Where did it all begin?

[cakadu]

You've got my curiosity up. If there is the ability to price fix, how did it get set up that way? Was this recognized as a problem pre-BSE and if so, how much of a problem was it and what, if anything, was being done to fix it?

This is something that didn't happen after the border got shut down and from what I can gather, it also just didn't rear it's ugly head six months prior to the discover of BSE.

If the packers can access that boxed beef market, what happened to the feedlots, backgrounders etc. ability to be able to access it?

From where I sit, it seems like this inverted funnel happened where the producers are at the top and it funnels down to where only a few players have access to the packers. Is this correct? I'm also seeing that the packers have been allowed to own cattle as well that they have custom fed by feedlots. Wasn't there a motion to the effect at the ACFA this February that allowed packers to own 10% of the cattle?

The part I am missing is that somewhere along the line these packers were given the power to do all of this. They couldn't do it if they weren't allowed to. How much of the responsibility lies with the various cattle organizations etc. that are representing the producers, i.e. cow/calf, backgrounder, smaller feedlots?

Certainly in reading many of the threads and based on what many people have said, some of the responsibility for this lies with these organizations. Is this a fair observation?

The frustration that one part of the so-called beef chain is making far more money than the rest is certainly understandable.

What could be done now to try and change the way things are so that in the future there is more market access and of course packing capacity.

[BFW]

Cakadu, clearly our major and maybe only problem that we have right now is the fact that there are too many finished cattle spread amongst many people and a limited number of spots available to get these cattle processed and of course this is controlled by three companies here in western Canada those being Lakeside, Cargill Foods and XL beef. Your assessment of the industry being an inverted funnel is correct and the bootleneck at the bottom has only been exacerbated by the closure of the border to live cattle. No one or no single organization can be blamed for allowing this situation to occur as it it exists in practically all areas of agriculture production and is why some commodities have moved to supply management and single desk selling something the cattle industry is fundamentally opposed to even in this time of crisis. You ask how ranchers and feedlot operators lost access to the boxed beef market. Well ther fact is few if any ever had it as we produce feeder and slaughter cattle and rely on the packers to process it into beef thus giving up control of our product at point of sale. As for packer ownership of cattle I don't think in the current situation it makes a whole lot of difference as there are simply to many finished cattle being offered for sale daily over and above requirements and as long as people are willing to sell at lower prices the trend will remain down. It is a very frustrating situation for all involved in the production side of the industry and I wonder how long the government will keep trying to implement band-aid solutions for to a much more serious but obvious injury.
RSOMER, people in industry have had ongoing talks with the competition bureau for many months and the bureau has been in contact with individuals looking for evidence of criminal wrongdoing however in the abscence of "smoking gun" type evidence of price fixing or collusion under the existing laws of this country there is little or nothing that can be done. That they are acting unethically or immorally just is not going to cut it.

[rsomer]

I would define the problem differently. I would say we have a lack of competition. Yes we have a supply of fat cattle. Unlike any country that had a BSE positive, we still have a strong market for those cattle, both domestic and U.S. The demand for beef has remained high throughout and there is evidence to suggest demand for beef has actually risen. So why did the price of cattle drop?

Canada depended upon the U.S. for a significant portion of its processing capacity. When that capacity was cut off by the USDA closing the border to live cattle that left the packers operating on this side of the border in a monopoly situation as the competition from the U.S. packers for live cattle no longer existed. The packers had a captive supply of cattle with no competition.

The price of fat cattle in Canada is not a reflection of supply and demand. Plain and simple.

The price of fat cattle is a reflection of a monopoly cartel operating without competition. It is a fact that packers have been fixing the price of fat cattle.

The supply of cattle cannot be turned off for any length of time, witness the cattle slaughter numbers before and after May 20. Except for a brief period of time the slaughter level has remained constant. As a result the supply of cattle offered for slaughter in the present crisis has nothing to do with the price offered. The slaughter level is merely an indication of the number of cattle the packers accepted, not the number of cattle available for slaughter. Price is merely an indicator of what the packers have fixed the price at, nothing more, it has nothing to do with supply or demand. It certainly has nothing to do with the consumer demand for our beef which remains at an all time high.

Now there are many in the industry who correctly point out that the packers could pay even less for our fats. That is very true. After all they are a monopoly, they can pay whatever they want. There is nothing to stop them from paying more for our fats either, other than a lack of competition. The fact remains that the packers are fixing the price of our cattle, maybe they could have fixed it lower, maybe they could have fixed it higher. Given the exorbitant profits that the packers are enjoying I would suggest they should be fixing the price quite a bit higher.

The matter is worth investigating. If the Competition Bureau or the Parliamentary Committee look into the packer’s books and find no evidence of wrong doing then very well. I think most watchers of the industry know all too well that the actions of the packers amount to criminal price fixing and collusion. It certainly should not be swept under the rug or called normal business as the beef producer suffers $billion losses at the hands of unscrupulous packers.

[BFW]

Rsomer, I do not disagree that what is being allowed to happen to the Canadian cattle industry is wrong and that governments both provincial and federal in my opinion need to take some action to mitigate the effects of the current situation and that means more than throwing a little money at the situation. But I think your assessment of the "market" is wrong. The price of beef whether here in Canada or in the US has little or nothing to do with the price of live slaughter cattle here in Canada. The simple fact of the matter is there is a much larger larger supply of slaughter steers and heifers than there is demand for them by the available slaughter capacity and yes the price could likely be much lower than it is so people should take that into account when looking at the prices available to them when selling feeder cattle.

[grassfarmer]

Cakadu, You highlight some factors that are making primary producers in many sectors of agricultural poor, worldwide. The reasons are the so called "global market place" and the corporations who make most of the money in agriculture by moving commodities around the world. This is all addressed in the landmark document "The Farm Crisis, Bigger Farms, and the Myths of “Competition” and “Efficiency” " published by the NFU - check it out on their website at www.nfu.ca. I was so impressed by the insight this document gave me I have sent copies to the UK and Scottish parliaments - it really is a worldwide problem. I would say governments do have a responsibility in these goings on - more so that cattle organisations.
We are lacking sensible leadership at the moment. I heard today on radio that Brian Mason's (NDP)proposal to set a price on fat cattle was roundly condemned. First by the ABP insisting the cattle industry wanted nothing to do with supply management - still claiming we do not have a pricing problem only a lack of killing capacity. The government then followed this lead by saying that if they did anything to cut packer profits they wouldn't be able to expand their killing capacity and we would all lose out.
This is patently madness, surely anyone with two brain cells to rub together can see that if fats here are 65 cents but $1.18 in the US midwest with the same companies buying to sell into the same market there is a big price problem. Of course we need more kill space but unless we get competition with it we will be no better off. I fail to see why the ABP can't grasp this - unfortunately the Alberta government listen to the ABP and primary producers are left high and dry.
Any further aid program to help these primary producers will be wasted unless these fundamentals are grasped - the packers will simply steal all the funds yet again.

[BFW]

Grassfarmer the ABP is primarily made of primary producers. It just happens that the majority of the current crop of delegates would rather toe the line for the government than propose any innovative (perhaps controversial) solutions to our immediate problems. As much as hate to agree with Brian Mason he is right I think when he says that some sort of pricing intervention is necessary. I don't see it as a minimum price necessarily but more of a maximum spread or basis to what the US price is. Even with that though how do you decide whose cattle get into line to be slaughtered in a timely fashion when again the problem is too many cattle and not enough shackles?

[cowman]

Packers, in Canada, have always owned cattle! At Canada Packers back in the late seventies we would kill CP cattle for over a week when the prices got too high. Pat Burns always owned huge numbers of cattle that he used to keep the prices down. Whether right or wrong, that's just how it is?
I would suggest a better system might be this: All slaughter cattle, by law, must be put up for public bid? The owner has one chance to accept the bid or reject it. If the packer can't bid successfully that day his plant stays idle! No more sweet heart deals for big feedlots...they take their chances just like everyone else! In this day and age of high tech this should be fairly easy?
This would put true supply and demand back into the picture?

[rsomer]

I do not believe our biggest problem is too many cattle, not enough hook space. That is one of the underlying causes of our biggest problem, the packer monopoly cartel artificially fixing prices at unreasonably low prices.

Supply demand does not work in a non functioning market. The packer monopoly is artificially determining the demand for fat cattle bearing in mind the actual consumer demand for beef remains historically high. The supply of fat cattle is a captive market for the packer monopoly and producers are forced to sell to the packers no matter the price. That is what our beef market is really about.

Some sort of intervention is necessary. I am suggesting the first intervention we need to make is to have the Competition Bureau investigate the packers for illegal price fixing. I think producers should demand the Parliamentary Committee looking into excessive packer profits reconvene when Parliament resumes. We need to bring pressure to bear on the packers to increase the prices they are arbitrarily fixing for fat cattle.

Increased packer capacity without increased competition will not solve our crisis. Without competition the market cannot function and we will continue to see the packers fixing the price of our fat cattle.

Re how do you decide whose cattle get into line to be slaughtered in a timely fashion? The packers are deciding that for us right now. They decide who gets to sell and who doesn’t. It is not a function of price at all.

[cowman]

Why would anyone consider the CEOs of Cargill/Tyson "unethical"? They are just doing what they were hired to do? Taking care of business?
They have absolutely no responsibility or duty to the primary producer, or the feedlot or the laborers...the only one they have to answer to is the shareholders of the company? The bottom line is all that shareholder cares about and that is how it should be!
We tend to blame these guys when in fact the real blame lies one place and one place alone? The federal government!
They are the ones who create the laws these guys operate under and they are the only ones who are responsible for enforcing these laws or beefing them up if necessary? The competition board thing is a complete and utter joke! Take gas prices as a prime example...no collusion there, right??? I mean everyone knows if Esso raises gas 5 cents, then Shell will be right there tommorrow? And of course an increase is always justified(shortage in the mid-east, you see) just before a long weekend? If(and that is a big if) they ever investigate the packers they will find that they are fine fellows who have done nothing wrong! And the fact is under Canadian law...they haven't!!!
You can't break a monopoly situation when you have a government who is in the pocket of the packers!

[stettlerab]

The packers do have a responsibility, perhaps even a legal responsibility not to set prices high or low. The lack of competition for fed cattle has created an opportunity for the packers to set prices artificially low.
In a pure free enterprise system the packers would be allowed to do what they like. They could cheat and **** and pillage the cattle producers in Canada for all they are worth.
However the system in Canada (English common and statutory law influenced by the Canadian Charter or Rights)and the United States (bicameral legislature which operates under a system of checks and balances)is not that much unlike the US system that convicted Martha Stewart for selling stocks that she knew where going to go down in value. Why shouldn't Martha Stewart sell her stocks when she knew the value was going to drop? Doesn't that make good sense? It was illegal.

The lack of competition has allowed the American owned packers to **** the Canadian Cattle producers and become very wealthy at the same time. I have not seen full page newspaper ads paid for by the packers lobbying for the border to open.

The price fixing on the part of the American Owned packers will continue after competition becomes established in Canada. At that time they will use their international wealth to outbid the newer producer owned or cooperative packers until the new packers can not compete.
These unethical practices are not original in a free market system. That is why there are legal checks and balances in our system to insure that competition is fair and that business is performed in an ethical manner.

Yes I think it is time to consider tight controls over the American Packer companies. This situation is getting out of hand. It is time that the American control of our beef and oil industry receive careful consideration.

If we do not the social justice political parties will do it for us. That may be a system that is harmful in other ways.

[grassfarmer]

rsomer, When the Competition Bureau were mentioned a few months ago it was stated that the "smoking gun" they needed to find was a written agreement between the packers which would prove they were price fixing. Do you know if this is the case legally?
If this is true I doubt anything will be found as the packers are being charged with criminal price fixing activity not stupidity.

[BFW]

Rsomer, I would like to put forward the argument that practically all producers have access to the marketing system for all of their cattle with few exceptions by selling their cattle through the auction system or direct to feedlots who do have the ability to get cattle slaughtered. It is only those producers who have chosen to retain ownership through to slaughter when they normally would not have that are crying that they can't get a kill spot. Nothing like seeing "your own bull getting gored" to increase yor awareness level. Beside why shoulfd the so called "big feedlots" be punished for having developed closer relationships with a packing plant? Sounds like good business to me.

[bombay_43]

I have real problems agreeing with you BFW, when you state that there is a much larger supply of slaughter steers and heifers, than there is demand, and you believe that this is somehow to blame for our prices.

If this is true, then why is the price the consumers are paying for beef almost the same as it was prior to BSE? It would stand to reason, that an over supply, would cause an abundance of outrageously low prices, not just for the producer, but also for our consumers! I have not seen any .50/lb ground beef going over the counter. My 1500 pound cows that sold for 5.50 (five and a half) cents per pound, should easily be converted to a tidy profit for the packers, even at fifty cent a pound ground beef! That leaves 44.5 cents for packing!!

When prices in stores, drop low enough to reflect what the producers are actually getting, then I can buy into the supply and demand theory. Until then, the packers are just as guilty of unfair trade practices as Martha Stewart.

No other country in the world would allow what our Canadian government has allowed in the name of “Just good business!”

Incidentally, I marketed these cows, through the auction mart that I usually use. I am not choosing to piss the packers off in any way shape or form! If my cheap ground beef was passed on to the consumers, it would be a thank you for supporting the beef industry! The only ones getting a “Thank you” here is the packers! (and I didn’t even get kissed!)

[cakadu]

This is great discussion and I am learning a great deal. My intent for asking the questions is to allow for an understanding of where we've been in order to change where we are going. Unless you understand where you have been, you won't know where you're going.

We are doomed to repeat the past if we don't learn from history. What changes need to be made in order to take away the ability to price fix? Is it really price fixing?

The gist of what I'm hearing is that the packers couldn't have gotten into the position that they are in unless there was collusion along the way in order to allow it to happen. Now, that collusion could have been unwitting, but it was still there just the same. Where were the ABP and other organizations like the CCA that should have been protecting the best interests of the producers? Over the years have these organizations done what they think is right and in the absence of any indications to the contrary moved ahead along this path, to what we now realize has been to our complete detriment? Is it like BFW has referred to and there hasn't been enough of a will to stand up to whomever has needed standing up to?

The competition for cattle will arise when there are more markets for the cattle to go to. Our entire cattle production here makes up about 10% of what they need in the U.S., so how did we let ourselves become so reliant on just one market? And please don't tell me that the packers made it that way because the opportunity has been there over the years to find new markets, start new packers etc., etc., but for whatever reasons, we chose not to go too far beyond the border.

Where was all this uproar about price fixing prior to the border being closed or even 6 months ago? Has this price-fixing become an issue because the border is not yet open, we are facing our biggest calf crop ever hitting the markets this fall and we have a glut of cull cattle? It seems to me that over the years we were content to keep the status quo going because at least some money trickled it's way into our pockets.

Martha had insider information and that is what make her activities illegal. I don't think anyone told the packers May 19, 2003 that the border was going to slam shut May 20th and remain closed.

We have choices in front of us now, which ones are we going to make?

[BFW]

Bombay_43, as frustrated as we are by the current situation we must realize that the supply of live slaughter cattle and the demand for those same cattle by the packers, and the supply of beef and demand for beef by the consuming public are to different things. Live slaughter cattle and processed beef are to totally different commodities and the the problem for us as producers is that the relationship between them has grown greater because of lack of demand for live cattle at the packer level. I'm no economist and am as frustrated by the current situation as anyone, but those are the facts.