For Your Information
The
Crisis in the Cattle Sector
The National Farmers’ Union (NFU)
recently released an analysis of the cattle sector in Canada, ‘The Farm Crisis
and the Cattle Sector’. It looks at the impact on farmers’ returns of free
trade and consolidation in the industry.
The study traces prices, adjusted
for inflation, from the depression to the current day. It found that prices
began to drop steadily in 1989, reaching their lowest level in May 2003, after
the discovery of BSE (“mad cow disease”) in Canada.
Excluding the depression years,
prices paid to cattle producers for finished steers in Ontario (that is the
price beef packing companies pay for a steer ready for slaughter and
processing) ranged from $130 per hundred-pound weight to a high of $280.
Prices went up and down over the 47 years between 1942 and 1989, with no
dominant trend.
However, starting in 1989, prices
began noticeably to move downward. Between 1989 and May 2003, prices
ranged from between $98 and $140. In
other words, during that period the best price was not much higher than the
worst price in the previous half century. After BSE was
discovered, prices dropped to as low as $50 per hundred pounds, and have since
only recovered to around $85. The average price between 1942 and
1989 was $174 per hundred weight – double the current
period.
The NFU asks what changed in
1989. The study identifies two significant factors –Cargill opening its first
meat-packing plant in High River, Alberta, and the ratification of the Free
Trade Agreement. The former was part of a major reorganization of meat packing
in Canada during which the number of plants dropped drastically, as did the
number of companies in the industry. Before 1989 the big four meat
packers were Burns, Swift Canada, Canada Packers and International Packers, but
together they only controlled half of the meatpacking in Canada. The
other half was handled by a network of regional meatpackers operating in every
province. Today, 89 per cent of meatpacking in Canada is controlled by
three companies – Cargill, Tyson (largely comprised of the former Iowa Beef
Packers or IBP group) and XL.
This consolidation led to massive
increases in efficiency in the industry. However, the NFU study finds that
during this same period of increased efficiency and productivity, salaries to
workers in the meatpacking industry declined, as did the prices paid to
farmers.
In terms of the second factor,
free trade resulted in a reorientation of Canadian cattle production to serve
the American export market. Prior to 1990, cattle exports from Canada
were fairly steady, with a dollar value of around $500 million/per year
(adjusted for inflation). Between 1990 and 2003, cattle exports to the
U.S. increased five times on a volume basis and eight times on a dollar value
basis, to over $4 billion a year.
The report notes: Export
overdependence created a trap…. “Canadian cattle farmers were urged to thrust
their heads into that trap. Then a single case of BSE sprang the trap,
pushing down prices that, for a variety of reasons, were already far below
historic norms.”
The study concludes by suggesting
several reforms that Canadian cattle producers could pursue to solve the
current crisis. Included in these is the creation of collective marketing
agencies. As the report notes, the power imbalance between farmers and packers
is dramatic. “Tyson is a $27-billion-dollar-per-year company; Cargill is
four times larger. Either company is ten thousand times larger than our
biggest family farms.”
Creating collective marketing agencies would result in higher prices by giving farmers collective selling power; ensure equitable market access for smaller sellers, ensure equal pay for animals of equal value and protect producers from packer power, retribution and/or abuses.