Transcript Document

Current Western Canada Beef Value Chain Approach
8a
Backgrounder Feedlot
1
•50 typically less than 3000
Rancher / Cow Calf
Canada
Wholesale/Retail
6
USA
Wholesale/Retail
•Annual Capacity: 2.7 million
2
• 5,000 greater than 100
•$2000 to $3000
investment per head
•Cargill, IBP, XL
•500 to 700 investment per head
•Annual Slaughter
requirements 3.8 million
fats; 700,000 cows
• 40,000 less than 100
Western Canadian
Processors
5
Finisher Feedlot
1a
3
•Investment $200 to $300 per
head
7
Other Country
•25 typically more than 3000
•600 to 800 investment per head
4
USA Processors
8b
Characteristics
•
Mass market commodity based
•
Low cost focused.
•
Retail / Processor Buying Power
•
Represents “Auction” Transaction less than 30 month cattle
Represents “Auction” Transaction of over 30 month cattle
1.
30% of animals go through backgrounder feedlots ( 2. 90% plus go traditionally into Canadian
Finisher Feedlots)
Co-mingled “country of origin risk”
1a.
60% go directly to finisher feedlots.
•
There are no premiums only discounts
3.
Typically 50 to 60% of fat animals (US transportation net back+ without USA choice premium)
•
Live animal market dislocation risk is
solely the producers; subject to”
predatory pricing”.
4.
Typically 30 to 40% of fat animals (US transportation net back “Canadian Discount”
5.
Typically 40% of cuts with higher percentage of premium cuts.
6.
Typically 50% of cuts with higher percentage of discount cuts.
No practical / reliable tracing from
consumers point of view.
7.
Typically less than 10%
8a
Typically less than 50% of supply
Ownership and Control and Value
Added is held by Processor / Retailer
8b
Typically more than 50% of supply
•
•
Next Generation Western Canada Beef Value Chain Approach
Rancher’s Owners
Rancher’s Feedlot
•Now more than 30
•Ultimately the number
that elect to own
•Over time, will reflect the
number that combine to
cover the vast majority of
the capacity of the plant.
Rancher’s Processing
•More than 1/2 of the plant capacity owned
4
•250,000 capacity (easily
doubled and can grow further
with market)
•Rest of Feedlot capacity organized by
contract
3
•Flexible (cow / bull & fats)
•Investment 200 to 300 per head
Characteristics
1
Rancher’s Brand
White Label
2
Represents “Market Value Net-back Pricing”
•
Rancher’s supply and processing
separate from co-mingled mass market
1.
Rancher’s Brands; BSE free by full testing; Hormone free.. others; Marketed to Canada; USA;
Europe; Asia
•
Differenced / Niche market based
2.
Rancher’s will custom develop and process for any other compatible brand.
•
Value add based.
3.
•
Fully tracked “vertical” quality control
Owners can elect a “quality adjusted market based price” or can elect to pay custom processing
fee and arrange market for the meat.
4.
•
Minimizes buyer discounts
Owners can elect to retain ownership of animals through feedlot and elect options under 3 or
can sell to Rancher’s for “quality adjusted market based price”
•
Creates opportunity to obtain
premiums.
•
Producers have opportunity to
eliminate live animal market
dislocation risk; accept the wholesale
meat market risk.
•
Producers no longer subject to”
predatory pricing by processors”.
•
Ownership and Control and Value
Added is held by Rancher’s / Retailer
•Owners are hedged from discount live animal markets either through profits of
Rancher’s or Wholesale meat market less custom processing and custom feedlot
cost approach.
•All interested parties (including governments) get market transparency.
•Rancher’s ownership units will be listed and trade. Creates Private Sector Capital
markets as source for growth capital; Creates competitive tension with Legacy
Processors.
Current Situation
•Western Canadian Beef Industry produces 30 % more live animals than can be
processed in Canada.
•Investment in production of livestock is 20 to 30 times as much capital as is
required in the processing industry.
•International borders are closed to live animal movement; cattle and sheep.
•Over 80% of the processing capacity in Canada is in two American processing
Plants in Southern Alberta.
•The international borders are open to meat with particular specifications.
•No other country in the world has a animal production industry that depends on this
amount of international trade in live animals.
•Regulators, Trade agencies, Health Agencies are becoming more active as science
moves forward and new tests are developed. It is not just BSE.
Depending on International Trade of Live Animals Makes No Sense
•Health issues with live animals are infinitely more complex than with meat.
•Live animals have limited shelf life and have every day carrying cost.
•Live animals are a potential health risk to other live animals.
•The cost of processing is minor relative to the cost of producing the animal.
•The cost of transport of meat is much less than the cost of transport of live animals.
•Why export the employment opportunities associated with processing?
Why Did the Industry Evolve This Way?
•Western Canada is amongst the best locations to raise and fatten cattle.
•Environment is good, superior genetics, land that is less useful for other purposes, abundant
cereal grains for feed. (The meat is superior meat).
•Processing was driven by economies of scale; low cost - not value add.
•Main economy of scale was derived from the value of the non-meat part of the carcass.
•Small processors could not make up on the revenue side for the loss on the non-meat side.
•Now the main processors have buying muscle as well.
•Even though producers have much more invested than processors, they are many
individuals.
•The producing industry had enough efficiency advantages to thrive even though it had
access to a much inferior processing marketplace from a competition point of view.
•The discipline was their ability to export live animals to USA based plants.
Characteristics of a Lasting Solution
•Increase Processing Capacity so Domestic Processing is Able to Handle Domestic Production.
•Create the “Next Generation” Value Add Value Chain.
•Create Canada Based competition in processing to create a viable marketplace.
•Create value added specialty brands directly targeting specific markets whether in USA, Asia or
Europe.
•Get away from the lose-all risk of the “Canadian Brand”.
•Create an environment that gives producers the option of investing in value added and
marketing as opposed to being forced to accept the outcome of a non-competitive cost based
marketplace.
•If producers had the option to create viable alternatives to the status quo then a number would
evolve and the Government would no longer be exposed to risk that the trade in live animals is
disrupted by other governments.
A portion of any government funding for BSE related hardship should be targeted at
initiatives that Canadians control and solve the market problem.
Rancher’s Beef Ltd
Who is involved?
•Sunterra Farms is the founder. Successful family-owned farming enterprise that has value added
processing and specialty marketing in pork, veal and lamb. (Markets to Canada, Japan, USA,
Mexico).
•More than 50 other producers have committed to purchase ownership. (Alberta, BC, Saskatchewan).
•Over $25 million of assets and over $15 million of cash committed.
•Ownership is open to anyone that wants to invest. (Subscribers continue to grow).
What is Rancher’s Business Objective?
•State of the art processing, combined with feedlot operations with ownership linkage to cow / calf and
backgrounder.
•Will develop and market specialty branded beef products by organizing the supply chain to deliver a
differentiated superior value to its customers.
•Business is organized so that producers are in control and own the profit that is generated by the value
chain to the branded meat market.
•Customer driven; profit based.
•It is the first real example of the “Next Generation Value Chain” organized for the future as opposed to
the past.
What Does Government Need to Do?
To date, the Government supported initiatives have been supporting the status quo.
Unless the domestic supply / processing imbalance and the lack of competition and diversity in the
processing sector is addressed, the benefactor of government support programs will be large
existing processors. (As has happened to date).
Governments need to financially support the transition to a new domestic market-place which gives
producers the option of investing in value added and creates the appropriate domestic competitive
tension with the large commodity based processors.
Rancher’s is an example:
•Federal government should agree to match provincial government funding for such initiatives.
•In Rancher’s case, we are proposing that if the Private Sector raises $25 million of equity, that the
Province of Alberta and the Government provide funding of $10 million.
•Governments can support a number of these type of initiatives. (Three Rancher’s sized initiatives
would bring domestic processing in line with domestic production).