Plan B

[pandiana]

As usual, many of these posts ilicit more questions than answers. rsomer: " A NAFTA dispute would be dragged out a long time, I see that is why we are working with the U.S. like we are. I do think they are deliberately dragging their heals." A NAFTA dispute no doubt would take some time but shouln't we be exploring all our options? Starting two months ago would have put us that much farther down the road. And what about retribution? Shouln't we be looking for this?
Quality yes? Tell me what is it that Australian beef has that we don't have other than grass fed...cheaper.? Should we go back to grass fed cattle?
BSE testing on all cattle. No, I don't think so, totally unrealistic expectation unless is can be shown to create additional value equal to the extra cost.
BSE testing over 30 months? I like the idea of being able to label Guaranteed BSE Free but... what if?

I agree that this problem is and has been for the last 3 months totally polictically driven. I am sure there are some who are thouroughly enjoying our jumping through hoops in an effort to satisfy unrealistic expectations while they reap benefits at our expense.
I too would like to find different trading partners.

[rsomer]

ValueChainFX: I am concerned that my reply to you was too harsh. You are speaking to your dream of a solution to the long term chronic problem of low producer returns. In many aspects, I share your dream and I respect the power of a vision such as yours to make fundamental changes in an industry over a period of time.

I am speaking to the BSE crisis which we find ourselves in which demands rapid responses and solutions in order to get live cattle moving into the U.S. which all agree has to happen quickly if our industry is survive.

It is September 24. Most of the cattle sold in this country in 2003 will be sold in the next 30 days. There is still no significant beef or live cattle trade with the U.S. We need a plan b real fast.

[cowman]

We should never forget that this "quality beef" Australia ships us is their old cows. I remember about a year ago I was with a business associate and we had dinner in "Montanas" and we got these tough steaks...guess what...Australian beef! Well we complained and I never went back until they opened a franchise in Red Deer. I asked "Where do you get your beef now?" This was in July and no one would admit they got beef anywhere but Alberta! So I had a good Alberta steak! Tender and juicy!
If Australia has such a superior system how come they sent that kangaroo meat to us in the Jack-in-the-box affair? And I'd like someone to tell me how they can still compete against 10 cent Canadian cows? Why the freight must be at least twice that? Do the Australian farmers donate their cows? Or pay the packers to take them? Somehow that whole deal smells a little crooked?

[rsomer]

pandiana: you said "Tell me what is it that Australian beef has that we don't"

I see the core reason why Australia is the world’s largest exporter of beef is not their product, it is that they understand that international trade is about trade, not about selling.

Australia is a tiny country, population is 60% of Canada yet they are significant players in agricultural global trade. I believe Australia is able to do this because they are excellent negotiators. Australia will approach a country like the U.S. and negotiate access for its beef in exchange for accepting American imports and allowing limited American investment in Australia. Australia goes to Canada, Japan, Europe and does the same. In 1999, Australia exported goods worth $59.5 billion and imported $59.7, mostly machinery computers and office equipment, crude oil and petroleum products. Australia’s export partners are developing countries 45.6%, Japan 19.7%, ASEAN 13.3%, EU 11.7%, US 9.7% (2001 est.). Its import partners are developing countries 31.7%, EU 21.6%, US 18.9%, ASEAN 14.8%, Japan 13.0% (2001 est.). Australia trades with the world.

Contrast that with Canada. Canada trading relationship is NAFTA. Our imports partners are US 72.7%, UK 3.4%, other EU 3.2%, Japan 3.0% (2000). Our export partners are US 84.6%, Japan 2.2%, UK 1.6%, other EU 2.2% (2000).

When we signed NAFTA, North American became the focus of our trade. It took only a few years after NAFTA was signed before Canadian beef imports into the U.S. began to have an effect on a politically influential sector of the American economy. As a result RCalf started its countervail actions against Canadain beef which even though we won, we lost. As a result of the RCalf trade action the Canadian industry saw potential threats to its trade into the U.S. and tried to kickstart offshore exports of beef. But we were going into the global community cap in hand. We had already given the U.S. preferential access to the Canadian market, the majority of our imports were from that one country. We go to Japan or Europe and say won’t you please take some of our beef, they say what products are you going to accept of ours. I am sure that if 13% of Canadian imports came from Japan instead of 2.2% we would have more success gaining more than the 2% of the Japanese beef market that we had before the BSE outbreak.

Many say we should find different trading partners for our beef, but it is not that easy. NAFTA gives us preferential access to the richest market in the world in exchange for accepting imports from the U.S. But because the size of our domestic market is small, our ability to also accept imports from the rest of the world is limited. If we are not importing from these countries we would like to sell beef to, then our success in finding further non NAFTA markets for our beef is going to be very limited. We have nothing to negotiate with.

NAFTA is our market for Canadian beef. We have to defend it.

[ValueChainFX]

rsomer comments can never be to harsh if they are what you believe! A vision is good if it has the flexibility to be open to changes for the good, one man does not build an industry vision! The seeds of hope are in any vision with a foundation built on need and building blocks become solutions to meet that need.

With that said I point out that the greatest needs are at the producer level, I see others in the supply chain that have taken advantage of this BSE challenge, and have been taking advantage of producers long before. We cannot compete with the big guys on what I call commodity beef products! (These would be products that are produced on a line and sold into a market place as one of the basic 15 or so cuts from a side) We can however compete on any product that does not blend well into an assembly line type system or product. We can also work on marketing efforts that are not traditional, not in the mainstream and have the ability to balance out supply chain costs!

There are several reasons that the brooks plant sold to the americans, non of us know them all, but it is clear that these big plants operate in a system beyond one plant! If anyone thinks for one second Cargill operates as an independent unit from the US plants they are mistaken! These plants work together and constantly move product across the boarder in a way that makes them income. I have suggested smaller plants would be solutions to several of our challenges. These plants would be closer to the product (live cattle) smaller plants retain their employees longer, so we have better trained people. Big plants we were told centralize the facilities and reduce costs!!!! Right how much did it reduce your cost as a producer? You had longer hauls, your cattle more stressed, weight loss and on and on! It did reduce the cost to the packer though didn't it.

When we talk about quality, keep in mind what I see quality as being;

1.) Quality has to be defined as conformance to requirements, not as goodness.

2.) The system for causing quality is prevention, not appraisal.

3.) The performance standard must be zero defects, not "that's close enough."

4.) The measurement of quality is the price of non-conformance, not indexes.

Austrailia is a trader; they see market opportunities and work with them. They have people working on solutions that can be implemented into their assurance system. Does this make their product better than ours? No, this makes their product sell.

If we look at the USA as our only market we are in big trouble. Yes the US has to be part of any marketing plan, but we all need to recognize that the US market is full of many years of challenges and many more years of challenges to come.

The Plan B that I propose is not an over night solution (Keep in mind we have worked on this plan for a long time now and it is not meant as an over night solution) It is long term, and looks after many of the challenges we face today. It doesn't look after live cattle sales (although, live cattle can blend into it as well) Agriculture in general is seen as blending throughout this plan. Cutting input costs goes beyond the feed you put into your cattle. We all know that organizations that were once developed to serve farms have gone the way of big business and serve themselves not the farms!

We are in the initial discussion stages of a Canadian Value Chain. If nothing else they have been interesting, where it goes from here is yet to be seen, but the door is always open to ideas.

Will the vision be formed from these talks ... well I'm sure we will all see. All I know is I don't think their is anyone left out there that think things don't have to change!

[carebear300]

Now if we lived in Afghanistan we would just load up our guns and start shooting. And in the long run might be the only way to catch peoples' attention. Just a fleeting thought for what is worth. Not a viable option but it sometimes makes you think. Desperate people will try desperate things!!!!!

[rsomer]

ValueChainFX: you spoke about quality. I saw opportunities to differentiate agri-commodities by focusing on quality a few years ago. Along those lines I successfully completed courses to become a RAB certified ISO 9000 lead auditor. I think I understand the quality concept pretty well.

As for Australia, I have been watching what they were doing for some time with the view that why can’t Canadians do that. I see Australia supplying hormone free beef to Europe and think, hey, we could have that market. I see the market share that the U.S. has with Japan and think why doesn’t Canada have a greater share of the Japanese beef market. Why did we, at least before BSE, send our fat steers down to the U.S. to be slaughtered and rerouted to Japan when we could just have that market for ourselves. More effort devoted to marketing would seem to be all it takes to overcome our competitors in these global markets.

I am now suggesting that these marketing efforts will be fruitless unless we as a country are able and willing to accept imports from those countries we wish to export beef to. 28.5% of Japan’s exports go to the United States. I am suggesting Japan is sensitive to that statistic and will not look to cannabalize offsetting imports of U.S products like beef in order to buy Canadian.

Of the G8 countries, Canada is the only one that trades almost exclusively with one country. Even Italy which is a member of the EU has 50% of its trade beyond Europe with its European trade split between Germany 14.5%, France 12.2%, UK 6.7%, Spain 6.1%. You said "If we look at the USA [NAFTA] as our only market we are in big trouble" Well I guess we are in big trouble.

Canada can easily duplicate what Australia and the U.S. are doing with beef products and marketing. Canada cannot easily duplicate the trading relationships these competitors have in the global marketplace. What I am suggesting is if you wish to export beef products to Japan, China, South Korea you will be more successful if you are based in the United States, rather than Canada. If you wish to export beef to Europe, you will be more successful if you are based in Australia, rather than Canada. However if you want to export beef products to the United States, you will be most successful if you are based in Canada. It is simplistic to think of global agricultural trade as a bazaar where anyone can pitch a tent. Trade is between countries. Canada is at a disadvantage when it comes to selling beef off shore but it has a huge advantage when it comes to selling beef into the United States. And it has nothing to do with product or marketing and everything to do with trading relationships. That is why we can’t sit back and say if the U.S. doesn’t want or need our beef we can go global and peddle our wares in other markets. We need to defend our NAFTA markets for Canadian beef.

Quality can be defined as the ability of a set of inherent characteristics of a product system or process to fulfill requirements of customers and other interested parties. I am suggesting that before Canada will be able to offer a "quality" beef product to Japan or Europe we need to be able to meet the other interested parties need for offsetting imports, otherwise our product will not find acceptance.

[rsomer]

For anyone interested, there is a good overview of the Australian beef industry at:
http://www.orange.usyd.edu.au/staff_members/rcox/Beef_Industry.pdf

[pandiana]

rsomer..what is a RAB certified ISO 9000 lead auditor.

[rsomer]

If a company wishes to be registered to ISO 9000 standard, their quality system must be audited. Auditors will go through the company's quality system manual and the actual practices of the company to make sure that the company says what it does and does what it says.

Auditors will have passed a Quality System training course, have at last four full time years in a technical, professional or management positon of accountability involving the exercise of judgement and at least two years relevant work experience in the implementation and/or operation of quality systems.

RAB stands for Registrar Accrediation Board. A lead auditor is qualifed to supervise the audit process and is responsible to manage as well as perform the quality system audit and submitting the audit report.

[rusty1]

A correction may be in order. If I remember right the Lakeside operations have never been wholy owned by Canadians. I believe in the early days Germans had a large protion of the equity and later there was some strong Japaneze ownership.

[rsomer]

It was my understanding that Lakeside was started by Tor Wigemyr and a partner whose name I can’t recall. Lakeside would have been much smaller when it started in 1966, the name Lakeside Farm Industries didn’t come until 1969. The ownership of Lakeside after that may be the subject of rumor but Lakeside did vertically integrate into the packing business in 1974 and 20 years later sold its packing operations to IBP in 1994. I have enclosed a link to the Lakeside Story
http://www.lakesidepackers.com/history.htm

A correction might be in order when I referred to the USDA inspector as Howard Lyman. My memory could be wrong. I believe the problems with inspections at the Canada U.S. border did cease once Lakeside sold to American owned IBP. It’s only ten years ago since this happened, seems like longer. So much has happened in the beef industry since then.