The proposed trade deal with Europe has a simple story line for Alberta cattle producers — build the herd.
“To take advantage of the European agreement, we’re going to have to expand,” said John Masswohl, director of government and international relations for the Canadian Cattlemen’s Association.
The Comprehensive Economic and Trade Agreement (CETA) finalized late last month provides Canada with duty-free access for 35,000 tonnes of fresh and 15,000 tonnes of frozen beef by 2022 — roughly $600 million worth of meat.
That will require adding half a million head of cattle, but they will have to be raised according to European standards — no hormone implants or beta-agonists.
It’s a tall order, but Masswohl said he expects production will ramp up before the agreement is ratified, likely in 2017.
“We’re going to be in the expansion phase of cattle anyway,” he said. “Prices are very high, and that’s sending the signal to cattle producers to increase their production.
“As producers look at the potential of the Canada-Europe agreement, some of them will add cattle that will meet European requirements.”
Despite the added cost of producing implant-free beef — an estimated 20 per cent more than conventionally raised beef — the premium may be enough to sway some producers.
“Not everybody is going to want to do it, but we think enough will,” he said. “We don’t need every producer to produce cattle according to European standards. We need enough to produce beef according to those quotas.”
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The deal with the European Union is a “very positive step,” said Rich Smith, executive director of Alberta Beef Producers.
“It’s a strong signal to producers that the future looks bright in terms of producing cattle and beef,” he said. “What we’re seeing is an array of positive signals that we hope will, at some stage, encourage expansion.”
But it won’t happen overnight.
“We believe we’re on the verge of it expanding, but we’ve been on this verge for some time,” he said. “We keep thinking that the market signals will be strong enough to encourage expansion, but the latest census figures in July showed that we haven’t started expanding yet.”
Despite strong prices — or perhaps because of them — cattle producers have been slow to begin rebuilding their herds.
“People are taking advantage of good prices to sell them,” said Smith.
Canfax’s Brenna Grant expects heifer retention to begin next year, although that won’t show up on beef cow inventories until 2016.
“When you start expanding, because you’re retaining heifers that would have previously gone to slaughter, you’re actually going to decrease production in the short term so that you can have larger production in the future,” she said.
For the past five years, producers — hit hard by BSE and years of poor prices and high feed costs — have been working to get back on solid financial footing, she said.
“Even though we had a couple of years where cow-calf producers have been in the black, they’ve really been focused on rebuilding equity and getting themselves back in a good financial position so that they can expand.”
Many have held off because it throttles their cash flow, she added.
“They don’t have the income from those heifers that would typically get sold,” said Grant.
“You’re either going to forgo cash by retaining heifers, or you’re going to lay out cash to buy a bred animal. Those are really the only options you have.”
But producers will need to start thinking about expanding soon to take advantage of trade agreements with the European Union, Korea, and the Asia-Pacific region.
“Globally, there is demand for more beef than is currently being produced, and there is a market for it,” she said.
“The country that’s in a position to expand now and is the first to expand has the opportunity to gain market share.”
But as Canada opens more doors to international markets, domestic markets continue to suffer because of Canada’s declining cattle herd. At a Canada Beef forum in mid-September, producers learned Costco Canada will be substituting Canada AAA beef for product imported from the U.S. and Australia.
“We’re always concerned when we lose market share to another country,” said Smith. “We’re always concerned when we’re not able to supply a large retailer with the product that the retailer wants.”
But lower production — not lower quality — is at the heart of the issue, he said.
“I think we’re doing the right things in terms of producing the quality,” said Smith. “We just may not be producing enough of it to meet the demands of a large retailer.”
AAA and Prime grade beef production is also seasonal, which can cause some supply concerns over the summer months, added Grant.
“You get a high of 69 per cent of your A grades being AAA and Prime in March, and you have a summer low of about 47 per cent in June,” she said.
“Any customer that’s as large as Costco is going to have seasonal challenges if they have a AAA program.”
Increasing the supply of AAA beef will take time as the cattle herd begins to expand, said Smith.
“Our wish is to provide enough beef to supply whatever demands our Canadian retailers would have for that beef, but it’s not an industry where you can change supply quickly.”
What’s the deal with Europe?
When does it take effect?
Likely not until 2017. Although the “final” text was signed Sept. 26, it will be reviewed by lawyers and then has to be ratified by the European parliament and 28 member states.
What’s in it for farmers?
Preferred access to “the most lucrative integrated market in the world,” says the federal government — namely 500 million consumers and an economy with a GDP of $18 trillion. Absent a deal, Canadian agricultural exports face EU agriculture tariffs averaging 13.9 per cent.
When the deal comes into force, almost 94 per cent of EU agricultural tariff lines will be duty free, including those for wheat, durum, and canola oil while pork producers will gain about 81 tonnes of quota.
Is there a catch?
Plenty of potential ones. For example, canola oil sales could increase by $90 million a year, but it’s feared Europe’s aversion to genetic modification could be used as a trade barrier. Dairy officials say allowing an additional 32,000 tonnes of European cheese in duty free will hurt dairy farmers here.