lot by creating partnerships with our customers and controlling our production from field to plate. Through never before used conduits, such as foreign trade offices and foreign consulates, we begin partnering with business entities in the various markets we court, thus bridging the cultural gap in a way that multi national processors cannot. We'll conform and partner with our customers as opposed to muscling and intimidating foreign markets. Always remember, Canada only produces less than two and one half percent of the worlds beef, and we consume forty percent of that. We need only to market ten percent of annual production in order to break the oligopoly we languish under. In conjunction with a producer owned slaughter industry, there will be a producer owned brokerage arm assisted by federal and provincial international trade offices. As feedlots across the country recognize that there's better margins to be had selling beef than cattle, their infrastructure will be saved from withering in the wind. In any market and in any economy, there's a finite amount of product and it always gets sold. By whom it is sold generally dictates the profit. We will, for the first time in nearly twenty years, stop overproducing in order to compensate for shrinking profit margins. We will not turn our back on the American market either, but for the first time in history, when Uncle Sam buys our product, it will be from proud Canadian producers. Now that we have all levels of govt recognizing the benefit of lifting this industry out of the rut we've become accustomed to, many more doors will open. It is entirely possible that we'll learn to grow and finish more pounds of beef on a more forage based diet, thereby decreasing the cost associated with grain finishing.[Charles Gracey, 2007] We will likely tap into a lucrative European "lean beef"market after we bury some of our implant guns, and will likely have a mix of grass finished and grain finished beef to offer mixed markets, gaining strength from diversification. There is a considerable opportunity for grass finished lean beef in several world markets currently. With the ability to BSE test our product, age will be of lesser significance than quality and grade. With cooperation from a govt that recognizes the advances producers are making, and through lobbying by the national cattle industry organization, Canadian grading standards will change to reward producers based on quality. With the data on grades sent back to the producer, we'll clean up a lot of herds in Canada, thus strengthening our position from a quality standpoint. By reining in CFIA and eliminating restrictions on inter-provincial beef trade, producers in all of the beef producing provinces will work together in a truly Canadian beef industry. I've said many times that producers in Canada are hobbled more by domestic policy at home than they are by WTO grievances and foreign tariffs. The EU has become a net importing country in terms of beef. The middle east is a lucrative market, foreign to us because the multi nationals want no part of the Halal slaughter protocol. China will consume ever increasing quantities of beef, likely creating a market for lesser value cuts so hard to move domestically. When foreigner's migrate to Canada, they inevitably succeed because they recognize opportunity that we trip over and ignore. We've been trained like a circus monkey to do one performance and leave the rest to the multi nationals'. That will change, but only if we take back the cattle industry we rightly own.
Cam Ostercamp
Pres., Beef Initiative Group, Canada
www.beef-initiative-group.com