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  How long can beef industry can hang on?
By Robin Morris - AgriNews Editor

GANANOQUE - Just a couple of miles north of the packed parking lot of the Thousand Islands Charity Casino here, Alex Vahey is engaged in a high stakes game of his own.

President of the Leeds Cattlemen's Association, Vahey is like other beef producers stretching out - and stretched thin - across the country as they continue to grapple with the effects of the Bovine Spongiform Encephalopathy (BSE) crisis.

Vahey's 160-head backgrounding operation on his own couple of hundred acres - much of it tiled - and 200 acres more that he rents, is typical of the bind Canadian producers find themselves in the wake of the May 20 confirmation of a single case of BSE in an Alberta black cow: plummeting prices and government aid packages that don't address the needs of backgrounders and cow-calf operators. More than 2700 head were slaughtered as a precaution and exhaustive testing confirmed that the "outbreak" was limited to one animal that never made it to the food chain.

Combined with input costs that never have a way of matching lower prices and retail beef prices that don't reflect the up to 75 per cent drop in prices paid to producers, Vahey wonders if Ontario's $1.2-billion a year beef industry can weather the storm.

A retired OPP officer, his pension will get him through the worst of the crisis, but what of the other small operators that dominate the industry in Ontario, especially those without off-farm incomes? He doesn't see a rosy future for many of them and wonders what would happen if what is basically the underpinning of a multi-billion-dollar industry should be buried under a mountain of negative returns.

The vast majority of the OCA's members - 18,000 out of a total of 21,000 - are stocker operators. According to the association's own numbers, the average cow-calf operation has only 23 head.

While Canada's trading partners continue to bar the doors to exports of our cattle, despite assurances that BSE was restricted to one animal, Vahey is concerned about what will happen when - or if - exports resume. Will it create a flood of animals that have been held back form slaughter, creating a glut on the market that will prolong the period of low prices, now only a quart to a third of what had been paid prior to May 20?

And he wonders when supermarket prices will start to reflect the disastrously low prices producers are receiving.

It can take up to 20 months for a cow-calf operator to start seeing a return on his investment but meat packers and supermarket chains can turn their money around in a few days. And while packers determine what the beef producer will be paid, they also determine what the consumer will pay so producers like Vahey can be forgiven if he feel as if they are playing against the house, which holds a stacked deck.

Eric Lawlor, regional information co-ordinator from OMAF's Brighton office, illustrates the plight producers find themselves in with cold hard numbers.

The following is quoted form a release issued by Lawlor July 28:

"We hear about the desperate situation in the cattle industry as a result of the closure of our border to beef exports. But what does it mean in dollars and cents to an average beef producer. I have created a hypothetical feedlot operation with 500 feeder cattle that were ready for market last week. I have used a number of assumptions and have rounded some values but have calculated the results with realistic numbers.

The calves were western heifers purchased last November at $1.32/lb into the feedlot. The average weight was 627 pounds so the average cost per animal was $828. Total cost per pound of gain is assumed to be 80 cents/lb. This is a fairly realistic cost of gain based on 240 days in the feedlot at a average daily gain for heifers of 2.7 lbs. Therefore the total cost of gain was 2.7 x 240 = 648 lbs @ 80 cents/lb = $518.

This works out to a total cost per heifer of $1,346.

Last week heifers brought between 23 and 30 cents per lb live weight. I know of one producer who received 27.5 cents per lb so I will use that value. Therefore the producer received $.275 x 1271 lbs = $350 per head. The Canada Ontario BSE Recovery Program provided a deficiency payment of $585 per head. This results in a total return per head of $935.

The bottom line is a loss of $411 per head for a total loss of $205,500. A reasonable expectation for the feedlot operator when the cattle where purchased in November was profit upwards of $100 per head or $50,000. The differential is a quarter of a million dollars for a typical feedlot operator and that includes the disaster support from the provincial and federal governments."

The Ontario Cattlemen's Association claims that its 21,000 members are losing a total of $3-million a week due to the border closures, which, in some cases, appear to be end-runs around World Trade Organization rules against agricultural tariffs (See Ralph Goodale's letter in this issue).

Ontario and Agriculture Canada have already agreed on a support program for feedlot operators, based on the traditional 60-40 split of cost-sharing, with the province putting up $35-million of the total $87.5-million relief fund.

Feedlot operators, whose needs were seen as more urgent, were addressed first but an Ontario Cattlemen's Association (OCA) representative told The AgriNews July 31 that stocker operators' needs are now its "number one priority".

The province has already pledged 417.5-million for a program that could be used to help the cow-calf and backgrounding sectors but Ottawa is holding a gun to the province's head, arguing that any further support programs be carried out through its national Agricultural policy Framework (APF).

Ontario has refused to sign the APF and the assisting distressed beef producers.

The OCA is also lobbying all Ontario MPs to support an aid program for stocker operators.

The U.S. border remains closed due mainly to Japanese concerns about the safety of Canadian beef and a face-to-face meeting July 29 between Agriculture and Agri-Food Minister Lyle Vanclief and his Japanese counterpart, Yoshiyuki Kamei, failed to get that country to soften its position.

Closeted at the WTO meetings in Montreal, Kamei told Vanclief that his government is concerned that Canada has not been as rigorous in its response to the incident of BSE as Japan has been since its own BSE scare in 2001, when it was originally thought that the disease was limited to one animal. Subsequent testing confirmed its incidence in seven head, Kamei said.

The Japanese have repeatedly told the United States that if it admits Canadian beef it will insist on country of origin labeling, something that is nearly impossible to implement in what had been before May 20 a tightly integrated North American market. As a result the U.S. border remains shuttered to Canadian beef exports. Ontario alone shipped more than half of its production last year to the U.S. Of the total $1.2-billion farm gate receipts in the province's beef industry last year, $354-million was in live cattle exports to the U.S. and $292-million in beef product to the American market.

Total Canadian beef exports to the U.S. in 2002 were $3.5-billion.

Meanwhile Canada's borders remain effectively closed to Japanese beef imports as a result of the 2001 BSE outbreak and the 2000 FMD scare.

John Ross,, with AAFC's red meat directorate, told The AgriNews that Canada has never had an import protocol with Japan and the amount of Japanese beef that entered this country prior to 2000 was "minuscule", limited to "sample lots".

"For all intents and purposes there has never been any trade," he said.

Despite the border closures and the low prices being paid for Canadian cattle, beef imports to this country are up 20 per cent over last year, due mainly to a shortage of prime cuts - which account for only 28 per cent of a typical carcass - during this, the height of the barbecue season. Less desirable cuts are going begging and the industry is promoting the purchase of marinating and stewing cuts through the use of imaginative cooking techniques, marinades and sauces.

Ontario premier Ernie Eves joined Alberta's Ralph Klein, Saskatchewan's Lorne Calvert, Manitoba's Gary Doer and Vanclief at the July 30 Rolling Stones concert in Toronto, helping man a 400-metre barbecue for concert goers to prove that Canadian beef is safe.

The OCA's Wooddisse was helicoptered in, spatula in hand, for the event.




Eastern Ontario AgriNews is published on the third Monday of each month. The printed version is distributed free by postal mail to farms in Eastern Ontario, Canada.

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