Cars and cattle — both on a hamster wheel

Reading Time: 3 minutes

Published: December 1, 2008

Editor, Manitoba Co-operator

”The worst business of all is the one that grows a lot, where you’re forced to grow just to stay in the game at all and where you’re reinvesting the capital at a very low rate of return. And sometimes people are in those businesses without knowing it.” Warren Buffett, 1998

Between 1990 and 2003, Canadian (beef and cattle) exports increased five-fold, on a volume basis, and eight-fold, on the basis of dollar value. This is a spectacular performance. Over the same period that exports were increasing eight-fold, farmers’ prices for feeder and fed cattle were collapsing… average prices for recent years are half the values that prevailed pre-1989. National Farmers Union, 2008

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Detractors like to characterize the NFU as being left-wing or anti-business. But its recent report on the mess in which the Canadian cattle producers find themselves resonates strongly with the observations of Warren Buffett, one of the world’s wealthiest men thanks to his astute picks in the stock market.

Buffett’s comments to a meeting 10 years ago were cited in a recent Financial Post column on the state of the U. S. auto industry.

Columnist Larry Sarbit writes: “Over the past 20 years, GM’s revenue has grown at an unexciting GDP-like 2.1 per cent. Eight of those periods saw a decline in that metric. Revenues for the 12 months ended September ’08 are even lower than they were 11 years ago.

“Capital expenditures, on the other hand, to the end of 2006 grew at almost eight per cent a year. Return on invested capital in the 20 years has had only five years showing this measure above 10 per cent, the rest with single or negative digits.

“The business is on a hamster wheel, expending huge amounts of energy, money and time but gaining no ground.”

Sound familiar? Look across the board in farming – grains and oilseeds, cattle, hogs – and it’s pretty much the same story. There has been spectacular growth in productivity and exports, but the benefits to producers have been declining.

“The places where profits are created and where they are captured often are not the same places,” the NFU report says.

Its analysis finds a correlation between declining farmgate prices (in inflation-adjusted dollars) and the dramatic consolidation of Canada’s meat packing sector into the hands of a few large American players, the emergence of packer-owned or controlled cattle, and Canada’s increased dependence on exports to markets it cannot consistently access.

For example, by stubbornly refusing to acknowledge Europe’s distaste for bovine growth hormones, Canada’s beef industry has effectively excluded itself from that market, making it ever-more-dependent on the U. S. But its access there is routinely disrupted by trade barriers – first BSE, and now Country-of-Origin Labelling – which has U. S. packers refusing to accept Canadian beef at all, effectively forcing it through U. S.-owned slaughterhouses in Canada at discounted prices.

Perhaps one of the greatest ironies outlined in the study is the observation that the move towards so-called efficient packing facilities has had the opposite effect on producer prices.

“In the 1940s, ’50s, ’60s, ’70s, and ’80s, using packing plants that were comparatively inefficient, paying workers 22 per cent more, serving a smaller market, and selling to less-affluent consumers, the system was able to pass back to farmers twice as much per animal. How can this be?” it asks.

The NFU’s proposed solutions are a radical shift from conventional wisdom in the livestock business. It is suggesting Canada shrink its beef industry to become more focused on domestic and niche markets – namely by banning packer-ownership of cattle, and enforcing transparency into the marketing chain.

It even suggests Canada embrace COOL rather than fight it, discontinue bovine growth hormones and sub-therapeutic antibiotics, that it further develop the grass-fed beef sector, and that it start testing for BSE – to increase the industry’s value-added marketability.

Some would say moving away from production aids that increase the industry’s “efficiency” is a step backwards. But if it also means a return to profitability, it is an idea that is, at the very least, worth considering. [email protected]

About the author

Laura Rance-Unger

Laura Rance-Unger

Executive Editor for Glacier FarmMedia

Laura Rance-Unger is the executive editor for Glacier FarmMedia. She grew up on a grain and livestock farm in southern Manitoba and studied journalism at Red River Community College, graduating in 1981. She has specialized in reporting on agriculture and rural issues in farm media and daily newspapers over the past 40-plus years, winning multiple national and international awards. She was awarded the Queen’s Jubilee Medal for her contribution to agriculture communication in 2012. Laura continues to live and work in rural Manitoba.

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