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Cattle sector facing silent crisis

The cattle sector isn’t facing one big crisis, but rather the cumulative effect of many challenges, a new study says

In the tight-margin business of raising cattle, a host of smaller factors is pulling down profitability – and herd numbers along with it.

Canada’s cattle industry may not be facing another near-fatal blow like BSE, but it’s hemorrhaging all the same.

And this time, it’s a death by a thousand cuts, says a new study from the heart of Canada’s cattle country.

Government regulations. Global trade wars. Rising land prices and ever-higher costs. Drought. Feed shortages. Head taxes and exclusion zones.

There’s not one single thing hurting the cattle industry but a pile of things, according to the study commissioned by the Alberta Beef Producers and the Alberta Cattle Feeders’ Association.

“The industry is, and has been, competitive, and we’re capable of maintaining the competitiveness,” said ABP executive director Rich Smith. “But there are some factors and trends that are worrisome and could decrease competitiveness.”

Challenges such as weather or market fluctuations can’t be controlled and affect cattle producers everywhere. But others are made-at-home problems.

“We are seeing some concerning signs of some regulations here, and that’s really what we’re focusing on,” said Smith. “We need to make sure that we don’t end up with regulations and policies here that could affect our competitiveness.”

The Alberta Beef Industry Competitiveness Study, by Edmonton consultants Serecon, pinpoints several regulatory issues hitting the bottom lines of cattle producers and feeders. While some of them are particular to Alberta, most are applicable across the country, or can have a knock-on effect for producers elsewhere. These include the carbon tax, the head tax in Lethbridge County, new provincial farm safety requirements, a higher minimum wage, and upcoming transportation rule changes.

“All of these costs aren’t at the magnitude of feed costs, but in a tight-margin industry, they can certainly have an impact,” Smith said. “It tends to discourage expansion. People aren’t able to survive.”

Declining Canadian cattle numbers are a sign of that, he added. Between 2008 and 2018, the national herd shrunk by 25 per cent, and that decline is expected to continue.

“The returns over the past few years have been quite good in the cow-calf sector, and it still hasn’t convinced people to expand more,” said Smith. “The size of the cow herd affects the viability of both the feeding and the processing sectors. So we certainly don’t want to see further declines in our cow herd.”

Balancing act

Regulations are a double-edged sword — although they add costs, they also give Canadian producers a leg up over competitors, the study found.

“We recognize the importance of having regulations,” said Smith. “One of our advantages in our export markets is the fact that we have robust food safety regulations, our environmental performance is strong, we have traceability, and we have good sustainability initiatives. So those are strengths.

“But if the regulations and policies impose too many costs, then we’re not able to remain competitive.”

New policies will need to be looked at “a little more critically,” he added.

“The advantage of the competitiveness study is that it allows us to go to governments and say, ‘Make sure when you’re doing policies and regulations you take into account the potential impacts on the competitiveness of a pretty important industry,’” Smith said.

There needs to be a balance, said Janice Tranberg, president and CEO of the Alberta Cattle Feeders Association.

“Regulatory changes are difficult,” she said. “You continue to work with your regulatory partners and ensure that changes aren’t impeding industry, but it’s almost like we’re harder on our Canadian industries than we are on our competitors around the world.”

Regulators need to keep the big picture in mind, said Tranberg.

“You might say, ‘Oh, carbon tax is a little bit higher cost for fuel, the head tax is just a little bit higher tax on producers.’ But all these little things are going to add up and could potentially put us in a fairly tight position, so let’s make sure we don’t put things in place that will impede our growth.”

Land and labour

These added costs do “put us a step behind” our American and global competitors, said Brian Perillat, senior analyst at Canfax.

“The beef industry and the feeding industry are thin-margin businesses,” said Perillat. “Long-term profits aren’t very big, so even if it’s just a few dollars a head, that comes off the bottom line, and it can be a pretty big percentage of our profit margin being swallowed up by these costs. That’s definitely going to affect our competitiveness.”

The big jump in land prices is another big factor, added Smith.

“We’re competing with other land uses, but even within agriculture, we’re competing with the potential for the land to be used for cropping.”

As both crop productivity and the ability to farm more marginal lands increase, cattle production becomes a less attractive option.

“It always goes back to economics,” said Perillat. “Grain farmers have the ability to expand relatively easily, with bigger equipment and more automation, whereas cattle producers struggle on the labour side to expand their operations.”

While agricultural wages have increased by 3.5 per cent annually over the past decade (versus 2.6 per cent yearly in the U.S.), it’s getting workers that holds many operations back.

“Finding labour is one of the most significant challenges,” said Tranberg. “Whenever I talk to my members, probably the first thing that comes up is that they just can’t seem to get enough good labour to work there.”

Scaling up

Tight margins are something Sean McGrath wrestles with continually on his cow-calf operation near Vermilion, Alta.

“I think a lot of it is returns. In a lot of ways, it’s more difficult to scale up a cattle operation than it is a grain operation,” said McGrath. “If you add a quarter section, it’s a few hours on either end of the year, and that quarter section may generate $70,000. To accomplish that same thing in a beef operation, you’re talking about adding 100 cows.”

That’s not an option for most producers, particularly as improvements to forage yields trail behind grain yields.

“In a lot of ways, our pasture management hasn’t kept up from a yield perspective with the grain side,” said McGrath. “So that’s really put a cash flow crunch on land purchases.”

But he understands it’s hard to attract investment for developing new forage varieties.

“If the seed salesman is selling me canola, he’s showing up every spring and getting a sale. But for perennials, a lot of guys put in a stand for 10 years or more, so there’s less incentive for the infrastructure around the industry to build and grow that.”

Perillat agrees.

“Over the last few years, we’ve seen some droughts and some tough years, but we still get some pretty good crops of canola, wheat, and barley, whereas on the forage side, we’ve just taken a kicking,” he said.

“We haven’t seen the productivity gains in pasture and forage management. I think there’s opportunity there, but we just haven’t seen that.”

Bit by bit

Any improvements to the bottom line will likely come from incremental changes — little cost savings that add up over time, Perillat added.

“I see lots of opportunities for small improvements, maybe a few dollars a head here or there.”

That’s the direction McGrath sees the industry going in, too.

“To be perfectly honest, I don’t really see it turning around — I just see guys driving down costs and doing things differently,” he said.

“I think what we’re going to see is a lot more of a creative industry going forward. I think people are going to push the boundaries on how they manage cows even beyond what we’re doing today.”

Things such as lengthening the grazing season, exploring alternate value-added marketing avenues, or partnering with acreage owners for access to pasture are examples of that, said McGrath.

“I think there are huge opportunities out there, but I also think that less and less, they’re coming from a traditional approach,” he said. “I don’t see the industry looking the same 20 years from now. I don’t know what it’s going to look like, but I just don’t see it staying the same.”

And if the sector isn’t able to stay ahead of those changes and turn this trend around, producers will be the ones who stand to suffer most.

“When you’re in a tight-margin industry that isn’t competitive, businesses won’t stay here,” said Smith.

“Ultimately, if competitiveness gets hurt too much, businesses that operate in that environment will not operate here. That’s what concerns us.”

This article was originally published at the Alberta Farmer Express.

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