Regional Consequences of the BSE Crisis

By David Kilgour, MP for Edmonton  - Mill Woods - Beaumont

Nisku-Leduc Rotary Club

Nisku Inn

9 September, 2004

Rotarians and Guests,

Recently, while driving from Ponoka to Vegreville through Camrose, looking at the cows and calves in the sunny lush fields, I couldn’t help but think how well the serenity masked the terrible turmoil under the surface. It has plagued the Canadian beef industry for over a year now, and there has never been a more urgent time for governments at all levels to start addressing problems and finding intelligent solutions. 

The Canada – U.S. FTA in 1988, and NAFTA in 1994, quickly created a fully integrated continent-wide market for Canadian, Mexican and U.S. cattle, beef and veal. The year before the BSE crisis, Canada’s cattle and beef industry saw yearly sales grow to about $7.7 billion, with exports at $4 billion. 

Today, our national herd of beef cows is located mostly in Western Canada and tens of thousands of families depend on the success of an industry vital to our region.

The immediate banning by the U.S. government of our live animals after one cow in one herd in this province was found to be BSE-positive on May 20, 2003 created a huge oversupply of products. The U.S. had received about four-fifth of our beef exports and almost all of our live cattle; the ban meant catastrophe for most in the industry.  It also proved to be a “recipe made in heaven” for the packer subsidiaries of two American food giants; Lakeside (Tyson) in Brooks and Cargill in High River, which were licensed by Washington to sell boneless beef from animals under thirty months of age into the U.S.

These two packers now effectively control access to the American market for our entire Western beef export industry, which comprises cow-calf operators, backgrounders and large and small feedlots. In May of 2003, there were seven American plants located within a day’s drive from Prairie Canada. Now there are only the two in southern Alberta which have access to the U.S. Not surprisingly, this has resulted in a huge oversupply of animals overdue for processing across Canada. 

Families In Crisis

This tragedy is not just about numbers and facts; it is about all of the Canadian beef producers whose livelihoods, and lives, are slowly slipping away. Take, for example, the case of a feedlot operator in Alberta, I’ll call her A.B., who telephoned me recently from central Alberta. The equity in their feedlot operation is disappearing rapidly as they continue to lose $250-300 per animal because packers are paying in the sixty cents-a-pound range for fattened animals. These prices simply cannot sustain the producers. Their morale is declining after many years of building a family enterprise; the emergency assistance provided by the federal-provincial governments went quickly. In fact, the family worries that they’ll not even be in business by the time the border finally re-opens.  Her family favors a provincially legislated floor price to require packers to pay producers a reasonable price.

Another caller, whom I’ll call C.D., has ranched for 45 years near Camrose. He also favours a floor price given that Lakeside has lately been offering him as little as 65 cents-a-pound for fattened cattle.  E.F., a rancher east of Saskatoon, said the other day on the phone that fattened steers which he could have sold for about $1300 before May 2003 are now going for roughly $850 at the Moose jaw packing plant. The question is, how much longer can these hard-working families hold on? What are the real problems and issues at the heart of the matter, and what can be done to turn the situation around?

Present Realities

Our Western Canada beef industry produces about three million head a year, which is about four times what our region consumes.  We have a huge investment in the cow-calf operations, the feedlots, and the packing plants. There are 240 feedlots in Alberta and Saskatchewan alone and 90,000 cow-calf operations across the country. That’s thousands of struggling fathers, mothers and children; it’s the hard labour, the sweat, the cold mornings with cows and newborn calves, and most importantly, it’s the life-long dreams of our fellow citizens.

A restaurant owner near Lethbridge told me a few weeks ago that his sales have dropped by almost a third since the border closed.  Prairie grain growers are drastically affected too because an estimated one third of their crops were going to feed cattle.

In recent days, I spoke to two feedlot owners from central Alberta who provided some important insights on current realities:

1. Lenders are now clamping down on all sectors of the industry.  Feedlots and backgrounders are experiencing great difficulty in paying grain producers and in purchasing feeders from cow-calf operators at fair prices for both.

2. During part of August, the large packers in Alberta opted to process their own animals instead of those of independent producers, thereby stopping their cash- flow life-blood. I was told that about three weeks ago prices began to rise by roughly fifteen cents per pound because Lakeside and Cargill finally began to bid against each other for fattened cattle from independent feedlots.

3. The Canadian Cattlemen’s Association proposal for governments to pay cow-calf ranchers to winter their spring calves could kill the feeder industry.  Its creditors are already obliging them to pay in the 55-cents per pound range for feeder animals now, which is far too little for financial viability for cow-calf operators. In short, good intentions for one sector can harm another severely.

4. The feedlot sector generally wants Prime Minister Martin to lobby President Bush more vigorously to open the border.  Some in the industry are now convinced that the U.S. border will open to our live animals only after Japan opens itself to U.S. beef.

Feedlot Class Action

The present situation explains why a group of feedlot operators, the Canadian Cattlemen for Fair Trade, recently launched a class action against the U.S. government under Chapter 11 of NAFTA for damages in the $150 million range.  Why, one of the plaintiffs asked, is there any point in having NAFTA if our cattlemen “can’t get a fair shake”?

Rick Paskal, the group spokesman, put its bluntly, “Our animal health practices mirror U.S. ones…our industry is devastated in Canada yet the border remains closed…the U.S. is violating the letter and spirit of NAFTA.”  Their lawyer, Michael Woods, pointed out that progress on softwood lumber issues only began to occur once litigation began. Let’s hope this case will also act as an impetus for change.

Some Policy Recommendations

The All-Party Standing Committee on Agriculture made five recommendations last April to deal with the crisis, including:

1.                  The governments of Canada and the U.S. should work with producers and processors to increase slaughter and value-added processing capacity.  (There are some very interesting proposals, among them a 200-head-per-day Halal plant at Leduc, that would seem viable whether the border is open or not.)

2.                  The Commissioner of Competition should conduct an immediate inquiry into the pricing of slaughtered cattle and beef at the wholesale level; she should also monitor the wholesale pricing of beef closely.

3.                  The federal government should engage an independent body to study the degree of – or lack thereof – competition in the cattle and beef products industry.

4.                  The governments of Canada and the U.S. should immediately implement the World Organization for Animal Health Code.  Each should repeal their current import embargo on the other.

Among many other proposals made since, some seem especially promising:

1.                  We should implement mandatory BSE testing for exported beef products because in this country and others with large beef herds, the prospects are high that another BSE-positive animal is going to be found.  To minimize the risk that international markets will again close their doors, we should implement BSE testing on all meat going offshore as a marketing feature. The Japanese have implied that they are ready to accept offshore meat if all animals are BSE tested. The Peace Country Tender Beef Co-op plans to test all 30,000 animals it will process yearly for BSE.

2.                  A temporary floor price should be set for processors under relevant provincial legislation until the border opens and competition is restored as independent feedlot operators have probably suffered more to date than any group in the industry, packers should be obliged to pay them a reasonable price, presumably based on the index set on Chicago’s mercantile exchange.

3.                  In the current crisis, packers should not be permitted to own animals more than approximately ten days before they are slaughtered. Our federal Competition Act, as in some parts of the US, should ban the present practice by which they buy their own cattle – as during the month of August - knowing full well that the independent feedlots will have to accept low prices because oversized animals lose grade quickly.

4.                  Canada should be marketing our beef products much more aggressively across the world.  Evidently, Australia markets its beef - albeit of a low cost variety – in more than one hundred countries.  Prior to the closing after May 20, 2003, we sold ours in only a handful of nations beyond our two NAFTA partners, namely, Japan, South Korea, China, Taiwan, Hong Kong and Macau. To build towards a healthy future for our industry, we have to diversify effectively into other international markets.

5.       Finally, ensure that future federal-provincial aid is targeted only at those who are attempting to survive, and not a penny more should go to two packers which are both making very substantial profits. The May-June package of 2003 was unhelpful to many producers who could not get their animals slaughtered by the deadline and much of the money ended up with the packers.  The Picture Butte program this spring provided a small financial band-aid, enough to feed one animal for about one month.

Conclusion

Allow me to end with this plea for help from a Ponoka region female producer: “This is an emergency call…Farmers are getting more disillusioned every day…we have a wealth of knowledge and know-how that needs to be passed down to the next generation that is going to feed the world, and yet there is no one to stand up and do the job…When we all go broke from trying, or die from broken hearts and broken spirits, all Canada will be losers”.

Thank you.