Killing old cows

[grassfarmer]

Farmers_son, you know very well that I am all for producers securing a better return from the market by getting involved "further up the value chain" or whatever you like to call it. Fundamental to this is tackling the packer monopoly - without Government intervention on this issue we will not make progress and longterm I think the efforts of most that are trying to build independant slaughter plants at the moment will be wasted. Unfortunately Government and most of the industry organisations refuse to accept this, continuing to wecome every expansion by Cargill and Tyson. This is unforgivable and I think the lot of them should be turfed out on their ears.
That aside Australia and New Zealand are islands - but I think because Australia is big enough to be called a continent it's not really any different than North America being an "island". I don't see the import of live cattle as being the definative thing that makes or breaks the economics of a beef producing country. To say that you can control your destiny by not allowing imports of live cattle isn't really true. The market can be controlled equally by retailers importing enough boxed beef to rig the market and get live cattle prices down to where there is no profit in them for producers.
In Scotland in the early 1990s we built a tremendous trade with other EU countries in top quality branded "scotch" beef. We supplied the top restraunts in the cities of Italy, Belgium and several other countries because the product was good enough and the marketing was good enough. At the same time retailers in the UK were importing ever greater amounts of beef to replace the top price stuff we were moving overseas. Over time they were able to reduce prices paid for live fat cattle - again because there was a monopoly of retailers able to price fix. It showed me that you can sell premium product overseas, even into other beef producing countries if you are good enough at it. I am convinced the biggest problem here is not BSE, it is packer control - if we tackle that then we can start to build a secure future. We certainly have the advantage over NZ/ Australia of being closer to markets with a large population.

[farmers_son]

I certainly agree that BSE is not the problem. I never said we should attempt to control imports from other NAFTA partners or even non NAFTA imports like the U.S. is doing to increase their domestic price. I was saying the opposite, that imports are going to happen and it is a waste of resources to attempt to stop them. Those imports are always going to put a cap on our live prices.

The comment that prompted my replies was “Do we outsmart and outmarket the Americans or do we let M.R. Coyote test them all in the bush?” I firmly believe that we cannot create a made in Canada live cattle price that is higher than the U.S. price no matter how much marketing we do. If Canadian producers BSE test to gain Asian exports the benefits of those resulting beef sales will stay in the packers pockets and not make it to the producer. We will simply displace those export sales with imports of U.S. live cattle, we can never short the Canadian live cattle supply. The best we can hope to do is narrow the basis between the U.S. and Canadian live price. Therefore we cannot outsmart and outmarket the Americans, we would just end up selling their cattle for them.

You talk about the economics of a beef producing country. We need to remember that the cow calf guys are cattle producers not beef producers. For certain, the marketing initiatives you have pointed out will translate into higher beef prices. I have absolutely no doubt Canada can sell beef into international markets. But I would point out that higher prices for beef do not translate into higher prices for live cattle or else we would be getting record prices for our live cattle right now. The live cattle market is obviously different from the beef market and that difference is where the packers make their profits.

I am going to throw out a comment that I know is outrageous and inflammatory but I think it helps illustrate the reality of our market. Assuming the border between Canada and the U.S. returned to normal, if Canadian producers of live cattle wanted to positively influence the prices they receive for their live cattle then they would receive more bang for their advertising dollar if they advertised U.S. beef than Canadian beef in an attempt to short the supply of live cattle in the U.S. We can never short the Canadian cattle supply but it is possible to short the U.S. live cattle supply, raise the prices in the U.S. and sit back in Canada and watch our prices go up in lock step. Along those lines, the best way to force the Americans to open the border to our live cattle is to encourage exports of U.S. beef, short their market so bad they have to let our cattle in. Actually they are at that point now.

Go ahead and shoot me everyone for saying something like that. But I hear people in the U.S. who are beginning to appreciate that cattle producers in each country benefit far more from cooperation than by becoming competitors internationally. We do not want to outsmart or outmarket the Americans. What we really want is to raise the price of our live cattle. More than anything, more than finding new export markets, that means increasing our ability to force the packers to pay us a fair price for our live cattle. That will take cooperation between all cattle producers in the NAFTA island or else the packers will just go around us and buy the other guys cattle cheap and keep all the benefits from any beef marketing initiative for themselves. Low cattle prices in either Canada or the U.S. do not help the cattle producer in either country, it just lines the pockets of the packers.

By the way, I appreciate your comments Grassfarmer. You have highlighted an important topic that I find very interesting. I hope others find it interesting too.

[grassfarmer]

I don't think that is an outrageous comment farmers_son but I don't fully understand some assumptions you make. Why is it possible to short the American beef market by boosting their exports if it isn't possible to short the Canadian market in an open border scenario? Afterall our herd is too small to influence what happens in the US isn't it? - of less consequence than a severe drought in the northern great plains or Texas?

It is unfair to dimiss any idea of Canadian producers benefitting from potential additional Asian sales as a result of BSE testing on the grounds of unfair packer profiteering but in the next breath say that Canadian producers would benefit from US offshore exports increasing. We need to compare apples to apples.

Transnational corporate control of the beef processing (and increasingly production) capacity across North America is our number 1 problem. This will not be resolved by an open border.
BSE is really just a distraction from, not the cause of our current problems. It is being used as a tool by the increasingly desperate and financially bankrupt Bush regime.

As far as advertising bang for your buck I have serious doubts as to the wisdom of CBEF, despite a few useful people, as they are simply spending Canadian producer's checkoff dollars to gain market share for Cargill and Tyson with no return of the profits thus realised, to primary producers.

We could be successful exporters of quality beef and have the genetics, landbase, science, attitude and traceability to outmarket the Americans - if we can break the stranglehold of the two US packers who are alledgedly going to control 87-89% of our UTM kill by this fall. Can no-one see the ****oos in our nest? or are the politicians and cattle industry leaders all getting a kick back from corporate America? why else would they act the way they are?

[farmers_son]

Good point about Texas. The State of Texas has more cattle than all of Canada.

I was basing my theory, if it could be called that, that a dollar spent promoting beef in the U.S. would earn a greater return to producers through higher live cattle prices than a similar dollar spent promoting beef in Canada would benefit our producers on the notion that packer concentration in the U.S. is not quite as bad as it is here and that the U.S. has some laws in place that at least pretend to limit packers acting as monopolies. If someone wanted to argue the point that the situation is just as bad in the U.S. as it is here and that none of the benefits of a dollar spent promoting beef would make its way back to higher live cattle prices in either country I would accept that argument.

The challenge for cow calf producers throughout North America is to get paid a fair price for our live cattle. And while producers are wise enough to see the benefits of attempting to increase the demand for beef through BSE testing or other marketing efforts internationally we are only just waking up to the fact that none of those benefits make it back to us.

Certainly within NAFTA any attempt by producers in either Canada, U.S. or Mexico to somehow gain an advantage over the others only results in creating a source of cheaper live cattle in that other country that the packers can access to drive down the domestic live cattle price. If this line of reasoning is correct, any attempt by R-Calf to gain an advantage for their producers will only result in costs for their members with any benefits negated by creating a pool of cheaper cattle in Canada that sooner or later are going to make their way into the U.S. Likewise any attempts by Canadian producers to take over the Asian market by BSE testing would simply result, if those attempts were successful in actually changing the price of our live cattle, in increased imports of U.S. live feeder and fat cattle and beef into Canada. Any benefit, if there was any, would be limited to a slightly lower basis which may or may not be enough to recover the costs associated with the action. It is the packers who benefit from producers in the three NAFTA countries fighting with each other. The producers end up worse off.

We need to improve that situation.