Traceability/ROI

[smcgrath76]

HT - I don't think cost competitiveness
or larger operations, etc. have limited
production. I do agree that there is
lots of room for improvement in any
operation (my own included). The issue
of pure capitalism vs. market
manipulation (for lack of a better term)
is a non starter, since we are already
operating with a significant amount of
market manipulation. I see this as a
risk factor, but I can appreciate how
others see it as an opportunity,
godsend, PITA, and everything else along
the spectrum.
I don't think our industry is healthy
and I don't think that the primary
producer is having much say in the "beef
business". I also tend to believe that
is our own fault, but that it is a big
hurdle to change since we have been
going down the low cost road for so
long, rather than the value added one.

[burnt]

smcgrath76 - It is precisely as you said. My youngest son and I had this discussion at the lunch table today. He works for a large dairy farm where efficiency is king.

I gave my opinion that efficiency is ultimately the consumer's benefit, not the producer's.

After initially disagreeing, he is now smoking his brain over that one and I know that his boss, being very much a thinking type, will probably develop a few new synapses trying to puzzle that one out.

We cannot reach profitability by focusing strictly on efficiency. And that is what most of agriculture has done, as you said, for so long . . .

We have forgotten how to derive profit from greater value, if we ever knew how.

Do you have any thoughts on how to derive greater value? Is it something that can be done as an industry or must it be an individual achievement?

[grassfarmer]

Don't worry HT I wasn't trying to trip you up with my questions. I was wondering if you had experienced the extended periods of poor cattle markets you spoke of firsthand but I see it was before your time.

I think we need to ponder more on the difference between the individual and "the industry". The common speak used in the media calls us the "cattle industry" CCA talks about increasing market access being "good for the industry" which would seem to imply that it helps us as individuals within that industry.
I think there are two industries(or business sectors) - the cattle industry and the beef industry. They are very different sectors with the cattle industry comprising cow/calf, backgrounders, feedlots and purebred cattle owners. There are thousands of us all competing against each other for cattle, land, feed, the highest market prices. This is a very competitive business but there are still undoubtedly efficiency gains and management improvements to be had.

The beef sector on the other hand comprises the packers, 2 with close to 90% of national slaughter capacity between them. With that kind of monopoly there is very little competition, they don't need to compete. They don't even need to be all that efficient - what's the risk when there is no-one likely to take them over? A similar set of rules applies to the further processing and retailing sectors - few players, very limited competition.

I think this indicates how we do not in fact have one "industry" we have two very different industries with totally different aims. You are right competition is good - it's healthy, that is why it is intolerable to have monopolies like Nilsson/XL. Extreme capitalism in this form is very close in result to the communist system.

Here is a question for you - why should we, the producer, be the only one that has to be constantly more competitive to survive? By extension shouldn't the packer or retailer become more competitive? if they were they should be able to pay more for their product(to the cattle producer) and sell the beef on for less money to the retailer or consumer and still be better off due to efficiency gains. That is what we are constantly expected to do.
Obviously this is not the case - when you have monopolies they always pay less for their raw product, charge more for their finished product and pocket the difference.
With the above in mind I firmly believe there can be no solution for the "industry" that will be beneficial to cattle producers. Hence the importance of producers seeking to control their product right through to consumer. Every time I hear a cattle organization official stand up and say this or that will be good for "the industry" I know they are working against producer interests. They cannot represent two fundamentally opposite interests. The sooner we realize this the better.

[Happytrails]

Regarding SMC76's post. You said that you didn't think that prices controlled production. My take for a long time is that there are two choices.
1. The producer is paid a fair price for their product which results in surplus production.
2. The hard rules of the market control production to match demand.
I don't think there is any doubt that the second choice is what we have experienced. It may or may not be coincedence that our herd expanded when our $$ was low and now it contracts when the opposite occurs.
I believe in the market. Its force always shows no matter what manipulations exist. For example, the Ukraine was a major wheat exporter until the bolshevics eliminated the kulaks in the '20s. It took 75 years but now it is again a major player in the wheat market. Why? Best product for the price. The market always rewards that.
Do we all have to be low cost producers? Absolutely not. I admire and endorse any number of producers who find premium markets. But I will stick to best product at the best price I can get. HT

[kato]

I agree with the two separate industries comment because IMO those who speak for what is "good for the industry" are also those who believe in the theory of trickle down economics. The theory is that if those at the top do well, they pass that on. Only problem with this is that it is not true. In real life, those at the top do well, keep the profit, and pay only enough to keep those farther down from going out of business and interrupting their supply. And not one cent more.

Competition for our cattle is what we need. So how to get that? I think we should start by setting up a business environment where smaller processors have the ability to expand. Right now, between interprovincial regulations, and the incredible expense of getting federal inspection status, the deck is stacked in favour of the existing large players.

Apparently the interprovincial trade is being assessed right now for improvement, which is a good start. Other things could be done too, like allowing BSE testing. Also, infrastructure money that's already in the budget could be prioritized to be spent on expanding smaller players. The best way for a new plant to succeed is if it can grow at a steady pace, and in a way that debt and cash flow doesn't bog it down.

In our dysfunctional market, we also need exports, to keep at least some competition in the marketplace.

[smcgrath76]

HT - I checked back on what I wrote. I
agree that the market responds to price
signals, either liquidating or retaining
females, etc. I do not believe that
larger operations have limited
production over smaller farms.
I think primary agriculture is a
business of nearly perfect competition
at the ground level. Long term this
will lead to fewer/larger players, and
if you believe the economic textbooks,
it would ultimately end in one monopoly
or an oligopoly.
We see this happening already, even in
the supply managed sectors. The issue
is what the public and the Farm
community want in terms of policy.
Perhaps they only want big efficient
farms, or maybe they don't.
It is possible to be small and
efficient, but we also need to be aware
of adding value. In the least cost
game, someone is always lower cost.
When we chase that low cost person down,
then we are lower cost and have a better
margin until we are passed again. It is
a lowest common denominator.
I am pretty comfortable in stating that
we are a very low cost operation, but I
think that is a no win in the long run
and our real focus is on adding value
(even if that adds to cost structures).
There will always be a commodity sector,
but I think the challenge for that
sector will be how do you compete
against the producer who has 50 to 100
cows as a hobby and doesn't care if they
lose money on every calf? The only way
I can see is to try to add value.

[grassfarmer]

HT,
I think you underestimate the complexities of the "world market". Your 2 choices may be applicable in a country serving with closed borders serving only it's domestic market. The reality is global traders of beef can mitigate the effect of both these effects by manipulating the market.
Typically imports are used to de-stabilise cattle prices in a given country. It does not take a lot of imports either to control how high or low the domestic live cattle price goes.

I'm not sure what your Ukrainian example really shows? That the Ukraine has become a major grain exporter again? It tells me nothing about the profitability of the grain producer in the country or about the quality or price of their product. My impression is though that Ukranian grain is priced fairly cheap on the world market. I agree that there are areas of the world naturally suited to growing certain products due to climatic advantages. The south of Scotland and New Zealand are 2 of the the natural areas of the world suited to sheep production for example.
Unfortunately Canada is not an area with such an advantage in beef production - 6 or 7 month winters ensure that. The cooler parts of S America have quite an advantage over us - Argentina,Uruguay etc with essentially no winter, no fossil fuel or machinery use and vast grazing lands where gauchos can trail the cattle into the packing plant as they did here in Pat Burns day. So if you think we will get by because we can produce the "best product for the best price" I think you are deluding yourself. I think in terms of your Ukraine example we have got your result already - reasonably high product quality at the best price the packers can buy live cattle anywhere in the world. Unfortunately that price does not allow ranchers to prosper.

Kato, I agree with your view on expanding competition by encouraging different players to enter the processing business even if only on the small scale.

Sean, I agree with your comments on low cost being a race to the lowest common denominator. Your post only deals with the cattle production side of the industry though. How we can win "survivor cattle" by outplaying and outlasting our neighbor. It does nothing to tackle the issue of how we re-introduce competition into the side of the industry needing it - the beef industry side.

[per]

Sean has hit the nail on the head again. The question to ponder is what area can I direct resources to in order to exponentially increase revenue. For me this year it has been some money spent following protocols to meet EU. Igenity testing and tracking (my own herd) is in my near future. Tracing and tracking my results in the box has already helped my top line and all the while staying a low cost producer. GF is right in that we need to play both sides of the field. Thus making an uneven playing field fair.

[kato]

So we all agree that added value is the way to go. We must remember that those higher up the food chain than us already know this, and ownership from birth to retail is their goal too.

So there are two scenarios. One model is that of the American chicken industry, where one player controls the farms, the processing, and very likely a good chunk of retail. This virtually eliminates independent family farms as we know them, and is pretty much how things were run back in the feudal times with serfs and peasants doing the work and the lord of the manor reaping the benefit. Just change the labels, and it's basically the same.

This is no better for consumers than it is for us. This is something they need to be aware of as well.

The other scenario involves more producers taking control of their product all the way to the consumer. Not all will want to do this, but I'm sure there's lots of room in the market for a lot more to do it than what are doing it now.

I read an interesting article the other day that said that while we are knocking ourselves out over export markets, we need to keep it in mind that in those same markets, the local food movement is picking up a lot of momentum. I think it's been underestimated. I see it every week at the farmer's market.

Exports are not the magic bullet that our leaders would like us to believe. They're needed to a certain extent to "keem 'em honest", but they shouldn't be the foundation of our business.

We've already made that mistake once.