winners and losers

[blackjack]

...we all know how the governments don't want to pick the packing plants that should receive funding...don't know if it is possible but...our cattle associations must have a list of its members...why not have the CCA line up a special vote on what packers us members want to see get funding from government...lets say the top 3 or 4 trying to find funding outside of the plants that are already in business...maybe its just frustration but do we not need to speed up this process...

[rkaiser]

How about a winner and a winner.
The BIG C proposal has no opportunity for gain for any one particular group of people so should not be even lumped in with the rest as a competitor for Government favor. Build the BIG C plant first and then pick the winners from the rest of the smaller groups hoping to not only help the industry, but to help themselves at the same time.

Tha Big C Plant proposal would help every producer in Canada.

I will attach the proposal once again for those who have not read it lately.




beef initiative group – canada

PRODUCER-OWNED
PACKING PLANT PROPOSAL


FEBRUARY, 2005
INTRODUCTION
The proposal presented by Beef Initiative Group – Canada (BIG) calls for the development of at least one and possibly two large-scale, producer-owned packing plants. We envision one plant to deal exclusively with over thirty month cattle (OTM) with product destined for export markets that is BSE tested to the levels required of export markets. As such, this plant would not compete directly with existing packers. The other plant would be designated for under thirty month (UTM) or fed cattle, quite possibly coming on stream in the future as further export markets develop. Beef Initiative Group views the lack of OTM slaughter capacity and export markets for this segment of production as one of the most pressing issues facing individual cow/calf operators today. Expansion of UTM capacity and markets will likely develop more rapidly than OTM; therefore, we view the plight of producers regarding cull cattle salvage value and market creation to be the highest priority.
The underlying principles that have lead to the development of this proposal are as follows:
 Opening the border will not solve the long-term problem of the Canadian cattle industry’s chronic over-dependence on U.S. export markets and American-owned packing plants in Canada.
 The Canadian cattle industry’s chronic over-dependence on U.S. export markets makes us vulnerable to periodic outbreaks of U.S. protectionism such as the current BSE-inspired ban on Canadian imports. BSE is the pretext for protectionism, not the cause. More pretexts can and will be found in the future.
 American-domination of the packing industry in Canada will inhibit increasing exports to markets other than the U.S. Cargill and IBP/Tyson have no interest in creating competing foreign markets for Canadian beef. They benefit from the status quo.
 Opening new packing plants privately-owned by Canadians will not solve the problem. They will either be destroyed financially by the predatory, monopolistic pricing practices of the American packers; or, if they succeed, will eventually be bought out by the American-packers in a few years.
 Only a producer-owned packing plant (i.e., the BIG model):
- will be able to withstand the predatory pricing practices of the American packers because the levy paydown concept retires debt from the side, meaning plant profits do not have to be allocated solely to debt retirement, allowing this plant much more freedom to compete in an open border environment.
- will not be enticed into selling the plant to American packers at an attractive profit
- will have a sustained self-interest in seeking out and securing foreign export markets other than the U.S. Producers will realize first hand the benefits of post slaughter export rather than surrendering their product live on the hoof and being shut out from export profit.
Our objective in presenting the proposal outlined in this document is twofold. First, we hope to stimulate discussion of this idea among producers, industry leaders and government officials. Secondly, as this model requires a sound feasibility study and business plan to determine its future viability, we are requesting funding to commission this study.
THE BEEF INITIATIVE GROUP MODEL
Since the first reported case of BSE in Canada on May 20, 2003 there has been widespread agreement that the Canadian beef industry must expand its processing capabilities in order to lessen its overwhelming reliance on the U.S. market. At present, there are many groups who have embraced this idea and are trying to develop privately funded slaughter plants. However, raising the required capital is proving to be a huge obstacle for most of them. Also, unless these proposed plants include provisions for BSE testing (especially of OTM beef) it is unlikely that international markets can be found for the product they produce any time soon. We maintain that the domestic market for OTM beef is currently reaching the saturation point and it is crucial that we develop alternate markets for this product beyond North American borders.
Beef Initiative Group maintains that any new slaughter capacity brought online must be Canadian-owned in order to benefit the Canadian beef industry. We believe that producers should own this new infrastructure in order to realize the post-slaughter benefits that they have largely been shut out of. In the current economic reality, it is unlikely that many producers will be able to invest in slaughter plants and it is clear that the Canadian taxpayer cannot afford to prop up the beef industry indefinitely. Beef Initiative Group has embraced a plan that has the potential to allow the Canadian producer to acquire equity in a key piece of their industry, to address the chronic problem of cattle over 30 months of age, and to deliver long-term benefits for the Canadian rural economy and taxpayers alike.
BIG's concept requires government to bridge finance the construction costs and initial operating capitol of the infrastructure, and allow producers to pay down the debt over the amortization period through a "per head levy" as exists in Alberta today to fund Alberta Beef Producers. This levy has been discussed under two models, each of which has inherent advantages. The first model would be a mandatory levy of three to five dollars per head on the sale of all cattle in the four western provinces. This model could generate in excess of twenty five million dollars per year paydown, based on current cattle numbers. The second model would involve a per head levy of fifteen to twenty five dollars per head only on animals processed in the plants. In both models, the levy is producer specific, whereby each levy encountered is a share in the corporation upon retirement of the debt. It is possible in each model to couple government bridge financing with private financing as well, i.e., a percentage of financing capitol from a targeted export market customer, thereby securing that market a supply of quality beef and securing us an international buyer for our product.
The key points of the Beef Initiative Group – Canada proposal are as follows:
 Development of at least one and possibly two large, 1500 head/day slaughter plants in central locations to serve several provinces, designed for expansion as markets expand.
 The plant(s) will be bridge-financed by government with a producer check-off, or levy applied according to the model chosen in order to pay down the debt.
 Once producer consensus is reached, a producer specific per head levy will be applied to the outstanding debt.
 The levy will have a sunset clause attached to it so that once the debt is paid down, the levy will cease to exist.
 Producers who have paid down the plants debt through the levy will become owners of these facilities on a share basis.
 The levy will only apply to producer owned livestock.
 Since the OTM plant will cater to offshore markets, it will not compete with the two large (American owned) packing plants and other medium sized packers that presently dominate the market in Canada.
 The product coming out of the OTM plant will be BSE tested to the levels required of each individual export customer.
 A lease operator or management team will provide the management, marketing and possibly the operational financing of the plant(s). We view the possibility of securing management from a country with whom we desire to trade as a huge step in bridging the cultural gap in terms of export markets, as well as securing possible financing capitol. This model incorporates cost sharing as a means of developing market assurances with the stipulation that Canadian producers must, at all times, maintain majority ownership.
 These plants will not render inedible offal. Rather, they will incorporate thermal hydrolysis and anaerobic digestion. This process is now recognized as a proper method of disposal of SRM’s in Europe and may soon be recognized as a proper method of disposal for positive BSE carcasses in Europe as well. Bio-digestion of offal generating methane and nitrogen fertilizer is viewed by trade partners as a pro-active approach to conforming to BSE prevention. Rendering will continue to come under global fire.
PRODUCER FUNDING AND OWNERSHIP
In all provinces, the mechanics exist to implement a levy on all cattle sold at an amount agreed upon by producers involved. This levy would operate as an addendum to any existing provincial check- offs and would allow for bridge-financing by the government.
The levy would have a sunset clause. When construction and operating costs are recovered from the levy, the levy would terminate upon repayment of government bridge- financing. The producers would have equity in the new facility proportional to the levy they have paid, the new facility could not be encumbered by liens and the equity (shares) in the new plant could be marketable commodities, (shares bought and sold) with the stipulation that shares remain owned by producers.
Two scenarios could be construed from this point on:
Producers would realize dividends on their shares in the facility as profits are generated. The lease operator would receive a percentage of these profits as an incentive to perform and as a return on his risk. The producers who helped fund this facility would receive the balance as dividends proportional to their investment. Alternately, dividends could be forgiven as better pricing and new export markets reward the producers with positive returns on their cattle.
The price competition this plant will foster in the market place should be incentive enough for most producers to get involved. Immediate objections will be many: producers won’t reach a consensus, it’s too difficult a plan to implement, who will run the plant, who will buy the beef it tests, CFIA may not sanction BSE testing in the facility, etc. Present dire industry circumstances dictate these objections can all be answered with creative ideas and innovative management. Failure and ‘NO’ on any of these issues is not an option.
Why should producers be involved?
 A healthy slaughter and marketing program for our beef will benefit everyone in the industry. With the producers having the most to loose, they should be (and we believe they are) prepared to help with the solution.
 Border closures and restrictions within North America for the movement of beef are political and unpredictable.
 Private investor funded facilities will have difficulty serving investors with dividend returns while at the same time passing price benefits back to the producer.
 Producer ownership would allow post-slaughter, export benefits to be returned to all producers through the market place. This profit sharing would occur for the first time in the history of the Canadian cattle industry (possibly for the first time in North America on this scale).
 Producer levy contributions would be individually recorded (on sales) and in turn would provide a proportional equity interest based on each producer’s contribution. There is a mechanism already in place that is capable of recording levy contributions.
 Acceptance of a levy on cattle sales would allow bridge-financing by government and would ensure a guaranteed means of debt repayment.
 The more cattle a producer markets, the more levies paid, and the higher the producer’s equity in the facility.
 Collection of the levy would have a sunset clause, so that it would be limited to the capital requirement and then cease, at which time the producer’s contributions would be exchanged for shares in a suitable entity (private or cooperative).
 For the protection of producers’ capital, the facility asset could not be encumbered.
 Producers would realize price stability and a general rise in cattle values.
 This concept would not constitute a case for countervail duties as producers would in effect borrowing and repaying government money loaned.
PLANT OPERATIONS AND MANAGEMENT
The producer funded facility could be leased by a lease holder who would be responsible for all aspects of the plant. The operator would have to comply with the plant’s marketing strategy and mandate. Alternately, the plant could be managed by a foreign team of professionals with expertise in creating markets for beef off-shore. Qualified people can be found internationally or from plants currently operating in North America. A feasibility study will address these issues.
BSE TESTING AS A MARKETING TOOL
Governments will have to recognize that foreign markets have asked for BSE tested products, particularly in OTM beef. Vainly sending trade delegations waiting for them to change their needs is unrealistic. To open these trade doors is to acquiesce to testing. We must realize that more BSE cases may/may not be found and accept the fact that BSE science is not exact. We must move forward in this negative environment by giving the customer what he wants and demands. This is the simple reality of producing what consumers demand. To shun BSE testing is to continue to be subservient to American dictates and at the mercy of American packing plants who are buying cattle from Canadian feedlots and producers at below market value when there is no competitive third bidder. Moreover, BSE testing is the only way to create international markets for OTM cattle which have lost approximately 65% of pre-BSE value and are accumulating at a rate of 400,000 animals per year.
CONCLUSION AND SUMMARY
The Beef Initiative Group proposal as outlined here is a model for initial discussion only; it is realized the practical application of this model would take some time to finalize and that thousands of details would need to be addressed through a feasibility study. However, a facility that is designed to be producer-owned, with some level of bridge-financing by government, and one that addresses the need to create markets for OTM beef will constitute a long-term solution to many of the problems currently faced by Canadian producers.
The sequence of requirements to move this proposal forward is as follows:
 Funding must be made available for a professionally executed feasibility study to fully determine the advantages and risks to producer-ownership in the Canadian meat packing sector as well as other details related to a check-off, location, labour requirements, testing, etc.
 If the feasibility study proves that this proposal is viable, it will then be necessary to obtain a consensus from cattle producers in Western Canada or nationwide. In order to make an educated decision on this proposal, producers will also require a complete business plan indicating all risks and benefits.
 Establish a provisional board of directors to oversee all future stages of development for this concept.
 Open discussions with possible lease operators.
 Explore export market potential in conjunction with the operator.
 Discuss and conclude a bridge financing proposal with government or banks.
Nay-sayers will find the devil in the details and a thousand reasons not to begin a feasibility study for a producer-owned slaughter facility. To sit and do nothing in the midst of this current crisis is surely the worst of all sins. We must overcome typical Canadian attitudes which say ‘wait and someone else will do it and take the risks’ -- Cargill and Tyson took the risks in the 1980’s and witness the profits they have since encountered.
As Canadian cattlemen, we must dare to take control of our marketing and our economic destiny. We can no longer be graziers of cattle for American owned interests. We can no longer sit by while our livestock associations and governments keep foreign markets closed because they do not want to embrace BSE testing. Most importantly, we must break away from current attitudes which shun risk taking and applaud compliance and dependence.