Strong Currency, Weak Demand Hobble Industry

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The roots if the cattle industry still run deep in southern Alberta, but it faces critical issues which producers must address, a national industry spokesman said at the recent Alberta Beef Producers (ABP) zone meeting here.

Travis Toews, Canadian Cattlemen’s Association (CCA) vice-president and foreign trade chairman, told about 200 producers every issue is valid in its own right. “The greatest industry challenge is profitability,” said Toews.

Toews said he got involved in industry leadership in the fall of 2002, shortly before BSE hit. “It looked easy then, but we have faced five or six tough years.”

The difficulty stems from so many variables being at play, especially currency, Toews said.

“If there were 2003 exchange rates and the current (cattle price) basis, fats would be $1.10. But we are not likely going back to a 70-cent dollar.”

Toews said everyone in the industry feels some effects of exchange rates instantly in the bottom line. Those costs include fuel, feed grain, labour, and equipment, which is capitalized over time. For many producers, a lot of those costs have been capitalized at a 70-cent dollar, and that is another burden.

There is a production and processing cost disadvantage in Canada, said Toews.

Previous excessive profitability in the packing industry attracted considerable investment. “Now, losses are common, and the industry is likely to see more.” Access for over-and under-30 months of age beef is still a key to improve the state of the industry, he said.

An over-abundance of pork in North America has affected beef prices significantly, Toews said. At the same time, demand for high-value middle beef cuts has softened, hitting beef prices. Also, there has been a downturn in the automotive sector, rendering hides almost worthless.

Toews said Canada sharply downsized its beef industry in the last few years. Drought this summer in Alberta has increased the slide in the cow numbers, and most expect the slide to continue. The good news is that the American beef-breeding herd has also declined, he said.

WEAK DEMAND

Consumer confidence continues to struggle, he said. In every category of beef, there has been a significant decline in sales. More consumers have shifted to fast-food restaurants rather than the “white tablecloth” category.

Market access remains a major lobbying effort, said Toews. Gaining market access, especially some lost to BSE, has been an ongoing fight. Regaining access to the American and Mexican markets is paramount, he said. Studies show that producers receive about two-thirds of the increased market value from market access. Toews said there could be more in producer pockets. Canfax estimates another $10 per 100 pounds is available to be captured in the global market. That is about $100 more a head for slaughter cattle.

A recent study outlined 25 recommendations to improve access. They were forwarded to federal Agriculture Minister Gerry Ritz. Government has moved on some of the remaining 24 recommendations after establishing an export trade secretariat.

Toews said Canada still needs full over-30-month access in Mexico. Korea is another potentially big market with a population of 47 million. Beef is a popular meat product there. If Canada loses a WTO challenge to Korea opening its market, it could affect the success of gaining access to other Asian markets.

Japan has given Canada access to some of its market for boneless beef under 21 months, but Toews said it is not an economical market for Canada now. Bone-in under-30 months would add significantly to the economic welfare of Canada’s cattle industry, he said.

The European Union presents an interesting market opportunity, he said. Canada could enter a conclusive trade agreement, with significant potential for Canadian beef. The industry has been pushing the federal government to keep beef in trade talks with the EU. “We have made it clear that we don’t want to be carved out.”

CCA has been accused at times of undermining the supply management system, and that is not right, said Toews. CCA will fight hard to gain market access around the world. More than 95 per cent of Canada’s beef last year stayed in NAFTA countries. That shows that Canadian and NAFTA markets are vitally important, and will continue to be important despite the market access in rest of the world, Toews said.

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