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Low prices no mystery, says NFU

The National Farmers Union is hoping to make hamburger from some beef industry sacred cows with a series of meetings publicizing the findings of its report into the root causes of the Canadian cattle industry’s woes.

The first of six meetings around the province was held in Oak Lake, where a small crowd of ranchers and NFU members listened to a presentation by NFU director of research Darrin Qualman.

Qualman unveiled a series of charts and graphs that he said were proof that extreme concentration of ownership in the packing industry and retail distribution chains were largely to blame for two decades of losses suffered by primary producers that were the worst since the Great Depression.

Based on historical data on cattle prices going back to 1930, Qualman’s charts showed that after tanking in the 1930s, cattle prices recovered in 1942 and from there until 1989 stayed within a wide band up until 1989, when they plunged to roughly half of “normal” and never recovered.

“At $500 per calf, and on top of that $900 per cow, you start to see why it’s hard to pencil out a profit on a cow-calf operation.”

– Darrin Qualman

Good times gone

During those 50 good years for the cattle industry, prices for fed steers in Manitoba adjusted for inflation averaged $166 per hundredweight, compared to $82/cwt in 2008.

“Packers are paying half as much for cattle,” he said. “Prices today are more like the Great Depression than any other time since the Great Depression.”

The year 1989 was the turning point for a number of reasons, he added.

“Everything changed in 1989. The collapse in the cattle sector shouldn’t actually surprise us because there was a tremendous transformation that happened in that year.”

Qualman said that the opening in High River, Alberta of a plant owned by international meat-packing giant Cargill in May of that year signalled the rapid transfer of ownership and control of beef processing from a large number of smaller, Canadian-owned independent operations widely distributed across the country into the situation it is now, where three giant companies, Tyson, Cargill and XL control over 80 per cent of the slaughter and processing market.

Consolidation

The market for fed steers and heifers alone is up to 95 per cent controlled by the big three, he added.

“At one time, economists would tell you that if four firms controlled 40 per cent of the market, you were in danger of losing real competition and real functioning of the market,” he said. “Well, it’s not four with 40, it’s three with 80 per cent.”

The NFU has appealed to the Competition Bureau to halt the sale of the Tyson-owned plant in Brooks, Alberta, to Nilssonowned XL, which would reduce the slaughter and processing field down to just two giant players, but a final decision has yet to be announced.

The other event, he added, was the signing of the free trade agreement between Canada and the United States, which integrated markets in both countries.

Prior to the 1989 trade deal, Canadian exports were “modest and flat.” After that, the value of exports rose eightfold, but at the same time, prices plummeted.

With that development, Canada’s industry “broke with 100 years of tradition,” and began a major shift towards an overwhelming focus on the export market in the U. S. instead of matching supply with domestic consumption as was the case in previous decades.

“There are a lot of people who would have you believe that the problem with the Canadian cattle sector is that we just can’t find enough markets, or we can’t be enough of a success as an exporter,” he said.

“But there’s probably no sector of the Canadian economy that has increased exports eightfold in a dozen years.”

Trapped

Qualman also charged that the continued use of growth hormones by the beef industry is supported by the packer lobby, which allows it to “trap” North American production on the continent and avoid competition from the European Union, which is vehemently opposed to their use on health grounds.

The third factor in falling profitability for producers is the phenomenon of “captive supply,” he added. By filling feedlots they control with finished cattle that they own, packers are able to manipulate prices by stepping out of the market in weeks when prices are trending higher, and then replenishing their supply when prices are more favourable.

To bolster his argument, Qualman showed a Google Earth satellite image taken of the 75,000-head feedlot that lies just across the road from Canada’s largest killing plant – both of which are owned by Tyson in Brooks, Alberta.

“Captive supply gives packers really long levers for controlling the price of cattle,” he said. “You can see the trucks going back and forth. That feedlot means that they never have to bid if they don’t want to.”

Unfair situation

This fundamentally unfair situation, he said, has allowed processors and retailers to squeeze more and more profit out of the hands of producers over the past two decades.

To illustrate his point, Qualman showed that during the 1990s up until the post-BSE era, the spread between the price per pound paid for cull cows on the hoof and the price of a pound of hamburger on store shelves has grown from $1.25 to over $2.25 today.

“Packers and retailers are taking an extra dollar a pound from the consumer over and above what they used to pass back to the farmer,” he said.

The packers plead poverty, said Qualman, but he noted that ever since the 1980s when meat-packing unions were “broken,” inflation-adjusted wages have fallen in real terms by roughly 20 per cent and overall plant efficiency and economies of scale have soared from an average of 3,000 head per week to 30,000 head now.

“I think you can all remember when a packing plant job paid a lot of money, but that’s not the case anymore,” he said.

Math doesn’t work

On the retail side, which is dominated by a handful of corporations, automated checkouts and computerized inventory systems have increased efficiency, which has helped reduce their costs.

If the events since 1989 could be reversed, the price of 550-pound feeder calves would be $179/cwt instead of the current $94, a difference of roughly $470 per calf.

“Do the math. That’s tens of thousands of dollars of losses per farm,” he said. “But cull cows are a real scandal.”

After 50 years of buoyant prices, in 1989, cull cow prices fell from $117/cwt to $40/cwt, a discount of some $900 per animal.

“At $500 per calf, and on top of that $900 per cow, you start to see why it’s hard to pencil out a profit on a cow-calf operation,” he said.

The inflation-adjusted numbers shatter the illusion that high feed grain prices are to blame.

If feed barley cost $2.50 per bushel in 1974, it would have to cost $10 in today’s dollars to pack the same punch, he said.

The solutions, said Qualman, are to ban packer ownership and control of cattle, and reverse concentration of ownership, and force retailers and wholesalers to open their books to see who is scooping up the profits.

Other options are to make food safety regulations more amenable to local, producer-owned abattoirs and packing capacity, and better balance domestic production with domestic consumption by an orderly reduction of the herd by up to 35 per cent.

Grassroots roar

The NFU is planning meetings with politicians this fall to address the issue, but pointing to the success of grassroots political pressure in blocking the introduction of genetically modified wheat, and the hormone rGBH in dairy production, he said “a steady rumble and roar from the countryside” is needed to get the attention of legislators.

Trevor Atchison, a Manitoba Cattle Producers Association director who said that he was attending the meeting more as a rancher than a director, took issue with some parts of Qualman’s presentation.

Reducing the Canadian herd to match domestic demand and force prices higher might backfire, he said, noting that per capita beef consumption has been dropping for decades, with consumers opting for cheaper options such as pork and chicken.

“If you start charging more for beef, is the consumer going to pay that, or are they going to eat more chicken?” he asked.

“The packers are definitely big and controlling things, and they say Wal-Mart wants to run the world, but I don’t know how you stop them. Wal-Mart is international. It’s almost more powerful than the government of Canada. Are you going to throw them right out of the country?”

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