All Things Considered: November 2006

Disaster in Disease Handling.  "… it was only one cow. That was like saying Katrina was only a big wind and just one hurricane and that New Orleans will be back to normal within weeks."

Far be it from me to suggest that poultry producers should occasionally read another magazine, but the October edition of the Globe and Mail’s Report on Business Magazine contains a story that should be read by anyone involved or interested in livestock production, policy development and agricultural economics.

The story presents an alternative view of the Canada’s BSE crisis and Canada’s cattle industry. It is not a flattering portrait. In the hands of a less knowledgeable individual or a less skilled writer, it would likely have come off as a rant. But Andrew Nikoforuk, the author, is both knowledgeable and skilled.

He describes an industry and governments that became single-minded in their focus on the light at the end of the tunnel. They convinced themselves the tunnel led to a wide-open U.S. market and the light was growth and prosperity. Instead the light was a train in the form of lower cattle prices, increased consolidation and fewer and fewer producers.

And that happened even before the train, which was BSE, hit. We’re all familiar with the fallout from BSE. Billions of dollars lost by producers, export markets – which the industry had become dependent upon – closed, higher profits for the big packing companies (I admit I’d forgotten about that one) and federal and provincial governments chasing their tails around trying to remember whether their primary mandate was to preserve the health of consumers or trot out half-baked homilies to reassure consumers, re-open export markets and bolster the industry.

He cites an example of one official, confidently predicting that the U.S. border would re-open within six weeks of the first case of BSE. He cites Alberta Premier Ralph Klein saying it was only one cow. That was like saying Katrina was only a big wind and just one hurricane and that New Orleans will be back to normal within weeks.

It doesn’t quite rank with the British agriculture minister who, for the sake of the television cameras, fed his daughter a hamburger to show how safe he thought British beef was, but it comes close. I’ve always wondered what the daughter thinks of that public relations stunt now that she is older.

He also goes through the whole range of policy choices by government and the cattle industry that exacerbated the troubles caused by BSE. For example, he writes of the jump in the size and the consolidation of feedlots. He writes about the change in the production system that resulted in cattle spending less time on the range and more time in those feedlots. He writes about the delays in enacting strict regulations to prevent the feeding of rendered protein to cattle.

He also writes about an industry that became fixated on bigger is better. Big packers are better than small packers, big feedlots are better than small feedlots, big exports of generic beef are better than smaller sales of higher value, specialized product. And he cites the cant (even in the midst of a closed border) that beef is a North American, not just Canadian, industry.

It wasn’t always that way. Just a few decades ago Canadian beef was produced for the Canadian market and exports were just a tail on the larger domestic enterprise. But many in the industry dreamed of bigger things. They looked south and saw millions of consumers and a huge potential market.

Governments saw the same thing. Together they worked to rid Canada of the Crow Rate (a long-standing policy that kept the costs of shipping grain to export position down) with the goal of lower grain prices on the Prairies and increasing the amount of livestock production. The policy change worked, grain prices did drop.

What was not expected was that cattle prices dropped as well. Everyone seems to have forgotten that if you want to sell into the U.S. market you get U.S. prices without all those farm-friendly support policies that flow to U.S. producers through a compliant U.S. Congress.

The other thing they seem to have forgotten is that when profit margins get squeezed the only option is to focus on economies of scale and in that world small, mixed farms would have a tough time surviving.

Those that could best survive were those that were already big – like the U.S. packing companies that already dominated the U.S. feedlots.

The pressures on the Canadian industry were already immense when BSE arrived. After the arrival, the result was the phrase “shoot, shovel and shut up.” If a producer thought he had a sick cow that S3 was the best personal (and, in all other ways, the worst possible) decision someone could make.

Things have now returned somewhat to normal. Exports are flowing south, in the face of some ongoing opposition from a number of U.S. cattle producers and politicians. The consolidation of the industry continues. And prices and profit margins remain tight. What didn’t happen, according to the article, is that producers and government rebuffed calls to test all cattle for BSE, to try alternative production strategies and to test other marketing methods.

Everything is pretty much back to the way it was, albeit with a ban on the feeding of meat and bone meal, and everyone seemingly is once again focusing on the light at the end of the tunnel.

The last time the industry got so focused, seven sick cows cost producers $7 billion in lower prices, but this time maybe it won’t be a train.