High costs threaten southern Alberta feedlot sector

Lethbridge County’s ‘head tax,’ WCB premiums, and a looming carbon tax 
are making his business uneconomical, says a prominent feeder

Other cattle feeders in southern Alberta may suffer the same fate as Western Feedlots if a local $3-per-head tax isn’t reversed.

Last month, Western Feedlots — one of the country’s largest with 100,000-head capacity at its facilities near Strathmore, High River, and Mossleigh — announced that it would be winding down cattle ownership and feeding operations.

The company said the decision was a result of “the current high-risk/low-return environment in cattle ownership.”

“In addition to strong headwinds in the cattle industry, the poor political and economic environment in Alberta are also contributing factors to this decision,” said Western Feedlots in a statement.

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Fed cattle prices peaked at around $180 in May 2015 and have since dropped to around $120 a head. As a result, cattle feeders have seen diminishing returns on cattle bought at those high 2015 prices.

But southern Alberta cattle feeders say there is a deeper issue caused by “regulatory and tax burdens.”

“Business needs some certainty,” said Rick Paskal, president of Van Raay Paskal Farms Ltd., which has seven feedlots in southern Alberta with capacity for up to 130,000 head.

“When you challenge the intensive livestock industry the way the county has and other governments have, we’re really concerned for our longevity in this business.”

Paskal belongs to a group of cattle feeders in Lethbridge County who are calling on the municipal and provincial governments to reverse a $3 ‘head tax’ imposed by Lethbridge County this spring. The county said it would raise $3.5 million annually over 35 years to cover road and bridge maintenance. The tax is expected to increase to $4 per head in 2017.

“This is not a market issue. We have lots of tools that we can use to help us during market downturns like we’re currently seeing,” said Paskal.

“This is about uncertainty. We don’t know if the tax is going to be $3 or $4 or $14. You couple that with other initiatives from government — Bill 6, the carbon tax — how much is it going to be?

“It’s really made us nervous operating in this environment.”

Over the past two years, five feedlots in Lethbridge County have closed as a result of Alberta’s “high-cost environment,” which has been exacerbated by the $3 head tax, he said. Cattle feeders in the county currently feed around 500,000 head of cattle, more than half of the cattle on feed in Alberta and Saskatchewan.

But because of the tax, feeders in the area are “concerned about their ability to compete,” said Paskal.

“Right now, it’s $5.60 more costly to feed cattle here in Canada than the United States,” he said. “The $3 tax takes us to $8.60, and they’ve already said they’re going to do $4 next year — so $9.60.

“They have found their cash cow, so to speak.”

High costs, low margins

Cattle feeding is already “a small-margin business,” said Paskal, and feeders need a business environment where they “don’t have to worry about operating costs being so high.”

“Historically, if you can secure a $15- to $25-per-head profit, you’re doing very well,” he said.

Paskal noted that the head tax didn’t apply to any of Western Feedlots’ facilities and said its closure shows how tough it is to make money in cattle feeding.

“Western Feedlots has been in business since 1958. The shareholders of that company are very prominent and credible businessmen,” he said. “To be successful in this business, it’s not luck — it takes years of good management and hard work.

“I think Western was a well-run operation, but the shareholders looked at some of the challenges facing the industry and made a call.”

In addition to the head tax, cattle feeders have also been bearing the cost of mandatory Workers’ Compensation Board coverage since Jan. 1 when Bill 6 came into law. In Alberta, feedlots pay $2.97 per $100 in insurable earnings, the highest premium possible due to the risk of working with livestock. In the first six months of mandatory coverage, 92 of 356 accepted WCB claims in Alberta came from feedlots.

Prior to mandatory WCB coverage, Paskal offered a comprehensive benefits package to his employees in order to compete with the oil and gas industry for labour, and now his costs have gone up even further.

“The government came along, with no consultation with the industry, and implemented Bill 6, and now we have to pay workers’ compensation, and we have our own benefits plan. You can’t just take that away from people, but we’re forced to add another layer of coverage on.”

Cattle feeders are also bracing themselves for Alberta’s new carbon tax on Jan. 1, 2017, which could cost cattle feeders between $6 to $7 a head, according to estimates from the Alberta Cattle Feeders’ Association.

“Are we going to wake up one day and, bang, there’s going to be a carbon tax of $10 a head, and there’s going to be no negotiation with the industry? That’s the way that it sounds to me,” said Paskal.

“When the shareholders of Western Feedlots hear stuff like that, I know why they pulled up their tent stakes — because of the uncertainty of the business climate in Alberta.”

While the cattle-feeding industry is faced with slim margins, the closure of Western Feedlots was “a private business making a business decision,” Alberta Beef Producers’ chair Bob Lowe said in a statement.

There is still “ample bunk space in the province to absorb the demand to feed cattle,” he said.

“We never like to see a buyer leave the market, but thankfully, there are more buyers in the market,” said Lowe. “While we are on the downside of the cattle cycle, fundamentally we have a strong, vibrant industry that will adapt to whatever the future brings.”

About the author

Reporter

Jennifer Blair

Jennifer Blair is a Red Deer-based reporter with a post-secondary education in professional writing and nearly 10 years of experience in corporate communications, policy development, and journalism. She's spent half of her career telling stories about an industry she loves for an audience she admires--the farmers who work every day to build a better agriculture industry in Alberta.

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