I suggest we have been suckered into export dependency and are now trapped on a treadmill of keeping more cattle to make up for declining margins.
Many people have been pondering the question of whether there is a future for beef production in Canada. We are continually told that there is light at the end of the tunnel, that things will improve when “we” gain improved access to offshore markets, when the Canadian dollar loses value against the American currency or when recession-hit consumers start buying more beef again.
These suggested solutions conveniently overlook the more obvious cause of the beef crisis: the proportion of the retail beef price returned to beef producers is at historically low levels, and rapidly declining.
Whether we blame the packer or the retailer (when we should likely blame both) it is clear that “we” beef producers are not really a part of “the beef industry” – at least not when it comes to the distribution of profits. As far as I can see, nothing will change as long as we look for “industry solutions” instead of ranch-level profitability solutions.
I feel an alternative solution to our income crisis is to direct market our products. In our own situation, we market grass-fed beef and net in excess of $400 more per animal than selling fed cattle to the packers. Some might say that this is merely a “niche” market and does not provide a solution for the huge cattle numbers we have in this exporting nation. I suggest we have been suckered into export dependency and are now trapped on a treadmill of keeping more cattle to make up for declining margins. If the average margin in conventional beef production is $50/ head you can replace eight of them with one $400 margin direct-marketed animal. The cow/calf sector cannot survive
by going the way of the feedlot, running thousands of animals for $50 margins – price of land alone precludes this. The only way I can see to break this downward cycle we are in is to become price setters instead of price takers.
We have been so focused on the “industry solutions” propagated by its beneficiaries that we have largely overlooked our trump card – consumer demand.
In our own retailing efforts we have found demand to be growing between 50 to 100 per cent a year. We sell grass-fed beef, but there are undoubtedly similar opportunities for non-implanted beef, antibiotic-free beef, organic beef, breed-specific and regional or local beef. Most of all consumers are looking to reconnect with their food source; they no longer trust the corporate-controlled food system and want to buy direct from a person who has cared for the animals usually from conception to plate.
Movies like “Food Inc.” have driven consumers in ever-increasing numbers to seek alternate food sources. Expansion of consumer demand for direct-marketed beef need not be restricted by high price either – the margins currently being taken by processors and retailers are so outrageous they allow us to sell our grass-fed beef for 75 per cent of the Canadian average retail price and still come out $400 an animal ahead. We can supply the consumer with a product perceived to be better, healthier and more sustainable for less money. It is a win-win situation for producers and consumers but a lose-lose situation for the big packers and retailers, which is likely why it is never advanced as a solution by our corporate-influenced politicians.
NUMBERS VERSUS PROFITABILITY
Some say it is unthinkable that Canada should revert to supplying only the domestic market as this would precipitate a national herd decline of around 30 per cent. This statement however only deals with cattle numbers not cattle profitability. If we use the $50 versus $400 margin scenario, it’s clear we could reduce the national herd by 85 per cent and come out ahead financially if we direct market the other 15 per cent. I see no reason why direct-marketed beef could not supply 20 per cent or 50 per cent of domestic demand.
There are undoubtedly hurdles to overcome before we could see such a substantial increase in the amount of direct-marketed beef. The most immediate is the lack of enough high quality, local processing plants and staff to operate them.
With time, I’m sure more would spring up as those that are well managed seem to have quite a lucrative business. Not every cattle producer has the desire or skills to be a direct marketer, but there are still opportunities to participate through producing cattle for someone who is able to market more beef than they can rear. There is no reason why producer levy money should not be used to educate and help producers to direct market either. How many million of dollars have been spent in the past aiding processing companies to develop new markets around the world with no benefit to primary producers?
TIME IS RIGHT
I think the time is right, consumers are driving the demand and we should actively pursue this opportunity. If we don’t, there is a real danger that the consumer demand will be met by imported or mass-produced “natural beef” on the shelves of Wal-Mart and the like. Producers realizing more net income from their cattle can only be positive for rural communities, as would the increase in small processing facilities and their associated jobs.
Best of all this is a solution that we can start working towards today – we don’t need to wait for government assistance, market access to Timbuktu or Canadian currency devaluation. If we decide to help ourselves and successfully embrace this marketing opportunity I believe there is a very bright future for beef producers in Canada.
Iain Aitken farms near Rimbey, Alta.