Unintended consequences of AMLS

[smcgrath76]

I have been running various scenarios through and trying to think strategically. I think there may be some unintended consequences of this thing, depending a bit on how the legislation goes. Some of these are good, bad or indifferent depending on your interpretation (example: pt #10). I am not saying they are all bad things, just things that may occur.
1. feeding capacity may shift to SK
- depending on the regulatory framework of this thing, it could give SK feeders a large competitive advantage as they would have a lower cost structure and are actually closer to some of the US plants.
- the feedgrain advances are a technology that can be easily transferred into SK
2. Processing capacity may decline in AB
- we are overbuilt and the new regs may require a further cost on processors who are already at a disadvantage due to SRM rules.
- if the plants are not required to kill only age verified cattle, they can simply bid the price of the subsidy out of alberta calves (maybe all calves) and this may give SK a further advantage
3. The cow calf sector may downsize (after the payout) or may shift geographically to areas with a lower cost structure (less regulatory burden)
4. COOL is a big monkey wrench. depending on requirements, etc. it may mean more cattle are finished here, or fewer and it may furhter restrict the size of the Canadian cow herd. AB may have removed a potentially large premium from the marketplace for cattle that can readily meet COOL requirements.
5. A lot of the kill may shift stateside. Tyson at brooks has already been singled out in an annual report as one of the key money losers for the bigger operation. Regulatory burden would provide a good excuse to close shop.
6. The AB government may need to throw more cash at this thing to develop packing capacity (did I say that?). Through this whole process that has been one thing they have been unwilling to do. As Rancher's beef how well the AB gov treated them (certainly able to meet EU market demands).
7. Small herds may exit sooner. If you are doing this for "fun" then some of that fun has to have been sucked out of it. With high comodity prices for grains/oilseeds, we may see an increased move away from cow/calf and into grain or landlord type arrangements.
8. We may negotiate a trade deal with a group such as the EU. We may still not have any processors willing and or able to meet EU processing standards. The government may kick in more $ to subsidize this market.
9. The US may launch a countervail on this program (see history).
10. ABP and CCA may fold up their tents due to changes in the funding rules.
11. Several breed associations may have a difficult time if the AB Gov preempts the animal pedigree act and provides services traditionally offered by national associations.
12. The AB gov becomes the broker for services to industry such as genetic evaluation/parentage testing, rather than private industry.
13. There are probably others...

[grassfarmer]

Lots of glass-half-empty rather than half-full scenarios portrayed there Sean.
"1. feeding capacity may shift to SK
- depending on the regulatory framework of this thing, it could give SK feeders a large competitive advantage as they would have a lower cost structure and are actually closer to some of the US plants."

True enough but only really a concern if you see the only future for us as lowest cost suppliers to the US market. The definition of insanity is???

"2. Processing capacity may decline in AB - we are overbuilt and the new regs may require a further cost on processors who are already at a disadvantage due to SRM rules. - if the plants are not required to kill only age verified cattle, they can simply bid the price of the subsidy out of alberta calves (maybe all calves) and this may give SK a further advantage"

Do you envisage new packing plants being built in Saskatchewan ?? I don't and without it I don't see they have a great advantage over Alberta producers.

"3. The cow calf sector may downsize (after the payout) or may shift geographically to areas with a lower cost structure (less regulatory burden)"

It's happening already (downsizing) without this program so why not try and improve our lot?

"4. COOL is a big monkey wrench. depending on requirements, etc. it may mean more cattle are finished here, or fewer and it may furhter restrict the size of the Canadian cow herd. AB may have removed a potentially large premium from the marketplace for cattle that can readily meet COOL requirements."

COOL is an unknown for sure, the easiest way to sidestep problems it may create is to rely less on the US and target other markets - which is exactly what the plan suggests.

"5. A lot of the kill may shift stateside. Tyson at brooks has already been singled out in an annual report as one of the key money losers for the bigger operation. Regulatory burden would provide a good excuse to close shop."

This was threatened before the Government proposed this plan. What if the strategy works and we can access additional new markets? Tyson may pick up some custom kill and hang around.

"6. The AB government may need to throw more cash at this thing to develop packing capacity (did I say that?). Through this whole process that has been one thing they have been unwilling to do. As Rancher's beef how well the AB gov treated them (certainly able to meet EU market demands)."

All the better that we have a Government coming at it from a different angle then - with the support (not just financial)of the Government perhaps Ranchers Beef, BIG-Cs or many of the other proposals may have succeeded.

"7. Small herds may exit sooner. If you are doing this for "fun" then some of that fun has to have been sucked out of it. With high comodity prices for grains/oilseeds, we may see an increased move away from cow/calf and into grain or landlord type arrangements."

Some of the fun has been sucked out for all of us since 2003, at least this is an attempt to improve things. We will undoubtedly see a move away from cattle to grain with or without this program - it's simple economics.

"8. We may negotiate a trade deal with a group such as the EU. We may still not have any processors willing and or able to meet EU processing standards. The government may kick in more $ to subsidize this market."

And the problem with that is?? Seriously though we have plants close enough to EU standards that this should not be a stumbling block. It should be easier for them to comply with this strategy backing them than without.

"9. The US may launch a countervail on this program (see history)."

What's new?? they are at it all the time anyway. Cost of doing business.

"10. ABP and CCA may fold up their tents due to changes in the funding rules."

Bonus! democracy may return with the removal of these packer sponsored dictatorships.

"11. Several breed associations may have a difficult time if the AB Gov preempts the animal pedigree act and provides services traditionally offered by national associations."

Do you mean a financially difficult time if so what services do you see the government paying for?

"12. The AB gov becomes the broker for services to industry such as genetic evaluation/parentage testing, rather than private industry."

I think you overstate the role the Government is going to take in this, the age verification may be mandatory but much of the rest will still be free enterprise. From the strategy - "Role of
Government as a catalyst - Help create an environment for industry to be successful with industry remaining the driver."

[cowboss]

I have been following this AMLS debate but three issues still seem to be ignored. First is the idea that by differentiating our product we will all be saved. At best, the market for this differentiated product is 25%. The rest will still be commodity beef. The concern I have here is that with the new regulations that the AMLS is discussing we will become even more uncompetitive in the global market.
The next issue that keeps coming up is that we must break our dependency on the US market. I agree that we must do all we can to open up new markets but I see these markets as a way to maximize carcuss utilization. Japan is only taking a select few cuts of beef but they pay a premium for those cuts which increases the value of the whole carcuss.The USA still pays the top dollar for the premium cuts. Australia has open access into the Asian market and yet they are the second biggest exporter of beef into the USA behind Canada. They have exported 54425 tonnes into the US while Canada has exported 81,167 tonnes. If these Asian markets are our saving grace then why is Australia pushing so much beef into the USA. We need all the markets we can get but lets not forget the USA is stll paying a top dollar for the top cuts.
Finally the one thing that people fail to acknowledge is the many of the countries we are trying to gain access to, use tariffs and red tape to keep beef out of their countries. Beef has some of the highest tarrifs of any trade product. They use these hurdles to protect their own producers...no other reason. That is why if we could reduce some of these tarrif levels at the WTO talks we would likely be better off financially.
Just some thoughts of a cow chaser.

[Kathy]

I am not certain of this rumor,.... but didn't our Alberta Government sign an deal with Cargill that if they assisted them to come into Alberta with their new meat packing plant, the AB gov would NEVER open up a packing plant of their own.

Have you any comments by Tyson or Cargill on this new strategy?

I have wondered how the AB Gov. is going to "harness" them together with us (as Will Verboeven states, "In the end the strategy will only work if the government decides it will work. The first step is to reign in the diverse livestock groups and get them harnessed together. That's easier said then done considering their colourful history of independence and occasional throwing of rocks at each other."

I'd like to point out that I very rarely agree with Mr. Verboven.

No matter what the industry, the government strategy of making this "radical announcement/change" with the cheques already in the mail, is a strategy of its own.

If all the livestock producers were left to stew about the program without those big cheques in front of their faces, and burning a hole in our pockets, do you think that most would be so eager to agree that this is the path we should take?

The AB gov. is manipulating us.

[smcgrath76]

I was further thinking about this as I was chasing cows to a new location today. Let's say the program works. We now have a large population of cattle that effectively meet the most stringent standards in the world and can be exported anywhere, Europe/Asia/etc.
The processors may now have enough supply to capture or fill these lucrative markets. With a few minor changes at teh feedlot and processor level, they can meet EU standards or otherwise (for pennies per head). The gross return to industry is increased, and the plan is a complete success!!!
But wait...
There are still only three packers and they can keep that margin. Why pass it back to the peon that has to do the work and incur the real cost? Isn't that how the industry worked through the BSE crisis, and with cull cows, and with the set aside program, etc.?
Even with the mandatory program, unless farmers scramble their way up the value chain as individuals, they will still not net anymore of the food dollar.
GF, you are a perfect example of a guy who has scrambled up the food chain and captured $ by going direct.
Is there an appetite amonst producers to do this? If not, George might as well write the check diretly to Cargill or Tyson.

[grassfarmer]

And what has anyone been doing about the packer monopoly problem up to now? precisely zero. When programs like Canada Gold potentially offer a way to circumvent this huge problem and this new strategy will make it more likely that programs like Canada Gold will succeed why it it so hard to encourage the ministers efforts?
It's not like what we had/ have now is working too great so why not try something different?
I find it hilarious that all the commodity groups that have refused to listen to any complaint against the packers in recent years are now jumping up and down saying this is a sellout to the packers. Now that's an irony.

[smcgrath76]

I think my thought is that Canada Gold could succeed without implementing the strategy. At the end of the day if people want to participate in something like Canada Gold, they will do so without being told to by government. those who don't want to move this direction can keep on keepin on and quit complaining about the size of their cheques. They shouldn't have to follow all the same protocols if they don't wish.
From the other side of the fence, what is the added value of Canada Gold, if every calf has to meet the Canada Gold standard?

[DiamondSCattleCo]

"From the other side of the fence, what is the
added value of Canada Gold, if every calf has to
meet the Canada Gold standard?"

As long as the Canada Gold standard is better than
our nearest competitor, the value will be buried in
the final price of the animal. Unfortunately, as has
been mentioned, the packers tend to end up with
the lion's share of that premium.

But as producers, we do have the choice to not deal
with the large packers. If all you sell are calves, get
ahold of one of the many small feedlots both in
Canada and the US who do sell into the value added
markets. The US especially is littered with small
plants with special needs or that market into
specialized areas.

Are the premiums huge? Nope, but they do exist. I
gained 3 cents/lb this year by selling (through a
broker) into the USDA-organic US market. I was
also able to bypass all the trucking fees (the
packers paid it), barn fees, etc etc etc, which gained
me another 7 cents/lb. All told, I ended up with
about 55 bucks/animal extra versus selling my
backgrounders through traditional routes.

I believe that anything that raises the value of our
commodity beef on the world wide stage is a good
thing, mainly because these "specialized" value
chains tend to have premiums based on the price of
commodity beef. We as producers just need to start
thinking outside our little commodity beef boxes.

Rod

[farmers_son]

Saskatchewan Ag Minister Bob Bjornerud was quoted in the Western Producer as saying the way Alberta tied the second half of the money to mandatory age verification and premise ID reminded him of the Federal Gun Control Registry. Bjornerud pointed out how the cost of that Registry spiraled out of control. The costs of the Mandatory Alberta program are 100% born by cattle producers not the federal treasury.

Bjornerud was not as optimist as Groeneveld that the announced money would not be countervailable.

Some things I have learned from the Alberta announcement…

When producers are not united, government will seize that as an opportunity to impose its will. We have seen that happen here.

We have seen just how tenuous the free enterprise economy really is and how easily government can usurp the marketplace.

Going forward this will not be the last announcement/pronouncement we will receive from Government concerning our industry, and it is OUR industry. There will be more pronouncements… you can bet money on it. After all Government knows what is best for Rural Alberta and frankly my dear they do not give a damn whether we like it or not.

The beatings will continue until morale improves.

[grassfarmer]

"We have seen just how tenuous the free enterprise economy really is and how easily government can usurp the marketplace."
farmers_son, I would agree with your statement if you replaced "government" with "foreign owned packers". Thank goodness the ag minister realises that and is attempting to help producers break free from the shackles.

[farmers_son]

I saw the Ministers pronouncement as maintaining the status quo with the two major packers and not as an instrument of change. For example the 36 million dollars earmarked for automation equipment, I saw that money going directly to Cargill and Tyson. That would not be the first time the province earmarked money for Cargill and Tyson.

Previously there may have been opportunities for small packers to establish value chains with producers which would allow the small packer to offer age verified beef with vaccination history and so on. That is gone now that the Province has made those value added features mandatory and really they become a commodity, at least in Alberta, that none of the packers have to pay us for. Any advantage a small packer would have had is gone.

I have noted in your posts that you saw this as an opportunity for small packers but I just am not seeing it. If anything it was, in my view, designed to shift profit from the producers to the packers to ensure one of the Big Two never packed their bags and left the province.

[wilagro]

Cargill and Tyson, two very profitable corporations to receive 36 million of OUR dollars.

It is called "corporate welfare". The AB government has a habit of giving money to "friendly" private enterprise. Ralphie partially weaned business off of it for a while, but its back with a vengeance.

If you don't like it, then vote the turkeys OUT.

[grassfarmer]

Rather than lament the passing of opportunities for small packers and value chains I think you should rejoice that they now actually will have a chance to come to fruition.
All this anti AMLS stuff is based on the dreamy scenario that what we have had up to now was working well - it wasn't hence the need for change.

[DiamondSCattleCo]

"Previously there may have been opportunities for
small packers to establish value chains with
producers which would allow the small packer to
offer age verified beef with vaccination history and
so on."

A year ago I took up the mandatory age verification
torch, right after Kevin Hirsch did a story on
missing the boat on ager verified beef. I verified
what he wrote in his article with a few sources, and
here's what I found:

1) smaller packers could not secure contracts with
overseas clients because they were unable to
GUARANTEE a steady supply of age verified fats.

2) They were unable to guarantee these animals
because i) most auction barns were not pre-sorting
age verified calves out, ii) those that were being
sorted out were being snapped up by Cargill and
Tyson at higher rates, then being shipped into the
US. I can only assume Cargill and Tyson did this to
prevent competitors from opening overseas
markets. So short term, producers who age verified
saw a premium, which rapidly disappeared after
smaller packing houses gave up on trying to outbid
them.

Thankfully your Ag minister has been smart enough
to realize this was happening and is pulling Alberta
into the future. Unfortunately, our Ag minister here
in Sask is a blazing idiot.

Rod

[Kathy]

Since we are already forced by law to RFID tag our animals, at our own risk of personal.... I have no problem with age verifying my animals.

What I have a problem with is the PREMISE ID.

I was told that this little addition to the Alberta announcement was a FEDERAL Government idea.

Premise ID, NAIS, and Real ID (for humans) has been on the battlefield in the USA now for years.

Oklahoma just told the Feds to piss off, and told them to mind their own business. Agriculture is a state/provincial concern - this is why the Feds are pushing buttons of our Alberta politicians and insisting on premise id. Mr. Groenveld could have told the feds to piss off to (re: premise id) but he didn't. What did they threaten to do to Alberta if he didn't cooperate? maybe a carbon-tax?