Evidence of meeting #6 for Agriculture and Agri-Food in the 40th Parliament, 2nd session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cattle.
A recording is available from Parliament.
Conservative
The Chair Conservative Larry Miller
I call the meeting to order. I apologize for being a minute late. I should have checked my schedule. I went to our regular meeting place.
I'd like to thank all of our witnesses today.
I would invite our other witnesses to join the table.
With no further ado, we're going to turn it over to the NFU for their report.
Is there a point of order?
Liberal
Wayne Easter Liberal Malpeque, PE
Mr. Chair, I don't know if it's a point of order or a point of information.
I understand that debate on Bill C-13, the Grain Commission act, could start right away. Some of us may have to leave if that's the case. I certainly will.
Conservative
Liberal
Wayne Easter Liberal Malpeque, PE
It is an agriculture issue and it will be coming to this committee.
Conservative
The Chair Conservative Larry Miller
Yes, I'm quite sure it will be.
Mr. Robertson, are you starting?
Grant Robertson Board Member, National Farmers Union
Thank you, Mr. Chair.
Before I start, I just want to express my personal absolute delight at being able to address you as the chairman of this committee. For those who don't know, the committee chair's riding starts at the back of my fence.
You're also my mother's MP and I know she'd want you to treat her darling little boy quite nicely while he's in Ottawa.
Conservative
The Chair Conservative Larry Miller
I always treat everyone here very nicely, Mr. Robertson.
If I may, colleagues, I've thanked all the witnesses for being here, but I should recognize that Ms. Haley is here by video from western Canada.
Welcome to you as well, Ms. Haley.
Please go ahead, Mr. Robertson.
Board Member, National Farmers Union
At the National Farmers Union, we got to the point where we were starting to ask the question, what's happened in beef? What's going on? One of the things that occurred when I started quite near the chair's riding, at the back of my farm, was that I was walking up one day from having fixed some fence back there after a bad thunderstorm and it was knocked down, and we're on kind of a little ridge, and I was looking down over our cattle. It occurred to me that if my grandfather had had a herd the size that we have, he'd feel that he was doing pretty good for himself. What I had to do was hurry up because I had to get cleaned up and get to my off-farm job so that we could pay the bills on our farm. It struck me that something had gone wrong, and that started a general discussion in the NFU about the situation in beef. What's happened, and why are we at the point we're at?
One of the things we did, and I'll refer you to the first graph in our handout, is we wanted to look at what has happened with pricing over time. The graph that you're looking at is a graph that has never been done before in Canada. It looks at pricing adjusting for inflation, or purchasing power. To explain purchasing power, I'll go back to my great-uncle Bill Engel, who was in fact a constituent of the chair, living in Elmwood. He lived to be almost 100 years old. He used to say that when he was a young man he had to work a hard day's work to afford a pair of shoes. That would be about enough to buy a pair of shoes. It's pretty much the same now: a good hard day's work is what it takes to buy a pair of shoes. Even though the amounts of money have changed, the purchasing power has remained the same. But that's not true in cattle.
When we did this graph, we found that there were three distinct periods. We started in the midst of the Great Depression and moved it right up to the present day. You can see there, and I'll refer you to it some more, three distinct periods during that time. All of this is, again, adjusted for inflation so that a price of an animal in 1936 is equal to a price of an animal in 1986 and 2006, so we could compare apples to apples. We thought it was important to do this analysis because we really haven't been talking about these kinds of issues in this way in Canada, about really what has happened to the pocketbooks of farmers.
I'll be honest, we ran this graph a bunch of times because we didn't think it was right. We didn't trust our own data. It just seemed too easy that it would break out this way. We were expecting that you would have the BSE situation and then we would see the decline from there. We approached this with no agenda. We just wanted to find out. We had no preconceived ideas. So we have three periods, and we're going to talk about that.
We have the period of the Great Depression, and you can see there where prices are basically running from quite a low to around just a little bit above around $150 or $140 a hundredweight. Then you have a period of relative stability in there from 1942 to 1989. Prices rise and fall; you have some peaks and some valleys; you have foot-and-mouth in there, which causes a big drop. But basically they run in this channel, and you can see where we've highlighted it across the top.
Then in 1989 something changes, and you start to see that the normal range now becomes less than what the lowest part of the normal range was, so even the highest of our new normal is below what was the lowest of the old normal. Then we started looking around at what happened in 1989 and where we went from there.
Fred Tait Board Member, National Farmers Union
As Grant said, when we first looked at these numbers we anticipated that we'd done something wrong, because we did not perceive 1989 as being a turning point in our economic well-being, but indeed, that's what it shows.
What happened in 1989? There were some major events that we think are related. First of all, Cargill came to Canada and opened its large plant in Alberta. With Cargill's entry into the beef-packing industry in Canada, it rearranged the whole industry into a whole different structure. There were things happening immediately. Companies started to fold in this new regime. Companies that were there pre-1989 were gone. We lost Burns, we lost Swift Canadian, we lost Intercontinental, and so on. And in Alberta alone, where we had 17 federally inspected plants, we've ended up today where we're down to just three. We had plants that previously were killing a maximum of 2,800 cattle in a week, and now they kill 28,000. This is the way the industry was restructuring itself at the processing level.
Today, in Ontario alone, the restructuring during the past three decades has moved Ontario from 17 medium-sized federally inspected plants in 1974 down to seven plants, and now down to even fewer.
We also had Iowa Beef Packers move into the system, and they took over a plant that was later sold to Tyson.
So that whole structure changed.
We also had the Canada-United States Free Trade Agreement come in, which reorganized the way cattle were traded in North America. Rather than an east-west Canadian supply system, they went to a continental, integrated system. Exports became the buzzword of the time. We had to ramp up production to meet exports, which was coupled with the corporate concentration that was massively effective during that time.
Another thing that was introduced during the same timeframe, of course, that hadn't been here before, was the U.S. captive supply, where packers owned or controlled large volumes of cattle. It has doubled since 1989, and this also happened in Canada.
If you turn to page 7 in the pamphlet we have given you, what you see in that graph is what the Canadian packing industry looked like on Friday morning of last week. We had three major players: Tyson, Cargill, and XL Foods. XL Foods is owned by Nilsson Bros. Group. These three companies had 80% of Canada's overall slaughter capacity, but they had 95% or better of the finished cattle slaughter capacity.
On page 8, it shows what that graph looked like at three o'clock on Friday afternoon, with the decision of the Canadian Competition Bureau. We now have two packers, Cargill and XL, that control 80% of the overall capacity and somewhere between 95% and 98% of the fat cattle slaughter in Canada.
If you look at page 9, you'll see a similar situation has developed in the United States. You see that back in 1969, the four main packers in the United States controlled 30% of the overall slaughter capacity. Moving to 2007, you see they have 84%, and the lines of dots indicate the producer return as the concentration in packer ownership increases. Those have consequences, and Grant will show you some of the consequences of that change on page 10.
Board Member, National Farmers Union
If I go back to the graph I referenced at the beginning, in that 47-year period between 1949 and 1989, the price of Ontario slaughter steers never fell below $130 per hundredweight, nor did it breach Depression-era prices. Then in 1989 it did drop below $130 per hundredweight, and after 1989, cow prices continued to oscillate, as I mentioned, but they did so within a much lower range. So between 1989 and May of 2003, with the announcement of the case of BSE, instead of ranging between $130 and $280, prices actually went up to between $98 and $140 per hundredweight, so again a much smaller channel of returns available to cattle farmers.
At the same time, we see that the graph on page 10 looks at Ontario slaughter cows and the price of ground beef that someone going into the grocery store might pay. Some have suggested there has been a decline in consumption, therefore prices went down and therefore farmers are making less money--one plus one equals two. The problem is there's a “three” in the middle of all that, so you have relative stability for quite a long time of about $1.25 difference between what a farmer receives for his cull cow per pound and what was charged for ground beef in the grocery store. Then in 2003 it increases to about a $2 gap.
So this isn't about consumption. This is about the return to farmers, about who's actually receiving the income in the system, and by 2008 that gap had grown again to $2.25. So that's $1 a pound of the retail price that has gone elsewhere. That's not consumption. That's not anything else but money that used to go into the pockets of farmers. It's now being captured elsewhere in the system, and the only way around that is to make sure that farmers are empowered to get back that food dollar.
There's the old saying that there's lots of money to be made in agriculture; the problem is, none of it's in farming. We can see this graph bears that out, that there's money to be made in beef in Canada, but farmers have not been receiving a return.
Another way to look at this, and this is from CanFax on page 11-- this is from the Canadian Cattlemen's Association's own documents and own data. We suspect that if the data went back beyond 1999, we would discover the retail percentage of that steer that ended up in the hands of the cattle producer was probably more than 25%, and that we've seen a gradual decline, but the data just doesn't go back that far to be able to do that.
The Canadian Cattlemen's Association data is saying that between January of 1999 and July of this past year, the farmer's share of that retail price of the steer, what a farmer is receiving when he receives a steer and then it goes to the processor and ends up on the grocery shelf and what a consumer pays there...that farmer's share of that price has shrunk from 25% to 16%. That's a dramatic change, and again that's not about consumption; that's about the percentage of profit coming out of the retail price of beef that is no longer being captured by farmers.
Board Member, National Farmers Union
What Grant has just described needs an explanation, and there are two possibles here. One is that the concentration of ownership in packing and in retail is taking a larger portion. The other explanation is that as packers and retailers become larger and more concentrated, they become less efficient and have to take a larger share. I'll let you pick which one of those you want, but either one of those impoverishes farmers.
This whole issue of captive supply has not been discussed in Canada. It has not been an issue until we made it an issue. It has been an issue in the United States for decades, and from time to time it has almost become an issue in the Farm Bill. The Obama administration in the United States now is indicating quite strongly it's going to deal with this issue of captive supply once and for all. Our figures in Canada that we use—50% to 67%—came from two economists who studied the situation in Alberta. They found that, on the average, there was 50% to 60% of total slaughter in recent years, and some months that would go even higher.
If you turn to page 13, you'll see two pictures that are taken from Google Earth. This is the Tyson's plant near Brooks, Alberta. The top picture is the plant and the bottom picture is the feedlot that's directly across the highway from the plant. That feedlot is a mile and a half wide. It has a one-time capacity of 70,000 head of cattle. In the real fine pictures you can see trucks moving the cattle from that feedlot into that plant. That is captive supply. That is only one of the many feedlots of that capacity that serve that need.
When we look at what happened in the integration that took place, we see we were driven into increased livestock production by the loss of the Crow rate in western Canada. We were told that if we had the lowest feed grain prices in North America, our industry would thrive. There's one problem with that: farmers who grow grain cannot produce grain below the cost of production; they switch to higher-value crops. Then, because we lost our packing capacity in Manitoba, we had no place to put finished cattle. We then started producing double the number in calves to try to maintain our income, which then of course made us export-dependent.
If you turn to the graph that shows our continental integration on our exports, you'll see that from 1989 up to 2008, we multiplied our export capacity by a factor of eight. There isn't any other sector in the Canadian economy that has a record of that type of success in the export market.
I'd like you to turn to the next page, the food exports and farm income graph. I call this the weapon of mass destruction, because it shows what we as producers earn for our effort in multiplying agricultural food exports out of this country by a factor of eight. In 20 years, we produced three-quarters of a trillion dollars worth of agriculture products, and our income shown on the bottom line of that graph over 20 years was zero. Yet we were told on Thursday before this committee that the success of agriculture in Canada depends on us producing more and exporting more. There's a factor, you know. If you keep doing the same thing and expect a different result, perhaps you should look at doing things differently.
We also have a number of recommendations. Grant will do the first eight and I'll do the next.
Board Member, National Farmers Union
You can't do a report of this nature or be in the National Farmers Union without trying to look to the future and make sure we're working towards the best interests of family farmers.
We came up with some solutions. We're not saying that these solutions are the be-all and end-all. We're saying they're a place to start the discussion about moving the industry forward. There are going to be discussions around some of these things, but we think this is the place to get started.
Our number one recommendation is to ban packer ownership and control of cattle. Putting a high proportion of cattle through open and independent auctions creates significant benefits: increased bidding intensity; transparent price discovery; enhanced access for small farmers and independent feeders to important markets; opportunities for small processors to buy fed cattle; and protection from packer retaliation.
The other thing that is important is the fact that we're going to always have contracts. Contracts reduce travel, handling, and auction costs. On both sides of the equation, there are always going to be those who want contracts. We're not suggesting that contracting cattle is wrong. What we're saying is that the contracts should be much more open and transparent. They must have a fixed price in them so that the farmer is not taken advantage of through predatory practices. Also, they must be fully disclosed in real time.
Related to that is restraining packer power and reversing concentration. To restore prices to the levels that were routine from the 1940s to the 1980s, when they were double what they are today, we must rein in this concentration. Only by fixing the power imbalance in the beef chain can we fix the profit distribution and balance. We're saying that we need to stop mergers of packers, takeovers, and plant sales.
We're saying that we need to work with the U.S. government towards a deconcentration in the North American beef sector. It's going to be happening in the United States. In a continental market, if we don't move with the United States in the direction they're going, that of restraining packer control and banning outright some of these practices, we're going to leave Canadian cattle producers in a very, very vulnerable position.
We also need to create and implement a national meat strategy for Canada that shifts the ownership, the location, and the conduct of our major packing plants and moves us towards a meat system that better serves the economic, nutritional, social, and community development needs, a system where we actually have regional processors. They can work with regional producers and move us towards a system where it's not all concentrated in one single location. Not only does that single location concentrate some of the good parts of it, but it also concentrates an awful lot of very bad things that are happening.
Connected with that is decoupling vertically integrated packers. Packers are now starting to own the feedlots, the trucking companies, the insurance, and so on. It leaves farmers in a very vulnerable position.
We need to examine and restrain retailer/wholesaler power. What we're finding is that, adjusted for inflation, consumers are paying somewhere around what they did for hamburger 20 to 30 years ago, but rather than the price differential being passed on to farmers, that's all just been scooped up through the system. Consumers have been able to have relatively stable prices, but farmers have had the brunt of that, because the cost benefits of the efficiencies that have gone on have not been passed back to farmers.
Another recommendation is to succeed in creating farmer-owned packing plants. A lot of that has to do with regulatory work.
As well, we need to change some of our food safety regulations in order to encourage abattoirs. If you go along the side roads and concessions and range roads, and what have you, across this country, and talk to small processors, they will tell you that the regulatory burden placed on them under the guise of food safety often has almost nothing to do with food safety, but impinges on their ability to compete and to be able to expand and work with local markets.
We also believe that we need to build collective marketing agencies. It stands to reason that in the concentrated system that we have now, where we have three, or maybe two, packers controlling the overwhelming majority of the system, we need to have some collective concentration on the farmers' side as well.
The last point in my section of the presentation is tests for BSE and banned hormones. Canada is a trading nation. We agree with the many who say that we need to export our beef. But one of the main constraints we have is this ban on testing for BSE. It excludes us from some of the most lucrative markets in the world. If there were no ban, we could maintain some kind of alliance with the United States through their packers.
The irony is that we've now moved to the point where testing for BSE is actually significantly cheaper than the costs associated with SRM removal. Testing for BSE is way cheaper than what we're now paying to remove SRMs, and yet we are continuing to do that. We're continuing to put in regulation after regulation after regulation, all jammed down onto farmers. We now have to birthdate our cattle, we have to register them, we have to age verify everything, all of this just so that we don't have to test for BSE.
There's a reason that the Americans are worried about testing for BSE. Why we continue to ensure that Canadian farmers pay the price for that fear in the United States about testing for BSE is absolutely beyond me.
Board Member, National Farmers Union
Thanks, Grant.
Another issue related to that is reducing antibiotic use. We should not be using antibiotics in the Canadian food production system for non-therapeutic use. As a farmer, most of the vials of antibiotics on my farm expire before they are ever opened. We use very little. The non-therapeutic use of drugs is, in many medical practitioners' view, reducing the availability of effective drugs to treat human bacterial illness.
We need to develop markets for grass-fed beef. There is a market, but the structure in the packing industries is so concentrated now that we cannot service it.
We should embrace country-of-origin labelling and be proud of it. I believe that if a consumer wants to buy my product, which I'm proud of, they have a right to know who produced it, where it was produced, and how it was produced. I believe we can develop markets with that Canadian label on. It might say “Product of Manitoba”, “Alberta Beef”, “Product of Ontario”, right down to the county or farm for that matter. But whatever it takes to access consumer confidence, we will take it.
We also need a better focus on local food. In Manitoba, only 14% of the beef consumed there is processed in Manitoba; the rest of it is moved someplace else at my expense and is hauled back at consumer expense. There are more effective ways of serving consumer needs.
And there should be a better balance between production and consumption. When a BSE cow was found, we were 34% above the domestic consumption level, and it was 34% of cattle that caught us in the bind that bankrupted us. If our herd had been anywhere near domestic consumption levels, there would have been some disruption until we reoriented movement east and west, but we would not have suffered the multi-millions of dollars of losses and the demand on the public treasury that we will not recover from in another decade.
There needs to be immediate aid to farmers—and the Saskatchewan government did something like that the other day. I see a news release from the federal Minister of Agriculture really questioning that and saying that we may be countervailed. If you're in a situation where you can't help people in the most dire economic conditions of their lives because doing so might be a trade irritant, you should be looking at trade as the problem, I think.
And farmers should be given a choice among cattle organizations. When groups come before this committee, ask what they do. Are you a cow-calf producer? Are you a facilitator who supplies a service to the captive supply side of the cattle industry? Each of us can legitimately speak on our own behalf.
Also, use policy tools to support the appropriate size and scale of production. If you look in a recent issue of The Manitoba Co-Operator, you will see that out of this governance system, a producer in Manitoba received $1,460 per day for seven days a week for a full year as assistance for what was considered to be the most efficient farm in Manitoba. One could only wonder what one could have done with $100 a day to 14 farms, or $50 a day to 28 farms. One could only imagine. If you have a social purpose and a goal to retain rural communities, then you would redirect that money in a different direction.
I would also remind some of the members present, who see rural Manitoba and rural Canada as their power base, to be careful about weakening the power base of the constituency that keeps you in office.
Thank you. That's the end of our presentation.
Conservative
The Chair Conservative Larry Miller
Thank you very much.
I should have explained to the rest of the witnesses that we had a motion at committee to allow the NFU to go on beyond our normal 10 minutes. I'm going to suggest that if each organization could keep their presentation to 10 minutes, I would appreciate it, but at the same time, in fairness, if you do go over, I probably won't stop you.
At that, I'm going to turn it over to the lady of the group, Mrs. Carol Haley, as an individual, by video.
Mrs. Haley.
Carol Haley Rancher, As an Individual
Thank you very much, sir, and I'd like to thank the committee for this opportunity to speak about the future of the beef industry in Canada.
I wanted to begin by telling you just a little bit about the work that I was involved in, work that resulted in the creation of the Alberta Livestock and Meat Agency, which has radically changed the way the Government of Alberta interacts with the beef and livestock industries in our province.
In 2007 and 2008 I had the opportunity to co-chair a committee for the Minister of Agriculture, the Honourable George Groeneveld, tasked with reviewing the Alberta beef industry. I'm sure you're all aware that 61% of Canada's beef processing and 67% of fed cattle are produced in Alberta. Our exports of beef, pork, and livestock accounted for over $2 billion in 2007, farm cash receipts in 2006 for cattle sales were about $3 billion, and the value of manufactured red meat sales was $3.9 billion. It's an important industry by anyone's standards, but as we all know, it's also an industry in trouble.
When we started our committee work we knew that the higher Canadian dollar had eliminated the industry's historical cost advantage for beef going into the United States. We knew that feed prices had risen by 50% or more. We knew we had restricted access to foreign markets because of the 2003 BSE case. We knew that the industry was dealing with persistent labour shortages, that packers were operating significantly under capacity here in Alberta and were in fact giving signals that they would not continue to operate for longer than two years unless there was a major turnaround for them. We also knew that regulatory costs were adding between $37 and $66 per animal, depending on who you spoke to and which particular livestock sector it was in.
We also knew that environmental issues were having a greater impact on farming operations and their ability to be profitable. We also learned that beef and pork exports had been falling and livestock imports had been increasing since 2005. In 2005 Canadian imports of beef were valued at $301 million, but by 2008 that level had increased to $747 million; $616 million of that was coming up from the United States. Pre-BSE beef exports in 2002 for Alberta were valued at $1.6 billion, declining to just over $1 billion in 2003 when the BSE case hit. What was most interesting was that in 2004 exports of Alberta beef moved back up to $1.5 billion, and of course that was boxed beef, not live. However, by 2007 we were down to total export sales of $887 million, or just over half of what we had been following BSE.
It's a significant issue considering that the Canadian Cattlemen's Association and the Alberta Beef Producers both insisted that what mattered was the fully integrated North American beef industry. However, it wasn't and isn't working well for anyone in Alberta right now. The reason this matters to us is that in the 2002 to 2007 timeframe, the Alberta government invested over $2 billion of taxpayers' money into the beef industry to try to help stabilize it. This is money over and above anything the federal government contributed in payments to cattle ranchers. Industry had come back to the Government of Alberta in 2007 asking for at least $400 million to try to help deal with their latest crisis. It was at this point that the minister asked Jeff Kucharski and I to write a report giving him some direction on what needed to be done to try to assist this industry.
Our major recommendations to our minister were to move from a commodity focus to differentiated products, or, in other words, we have to brand our product. One of the best examples of this would be the Angus breed and what they're doing right now with their ads in restaurants and in stores. They're very successful, and they've been doing it on their own. We recommended that we move to a more diversified export market with less dependence on our single market, which is the United States, and greater emphasis on markets that pay a premium for beef, such as Asia.
We recommended the creation of the Alberta Livestock and Meat Agency to help focus a vision around all livestock and meat produced in Alberta, including beef, pork, sheep, bison, and cervids. We also recommended that we had to meet our international consumer needs, which include things like age verification, traceability, and the ability to track both feed and drug therapy for individual animals so that we can meet the needs of marketplaces like Europe, where they do not want growth hormones in their beef, or Asia, where they want age verification before they even consider buying your product.
We had to view the entire industry as an integrated chain from producer to feeder to packer, with information flowing both ways, to enable the packer to package shipments for specific destinations, but also information flowing back to the producer on the cut and grade of his animal.
We believe that government has a role to play. It is not of constantly subsidizing a private industry but rather assisting the industry with marketing, research, and production. In this instance, production would mean an information system that would give traceability, age verification, and on-farm food safety programs. Research, from our perspective, meant things like looking at genomics or BSE-related research, technology commercialization, and development wherever possible.
Market development meant international and domestic marketing, as well as branding our products as the best in the world and going aggressively after the high-end marketplace. It is not enough to just slap a maple leaf on a package; we have to show the world that our beef is safe, healthy, and of the highest possible quality. We have to allow the marketers to do what they need to do to sell our beef products.
We asked that government funding align with the strategy we had developed, and that meant a complete realignment of the Department of Agriculture here in Alberta, that funding currently being used inside and outside the department for beef or pork had to be realigned into the new agency.
We had to shift the emphasis to longer-term systemic change and eliminate ad hoc payments focused on short-term issues. It is imperative that government stop distorting market signals for this industry, and I believe that every time we come up with another short-term ad hoc payment, that is what we do.
And finally, government had to realign legislation, regulation, and policy with an industry vision.
I also believe that rather than fighting the United States on COOL legislation, we must in fact embrace it. We are three years too late to fight them. Where has our plan been? We have been told for three years that it was coming. Well, it's here, and we don’t have three more years to change it.
Our lack of success on softwood lumber, and even a border challenge on pork a few years ago, not to mention what R-CALF did to keep the border closed, should have taught us that we need to plan better. And rather than preparing to fight this issue now, three years late, we should be bringing in our own legislation. We should be encouraging Canadians to support their own food and livestock industries.
Alberta, under the leadership of Premier Stelmach and Minister Groeneveld, has taken the lead in creating the foundation for a market-driven, customer-focused, differentiated product, and safe and traceable beef and beef product industry. We need the federal government to take a stand, rather than watch and pay for the inevitable decline of the beef industry.
We have to build a new reality, not based on reliance on a low Canadian dollar and cheap feed grains, but by providing a high-quality, differentiated product that matches the expectations of the consumer globally.
We have paid billions of dollars through programs such as FIDP, CAIS, and AgriStability, and still the industry continues to fail. We need to stop investing in the past and begin to put our money to work in ways that will be proactive and ultimately highly profitable to the entire value chain, not its subsections.
We have to stop regressing to the lowest common denominator and move forward on re-branding, on things like age verification, and, more importantly we have to pursue high-end markets for what is arguably one of the best meat products produced in the world.
Alberta has shown bold leadership, but we need the federal government to add its voice and its support to the discussion. Everyone, from CFIA to the Canadian embassies and consulates, needs to play a role, but it must be from a strategic position. We believe that we have found that position in Alberta, and we ask you all not to invent new programs and new payments but rather to join with us.
Thank you for your time.
Conservative
The Chair Conservative Larry Miller
Thank you very much, Ms. Haley, for staying under the time as well.
I'm going to turn it over to Mr. Strawbridge or Mr. Jeffrey, on behalf of the Perth County Beef Farmers Association. Your time can be for one person or combined, but please try to stay under the 10 minutes.
Ken, thank you.
Bill Jeffrey President, Perth County Beef Farmers Association
Thank you, Mr. Chairman. I truly thank you for the opportunity to come and share what we have found as we have moved through an inquiry into the beef industry of Ontario.
I am William Jeffrey. I was born and raised on a beef and dairy farm near Stratford, Ontario, in the county of Perth. My wife of 34 years and I have raised four boys together on our beef farm.
Today we are in the business of finishing cattle with a feedlot capacity of 900 head. We buy calves weighing 600 pounds and feed them through to 1,400 pounds, marketing them directly to the packing house.
I've been raising cattle for 50 years, and I'm a member of the Ontario Cattlemen's Association, and of the Perth County Beef Farmers Association, where I am currently serving my third year as president. The ongoing financial crisis in the beef industry, not only on our farm but on all beef farms in Ontario, has caused me to realize that we cannot continue to market our beef the way we have for the last 50 years.
I recently found a definition of the word “insanity”. Insanity is continuing to do the same thing over and over again and expecting different results. Because of this, I took the initiative to form a committee of 14 members from six counties in southwestern Ontario. We are all elected officials, serving as presidents, vice-presidents, and county directors. We have engaged a professional marketing consultant, Ken Strawbridge of ALPHA Strategic Consulting, to lead our inquiry into the entire industry, starting with the consumer, through the retailers, wholesalers, processors, packers, beef feedlots, and the cow-calf producer. We believed it was important to look outside the box for a fresh look at our entire industry.
In the past, we in Ontario have relied primarily on two research centres for understanding and direction of our industry. Beef farmers have believed that we could independently market our product, but our committee now realizes that independence stops at the farm gate. The beef farmers I've met everywhere, not only in Ontario but in Canada, are independent. I'd add that I believe beef farmers are fiercely independent. In order to be viable, we must receive a farm gate price that includes the cost of production, including wages. To be sustainable we must receive a reasonable return on our investment.
Of late there has been much effort put into developing risk management programs to sustain producers through the low points of what has been viewed as industry cycles. This reactive response to these low points will never fix a problem or even provide a wage. It's time to become more proactive through the implementation of improved management and controls for the whole industry. We can no longer continue in the direction we are going, which not only exploits beef farmers but allows for the importation of beef raised through methods prohibited in Canada. If we continue to lose young farmers who have been forced to pursue off-farm income and who are now exiting the industry, who's going to produce the food for the citizens of not only Ontario but all of Canada?
Our inquiry has uncovered significant evidence for what has caused the current state of the Canadian beef industry and what must change if we are ever to be viable and sustainable. Despite a significant amount of activity in the beef industry aimed at improvements, there remains little sustainable change. In the past five years since the onset of BSE, there have been only two months when the average beef producer could cover costs of production. Indeed, what faces us is the likelihood that this significant source of food will be increasingly supplied through foreign markets.
Farmers in Canada will no longer provide beef due to the year-over-year inability to even cover our costs. Furthermore, when the primary source for the supply chain vanishes, all other stakeholders in the industry will also suffer.
We have developed three goals that stakeholders believe must be embraced. Aligning supply and demand of beef to these goals will cause all members of the industry to be successful without negatively impacting others. It will deliver what is required, to whom it is required, and it will do this consistently. Only then will we have a viable, sustainable future.
Our scope required us to see an all-inclusive view of the marketplace. In order to manage influences between stakeholders, we needed to identify key factors for an organized production from producer to consumer. We have worked to identify a business model that showed us to be business oriented and customer focused.
Finally, a sustainable future will not be possible if we cannot demonstrate operational excellence for a return on an investment and key business goals to drive our industry.
We have met with consumer groups, health officials, bankers, retailers, processors, harvesters or slaughterhouses, producers, pharmaceutical companies, feedlot operators, and provincial government officials. The consumer groups emphasize the importance of balance between consumer and industry. It is clear that focus in this area is not consistently viewed by all stakeholders and as such requires improvement for the industry.
Today's consumer is going beyond quality and flavour and is becoming increasingly concerned with health, safety, methods of farming, and the environment. On the other hand, beef production has recognized some aspects of quality but tends to focus predominantly on price. This means that stakeholders further up the chain must become brokers for the difference.
At the onset of our investigation, we studied sustainable business practices, and it became apparent that environmental stewardship is also key to long-term viability. It is true that the industry needs to align with the government's agenda of reducing our carbon footprint. There are numerous opportunities that we can pursue that will move us towards a greener environment for now and future generations in Canada and around the world. We believe that regulations governing standards of quality are required by everyone, but the applications of these standards are currently inconsistently applied. We are not opposed to such standards. What we do know is that these quality management practices must be unilaterally employed.
The evidence is clear that government subsidy programs, although sought after with good intentions, are actually undermining the industry. All things being equal, it is those with the largest subsidies that have remained standing at the end of the day. Where is the consumer in this? What about the purpose for raising beef? Does this ensure that the producer who has worked to develop a well-balanced operation survives? Industry best practices confirmed a long time ago that subsidies tend to be viewed as free money and usually instill the bad behaviour of always looking for more. Return on investment, on the other hand, causes one to focus on the viability in business. Simply put, stop subsidies; they're killing us.
For much too long we have just pushed beef onto the market. We believe it is time to focus on those who consume our product, providing delivery through an adaptable business structure that will see us through the good and bad times. Our inquiry found that standard business capabilities do not exist in our industry. The adoption of these capabilities is imperative if we are ever to improve management and controls. With the increased rate of change around us and no mechanism available to change, our industry will drift like an ocean liner that has no captain or rudder. We will be left to the wind and the currents. It's amazing. Can you see them? No, you can't. It's like our beef industry, as we watched the fluctuating dollar. Did we see that coming? Did we see BSE coming? No. The things we don't see will hurt us.
The fluctuating dollar, the potential of disease, changes to regulation, inputs such as feed, fertilizer, and fuel, and external pressure from foreign beef imports continue to push us where they will. We have no mechanism to respond to these industry pressures. They will eventually leave our industry on the rocks of disaster.
President, Perth County Beef Farmers Association
I am, sir. Thank you.
For every industry there's a critical point that when reached will cause a complete collapse. Although we remain optimistic for what can be, we see enough to know that without significant change in the beef industry of Canada, we'll reach this critical point when it is too late.
While we still have time, together we can build a business structure for our industry that will provide the capability to deliver a healthy nutritious product that is preferred by the consumer of Canada, sustainable by producer stakeholders, and financially viable for all. It will take willpower and it will take skill sets.
Conservative
The Chair Conservative Larry Miller
Thank you.
Now we have Mr. Ed Fossen from the Kettle River Stockmen's Association.
I believe that's British Columbia. Am I correct?
Ed Fossen Director, Kettle River Stockmen's Association
That's correct. As Mr. Miller said, I'm Ed Fossen and I'm a rancher from Rock Creek in the southern interior of British Columbia. Our ranch is situated about 40 kilometres east of Osoyoos on Highway 3. Our ranch almost touches the U.S. border. The southernmost property is about two kilometres from the U.S. border.
Our ranch consists of 1,700 deeded acres, and we have about 60,000 acres of crown range on which we have the right to run 250 mother cows, replacement heifers, and bulls. We also rent about 300 acres from neighbours, where we graze replacement heifers. We are self-sufficient in feed, putting up about 800 tons of hay and silage to feed to our overwinter herd of 400 animals. Our area is quite dry, and we rely on 300 acres of irrigated land to maintain our feed volumes.
My wife Louise and I purchased our home ranch and moved to Rock Creek in 1976. We raised our four kids here. My two boys, along with their own families, now run the ranch and business together. Our ranch is supported by a contract weed control business and custom farming business.
When we first got into ranching in that area--I'm calling it pre-BSE--cattle moved back and forth freely across the Canadian-U.S. border. Canadian cattle were custom fed in the U.S., and U.S. cattle were fed in Canada, depending on the dollar and the markets. We and other ranchers bought breeding bulls across the border, and vice-versa. When we sold our cattle there was always American interest at our local auction mart buying calves, yearlings, and finished cattle to supplement the feedlots and packers across the line.
This fall it was reported that with the absence of the American buyers, and because of concerns of the country-of-origin labelling, the average calf price was reduced by about $150. In our part of the country pre-BSE, the industry was totally integrated, with cattle moving back and forth. There was a good working relationship with our American rancher peers, feedlots, and packers. There were a number of packers in the Lower Mainland, along with processing facilities in the interior of B.C., that would result in competitive bidding for our cattle.
We have lost most of the packing plants in B.C. that in the past served us well by increasing competitiveness in the market for our cattle. With our first case of BSE in May 2003, everything changed.
In the last six years, everything that made our integrated beef industry strong, predictable, and competitive has fallen into uncertainty and economic hardship for all producers in our area. I believe the protracted BSE crisis and the COOL legislation are driven by the R-CALF organization to disrupt our strong, integrated industry, and hopefully benefit their short-term goals. I'm also certain that the money and time spent on trying to shut our beef out of the North American equation has been bad for the growth of our beef industry.
While we have been fighting with each other, other countries have been picking up our international markets. The pork and chicken industries have picked up market shares as a result of our problems. COOL is another way R-CALF and their political allies have of putting further trade restrictions on our Canadian beef entering the U.S.
Last summer my family, along with other southern interior and Washington State cattle producers, was invited down to tour a 60,000-head Agri Beef feedlot and state-of-the-art packing plant in Yakima, Washington. It is capable of processing up to 1,700 head a day, and 40% to 50% of the cattle fed in Agri Beef's 60,000-head feedlot were from Canada. This feedlot, along with other smaller feedlots, supplied the 1,500 to 1,700 cattle per day required to keep this modern, efficient packing plant operating.
In our discussions afterwards with the manager of the plant, we talked about the country-of-origin labelling. They had no idea how to cope with the proposed COOL regulations coming at them. The logistical problem was that the many lines of branded products, combined with the separation of Canadian beef, would overwhelm their system. He was clear: they did not want COOL to be fully implemented, and they needed our cattle.
We visited one retail store that handles their beef products in Yakima. The point made by the meat manager was that they did not want COOL fully implemented. The reason was simple: shortage of counter space and logistical problems in keeping Canadian products separated.
Our industry has been through a terrible economic time over the last six years. I want the Canadian federal government to challenge the Country-of-Origin Labelling Act. I think COOL will be the final economic hit to the cow-calf industry as we know it in the southern interior of B.C.
We have had the BSE crisis, drought, a fluctuating dollar, our own input cost steadily increasing, and depressed markets for the last six years. I know that COOL implementation will negatively impact on our industry, my ranch, and my family. Our government must negotiate a balanced implementation of this potentially destructive ruling.
Thank you.
Conservative
The Chair Conservative Larry Miller
Thank you very much, Mr. Fossen, and thank you for keeping it brief.
On that comment about calving cows, I think most of us around this table—certainly myself—know what you're talking about.
Our last witness, here from Manitoba, is rancher Mr. Henry Rosing.
We'll turn it over to you, Mr. Rosing. Thank you for coming.
Henry Rosing Rancher, As an Individual
Thank you, Mr. Chairman.
I was invited to speak to the committee late Friday and was asked to be available for questions and make a few short comments, so you can look forward to a few short comments.
I operate a ranch at the southeast corner of Lake Manitoba, which is about an hour north of Winnipeg, at the bottom of what we call our Manitoba Interlake district. Most of the area is quite limited in its agricultural usefulness. It's characterized by thin soil--maybe four inches of topsoil--stony, with poor drainage, and a large percentage of the area is only suitable to ruminant grazing, specifically for cow-calf or maybe bison.
The area was in the news quite a bit last summer because of extensive flooding as a result of excessive rainfall all summer, leading from insult to injury.
Over the last five years there's been a lot of equity erosion in these beef operations. There is not a lot of wiggle room left. Disaster relief hasn't been coming very effectively. The area has asked for a Canada Revenue Agency tax exemption that is sometimes used in areas that suffer drought whereby farmers are allowed to de-stock and forward the income from the livestock sales to some point in the future, allowing them to buy back in at a later date without tax implications. To my knowledge, this still hasn't happened. It would be a relatively simple thing to do.
Maybe it's not a good time to go into the complex working of the CAIS system. It's well intentioned but ill-equipped to deal with the current situation in the beef industry. There is no margin left. There is no room for advances, and so on. The result in our area has been a sell-off of cows far beyond the rate we've seen all over the country as a response to economic conditions, which is a shame because ruminant grazing is really one of the most logical things to use the land for in our area and it is an ecologically sound option.
Manitoba is really at the centre of the North American beef market. Livestock or meat has gone east-west, and local feeding has gone south for a long time. This integrated market, to my knowledge, as the previous speaker alluded to, has existed for a very long time, starting a century ago with beef being trailed north to the Canadian mining camps. Around the turn of the century, the Matador ranching company started to move their herds north into Saskatchewan, and there is a long history of an integrated beef market.
This notion was strengthened in 1992 with the signing of NAFTA, whereby we formalized this agreement more and thought this was all in place. In the 1980s, Alberta brought out its Crow offset program, reimbursing users of feed grain by about $14 a tonne, and this was one of the factors aiding the demise of the feeding and packing industry in Manitoba. One by one the packing plants closed and feeding capacity moved to Alberta. For the last 15 years or so this left Manitoba with the only viable option of killing our cattle to economically defend ourselves. In 1995 we saw the end of the Crow. It also saw a period where the government actively promoted red meat production on the prairies. The mantra was that it was the end of an era of large wheat exports--mostly to Russia, who never paid anyway; the Canadian government picked up the tab. This paradigm was to be replaced by red meat production in the prairies. Value-added products of high-value animal proteins were to go all over the world.
This met with relative success, aided by a period of low grain prices and a favourable exchange. It resulted in very significant investments all over the prairies, in barns, packing houses, transport, feed mills, and so on.
Then, of course, 9/11 happened. Fortress U.S.A. emerged. Then the BSE crisis in 2003 set off a period when the whole vision was put on the rocks. The whole system has suffered a lot of injury.
Where do I see the responsibility of my government? Responding to market signals and trying to produce below the cost of production are maybe my responsibilities at the farm level, but I feel that my government has to hold through to their vision and hold the borders open. I think the Canadian government really has two choices: work our butts off and restore the vision we had for the prairies of a value-added meat industry or go back to producing for domestic consumption only. We have to be aware, though, that we export almost 60% of our beef, so one would face a massive writeoff in the investments that have taken place in the last 15 or 20 years, and probably buy out 50% or 60% of the production. People would lose their livelihood without any fault of their own. We'd lose billions of dollars in gross domestic product. And it would be hard to measure the social and ecological fallout.
Speaking anecdotally, I talked to somebody from the sandhills areas of eastern Nebraska. It's traditionally been a cow-calf area. Over the last decade or 15 years, it's been bought out by the Ted Turner empire. The man owns now about a quarter of a million acres where they run bison. People out of that area say that the social fabric is gone. Once a year, a crew comes in and handles the buffalo. In the summer, for about a week, a fencing crew comes in, bringing all the materials with them, to maintain the fencing. And that's it. The towns are dead.
Currently, I believe 80% of our export goes to the U.S. We're all well aware of the implication of COOL. To me, I wish there was more attention paid to this issue. When there was a hint that there would be an exclusion clause in the aid packets by Mr. Obama in the U.S., our government went into overdrive; 24/7, Stockwell Day and everybody else got on the issue of rectifying this problem of Canadian steel being excluded. I don't sense the same level of activity regarding the COOL issue.
So is the model of our original vision of value-added protein production on the prairies broken? I don't know. In pork our competitors are Denmark and Holland, countries with clearly higher cost-of-production structures than we have on the prairies.
In the Interlake, I believe there are about half a million beef cows, or a little more at the moment, in Manitoba. We have a good million people. We can't very well eat half a beef apiece--maybe a tenth of that. Should we reduce our beef herd to 10% of what it is and leave all that land bare? I don't think so.
People in Hong Kong are better at producing toys, but not very good at producing beef. The Interlake is very good at producing beef, but I don't look forward to starting to produce cheap toys.
Thank you very much.
Conservative
The Chair Conservative Larry Miller
Thank you very much.
And to all the witnesses, thank you for keeping it as brief as possible.
Our first round is going to be seven minutes. Due to the fact that we've used up about an hour and 15 minutes of our time allotted, I'm going to be very strict about keeping the question and answer at seven minutes. I don't like cutting people off, but I am going to, and I'll be fair all the way round the table and restrict that.
Yes?