Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 2 - Evidence - Meeting of February 26, 2004
OTTAWA, Thursday, February 26, 2004
The Standing Senate Committee on Agriculture and Forestry, authorized to hear from time to time witnesses, including both individuals and representatives from organizations, on the present state and the future of agriculture and forestry in Canada, met this day at 8:38 a.m.
Senator Joyce Fairbairn (Deputy Chairman) in the Chair.
[English]
The Deputy Chairman: Honourable senators, welcome. We will continue our study on the BSE crisis in our country. We will hear from Mr. Jim Laws, Executive Director of the Canadian Meat Council. Mr. Laws will speak to the effects of the BSE crisis on the meat packers in the industry and the strain of trying to survive these last months. Mr. Laws told me that he is relatively new to his position, and we are delighted that he is able to appear before the committee today.
Mr. Laws, please proceed.
Mr. Jim Laws, Executive Director, Canadian Meat Council: Thank you for inviting us to come here and speak with you this morning.
I prepared a presentation that I used earlier this week at the House of Commons Standing Committee on Agriculture and Agri-Food. The Canadian Meat Council represents federally inspected plants, packers and processors of red meat in Canada. I will speak to the industry with a focus on BSE. Our major beef packers include companies such as Cargill, in High River Alberta; IBP-Lakeside Packers; Tyson Foods, in Brooks, Alberta; XL Foods, in Edmonton, Alberta; St. Helen's Meat Packers, in Toronto; Better Beef in Guelph, Ontario; Delft Blue, in Cambridge, Ontario; Bellivo Transformation, in Sainte-Angèle-de-Prémont, Quebec; and Levinoff Meat Products, in Montreal.
All of our members operate federally inspected plants that have invested heavily so that they comply with strict federal regulations. We support a single, federally-inspected food inspection system for all of Canada. That is our stance and all our members are compliant. We employ full-time, quality-control managers, and a federal veterinarian and inspection staff are present at all times during slaughter. Recent interventions to improve food safety recently cost about $1.5 million per plant.
I will summarize briefly the beef market in Canada. There are four different markets and it is truly competitive. Prior to the closures of the international borders after the discovery of one case of BSE in Canada in May 2003, the market was fully integrated with the United States with live cattle — beef and veal.
The first market is the young feeder cattle. Farmers and ranchers sell animals six to 12 months of age, averaging 600 pounds live weight to feedlot operators, who feed and fatten the cattle for slaughter.
The second is the slaughter cattle market. The feedlot operators sell young cattle typically aged 18 to 24 months of age to the packers at an average live weight of about 1300 pounds. It is from these animals that the packers obtain the prime cuts and the best meat.
The third is the cow market for older dairy cows and beef breeding cows, classified as D1 through D5, that are typically over the age of 30 months. Most of this meat is sold as stewing beef, ground hamburger and further processing.
The fourth market is for veal calves. Producers sell veal calves aged 18 to 20 weeks to the packers at an average live weight of 525 pounds.
What is happening currently? The markets are functioning. Fat cattle and cows are being actively bid on and purchased. Packers are selling meat and the plants are operating at near capacity. I have had many calls and comments since I started with The Canadian Meat Council in January about beef pricing, et cetera, but the packers do not sell directly to consumers. Rather, we sell to retailers; further processors, who make sausage and luncheon meat; restaurants; food service distributors; and wholesalers. We are only one part of the chain. It is important to note that the major retailers in Canada have made a decision that they buy meat only from federally inspected plants because they have grown to a national level and move product to every province. If they buy meat from provincially inspected plants, they cannot move it out of province. At the same time, they recognize that all federally inspected plants are Hazard-Analysis-and-Critical-Control-Point accredited, HACCP. The retailers are assured of the highest and most consistent quality from the best slaughterhouses for their Canadian customers.
Cow-calf farmers can sell the cows to the packer or feeder cattle to feed lots. The packer then sells to their customers or to the further processors, who have these same customers. Eventually, the meat reaches the consumers. The packers are an important part of the chain but we are only one part of the entire chain.
Right now in Canada, this number changes but of the meat consumed in Canada, 50 per cent is purchased by consumers at retail; the rest goes to further processors and to food service. Again, retailers typically buy the cuts that the customers want, although there are many other cuts that you do not see on the store shelves that go to further processors for other products. The markets move continually because it is a completely free market. For quality, grade, price and location it is based entirely on free enterprise.
In May 2003, a cow with BSE was discovered in Alberta. At the time, 70 per cent of the Canadian market was scaled to export in respect of meat and live animals. Right from the farm, right up through the packers and right through the other distributors, we were geared to an international market. That discovery of BSE certainly wreaked havoc throughout the industry for the farmers, for the packers and for everyone along the chain. There were high numbers of cattle backed up in the system as a result of that discovery of BSE.
A great deal of beef was stranded along the market line. We estimate that over $12 million in Canadian beef and beef products were stranded in Japan and Korea at that time. It cost us a lot of money to keep that product in frozen containers overseas. We also had demurrage and destruction costs that have totalled $18 million. We are working currently with Japan and Korea to reopen those markets but they tell us that we have to get rid of the backlogged product before we talk about anything new. As of February 13, 2004, there were 691 tons of frozen beef stranded in Korea — 510 tons in the container yard and 181 tons in bonded warehouses. That information reinforces that the seriousness of the situation is far from over.
The estimated financial loss to the packers sector is a minimum of $50 million. Figures include pre-BSE value of the cattle and the devaluation of inventory. The situation resulted in unfortunate job layoffs at the various packer locations across the country when the operators tried to reduce their costs.
The export markets were closed to Canadians and so large amounts of product that were sold to overseas markets had to remain in Canada and be rendered. Many cattle body parts have a significant value in Japan and Korea that do not have any value in Canadian consumer markets. Those factors were built into the assessment of the entire market situation to determine how much packers could bid for cattle; and that was certainly reflected in the competitive demand for cattle. That is now gone. Product such as beef tongues, kidney, tripe, feet and tails were highly valued in the Asian market but not here.
One of the packers used the example of a specific cut called "short ribs" that was in such high demand in Korea that that market took receipt of the entire North American production. Now, of course, all the short ribs are sent off to the further processing market for hamburger and other consumer products. We are only receiving about 20 per cent of what we used to receive.
The Canada Beef Export Federation in Alberta has compiled data in conjunction with the packers. We have estimated about $192 per head of extra value that we received before the BSE crisis that we no longer receive. That value loss is about 63 per cent.
The chart in front of senators has three pages. On the first page, you will see Canadian Offal and Thin Meats. The first item is Yoshinoya (9") plate that sold for $29.70 per head and now sells for $9 per head; tongues per animal sold for about $18.78 per unit but now sell for only $1.05 per unit. That is a difference of $17 per unit. The total list values $192.71 for every animal that was slaughtered. It had a huge effect on the price that packers could offer for their live animals. Some federally inspected plants in Canada deal with older cows over 30 months of age. There are new, Specified Risk Material, SRM, rules in place in Canada for these products for rendering. Those plants receive no value for those products. The estimate is about $312 per head for the older cows.
This situation, as the packers say, is very serious. One packer in Ontario has had a significant customer in Japan since 1980 and even has an office in Japan. Now, Australian and New Zealand packers have stepped in to fill the market void and this Canadian packer is back to ground zero. He has to start all over again — his markets have been severed in Asia since the discovery of that one cow with BSE. Even if the borders were to re-open tomorrow, he would still have to redevelop those markets. Things would not go back to where they left off because the Australians and New Zealanders have stepped in and gained those markets.
It is estimated that in the months following the discovery of BSE in Canada in May 2003, Canadian packers gave away 1.5 million pounds of meat to food banks across Canada.
Packers have now lost the credit that they used to receive from rendering of the meat and bones. With the significant number of cattle that are slaughtered in Canada, over the years packers have tried to use every last bit of the animal to be not only cost effective but also in consideration of the effect on the environment. There are huge numbers of animals in the chain. We used to receive a rendering credit for all rendered product but we now have a rendering cost; and the difference is $40 per head. The renderers used to have markets throughout the world for their rendered meat and bone products. Now, their markets are shut off and that has had an effect on what we receive for the rendered product at the end of the day.
The exchange rate effect on prices certainly cannot be underestimated. After BSE was discovered in Canada last May, a case turned up in the State of Washington in December. The Canadian dollar had strengthened and after December, U.S. beef prices began to fall. I was working on some information yesterday and asked people in the beef market industry what would have happened if nothing had changed, that is to say if the Canadian dollar had strengthened and there had been no other factor. What effect would that have had on the price of cattle in Canada because we are such an integrated market? It is estimated that perhaps it would have been as high as $230 per head. That is another huge bearing on what is happening in Canada right now. This is affecting all exporters, not just beef; it affects the whole sector.
Just prior to the borders closing, we were working on an equivalency beef grade AAA versus Choice USA grade. We have boneless meat moving into the United States and Mexico now but the Americans are not recognizing any equivalency. Therefore, we are paid less than we would be paid if we had a grade equivalency. That is another factor affecting the price that packers are receiving for meat going to the U.S.
I want to talk about slaughter capacity. The industry currently has the capacity to slaughter about 70,000 cattle per week. After the discovery of BSE, we dropped down to 30,000 cattle per week and then we went back up to 45,000 per week because of the new reality of serving the Canadian market. We are very happy that Canadians stepped up to the plate to eat lots of beef. That was a great thing because it certainly helped us. The Canadian Meat Council is a part of the Canadian Beef Industry Roundtable committee, which, along with the Commons Agriculture and Agri-Food Committee, requested that the packers get the slaughter numbers back up; and we did that. The slaughter numbers are now back to near capacity.
The next chart, Beef Supply at a Glance, shows figures on Canadian Fed Slaughter and is from the Agriculture and Agri-Food Canada Web site. These are young, 18-to-24-month fed steers and heifers. In May, June and July, the numbers dipped quite a bit but we are now back to pre-BSE levels. Another important factor is that the beef members own plant and equipment with an estimated value of $800 million. All of the equipment is designed to scale and is very specific to the industry. If you keep operating at the specified capacity, the cost goes down and you can afford to bid higher for cattle, et cetera. Much of the plants and equipment were left idle when operations were so drastically reduced. Some plants shut down and some were only operating at half capacity.
We employ an estimated 10,000 Canadians across Canada. I was in the Guelph plant last month. I can assure you that it is difficult, cold, repetitive and fast-paced work, and much of the work is done standing up. It is not easy work and to retain employees to work in such difficult conditions, employers have to pay and compensate them well. A recent study showed that there is a spin-off effect of six jobs created for every one job in the packer sector. People have said to me that this is terrible. The packers should not be making profits. Well the packers have to stay in business so they have to make enough profit to run their businesses to stay in business. If a packer went out of business in Canada it would not be a good situation for anyone in the industry. They can only afford to pay enough for cattle in a competitive market so that they can be assured of enough money at the end of the day to pay for the plant, the equipment and their employees.
Since July of 2003, Canada requires the removal of specific risk material, SRM, at slaughter from all cattle aged 30 months and older. That step was to ensure that beef sold in Canada meets the strictest standards and is safe for Canadians to eat. These SRMs would be the contagion agent for BSE to reside: such things as skull; brain; trigeminal ganglia, nerves attached to the brain; eyes; tonsils; and spinal cord and dorsal root ganglia, nerves attached to the spinal chord of cattle, in all cattle over 30 months, as well as the distal ileum, portion of the small intestine, of all cattle. That has added costs to the process.
We have to segregate cattle on the kill floor. Veterinarians check all the cattle at these plants using a dentition inspection. That has added costs but we are federally registered plants and we will not compromise any food safety issues for the sake of costs.
In respect of the veal industry, I will not go through all of the presentation material. I will summarize these for you in respect of the level of North American integration of this industry. The veal industry has developed and there are plants mainly in Ontario and in Quebec. They own the farms, the animals, the feed mills and the slaughterhouses for the industry. They are quite vertically integrated. We always encourage farmers to be vertically integrated and move up the value chain. The veal farmers have done that. There was quite a bit of movement in the industry. Live Holstein calves used to come up from Vermont and New York State and veal calves ready for slaughter were sent to the U.S. market. When the border was closed, they were stuck on both sides. One particular packer had animals ready to go. Keep in mind that they cannot hold off because the animals will age beyond the veal category. The packer had to custom-order slaughter because he did not have the facility to do it himself. Currently, other farmers are faced with paying twice as much for veal calves in Canada. Their situation is such that they cannot bring in live calves because the borders are still closed and so they cannot get the live cows they need to supply their farms to continue business. They are in a rather difficult situation.
New investment will be required in the future in order to comply with stringent animal health tracing regulations. If new regulations come into place, they will have to invest in new computers, software, et cetera. Plant upgrades are always required in order to stay competitive.
The markets do remain uncertain. We are sized for the North American market. If things do not happen soon, there will have to be some corrections of some sort.
One of the packers from Montreal told me yesterday that he has a special machine that mechanically removes some of the meat from the bones. He is no longer allowed to use that in Canada. He has a $1.5-million piece of equipment that is sitting idle. That is just one example of the situation facing the packers.
You do not have this chart. It is a summary of the new costs facing us. We are looking at $192 per head less revenue from the animal. The cow guys are getting about $312 less per head, because they cannot use any of these parts they otherwise used. It costs an additional $40 for rendering.
With the strength of the Canadian dollar, I estimate about $230 less per head. The market would have fallen to that price anyway because we are fully integrated. There is still product moving into the United States, and this has a serious effect on what packers can bid.
I have a series of slides of price at retail, which is not in my expertise. However, I was receiving many questions. What is going on? Who is taking advantage of consumers?
I shop every Saturday morning with my five-year-old daughter and I see many specials at Loeb and Loblaws. I thought that consumers would not believe me, because I work for packers so I pulled some data from Statistics Canada on round steak, sirloin steak, blade steak, stewing beef and ground beef from across the country. I understand they take prices four times a month across the country and do a weighted average price. If you compare, August of 2002 with August 2003, in most cases, the numbers have fallen. The same happened for September and October. I do not have the latest data from Stats Canada, but this data by Stats Canada shows that it is not true that prices at retail did not move. They did move. If there is a special on at the store, it does not count in the weighted average. When something comes on half-price, I buy a lot of it and stick it in my freezer. I am sure that many Canadians do the same thing. There have been many specials.
I forgot to bring the flyer in the Ottawa Citizen this morning. There is a flyer from Loeb. The entire back page is on meat specials. There have been many specials across the country.
When people call, I tell them I do not believe that that has not been the case, because I know that has been the case. There have been two-for-one specials and half price steaks and roasts across the country. Ground beef in Atlantic Superstore was selling at 95 cents a pound a few weeks ago.
People say to me that farmers are getting 50 per cent less. Perhaps they are talking about the cow market or the feeder cattle market. You cannot use the percentage game. You cannot say there was a percentage drop here because the costs have not fallen by a certain percentage along the chain. I try to explain to people how that works.
The retailers have huge costs, including refrigeration and staff. Everybody has to ensure that they cover their costs and stay in business.
The Deputy Chairman: Early in the game, after May 20, the packers were very concerned at the rapidity of loss of business. They were in a position in my province of Alberta, particularly in southern Alberta, of projecting lay-offs and even shutdowns of plants. At one point, the federal government, working with the Government of Alberta produced a work-sharing scheme that was offered to all the packing plants.
It allowed the employers at Lakeside to keep their employees on the payroll at a reduced level. Nonetheless, it kept them in business.
Did that occur in other packing plants? I know it was an open offer, and it had to be in conjunction with the particular province. Particularly, in the province of Quebec, was this taken advantage of at all by those plants that are totally integrated?
Mr. Laws: That is a good question. I only started in this job last month. I do not have the answer but I will get it for you.
The Deputy Chairman: It would be good to know because, at the time, it was not a decision that would benefit everybody, but it was a decision that enabled the workers to come to work and make a wage and keep the plant open. If you could find out that information for us, I would be very grateful.
Mr. Laws: I will find out for you.
The Deputy Chairman: Within the last week, in Calgary, a group of ranchers were coming together and wondering if the time had come when they should establish their own plant. I notice that, in Quebec, the owners of two plants that you mentioned owned the land and the animals on it.
What advice would you give to those folks in Alberta, who are contemplating trying to do this? It would be to their benefit, I suppose, if they could do it. It would be very costly to do it now.
I am confident the border will be opened at some future point, and life will hopefully resume as before. They then might not be in such a good position.
Could you take us along that path a little bit?
Mr. Laws: The example I used before was the veal calves. Some of the packers own some feedlots. Some of them do that to ensure that they have enough supply for their own plants.
As you mentioned, before the BSE announcement in May, farmers in Canada had an option to send cattle across the border to slaughterhouses in the United States. At the time, there was a very weak Canadian dollar, and they could afford to be competitive and send their animals to the U.S. Now, with the Canadian dollar being stronger, if the border were to open, perhaps it would not be the same.
When packers do invest a certain amount to build these plants and get these operating, they need to operate at capacity to cover their costs. That is how they determine the capacity for the plants.
If the farmers in Alberta were able to guarantee their own supply, at least they would not have to worry about that. There is a huge investment in plant and equipment. I would strongly encourage them to comply with federal regulations because they would be able to ship their product across Canada and overseas as well.
Senator Gustafson: Your organization represents the meat packers across Canada. Did the meat packers receive government support, either provincial or federal? I see the Alberta government put in $350 million of subsidy. How was that distributed? Did the meat packers get a portion of that?
Mr. Laws: That question was raised as well on Monday at the House of Commons standing committee. Some of my packer members were there, and they were able to answer that some of them have now received up to half of what was requested. However, I do not have the details from all the members on how much was received in the various provinces.
I believe it was only offered in provinces where there was a cost-sharing between the provinces and the federal government. I can get that information for you on how much each one got or how much they got in total.
Senator Gustafson: The big supplier of funds there was the Alberta provincial government. I would imagine that those monies were only channelled to Alberta plants.
Mr. Laws: Yes, if that were the case, it would have been to those plants. There were considerable funds, of course, offered to help the farmers get their animals off to market so they could be given the opportunity to accept a lower price for the animals, given the reality of the market situation.
Senator Gustafson: I believe that showed up in your numbers here, where Alberta suffered the smallest percentage of carry-over — I think it was 6 per cent or something. Did I get that right?
Mr. Laws: I do not think I have that here.
Senator Gustafson: There was one slide here on percentages.
Mr. Laws: I do not recall that percentage by province.
Senator Gustafson: I guess — coming from a farm background and still active — our farmers are in a desperate position. We are being told by statistical people that they are in the minus income bracket. There is no money for them. I do not know what other profession could survive under that situation.
Is it your observation that maybe Canadians expect to eat too cheaply? The average Canadian spends less than 9 per cent on their food — it is not at issue — and probably most of us, I include myself, eat too much. We could probably get along on half of what we get along with. Food has not been a priority. Senator Sparrow and I were discussing whether we should be telling farmers not to breed their cattle? If this goes on, what steps should we take?
Mr. Laws: That is a very good point. We agree this is a terrible situation for all of Canada. It is not great.
We know that we have had some of our members — and our past-president, who has been working with the Canadian Food Inspection Agency, CFIA — down in Washington many times. I think the answer is clearly, get the border open. As soon as they can finally come to agreement on some sort of harmonized rules, where they can agree on how we will treat all the rules surrounding specified risk materials and treatment of animals at slaughter, then we can get the market back.
The Japanese and Koreans have sent the Americans the message that this is an integrated market in North America and you cannot draw a line there. So many Canadian cattle have moved into the states and are so prevalent everywhere. They are saying, "You guys have to get your act together in Canada and the United States."
The Canadian Meat Council wants those borders to open and we want a common set of rules whereby we all know how to function. That would be a good thing. It is tough. A lot of feedlot operators cannot bid as much as what they would like to because they do not know their risk. They do not know what will happen. It is a pretty nasty situation.
I saw the latest numbers from the Organization for Economic Co-operation and Development, OECD, on the percentage of what Canadians spend on food, and I agree with you. By and large, we are very fortunate. I am 45 years old and I can see stuff in the supermarkets that, when I was growing up, was never available. There are all kinds of food available all the time. Corn on the cob is available in January, and blueberries. Everything is available all the time and it is very inexpensive for Canadians. It is one global market; food moves around so easily.
If things do not change, there must be some sort of correction. We cannot double our slaughter capacity overnight. There are huge investments in plants and equipment. All of a sudden, if the borders were to open and we do not have supply, then we are in trouble, but we cannot double production overnight anyway. These are very uncertain times for everybody, and it is pretty tough.
Senator Gustafson: This committee, for the last 10 years that I have sat on it, has heard devastating reports from all aspects of agriculture. It is my opinion that it has only compounded and gotten worse. There have been no real solutions to the problem.
Let us say that the American border did not open. Personally, I think there is very little chance it will open before the election is over in the United States, but if you gave it another year, we have one crop of calves coming on the ground now, on the way now, and another crop will be on the way by November. I do not think we can visualize how drastic this will get. As Senator Sparrow said to me, perhaps we should stop raising cattle. Something has to be done.
Mr. Laws: It is particularly devastating in Saskatchewan, where a lot of work has been done to encourage farmers to diversify away from grain into beef. We all know that. Now look at the situation because of one cow in Alberta, with BSE.
I recall that the previous Minister of Agriculture and Agri-Food was at a meeting once and said that we have been lucky so far; all it was going to take is one accident by somebody and we are all in trouble. That is exactly what happened, and we are all feeling the impact.
Senator Gustafson: Even what happens in Japan impacts the public here because of the media — 10 cows found with the disease, and another one shows up. Even the chicken situation does not help this because you have a jumpy public out there.
Mr. Laws: Exactly. Look at the retail. Look at the pork sector. Even as prices of beef do fall — because there have been many sales on — that forces other products to lower their cuts to compete with this beef that is on sale, so it affects them. It wrecks the market for everybody. It is a nasty situation.
Senator Gustafson: It is so far reaching. For instance, I heard the other day that people who sell cattle trailers have not sold a trailer, and they are not going to be selling any trailers to move cattle because there is no incentive in the industry anymore. That goes from the saddle shop, right down to the boots.
Senator Hubley: Honourable senators, I come from the East Coast, so, to me, the magnitude of this is just staggering. As I reviewed your brief, I wondered where is the scientific evidence? Where is the research being done? Is there any segment of the industry doing the research?
We watched the situation in the U.K. and knew that, sooner or later, we would run into what we are dealing with today. Does your industry support research into animal health so that we can address some of these problems before they overtake an industry? A great deal of money has been lost and there has been incredible hardship, especially given the size of the industry and the scale of our agriculture these days. It seems to me that there has to be more money from the industry and government on down for the protection of those industries. Does your industry deal with that? Does that come up at meetings? Could you give me some background?
Mr. Laws: Absolutely. I know that many of our members, including one of our staff members, participate regularly on research committees in Canada. I received a letter at my office the other day that was joint correspondence from Canada, the United States and two other countries containing a proposal to support $90 million for research into a vaccine for foot-and-mouth disease. For $90 million they will try to develop a vaccine to wipe out or better control that disease.
We all know that BSE is a terrible situation for Canada but if we had foot-and-mouth disease, it would make BSE look like a picnic because it would affect many more animals. As you know, it was only two or three summers ago that Holland was affected by foot-and-mouth and it was a serious situation. The disease still exists but there are plans for dealing with it.
A veterinarian was on the CBC national news several times. He works out of the University of Saskatchewan and is very knowledgeable. I believe he was hired because of his knowledge of BSE and what happened in Europe. There is a great deal of research coming out of Europe on that situation. The report of the Office International des Epizooties, OIE, stated that the United States should not be so hard on its trading partners for one case of BSE. They are looking at the situation right now. Definitely, research is an important part and we have a director of research and regulation working in our office. It is absolutely critical.
Research is one of the main strengths of Agriculture and Agri-Food Canada. They have expended a great deal of effort on research and animal protection. We have a weekly conference call with agriculture and their officials have been great at keeping us informed. We also have a conference call between our members and someone from the Canadian Food Inspection Agency, CFIA, to advise us on the progress of talks to resolve the situation.
Senator Hubley: Do you agree that the testing of every animal is not necessary?
Mr. Laws: We agree that it is not necessary. Science shows, for example, that you will not detect BSE in animals under 30 months of age; you simply will not find it. They have done extensive tests whereby they have fed these animals significant amounts of the contagion agent and BSE has not been found in those animals. It takes several years before the contagion is present. In our market, I believe it is five out of every six animals slaughtered, I think that is the right number, are less than 30 months of age. All the export market was fed cattle and not the older cattle.
Senator Hubley: In the recent outbreak of BSE in Japan, were any of those ten cattle that they discovered under 30 months of age?
Mr. Laws: I do not have that answer so I cannot confirm that.
Senator Hubley: I thought that I had heard two of those animals were under 30 months of age.
The Deputy Chairman: That is right.
Senator Hubley: When I heard that, it just seemed to wipe out the assurances given. I am thinking of what the public will accept when they hear that. First of all, Japan set a standard that gave the public a certain level of comfort: that every animal would be tested. However, with these new cases it is different, and I understand that possibly two of those cases were younger than 30 months.
Mr. Laws: Of course, the Canadian Food Inspection Agency has a schedule to increase the number of animals tested in Canada. They will pursue the so-called "downer" animals — animals that cannot walk — to increase the numbers tested and they will target animals of a certain age in which they are more likely to find the contagion.
Senator Hubley: I have two quick questions on the presentation. "Reading the teeth" is an unknown thing to me. When you tag an animal, what is the information on that tag? They record critical information on the animal. What information is included?
Mr. Laws: It is all read by a bar code scanner and I understand that it provides the date of birth and where it originated.
Senator Hubley: This is the sorting.
Mr. Laws: In older animals, certain teeth will be in place that the younger animals have not developed.
Senator Hubley: Would that indicate the birth of the animal, or is that information on the tag?
Mr. Laws: It is, but there has to be a second assurance of accurate information.
Senator Hubley: Some of the information on the tag might not be correct.
Mr. Laws: I am not saying that but it is an extra step.
Senator Hubley: It seems quite labour intensive, I would say.
Mr. Laws: It is but certainly worth our while. Hypothetically, a tag could go missing and that happens occasionally. If a tag is missing, then it is another good reason for doing it.
Senator Hubley: That just did not make sense. The second quick question is on the rendering credits cost. You send materials away. How do you dispose of what must now be an increase in by-product?
Mr. Laws: All these extra products are sent down a chute in the plant to be trucked off to the rendering plant where the protein and animal fats are separated.
Senator Gustafson: I wanted to say something about the tagging. Up to now, the cattle just went through with brands on them and maybe not even a brand. There was not much concern about it. Now they are starting to enforce the tag in the ear that tells where the animal came from. That complicates the work for the farmer. He has much more responsibility and work.
Mr. Laws: It is my understanding that Canada's system of animal identification is much more advanced than the American system.
Senator Gustafson: That raises the question of Canadians: Are we becoming so pure in all of this? There are places in the world, where if something like this happened — one cow with BSE — no one would have heard a thing about it.
Mr. Laws: To our credit, we were able to determine where these animals came from fairly quickly. The Canadian Food Inspection Agency could track it back.
Senator Gustafson: It may have long-term benefits, because I do not think there is a country in the world that has gone to the extent of trying to make sure that our animals are healthy in every way. Hopefully, it will return a good reward to our country. I believe it will.
Mr. Laws: Farmers who have some very excellent animals will get a premium, depending on how they are marketing their animals. If it is in Ontario, and they are marketing their animals on the rail, where they are getting a premium for a certain grade, it is to their advantage to have that animal well identified to ensure that payments get back to them, if they are their animals.
The Deputy Chairman: For the record, when the international panel was overseeing and reporting on how we had conducted ourselves with that first cow, they went out of their way — following from what Senator Gustafson said — to give us top marks in how our whole process had been set up and how well it worked.
Senator Mercer: This committee has a difficult task. Every member of this committee feels a great deal of sympathy and empathy for the farmers. We also feel a great deal of empathy and sympathy for the plant workers and for the consumer.
I would like to zero in on the cost of all of this. We have been told that the packers' gross margin for the period of September 22, 2003 to February 16, 2004 was about $431 per carcass. That compares with $144 per carcass one year ago during the same period. How do you explain this huge increase in gross margins at Canadian slaughterhouses?
Mr. Laws: I have seen some of the data that you might be referring to, and I am not at all convinced that they have taken everything into account. Gross margin is one thing, but if you are looking at the revenues that we are getting from the entire animal, looking at the extra costs that must be incurred, et cetera, I am not convinced they are in those gross margin numbers. I do not know exactly what you have in front of you, however.
Senator Mercer: Let us go to your numbers, then, for a moment. You have given us, in your report, numbers from Stats Canada. Before we get to that, let me give you some background. In the Stats Canada figures released in February, the price of cattle and calves dropped 50 per cent between May and July 2003, as measured by their farm product index. According to the consumer's price index, retail beef prices did decline 14 per cent between May and September 2003, but this decline was far short of the 50 per cent drop in cattle prices. Can you explain that?
Mr. Laws: Yes, I can. You are probably quoting from the cow market rather than the fed-cattle markets. Fed cattle were trading at about 85 cents per pound last week — 80 to 85 cents; last year at this time they were around $1.15, something like that, so maybe they are down 25 per cent. This is for the fed-cattle market. This is not the old cows. If you look at the old-cow market, we have lost a lot of value out of those animals.
For all the stuff that is now sent off to rendering — and the value of this meat that goes to trim and to hamburger — the value has gone way down. There is lots of it in Canada right now, and packers are not getting as much for each animal as we used to get. That is the fact of the matter. We cannot afford to bid more for the animals than we will get out at the end of the day.
The price of fed steers and heifers is not 50 per cent of what it was last year; it is about 75 per cent of what it was last year. The Canadian dollar has strengthened by a significant amount, so that has been a factor. We have had all these extra costs in here, so there are a lot of different factors. We have lost our international markets, and it is a pretty serious situation.
Senator Mercer: We had a farmer here last week. I think he would dispute your statement and tell you differently about the cost of the cattle that he has sold from this day until before the BSE. He had statistics that scared me.
You and I have something else in common. You mentioned that you were out grocery shopping with your five-year- old daughter on Saturday morning. For years, I have been the person in my house that buys the groceries. I am also the cook, by the way, as an aside. I am familiar with the beef in the grocery store because I do the shopping.
I will talk about a prime rib roast, which a lot of people buy. In December of 2000, the price was $16.13 per kilo. Then the price went up in December 2001 to $17.74; December 2002 to $18.62; and in December 2003 to $18.80. I do not see a lot of a decline there; and when I am buying the roast for Sunday dinner, I do not see much of a bargain there.
Why did the price for this cut of beef rise to a higher level by December 2003, when we are still in the middle of the BSE crisis? Also, if the price farmers are being paid for beef has dropped in half — I am sticking with my 50 per cent number because that is what I have learned so far in this process — where are the savings to the consumer, and where is the money going? We know the farmer is not getting it. I know, as a consumer, I am not getting a bargain. We have people here in the middle. My mission on this committee is to find out who is getting the money.
Mr. Laws: Again, I do not agree the price of the animal that goes into the prime cuts is sitting at half of what it was last year. There is a market of feeder cattle that goes off to the feedlots. That has been hit as well; but they are not for slaughter, they are heading off to feedlots. It dropped about 25 per cent of what it was before. Again, I showed you lots of flyers. There have been all kinds of sales here in the flyers. I should have brought the Loeb flyer from this morning.
Senator St. Germain: May I have a supplementary? Perhaps you are right on fat cattle, but what this senator is talking about is that 600-pound calves have dropped 50 per cent. That is where the rancher and the farmer is taking a beating, and where he cannot figure out where the anomaly comes in. I agree with you probably regarding fat cattle, after they have been fed; but yet the rancher is getting 55 or 60 cents a pound — because you can buy cattle in British Columbia at the auction right now, 600-pound calves for 55 to 60 cents — and they were selling for $1.20. This is what Senator Mercer is talking about.
Senator Gustafson: In reality, though, that beef roast that he gets for dinner comes out of a 1,300-pound cow; and the feedlot has lost about $300 a head feeding that animal from 600 pounds to 1,300 pounds. They do not butcher that calf.
Senator St. Germain: I realize that. However, all the senator is saying is that the price to the ranchers has dropped 50 per cent. He is accurate on that. What Mr. Laws is saying is that it dropped 25 per cent.
Senator Gustafson: I am making the point that the feedlot operator has lost money. I talked to Poundmaker in Saskatchewan; they are losing $350 a head on 25,000 head right now. That is their numbers.
Senator St. Germain: Yes, because they had originally paid a higher price for those cattle, and they have been feeding them right through. However, on the present-day purchases, they are paying 50 per cent less to the ranchers and farmers than they were.
The rancher is getting 50 per cent less, as Senator Mercer said, but he is still going to the market to buy meat. He is paying more for his prime rib than he was before BSE.
Senator Sparrow: That product had not hit the retail market yet.
Senator Gustafson: No.
The Deputy Chairman: This is a good panel discussion, but I would like to ask Senator Mercer if he had finished with his question.
Senator Mercer: You are correct. The farmers will educate this city boy on cattle. However, no one has told me yet.
Mr. Laws: It is right there on the chart.
Senator Mercer: That is a nice chart telling me how the cattle are raised and how they are marketed, go to the packers and reach the restaurants. However, on the far right of your slide is the consumer, and on the far left of your slide is the farmer. The farmer, we know, is getting screwed by this process. I am telling you, as a consumer, that I feel pretty much the same way because I know the farmer is getting less for his or her cattle and I am paying more for the beef at the other end.
I want to know who is making money here? You are telling me that it is not the packer. You are saying that you laid off people but now production is back up again.
Somewhere in this equation someone is taking a bigger piece of the pie. It is not the farmer. You are telling me it is not the packer. Will you now tell me that it is the retailer?
Mr. Laws: No, I will not. I will say that no one is making excessive profits. We have to make enough money to stay in business.
Senator Mercer: I am not disputing that.
Mr. Laws: If not, we will lose business in Canada. That situation would will not be right.
We are not getting the revenue out of the entire animal as we did before. That is a fact. I gave you independent information. If we are not getting as much out of the market as we were before, we cannot afford to bid on the cattle as we did before. That is the way it is.
There have been great sales at retail. I am not the retail expert, but I have shown stuff. I believe consumers buy when they are half price and put it in their freezer. The prime cut you are talking about comes from prime animals. It does not come from the calves going to the feedlots.
I do not represent the feedlot owners, but I know that they lost a lot of money. They are larger farmers, but they can only afford to bid for animals what they think they will get at the other end. They are in a really difficult situation.
It is a nasty situation. We hope the borders will open that so that we can market again.
Senator Mercer: You told me the feedlot owners are not making any money. The packers and the farmers do not make any money. I told you about the consumers. We are eliminating some people here.
I want to zero in. If there is more money being paid by consumer, I want to know to whom the money is going.
I know that the farmers are not getting it. I am paying more at the grocery store. You told me that the feedlot people do not get the extra money. The next thing you will tell me that the restaurants and distributors do not get the money.
This is fictitious money that evaporates as it is put it into the system when I go to Loblaws on Saturday.
The Deputy Chairman: Senator Mercer, you and Mr. Laws can duke it out after the meeting.
Senator Sparrow: What percentage of capacity are the slaughterhouses at now in production as to what they normally would be?
Mr. Laws: We are near capacity. We have a maximum of 70,000 cattle per week, and we are running near capacity.
Senator Sparrow: What you are producing is sold on the Canadian market?
Mr. Laws: No, we have quite a bit of boneless meat that is moving into the United States since early September and quite a bit into Mexico. Mexico closed their borders to the Americans on December 23, or whenever it was, therefore, we are now getting product into Mexico as well.
Senator Sparrow: Has the percentage increased or decreased in the last year for the export of boneless, boxed beef?
Mr. Laws: The percentage of meat going into Mexico has increased because the Americans enjoyed more of that market than we do. However, there is a fair amount going there. I would have to pull out the statistics on the exact percentage of what is happening.
Senator Sparrow: You are talking about how much product we are exporting now. What percentage is that of what we were exporting a year or two years ago. Do you have those figures?
Mr. Laws: I can get those for you and get back to you.
Senator Sparrow: That is fine.
Mr. Laws: They are all boneless prime cuts right now.
Senator Sparrow: Historically, in the slaughter and packing industry, prior evidence, and I do not know how far back, was that the packing and slaughterhouses did not really make any money on their boneless beef and prime cuts. The profit that they made was really on the offal. The profit basically came from that because the competition was high in other areas.
To relate to Senator Mercer's question, if you cannot sell the total product of the bones and the meat — the offal — that is a great increase in costs for production in the plants.
I do not see any loss that someone is escaping with that we cannot see. People who buy the cattle initially and resell them for finishing are not making any money now at all. The amount of cattle they are handling is much less than it was.
We deal with everything in this country on volume so the profit is based on volume. When that volume is cut by 50 per cent, that market is not making any money.
The truckers are not making any money because they are not moving it. They are selling their trucks because there is no market money there. We know that it goes to the feedlot operator. He is not making any money. He is in a desperate position throughout Western Canada. There is no question with that. There are big losses there.
As we move that into the slaughterhouses, they are not making the money for that offal, which had been the source of their main profit. You have to move that into the retail market. That price still must remain high to offset the costs by the packers. I do not see the retailer making any money.
I know that you can buy a three-foot package of hamburger. That hamburger would have been normally $3 a pound. It is available now across the country at $1 a pound — not every day. When they are producing hamburger, they will produce it in large slabs, and it will be selling for $1 a pound. That is cheap meat. The next week the price goes up because there has not been a slaughter of those older animals to make that hamburger.
It is important that we know this so that we can get back to the consumer. We do not want consumers feeling that they are being robbed by this industry, because I do not think they are. I am backing up what you are saying. Consumers must realize that it is value for their money. No one is robbing them in process. We can continue eating beef with confidence.
We are up to per capita consumption. I thought it was in the 65-pound range per annum. Someone mentioned yesterday 75 pounds. It is only 20 years ago that we were eating 90 pounds of beef per capita.
It will take a long time for us to get back, if ever, to that figure of 90 pounds.
Senator Gustafson: How long can they freeze the beef? My wife tells me that half a steer has been in the freezer for six months and it's time we moved it along.
Mr. Laws: That is a good question. I will give you my very green answer. I believe it depends on how well it is wrapped. If it is wrapped well and does not dry out, you can freeze it for a while. I will get back to you with an intelligent answer to that one.
Senator Sparrow: Freezer burn starts at six months.
The Deputy Chairman: If you put it in plastic wrap before the foil wrap it will last longer.
Senator Sparrow: There are some questions that I would like Mr. Laws to follow up on.
The Deputy Chairman: Yes, Mr. Laws will send the responses to the committee.
Mr. Laws: Yes.
Senator St. Germain: With regard to the retailers, I cannot see where they are losing. The only thing that I can see is the per-unit price may be down. If anyone is riding out this storm without being injured at all it is the retailer. If they are selling hamburger at $1 per pound and the rest of their products — the prime cuts, for example — are basically the same price as before, then I cannot see where they are taking a beating at all. They have faced a slightly reduced unit sale in hamburger. Other than that, I cannot see it.
Mr. Laws: To be fair to everyone along this chain, companies are in business to make a profit and therefore survive; that is their mandate. If someone takes a beating and goes bankrupt, no one along the chain wins. Each one on the chain needs the others on the chain. Farmers are absolutely important to the packers and everyone else along the chain but the retailers are equally important to the farmer. The farmer needs the retailer and the packer. Everyone needs each other. It is to no one's benefits if someone loses money along the chain.
Senator St. Germain: No one is against profit; where I come from, everyone is for profit. However, I am saying to you that the one being hit the hardest is the cow-calf farmer and the feedlot operator. There is nothing worse than having a commodity on hand for processing and you cannot process it.
As an observation, I do not think the hurt is spread evenly along the chain. I do not want the retailer to go broke but the retailer is not experiencing the same level of loss as some others along the chain, from the cow-calf farmer to the consumer. I do not know where you sit as packers but you are most likely in a tougher position. The cow-calf operator is a price taker in that he cannot make changes to the price. He just sits there at auctions. I have been there when there are two buyers for my cattle. They are talking and laughing and every now and then one will raise a hand. It is awful. I am asking for your reaction to my remarks. No one wants anyone to go broke and we would like everyone to do well; there is no question about that. However, someone in that chain is suffering the least of all the sufferers and that would be the retailer. Do you agree?
Senator Sparrow: That is true.
Mr. Laws: I do not know if I agree or disagree.
Senator St. Germain: You are the expert.
Mr. Laws: I do not have access to their profit statements. I suppose you could look at the publicly traded companies to see how they are doing but I do not know if they break it down by category. As well, they have put a great many products on sale. Of course, they can put it on sale when they buy it for a better price than before.
Senator St. Germain: The packers have been giving it to them at a better price, have you not?
Mr. Laws: Definitely since the year before, we have sold them some parts at reduced prices. Absolutely, because it is a supply and demand situation when there are all kinds of trim and ground hamburger around. Supply and demand will dictate because it is a completely free market. When there is an abundance, it is passed on to the next level at reduced prices. The packers are faced with competition too and there is no price fixing amongst them; they do not know what the others are pricing at.
Senator St. Germain: How many major packing plants do you have in Western Canada?
Mr. Laws: Would that be of beef in Western Canada? We have three major packing plants.
Senator St. Germain: There is not much competition, then.
Mr. Laws: Those are the federally inspected packers. There are also smaller, provincially inspected plants, as well as others but they are not my members so I do not have a list of the names. However, in Ontario there are quite a few smaller beef slaughterhouses. They also bid on cattle. Farmers have options, at least three large ones, and that is better than one or two — it is still competition. There is much competition happening at the feedlots with the sealed bids. It is competitive. In the retail sector, there are probably an equal number of large players in Canada.
Senator St. Germain: I am not saying that there is not but I am saying that the cow-calf guy is just getting killed because of the situation.
Mr. Laws: I know that many feed operators have huge debts. We are not just talking about their costs to feed because they also have debt load servicing to pay. What decisions did those individual farmers make in their businesses and at what time? Last year, prior to May, things were looking pretty great so they probably expanded and then got caught in a difficult situation.
Senator St. Germain: I do not think we are blaming anyone.
Senator Callbeck: I have a question, Mr. Laws, on harmonization and the effect that will have on your industry. As you know, Canada, the United States and Mexico have agreed to increase harmonization with the BSE regulations. Now, what effect will that have on the packers in Canada?
Mr. Laws: We are strong supporters of harmonization to have the same rules on both sides of the border. In Canada, we have federally inspected meat plants and provincially inspected meat plants. We have different sets of rules within Canada, and we do not support that. Rather, we support a North American set of rules. It would be great if everyone in North America played by the same rules, then no one could block the border and say, "we do not agree with the Canadian methods because they are not equivalent to ours." We believe it would be a good thing. In the North American context, if changes were made to the rules governing specified risk materials, SRMs, or if there were talk of changing the rules for animal feed inputs, then we would be very satisfied provided the changes were made in the other countries as well.
Senator Callbeck: If those changes were made, would the effects on the industry in Canada be positive?
Mr. Laws: It would depend on what changes were made. We are saying that if you are to make changes, ensure that we do it together so that we can get this border back open and live animals and meat can flow freely across the border, which it needs to do. The whole industry in Canada is scaled to a North American market — from the farms right through to the slaughter, exporters, et cetera. That is what happened. The borders closed.
Senator Callbeck: Give me a couple of examples of what we are looking at to harmonize here?
Mr. Laws: For instance, harmonized rules on specified risk materials — if we knew what are these specified risk materials we have to remove from the animals in order to guarantee or comply with some new regulations, then we all know that we have the same rules in place. Right now, for instance, there is no hamburger moving south of the border, so if we can get some common rules, we can get that going back. There is boneless meat and prime cuts moving into the United States right now. Then, for instance, live calves — these guys who have veal farms in Canada want to access more Holstein young male calves coming up from Vermont and New York state. The science shows that they are so young that they cannot possibly have any contagion in them. Why cannot we let those animals into Canada and get those things going? Canada is trying to negotiate some common sets of rules for those young animals. Maybe they are waiting for Washington to move. Every week we hear of meetings happening in Washington, and we hope they will get it going.
Senator Gustafson: This is a general question. Our governments, provincial, federal, and all party governments, have encouraged production; for instance, around Brandon, they built in the last two or three years 13 new hog plants, producing more hogs. Maple Leaf moved in there, processing it, with the idea that we can just raise larger volumes of all these hogs and beef and chicken and export our market, and we are in an awful mess. The hog producer is hurting as much as the beef producer is in this business.
Are you having meetings with other people in Canada in these kinds of industries, looking for a solution?
Mr. Laws: Definitely. We also have members that are hog slaughterhouses as well, and we know this is the situation. Again, at retail levels, when prices for beef fall, that affects the other markets — pork has to fall, and chicken has to compete, too. Whatever is on sale, that is what people will buy. Everybody is affected. It is an amazing situation.
Senator Gustafson: Even in Saskatchewan, where I come from, the provincial government bailed out a bunch of the hog producers a few years ago. Then it looked, for a time, like everything was going great, so we started building more, and companies were formed and larger capacities and so on.
We may have to take a look at this whole scenario, and say this is not working. In Canada, and North America, our standard of living keeps going up. Probably those people in Haiti could eat a little bit of this beef and pork, if they could get it, but we cannot afford to give it to them because of our high standards. We are kind of boxing ourselves into some pretty serious problems here, if we do not find some solutions.
Mr. Laws: A lot of Canadian agriculture is geared toward export, and that is an example of what happens when disaster hits. Look what it does to the country. Does that mean we do not move forward? I do not think so. We are trying to build strong international rules for trade, so people can say, "this was one case of BSE." We need to try to get some discipline in the trading sector so people can be more focused on the science and let us get these borders open. You raise a very good point. There is always risk when you build your markets to be so much dependent on whatever sector it might be. When you look at the global situation, I do not see any answers. The Canadian Wheat Board, for instance, told us that the price of wheat has to drop X number of cents. It is down to the point where it is not break- even anymore. Input costs are more than what we are getting. This seems to be happening in the whole food process from a global standpoint.
I wonder whether people like you, who operate the big operations, and are spokesmen for them, how do they see this thing coming together? Are there any answers?
Mr. Laws: We have some major members, Cargill and Lakeside, who own processing facilities in both Canada and in the United States, and that is what the large companies are having to do because the markets are going international. Look at McCains and Saputo Cheese — all these companies have located all around the world.
Senator Gustafson: McCains have not lost too much money over the years.
Mr. Laws: It is becoming a global market place.
Senator Mercer: I am not going to go back to my pricing issue, only to comment that you have to look at your own package that you provided here on pricing, using Statistics Canada data. If you follow the logic through every cut of meat that they are referring to, you will see a steady increase in the price. You see no savings to consumers.
That is not where I am going with my question.
I am concerned about something you said earlier in your presentation. You talked about the packers also being producers in one way, where they operate both feedlots and slaughterhouses and they purchase cattle from independent Canadian cattlemen for slaughter.
I am concerned that there is room for manipulation in the price by that group of people. You will quickly tell me that that would never happen, but I want to remind you that, last week, a Chicago court found that Tyson Foods was guilty of illegally manipulating the cattle market under the Packers and Stockyards Act of 1921. The impact of this manipulation on the beef industry was found to be in the order of — listen to this number — $70 billion U.S. That is a lot of money. Tyson was fined $1.28 billion U.S. in damages — not small change there either.
Can you explain to the committee how Tyson was able to manipulate the cattle market? Can that happen here? Does that manipulation happen here or can it happen here?
Mr. Laws: I am not an expert in what happened in Alabama. I cannot explain what happened in that specific case. However, we were asked that question on Monday as well. There was a packer from Ontario who was at the standing committee meeting, and he stated they have some cattle — it amounts to 3 per cent of what they slaughter in their plant in Guelph. Three per cent is not a significant volume, by any means.
I do not know the percentage of what other packers in Canada have in their feedlots, but I know that that number varies. It depends on how many they have at different times of the year in their feedlots and what they have. Our packer members are also very happy to speak to anybody from the Competition Bureau who wants to talk to us.
I do not believe that there is a lack of competition in Canada. There are buyers. It is bid competitively, and they run their operations as kind of stand-alone feedlot operations. They have to make some profits as well on that side of the business, or they do not fill their feedlots.
Senator St. Germain: Of Cargill, Lakeside and XL, do any of them have feedlots?
Mr. Laws: Yes, they do. I believe Cargill and XL has feedlots. I do not know if XL does.
Senator Mercer: The BSE recovery program has put money into the system. Has any of that money gone to packers?
Mr. Laws: That question was asked earlier. Some has gone to packers, but only half of what has been asked for so far. I will get more details.
Senator Mercer: The Government of Canada can never give, nor can any government, as much money as is requested. I am interested in how much was given.
I am pursuing the money given to the farmer and the price paid by the consumer. Was there money put in the middle? How is that reflected? Does that go right to the bottom line for the packers? Where did that money go?
Mr. Laws: In the middle of the summer there were huge losses because there were products purchased prior to the event at higher prices. There were great losses in product on its way overseas. I can get more detail of how much the packers received from the four provinces in Canada that participated in this cost-sharing initiative.
I heard that $30 million in total was offered. Again, that is all that I have heard. I do not have the details, but I will get them for you.
Senator Sparrow: I think the witness was about to answer some of my questions, but we were cut off before he had a chance to answer. For example, I asked about the value and percentage of offal and how the change in the offal market affected the cost of operation. Will you answer that?
Mr. Laws: Yes, I think your question was whether we were making our profit from the offal.
Senator Sparrow: I asked if that were the case historically.
Mr. Laws: They look at profit in terms of total revenue from all sources and then expenses on all sources. Over the years, they developed markets in Asia that gave so much more value for the extra products. The packers could afford to bid more for the cattle that they were getting, knowing that they were getting more revenues from Asia. If they did not have that revenue stream in the past, they could not have afforded to bid so much for cattle on the open market. It was all part of the equation of revenue and expenses.
Senator Sparrow: You cannot give me the percentage of gross profit for the regular cuts of beef and the offal?
Mr. Laws: The chart shows $192 for the fed cattle that has been lost. That is the real figure per head on the revenue side.
Senator Sparrow: That cost then must be reflected in the overall price of what is left over for that product then?
Mr. Laws: Absolutely. It means that we can no longer afford to bid as much for cattle as we had in the past.
Senator Sparrow: We cannot use, now, the offal for cattle feed, as an example? That has been cut off. We basically have no local market for the offal now that Japan and Korea have shut done their market to us.
Mr. Laws: Due to the expenses and revenues that the renders are getting, they cannot pay us for the offal. They had international markets that are gone. Based on their cost structure, they cannot pay us anything for offal. Now they charge us to take it away.
Senator Sparrow: Madam Chair, I do not want us to leave without realizing that the cattle industry has been a stable industry in this country for a long time. We have not been the problem. We have not caused problems of our making in the industry.
There are some reasons for that. The cycle takes longer and so on. You cannot get in and out as rapidly as you can in the hog business. We have had a stable operation.
The cattlemen in Western Canada do not want government intervention. They say that they can compete in the world market, and certainly in the North American market. They do not need that help, nor have they asked for it.
The cow-calf operators have been doing well in that time. The dairy people have been doing well in that market. They have been making a profit on their cull cows and calves.
There is no market for the cull cows and calves now. That is not caused by the industry itself but by the borders being closed. When we look at the problem, we have to look at that. This problem is not caused by the cattle business.
The senator mentioned a comparison with the hog industry. When they started promoting the increase in the hog industry in Western Canada, I met with the wheat pools; I told people that they were making a mistake to increase hog production.
Throughout the long-term haul in the hog industry, we always went through about a three- to four-year cycle. We encouraged them to build hog barns. They had a 100-sow operations. Then they jumped to 1,000 or 10,000.
We encouraged that without realizing there was not a stable export market. We believed that the Koreans, Japanese and Chinese would take all the pork that we could produce. All of a sudden there was a shortage in supplying that export market.
The governments got into this. They encouraged production of hogs in Manitoba and Saskatchewan. They thought that there was no end to the market. It does end because the market will only absorb so much product.
I talked about the consumption of beef. It takes a long time to get from 70 pounds of consumption to 90 pounds. In the hog industry, you can get in and get out in a year's time. You can lose a lot of money in a year's time.
If there is a market out there, there is competition from the U.S. and from other countries all over the world that can supply that market rapidly.
The Deputy Chairman: You are holding us in suspense here.
Senator Sparrow: We have encouraged the increase in hog production. What worries me now is that we are saying that we should expand slaughter facilities and packing plants. We are encouraging this heavy investment. We know if the border problems are solved, we will have an over-capacity in the slaughter and packing industry.
We will be back to crying assistance because the labour force that we have created for the packing industry will be too great. We will find that we are over-capacitated, and we will be asking for subsidies. That is what worries me in the long-term haul.
We have to look at this as trying to stabilize that market. It will cost much federal money to do it, but it has to be done because it is an important industry, not just to us in Canada, but everywhere.
Are you encouraging any expansion of any consequence in the packing and slaughtering industry?
Mr. Laws: In the hogs?
Senator Sparrow: No, we are talking about cattle.
Mr. Laws: This is a very uncertain time. There were some expansion plans. I believe that the XL plant in Edmonton has an expansion slated to be finished fairly soon, giving it another 1,200 cows per week.
If you ask them now about their plans, they will say that that is a good question. If they knew the borders would not open, they might expand to give more capacity. However, if the borders open tomorrow, the cattle will move to the United States and they would not use their capacity. It is a difficult situation. Who knows what will happen in the future?
Senator Gustafson: We should learn from the grain industry. We have more terminals now than we can ever fill with grain.
Senator Sparrow: Knee-jerk reactions.
Senator St. Germain: We are not here to beat on any sector of the chain. We have a countrywide crisis. Where should this committee recommend that the government focus its assistance? The price-taker, as Senator Gustafson has just said, is the cow-calf operator. I know that the independent feedlots have a problem as well. Everyone else can control his or her own destiny, to a degree. We are trying, as a committee, to recommend to the government where to focus the assistance. I am like Senator Sparrow in that I do not want to ever interfere in the cattle industry. It has operated well, competitively and without government intervention. However, when a crisis like this one occurs, then we have to try to help a certain segment of the industry. We are trying to determine who has the greatest need. I do not know whether you want to comment on that. The fact is that the cow-calf farmers and the independent feedlot operators are most likely the one most negatively impacted in this whole crisis.
Mr. Laws: I can comment as Jim Laws and not as Executive Director of the Canadian Meat Council. This is a competitive, free market enterprise but there is a new, if I have it right, Canadian Agricultural Income Stabilization Program that replaces the NISA, the Net Income Stabilization Account. I believe that the cow-calf farmers are eligible for that program. There is a program, if not that one, to help farmers stabilize their income, including disaster payment. Currently the market is working. Some people say that they hate the prices but on a free-market-enterprise basis, the market is working with today's reality. Cows are coming to market and they are being sold at an agreed-upon price. Cows and cattle are going to slaughter. There is not a huge backup. We heard on Monday from one of the cow- slaughter plants that has only a one-day backup in his supply. Meat is moving to the United States, even with the stronger Canadian dollar, and it is reflecting free-market enterprise. People along the chain are making profits, although perhaps not their usual profits. No one is gouging anybody. Where does the help need to go? I think you know the answer to that.
Senator Callbeck: I have a follow-up on Senator Sparrow's questions about the Beef Industry Value Roundtable: Is the Canadian Meat Council, CMC, a part of that?
Mr. Laws: Yes, it is. I have not personally sat in on a meeting yet because I just started with the CMC a couple of months ago.
Senator Callbeck: Apparently they submitted a plan to appraise value-added processing in Canada. Can you tell me briefly what that says?
Mr. Laws: I wish I could comment on it but I have not seen the plan, yet.
Senator Gustafson: I want to say something in response to your last comment, Mr. Laws. If we are to use the root- hog-or-die principle, many farmers will die; something has to be done. That refers to Senator St. Germain's question about who is hurting the most.
You might pass that on when you have your next meeting to look at solutions to this crisis.
The Deputy Chairman: Thank you, Mr. Laws, for coming today.
The committee adjourned.