That's a fairly simple set of questions....
First of all, on the issue of demand and what happened, a number of us were very actively involved in the industry through the eighties into the nineties. There's an assertion that Cargill in particular coming in was the reason that a lot of smaller plants went out of business, but almost all those smaller plants had already gone out of business before the decision was even made to put a shovel in the ground. We saw a whole group of multi-storey plants that were antiquated leaving the industry during that period of time, and others, that were starting to build single-storey, double-shifting plants, beginning to develop.
As we headed into the late eighties, there started to be a very significant shift in demand that was health-driven. We also saw a very significant increase in poultry production and poultry consumption.
Now, it's interesting that since that period of time, we have seen a significant decline in demand for beef in Canada but a significant increase in both the growth of our cattle herd and the growth of cattle feeding in our country. You don't see both of those if you're losing significant money. In fact, we became the fatest-growing beef-grain-feeding region in the world during that period of time. It was driven by the fact that we were seeing enormous export success around the world, particularly in the United States as a result of the Canada-U.S. agreement. Then we gained a tariff advantage into Mexico. The U.S. and Canada were given tariff-free access while the rest of the world still had tariffs to go into Mexico. And we started to see access into Japan.
By the time we got toward the end of the nineties, we saw demand stabilize. There was a shift in terms of product focus on quality and how we marketed our product. In the last number of years, we've been going from crisis to crisis--a 50-year drought with Hay West, in 2002 the BSE, then 2003 was the highest our currency had been since 1954, and then the world economic crisis of proportions that some will argue we haven't seen in 80 years.
We don't like the fact that we've gone through all of this, but practically all of it was beyond the control of any “plan” or any other thing you could do. It's been one of the most remarkable periods in the history of our industry. The fact that we still have a large percentage of our industry coming forward and saying that we need to address the viability test.... The fact that they're still here to talk about the viability test is a strong testament to them.
What drives the price of calves up and down is the price of grain. If people want to start asking why, well, if we start to create policies around the world that artificially inflate the price of grain, we also need to start asking ourselves about the sense in doing that. We're going to see lower grain costs for a period of time. We're going to see lower fuel costs for a period of time. The question is how to get more value.
What happened a year ago is that you saw inflation in costs. At the same time, we hadn't seen a similar inflation in the value of our meat products. Now we've seen deflation in costs. Hopefully we haven't seen deflation in meat costs yet. What we have seen as a result of the crisis is a shift in the value of different products. We saw this in the eighties too. You started to see a manufacturing of lower-trim and less food-service sales, with a shift more to those products at retail.
No one's quite sure what to make of demand over the next period of time, but we believe there is an opportunity to get more value. We talk a lot about exports. We do that because those things are impacting directly on the value of each animal that's being sold.
As well, when we took a look at the impact of exports, for every additional dollar in improved value we got, we saw about a 67¢ improvement in live cattle prices. So for every $100 that we could improve the value to our processors, if that historic relationship exists, we would see a $67 return back to cattle producers. Right now they need higher prices to address their income.