Here's a plan on how to own our industry

[kpb]

Last year was the best ever for our ranch in terms of profitability. None of my kids will take over the ranch and our land has gone up a whole lot in value. So I'm not desperate. But I do feel very strongly about keeping the small rancher and farmer going. And a lot of my threads reflect this concern--most of them asking questions without a lot of answers.

But lately I've been thinking a lot about a possible answer to our problems. And I've come up with something that I want you guys to think about and comment on.

How about a national beef, voluntary calf-to-slaughter venture? Here's how I see it working. Producers could join a national group, backed by the government, that would supply all the domestic beef needs of Canada. To join would be voluntary and each producer would be allocated a share based on their historic cattle numbers. If the sought number of domestically allocated beeves exceeded the actual domestic beef demand, the allocation would be pro-rated.

Each producer in the national company would pay a set amount to join--say $100 per head which would be matched by the governments. This money would be used to purchase or build new packing plants and/or feedlots which would be used to finish and slaughter the company's (ranchers) animals. The company would be run by ranchers, owned by ranchers and the price of the fat would be a made-in-Canada price determined on a regular basis by a committee of ranchers retailers and consumer reps.

The existing packers would remain in business but would not slaughter for the domestic market but only for export trade. Ranchers could decide to retain their existing links with these packers or sell excess calves beyond their domestic allocation to the foreign slaughterhouses/feedlots but, again, only for foreign export.

Exceptions to the new national beef company would be made for current and future producers with specialized domestic markets who, presumably, would be selling their beef at the farm-gate or to restaurants, etc. at a premium to the established national price. That national price would be set so that producers would enjoy a resonable and consistent return each year.

The advantage to the government would be that there would be no future subsidies or support payments which would, in fact, made the long-term financial obligation much less onerous. Taxpayers would enjoy this aspect--at the same time producers would control their own destinies and receive the fruits of their labour and be able to make reasoned decisions about their business future by taking out some of the ups and downs of the business. At the same time, good management would be rewarded as good decisions would result in higher margins to the rancher.

The Cargills and Tysons of the world would still be able to operate albeit on an export basis only. But that export market is currently half of the Canadian beef production so there would certainly still be lots of business. In addition, any producer who wanted to access these export markets would not be obliged to join the national beef company. And those producers producing for a specialized market would also not be penalized.

Kind of brainstorming here and likely there are things I haven't thought about and things that won't work. But to deal with a couple of objections right away--yes there would be regulations and quality standards to be set but so what??--every industry in this country is regulated and most make money (can I put 20 gas wells on my quarter?). Secondly I don't see a reduction of the Canadian cattle herd under this scenario so our land isn't going to stand idle. If I had a herd of 400 cows maybe 200 would be my allocation to the domestic market where I would receive a made-in-Canada price. The other 200 would be sold to Cargill or whatever where I would get the U.S. price.

Finally this would be a way to address the problem of young farmers getting into the business and old boys getting out. A farmer could sell his allocation to a young guy to help fund his retirement. The young fellow might feel he needs a 300-head herd to survive but can only afford to have a 100-head allocation at the start with the other 200 made up of cows for export. He could, if wished, improve upon his allocation over time. Or he might just leave it the way it started. Meanwhile, the old boy gets some money for his retirement.

Anyways there you go. It's just some ideas but rather than just "whining", I thought I'd throw them out and see what happens.

kpb

[grassfarmer]

That is an interesting concept kpb and it is great to see someone actually coming up with possible solutions. Your plan is based on sound principles in that it would effectively be a "supply management" type scenario for the domestic market with the excess sold to packers to hit the world market at the "world" price. I would certainly back the concept - as you say,there will be details that you haven't thought of but rather than point out what won't work as usually happens lets focus on the positive.
A few thoughts occur to me:

1. would the new "marketing venture" be aiming to make money or just be run to facilitate producers getting the base price? ie would there be an expectation of a shareholder return as well as a guaranteed beef price?

2. How much of an overlap is there between cattle slaughtered here for the domestic market and parts exported? ie would it be workable for Canadians to eat all the ground that comes off the number of cattle that they would need slaughtered for steaks etc?

3. Would this involve individual ranchers retaining ownership on the cattle through to slaughter or would feedlots be allowed to participate in the scheme by buying feeder cattle from a ranchers allocation, fattening them and then selling them for the guaranteed market price?

[kpb]

grassfarmer, thanks for your comments. Man, those are good questions--two that hadn't crossed my mind and I sure would like to hear what you think.

Firstly, I envisioned a sort of Co-Op approach where ranchers would be guaranteed a return per animal that would be profitable to them and then would get a patronage-type dividend at year's end. But maybe it would be better to structure the company so it pays regular dividends? Or maybe so that the set price accounted for all returns from the calf to slaughter approach.

Secondly, I don't know the answer to this one. And now you've got me thinking about what to do with excess ground, for example. What happens now on the North American market? Does it get exported? Or does it all sort of balance out...I wish farmers_son was nearby--he always had the answers to these types of questions,.

thirdly, I assumed that the rancher would own everything right to the end and the company would own feedlots and slaughterhouses. But how about a privately-owned feedlot--maybe they could contract with the company to finish the company's calves?

grassfarmer, other than putting the idea on here I don't feel like I have ownership of it. You've got great ideas on this subject--I would like to hear what you think about those three questions and others that might have crossed your mind.

If we get lots of input on this, I'll write it all up and send it to the politicians and various interest groups.

kpb

[topper]

Good to see somebody thinking about solutions. I think that one big problem with this plan would be NAFTA. I can't see Canada excluding the Americans from our domestic market and then peddling our excess into their market. The plan would be hard to make NAFTA friendly in my opinion.

[cowman]

There is probably something to your idea! It could work...if there was a strong political will to get it done?
It would take a lot of arm twisting at the international level? Some countries want us to get rid of our domestic supply managed dairy and poultry already? I doubt they would be all that keen if we were basically proposing to limit our own domestic markets?
I would think Australia and New Zealand wouldn't be very happy with a set up like this in Canada?

[grassfarmer]

kpb, The three questions I threw out to you were for consideration - I don't really have answers to them. Perhaps some of the people behind the BIG-C plan would have a better grasp of how to structure it with regard to the first question.
The second is one that I don't know enough about, again there are those that know in the industry already. A further consideration to this would be non-fed animals - would the existing packers be allowed to kill them and feed them into the domestic kill or would the rancher owned set up also allocate cull cow quota to producers?

The third question is probably not a biggie either way but many ranchers would likely feel excluded if they had to retain ownership to qualify. Again if the finished price was guaranteed maybe that would lesson their risk and they would consider retaining ownership.

Of course the posts by topper and Cowman throw in some realism too - to make this happen would be no easy task. It would require producers to agree to it and then the Cdn government to agree to it enough to break just about every trading agreement they have. I'm guessing it would set a precedent among countries that export a lot of their production. Ultimately though Canada should have the right to protect and advance the interests of it's ag producers and consumers. Whether they would ever have enough backbone to stand up to the corporations that would inevitably object to this is another matter.

[grassfarmer]

Cowman,
What do you mean that "Some countries want us to get rid of our domestic supply managed dairy and poultry already?" - hell, we as beef producers want to get rid of supply management in the dairy sector.... it says so in the ABP manifesto and they are speaking for us unless we tell them otherwise. Why Alberta beef producers would wish to bring this misfortune on their dairy farmer neighbours is beyond me as it's clear that any "freeing up" of world trade restrictions on our beef exports if we gave up supply management would not help beef producers.
As Wayne Easter said on the last round of the WTO negotiations "At the end of the day, even if we get the best solution currently on the table, economic returns to producers will hardly change an iota because what the WTO is doing is establishing fences around countries, but not establishing any rules around the traders that trade those products between countries"

[blackjack]

...if this would help to get away from the capitive supplies...i am all for it...i also like the voluntary aspect of your plan but those that did not join the program and stayed in the free market would be ineligible for the government support...there has to be a way to give producers an incentive to join without the pressure of the market setting up an artifical price to deter application of the plant ...also what would be the role of the auction marts ...order buyers ...the backgrounding and finishing... glad you made a post like this kpb...grassfarmer has brought up alot of reasons for the cowcalf man to want to change the direction our industry is going by the stats he released...

[smcgrath76]

I think this may be a reasonable starting point. I have had similar thoughts in the past about the Wheat Board. I believe the optional aspect is important, but also, I think you need to build in restrictions that say if you are in, you are in and if you are out you are out for at least X number of years.
Producers will always tend to go to the highest market. I just read an interesting article the other day about how we have built excess capacity into the Canadian slaughter through BSE expansions (admittedly mostly Cargill and IBP). A couple of thoughts...
1. It would be tough to control supply/marketings without somehow securing a higher price.
2. Retailers/consumers would fight back over higher prices (would require a major "Got Beef" campaign)
3. NAFTA/WTO - enough said
4. Any effort would have to make a jump to a scale large enough to supply major retailers/wholesalers right out of the gate.
I like the concept. I still think farmers need to enter the food business and that current ag policy does not enable this. The biggest success has been with the complete lack of involvement by government with small farmgate operations.
I thought/think that the potential for regional plants exists, with a larger national market coordination shell that could target larger markets, and coordinate product delivery. One challenge to this is that provincially inspected plants cannot sell meat out of the province, thus the need for CFIA certification and thus the need for EXTREME PATIENCE.
The organizations designed to protect us and our industry often do so by complete imobilization of initiative. If we can't move it must be safe, until we realize we are in the middle of the train track.

[grassfarmer]

smcgrath76, I don't follow you #2 point "Retailers/consumers would fight back over higher prices (would require a major "Got Beef" campaign"
I do not envisage consumers paying higher prices than they do now - the middleman's share of profits would be cut by this plan giving more to the primary producer while maintaining the consumer beef price. I think it would be essential in fact to have consumers "on side" with us on this plan if it were to succeed.
Retailers are in a different boat - they might find their margins cut although as I understand it from the post BSE price slump on live cattle they have very little negotiating power with the current packers and hence probably didn't have the outrageous profit margins the packers had at that time.

[smcgrath76]

I honestly do not believe that retailers would cut their take. I think that the potential may be for producers to act as their own middlemen.
If you believe the retailer, beef is often used as a loss leader/feature to pull costomers into the grocery store.
I think this is one area that requires extreme caution as consumers are ready, willing and able to make rapid protein substitution decisions. Chicken vs. pork vs. soybeans.

[northfarmer]

good point on protein substituation....if such an operation was not operating on an extremely efficient basis domestic demand from consumers for beef may drop as protein can be substituted by consumers with alternative domestic or imported protein sources...with a captive market and distrbution system and no competitive forces driving efficency to supply the domestic demand beef consumption would likley decline unless all other protein sources were also covered under such a planned system.....frankly i cannot see that happening, nor do I beleive it should in a country with an ag industry that is ultimately dependent on export of food for survival and growth.

also....while global trading practices are not always fair and equitable hypocrisy on trade policy does not give Canada or other developed countries (EU/US) much credibility....closing our borders to imported beef products and then expecting to ship over half of our production to foreign markets???

the role of goverment in such industries should be to regulate effective and fair competition to ensure that efficency and productivity are rewarded to the indivuduals and investors ..ie. ranchers and farmers, not just the packers and other people in the value chain of the beef business or the food business in total for that matter .....

that being said, thinking outside of the box, as this thread is, is a healthy exercise and and the debate is good for our industry...IMHO

[grassfarmer]

Northfarmer, I agree with the point that Canadian consumers must not be forced into alternate protein sources as a result of higher priced beef.
However the quote you make that "with a captive market and distriution system and no competitive forces driving efficency to supply the domestic demand beef consumption would likley decline" is rather missing the point about "competitive forces and efficiency" The packer /retailer part of the production chain is concentrated in so few hands that they do not have to be very efficient at the moment - they can use their market power to force ever lower prices on primary producers rather than make their own operations more efficient. If you look at primary agricultural producers over the last 50 years they are by far the most efficient sector of the whole north American economy, who else could produce goods for the same price they did 20 years ago given the huge price increases on the input side?
I believe an example of competition not driving efficiency and leading to lower prices for consumers is seen in the North American milk market. Canada with it's supply managed dairy sector and perceived lack of competition generally has lower retail milk prices than they find in the US where the open market economy is making it very tough for dairy producers to survive.

I very much agree with your latter comment that the role of Government should be to regulate effective and fair competition - this would be my first choice solution rather than producer owned packing plants etc - unfortunately the Government shows no inclination to do so.

[PureCountry]

The day I trust government to regulate things fairly for the good of the grassroots producer, will be one day after the government gives any indication that they give a flying @#&$^#!!!! ABOUT the producer.

I agree with alot of the points you've made here gentlemen, but the thought of government regulating it makes me want to go right back to selling beef off the farm, or out of the back of the truck, and selling milk and butter for cash under the table. Less government involvement in a producer-owned packing plant would mean more producer benefits, in my opinion.

[cswilson]

Government involvement scares the crap out of me to be honest. As for dairies wouldn't alot of them be able to survive in a free market without having to pay out the nose for quota. Quota debt in feathers and milk is extra debt to service most producers could sure live without. I still think a loosening of the regs for provincial abbatoirs and small producer owned meat shops from town to town would be more viable. We have two family run shops in our town of 5,000 and they seem to compete with the two huge grocery stores we have also. Maybe something like a Tim Horton's concept-where the consumer would know that if he walked through the doors of 'Rancher's Pride' or whatever they were dealing more directly with the producer. Something like that I could see investing in. On a cow carcass-Cargill is the bear and the producer is the coyote-if we try and take the whole deal we'll probably get ate-but if we nibble away at the edges we can probably get full and the bear won't notice-in other words don't try and outbig them with government money-instead fly under their radar and chip away.