Transcript CCGD Ontario Public Policy Strategy 2002-2003

Canadian Meat Council
Presentation to the Standing
Senate Committee on Agriculture
and Forestry
February 26, 2004
James M. Laws, P.Ag.
Executive Director
Who is the Canadian Meat
Council?
• The Canadian Meat Council represents federally
inspected packers and processors of red meat in
Canada.
• Our major beef packer members include companies
such as Cargill in High River Alberta, Lakeside IBP Tyson
in Brooks Alberta, XL Foods in Edmonton Alberta, St.
Helen’s Meat Packers in Toronto, Better Beef in Guelph
Ontario, Delft Blue in Cambridge Ontario, Bellivo
Transformation in Ste Angele Premont in Quebec, and
Levinoff Meat Products in Montreal.
Federally Inspected Plants
• All of our members operate federally
inspected plants that have invested
heavily in order to comply with strict
federal regulations.
• We support a single federally inspected
food inspection system for all of Canada.
Federally Inspected Plants
•We employ full time
quality control managers
and a federal veterinarian
and inspection staff are
present at all times during
slaughter.
•Recent interventions to
improve food safety based
on science cost $1.5
million per plant.
Free Enterprise Market
• The market for cattle and beef in Canada
is a competitive free market. Prior to the
closure of international borders with the
discovery of one case of BSE in Canada,
the market was really a fully integrated
market with the USA of live cattle, beef
and veal.
Feeder Cattle
• The first market is the market for young
feeder cattle. Farmers and ranchers sell
animals of 6 to 12 months of age
averaging 600 pounds live weight to
feedlot operators who feed and fatten
cattle for slaughter.
Slaughter Cattle
• The second market is the slaughter market
in which feedlot operators sell young cattle
aged 18 to 24 months to the packers at an
average live weight of 1300 pounds. It is
from these animals that the prime cuts are
obtained.
Cows
•The third market is for
dairy cows and beef
breeding cows
classified as D1 through
D5 cows typically over
the age of 30 months.
Most of the meat from
these animals goes to
stewing beef and
ground hamburger and
further processing.
Veal Calves
• The fourth market is for veal calves.
Producers sell veal calves aged 18 to
20 weeks to the packers at an
average live weight of 525 pounds.
The overall live animal market
• The markets are functioning.
• Fat cattle and cows are being actively
bid on and purchased.
• Meat is being sold by packers.
• Plants are operating at near capacity.
How do packers in Canada market
beef?
• Packers don’t sell directly to consumers.
We sell to retailers, further processors
(who make sausages and luncheon
meats, etc…), restaurants, food services
distributors and wholesalers. We are only
one part of the chain.
Major Retailers
• Major Canadian retailers only purchase
meat from federally inspected plants so
that they can move meat between
provinces.
• These plants are HACCP accredited and
retailers are assured of the highest
consistent quality from internationally
recognized slaughterhouses for their
Canadian customers.
WE ARE ONE LINK IN THE SUPPLY CHAIN – A CRITICAL ONE
Cow-Calf
Farmer
Feedlot
Packer
Restaurants
Food Service
Consumer
Further
Processors
Distributor
Retailer
How do packers in Canada market
beef and veal?
• Consumers at retail purchase only 50% of the
beef and veal packed and consumed in Canada.
The remaining 50% is sold to further processors
and food service. Retailers typically buy the cuts
that the customers are looking for.
• The market moves continually to meet demand
for quality, grade, price and location and is
based entirely on free enterprise.
We’ve Lost Major Export
Markets
• Export markets represented 70% of the total
beef production in Canada prior to the discovery
of one case of BSE in May 2003. When
international markets slammed shut to Canadian
beef over the next few days havoc was created
in the marketplace and huge numbers of live
cattle were backed up.
Beef Stranded in the Pipeline
• Over $12 million worth of Canadian beef and beef
products were stranded in Japan and Korea after
the announcement of a single case of BSE found in
Canada in May 2003.
• It costs us a lot of $ to keep this product in frozen
containers overseas. Demurrage and destruction of
product are additional costs-total $18 million.
• Nine months later, as of the 13th of February 2004
there are still 691 tonnes of beef stranded in Korea:
510 are in the container yard and 181 are in bonded
warehouses.
Beef Stranded in the Pipeline
After BSE
•The estimated financial
loss to the packer sector is
at a minimum $50 million
during the first weeks of
the crisis. (pre BSE value
of cattle + devaluation of
inventory)
•The situation resulted in
unfortunate job lay-offs in
the various packer
locations across the
country as the operations
tried to reduce costs.
Value of Export Markets
• Since export markets were closed to Canadian
beef in late May of 2003, huge amounts of
products that were sold to an overseas markets
are now having to be kept in Canada and
rendered.
• Products such as beef tongues, kidney, tripe
(stomach), feet and tails that were valued in
Japan and Korea- two major markets for
Canadian beef exports- are now sent to
rendering or sold into significantly lower valued
export markets.
Value of Export Markets- Short
Ribs
• In fact, another valuable cut- short ribs- were in
such high demand that the entire North
American production was being sold to Korea.
• Now, short ribs are sent to “trim” which ends up
in hamburger- and we all know that the price of
hamburger at retail has been selling at very low
prices. Currently we are only getting 20% of the
value of short ribs that we were getting prior to
the loss of our export markets in May 2003.
Value of Export Markets
• Canadian Beef Export Federation information
shows that the value difference in the price of
“Canadian offal and thin meats” between export
and domestic market is approximately $192 per
head! And this number changes as markets
open and close (value down 63%).
• The loss of the extra value of these products has
significantly reduced the revenue received per
animal.
It’s going to take a lot of work to
get these markets back
• It took a great deal of time and resources to develop the
markets that we had for our beef and beef products in
Japan and Korea. Other countries such as Australia,
New Zealand and Brazil are now filling those markets.
Even if the borders were to open to us tomorrow,
packers are going to have to invest a lot of time and
money to regain those markets.
• We are starting again from ground zero because our
relationships have been severed- even with those
customers who we’ve had a relationship with since 1980!
Meat Sent To Food Banks
• It is estimated in the months following the
discovery of one case of BSE in Canada in May
of 2003 that Canadian packers gave away 1.5
million pounds of meat to food banks across
Canada.
Rendering Credits Lost
• Packers have also now lost the “credit” that they
used to receive from rendering of the meat and
bones.
• In fact, many packers are now paying 7 to 10
cents per kilogram to have the rendered material
taken away. Blood costs $200 per load to truck
away.
• In some areas the cost to send materials away
has changed by up to $40 per head.
Exchange Rate Effect On Prices
•Canadian boneless beef is now
moving into the United States
and has been since September
2003. With the strengthening
of the Canadian dollar and
falling prices for beef in the
USA since the discovery of one
case of BSE in Washington in
Dec 2003, Canadian packers are
receiving less for their beef
from the US market in Canadian
dollars.
•There is a 20% difference in
exchange rate compared to
what it was last year at this
time.
Canada versus US beef grades
•Before BSE we tried to get
a USA equivalent for our
beef i.e. AAA vs. Choice.
•When the border reopened the spread
between the two widened
and the USA processor is
able to purchase AAA
quality Canadian beef less
than quality Choice USA
beef
Slaughter Capacity
• The industry has the capacity to process approximately
70,000 cattle per week. Immediately after the BSE
discovery in May packers dropped down to less than
30,000 per week and then went up to 45,000 per week
several weeks later. Given the new reality of serving
only the Canadian market there was far more supply
than demand.
• At the request of the Beef Round Table Industry
Committee and the Federal Standing Committee on
Agriculture, Canadian packers were asked to get
slaughter back up to capacity. We are now back up to
more than 65,000 cattle per week being slaughtered.
Investment in Plants and
Equipment
•Our beef packer
members have a total of
$800 million invested in
capital and equipment.
•In addition, they employ
over 10,000 people
working in slaughterhouses
across Canada.
•A recent study showed
that there is a spin off
effect of 6 jobs created
for every one job in the
packer sector.
Specified Risk Materials
• Since July of 2003 Canada requires the removal
of specific risk materials (SRM) at slaughter from
all cattle aged 30 months or older.
• SRM are defined as the skull, brain, trigeminal
ganglia (nerves attached to the brain), eyes,
tonsils, spinal cord and dorsal root ganglia
(nerves attached to the spinal cord) of cattle
aged 30 months or older, and the distal ileum
(portion of the small intestine) of cattle of all
ages.
Specified Risk Materials
• The segregation of cattle on the kill floor in order
to properly assess the age of the animal is done
by “reading the teeth” of animals. This takes time
and is a crucial step in the process and has
added more costs to the process.
• This has added extra costs to the process.
• Ensuring the safety of Canadian beef is a top
priority for us regardless of cost.
The Veal Industry’s Situation
• The Milk-fed veal industry is almost a totally
integrated market. The packer either owns the
veal farm operations or has a farmer on contract
to house and feed the animals owned by the
packer. That means that the processor absorbed
the losses that occurred in the veal sector as a
result of the BSE.
The Veal Industry’s Situation
• None of the programs put into place to remove
large amount of beef from the farm after May
20th worked for the milk fed veal industry. Veal
normally has a much greater price per lb. than
beef does. It left the industry with a distinct
disadvantage for several reasons:
The Veal Industry’s Situation
• The market forced the price of veal down to that
of beef. (From $2.50 to $0.50). This left us with
a much greater loss compared to the beef
producer because the % of government
coverage was the same as for beef while the
reduction differential fell much further. Prior to
BSE the veal industry inventories were 1.5% of
sales. Now, frozen inventories are at 14.5% of
sales.
The Veal Industry’s Situation
• When the US border closed to Canadian meat and live
animals in May of 2003, one major player in the
Canadian veal industry had an additional problem in that
they could not ship their finished calves to be
slaughtered in a factory that they owned in the United
States. With their slaughter capacity at maximum in
Canada they had to pay a premium to another
slaughterhouse to pay for custom slaughter of their
additional calves. This is yet another example of how
integrated that industry had become.
The Veal Industry’s Situation
• Milk fed veal, cannot be put on hold. Our growth
window is 18-20 weeks. If it is not marketed
within a short time beyond 20 weeks it is no
longer veal and looses much of its value. North
American veal barns are not designed to
accommodate animals much beyond 20 weeks
of age.
The Veal Industry’s Situation
•Pre-BSE our exports were 80
% of our production. This made
it necessary for us to put
everything we produced from
May 22 to September 7 (other
than Canadian sales) into the
freezer. There has been some
relief from the opening of the
border for meat products but the
problem for us is still critical. We
are still discounting frozen veal
substantially in order to move
the product out of the freezer.
The Veal Industry’s Situation
•When a single case of BSE
was discovered in Washington
State just before Christmas,
Canada closed its borders to all
live cattle imports from the USA
and now farmers cannot source
enough young dairy calves to fill
their barns. Calves used to be
imported from New York State
and Vermont. As a result, the
price of veal calves has doubled
here in Canada.
New Investments Are Required
In The Future
• To comply with more stringent animal tracing regulations
that are coming, the packers will have to invest a great
deal of money in the future for updated information
technology hardware and software at the various
locations.
• Plant upgrades (building and equipment) that are
currently ongoing to keep in business and stay
competitive. We are going to have to spend more
money to stay in business.
• The markets remain very uncertain with our entire
industry sized for exports and a North American market.
If we don’t regain our export markets soon corrections
will be in order.
Prices of Meat at Retail
• Data from Stats Canada clearly shows that the average
retail prices for 6 different meat cuts: Round steak,
Sirloin steak, Prime rib roast, Blade roast, stewing beef
and regular ground beef were all lower in $ per kilogram
year over year from 2002 to 2003 for the months of
August and September and many cuts were lower in
October through December. The Consumer Price Index
for fresh and frozen beef was 133.2 in December 2003
down from 133.8 in November 2003.
HIGH END STEAKS ARE ½ PRICE VS. YEAR A
GO - DECEMBER SOBEYS
½ price vs. year-a-go
was $8.99/lb
WE DID WHAT THE BEEF INDUSTRY ASKED
MOVE OUR EXCESS BEEF 2 FOR 1 SALES
2 for 1 sales
50% savings
for consumer
½ price steak
Support beef
industry ads
Encourage
Consumption
Of End Cuts
Less than
½ price
Roasts
60% less than
Last year
on ground beef