March 16, 2005

 

Canada cattle industry beefs up its slaughter capacity

 

 

Canada's cattle sector is moving forward with increased slaughter capacity, as the US border remains closed to live Canadian cattle.

 

The Canadian cattle sector was dealt a blow recently when a Montana judge ruled in favor of US cattle organization R-CALF, postponing the resumption of live Canadian cattle exports into the country for as much as a year, according to some Canadian industry sources.

 

While the Canadian cattle industry would prefer to resume live cattle trade with the US, the country does not want to "be held hostage" to the US demand and needs to develop its own slaughter capacity, said John Masswohl, director of international relations with the Canadian Cattlemen's Association.

 

Prior to Canada's initial BSE discovery in May 2003, the country's slaughter capacity stood at 72,000 per week, although the plants were actually running at a rate closer to 65,000-69,000, said Masswohl. Currently, capacity is around 84,000 head per week as the large packers have grown and other endeavors move forward, he said.

 

Cliff Munroe, head of Alberta Agriculture's regulatory services branch, said the province's two largest facilities, Lakeside Packers and Cargill Foods, have expanded their kills significantly. Further growth is also scheduled at the major packers.

 

In addition, a number of smaller projects are in the works, including Rancher's Beef, which is already slaughtering cattle at Sunterra's lamb/veal plant in Innisfail, while construction is under way on an 800-head-per-day facility north of Calgary. Another group is working to set up an 800-head/day plant west of Edmonton.

 

A number of other projects are in the works across the Prairies and in eastern Canada.

 

If the US injunction against the border opening is not overturned, Munroe suspected it would add more emphasis on increasing the domestic slaughter capacity, as the country works to divorce itself from its dependency on the US

 

"If you add up all the hopes and prayers out there, capacity could increase to 120,000," said Masswohl. Realistically speaking, he thought slaughter capacity would increase to 95,000 per week heading into 2006.

 

Masswohl thought Canadian oversupply was roughly around 500,000 to 550,000 head of cattle, of which 300,000 to 350,000 were older animals. If the younger animals can't be moved to the US, it will take until 2007 to get rid of the backlog, he said.

 

Even if the US border does eventually open, it will only be for those animals under 30 months of age. As a result, most of the current projects in the works are for dealing with those animals over 30 months of age.

 

Canada has too many live cattle and not enough slaughter capacity, said Cam Daniels, vice-president of the Canada Beef Export Federation. He agreed that new plants and increased slaughter capacity were the best solution.

 

A number of US packing facilities have been forced to shut down due to the lack of live Canadian cattle, said Daniels. Meanwhile, Canadian capacity is expanding.

 

"The US needs to recognize that this ongoing dispute is forcing the Canadian industry to undergo fundamental structural changes," said Stan Eby, president of the Canadian Cattlemen's Association in a news release. "We will no longer be a partner with the US industry; we will become a fierce competitor. The result will be the continued loss of American jobs," he added.

 

Eby said an appeal by the National Meat Association, a US group of packers, drives home the point that the US industry is being hurt by the border closure.

 

A prime example of the competitive shift is Rancher's Choice Beef Co-Op in Manitoba. The group has purchased a Washington-state facility and is currently in the process of trucking the equipment to Manitoba.

 

Frieda Krpan, a director on the Rancher's Choice board, said equipment has already started to arrive and that roughly 40 to 50 semi-trailer loads will make their way from Washington to Dauphin, Manitoba, over the next month. The facility is expected to start operations in the fall with a capacity of 250 head a day, she said.

 

Given the recent developments in the US, Krpan thought Canadian farmers were starting to show a much greater sense of nationalism. Support for the co- op is growing, as membership grows on a daily basis, she said. The co-op has been getting a lot of calls from interested producers, especially now that actual equipment is making its way across the border.

 

Letters of intent for the beef produced at the Manitoba plant have been signed, said Krpan, adding that there is a great demand for the beef both domestically and internationally.

 

With slaughter capacity increasing in Canada, the industry will have to become more aggressive marketing the beef on the world markets, said the CCA's Masswohl. He thought it was especially important to find markets for those "variety" meats not used in North America.

 

Daniels, of the Canada Beef Export Federation, said the goal has always been to reduce the reliance on the US for beef exports, as roughly 75 percent of Canada's beef exports move to the US The goal is to reduce that dependence to 50 percent while increasing total exports in the next couple of years. Canada is currently exporting beef to more than 50 countries, and the pace is constantly increasing, said Daniels.

 

Increased slaughter capacity means the domestic market will be saturated with older beef, said Munroe. As consumption isn't expected to increase, the industry will have to be more aggressive in exporting, he said.

 

The recent US ruling has caused some problems in opening additional Asian markets, such as China and Japan, said Daniels. He thought the process will be slowed down as potential importers wonder why they should allow Canadian beef when the US continues to remain closed to Canadian cattle.

 

However, all indications are that when Japan does reopen its borders to Canadian and US beef, it will do so for both countries at the same time, said Masswohl.

 

Canada is likely to have an easier time moving beef to Japan due to the country's national ID program, among other things, he said. He added that Canada has always been much more concerned with appeasing export markets as 55 percent to 60 percent of the country's beef products are exported, which compares with only 10 percent of US production.