Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 4 - Evidence - Meeting of March 23, 2004
OTTAWA, Tuesday, March 23, 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 5:35 p.m.
Senator Donald H. Oliver (Chairman) in the Chair.
[Français]
The Chairman: Honourable senators and guests, I am pleased to call to order the sixth meeting of the committee on issues related to BSE in Canada.
[Traduction]
Honourable senators, I would like to start by welcoming you and our observers. I would also like to welcome the Canadian men and women who are watching us and listening to us on CPAC and on the Internet.
[Français]
Honourable senators, for several months now Canada has been faced with the consequences of BSE. Although it was just a single case discovered, this event greatly affected farming communities across Canada and, as we are all aware, the border was immediately closed to all cattle and beef products. Even though the U.S. announced a partial opening of its border by allowing imports of boneless meat from cattle less than 30 months old, the border still remains closed to live cattle, which represented more than 40 per cent of the value of exports of Canadian beef and beef products.
We have heard from a variety of witnesses who have described for us the hardships experienced by Canadian farmers. Among those who appeared before the committee were Mr. John Kolk and Mr. Ed Fetting; officials from Agriculture and Agri-Food Canada, the Canadian Food Inspection Agency, the Canadian Meat Council, the Saskatchewan Association of Rural Municipalities, the Association of Manitoba Municipalities, the Alberta Association of Municipalities, the Agricultural Producers Association of Saskatchewan, the Western Stock Growers' Association, the Canadian Federation of Agriculture, and the Minister of Agriculture and Agri-Food Canada, Mr. Bob Speller. I read a press notice that said Mr. Speller will return to the United States to meet with the Secretary of Agriculture to work at getting live cattle moving between Canada and the United States again.
Honourable senators, this evening we have the pleasure of having two groups before us. First, we will hear from Mr. Nick Jennery and Ms. Kim McKinnon, from the Canadian Council of Grocery Distributors. Second, we will hear from Mr. Garnett Altwasser, from Lakeside Packers; Mr. Brian Read, from Levinoff Meat Products Ltd; and Mr. Willie Van Solkema, from Cargill Foods.
Mr. Nick Jennery, President and Chief Executive Officer, Canadian Council of Grocery Distributors: For those who may not be aware, we are the trade association that represents the small, medium and large grocery chains in Canada from coast to coast — companies such as Loblaws and Sobeys; Thrifty Foods, on Vancouver Island; Coleman Food Centres, in Newfoundland; and many others in between. We represent about 80 per cent of the volume of grocery products that flow through the shelves in 8,300 stores across Canada.
Ms. Kim McKinnon, who is Vice-President of Communications, has been the industry point person on BSE since May 20, 2003. She has monitored prices as well as promotional activities and has come today to provide the committee with some facts on the issue and to answer some of your questions.
I welcome the opportunity to tell our story, as we have done to standing committees and provincial commissions across the country. We have tried to be transparent because we are in the consumer trust business. The day we forget that is the day we are out of business.
I would like to explain the business as it relates to the issue and present the facts from the retailer's point of view. I will speak to the viewpoint of the retailers on the BSE issue, beef pricing and the role that our association plays, and more importantly, the individual members and what they continue to do, because it is part of the business model.
I will set the stage. For a traditional grocery store to survive, let alone be successful, it needs a quality perishables department. Within that equation, fresh meat is of major importance to a traditional grocery store. It is a point of differentiation from other general merchandisers such Wal-Mart, Costco or Zellers, in that having quality perishables allows you to operate in the marketplace.
Because of its importance, fresh meat is a highly promoted category within the store. There are specials every week, from coast to coast, in every chain. We have examples of that. When you consider that an average grocery store does between 800 and 1,000 price changes a week, this is a highly promoted category.
I also wanted to mention that we buy cuts, not whole animals, whether dead or alive. That is the business we are in. Retailers trying to get a jump on the competition will decide what they want to feature a number of weeks ahead. About three weeks out, they decide what they will have on special. Then they go about trying to buy that product. The entire planning process takes anywhere from four to six weeks. We buy cuts.
Meat is one component of the retail footprint, and I know some questions about profitability have been raised. You all know the departments within a grocery store. There is produce, dry groceries, floral, optical and so forth. Depending on what individual companies wants to do to differentiate themselves, they may want to be known for their meat, or quality, or variety. Perhaps they are located opposite a farmers market or a giant Wal-Mart store. All these different factors come into play in terms of a retailer's pricing, but one thing is constant. The overall profitability of the retail stores, when aggregated up to the chain level, is between 1 and 2 per cent, if they are good operators.
Before passing it over to Ms. McKinnon to give you some facts on the impact of BSE on pricing, I would like to leave you with one point: We are very much in the consumer trust business. Consumers do know good prices, and they assume product safety. If there is any thought that either has been compromised, they very readily vote with their feet and take their wallets with them, and we have seen that any time adverse publicity hits the newspapers. We have also seen that as new operators come into the market. We have our casualties as well, although that does not always hit the major media. We manage our business by the hour, each day, because it is a highly competitive and a highly promoted category.
Ms. Kim McKinnon, Vice-President, Communications, Canadian Council of Grocery Distributors: I will share with you some of the facts about the industry and the retailer portion of the equation as it relates to the sale of beef. The question we have been asked by a number of people, although this is the first time that we have been here, is about pricing.
Let me preface this by responding to your point earlier about all the people you have spoken to: Nothing we can say here today can mitigate the seriousness of this economic disaster that struck Canadians, and struck Canadian farmers particularly. No matter what facts I put on the table today, it is still evident that there are some serious casualties of this crisis. We are all trying to contribute to ensuring the strength of the beef industry throughout this crisis so that it can come out at the other end as a healthy business.
That being said, the retail grocery industry is very proud of a number of things we have done since May 20 to ensure the health of this business. First, the price of beef has gone down, and the statistics support that claim. We quote from ACNielson, a syndicated research firm that provides the retail and food industry with data that have been scanned through the grocery store. When I say that beef prices are down 13.8 per cent, on average, in the last eight months, that is based on scanned data, the price the consumer paid at the checkout.
Second, we are proud as an industry that we are the only country in the world where BSE was discovered in which beef sales have actually gone up. According to the last 52-week data from ACNielson, tonnage is up 5 per cent. Those are excellent results, because as many of the people who have been to speak to you will say, beef sales were actually stable or, in some cases, in decline, depending on the city, the province and the year.
Third, we promoted beef much more aggressively than we have in the past. When I talk about beef promotion, I mean the weekly store flyers that reach 11.5 million households in Canada every week. These flyers are a key source of advertising, and they draw consumers into the store. If you do not have great prices, two-for-one offers and wonderful produce and meat in your flyer, you will not draw consumers into the stores. Compared to a year ago, beef has been placed prominently on the front pages of these flyers across the country, every week in every city, since May. That would not necessarily have happened a year ago. We have made a conscious effort to give it increased promotion. In addition to that, I have included some of the full-page newspaper advertising that retailers have chosen to purchase with additional marketing funds in order to further support the beef industry.
We have several agricultural partners with whom we work, and both pork and chicken sales have remained stable or have gone up, depending on the province. In fact, over the 52 weeks, chicken went up 5 per cent in tonnage, and pork is up 9 per cent. Those businesses, which were also not necessarily growing, have sustained their industry throughout this crisis. That is very good news. We have made a conscious effort to ensure that happened, so that we did not over- promote beef to the detriment of one of our other key partners.
Those are the facts: tonnage up 5 per cent, pricing down 13.8 per cent, promotion up from over a year ago, incremental marketing spending behind the beef business, and the other businesses remain strong and healthy.
That was in December. What has happened since December? Have the prices remained the same? Have they gone down? What will happen? We have noted so far that the pricing has remained at those lower levels, so there has been no upward or downward change since the second cow was discovered in Washington State.
It is still an uncertain time in the beef industry and for the beef buyers, because everyone is watching the situation closely. So far, we have been able to supply all the cuts. We have been able to supply them at continued low pricing for the consumer, and it has been business as usual, with the exception of the additional work that we have to do with our partners, the government and the CFIA to ensure that everything is safe, available and running smoothly. With the exception of the behind-the-scenes work, to the consumer, it is business as usual in the store, and they are getting the best pricing they have had in many years.
I have also included several advertisements that show you the type of pricing we have been putting out for the consumer. We are proud of the job we have done to meet the consumers' needs and keep their confidence high, so that beef sales increased over this period. We are proud of the fact that we worked with the industry partners — the packers, processors, producers and the government. We have been willing to work together on joint promotions with the Beef Information Centre, and we continue to do that. We are making a profit, but no greater than a year ago, and the saving that has been passed to us from the packers has been passed on to the consumer in turn.
We would be happy to answer any specific questions.
The Chairman: Thank you both for that most interesting presentation. I note that one of the things you did not address, and I am sure it will come up in the questioning, is why the farmers were getting so little for their product and why the price reduction in the marketplace and the retail shops was so small, but I prefer to wait for the senators to put that to you.
It is one of the things I know will come up.
Senator Mercer: Mr. Chairman, I was thinking on the way over tonight that maybe we will have the right people in the room to get answers to my questions. Maybe we should lock the doors and not let the retailers or the packers out until we get answers.
Why are the prices so high, and where did all the money go that the government put into the program?
I have in front of me an average retail price in dollars of beef products, according to Statistics Canada, that was acquired through the parliamentary research branch. I looked at a couple of cuts of beef, sirloin steak and ground beef. In January 2000, sirloin steaks were $11.90, and now in January 2004 it is $14.11. It is not a decrease.
With respect to ground beef, it was $4.05 in January 2000 and $5.08 in January 2004. There is a fluctuation around the middle of the year that corresponds to the major impact of BSE. I do not buy your numbers. ACNielson's numbers are not those normally used by the rest of us to judge this. We use numbers produced by Statistics Canada and the consumer follow-up. I would like your members here to answer some of the questions and have them tell Canadians, through this committee, that they are not making a profit.
The Chairman: You have already put one question. I would like them to have an opportunity to respond to that.
Senator Mercer: I want to say one thing. I am the primary food purchaser in my family. I do the grocery shopping.
Ms. McKinnon: First, I will respond to the question on Statistics Canada because I have been asked that before. We are working currently with the parliamentary researcher to understand the methodologies of the Statistics Canada pricing data, because it has been my understanding that it is not tracking the feature pricing as accurately as it could. ACNielson uses the scanned data right from the grocery shelf price. We need to straighten out the methodology of the Statistics Canada research. There is something not right in the Statistics Canada data.
Senator Mercer: You are right about that.
Ms. McKinnon: The prices are down. ACNielson is a respected international company on which the entire food industry depends for its consumer data. Therefore, we use only those data to track our pricing. We do not use the Statistics Canada data, but we have been challenged to do so. However, we have found that it has not been accurately tracking it. That is my conclusion on the Statistics Canada data.
Mr. Jennery: There is a high percentage, senator — I wish I could give it to you now, but if it is important to you then I will find it — of the meat department produce that is ``on feature'' or promotion. This is not known until it hit the streets because it is a point of competitive advantage amongst the retailers. It is important to track that promotional activity.
You quoted numbers on prices. Using all of these weekly flyers, I can give you numbers that go totally the other way.
The point is that different companies have features on different cuts each week. I could buy the same product in different places at a difference of $2 a pound. It depends on the strategy of an individual company. Therefore, you have to look at it over a period of time, whether it is a month, a year, or a quarter, to understand total tonnage and total prices paid for that tonnage. You cannot walk into a store and look at the price of a T-bone steak and say, ``Well, that has not really gone down.''
The centre cuts are the most in demand. Those are the ones we enjoy putting on the barbeque. There has been continued high demand for those. We buy cuts based on what the consumer demands. To get to the question, Mr. Chairman, you are looking at the price of the entire animal to the farmer. The retailers' demand is for only certain parts of that animal because that is where the consumer demand is.
Senator Mercer: Therefore, it is not your fault.
Mr. Jennery: I am not talking about fault. We sell what consumers want. We do not sell a lot of beef tongues or exotic parts of the animal that the foreign markets used to buy before the crisis.
Senator Mercer: The Government of Canada and provincial governments put over $460 million into the BSE Recovery Program announced in June, and other incentives brought the total for the beef industry to almost $800 million, not including yesterday's announcement. Farmers were expected to get most of the benefit. However, we know that did not happen. Farmers are losing their farms. Their animals are dying in the fields or are being taken from them.
You are telling us you did not receive any direct benefit from this through the packers, so your price was not lower. Was your price from the packers lower? If so, by what percentage was it lower and on what products? We will get to the bottom of this, and so far — it is always great when I challenge your statistics and you challenge mine — neither one of us has answered the consumers' question, namely, why are they paying the prices they are?
Mr. Jennery: People do shop around for good prices. It is a competitive market and meat is a way of bringing consumers into the store. It does not feature prominently, to be perfectly honest, in the profitability of the store. It is the value-added products that contribute to the profitability of a retail store, not the fresh products. The business model is that if you can bring consumers into your store by taking loss leaders, by having feature prices, by trying to offer something that your competitors do not, you get the consumer into your store, and if you are a good retailer, you might be able to sell them many other products on which you can make 1- to 2-per-cent profit. Those are publicly reported numbers for publicly traded companies. The books are open from that standpoint.
Ms. McKinnon: I would like to address the question about whether we received lower prices from the packers. Yes, we did receive lower prices from the packers and when we did, and in the amounts we did, we passed them on to the consumer.
The Chairman: Do you have a percentage?
Ms. McKinnon: On average, it is exactly what I told you, 13.8 per cent. The prices have declined by that amount on average, and that would vary by cut, by week, and by day.
Senator St. Germain: I have a supplementary question. First of all, thank you for coming. Did the retailers receive any financial benefit in the form of grants or anything like that from the government?
Mr. Jennery: No.
Ms. McKinnon: No, we have not received anything. We do not ask for, nor do we receive, any financial assistance from the government.
Senator Hubley: Welcome this evening.
The money trail is a hard one to nail down, and we have been trying for a while. This evening, when I was looking over your samples of different promotions that the retail industry had for beef, certainly I saw a variety of pricing here. For example, hamburger in one place is $1 a pound, but you have to buy two and a half pounds. Are they loss leaders? Are you losing money when you sell hamburger at 89 cents a pound?
Mr. Jennery: That depends on what you buy it for. I cannot give you an honest answer to that because I am not a buyer. I can say, though, that the meat buyers are very aggressive in the market in trying to get lower prices.
As an industry, the grocery stores are losing market share to new competitors, again, according to publicly reported figures. We have only 52 per cent of the reported groceries business because there are other players. To offer aggressive meat prices in the marketplace to bring consumers, who readily walk across the street to go shopping, back into the store is the very nature of our business model. If there are any specific questions for which we do not have answers now, I will absolutely get those for the committee.
Senator Hubley: Do you do any tracking of your meat prices? Can you track sales versus the costs?
Mr. Jennery: We do track sales, yes.
Senator Hubley: Obviously you have to make a profit, I understand that, but you must have those figures. Those figures would be available. I do not know if the question was asked, but it just seems to me that the promotions are on weekends, obviously, so maybe the price changes from Monday to Friday. Is that something we could assume?
Ms. McKinnon: Again, it depends on the retailer strategy. Every retailer has a strategy to draw consumers into their store and try to meet their needs. Sometimes, a strategy called ``everyday low pricing,'' is used, and you might find, in a No Frills or Food Basics store, ground beef for 99 cents a pound. It will not fluctuate, except you might get a special on the front page of a flyer from time to time. Or you will see a high-low retailer strategy, where the retailer has a regular shelf price and then a feature shelf price for a week, two weeks or sometimes a month, where you will be able to get hamburger for 99 cents. It depends on the strategy.
To answer your question about loss leaders, that is also a retail marketing strategy. From time to time, maybe on meat or other products, it might be used to draw people into the store.
Senator Hubley: What I find a little hard to understand is that really, the retailers are business people doing business as usual. It is to their advantage, if in fact there is a problem within the beef industry, that they are then able to get beef at a less expensive price and can pass that along and promote their business along the way. I am not trying to be difficult, but given the enormity of the situation for our farming community, we are looking for solutions, and we would certainly be delighted to be able to look at the system and find some of those solutions.
Mr. Jennery: There are still only 21 meals in the week and consumers will buy only a certain amount of beef. We have seen that when there is a hog surplus, or whatever the crisis of the day is. Consumers like variety in their diets. If I look at the ads this week, it is on special for five or six days, depending on the company. Not everyone has T-bone steaks at $4.99 a pound. I am sure you can find places where they are double that, but this particular company is offering them at that price, and strip loins at $4.99 a pound. We have highly trained consumers who know they have to watch prices. There is not that loyalty out there such that you get the same people in every day. If you are the weekly shopper, I am sure you shop around and look in different stores. I know I do.
Senator Callbeck: I want to ask a question about demand. Ms. McKinnon, if I understood correctly, you said that before BSE, beef sales were stable or in decline, and after that they increased. Now I read somewhere that, I think three months later, they went up by as much as 70 per cent. I would like to get your comment now on how much higher they are now than before the BSE.
Ms. McKinnon: Over 52 weeks, so May to May or March to March, sales of beef are up 5 per cent. Sales of beef from May to September were up, but I do not have figures as high as 70 per cent. That must have included the restaurant business, perhaps, but it is not the figure for the retail grocery business. They were up, depending on the province. Some provinces were up more than others, but sales were up by over 20 per cent to the end of September.
The Chairman: Would it not be higher during the barbecue months of July and August?
Ms. McKinnon: Traditionally, sales of beef on certain cuts go up in the summer. People buy more steaks than they do in the winter, when they buy more roasts. I am talking about kilograms, so the number of kilograms, or pounds, is up over 12 months. It was up as high as 20 per cent-plus to the end of September. In other words, it declined a little toward Christmas, which is normal because that is turkey-buying time.
Senator Callbeck: There is quite a difference in the figures. Unfortunately, I do not have that article in which I read it was 70 per cent.
Ms. McKinnon: It was from the Canadian Cattlemen's Association and I believe it included not just grocery stores but other outlets as well.
Mr. Jennery: If I could add to that, the business fluctuates a great deal. I think it was the end of January when there was a report of trace elements of polychlorinated biphenyls, PCBs, in salmon, and sales went down around 27, 28 per cent almost right across the board. When there is some concern raised about ground beef, or a food safety issue, sales can drop as much as 20 points. It is elastic, so when people do not buy beef or fish, they still have to eat, and you will normally see sales springing up in other departments. You really have to look at the longer term.
Ms. McKinnon: Sales of beef went up significantly between May and September. They declined between October and December and are now balancing out at about plus 5 per cent.
Senator Callbeck: If the beef sales are up roughly 5 per cent — take your figure, and I think I understood you to say that pork and chicken are also stable or they are up — the consumer is spending more money on those items. Does that mean that the bottom line for the consumer is that spending on groceries has gone up, or are they buying less fish or something else?
Ms. McKinnon: Again, there are seven days a week and there are seven meals, so consumers will always balance it out. If they are eating beef three times a week and they used to buy it twice a week, then something else is falling away, like pasta or a vegetarian dish. There is only so much pie to be served. If beef represents more of the pie, another piece is losing market share.
Mr. Jennery: Without making it too complicated, the hydro blackout in Ontario had a huge impact on our industry and on consumers. A lot of consumers threw out a lot of product they had in their freezers rather than take a risk. We saw sales spike considerably in the following three weeks. That was a lot of households in a big part of the country. There are these events across the country to substantiate the numbers.
Senator Callbeck: Do you have figures to show where the decrease is?
Ms. McKinnon: If people are buying more beef, what is going down? I know canned products are.
It could be a canned stew that someone is no longer eating, macaroni and cheese, a frozen dinner.
Mr. Jennery: The centre of the store has tended to shrink, and it is the area of ready-to-eat foods that has grown. People like convenience. They do not want to spend a couple of hours cooking, they do not have the time; some do not have the knowledge. It is the peripheral departments of the store that are growing. The centre has shrunk a little.
The Chairman: Probably the fad of low-carbohydrate and high-protein diets is affecting your numbers a little. That is what the newspapers are suggesting.
Ms. McKinnon: I do not want to talk about that too much because it distracts from the discussion, but we have not seen as much uptake in Canada as has been reported in the U.S. We are watching it.
Senator St. Germain: My colleague on my right, Senator Sparrow, is one of the senior members in the Senate. He most likely described it the best when he said it is really not anyone's fault; it is a problem. The more I listen, the more I think that Senator Mercer's concerns are genuine. A lot of people on the street are asking the same questions. However, I do not think we can look to your organization to solve the problem, because if the packers sell to Safeway, or whoever, for less, competition is so keen in your industry that the price will drop. However, the big area of concern, logically, is opening that U.S. border. Is there anything that you folks can do to help? This is not a partisan issue; this is an issue that is really killing the Canadian farm.
I do not know the terms of the program the government announced yesterday, but hopefully the money will go to the farm gate, because that is where it is hurting. They cannot sell the culled cows and the older stock, so it is a problem.
Is there any way you can assist in convincing the Americans to open the border? I do not whether your organization could contribute to the opening of that border, but if you can it would be greatly appreciated. I know that is a stretch, but it is the problem.
Ms. McKinnon: We have offered many times. Our sister organization in the U.S. represents all the food manufacturers there. They also go to similar meetings in Washington. We work very closely together and are happy to carry that message both sides of the border to make it happen.
Senator St. Germain: Has your sister organization in the U.S. been comfortable with the quality of meat coming out of Canada? Do they want to see the former status quo? Have they indicated that to you, or have you spoken to them about it in those terms?
Mr. Jennery: I would not say that they are that aggressive. All retail organizations are the same, in that they see the quality or the safety as a very science-based question. We always look to Health Canada and CFIA and never second- guess what they say.
To look at your question another way, if we were to take up the slack from the border being closed, the Canadian consumer would have to increase beef consumption by 350 per cent. That will not happen, given today's diet and the way things are going. The answer is to open up the border. We stand ready, and have worked with our entire supply chain on merchandising it to consumers, being aggressive and doing our part. If there is a role we can play, we will, but we are not in a position to influence the opening of the border, in my view. However, if we can do something, you will not have to ask twice.
Senator Fairbairn: After listening to you today, I want to get something straight in my mind. Since this crisis began, Canadians have responded by increasing their beef consumption to an extraordinary degree. How has that factor played out in your particular business? Have you been putting in more orders to the packing plants as a result? Is that increase in beef consumption that we have heard about as significant as it would seem?
Mr. Jennery: I would go back to the role that meat plays in our business, because traditional grocers are losing ground to these new competitors that do not sell beef products in the same way. If we can do this type of thing, the grocers love it because it brings consumers back into their store and gives them a chance to get back some of the lost sales. We certainly welcome the extra tonnage that has come through a number of our members, as well as other companies. Continuing to have hot prices is good for business, absolutely. That is the model; that is the business that we are in.
Ms. McKinnon: It has been successful if it is meeting the needs of the consumer and, consequently, they are buying more, because it is truly filling a desire that they have. That is a great thing and that is why we are in business.
Senator Fairbairn: Whether they are eating it or feeling patriotic?
Ms. McKinnon: It is wonderful to see that there has been a contribution to the beef industry by way of increased sales, whether it is a patriotic response or a chance to stock up the freezer at great prices, with, for example, 10 pounds of hamburger. We are happy to be part of it.
Senator Lawson: Mr. Jennery, you were talking about the fierce competition. Are you familiar with the grocery wars in California over the last six months?
Mr. Jennery: Yes.
Senator Lawson: It was a strike/lockout and the industry said it was based on fear — fear of the workers, fear of the unions making outrageous demands and fear of the competition, because Wal-Mart was opening superstores. Wal- Mart's average salaries were $21,000 a year less. Through a lockout, they hoped to force the employees to assume a larger share of the pension costs, to assume a larger, if not total, share of the health and welfare costs, and to accept an entry level rate for new workers of $7.50 an hour. They were paying $13.50 to $18 an hour, but if they were to compete with Wal-Mart, they had to find a way to either break the unions or force them to absorb these costs. There was a five- month shutdown, primarily a lockout, for those reasons. Will that happen when Wal-Mart comes here?
Mr. Jennery: Wal-Mart is four times the size of the entire Canadian grocery industry. Apart from having the size and leverage, they also have a lower-cost operating model, depending on what you look at. The 'threat' to traditional grocery selling is there.
The Canadian industry is different from that in the U.S., in that we have had the deep discount format here for many years. The fastest growing format in Canada is the deep discount type of store. Despite what you see out there, that is what people want. We are well versed in that sort of format, if that is what Canadian consumers want. We have also seen a number of companies get into tight union negotiations as their contracts come up for renewal, because the superstore format has not yet arrived here in Canada.
I personally sense cautious confidence on the part of the retailers, in that they have the discount models, they know the Canadian public very well and they have diversified in terms of format.
They are as ready as they can be to take on a significant player like Wal-Mart, should they decide to ramp up here in Canada.
Senator Lawson: They are hoping that over a period of time, by attrition and so on, they can get rid of the higher- paid employees. They will have a new group of employees at $7.50 an hour so they can compete with Wal-Mart. That is part of the plan.
As a matter of policy, Wal-Mart expects its suppliers to automatically reduce prices by 5 per cent if they want to renew their contracts. That is a standard that they impose. If the poor supplier says, ``I cannot afford to do that,'' then they advise the supplier to go offshore, perhaps to China, to outsource and find a way to do that.
Mr. Jennery: The flip-side is that policy has caused our industry to be far more competitive. Every other year, we do a study that we share with the Competition Bureau. We look at the price of goods to Canadians compared to their American counterparts in eight different cities, and that type of thing. Consumers find it requires less disposable income to buy the same basket of grocery products.
We have taken our hits over the last 10 or 15 years getting ready for this. The operating margins are nowhere near what they used to be in the 1980s because of that. Supply-chain efficiency is the watchword in any corporate boardroom in planning their strategies. Supply-chain efficiencies — that is, seamless distribution — are absolutely necessary and you will not see the companies let up on that.
Senator Lawson: I have been in the U.S. negotiating these types of contracts over many years and I live there part- time. Now I see that, for everyone, outsourcing is the thing to do: Go to China. Go to India. Displace all the American workers. Now, for the first time, I hear John Kerry saying, ``Well, that is very interesting, but when we do that, who will be making enough money here to pay the taxes to pay for welfare, pensions and all the other things?''
Mr. Jennery: As a retailer, I would say that the word ``Canadian'' resonates extremely well at the checkout. You will see Canadian beef in the major American chains. To bring it back to the issue here, and apart from it being a correct and loyal thing to do, ``Canadian'' resonates with consumers and they respond. Consumers like to buy Canadian product.
The Chairman: It happens to be of good quality.
Mr. Jennery: Absolutely. There is a lot of trust, and there is good reason for that. We want to do it, but we also have to do it because it resonates well with the consumer. The business model supports that.
Senator Lawson: There are B.C. tomatoes and peppers in every supermarket, and you are right, they are high-quality products. We have the same problems here. We have the same serious economic problems faced by your industry and by all of us as Canadians.
Senator Gustafson: Speaking as a lifetime farmer, beef prices have been pretty good. Beef marketing was a solid industry when that border was open. I personally believe this will be a short-term issue. The grain producers have been in bigger trouble. We are told that, of the price of a loaf of bread, eight cents — some say as low as four cents — goes to the grain producers. They are getting the same prices now as in 1970. They are in big trouble. Of course, so are some of the cattle producers.
That seems to be a global problem. By my thinking, Canadians eat very well for about 9 per cent of their income. There are probably few countries in the world where one can do that. All our talk here has been about the consumer, but at the same time, Senator Sparrow, or anyone from the Prairies, can tell you that our farmers are in big trouble. Maybe you have some suggestions.
Ms. McKinnon: You asked earlier for suggestions on how we might work together. There are round tables for the beef industry, for wheat — I do not know if it has started yet — but also for chicken, grain and seafood. Agriculture Canada has initiated those cross-industry discussions on solving some of the problems you are talking about now. Those are excellent ways to bring industry together with government and producers to work through those issues. We should use existing formats, not create new ones, to promote this kind of cross-discussion.
Mr. Jennery: Senator, I understand what you say about looking for solutions; this is not about blame. I had a conversation with Mark Eyking yesterday. He is the parliamentary secretary. I took Deputy Minister of Agriculture, Sammy Watson, and a couple of other people through some stores and distribution centres. My overwhelming impression was that we need to do a better job collectively of sharing what we know about where the consumer is going. What type of products will be needed and in demand, not just tomorrow but next year, when the farmer is putting seeds into the ground, to use your example? What value-added products will sell well at the retail level?
Seventy-five per cent of new products that hit our shelves do not survive more than 90 days. That is a terrible record. That tells me that we do not do a good enough job in understanding consumer demand. We are all getting older and changing our eating and buying habits. We know the demographics well. I would certainly support playing a role in sharing how we see consumer demand changing so producers can align their thinking. As difficult as things may be, that is what we need to be doing as an industry.
Senator Lawson: There is one obvious choice, but no one wants to touch it. Marijuana use is a growing trend. It is an industry worth $5 billion per year and they are not playing a nickel's worth of tax on any of it.
Mr. Jennery: We only sell legal products in our stores.
Senator Lawson: Maybe we need to make it legal.
Mr. Jennery: If it is legal, we will sell it.
Senator Tkachuk: People will not care about the prices then.
Senator Sparrow: You commented just now that this is not about blame. The discussion in this committee has been that there is someone to blame somewhere for the high prices, at the retail level or at some point. Do you have any indication that there is some part of the system that is exploiting the consumer or the cattlemen? Do you see that? You are in the middle of the whole process, from the packers and the cattlemen to the consumer. Can you say to this committee that there is some blame to be attached somewhere?
The Chairman: Senator Sparrow, the packers are next.
Senator Sparrow: Please answer.
Ms. McKinnon: Senator Sparrow, I put the blame on the BSE illness and on the finding of that one cow. I have a limited knowledge of the business of my colleagues here, the packers, and the increased costs that they are facing as a result of that illness. I know that the retail buyers' role is to get the best price possible and to understand the supply chain so well that they can negotiate that for our consumers. We would not be doing a very good job if we were not getting the best possible price for the consumer. From what I see, we are doing that.
Senator Sparrow: There is no one down the line that is gouging, so to speak, from your point of view?
Ms. McKinnon: No.
Senator Sparrow: Thank you. You mentioned that you represent 70 per cent of grocery products sold.
Mr. Jennery: We represent 80 per cent of the volume of products sold through grocery stores, yes.
Senator Sparrow: How many grocers would you represent, then?
Mr. Jennery: We present 8,300 stores with 24 members in total. Loblaws is counted as one. That includes Great Atlantic Superstores and Real Canadian Superstores — all the different divisions — and if you count those companies as one, we have 24 members.
Senator Sparrow: Do you include the cooperatives?
Mr. Jennery: Yes, we do.
Senator Sparrow: Federated Co-op represents their group of retailers?
Mr. Jennery: Yes, that includes Calgary Co-op and those companies.
Senator Sparrow: Has that 80 per cent figure gone down drastically in the last 10 years? Do you see a downward trend, whereby you may only be representing 60 per cent as time goes on?
Mr. Jennery: The grocery channel — Loblaws, Sobeys, A&P, Federated Co-op, those sorts of companies — accounted for about 72 per cent of the sale of grocery items in Canada. The remainder is sold through drug chains and general merchandisers like Wal-Mart or Costco, those types of players. That number has come down 1 per cent over this last year. What that means is that the size of the pie is the same. More players have entered the market, so the pie is divided into a few more pieces.
That is a wake-up call for the traditional grocery retailer that yesterday's strategy does not work any more, and some companies are getting more into general merchandise. You can buy TV sets and glasses, take cooking classes or use medical centres and workout centres, those types of things, in grocery stores. Others have offered a greater variety of grocery items and advertise themselves as the one-stop shop when it comes to food. There are different strategies to try to counter that competitive threat, but it is very much there. We have seen the drug stores and the general merchandisers gain a little more market share.
Senator Sparrow: With respect to Wal-Mart and so on, they buy their across-the-counter products much cheaper.
Mr. Jennery: It is a volume business.
Senator Sparrow: As our market share goes down and their market penetration goes up, there is a great danger that they will increasingly dominate the market. Do you have that fear?
Mr. Jennery: I do not hear the word ``fear'' in our industry. There is recognition that there is a Goliath out there that is very good at what it does. You have to be a little different, not a smaller version of them. You have to offer products and services they do not. You have to know your customers by name a little better than they do. Those are the things that consumers value. Apart from location, they are looking at cleanliness, friendliness of staff, waiting times at checkouts. There is more capital money being put into grocery stores now than in any prior year, because they know that they have to refit the stores — new offerings, new ideas. Some of our grocery companies are getting into automobile insurance. There is a new one. They got into banking, floral, photofinishing and optical services — any way to get that consumer into the store.
It is not a fear; it is a recognition that you have to be different and better at it. That is what is going on in our industry.
Senator Sparrow: When you have a conglomerate, and I am referring to the food industry, that sells literally everything — and they do. They have everything. A Wal-Mart has almost everything, although they may have poor service to some degree — they do have the pricing advantage.
Mr. Jennery: It is a very large store. Traditionally, a company will have what we call a ``retail footprint''; it could be as small as 40,000 square feet and as large as 140,000 square feet, within the same company. A lot of people do not like big stores. Many people do not want to walk down five aisles to get to the eggs. I want to be in and out in two minutes. That is what knowing your customer is all about. Other people are happy to spend a lot of time in stores looking for that best price. It is knowing your customer.
Senator Sparrow: Therefore, you are not worried.
Mr. Jennery: Not worried — bring on the competition. We are ready.
The Chairman: Mr. Jennery and Ms. McKinnon, we want to thank you very much for some excellent testimony. You have probably guessed that we have been waiting for some time to hear from you. You are a logical culmination of witnesses we wanted to see after hearing from farmers and people affected by the beef industry, particularly out West. We appreciate what you have said.
Mr. Jennery: If, at any time, the committee has any specific questions they want answered, we will be happy to do so, and if they want to take a store tour in their local area, I would be happy to organize that, to explain how the business works, what is going on. Whatever works, we are happy to help.
The Chairman: Thank you very much.
Honourable senators, we now have an opportunity to hear from some very interesting presenters, the packers. We will be hearing from Lakeside Packers Ltd., Levinoff Meat Products Ltd. and Cargill Foods.
Mr. Willie Van Solkema, Canadian Business Manager, Cargill Foods: Mr. Chairman, I wish to thank the committee for this opportunity to speak to you.
I am the Canadian business manager for Cargill Foods in High River, Alberta. Cargill operates a state-of-the-art beef packing plant employing 2,000 people, with a daily capacity of 4,200 animals. Cargill operates a North American beef processing business. Until recently, our markets were fully integrated. Producers and processors had access to an open border for the movement of live animals and beef products.
As is the case for producers, our Canadian processing operations depend on access to the U.S. and foreign markets. These markets have been largely taken away, and it has had an impact on the supply and demand situation in Canada.
In making my comments today, I remain hopeful that we are nearing a critical resolution of current supply pressures in Canada, with the recent announcement by the U.S. reopening the comment period on the proposed rule that would amend the regulations regarding the importation of animals and animal products from Canada. It is important to recognize that this achievement is a result of the efforts of the Canadian government and our industry working on a collaborative basis.
There is no part of our industry more negatively impacted than feedlot producers. Their live cattle are banned from entry into the United States, which has resulted in significant oversupply of live animals in Canada over the past several months.
To remain profitable, feedlot operators, like processors, must have access to the U.S. market. While we hope that the announcement by the U.S. will bring relief to our industry by re-establishing our export abilities, we have existed in a significant oversupply situation in Canada for some time now.
The oversupply of cattle in Canada has put significant downward pressure on the bottom lines of producers. It is a simple equation — more cattle with no increase in demand means lower prices.
At the same time, our North American processing operations have also suffered considerable losses. We have laid off close to 1,000 workers throughout our North American facilities. Oversupply of our own stocks has resulted in the donation of well over $1 million in surplus product to food banks and charities across Canada.
We now pay to have certain rendered product that we used to sell in the marketplace removed from our facilities.
The sale of offal and thin meats to Asia, as well as other sub-primal cuts of beef normally sold there, are essentially worthless and being used in low-value trim for ground beef, resulting in a loss in value of up to $200 per animal. The rising Canadian dollar has stripped another $150 per head off the value of our products.
While we have ramped up production in Alberta to create an outlet for producers' cattle, until recently, it has not been enough to deal with the significant oversupply of live animals. However, in the last month, we have seen prices to the producer rebound as supply numbers in our system drop.
The immediate and complete reopening of the U.S. market to live cattle and beef products is the only solution that will bring sustainable relief to the producer.
Since the first case of BSE was discovered in May, we have worked as hard as possible to re-establish trade in live cattle and beef products within North America and in other foreign markets. Specifically, Cargill Inc. has intervened directly in the U.S. federal registry process, calling for an opening of the U.S. border to animals and beef products. We have worked closely with each of our major trade associations, such as the Canadian Meat Council, the Canadian Cattlemen's Association, the National Cattlemen's Beef Association and the American Meat Institute, calling for the same border openings.
Moreover, Cargill has advocated the adoption of appropriate feed controls within Canada and United States that would save our entire industry, and producers in particular, millions of dollars in revenue in an effort to maintain our competitive position in global markets.
The pain our industry, and our producers in particular, is suffering cannot be underestimated. These producers are our suppliers. They are our customers. Unless this important sector remains profitable, we will undergo substantial and irreversible damage in our Canadian beef industry. To this end, we fully recognize the concerns that have been raised about the packer and retail levels of our industry.
Our export markets represent 70 per cent of the total beef production demand from Canada pre-BSE. This is no longer the case. We are now forced to devalue animals by hundreds of dollars as a result of closed borders, which are due to forces out of our control.
Let me stress that there is no advantage whatsoever to our North American business in having producers who operate at an unprofitable level or do not have access to the U.S. or other foreign markets. Our concern is the same as theirs, that is, reopening borders to trade in live animals and beef products as quickly as possible. An open North American market is the very foundation on which our business is based.
We are at a critical point in our industry. We need to focus all our efforts on the re-establishment of export outlets for our live animals and beef products. To detract from this common goal will come at the expense of our producers, our processing industry and the industry as a whole.
As a case in point, I draw your attention to a news release issued by the Canadian Cattlemen's Association about a week and a half ago, indicating that our industry must work together and not get into finger-pointing exercises when the real solution lies in the opening of foreign markets.
It stated:
Claims that one sector of the beef industry is profiteering at the expense of others are simplistic and require more in-depth analysis. While gross packer margins may have increased, this information doesn't reflect other factors such as the drop in value of a carcass due to the loss of export markets for offals, the additional costs of removal and disposal of specified risk materials, et cetera. Efforts are underway to get a more complete and accurate picture.
Government support has helped many farmers and ranchers in these difficult times. Consumer support through increased purchases of beef has also been vital in keeping cattle moving through the marketplace. Sending a false message to consumers that their beef purchases don't help farmers and ranchers is damaging to the entire industry.
I would like to refer to another document that came out a couple of weeks ago at an Alberta Cattle Feeders meeting. It stated:
Reopening the border may be resisted by international packers as it removes the advantage that the packers currently have in the market-place;
I wish to refer to a document from the Canadian Cattlemen's Association and the Canadian Meat Council that is a comment on the proposed rule and which calls for open markets for all cattle and beef products. We are proud to be working with the Canadian cattlemen in this effort.
The other thing I would like to draw to your attention to is a letter from the American Meat Institute, which is the U.S. counterpart of the Canadian Meat Council. It is the only national organization in the U.S. that has consistently called for open borders. I would like to read a portion of this letter. This is from J. Patrick Boyle, the President of the American Meat Institute. This is directed to Secretary Vennamen:
We are writing to urge you to use the full range of your authority immediately to re-establish trade in cattle, beef and beef products produced in BSE minimal risk countries like Canada. In our view, the full restoration of trade access from Canada to the United States is an essential pre-condition for the American cattle and beef industry to regain reciprocal market access within North America, especially in Mexico, and ultimately to other major foreign markets.
They have pushed very hard to get the markets open to Canadian cattle.
I would also like to refer to another document, again from the American Meat Institute. It is in response to the USDA announcement reopening the comment period on the proposal to establish regions that present minimal BSE risk.
AMI President J. Patrick Boyle said:
The U.S. meat industry supports USDA's proposal to allow certain cattle and beef products from BSE minimal risk countries into the U.S. However, we believe the proposal should go even further by allowing all animals for slaughter to enter the U.S. if appropriate risk mitigation measures are taken. It is inconsistent to allow meat from older animals - but not the animals - into the U.S., given the control measures in place in the U.S. to remove specified risk materials that can carry BSE.
The last article I would like to refer to is from Canadian Cattle Buyer. The writer of this is Kevin Grier, the senior market analyst from the George Morris Centre. This comes from February 7, 2004. It reads:
The George Morris Centre has been criticized by both producers and beef buyers for saying that packers have not been gouging anyone in the beef supply chain. We stand strongly by that statement...Furthermore it is important to remember that the oversupply of cattle is caused by the border closure. That is a problem not of the packers making. It is a problem that is not going to be solved by accusations.
Another important point to note is that, based on our ongoing and constant discussions with retailers and foodservice suppliers, there is no issue with consumers regarding beef prices. Consumers are not asking questions or are not backing away from beef because they think prices should be lower.
Actually, the entire industry should be thankful that consumers are not concerned about the price of beef, for obvious reasons. If consumers thought they were being taken advantage of, they would simply purchase less beef. That of course would be very detrimental to cattle producers in Canada. Furthermore, the more the media chooses to focus on the price of beef, the more the ultimate root cause of the issue will be discussed. The ultimate root cause of the issue of course is the two BSE cases. It seems to make sense for the cattle industry that the less said about BSE and beef the better.
Those who continue to try and stir up media and political interest in beef pricing will ultimately succeed in making this a consumer issue. When it becomes a consumer issue, the entire beef chain will be the loser for it.
The last note here:
With regard to packer margins, it makes intuitive sense that returns have been very good this fall and winter. Back in the early summer when they lost tens of millions of dollars each week, however, there was no media interest whatsoever. Furthermore, while the gross margins are large, so are their operating costs.
It is also interesting to note that during the last five weeks packer margins have been declining rapidly and appear to be very narrow on a net basis. That fact will receive little coverage.
Mr. Brian A. Read, Levinoff Meat Products Ltd.: Before I get started, it is very important to note that since May 20, we have had many people with their feet held to the fire 24/7, so I would like to recognize, not politically but for their efforts, Minister Vanclief, Minister Speller, CFIA and Health Canada. We have worked closely with DFAIT since May 20, and their efforts are second to none, as well as Agriculture Canada. We have just completed probably our 10th round table on strategies for where we go from here, working in conjunction with the livestock industry as well as the packing industry.
I am the general manager of Colbex-Levinoff. It is a family-owned company that employs approximately 350 people. We are the producer of product over 30 months of age. Historically, after May 20 we ended up with about a million-and-a-half worth of inventory. Understand that we are talking about a family-owned Canadian company that was worth zero on May 22. We had to lay off many of our people. We reduced our work hours to four — by mid-July, we are able to rebound and put some calves through our operation — because of the uncertainty in the politics around the single case of BSE in Alberta.
Meat recovery systems and product over 30 months are no longer usable. We can no longer retrieve it, so we are stuck with what we can regard today as possibly a good stainless-steel anchor for the Queen Mary. We are talking about equipment that is worth $800,000 to $1 million installed. It is not cheap. It is currently unusable.
On July 24, for the product over 30 months, it was deemed that we had to remove 22 items out of the food chain, along with many items that were destined for export. We have to recognize the great support from the Canadian consumer, and that cannot be tarnished; nor would we at any point jeopardize the safety of the food we produce. We were thus forced to put in the SRM program to protect the Canadian consumer. That is job one.
I think Mr. Van Solkema covered many issues, so I will not belabour them. I think you need some time to ask us questions.
The Chairman: Where are you located?
Mr. Read: The plants are in the province of Quebec. Our slaughter plant is in St-Cyrville. The boning plant is in Montreal.
Garnett Altwasser, President, Lakeside Packers Ltd.: I come from Southern Alberta, the town of Brooks. We are in the heart of cattle country. The last 38 years of my career have been spent developing a company called Lakeside. Lakeside started as a feed mill and cattle feedlot. In 1974, I built a small slaughter plant. Over the years, we developed the company to the point where, in 1994, we sold it to IBP, which is now owned by Tyson in the United States. We are a U.S.-owned company. We operate the feedlot, the farmland to support the feedlot, the wastewater from the plant and also the slaughter plant.
Our business is international. We sell products all over the world, or we did. We operate a commodity business. As such, we operate a margin business, as most commodity businesses are operated. Our raw material in the packing plant is cattle. We sell about 150 products from the cattle to various parts of the world.
In the feedlot, our raw material is feeder cattle, eight- to nine-week cattle that ranchers and farmers produce. We take them in for 150 days and then they become part of our slaughter mix as well.
Exports amount to 60 to 70 per cent of our business. Over the years, we have evolved into an international trading company, commodity business and margin operation.
I have to say, to build on Mr. Read's remark, I think Canada can be proud of what has happened during the investigation this year, and the fact that through a multitude of efforts, including those of CFIA, the American border did open in a short time. It seemed like an eternity. Quite frankly, four months is a remarkable record if we look worldwide. We can compare ours to the investigation that the Americans did on that cow in December, and know that the regulators and people in our industry have done a good job.
There have been many questions about market behaviour and impacts on the market. Even with its limitations, the market works and will continue to work, although there may be some issues around it not working as efficiently as it has in the past under different circumstances. For example, there was a stalemate for five to six weeks after the border closed and producers did not sell cattle, packers did not buy cattle, the business came to a grinding halt and we killed about 20,000 cattle each week, when we should have been killing 45,000. It was just a standoff when the BSE Recovery Program was announced. Producers had the confidence to sell cattle, we started to produce more, we discounted the price of meat and we started to move cattle through the system. We were not proud of the price, but at least the cattle were beginning to move again. Each day an animal stands in the feedlot costs you well over $2.
In August, the price of cattle slid to 35 cents, but by the end of October, the price of cattle in Alberta was 93 cents. Even with the border closed to live cattle, the market still worked. Right now, the market is about $87, so it is moving within the parameters and constraints of a closed border. While the producers do not have the bargaining power they had before, which was the movement of live cattle out of the country, they are able, with discipline in the marketplace and with fewer fat cattle coming to market, to exert upward pressure on the marketplace.
Last year, calves in Southern Alberta sold for within 10 to 15 cents of what they went for one year ago. That is not a wreck. That is quite a testimonial to a country that has a BSE problem and a BSE incident. Currently, there is much talk about cows and how they are a burden on the market. However, the producers, in reaction to the BSE incident, instead of marketing and culling a lot of cows, turned them back with a bull. Traditionally, there was an 8 to 10 per cent culling rate. Now, there were options. The option to sell the cow cheaply was not that good, so the breeding cycle was extended to last spring and summer and now they are not coming to town. We are short of cows to slaughter right now, if you can imagine that. The market works and people are making different decisions to cope.
We are killing more young cattle. Canada killed 15 per cent more cattle in January and February than it did one year ago. The kill is up to 70,000 cattle. We are operating six days a week. Our plant operates a double shift and our people have not had a day off, other than Sunday, since Christmas week. While they respond to overtime and the extra income, which is important to them, the fact is that they are pushing really hard, as are we, to move the cattle through because we can move the meat into the United States and arbitrage the market. We have had tremendous consumer support and your previous witnesses have also supported the industry well.
I have some comments on high beef prices. Quite frankly, we can arbitrage those middle cuts. We can sell the high- price cuts of loins, tenders and ribs to the United States. Those markets are arbitraged to a U.S. market, but there is always a bargain. Ground beef has been and continues to be a tremendous bargain.
The problems of the border, the arbitrage, will not go back to where it was before until the border re-opens. You simply cannot cut the mustard any other way, and at all stages, it is a buyers' market. It is a buyer's market also for the feedlot owners when they replace feeder cattle. The person who is ultimately the residual disadvantaged one is the cow- calf man — the person who breeds the cow. It is my observation that the market is working.
Canada could review its old policy of supplementary beef quotas into this country. Historically, one out of three pounds of beef in Canada has been imported. We have had unlimited imports of Oceanic product. We imported twice as much per capita as the Americans. That caused some dislocation in our slaughter capacity because we ended up with an industry where it was more cost effective to export cows and import Oceanic frozen beef. We exported those cows to the United States and the packers had problems making a profit. I can name 35 plants in Western Canada that were shut down over the course of my career. We would really like to have some of them today because of this cattle surplus. Canada needs to re-examine its long-term direction with regard to the supplementary quotas.
The Chairman: Are we importing much beef right now from the U.S.?
Mr. Altwasser: No, we are not. The depressed price has fixed that.
We meat packers do a difficult, dirty job. Our people are working to get as many cattle through the system as they can. We have to be careful not to make too many changes because at some point, the borders will re-open and many of the current problems will disappear.
The Chairman: There are more than 1 million head of cattle right now ready to be slaughtered but they cannot all go over the border at the same time. What would you recommend to ensure that you do not flood the American market and, as a result, depress that market?
Mr. Altwasser: We will not flood the American market. I will comment on that further. With the rate of slaughter that we have in Canada right now —
The Chairman: I am talking about live cattle.
Mr. Altwasser: Yes, if the border is open, the live cattle can flow south as feeder cattle, which go to feedlots, or as slaughter cattle. Currently, the federal, provincial and local abattoirs in Canada are killing about 67,000 cattle per week.
The Chairman: I am concerned about the 1 million head of live cattle that we would like to move over the border.
Mr. Altwasser: If we kill at that rate without the border opening until the end of the year, CanFax would show 600,000 head of surplus cattle at the end of 2004. If the border with the United States opens, the cattle will flow south as feeder cattle and as slaughter cattle. Only the number of trucks available to haul them will restrict that. There will be a loud sucking sound as the U.S. takes many cattle out of the country.
Mr. Van Solkema: Not all 1 million cattle will go as soon as the border opens.
The Chairman: What about the cattle over 30 months?
Mr. Read: For the last day and a half, we have been working on what to do with the surplus of cattle over 30 months. Mr. Altwasser alluded to the fact that they decided to breed them. We are not certain of the number of open cows in the fields, but we will find out in June after the snow is gone. We have been looking at what to do with the surplus. If the meat flows to the United States as an interim part of that final rule, to which we have to respond by April 7, then we will have a home for the product and we will not get backed up quite so rapidly in Canada. We should see a slight increase in the live purchases because we would now have the additional market for the meat block. If the meat flows as per the interim rule, then we will look at slaughter capacity. Currently, our plants are running six days a week. We are committed to doubling our capacity in July. We also committed to capital investment, but first, we have to know where we are going and what is facing us. I am not sure if it is our hands, but we have not been able to see through it since May 20, 2003.
We are waiting for the waters to clear a little so that we can understand what we have to do. We do have a demand. We will do our utmost to displace Oceanic product. We have learned that closing borders is not the answer. We are glad we did not do any of that, as was discussed earlier in the program. That definitely is not the answer. We will have to displace it, mostly through commerce.
We lost a lot of manufacturing capacity, low cost producers, over the last 10 years to the United States, for whatever reasons. It would be great to regain some of that product and production in this country so we are not so reliant on exports in the future. We have learned a tough lesson. When you are reliant on your export customer and something happens, you are vulnerable. We are hoping to look at how we can add more value to our beef products in this country and satisfy the needs of the retailers and the food service trades. We need your help as senators to move down that road as we do recover, so we are not as exposed as we have been in the last 10 months, or almost a year.
Mr. Van Solkema: I would like to add one comment on cows, specific to our facility in High River. We are unable now to process any cows due to regulatory issues. Along with the final rule in the U.S., we are hoping that the regulatory issues will allow us to fabricate cows, which would help to move some of them out of the market.
The Chairman: Could you be specific about the regulatory issue? To what issue are you referring?
Mr. Van Solkema: Right now, you need separate equipment on your fabrication line to run over 30-month animals and under 30-month animals. We have only one facility that fabricates. Mr. Read's plant is specified as over 30 months, as is Mr. Altwasser's plant. This is a USDA regulatory issue. They imposed that on our facility when we were allowed to move product across the border. We are hoping that when the final rule is established with the U.S., that they will allow our facility to process both under and over 30-month cattle.
The Chairman: Would you mind commenting on the question I put earlier, about flooding the American market if that market opens suddenly and we have 1 million head of live cattle here in Canada ready to be moved, either feeder or slaughter cattle? Will that flood the American market?
Mr. Van Solkema: Not all 1 million head are ready at the same time.
The Chairman: Some for feed and some for slaughter.
Mr. Van Solkema: There again, when the border opens, there will be movement across it, and I think it has to be somewhat monitored so that not all the cattle move at once. Certain organizations in the U.S. would take exception to that.
The Chairman: That is a major American concern, as I am sure you are aware.
Mr. Read: If I can add to the other comments about the vacuuming sound coming out of Canada, when the border closed on May 20, we were coming into the peak season for a lot of medium meats. There was a premature slaughter in the United States to keep up with the demand of their consumers. They also enjoyed the luxury of the Pacific Rim market until December 23. They processed a lot of animals early. If you look at the average weight of American steers, it has dropped by quite a bit. There is room to bring what we think is a lot of beef down. It might not be that much to them.
The Chairman: Even a lot of feeders?
Mr. Read: Sure. There is a room for them in the system because the slaughter was premature last year.
Senator Callbeck: My question is about a court case down in Alabama concerning Tyson Foods. I understand that Tyson Foods is a vertically integrated beef operation, including feedlots and slaughterhouses. Tyson Foods was found guilty of illegally manipulating the cattle market, and the impact on the beef industry was estimated to be in the order of U.S. $70 billion. Tyson was fined $1.28 billion in damages. Could you explain to the committee how Tyson Foods was able to manipulate the cattle market?
Mr. Altwasser: I should answer that, because Tyson Foods owns Lakeside Packers. I do not fully understand it. This case has gone on for a long time. It is an inherited case. IBP was charged many years ago. As I understand it, the case revolved around marketing agreements. That was the option of the producer to achieve fixed pricing from the plant prior to the cattle being delivered.
Having said that, the judge has not yet ruled. There has been no judgment handed down yet. A jury made recommendations, and Tyson has filed its comments with the judge. I am told that the cattle producers who brought the claim will have time to file as well. It will be a long time before the last chapter is written on that. It has nothing to do with Lakeside Packers. This was in the mill long before Lakeside Packers came on the scene. I think we will see many more developments around this. It is a longstanding issue that has not resolved.
Senator Callbeck: I misunderstood then, because I thought that had been the verdict.
Mr. Altwasser: There has been a recommendation from the jury to the Alabama judge.
Senator Callbeck: In these vertically integrated beef operations, are the prices that are paid to the independent cattlemen any different from those paid for the captive cattle held by the slaughterhouses?
Mr. Altwasser: In our operation, the feedlot built the packing plant. We are cattle people, and we built a packing plant. The highway goes between our operations. The feedlot is on one side and the plant is on the other. We move the cattle over on the CanFax average, that is, the producer-publicized trading value for the cattle for the week. That is how we price our cattle into our own slaughter operation. Our cattle procurement people's responsibility is to buy the cattle as cheap as they know how. We operate a margin business, and in terms of closed bid sales, we buy the cattle as cheap as we can and we try to sell it to these people, and every other place in the world, for as much as we can. That is our job.
Senator Mercer: You said ``closed bid,'' but is it not true that certain packers insist on knowing the bids of other people before they submit theirs? That is one of the issues that came up in the Tyson case, and other cases of packers manipulating the price. Before putting in your bid, you wanted to know what your competition had bid, so you could bid lower.
Mr. Altwasser: We produce 18 per cent of our kill out of our own feedlot, so the balance is what we bid on in open market competition. Here is how the majority of those cattle are sold: We know there are probably 40 or 50 feedlots that sell the bulk of the cattle. On a given day of the week, they will forward us a sales sheet, they will describe the cattle and they will put the packer's name across the top. For example, there will be a lot of cattle sold on Wednesday and Thursday in our neck of the woods. We will submit our bids to this particular feedlot by telephone. Their closing time is such that shortly thereafter, they will phone us back and tell us what Cargill bid, what Excel bid, what Better Beef bid out West, what the Americans bid, when they are in the market, and the feedlot will then declare whether the cattle are sold or not.
That is their choice.
The Chairman: Are they not necessarily sold to the highest bidder?
Mr. Altwasser: They may elect not to sell the cattle. The feedlot operator may maximize his return and sell to the highest bidder, but he may elect not to sell them at all.
Mr. Van Solkema: It is called the ``sealed bid'' process.
The Chairman: So it is sealed.
Mr. Van Solkema: Absolutely. The information is released after the sale is made.
Mr. Read: In the case of product over 30 months, 90 per cent of those animals are sold at public auctions. It is a social outing for the farmer. They bring bets in and put it through a public auction ring. It happens right across the country.
Senator Fairbairn: This is an important hearing tonight for people who do not make their living the way you do. It is an extremely complicated maze of procedures, and you have helped the committee and others through some of it.
I agree with you totally that the bottom line for every part of the industry, including the packing industry, and certainly in our area, is the open border. The government made an announcement yesterday that helps, but there is no illusion in any one's mind that this is more than a bridging effort toward the opening of the border. There seems to be some flickering light at the end of that tunnel at the moment, and I hope it will brighten and get us going again.
When this all happened back in May — and I would like to understand this better, Mr. Van Solkema — the federal government, knowing that there would be a problem keeping people employed at the packing plants, worked with the provincial government on a proposal for job sharing that was used in Brooks to enable the workers at Lakeside Packers to continue to work, but for a lower pay packet. First, Mr. Altwasser, how has that worked? Second, Mr. Van Solkema, Cargill did not pick up on that. Is it because your system is structured differently? I was curious at the time. How did it work?
Mr. Altwasser: I will answer for Lakeside Packers. Lakeside Packers employs 2,300 people in a community of 12,000, so our most important asset is our people. We recruit from all over Canada and it has been a difficult job to get that number of team workers in Brooks. Therefore, when the crisis happened, we made a decision not to lay off people. Our people's income was important, but when we did not have production we could not pay them. Therefore, during that five to six weeks when the market came to a standstill, we worked as little as two and a half to three days a week, and there was an impact on the people. The work-share agreement was instrumental in getting us through that time until the BSE Recovery Program for the producers was put into place. We started to trade cattle, suddenly we were operating four or five days a week, and now they are working overtime. We lost about 300 people over that time and it has taken us until recently to get that level of employees back in the plant.
Senator Fairbairn: Was there a serious suggestion that if the plant had to close, it would almost be the end of the town?
Mr. Altwasser: As far as Brooks is concerned, we are the largest employer in Southern Alberta and we are located in a little town of 12,000 people.
Mr. Van Solkema: We were in a little different situation. About 80 per cent of our hourly employees actually live in Calgary and commute every day to the plant. We felt that the BSE issue was going to last a long time, and that instead of having our 2,000 employees working at reduced hours, we were probably better off, ourselves and the employees, laying off those 450. They live in Calgary, where there are many job opportunities. It is a very vibrant city. We kept the balance of our employees, the 1,550, working full time. We felt that was a better option for us.
Senator Fairbairn: I was curious at the time, and I thank you for your answer.
Another question: In the last two or three weeks, we have had in and around Parliament Hill some visitors from Calgary. I gather there are some people in the Edmonton area as well who have been talking about the prospect of opening an all-Canadian slaughter facility and packing plant. These are the Sunterra people. They will be before our committee on Thursday. They have been here to explain their proposal, and I am wondering what your response to that is? They say they have the facilities and the backing in Calgary. How do you view the capacity for successful operations with this kind of a change, and how would that affect you, if at all?
Mr. Van Solkema: Over the years, there have always been quite a lot of feeder cattle and finished cattle going across the border every week. Therefore, is there an opportunity for another facility and are there enough cattle to supply that facility? There probably is. There will be certain times of the year, due to the season, when it will be more difficult. The real challenge in remaining viable is the value you get for the product. We compete with U.S. interests, when the borders are open, and amongst ourselves. I can tell you that certainly the U.S. facilities have an advantage when it comes to garnering more value from that animal. That is the biggest challenge. They have to compete with the various plants for those cattle and they need to garner the value from them.
Senator Fairbairn: Is part of their thinking that they might produce an end product that would be directed to a different market?
Mr. Van Solkema: They will do niche products.
Senator Fairbairn: Yes. Your thoughts on it were needed because they will be here.
Mr. Van Solkema: They will find the packing side of the industry very difficult at times, and it will be a challenge for them.
Senator Fairbairn: Finally, you have faced a rather challenging time in the media and elsewhere in the last few weeks, in terms of where money from the federal government is going and whether the packing companies and slaughterhouses were getting a larger share than others considered necessary.
Senator Fairbairn: Can you throw some light on that for us? I know that you had a lively session before the House of Commons committee.
Mr. Van Solkema: There are two issues. There was some money from the federal government earmarked for the packers. About a week ago, we received about $38,000, and that money came through the British Columbia government. Other than that, we did not receive a penny of federal money.
I think what a lot of people misunderstand is that yes, the cattle were bought more cheaply, but only about 25 per cent of those animals actually goes into the retail counter.
The other 75 per cent, such as the thin meat and offal products, lost a tremendous amount of value, because those markets were gone.
We actually paid to have a lot of the rendered products, from which we used to get value, disposed of. We disposed of or landfilled approximately 20 million pounds of meat and bone meal.
Mr. Altwasser: Where did the money go is a question that has been asked. I would suggest that the money was paid to the cattle feeders, and their first reaction was to begin to sell cattle, so that the market did fall to 35 cents. It did decline. It got the wheels of commerce moving again, and subsequent to that — in September we were allowed to ship boneless products into the United States — by the end of October it was $93. It was not a normal situation, but there was greater normalcy in the marketplace. I would suggest that in our own instance, when we put cattle on feed, we spent the share of the money that cattle feeders would have received on buying replacements. The price of feeder cattle this fall, yearlings, was exceedingly high under the circumstances. As I said, the price of calves, while we had BSE in this country, was within 10 or 15 cents of a year ago, so a lot of the money ended up with the producer at the farm gate in the price of replacement cattle.
Senator Fairbairn: Do you have those problems in Quebec?
Mr. Read: We had the stall period as well, with the uncertainty of starting. We have been challenged, from our standpoint, to start the program moving, the incentive program in Quebec; as well, there was a compensation package for the cows. That expired August 31 and was renewed in September. It did allow the process to begin and we were allowed to move forward as a company with confidence. That allowed us to get back on our feet, and again, as Mr. Altwasser mentioned, it started the flow of commerce. From the standpoint of marketing the cow, we saw that evolve in the last six weeks. They decided in the West to put the bull out for the winter, which is a business decision. I think the market for the cows was probably slower to rebound because there is no export market for the meat block. It displaced Oceanic meat in this country.
Senator Gustafson: I want to welcome you here, especially Mr. Altwasser, who is from my corner of the world. I want to pick up on the question that Senator Oliver asked. Senator Oliver, I and others were recently in the U.S., and one of the questions they are asking is about the glut of cattle that could occur it the border opens suddenly, upsetting their markets and so on. They are getting high prices for their cattle right now and they are afraid it will deflate those markets severely. That is one question.
I will give you the questions and you can answer.
This is a hypothetical question. If the border does not open, what does it mean for Canada in the long term? Would we be down to only producing 50 per cent of the cattle we produce now, or what would happen?
The third question is about the international marketplace. I gathered the Americans are suffering somewhat because they have lost their international market in Japan. That becomes a real benefit to Canadian producers, and unless they see movement here in North America, countries like Japan, Korea and so on would not likely open their borders to American beef.
Mr. Read: I should start with what happens if the border does not open for live cattle. You have two alternatives: you can reduce the herd or you can increase the population of Canada by 16 million. We could sustain our beef industry and our agriculture industry in Canada and not be so reliant on exports. That is the trade-off.
Senator Gustafson: What are the numbers?
Mr. Read: In terms of herd reduction, we relied on 60 per cent exported.
Senator Gustafson: Sixty per cent from 40 per cent.
Mr. Van Solkema: Getting back to this comment about the U.S., it is our belief that we need to harmonize closely with the U.S. from a regulatory standpoint. We need to see full movement of all animals and animal products within North America so that Canada and the U.S. can start trying to pry these international markets open.
I think the Japanese have clearly said to the U.S., ``Why would we want to buy from North America when North Americans cannot even trade amongst themselves?'' That is a clear indication, and certainly one of the reasons that we are here this week is we were at the beef roundtable and we are working on these issues with the Canadian cattlemen.
Mr. Altwasser: You asked what impact it might have on the U.S. cattle prices. It will have an effect, and there are a number of studies that have come out since the border closed that show it would produce a 2 per cent or 5 per cent differential. Economists are trying to study that.
There are two points: One is that if we had not had the May 20 incident, the cattle would be flowing and we would have arbitrage in any event. Secondly, our industry pre-BSE was killing 55,000 cattle a week. We are now killing 76,000 — so we are displacing quite a bit of imported meat in this country — while the Americans this week will kill 620,000. That is size of their market. Will we have an impact? Yes. I do not think it will be a large impact.
The other point is that there are certain sectors of that market that would like to have our cattle. The feedlot operators who think they are paying too much for calves would like to have our calves.
Mr. Van Solkema: There are U.S. packing facilities that are not running full out. They would love to have finished cattle from Canada.
Mr. Read: I think your comment is important, but you have to understand the size of the industry in Canada compared with that of our trading partner. We are confident that this border will open, because we are working on harmonization with them and communicating with them daily. There will be some emotion. There always is when you are talking about trade.
I do not think it will have a lasting effect because of our size versus theirs. They need our beef.
Senator Gustafson: I have been through the feedlots in Canada, so I have some idea of what goes on. However, it naturally becomes a political issue along the 49th parallel. Three or four of our good senators down there are opposed to it. However, when you start talking to the senator from New York or from Texas, they are much more open to it.
Mr. Van Solkema: This is not a scientific issue any more. It is political.
The Chairman: It is a political issue.
Mr. Read: There is an old saying: You can buy science.
Senator Lawson: You cannot buy politics?
Mr. Read: It takes longer.
Senator Mercer: My line of questioning is concentrating on the end price of beef.
I have three concerns: One is the consumer, and I have been dealing with that; the second is the farmer, and we deal with that on an ongoing basis; and the third is the oversight of the money that the taxpayers have invested in trying to solve this problem.
Senator Fairbairn raised the question, but almost $460 million for the BSE Recovery Program was announced in June. With other initiatives, the total for the beef industry came to almost $800 million. Farmers were expected to incur the most benefit; however, I know it did not happen. I have proof of that here. We asked the producers time and time again and they did not receive the benefit.
Yesterday, the Prime Minister announced $1 billion for the new industry transition support program. It is a good idea. I noticed that there was a codicil in this one that was not in the previous one, namely, that $650 million will go directly to the farmers. That tells me that someone was raising the question between one program and the other. Maybe this would be a good thing for the Auditor General to have a look at sometime in the future.
Why is there such an emphasis on getting the money into the hands of the farmer, which was what was supposed to happen before? We know that it did not. I want to know is this: Where did the money go? You will tell me — I will anticipate your answer — that it did not go to you. The retailers told us that it did not go to them. It did not come to me as a consumer and the farmer did not get it. Did it vanish into thin air? There was $800 million from various governments and $1 billion was announced yesterday.
Mr. Read: Was not that number last year $1.2 billion between provincial and federal money? Is that not the total?
Senator Mercer: Yes, it is high.
Mr. Read: There was an incentive program for the federal plants to increase our slaughter, and there were two reasons for that. We alluded to the fact that on May 21, we had an inventory that was being built for export. We had stranded containers in Korea. Japan was fortunate because they had insurance programs to cover that. There were minor returns from Japan, but we are talking about the product that came back from the rest of the world. We are still trying to clean up Korea.
There was an incentive program set up for the federal plants — the plants in the West did not get it — and they took responsibility for this product that was stranded. Our company had $1.2 million of dead inventory. We received that, however that was an incentive program to give us the confidence to start killing the cows and get the system running.
I cannot see where that amount of money went, other than to the producers. I believe the farmers got their cheques. We had a cut-off date of August 31 for the culled cows. Those cows had to be dead and audited in order to collect.
I do not know where it was mailed. We had to sign to say that we did kill Senator Mercer's cow for you to be eligible for the program. It did not come to us.
Senator Mercer: What did it do to the price when that happened, that is, when you knew that the farmer needed to have a kill certificate to get his cash?
Mr. Read: The price arbitrarily dropped because there was no export market. There were 22 items that were no longer being saved off that animal. Our buy price dropped and so did our sale price. We were selling meat way below production price. We had the cooperation in this country of further processors, who displaced their imported purchases so that we could move the domestic product through the system. This is going back to August. Is that the timeframe you are talking about?
Senator Mercer: I am talking about the entire $800 million. You said $1.2 billion.
Mr. Read: I think it was $1.2 billion, was it not, senator?
Senator Mercer: I do not believe that the farmers got it. If they did, why are farmers today losing their herds? Why does the SPCA have to seize herds because the farmers cannot feed them? Why are farmers in as much trouble as they are?
Mr. Read: I am not aware of the SPCA being involved because farmers are not feeding herds. When we were out West in February, there was a situation on one farm in Southern Alberta.
Senator Fairbairn: It was outside Lethbridge.
Mr. Read: Was it related to the crisis? We have had those issues in Ontario, but it was a case of a farmer losing interest in what he was doing.
Senator Fairbairn: In this case, they kept their cattle and they were trying to feed them, but they did not have enough feed and they were dying.
Mr. Read: It was related?
Senator Mercer: Yes.
Mr. Read: I cannot speak to it.
Senator Fairbairn: Now they are before the court.
Mr. Read: We have had cases in Ontario, and now Quebec, where people seemed to lose interest, locked the cows in the barn and left them. However, it was not BSE related. I cannot answer your question.
Senator Mercer: You say $1.2 billion; I say $800 million. You cannot tell me where the money went. I cannot seem to find out where the money went, and yesterday the government committed another $1 billion. I am nervous that in 18 months, we will read in the Globe and Mail about the beef boondoggle.
Senator Gustafson: Not if the market opens. We can move live cattle.
Senator Mercier: I take exception to that, because the money has been put into the system. Opening the borders is our primary objective. That will solve our problem in the long term, but we spent this money already.
Mr. Altwasser: I think I covered some of that in my presentation. There are independent people who will back up what I will say. The George Morris Centre has studied packer, retailer, farmer, and producer behaviour and declared that people are acting in a rational way. We are margin operators. With our inventory position, we can readjust our cost base in a couple of weeks with the purchase of cattle, the sale of meat.
As a feedlot operator, it takes me 150 days to adjust my cost base. We went through this dilemma where, as the market fell, we had either no sales or fewer sales. The kill contracted to 20,000 cattle per week in June. We had nowhere to sell the meat. We availed ourselves of the work-share program. Our alternative was to quit production, because we could lose less money under that scenario than if we pay whatever it costs to move the cattle and sell the meat into the market for what it is worth. The industry reduced production.
The market was falling. I suggest to you that the price of cattle was going to fall to that level irrespective of the program, but it restored the liquidity to some degree and the balance sheet of that feedlot operator, so that in the fall, when it came time to readjust his cost base for feeder cattle, he did what I did — and we made a terrible mistake. We paid the producer too much money for both yearlings and calves. The price of calves this year was within a dime of last year. I know that because I own a ranch. We overpaid for the feeder cattle last fall. That is where a lot of that government money went. The government money ended up in the hands of basic producers. While they did not get a cheque marked ``Government of Canada,'' they got a cheque from the auction yard and the marketplace, from people who had too much optimism to put cattle on feed because they received that $800 million, or whatever portion that they received. That money, I suggest, flowed through into rational behaviour and people bought feeder cattle at higher prices than they would have without it.
To back that up, those cattle in my feedlot, which we bought in a competition in that market, are losing $175 a head.
Senator Mercer: You are saying the money got to the farmer, but via you.
Mr. Altwasser: It went via the buyer of his feeder cattle.
Senator Gustafson: My findings come from the largest feedlot in Saskatchewan. You are probably familiar with Lanigan, Saskatchewan. They had 25,000 head. Mr. Wildeman told me they were losing $350 a head.
My understanding is that the federal payments will amount to about $80 a head. That may sound like a lot of money, some $600,000, but even at $200 a head, they are still losing money.
The money did flow through to the farmer. In October 600-pound calves went up to $1.20. By Christmas, they were dropping down to 90 cents. The bottom fell out in the new year. They restocked their feedlots, thinking the border was going to reopen — that is my observation — and they lost still more money. They will lose even more on these cattle if that border does not open.
Mr. Altwasser: The bottom fell out of the market in January, February, as a result of finding the second case of BSE on December 23. Everyone was getting fairly optimistic about the border opening. Optimistic anticipation has as much impact on the near-term market as does the actual opening of the border.
Senator Gustafson: There are speculators as well.
Senator Sparrow: One of you mentioned consumer confidence and confidence in the market and in the industry. That has been my concern. We seem to be trying to find fault and find somebody who is robbing the system. From all the evidence that I have been able to ascertain, here and at the House of Commons committee that I attended, I believe no one has really been exploiting this situation. It is important that the consumers of this country know that no one is robbing the system.
We talked about the money announced yesterday. That is only $80 per head, and it does not cover bred cows, cows that have already calved or cows that are over two years old. We end up with animals under two years of age that have not calved. We are giving $80 for each of those as a subsidy to the farmers. Such an animal would have been worth anywhere from $800 to $1,000 at market value. The $80 will help a little, but that amount will not save the industry if the border does not open. It is literally nothing.
We talk about $800 million to $1 billion. To the government and to taxpayers, that is big money; I do not question that. However, it is not big money to the agricultural industry, nor to the cattle industry, nor to the owners of those younger animals, who may receive the subsidy of $80. That subsidy will not repay the farmer for looking after that cow for longer than three or four months. That is all it will do.
There is a danger that the consumers will say that they are heavily subsidizing the industry, but they really are not. No one is making the money that some say is being taken from the system. I want it to be clear. In my mind, no one is robbing that industry.
Senator Gustafson: A farmer will get a haircut in Vancouver and the barber will say, ``Oh, you are one of those rich farmers who got all that money.''
Mr. Read: We made a commitment to the industry as a whole in August, including the packing industry, that we would sustain this business. In July, we started to push our way into the U.S. marketplace. We thank our allies for opening the doors to that. You are absolutely right. We do feel this is a sustainable industry. That is where our efforts should be placed. We do support your comment.
The Chairman: We know in Canada and in the United States that our beef is safe to eat and that there is no danger to the consumer. We also know that the science says it is safe and that our beef is good.
We also know that the SRMs are controlled, both in Canada and the United States. There is no question of bad feed contaminating the animals. We also know that the Canadian and the U.S. markets have been totally harmonized and that the cattle move back and forth.
What do we do, once the market opens, to make sure it never closes again like this in our lifetime? What steps should we take? I am talking about this Senate committee. We are public policy-makers. We are not in the business of making money. As public policy-makers, what should we be thinking about doing to ensure this never happens again, given the four pre-conditions that I told you about — the SRMs, the science, the meat safety and the harmonization?
Mr. Read: There are no guarantees in life. We are trying to develop a trilateral agreement among Mexico, the United States and Canada, strictly on BSE. The science tells us we should adjust the standards, through the international review committee, the OIE, to accept a single-case finding. I think that is job two — to adjust global opinions on this disease to acceptance that it can be spontaneous. We do have it under control because of the SRM programs.
After we develop North American standards, then we owe it to ourselves to approach the OIE and these international review committees to accept our policy globally. We should protect ourselves in the future from being devastated by a single animal. That is a very important issue.
Senator Sparrow: No one can guarantee that. We do not know when foot-and-mouth disease may come to this land. Obviously, if it did, we would be shut out of the North American market. If that disease came to the United States, we would shut them out, too. We have to be aware of those health problems.
We must try to guarantee the best possible animal health standards in our country and encourage the North American market to do the same. That will lessen the danger of border closings in the future.
Mr. Read: Nothing is guaranteed.
Mr. Van Solkema: The OIE provides recommendations for standards. They cannot enforce any standards. No international body can do that. According to the science of BSE, every country in the world should have their borders open to us but they individually choose not to. If there were some mechanism to negotiate these types of trade issues among all countries and to uphold the OIE rulings, that would prove beneficial.
The Chairman: What about WTO standards?
Mr. Van Solkema: Could you take something like this to the WTO? I am not sure. That, too, is a process that could take seven years.
Mr. Altwasser: I support what the other two have said. Harmonization is critical because we have such a large stake in the U.S. market.
The Chairman: We are harmonized now and that is accepted on both sides of the border.
Mr. Altwasser: We are not totally there yet in terms of our feed policy on SRMs and whether we can include them in the meat and bone meal or whatever.
Through OIE, we need to set realistic standards that do not penalize us like this. This is not an animal threat, and with the removal of SRMs, it is not really a human threat. The punishment is worse than the crime. We have to get beyond the paranoia with our trading partners.
The Chairman: What should we try to do to ensure that this border never closes in this way again and that we are not faced with this multi-billion dollar loss?
What about testing? The Japanese seem to think we should test every animal to give the world the confidence that is required, but you know what that costs. Is there any merit to that? Is that what we should be looking at?
Mr. Read: Science has told us that testing does not preclude or eradicate or work toward the herds. It has no science behind it. That is why we adopted the SRM program, to ensure our public's food is safe.
We visited Japan in January, and they have also visited us. While we were there — we put Dr. Norm Willis on the ground, you are all aware of that — they agreed to work with us on equivalents rather than 100 per cent testing. That is a big move for Japan. They realized their decision might not have been the right one, and that they overreacted.
Again, I come back to how you blend politics and science so they end up on the same road.
Mr. Altwasser: Yesterday at the round table, Dr. Murray of the CFIA presented a paper that showed that the probability of having more detected cases in this country is very real. We are not out of the woods after finding one animal — or two, if you count the one found in the U.S. as Canadian.
The Chairman: We are aware of that, and that is why we are trying to develop some kind of public policy to help us decide, when the next one comes along, what we should do to ensure we do not lose money because the market is closed.
Mr. Altwasser: We need some kind of acknowledgement on the part of our trading partner that a level of less than one in a million is acceptable and does not put us in the penalty box.
Mr. Read: That is why that trilateral discussion is critical and we should work on that first — Canada, the United States and Mexico.
Senator Fairbairn: I just wanted to comment that I think that is precisely what we are trying to do with the OIE.
Mr. Read: Yes.
Mr. Van Solkema: They are working to develop new rules.
Senator Fairbairn: We must try to develop rules that, in the future, would make it possible for Canada and the United States to work together to do what was necessary, and have the rest of the world know that we had a viable, healthy market.
Mr. Read: Yes.
Senator Gustafson: My understanding was that the Americans were testing, or are about to test, is it 8,000 or 800,000?
Mr. Van Solkema: It is 250,000. That is to show prevalence.
The Chairman: To try to get back into the Japanese and Korean markets.
Senator Gustafson: Will that force Canada into a similar position?
Mr. Van Solkema: Our understanding is that for us to show the equivalent type of testing, it is 12,000 or something like that.
Mr. Read: On the numerical scale, we are increasing surveillance across the country as we speak.
Mr. Altwasser: In this meeting that took place in the last couple of days, the CFIA proposed that their target is to test 30,000 cattle within two years.
Mr. Van Solkema: That is to show prevalence.
The Chairman: The testing is not as important as the SRM controls, which are already harmonized.
Mr. Van Solkema: That is right.
The Chairman: The Americans we talked to were very impressed with our SRM controls; it is not an issue.
Mr. Van Solkema: They adopted identical SRMs to ours.
The Chairman: Thank you, gentlemen, on behalf of the committee. The questions have been excellent and your responses have been even more excellent. They will certainly help us as we go on with the study. We will be filing a report, and one of the things we will be dealing with is what we should do to prepare for the future. The answers you have given in the last 15 minutes or so will be extremely helpful to us.
Mr. Read: If you do require more from us, please, we want to be part of the process and part of the solution as well.
The Chairman: Honourable senators, the meeting is adjourned.
The committee adjourned.