It’s been seven long years since Canada’s beef industry was brought to its knees by the discovery of a BSE-infected cow in Alberta. A lot of cattle have passed through the ring since, with most fetching prices that make it hard to be excited about this industry’s future.
With their equity decimated by the lost export markets and collapsing prices, many farm families were frozen in time, with intergenerational transfers and retirements put on hold until asset values recovered.
Like a deadbeat relative living the basement, the BSE crisis left many operations poorly positioned to cope with other challenges coming their way – the startling rise in the dollar’s value, which further eroded the profit margins, skyrocketing feed prices in the wake of the 2008 food crisis and successive years of excess moisture.
There’s no denying that it has been tough slugging. Recovery has been painfully slow.
The Canadian Beef Export Federation calculates the value of beef exports lost over that time at $10 billion to $15 billion. Canada’s beef exports in 2009 were 135,000 tonnes ($830 million) lower than in 2002 – the last full year before BSE.
That money isn’t coming back. But there are some more optimistic signs on the short-term horizon. Producers interviewed at recent livestock markets say they are encouraged by the prices at the start of the fall calf run.
There is enough profitability creeping back into the beef business that some of the industry’s senior participants are considering retirement, or at the very least, downsizing the herd and reducing their workload. We wish those farmers well. While it’s doubtful the price recovery is enough to make up for seven years of lost profits, at least they won’t be selling at a loss.
But perhaps more importantly, there are some shifts in thinking that give us cause for optimism over the longer-term.
As pointed out by industry veteran Charlie Gracey, the Canadian cattle industry was ripe for a meltdown after expanding rapidly through the 1980s – an aggressive expansion program with almost a single-minded focus on the U.S.
During that decade, beef and cattle exports went from 15 per cent of domestic production to 58 per cent. More than 90 per cent of total exports went to the U.S., either as beef or live cattle, while domestic usage actually declined. Farmers used their equity gains to further expand their herds.
But despite the evolution of so-called free trade agreements between the two countries, the U.S. has a tradition of protectionism. Because Canada had become so reliant on one market, if anything happened to disrupt the flow of cattle across the border, a collapse was inevitable.
It turned out BSE was the trigger, but it could have been any number of events.
Back in the days when Canada only exported 15 per cent of its production, it could eventually eat its way through a domestic surplus. That was no longer the case.
As Gracey sums it up: “The industry needs a lot more straightforward market analysis to avoid the errors of the past, which was the blind and naive belief that we could expand continuously and there would be an eager market for our production.”
In other words, future herd expansions must be the result of tangible increases in demand, not just because we can produce.
Canada now leads the world with age verification, livestock identification and traceability protocols, which validate an already-stellar record for animal health and food quality. It has among the toughest regulations in place regarding the removal of specified risk materials from carcasses. While some criticize these measures as overkill, Canada needs to re-establish its reputation as a world-class supplier of beef, and setting the bar high will help.
The BSE crisis forced all of animal livestock in Canada to face up to the reality that animal disease outbreaks can be devastating. It was the impetus behind the development of industry-wide disaster preparedness training.
And perhaps, above all else, it forced producers to take a hard look at their production costs. It’s questionable whether concepts such as intensive pasture rotation and winter grazing would have garnered as much interest as they have in recent years without the economic pressures farmers have faced.
Often short-term economics drive decisions in agriculture that aren’t sustainable, but these measures will serve the beef business in good times too.
It’s too early to say whether the hard times are over for the beef business. It’s likely herd reductions will continue for a while as people who have been waiting to retire or leave the industry.
This is not to say BSE was a good thing. But when the cattle producers emerge from this downturn, they will be well positioned to take advantage of the existing and new market opportunities.
“Theindustryneedsalot morestraightforward marketanalysisto avoidtheerrorsof thepast,whichwas theblindandnaive beliefthatwecould expandcontinuously andtherewouldbean eagermarketforour production.”