Packers Not Villains In Beef Profits: Study

“There is no case to be made that packers are taking an unwarranted share of the revenue.”

– CHARLIE GRACEY

Although cattle producers receive only a small share of the beef dollar, packing plants are not the reason for their lack of profitability, according to a recent study.

In fact, retailers get vastly more value from a beef carcass than packers do, says the study done for the Alberta cattle industry.

This “totally debunks” claims by a 2008 National Farmers Union study that corporate concentration in the beef-packing industry is the reason for Canadian cattle producers’ financial woes, said Charlie Gracey, a longtime industry official who authored the study.

“If you want to get more for the producer by squeezing the packer further, it ain’t gonna’ work,” Gracey said in a recent interview.

But it doesn’t explain why producers’ share of the beef dollar has been shrinking since the 1970s, he admitted.

Gracey’s study titled “Where Does the Beef Dollar Go?” traces the share of the full value of a federally inspected beef carcass going to the producer, the packer and the retailer respectively.

Alberta beef producer groups commissioned the report, partly in response to the NFU’s study which angered cattle groups with its conclusion that large beef agribusinesses are destroying family farms.

Using published data, Gracey’s study tracked returns from a 500-pound steer sold to a feedlot in July 2008 and then to a packer in March 2009. Calculations were restricted to gross returns for simplicity’s sake.

The final tally, based on a retail price of $5.25 a pound, revealed the following:

The full carcass value was $3,004.

Of that, the cow-calf producer received $594 or 19.3 per cent.

The cattle feeder received $609 or 19.8 per cent.

The packer got $199 or 6.4 per cent.

The retailer got $1,679 or 54.5 per cent.

A second tally, based on a retail price of $4.50 a pound, still found the packer with the smallest share (7.5 per cent) and the retailer with the largest (47.1 per cent).

(Gracey defined a retailer as anyone further up the food chain beyond the packing plant, including the meat fabricator.)

“The conclusion that must be drawn is that there is no case to be made that packers are taking an unwarranted share of the revenue,” Gracey said in a written analysis.

Gracey, a former Canadian Cattlemen’s Association general manager and currently an Alberta Livestock and Meat Agency board member, presented his findings to producer meetings in Alberta earlier this year.

The “most obvious” conclusion is that cow-calf producers and feeders lack market power and are losing their historic share of the beef dollar as a result, Gracey wrote in his analysis.

But the real reason for the slide is rooted in the huge increase in Canada’s beef herd between 1987 and 2003, he said.

During that time, beef cow numbers, driven by extended periods of unusually strong prices, increased 51 per cent. “The conclusion that cannot be avoided is that the prices that existed in the 1990s and up to 2002 were sufficient to stimulate sustained growth in the cow herd,” Gracey wrote.

But two developments brought growth to a screeching halt. One was the appearance of BSE in 2003, which closed foreign borders to Canadian live cattle and beef. The other was U. S. country-of-origin labelling (COOL), which limited exports to the U. S. and reduced their value when they did resume.

As a result, Canada’s beef industry is now oversupplied and in a “supply push” instead of a “demand pull” situation, Gracey said.

“It’s pretty hard to exercise market power when you have an oversupply.”

He admitted there are no easy answers, but an obvious one is to reduce Canada’s overreliance on the U. S. as an export market for cattle and beef.

Canada likes to boast it is the world’s third-largest beef exporter. But that means little when 90 per cent of its exports go to the U. S., said Gracey.

“We’ve just got to get serious about the rest of the world.” [email protected]

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