Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 7 - Evidence - Meeting of April 20, 2004
OTTAWA, Tuesday, April 20, 2004
The Standing Senate Committee on Agriculture and Forestry met this day at 6:45 p.m. to examine the issues related to the development and marketing of value-added agricultural, agri-food and forest products, on the domestic and international markets.
Senator Joyce Fairbairn (Deputy Chairman) in the Chair.
[English]
The Deputy Chairman: Honourable senators and our guests, welcome, and welcome to everyone listening to our deliberations this evening over the Internet. I am here on behalf of our chairman, Senator Oliver, who was unable to be here today. This meeting is on the issues related to the development and marketing of value-added agricultural, agri- food and forest products on both domestic and international markets.
This evening, we have invited officials from Atlantic Beef Producers Co-operative to provide us with an overview of the issues their industry is facing in relation to value-added products and opportunities for farmers.
Appearing before us is the chairman, Mr. Dean Baglole, and accompanying him is Mr. Inglis, a member of the board of directors. I should mention, gentlemen, that this is an absolutely perfect time for your appearance. Last week, we put out our special report on BSE. During those hearings, your initiative came up in discussions about how we can create a better system in this country to deal with the kinds of problems we have been facing since last May, when the American borders were closed to our live cattle. We are looking forward to hearing what you have to say.
Mr. Dean Baglole, Chairman, Atlantic Beef Producers Co-operative: Honourable senators, we thank this committee for giving us this opportunity to speak to you tonight. We apologize for not having some information that we could hand out to you. This was prepared on the spur of the moment.
We are not sure how much information or background you have on us. If it pleases you, we will give you a quick rundown of who we are and how we came to be.
The Atlantic Beef Producers Co-operative is composed of 190-plus beef producers in the three Maritime provinces who have partnered with a retailer, that being Co-op Atlantic, in the concept of building a beef plant to facilitate their industry and their needs in the Maritimes. This initiative was undertaken before May 20. We were working on it for a year before that, although BSE has changed the playing field considerably.
We started with a beef brand that was unique to the Maritime provinces. This brand, Atlantic Tender Beef Classic, was brought into play to try to put local product into stores. There was no local Maritime beef in the grocery stores in Atlantic Canada at the time. We had a processor in Moncton, New Brunswick, where the cattle were being processed. That processor changed direction when it was sold to Maple Leaf Foods and they went out of the beef business. We were left, as producers, with the option of Ontario as the closest place to send cattle. That did not make much sense to us when we already had a brand that we had worked with retailers to put in place. We had consumers who were looking for the product in the Maritimes. We had to transport our livestock to Ontario and then turn around and have the meat brought back.
We initiated the concept of building a beef plant. The Atlantic Beef Producers Co-operative was the producer side of the ownership. They came on board by raising money and were able to put enough in place so that the producers will actually be the primary shareholders in this plant, and our retail partner, Co-op Atlantic, will be a partner in a smaller capacity.
We felt it was necessary for us to establish something in the Maritimes that would give us an opportunity to survive. The beef industry in the Maritimes is a $100-million farm gate receipt industry. Without a local processor, we thought there would be a severe loss of people in the industry.
One of the things that we liked about the idea of building a plant together with a retailer was that it brought us into the marketplace. Before, as producers, we merely sold a commodity to a packing plant that in turn sold it to someone else down the chain. We felt that it was better for us to be involved in the chain as much as possible. We were able to bring enough producers on board and raise enough money to begin the construction of this plant.
Ours will not be a large plant in comparison with some of the plants in Western Canada and Ontario. We are looking at a plant that will have a capacity of 26,000 cattle a year, approximately 500 cattle a week. Initially, the design plan was for finished cattle — fat cattle, branded cattle — to go through this plant.
BSE, of course, has had a dramatic effect on the industry. It had a very negative effect on the producers in the Maritime provinces. Farmers were only getting 25 or 30 cents on the dollar in value for cattle and had to pay 25 per cent of that to have them trucked to Ontario. There was a real incentive for producers to look at doing something in the Maritimes.
We believe very strongly in the gate-to-plate concept, whereby we will be able to offer product that consumers in the Maritimes and Atlantic Canada know is locally raised. They know the producers who helped to put it there. The stores can also take pride in knowing that it is a locally raised product.
Perhaps Mr. Inglis can speak about the award.
Mr. Bryan Inglis, Member of the Board of Directors, Atlantic Beef Producers Co-operative: Two years ago, Co-op Atlantic entered our beef in the national awards program of the Canadian Grocers Association. Co-op Atlantic is quite a small player in the grocery industry. We represent only 12 per cent of the industry in Atlantic Canada.
We entered a piece of meat. Generally, people enter value-added products in this competition. It is a processed product of some type. We were probably the first company to just enter a roast, as it was.
We won the Grand Prix Award for fresh products that year in Banff. It was quite something for us to do that. That got us a lot of attention from the gate-to-plate side of things.
We do feed these cattle a special feed. There is a protocol to follow. There is a program.
Mr. Baglole: As Mr. Inglis said, our feed is specified to meet the program. The producers have signed up and know what the protocol is to make this happen. Co-op Atlantic and we understand that they will not be the only customers of this particular plant. They will probably be the largest customers, but there are other opportunities in this industry that we are actively pursuing and looking forward to.
This is quite a large endeavour for a bunch of beef farmers from the Maritime provinces. With the plant, the waste treatment and everything that goes with it, we are looking at close to a $20-million endeavour. This has been a big project that has been undertaken mainly on a volunteer basis. The people who did it did so, for the most part, because they believed in the need for this in order to move forward.
We have had much interest throughout North America. We had a number of people up from the United States in February looking at our project. Many producer groups have been looking at ways to take more control of their product and maybe give themselves an opportunity to survive.
We do not tell our producers that the plant can pay more than they are getting now. We will not know what we can pay until we get into this. At least they know that everything will be on the table for them to see. They will have an opportunity to look at those dollars and cents and make the determination as to whether it is a business that is rewarding to them.
We have been lucky, because it is a Maritime initiative and producers from the three different provinces are involved. The plant will be built on Prince Edward Island. We went to the three provincial governments and asked for expressions of interest. Prince Edward Island's government was the one that offered the most incentive to set up shop. At this time, they are playing a major role in helping us get this off the ground.
Our plant was started as one that killed branded, A-quality cattle. As a result of BSE and because there are no other federally graded slaughter facilities in our provinces, there has been a significant amount of concern raised about whether this plant will have the ability to handle some of the spent dairy and beef cows, the cull side. We have not been able to reach a decision on that as yet. It was not in our original business plan, which was prepared pre-BSE.
We have been trying to deal with this. We are looking for funding and trying to determine if there are ways that we can help some of these people and those industries as well.
We feel that we are unique, certainly in Canada. I do not know of many instances in North America where the producers and retailers have a direct connection to the processing side.
In light of BSE and everything that has happened, there has been significant discussion in the marketplace and among the public about traceability. How can we follow the product? What can we do to offer consumers the level of comfort that they are seeking?
We feel that we have a real opportunity in our plant to do that. Our 190-plus producer members are the ones who will be supplying the cattle. We have a direct correlation between the people who are supplying the product and the meat.
We have expressed interest in looking at traceability and things that have been happening around that issue. We have sent letters to the federal Minister of Agriculture, expressing interest. We have been disappointed that we have not yet had a response.
We think that we can be unique, as well as be the guinea pig. We could be the opportunity for the Canadian government, the CFIA and the industry to look at options.
If I am on my soapbox tonight, it is because we would very much like to work with the federal government and with Ag Canada to look at these options. We have not, as yet, had any word on that.
We think there are tremendous opportunities in this industry. We know that it is a tough game. We know that we have to be different from a plant that kills 10,000 cattle a week when we will be killing 500. Economy of scale dictates that we are at a severe disadvantage.
We also believe that local product is important. We believe that we have the opportunity to offer niche products that might be unique in the beef industry. We are quite excited about our opportunities, the potential we see for what we are trying to do and where it might go throughout Canada. People are discussing similar plants in Alberta and Saskatchewan. It is an exciting time for us as producers.
I would be happy to answer any questions. I do not know whether there is anything else I can bring forward right now, but we do appreciate the opportunity to speak to you today.
The Deputy Chairman: Thank you. It is certainly a treat for the committee to hear such an upbeat, optimistic report from you because we have been hearing very interesting but very difficult presentations from others who are caught up, particularly in the West, with this problem, which is huge, and they are indeed looking in the direction now, in two cases, anyway, in the province of Alberta, of doing something similar.
Senator Hubley: It is certainly a very positive message you are bringing to us this evening. I am delighted that it is coming from Prince Edward Island and that the plant will be located very close to where Senator Callbeck and I live.
You mentioned the economy of scale, and as we have heard from some witnesses, that can be a very positive thing. I would like to pursue what efforts you might be making in terms of a demand for specialized or customized butchering, niche markets that might be out there. We have heard that in the Asian communities particularly there is opportunity for niche marketing. From your standpoint and from what your investigations have shown, what kind of niche marketing do you see for your plant in P.E.I.?
Mr. Inglis: The plant was built specifically as a branded plant and Co-op Atlantic worked with the producers to set it up, so the first brand the plant will produce is for the local market. That will bring us up to 300 head, we believe, as soon as we open. There is an opportunity because of our size; small is good in our case. We are small, we communicate directly with the producers and so we can change quickly, and one of the things that the plant is looking at is going to natural product, no hormones. That is very easy to do. We are pretty well there now. That will give us a little niche to start with. Traceability would be the huge leap. Again, because we are small enough, we believe we could be one of the first plants ever to offer completely traceable product, and the Japanese would like that. The equipment that we are buying is European, and you need to have European standards to be able to export. It is something that we have looked at. We do want to focus, though, on our original business plan, which was for a branded plant for Atlantic Canada, and then maybe look at niche markets after that. However, we have all the elements to get there.
Senator Hubley: Those are possibilities. You mentioned a specialized feed. That in itself is a plus that a smaller industry can achieve, and given the atmosphere today, it can be a promotional tool for you.
Mr. Inglis: Yes. We are not doing anything special. What we are doing is consistent. In other words, what we are trying to do — and we have been quite successful — is have the 190 producers all feed the same thing. They all feed grain for the last 90 days so the cattle coming to the plant are very consistent, and we can be consistent and keep to the brand. I do not want to mislead you into thinking we have invented some special feed. We have not, but we are consistently buying the same type of cattle and feeding the same feed.
Senator Hubley: Is that just in the last 90 days?
Mr. Inglis: In the last 90 days they feed grain. That is the way they finish it.
Senator Hubley: Is your plant aware of what those cattle have been fed prior to that?
Mr. Inglis: We communicate right through the chain, yes.
Senator Callbeck: As Senator Hubley said, this plant is not too far from where we live and I know that everyone is happy about it. Certainly it is perceived as a real impetus to the beef industry in the whole Maritime area, and as you mentioned, it will put the farmer further up the food chain to get a larger percentage of that consumer dollar that is spent on the meat.
We received a document from the Library of Parliament that outlines the shares, and it says every share is $60 and entitles a producer to put one animal through per year. It said that 18,000 shares are already bought, but there is capacity for 26,000, so there are another 8,000 still outstanding. Could you tell me about the shares, who owns them and so on? What is the split?
Mr. Baglole: The shares you are speaking about, Senator Callbeck, are in the cooperative, the Atlantic Beef Producers Co-operative. That is the company or the cooperative that the producers formed in order to have ownership in the plant, and the way we structured it was that we sold what we effectively called a "hook," although it is not a very good term to take to the public. Every space in the plant a producer wanted to buy cost $60. We had 26,000 spaces, based on 500 cattle a year. That would raise the $1.56 million that the producers had to put forward to make this plant a reality.
When we did our initial share sale we actually exceeded our expectations. Our minimum expectation or requirement, we felt, was 18,000. If we did not hit that we did not feel there was enough interest among the producers within the industry to move forward. We exceeded that by a fair margin actually, and we are very pleased with the numbers that we have hit. We suspended sales after the initial run to give us an opportunity to sit back and see exactly how many cattle we could put through. As Mr. Inglis mentioned, with Co-op Atlantic as our prime customer, certainly in the early going, we did not want to have more cattle coming into the plant than we could sell. We want to be very careful and do this from a businesslike standpoint. We made sure that we did not sell too many initially, but we have put together a waiting list of people who were looking to buy into it as opportunities arose. We do have a large number of producers on that list who are simply waiting for their opportunity to put their money in and give their cattle a space in this plant. That $60, that space in the plant, is good for the life of the plant. It is a one-time investment by producers. For someone who has 100 cattle, it is $6,000 and they are in for life, which is very appealing.
Right now, we pay in excess of $80 an animal to have them shipped to Ontario, and so to pay $60 to actually own part of a plant was a no-brainer for many producers. They felt it was the right thing to do.
Senator Callbeck: There would be no problem then with the 26,000 shares?
Mr. Baglole: No. One of the other reasons we have not pushed the remainder of the shares is we wanted to sit back and look realistically at this cull cow problem we have in Atlantic Canada. As you can imagine, it is a long haul to truck healthy, strong cattle, young cattle, from the Maritimes to Ontario. Try doing it with an animal that has been in the dairy barn for X number of years. It makes it more difficult. Again, we did not want to eliminate that opportunity for those producers, if there is one. Our plant has been built with expansion in mind. Everything is designed so that we can easily expand our kill if the opportunity arises.
I do not necessarily like talking about expansion before we get the doors open, but that is the reality. We have tried to be careful. We have tried to look at all options, but as for selling the other shares, it is not a problem. We will have no problem filling those requirements from the plant's perspective.
Senator Callbeck: I believe you said the producers have the majority of those outstanding shares.
Mr. Baglole: Yes.
Senator Callbeck: What percentage does Co-op Atlantic have?
Mr. Inglis: The have 20 per cent, and Co-op Atlantic believes that for this to be successful, the producers have to have the controlling share. This is a producer initiative, and we also realize that Co-op Atlantic will not be the sole retail partner, so we did not feel it was necessary for them to have more than 20 per cent.
Senator Callbeck: You do not intend to buy cattle from any non-members?
Mr. Baglole: That is correct. The plant will be self-sufficient with its own producers. That has been our intention from day one. There were some beef producers in the Maritimes who for one reason or another did not buy in at the time. It was a difficult time because of BSE, and the amount of money that they would have to come up with was prohibitive for some. For whatever reason — the type of cattle they fed or whatever — they felt they were better off without us. The vast majority have signed on or have expressed interest, so the numbers are certainly there to make this plant run.
Mr. Inglis: What makes this unique as well is that because it is a closed loop, it is like a new generation cooperative. The 190 members are the ones supplying the cattle. They will not be supplying cattle just when they want to. There is a cattle coordinator who will work with them and they will be obligated to deliver their cattle on a certain date. It is a delivery right; therefore, not all the cattlemen can just show up on the first week in October. They have to deliver their 100 cattle and then someone else delivers the next hundred, so there is a steady supply. That is what is unique about this as opposed to many of the other cattle processing plants that buy on the open market. The hook allows them a delivery right, and then they are expected to actually deliver.
Mr. Baglole: There are penalties if you do not deliver. We have been quite strict with our producers and made it clear from the outset that this plant is no good to anyone if it cannot succeed. To succeed, it has to run at capacity. I am a beef producer from P.E.I. It is their business, and that has been difficult for some producers to adjust to. They are shareholders, they have bought into it, but spent their lives raising cattle and thinking of the plant as sort of the enemy. They have got to look at "them" now as being "us." That is going to take a little work, but we have been trying to be upfront. We have made it very clear. Nothing has been painted as rosier than it actually is. We have tried to lay everything out before them.
Senator Callbeck: In laying it out that way, you have the potential or possibility of getting into the major retail outlets.
Mr. Baglole: That is right, yes. There have been expressions of interest from other retailers, and we have an agreement with Co-op Atlantic that they will not be our exclusive retail partners. They are a partner in the plant, but their brand is the only thing that is exclusive to them. Atlantic Tender Beef Classic is theirs, and we will be their sole processor. However, we envision producing brands for any number of other retailers, the food service industry and other opportunities that exist.
Senator Tkachuk: We have been talking about value-added for years, yet somehow in Canada we have not succeeded as well as we would have liked. We grow all that grain in the Prairies and do not produce any cereal. I will be asking for some information about how you did it.
I just want to make sure this is correct. I think you said initially that Co-op Atlantic did not sell Atlantic beef. Where did you get your beef?
Mr. Inglis: Co-op Atlantic has been around for 77 years, and we have been told forever and ever that Western beef is the only beef; it is the best beef; Alberta does a great job. Co-op Atlantic sold Western beef.
We have an agricultural division and a grocery division, and the agricultural people were at a grocery meeting where the producers were complaining about the quality of beef for some reason. We were having trouble with it, and there was an argument between the farmers and the grocery people about whether Western beef or Eastern beef was better.
We started exploring Eastern beef and doing some taste testing. Then we started doing focus groups and realized the consumer in Eastern Canada would rather buy Eastern beef, if it was available and was as good as Western beef. Then when we started looking into it further, we realized it was as good as Western beef. It was just a perception that had existed.
That is when this idea of trying to start a program to promote and brand Eastern beef began. We have been at this since 1997.
Senator Tkachuk: During this time, where did the Maritime beef producers sell their beef?
Mr. Inglis: They sold it to a small kill plant in the Maritimes, and the culled dairy cows went there as well. They brought cattle in from Quebec and Maine, slaughtered it, and exported to Cuba and all over the place.
Senator Tkachuk: Where was this kill plant in the Maritimes located?
Mr. Inglis: It was located in Moncton, New Brunswick. It was Hub Meat Packers.
Senator Tkachuk: Did they go broke?
Mr. Inglis: No, Maple Leaf Foods bought them, and they cut down the kill line for cattle because they are a pork company, and that was the only beef kill line they had in Canada. That is when they shut it down.
We were already into our branded program at that point and we were at risk of losing it. Therefore, we made a deal with Better Beef in Ontario. Every week, we ship all the cattle to Ontario and have them slaughtered through Better Beef. Then we buy it back, truck all the parts back, and put it through the retail chain to try to keep our brand together while working with the beef producers to rebuild the plant.
Senator Tkachuk: You mentioned the Prince Edward Island government supported the building of the plant. I would guess you had the option of building it in any one of the Maritime provinces. Are they giving you cash?
Mr. Baglole: No.
Senator Tkachuk: What kind of support are you talking about?
Mr. Baglole: The P.E.I. government offered us a piece of property at a good price. We are paying for the property, but at a good price.
Senator Tkachuk: Is it a discounted price in terms of the marketplace, or did you just think it was a reasonable price?
Mr. Baglole: Well, the Prince Edward Island government was looking to start a food park, an opportunity to bring agri-business into P.E.I. They looked at the beef plant as potentially the centre of the food park, and what they put on the table for us, frankly, was a waste treatment facility. They offered to build the waste treatment plant to enable this beef plant to be constructed. Waste treatment plants are expensive. We will have to pay usage fees for it, but it was the difference between us moving forward with the project or not. As I said before, when we add the price of the plant to waste treatment and our initial start-up, we have a $20-million operation, but the math is not there with respect to spending $20 million to kill 500 head a week.
They will be shareholders, in a way, to help us begin, but they are looking at opportunities to move that, perhaps to the producers. The potential is for the beef producers to eventually own 80 per cent of the plant. They will begin with 50.
Senator Tkachuk: Help me through this, then. The waste plant was in the original design, or it was part of the original. Is the provincial government financing the waste plant? Are you its biggest customer or its sole customer?
Mr. Baglole: We will be its sole customers initially, but again, I cannot speak for the P.E.I. government.
Mr. Inglis: When we went out to the three provinces, one of the locations that was very attractive to us was Moncton, New Brunswick.
The reason Moncton was attractive was because they had primary waste treatment and we could tap right into their sewer, so we would not have to build a waste treatment plant if we went there. At that point, the P.E.I. government realized that if they wanted to attract more businesses to P.E.I., they needed to compete with Moncton. They realized that we needed to be able to supply waste treatment to our clients. That was sort of the catalyst that worked for both of us.
Senator Tkachuk: Does Moncton have a waste treatment plant or do they just pour raw sewage?
Mr. Inglis: They pour raw sewage and they have a treatment plant, and they are attracting a lot of business to their industrial parks because of that.
Senator Tkachuk: When you say that the P.E.I. government will be helpful in making producers 80 per cent owners of the plant, were they providing loans or anything like that? You said they were going to be helpful in other ways. Is there another incentive I am not aware of?
Mr. Inglis: One of the other things we realized as we went through the process, having talked to many people, is that debt will kill a processing plant. This is a penny business and we looked at designing the plant like a 3Ps school, where you have a partnership, a lease buyback. A developer will build the plant for you and you sign a 20-year agreement. Then you pay rent. We did that as well, so we do not actually have the plant on our books. We have a partner who built the plant on our behalf and the government worked with him. We did not have to borrow almost $11 million to build the plant. A developer has done that for us.
Senator Tkachuk: A developer is in partnership with the provincial government?
Mr. Inglis: We signed a 20-year agreement with this person. At the end of it, we own the plant. The government has worked with him so that if we are not successful, he will not be out his money.
Senator Tkachuk: So they guaranteed the money. Is this to get around any possible problems with the free trade agreement?
Mr. Inglis: This is more of a debt-equity thing, strictly a business structure.
Senator Tkachuk: Will your plant be unionized?
Mr. Inglis: The general manager we hired has worked in both union and non-union plants. He actually had three plants: two are non-unionized and one was unionized. We are not there yet. The unions have approached us. Co-op Atlantic deals with unions. They have processing plants that have unions, so we will wait to see.
Senator Mercer: Again, welcome. As a Nova Scotia senator I am very excited to see some capacity being built in Atlantic Canada. I would prefer it to be in Nova Scotia, but P.E.I. is close enough.
The Chair mentioned an Alberta example and a gate-to-plate program. I do not know if you have heard of the Sunterra program. They appeared before us a couple of months ago to talk about it, but there is much more detail here. While it is smaller, I think it is successful because it is serving a market that was really suffering in Atlantic Canada, where we had to send our cattle to Toronto.
With the advent of the opening of the plant, are producers now building more capacity? Are they increasing the size of their herds in anticipation?
Mr. Baglole: They are, to a point. The only thing that is keeping them from expanding even more is the BSE crisis and the uncertainty as to when that border will open. One thing we have tried to be very upfront with our producers about is that we feel this plant will be a tremendous boost to the Maritime beef industry, but it cannot solve North America's problems if BSE hangs over our heads for any period of time. They realize that. It is the only thing that is stopping some producers from really moving forward. There has been a lot of interest, but if anything is holding them back at this stage, it is BSE.
Senator Mercer: It must be difficult to compete in terms of prices to consumers when you are shipping cattle at $80 a head to Ontario to be slaughtered and brought back, to be competitive with Sobeys and Loblaws, who both operate in Atlantic Canada. Do you anticipate this will have a direct effect on the retail price? Do you think that you are cutting out the middleman, and the profit margin for the producer will be higher?
Mr. Inglis: You will not see a change in the retail pricing, just as we have not seen a change in retail pricing through BSE or the hog crisis. What you will see is the producers now participating in the chain, so if the plant is profitable, as shareholders they will actually see their profitability increase.
Senator Mercer: Continuing with the gate-to-plate argument, you said that one of the consistencies is that all the cattle will be fed the same product, and in the last 90 days will be fed grain. Where does the feed come from? Is it generated in Atlantic Canada?
Mr. Inglis: Yes.
Senator Mercer: We have one industry feeding another?
Mr. Inglis: As you are aware, in P.E.I. they grow a lot of grain through rotation. It is important to mention that 80 per cent of the finished cattle come from Prince Edward Island, which is where they are being fed the grain, and the grain is being produced as part of a potato rotation, so it comes full circle. The more we stimulate it, the more it comes. Also, on the question of growing the herds, by having everyone focused on the same program and working with producers more directly, individual farmers will produce more of the cattle that actually make the program. If we can raise the number of cattle making the program from, say, 70 per cent to 90 per cent, we will get internal growth through that communication and working more closely with the producers.
Senator Mercer: How do you agree on the price of cattle you buy from the farmer? You called it "delivery right." As a farmer, I have a right to deliver X number of cattle and you set a schedule as to when I deliver them. You cannot tell in advance what the market will be at the time, so how do you determine the price you will pay me for my cattle?
Mr. Baglole: Originally, we actually set up a price-grid committee, which had a representative from the retail side and producers and sat down to look at it and try to come up with a plan or formula that they felt would work for Atlantic Canada, and that would make the plant efficient but give the producers the return they needed. They put a formula forward that will be adopted by the plant that the producers are very happy with, that will not have an adverse effect on the retail side, and that we feel will serve the purpose. We mentioned earlier that it is a new game for us. We have to get into this and run for a while to see exactly what we can do. When you talk about trying to raise value or getting more money for our product, those opportunities are out there. We feel they are. In some of those niche markets — Mr. Inglis alluded to the possibility of a natural product — there are things we can do, and do quickly because we are small, that might give us an edge. If there is a market somewhere that wants to pay X dollars for a specific product, we want to talk to them. If there is an opportunity for us to get our producers to do that, and it is beneficial for them, we will certainly be doing it.
Senator Mercer: You talked about your capacity being 500 cattle per week or 26,000 cattle per year, but you also hinted that there is room for expansion and you have sort of built that into your plan.
Let us say everything goes wonderfully for you. What would your maximum capacity be if you expanded?
Mr. Inglis: We could start tomorrow by putting on a second shift, so we could double our shift and work weekends and there is another 20 per cent.
Senator Mercer: Which leads to the other question: How many people will you be employing here and, if we can do the math, you double it and add 20 per cent?
Mr. Baglole: The initial start-up will be from 60 to 70 employees at the plant.
Senator Mercer: That makes it a big employer in Prince Edward Island.
Mr. Baglole: Yes, it is a big deal for P.E.I., and P.E.I. liked it because they look at agriculture from an integrated standpoint. The beef industry is important in helping the potato industry, because as Mr. Inglis said, the grain is being produced, the hay is there and one feeds off the other. There is manure to go back on the land. It is a very good fit.
There was great concern, when the plant shut down in Moncton, that we would lose a large percentage of our industry.
Senator Mercer: The Moncton plant is only processing hogs now.
Mr. Inglis: It does not even do hogs now. All the hogs go to Nova Scotia to Larsen's.
Senator St. Germain: Are you processing the cull cows from the present herds of these shareholders?
Mr. Baglole: We are not processing anything yet. We will not be processing until September.
Senator St. Germain: Say I have a herd of beef cattle and I buy 150 units at $60 a unit. Is that fat cattle?
Mr. Baglole: Fat cattle only.
Senator St. Germain: Fat cattle only.
Mr. Baglole: That is right.
Senator St. Germain: What do I do with my cull cattle?
Mr. Baglole: Currently, they are going to Ontario or Quebec.
Senator St. Germain: That is the first time you mentioned Quebec.
Mr. Baglole: It is my understanding that that is where the cow plant is.
Senator St. Germain: You kept saying you had ship to Ontario. Why would you not ship to Quebec, which is closer?
Mr. Baglole: There is no fat finished cattle processing in Quebec.
Senator St. Germain: None?
Mr. Baglole: None that was interested in our product. Putting a cow line in would add dramatically to the cost. We did not call for that in our original business plan.
That is a good question. Is it an opportunity that we could turn back to you? How can we access dollars to bring a cow line to this plant to facilitate that in the Maritime provinces? Are there ideas here?
Senator St. Germain: Why can you not bring in a cow line if you bring in another shift?
Mr. Baglole: You cannot do it on the same line. Everything has changed because of BSE and the concern about under 30-month and over 30-month cattle. You have to use separate saws and knives. They have to be segregated within the coolers.
Even CFIA is not sure whether we need a separate processing line to handle those. Those are costs that we cannot bear yet, but we are looking for solutions.
Senator St. Germain: Your biggest challenge will be competition. Do you not think that the big players will come in and eat you up to get that share of the market, or are you not that significant in the marketplace?
Mr. Inglis: We are not that significant, but the other thing is Co-op Atlantic is the retailer. We have been taking these cattle for four years — for the past two years we have been trucking them to Ontario — and we are committed to it.
Senator St. Germain: What percentage of the retail beef market in Atlantic Canada do you have?
Mr. Inglis: We have 12 per cent of the total retail market, as far as the grocery business is concerned.
Senator St. Germain: Grocery retail, okay.
Mr. Baglole: You saw a significant increase in your beef sales with ATBC.
Mr. Inglis: During our first year, beef tonnage increased by 14 per cent.
Senator St. Germain: That happened when you went to the branded method?
Mr. Inglis: Yes. In the second year, it increased by 7 per cent, and in the third year, it increased by 9 per cent.
Mr. Baglole: Those are tremendous numbers.
Senator Tkachuk: Great numbers.
Senator St. Germain: To a degree, you have set up a voluntary marketing board.
Mr. Baglole: Not at all.
Mr. Inglis: No.
Senator St. Germain: You are setting production and price. I used to be the chairman of the B.C. Chicken Marketing Board. Every time I say that, Senator Gustafson gets excited.
Senator Tkachuk: That does not mean no one else can sell beef in their marketplace.
Mr. Inglis: We are only selling to ourselves. It is a closed loop. You are exactly right. Other people can sell in our market. We are not dictating supply.
We believe we can provide something unique. Atlantic Canadians demand local product. They will go into Sobeys and Loblaws and ask why there is no local product. They will not change their tastes in meat, but they will come in looking for a piece of local meat.
Mr. Baglole: We will be there to sell it to them.
Senator St. Germain: If I understand correctly, the majority of the product goes back to Co-op Atlantic. If your plant produces in excess of Co-op Atlantic's needs, you can sell to Sobeys or Loblaws.
Mr. Inglis: That is right.
Senator St. Germain: You are really no different from the marketing board. That is the way we did it.
Mr. Baglole: The difference is that we only deal with the shareholders involved in our company. We do not dictate the price of anybody else's product.
Senator St. Germain: I do not wish to be argumentative, but in a marketing board arrangement, you buy shares or you buy quota.
Senator Tkachuk: They do not fix prices like you did with chicken.
Senator St. Germain: We did. I apologize. Will you forgive me?
Senator Tkachuk: As well as eggs and cheese.
Senator Gustafson: I just wish to welcome you here. You have an exciting program. Senator St. Germain missed out on one count. The difference between the marketing boards and you is that you can still sell beef into the U.S. if you want.
Mr. Baglole: We can sell wherever we want.
Senator Gustafson: That is quite a difference. It changes the entire program.
The cattle business is quite a free enterprise business. It is probably the most free enterprise business there is.
I fed cattle for years. When the Alberta government was subsidizing fed steer at $70 a head, it was impossible to feed steer in Saskatchewan and come out ahead. You could not do it. You had to go to Alberta. Alberta is a great free enterprise supporter, but they were subsidizing their beef.
You know how the beef industry works: A buyer will come in. He may be with the Iowa Beef Producers. He has deep pockets. He says, "I will give you $1.20 for those 600-pound calves." How will your farmers react when you cannot meet the price of that buyer?
Mr. Baglole: They will look at it long and hard. There is no question about that.
Our closest competitor will be in Ontario. They process 10,000 cattle a week. We are at 500. Are they really worried about us taking any market share away from them? Would they come down and offer us more money than they are paying their customers in Ontario?
We know that there will be some competition. I think that they have more to lose by trying to outbid us in their home market, which is Ontario, than we do with them being in our yard, so to speak.
Senator Gustafson: You make a good point. An example of this was the millers in Manitoba. Independent, small millers were doing very well. They figured that as long as they did not get too big, the big players would not come in and knock them off. If they got too big, they would be out of business.
They were selling shares in this milling plant. They built about three of them. They were wondering if they should get any bigger. Would that attract Robin Hood?
Mr. Baglole: The Maritimes is deficient in beef. We will have to import beef. We will have to import beef with this new plant. As Mr. Inglis said, we will not come close to filling the demand for beef in Atlantic Canada.
We want to do a good job with what we have. We will work with our partners. We think we can be successful in our area. We are not looking to be the Cargills of Atlantic Canada. We want only to service our area.
Senator Gustafson: I wish you well.
Senator Tkachuk: For information purposes, what percentage of the market do you have in the Maritimes?
Mr. Inglis: Twelve per cent.
Senator Lawson: It is refreshing to hear about a positive program. Maybe you should rename it the Prince Edward Island Beef Boutique. It would have a certain caché.
Mr. Baglole: If it would make more money for us, we would probably try it.
Senator Lawson: I spend a lot of time in California, as I mentioned before, and in the last six months I have been witnessing the grocery wars there. There has been a five-month strike amongst the major supermarkets. It was not because of a conflict or labour-management relations, it was because of fear of Wal-Mart, who came in with their superstores, their low prices, low wages and very few benefits. The supermarkets decided they had to get costs down by at least 14 per cent, whether it was by reducing pensions, welfare contributions or salaries. They had a good relationship with their employees and were terrified of this monster coming in. Wal-Mart has a million employees throughout the world so they have some buying power. That is behind them now, but it did cause a great adjustment in the industry. That is the Wal-Mart plan, to try to drive everyone down. Then they have a policy whereby at the end of each year, their suppliers must automatically reduce prices by 5 per cent if they want to supply for the next year. This out-sourcing and going offshore is the in thing, particularly in the United States, and all over the world. They buy a lot of their products from India, China and elsewhere.
They are now talking in the U.S. about shipping offshore to India, that they expect to lose 6 million jobs in the next decade. Everyone says it is wonderful. It is wonderful except when you start talking about infrastructure, taxes and so on. Who will be earning enough money to pay these taxes?
I like your program and what you have laid out. You seem to have a good grip on what you are doing. I wish you success. I think you are doing it very well.
Mr. Inglis: I would like to comment on that, though. The reason Co-op Atlantic is in the beef business, and that was the one we started with, is we recognize exactly what you were saying. We are trying to say what differentiates us, because we have 12 per cent, 15 per cent, of the market. What differentiates us is how will we survive even against Loblaws, let alone Wal-Mart — because Loblaws is getting ready for Wal-Mart. One of the things we identified, and we did a lot of focus groups, was that in Atlantic Canada they will support local product. They will not pay extra for it, but when products are side by side, they will buy local. We started with the beef, and it has resonated. We do that now with eggs. We work with the egg producers. Loblaws brings in eggs from Ontario and Quebec. We do not. We only sell eggs from Atlantic Canada.
We are buying our cereals now, as much as possible, in Atlantic Canada. We looked at kitty litter. That is a simple thing, but we now do all our own kitty litter packaging in Atlantic Canada. We employ four more people. If we can tell that story, and do more and more of that, then we are starting to re-energize these rural areas. It really does work, because Canadians will support Canadians if they know the story. They will not pay a premium, though. We are somewhat excited because we think there is also an opportunity in the pork business in Atlantic Canada.
Senator Lawson: The whole world is recognizing Canada in many areas. If you have been following the story of the diamonds in the Northwest Territories, first DeBeers said there were none there. Not only are there diamonds, but when people are talking about them there are other things at play. The environmentalists and so on are saying, "Wait a minute, DeBeers brought some diamonds into the United States and they turned out to be blood diamonds." Then some of them were having their cutting done offshore and the quality was not as good as it should be. Then they said, "Hold it, here is Canada, where there are quality traders, honest traders and quality craftsmanship. By the way, it is not a conflict zone, they are not shooting each other." Now, in many cases, Canadian diamonds, with the little polar bear logo, sell at a premium. I think you are doing it exactly right. You are exploiting what you have there, the best thing you have going for you, which is your local product.
Mr. Inglis: We are educating the consumer that it is available and is as good as, or better than, everything else coming in, so at equal pricing they will buy it every time.
Senator Lawson: We have to stop apologizing for being Canadian and let the world know that we are as good as anyone else.
Senator Callbeck: You have made a great presentation here tonight. I agree with you that this is a great fit for Prince Edward Island, with our crop rotation and all the re-grown potatoes and so on. I just want to again thank you for coming. I certainly wish you well.
Senator Mercer: You talked about the 135 Co-op Atlantic outlets through which you will be selling product to other retailers. Have you identified who those retailers are now?
Mr. Inglis: No.
Senator Mercer: Since I live in the city I do not have access to Co-op Atlantic. I would like to be part of the program, so I would have to drive to Windsor to buy my beef?
Mr. Inglis: That is right. It will come. As we get closer to our launch date, we have put together our executive management team on which we have a marketing person. He is working on that. One of our biggest opportunities will be a ground beef program. That will be unique to Atlantic Canada. There is no ground beef being processed in Atlantic Canada now. I will be surprised if we do not have a high grade, local ground beef program for Sobeys, Loblaws and ourselves. They have to bring it in and the shelf life is very short. You will probably be able to buy local ground beef in the city, hopefully within 12 months.
Senator Mercer: You have your own brand, which is Atlantic Tender Beef Classic. Have you identified what other products will be called?
Mr. Baglole: That will be up to a partnership between the plant and the customer. If it is Sobeys or whoever, really the sky is the limit as to what another retailer might request and what we can do to accommodate them. Those will be decided down the road.
Senator Mercer: When I am at the cottage in Pictou County, I will look into it.
The Deputy Chairman: In the last several weeks, have you by chance heard from any of these people in Alberta who are thinking along the same lines, but obviously in a different context?
Mr. Baglole: We have not had direct contact. We did have quite a number from the U.S. and from the West. There were some Western people who spent a couple of days with Co-op Atlantic, spent a day with us looking at it from a plant perspective, looking at ways to bring co-operation to the agricultural industry. We are expecting to hear back from a lot of those people. We have not yet heard from those Alberta people specifically.
The Deputy Chairman: Thank you very much. You have given us a very good presentation tonight. There are many things to be learned from you by other parts of the country. We wish you the greatest success.
The committee adjourned.