Producer owned Packing House

[rusty1]

Sorry Rsomer - I missed one. We have had it pretty good not withstanding we generally allow some multinationals represent our production to the consumer, our biggest asset. da

[cakadu]

I am all for producers making more money and seeing more of the value that they have in their product.

What I wonder about is the return on the investment that goes into the plant in the first place. When talking federal plants, those take a fair chunk of change to build and if you're going to be putting money into the infrastructure, you also have to have a way to realize some return on that money, in addition to getting more, or having price stability, for the product you are putting through.

It is so very true that we must love what we do, but we must learn to respect what the customer wants and be prepared to deliver it.

In this vision of federal plants in many regions in Canada to help rural development, what sort of mechanisms are in place to ensure that it doesn't become a game of "survivor"? Is there a framework to allow for continual partnering to be accomplished? What about mechanisms to ensure that supply does not outstrip demand, thereby eroding the price stability - just as it is in the system we already have? Markets will have to be continually developed and maintained because consumer tastes continue to evolve as do demands such as we have seen in recent months.

Will consumers be prepared to pay more for all of these added food safety mechanisms, or will they want to see them in place and continue to pay the same price? While consumers say they are willing to pay to get what they want, many times when push comes to shove, they don't want to pay the premium to get them. While I would very much like to see a producer get paid what the product is worth, I'm not entirely convinced that building new plants is the way to go.

[rusty1]

cakadu - you say "I'm not entirely convinced that building new plants is the way to go."

What's you're better idea or plan.

[cowman]

Has anyone ever considered this?
The federal government lately brought out the $80/head subsidy for young stuff. I think the bill came to something like $680 million? Which the packers promptly took once again! Would it maybe have made more sense if the government had gone down to Cargill and IBP and told them, they were being bought out! Give them $20 million each and tell them to get over the border by nightfall! Hire the entire staff on the spot(they are just about all Canadians anyway) and it's business as usual the next day? Issue shares to everyone who pays the checkoff and get out of the way!
The government could then regulate the packing industry as they would no longer have two big American pirates whining about unfair practices etc.!

[rusty1]

You're bang on Cowman - it would be way better to create a legitmate environment and take care of things before the horse is out of the barn door than to bail out a disaster. Stop gap measures are only temporary as you know.

[ValueChainFX]

The vision ties the plants together through communication tools, QA links, a marketing consortium, and education and training packages and through the development of a National foundation strategy. These above mentioned strategies limit risk, target markets, provide expertise, GMP's, and work with the entire supply chain from a producer point. Will we saturate the market, I don't really think so based on the numbers we are using today, not to say this couldn't happen, but at least if it does we will see it coming (all participants of the supply chain) and we can be proactive rather than reactive.

[cakadu]

Then what you are talking is supply management because everything is controlled and you then loose any chance at export you might have, because supply management only works in the domestic market.

Under a scheme like that, you can forget about producers owning the plant - go and ask dairymen how possible it would be for them to own a processing plant. Again, you have the big players controlling the WORLD market, not just the domestic market.

Rusty - its not that I can't envision it working, it is just going to be a huge hill to climb. I don't doubt for a second that smaller plants can fly under the radar and keep out of the way of the big boys and meet the demands of consumers who are willing to pay.

At a bare minimum a federal plant of any size and capacity would run you in the neighborhood of $4 million and that is likely being conservative, based on the numbers that I have seen.

If you're selling shares at $1,000 a pop, then by my math that would mean 4,000 shares have to be sold just to build the plant. You then need operating capital to pay staff etc. Markets for that beef have to be secured prior to going into production because you don't want to be chasing markets as that would defeat the purpose of having a producer owned plant in the first place - you'd end up being a price-taker again instead of a price-setter.

With that many shares outstanding, you then have to get commitments from everyone involved to stay in it for the long haul, which is going to be tricky because once markets open up again and the "normal" way of doing things resumes, there are going to be those people that fade back to those markets, which then puts your supply at risk and you have to find animals to meet your market demands.

The volume through the plant has to be enough to pay wages, overhead etc. etc., which entails having that steady supply going through the plant. Once the backlog of animals - primarily cull cows - is through the system, then what happens?

I think it can work and I also believe that it has to be taken in small increments. Find people that you can trust and work with and then branch out.

The only way I know of to eat an elephant is one bite at a time. It would make far more sense to me to make sure that all the pieces fit and are working before taking that big leap to your own plant. Once it's working, then I'm sure the sky will be the limit. I well and truly hope that they do work because I want to see the producer getting a fair share for his/her product. There is absolutely nothing wrong with that. Is my way far too slow for some - it probably is. The value-chain system was never meant to fix a crisis. As you can see from the post - it has taken yonks just in the planning stages. You sometimes have to go slow to go fast.

[rusty1]

I realize that to build another packing house is like jumping into a shark tank full of muddy water. And the rules of the game are mafia styled. However, every empire in history has fallen when the tied of public opinion ran high. The Iron Curtain fell as did the Berlin Wall, and today’s tide of opinion at the producer level, at the service sector level and do not forget the tide of opinion at the consumers level. So the time is now ripe.

We have 2 – questions, 1. Do we need it? and 2. Are we prepared to do something about it?

I think we are way to independent to develop any “supply management system, and in my opinion the free market system can work. It needs to be based on a “merit” system. Don’t miss that last sentence.

However, and I think Cowman would agree, we as producers have had it way too good and have staked our claim on a “commodity based” structure. We have survived (arguably) on delivering to a “average based” marketing system. Perfect for the corporate structure.

We ask the multi-nationals to represent our production to the consumer, and on average their doing the job.

However I believe that we can do far more through a vertically integrated approach and we now have both the tools and the will.

I think that just about every grain truck driver would buy a $1000 share in a producer based packing house if it is going to help bring some stability to the industry. And he won’t even look for dividends. I think the service sector including every truck dealership, machinery dealership, veterinary clinic; lumber yards etc. in rural towns would love to do the same. I think that 75,000 share holders is not out of line. Alberta has 30,000 beef producers and every one of them has a wife. That’s 60,000 with say a 50% buy in, it’s still 30,000 all by themselves.

No I think we need to aim at a 1000 head/shift, probably a $100,000,000 dollar plant vertically tied to a grocery chain, and producers. I think Mrs. Consumer would love to walk into the store and ask for the branded product from Western Canadian Producers.

The multi-nationals can continue to play in their “generic” markets south of the 49th. and we’ll take care of our domestic market?

[cowman]

The only problem with that scenario Rusty is why would Cargill/IBP be content with the generic market if they saw profit potential in the Canadian market? Why wouldn't they move into that domestic market...after all they have it now? They also have shown they are ready to step into the "niche" markets....Stirling beef?
If we are serious as a country of taking back our industry we need some curbs on these pirates? I mean we don't even have the protections in place the US has? IBP/Cargill will lose money for a long time if they can see an opportunity to clean out the competition? They will produce at a loss...done it many times in the past in the US?
Your ideas are good ones but we need our federal government to step up to the plate with some legislation to limit these predatory business practices.

[rusty1]

I agree with you're comments about govt. legislation cowman. The only problem is that there isn't a current lobby group in Canada with the gonads to push the govt. in that direction.
But I believe that if we had a producer owned packing house with 100,000 share holders we then would have a strong enough voice to impress the govt. that we need some controls over the current packer power.
One possible option would be to build and own the plant with a lease to another 4th. multi-national to amnage and market.
Either way I think it's worth a $1000 long shot bet?

[rsomer]

I think rusty1 has the right idea. Build the plant and then lobby government for a regulatory regime that would allow the plant to survive in a fair competitive environment. There are something like 30,000 beef producers in Alberta and 90,000 Canada wide. To achieve 100,000 shareholders would mean attracting the average city investor as well, but that is do-able and there are people in the cities willing to invest in ag equity ventures. How to make it happen is what I have been struggling with. How does this thing get its start?

[cakadu]

Bear in mind that any city folk you could get to invest would expect a return on that money - they aren't going to do it out of the goodness of their hearts like a producer might. Even producers that invest should be looking for a return on their money. Maybe not a short term return but eventually you have to get something for it. Even those that are thinking of leaving agriculture now are waiting to do so until they can get the best return that they can - provided they don't go broke in the interim. And don't forget - many of our urban cousins do not care one whit about how the meat gets to them on the grocery store shelf - they just want it there as cheaply as they can get it. Consumers will say one thing and do another, especially if it means that they have to give up some of the "toys" for food dollars.

One way to gauge how people are feeling is to talk with a few of them. Many urbanites or rurbanites (on acreages outside the city) say they would buy local if they could but would NOT pay any more for the privelege of doing so.

Convincing 90,000 producers to all go in one direction will be a feat in and of itself. One of our biggest problems is that we do not work together. You will have those producers that work very well within the current system that will not be prepared to upset the status quo. It would be no different than the CWB issue in some respects. You have staunch supports of the CWB that you would never in a million years convince that they should look at another system of doing things. It will be no different here because as has been alluded to before, producers are reluctant to change.

You're right rsomer, how would you get this started?

I suppose one could look at the UPA model in Quebec, but there are many producers not happy with that system either - it's just if you happen to produce in Quebec, you belong - no ifs ands or buts. Who would you get to even run the thing because you couldn't have many masters or chaos would result. Are there people out there that beef producers would trust enough to move this thing ahead? Building trust will take some time. Sadly, nothing worthwhile having is ever easy.

[cakadu]

Bear in mind that any city folk you could get to invest would expect a return on that money - they aren't going to do it out of the goodness of their hearts like a producer might. Even producers that invest should be looking for a return on their money. Maybe not a short term return but eventually you have to get something for it. Even those that are thinking of leaving agriculture now are waiting to do so until they can get the best return that they can - provided they don't go broke in the interim. And don't forget - many of our urban cousins do not care one whit about how the meat gets to them on the grocery store shelf - they just want it there as cheaply as they can get it. Consumers will say one thing and do another, especially if it means that they have to give up some of the "toys" for food dollars.

One way to gauge how people are feeling is to talk with a few of them. Many urbanites or rurbanites (on acreages outside the city) say they would buy local if they could but would NOT pay any more for the privelege of doing so.

Convincing 90,000 producers to all go in one direction will be a feat in and of itself. One of our biggest problems is that we do not work together. You will have those producers that work very well within the current system that will not be prepared to upset the status quo. It would be no different than the CWB issue in some respects. You have staunch supports of the CWB that you would never in a million years convince that they should look at another system of doing things. It will be no different here because as has been alluded to before, producers are reluctant to change.

You're right rsomer, how would you get this started?

I suppose one could look at the UPA model in Quebec, but there are many producers not happy with that system either - it's just if you happen to produce in Quebec, you belong - no ifs ands or buts. Who would you get to even run the thing because you couldn't have many masters or chaos would result. Are there people out there that beef producers would trust enough to move this thing ahead? Building trust will take some time. Sadly, nothing worthwhile having is ever easy.

[rusty1]

Linda of all people you should understand what it takes to develope a value addded chain.
But I think where most of the population is going to fail (currently) is to major on past (historic) patterns. One dosn't have to look very hard nor listen very hard to hear alot of discontent and see increased awarness in the consumers mind. SO HERE IS OUR OPPORTUNITY lets take off our glasses of tradition and start thinking out of our old boxes and sieze the opportunity, manage it toward change because if we don't do it now we never will. The same hold true for the producer sector and the beef service sector.
So expend you're energy and help us take some leadership into a new era!

[cakadu]

Ahhh, Rusty - your comment brought a smile to my face. You are quite right in your statement that I know the pieces and commitment it takes to make a value-chain work. I've been saying for many years now that is the way we need to go and I believe, as you do, that if it doesn't happen now, then it may never happen. There has never been a more opportune time and a time when producers are willing to listen. The other parts of the chain are a different matter because they aren't hurting any where near as badly as the producer is.

I've also taken that leap off the cliff in trying to make one work and we do some of that with the direct marketing that we do. Believe me when I say that the most critical component of all of this is to be able to trust the other links in the chain to the extent that it will function. One of the bigger challenges to the value chain is if you start talking prices too soon. That is not what a value chain is about, although the indirect result is that the producer ends up getting more in his own pocket.

There is no one person out there with all of the answers and there is no way to know all of the answers right now.

I have expended a great deal of time and energy trying to get people to understand the concept of a value-chain and how it can work for them. I'm happy to continue to expend more of both because I believe that it is the future of the industry.

My passion lies in helping the small entrepreneur succeed. We've been there, made mistakes, learned from them, and tried to let others know so that they don't make the same mistakes (or similar ones). I try to keep my eyes on the big picture and see how we all can work together in this. One thing I have experienced over the years is that this does not come together overnight, even though we would like it to.

Agriculture as a whole is slowly moving toward this concept and I truly envision us making it there at some point and when we do, it will truly be a rewarding day.