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Goal Shifts Away From Hooks, Slaughter Capacity

AWinnipeg beef-processing plant being retrofitted to supply premium-paying markets at home and abroad reflects the new reality for beef processing in Canada, the executive director of the Manitoba Cattle Enhancement Council says.

Canada’s shrinking beef herd means that simply expanding slaughter capacity is no longer the priority it once was, Kate Butler told a producer forum here.

“It’s not about capacity. There’s no sense getting into commodity beef and getting killed,” she said.

Fifteen applications have been received for funding under the $2-checkoff program, and furthest ahead is the Keystone Processors plant, which is now being run by the Astana Group, headed since this summer by Doug Cooper, a meat-packing executive with experience in the United States and Uruguay.

COMMITTED

So far, $3.8 million has been committed to renovating and retrofitting the former hog-killing plant in Winnipeg’s St. Boniface neighbourhood since 2008.

“The plant will focus on premium meat products for niche markets internationally,” said Butler.

“The main goal of the plant is to bring profits back to producers. Our goal is to have a successful plant that is operating 10, 20, and 30 years from now.”

The critical environmental licensing is already done, meaning that it could begin slaughtering 250 head per day by March 2012, with further expansion a future possibility.

Two other smaller plants in the province are in advanced stages, and both are now working with the Canadian Food Inspection Agency in seeking federally inspected status.

Jerry Bouma, a consultant, said that total Canadian demand for beef requires 7,200 head per day, of which Toronto accounts for 1,200, and Calgary, 244.

“Let’s be clear. The market is getting what it’s asking for. There are no obvious holes,” he said. “You have to elbow your way in, find channels and retailers that want to do something differently.”

That could be grass fed, organic, local or regional, or kosher or halal, he added.

NIMBLE NEEDED

With two large packing companies and a handful of smaller operators already boasting a capacity of 12,500 head per day, any new plant in Manitoba will have to be nimble, well planned by professional managers, and target higher-value production, or get “clobbered” like beer league players facing off against NHL stars.

“How do you set up a small plant and make it successful? As we all know, the landscape from coast to coast has been littered with failures,” said Bouma.

With two plants dominating over 80 per cent of the market, the establishment of three or four small plants killing 500 to 800 animals per day could be a “game changer” in terms of cattle prices, he added.

In his presentation, he estimated that setting up an 800-head-per-day “greenfield” plant would cost about $80 million, with about $20 million in startup costs and $3.2 million in working capital.

With all hooks full, cost of kill would be around $232 per head. At 40 per cent capacity, the cost soars to $435 per head, making committed supply critical to success.

ALIGNING CAPACITY TO CUSTOMER

The key to success is aligning a “certain type of capacity with a certain type of customer” that can’t be done easily by a high-volume, commodity-based operation.

“The standard response from the beef industry status quo camp is that we’ve got more capacity than we need. That’s not the point. If capacity was the issue, we’d all still be driving big Fords and Buicks. Was there ever a lack of capacity in the late 1970s in the auto industry? No, it was a lack of competitiveness,” said Bouma.

The sparse attendance at the forum was noted by one person during the question period.

Butler responded that she was “very disappointed” by the abundance of empty chairs.

“You can look at it two ways,” said Butler. “If things are going really well, then people don’t tend to show up. It may well be that we’re on track and doing OK.”

Cooper, whose group has made a five-year commitment to the plant on top of the two-year building period, said that the turnout was what he expected, with mainly “early enrollers” filling up the seats.

“These things work better if they are evolutionary, not revolutionary,” he said. “I don’t see any whiners in the room, and that’s why I’m back here.” daniel. [email protected]

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“Thestandardresponsefromthebeefindustrystatusquocampisthatwe’vegotmorecapacitythanweneed.That’snotthepoint.Ifcapacitywastheissue,we’dallstillbedrivingbigFordsandBuicks.Wasthereeveralackofcapacityinthelate1970sintheautoindustry?No,itwasalackofcompetitiveness.”

– JERRY BOUMA

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