Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 3 - Evidence
OTTAWA, Thursday, December 2, 2004
The Standing Senate Committee on Agriculture and Forestry met this day at 8 a.m. to study the present state and future of agriculture and forestry in Canada.
Senator Joyce Fairbairn (Chairman) in the chair.
[English]
The Chairman: Good morning, senators and guests, welcome to the meeting of the Standing Senate Committee on Agriculture and Forestry. We are examining the present state and future of agriculture and forestry in Canada. Our current topic, not surprisingly, is a strategy for BSE, otherwise known as mad cow disease, and the issue of increasing the ruminant slaughter capacity in Canada.
Our first witnesses this morning are, from Agriculture and Agri-Food Canada, Mr. Gilles Lavoie, Senior Director General of Operations; and from the Canadian Food Inspection Agency, Ms. Krista Mountjoy, Executive Director of Operations Coordination; and Mr. Cameron Prince, Executive Director, Animal Products Directorate.
Mr. Gilles Lavoie, Sr. Director General, Operations, Agriculture and Agri-Food Canada: I am pleased to be here because, as you say, the government strategy announced on September 10, 2004, is an important step toward a made- in-Canada solution to the current situation.
The government has announced funding of $488 million for a suite of measures to help ensure industry profitability whether or not the U. S. border reopens to live cattle. This package contains a number of measures that address some of the pressures faced by the industry. The strategy includes various elements, such as continuing the work to open the U. S. and other foreign markets to all ruminants, ruminant products and by-products, as well as facilitating increased slaughter facilities and intensifying market development efforts.
There are currently more animals for processing than there is slaughter capacity. Conversely, there is supplemental demand for processed beef to absorb current supply. The lack of slaughter capacity created a bottleneck, and while greater capacity is coming on stream, government action is needed to deal with the imbalance between the current supply of animals ready for slaughter and slaughter capacity, the backlog in the industry and a record calf crop this year.
In addition, the situation for older animals also needed to be addressed, given that this group of breeding animals has grown in numbers because of the lack of domestic slaughter capacity, the U. S. restriction on older cattle and meat and the restrictions on the slaughter of older and younger animals in the same plant.
Facilitating slaughter capacity expansion in Canada requires a set of tools that were introduced in our strategy to reposition the industry. These include a loan loss reserve program, the facilitating of additional labour sources and the updating of CFIA approval processes. To facilitate an increase in domestic slaughter capacity, the government introduced the establishment of the ruminant slaughter loan loss reserve program. This program facilitated the provision of lending on commercial terms, with decision on loans being made by the financial institutions and based on sound business principles. This program reduces the risk to private lenders and makes it easier for viable business proposals to obtain the necessary financing.
Now I will speak to Canada's current federally inspected slaughter capacity.
[Translation]
Canada's federally inspected slaughter capacity is approximately 81,000 heads per week. Cull animals make up approximately 10,500 head of this total. Fed cattle slaughter capacity is 70,500 per week.
Current slaughter data shows that plants are operating at 90 to 97 per cent of fed cattle slaughter capacity and 98 per cent of cull animal slaughter capacity levels. However, the need to address the current imbalance between slaughter capacity and the supply of animals remains.
Provincially inspected slaughter adds another 4,500 head per week. Provincially inspected plants are thought to be operating at capacity limits and it is unlikely that additional capacity will arise through this channel. Adding provincially and federally inspected slaughter capacity together provides a total Canadian capacity of 85,500 per week or approximately 4,3 million head annually. The capacity expansion in 2004 was driven by expansion of existing operations through the addition of extra shifts, Saturday kills, or routine overtime.
In addition, Gencor Foods Inc., Ontario and Rangeland Beef Processors Inc., British Columbia reopened slaughter plants. Atlantic Beef Products Inc., a new plant located in Prince Edward Island, is expected to be operational in 2004.
[English]
In 2005, the slaughter capacity will continue to increase during the first half of the year as the newly opened firms complete their set-up phase and kills expand to fill plant capacity. By mid-2005, the total slaughter capacity is expected to reach 88,900 head per week, or 4.4 million head per year.
In addition, Tyson Foods and Cargill Limited have both announced significant expansions, and federally inspected slaughter capacity by the end of 2005 will reach 92,790 head per week or 4.9 million per year.
For 2006, many other proposals are being discussed, such as the Alberta-based Ranchers Beef and Ranchers Own initiatives and Rancher's Choice in Manitoba. These proposals alone would result in an additional capacity exceeding 10,000 head per week by 2006. This would facilitate an annual slaughter of 5 million animals. A 5-million-head kill represents an increase of over 40 per cent compared to the 2002 level.
Ms. Krista Mountjoy, Executive Director, Operations Coordination, Canadian Food Inspection Agency: It is also a pleasure for the Canadian Food Inspection Agency to be here today to discuss increased slaughter capacity with the committee.
As my colleague mentioned, on September 10, the Minister of Agriculture and Agri-Food Canada announced a repositioning strategy for the livestock industry. Part of this strategy was an increase in slaughter capacity in Canada. The minister committed to expediting the regulatory processes for reviewing the establishment and improvement of new slaughter facilities.
Canada's goal is to create enough slaughterhouse capacity so that we are more self-sufficient and rely less on the cross-border shipment of cattle for slaughter. Currently, for beef, there are 29 federally registered licensed slaughterhouse operators across Canada.
[Translation]
In recent months, we have received several requests, both formally and informally, for federal approval of additional slaughterhouses. Since September 10, the CFIA has received two requests for registration of new beef slaughter facilities — one in British Columbia and one in P.E.I. The B.C. plant was registered and has now been operating for several weeks. The other establishment is well advanced in the approval process.
The plant was registered on November 18 and is expected to be operational very shortly.
[English]
Since the announcement, concerns have been raised about the time it takes to obtain regulatory approval of new facilities. The government has been very clear about this. We have taken steps to expedite the process, but we will not compromise the standards, nor will we put the Canadian food safety and animal health regulatory system at risk.
I believe that the industry generally understands and appreciates our position on this matter. Our foreign trading partners audit our abattoirs to ensure that we meet their standards. If they find one slaughterhouse that does not measure up, the entire Canadian industry can be discredited. We must set and maintain these very high standards. The industry appreciates that a CFIA signature on a regulatory approval means that a plant has met these standards.
In an effort to increase slaughter capacity, some older plants may be reactivated. However, since these plants were last operational, some changes have been made to the basic approval requirements. For example, the removal of specified risk material, or SRM, is a recent requirement that all plants must now meet. In addition to this requirement, plants must also be constructed in a manner that ensures the humane treatment of animals and provides a safe work environment for both plant employees and government inspectors.
That said, some requirements for approval are based on those of our trading partners. We must adhere to those standards if we want to ship to those other countries.
[Translation]
The CFIA works closely with industry throughout the entire slaughter plant approval process. This will continue and CFIA officials will be happy to guide industry in their efforts to become approved.
The agency is initiating a review of the slaughter plant approval process with a view to modernize and streamline the process. Throughout the review we will continue to base our requirements on sound science. We support increased slaughter but not at cost to food safety.
[English]
We will not compromise on Canadian regulations, but we are finding ways to cut red tape and respond more quickly. We have assigned a team of experts to review applications for additional slaughter capacity. They will be able to respond quickly to all matters relating to new slaughter capacity.
Previously, approvals for new slaughterhouses had to be vetted both by the regional CFIA authorities and by the Ottawa office. Now we have a system whereby Ottawa sets the standards, but the specific facility can be approved — or not approved — by the local CFIA authorities.
We are also creating new technical expert positions to strengthen our relationships with regulatory counterparts in foreign markets. We will accelerate and complete a review of our BSE import policy to ensure that is it is consistent with the risk-based approach Canada is promoting.
When BSE was detected in Canada in 2003, we acknowledged that a low level of BSE could be present in North America. We have taken steps to ensure that the disease does not enter the human food chain. We have stepped up our surveillance measures to eradicate the disease in cattle, and we are putting in place a strengthened feed ban that will remove SRM from feed for all animals. In the meantime, we are helping to streamline the process in order to create enough slaughterhouse capacity so that we are more self-sufficient and rely less upon the cross-border shipment of cattle for slaughter.
We would be pleased to respond to the committee's questions.
The Chairman: Thank you very much for your presentations.
Senators, we have one hour in which to have a conversation with our witnesses. I would, as always, ask you to be as concise and on the mark as you can, and encourage our witnesses in their responses to do the same, so that we can ensure that everybody has a chance to discuss their concerns.
Senator Gustafson: I want to thank you for appearing on this very serious matter that faces the Canadian cattle industry.
President Bush commented about young cattle. Of course, that raises the question of how many of the culled cows and the older cattle can Canada continue to pack here and keep here, even if we enlarge our processing ability.
Are we exporting any of the older beef to other countries? We know that we are not exporting to the United States. Are we exporting any other beef to other countries?
Mr. Lavoie: In terms of meat from cattle older than 30 months, no, I do not think that we are exporting any at the moment.
Senator Gustafson: Even if we have further packing ability, how long can we stockpile this older beef?
Mr. Lavoie: At the moment, they are alive, in the sense that we kill around 10,500 a week. Given the fact that our imports have been reduced very significantly, with the exception of close to 500 kilograms, there has been no supplementary import issued since July 2003. The only imports that are coming in, except for the U.S., are coming within the tariff rate. We cannot source in Canada even more than that because this is good meat that is used in manufacturing beef products such as hamburger, steaks, spaghetti sauce.
We all have the same handicap. We do not know the rules. Nobody in Canada has been able to get access to the rules and read exactly what is coming up.
We know, however, that we will know the rules no later than February 17. At that time, we will know exactly whether it will be possible to slaughter both older animals and younger animals in the same plant, which is not possible at the moment.
The export of live cattle will help greatly. However, some conditional provisions governing the products of other ruminants and products from cattle may also have a very positive impact on the market. For example, Tyson Foods is slaughtering at the moment only younger animals because of the U.S. rules concerning the impossibility to slaughter both in the same plant. It is anticipated that if that U.S. rule changes, Tyson will resume a second shift for killing older animals. In the past, they have been able to kill at a rate of 4,000 head a week. This will significantly help to address the current surplus of older animals.
It is serious, Madam Chair, at the moment. We estimated that we have a surplus of around 300,000 head of animals older than 30 months of age that would have been offered for slaughter in normal circumstances. These animals are not all unused. Some of them have been bred, and this is why we have seen an increase in the breeding herd as reported by Statistics Canada.
Senator Gustafson: If you go out to the farms, at least in the area that I am familiar with, you will see that the cow herds and the cow-calf operations are expanding because they have not sold any cows and they have bred the cattle. This will put a lot more cattle into the industry and will be a bigger challenge for processing.
I am very concerned about building a lot of processing ability in this country that, possibly, cannot compete with the big players. According to our researchers, Alberta is not signing on to some of the programs. Is that because they believe that when things open up, these processing plants may not be financially sound or have anywhere to sell?
Mr. Lavoie: It is difficult for me to respond to the motivation of the Alberta cattlemen. We have made it clear to many governments that competition is serious and it will be even more serious down the road. To some extent, having strong competition is what we need and what we want, in the sense that it is only a live market with good competition that will facilitate getting better prices for cattle for farmers.
That is why, under our loan loss reserve program, we do insist that the private lenders and other lenders make sure the project is sound, based on good business and that it will be sustainable in the context of an open border to ensure we are not building capacity and encouraging projects that will not survive. It is very important, and yes, competition will be serious but we believe there is still room. We cannot proceed at 95 per cent or 98 per cent capacity for ever. An operation like that needs more breathing room; 85 per cent to 90 per cent will normally be a better level of utilization of equipment. If we want to slaughter everything we produce in Canada, and as the senator mentioned before, we have an increasing herd, this means that we need in excess of 100,000 head a week.
Senator Gustafson: If we continue to stockpile the processed beef of older cattle, it seems to me that we are heading into a dead end. Canada cannot eat its way out of this situation. We have to have an export market. There are big companies like Tyson, Ohio Beef Producers and so on; all you have to do is look at the grain industry and ask yourself can we compete, because they monopolize the whole area.
Mr. Lavoie: Yes.
Senator Hubley: Good morning to each of you. I believe I will direct my question to Krista Mountjoy. Part of the funding to increase slaughter capacity, I believe, went to the CFIA to facilitate approval and inspection of new slaughterhouses. The repositioning strategy refers, in particular, to the examination of existing regulatory processes to identify opportunities for streamlining.
Is the inspection capacity of the CFIA one of the limiting factors now in the slaughter capacity? How far can the regulatory processes be streamlined without a risk of undermining the trust of international buyers in the quality and healthiness of Canadian livestock products?
Ms. Mountjoy: You raise a very good question. Perhaps I will respond to the first part, on the inspection capacity. I will defer to my colleague, Mr. Cameron Prince, who is responsible for the regulatory program, on the first part.
By ``inspection capacity,'' I mean our ability to place veterinarians and inspectors in slaughter establishments across Canada for the purpose of running the lines and ensuring that the operation complies with all food safety and other requirements under the existing legislation. It is our responsibility, as the Canadian Food Inspection Agency, to make sure that we have the appropriate number of veterinarians and inspectors in place for those establishments to be able to operate. We recognize that there would be an incremental number of resources required by new veterinarians and inspectors as this additional capacity comes online. We have been engaged in discussions as a government about seeking the authority to acquire those incremental resources. That is well under way.
Part of our job is to ensure that we have the resources in place on time, and also to make sure that they are appropriately trained and ready to do the job. That has also been factored into the plan. I will turn to my colleague for the second part of your question.
Mr. Cameron Prince, Executive Director, Animal Products Directorate, Canadian Food Inspection Agency: Thanks for the question. First of all, I would like to say that we are not on a path of reducing food safety standards. That is number one. That is not what we are here to do. In no way are we looking to compromise any of those requirements.
However, it is fair to say that the meat inspection program, which has been part of Canadian history for over 100 years, could evolve into a more modern program. There are steps that could be taken that would modernize the meat inspection program.
It is also fair to say the current meat inspection program is fairly prescriptive in terms of its requirements. We would like to move toward an outcomes-based program. Rather than specifying an exact size of a drain or exact wall material or other things that are very prescriptive, we would move to standards that would say that the wall must be washable, cleanable, you can sanitize it, and that the drain must large enough to make sure that the floors are kept clean. It is more of a change in approach that we are looking at, but in no way are we compromising standards. We believe this process would actually enhance standards.
Senator Hubley: I would like to now have you comment on the new establishments, especially the one in Prince Edward Island, which I am very interested in. Are new and innovative technical ways and means being introduced into these new plants? Is it more streamlined? Many local, small slaughterhouses just produce for provincial demand. Are any of these smaller slaughterhouses upgrading now? Are they moving to becoming registered and qualified as a CFIA approved slaughterhouse?
Ms. Mountjoy: As you know, we are unable to get into the specific details of an individual establishment's situation. I can comment generally in response to your question.
We have mentioned certain establishments already federally registered that have announced plans to expand. We are also receiving a number of requests from establishments, whether they are already federally registered or fall into the category that you mentioned. Perhaps they are provincially inspected and are wishing to seek federal registration.
The registration approval process involves a series of discussions leading to acceptance of a blueprint for a layout. That is where many of these establishments who have shown interest to date find themselves now. Once the blueprints are agreed upon, then we are into a formal registration process and moving on to licensing and operating.
In answer to your question, a number of establishments are in that process leading up to an official request for approval of their blueprints.
Mr. Prince: Ms. Mountjoy has covered the question fairly thoroughly. In terms of new developments, the biggest change has been in the area of SRM, specified risk material, removal. All of this nervous tissue must be removed from cattle before they are sent to market. That is a new requirement over the last year and a half. That requires some changes in how the line operates in a slaughter plant. Also, there are new sanitation and disinfection methodologies that have come into effect whereby carcasses are sprayed with a disinfectant. There are various technologies that are decreasing the microbiological load on cattle after slaughter.
Senator Hubley: On traceability, is that a feature for all slaughterhouses now?
Mr. Lavoie: To my knowledge, not for all slaughterhouses, but it is something that is coming in, in the sense that our clients, be it Canadians or clients abroad, are requiring that we be able to trace the food that we produce from its origin, from the farm, to retailers or to the consumers.
The pork industry and some other industries are likely more advanced than the beef industry in terms of traceability, but there are a lot of efforts. For example, there is the initiative that can trace those involved, such as retailers, wholesalers and so on. We have a group of 18 producer organizations that work together in terms of tracing. Recently, there has been the creation of the Canadian Livestock Identification Agency, building on the Canadian Cattle Identification Agency, to ensure that we have the proper system for all livestock, so that the databases could communicate with one another in such that way that if we have a disease, such as foot and mouth, that can affect cattle but also another species, we know where the possibly infected animals may be, whether it is pork, cattle, bison or whatever. We will immediately know where the premises are located and how many animals are involved. That could facilitate the efforts of the industry and the Canadian Food Inspection Agency to work at the eradication and control of the disease.
[Translation]
Senator Gill: I am sure that you have been following the situation in Quebec. Quebec laypersons and consumers get the impression that, because of monopolies, cull cattle breeders are getting the rough end of the stick. Could you explain the situation to us in layman's terms? I know that there are also problems with exports, but, firstly, what is the problem in Quebec?
Mr. Lavoie: Various factors are contributing to the situation in Quebec, but the Quebec problem is essentially a Canada-wide problem. The price paid for cull cattle in Quebec is no lower than that paid in Ontario or in the West for animals of the same quality.
In the past, by only slaughtering 10,500 head per week, we were able to export significant numbers of cattle. We exported up to 40 per cent of live cull cattle slaughtered in the United States, this meant that American buyers participated in auctions in Western Canada, Ontario and Quebec. They are no longer able to participate in Canadian auctions because they cannot transport the animals back to the States. As a result, only major buyers are attending auctions with a few smaller buyers but they do not represent a significant volume.
In the case of Quebec, there are currently two major cull cattle slaughter facilities; Excell, which previously operated out of Moose Jaw but is now based in Calgary and Viandes Levinoff, based in Saint-Cyrille, near Drummondville. These two companies slaughter 80 per cent of Canada's cull cattle. As you can see, there are two major players in Canada but, as I mentioned earlier, prices are relatively comparable from one region of the country to the next.
Quebecers are up in arms about this situation. Dairy farmers are in a unique situation because, contrary to what was said earlier, it is easier for slaughter cattle breeders to breed and use additional calves which means that, even if a cow is relatively old, it can still remain productive. The same does not apply to the dairy sector where a cow which no longer produces milk has to be culled.
This has created an unusual situation for dairy farmers. The fall in prices has caused around 20 per cent fluctuation in their income, a situation which is fairly uncommon for them. The supply management system means that dairy farmers are used to very stable income levels and, as a result, their business finance models have come to rely on this income stability.
When a situation such as the cull-cattle problem arises, and they are suddenly hit by a significant drop in their income, it hurts them more. They are in debt up to their eyeballs and so are unable to absorb the drop in their income. Obviously, it is harder for young producers because those who are well established have already reimbursed a significant portion of their debt.
I do not know if that answers your question.
Senator Gill: If I understand you correctly, you are saying that it is not a question of price but of volume.
Mr. Lavoie: Low prices do play a role. However, there is no significant difference in price between Quebec, Ontario and western Canada.
Senator Gill: Are the problems in western Canada similar to those that Quebecers are experiencing? Are they affected in the same way in terms of volume and exports? Are they in the same situation?
Mr. Lavoie: As far as price is concerned, the situation is pretty much the same. Prices range from 15 to 20 cents for quality cows, whether you be in Calgary, Guelph or Toronto, or whether you be in Montreal, Quebec or Atlantic Canada. They are fetching the same price at auction. The main difference is whether the farmer can continue to use a cow in a productive fashion.
In 2004, thus far, around 25 per cent of the cows slaughtered in western Canada would be considered old cows, whereas this is true of between 50 and 52 per cent in the East. Proportionately, old cows currently make up a higher percentage of cows slaughtered in the East.
It is important to put things in perspective. Yes, the situation is very serious, but it is not unique to Quebec. A certain number of Quebec producers are hurting more, but it is not a situation which is unique to Quebec.
Senator Gill: Does the government have any control over slaughterhouse prices or are they fixed by the two main players?
Mr. Lavoie: The majority of cull cattle are sold at auction. Obviously, if there is only one major buyer at an auction, competition is limited. When one buyer is offering to purchases 1,000 head when another can only afford two or three, the playing field changes.
As we said previously, there is currently a surplus in supply;and if you establish a floor price, who will decide which producer would send which cow to the slaughterhouse? And when? In a free market, price is a determining factor. If price can no longer play this role, who or what will?
There are some questions that have to be asked. Quebec and its producers are going through a period of reflection at the moment. No cull cattle were sold in Quebec this week. If we are to believe Radio-Canada, UPE, the Quebec government, and the slaughterhouse involved, series of discussions are underway.
Like yourselves, we are waiting to see the outcome of these negotiations. It does seem that negotiations are currently underway.
[English]
Senator Mahovlich: The United States prefers to import live cattle. Is that the preference throughout the world? Can we slaughter cattle in Canada and send the carcasses to other parts of the world? What is the preference worldwide?
Mr. Lavoie: We do not export live cattle for immediate slaughter or feeding outside the U.S., with occasional exceptions. The export of live cattle for feeding or immediate slaughter is the North America market. From a North American market perspective, especially since NAFTA, Alberta is the third largest in terms of cattle production. There are American-owned cattle being fed in Saskatchewan or in Alberta and vice versa. The market is integrated, and so we have this kind of movement north and south. The preference worldwide is for the beef and not the cattle.
In 2002 we exported 1.7 million head, but this was an exception due to the drought. The usual figure is closer to 1.2 million. The producers in Western Canada did not have sufficient feed and so had no choice but to sell their animals to be fed south of the border. The 1 million head represents about 30 to 40 per cent of the total beef and cattle exports. If you translate all our exportation into carcass equivalent, we export more meat to the U.S. than live cattle. However, live cattle are important for the producers because it addresses one of the issues discussed before, in that it creates competition. Consequently, Canadian buyers, such as Cargill, Hill, Tyson and others, have to pay farmers a price that is comparable to that the American buyers are prepared to pay. It does play a role for the farmers, the fact that they have had the ability in the past to market their animals live to the U.S.
We have gone too far in that and that is why we say it is important to create additional capacity to reduce our level of dependence. The level of dependence on live export is considered by the industry to be too high. That is why they have been highly supportive of the repositioning strategy announced in September.
Senator Mahovlich: About 30 years ago, in Toronto, we used to have our own slaughterhouses in the west end. Why was that discontinued? What happened? Was the traffic too great in the city and so they closed the slaughterhouses? Will we have more slaughterhouses now in Toronto?
Mr. Lavoie: I cannot comment on why a specific plant closed down. I do not know the financial situation of the plant. In cities, land has a higher value in terms of alternative usage. A slaughterhouse in a big city is no longer popular these days. There has been an increase in the concentration of the industry. We have fewer players than we used to have. They are stronger and in a better position to compete internationally and to accept orders from the big players. If you have an order to deliver 10 loads per week, you need the volume. Being in a position to satisfy the clients is also important. It is the dynamic of the industry that is operating on a North American basis. People come and go and that is part of the normal cycle.
Senator Downe: My first question is a point of clarification. In the CFIA presentation, they talked about their efforts to remove SRM from the feed for all animals. What does SRM stand for?
Ms. Mountjoy: SRM is specified risk material, which is the tissue in a cow that could carry the prion if the cow were infected with BSE. Those tissues are generally the brain, the spinal cord, dorsal root ganglia, the eyes and the small intestines. It is required now that that specified risk material be removed from the cattle at slaughterhouses across Canada.
Senator Downe: You are trying to get this in place. Why is it taking so long to remove this from the food chain?
Ms. Mountjoy: The regulations requiring the removal of specified risk material came into effect last summer, following the May 2003 case of BSE. The requirement was immediate in both the federal and provincial systems. The CFIA and the various provincial inspection jurisdictions have been working hard to ensure that all of the abattoirs across Canada are removing the specified risk material from the food chain.
We have another initiative under way as part of our response to strengthening our controls around BSE. There is a requirement to remove and redirect SRM from animal feed. That proposed regulatory amendment will come forward. The government has signaled its intention to require the removal and redirection of bovine specified risk material from feed. We are preparing for a pre-publication in the Canada Gazette, Part I, shortly.
The Chairman: I believe that is not just a Canadian requirement. The international body that sets these levels of safety has also indicated that this requirement had to be met.
Ms. Mountjoy: Yes, you are quite correct. Following our May 2003 case of BSE, an international panel of experts convened to look at how Canada responded to that case. Certainly, in their short- to medium-term recommendations they included the requirement to remove SRM from the food chain. It was part of the CFIA's and Health Canada's plans to do so. We were able to act on that in July 2003. This requirement has similarly been implemented in the United States.
Senator Downe: The SRM was removed from the feed and from the food chain in the United Kingdom at the same time, because they had a BSE problem long before we did. When did they begin to remove SRM?
Ms. Mountjoy: I apologize that I cannot be specific on the date, but it was a number of years ago that the United Kingdom required the removal of SRM, not only from their food but also from their feed chains.
Senator Downe: If they began this a number of years ago because they had a BSE problem, why did we wait so long to do the same? Why did we wait until we had the BSE problem to do something about the removal of SRM?
Ms. Mountjoy: If we think about the situation in Canada, our initial defence against the possibility of introduction of BSE into the country was restrictions on imported cattle from those countries that were affected. As an additional measure at that time, and moving into 1997, we also required strengthening of our feed ban. We implemented a feed ban in late 1997 as an additional precautionary measure.
We now know that we had an introduction of infected material into the Canadian system around that time. There is a very long incubation period associated with this disease, in terms of when a cow is first exposed to it and when symptoms appear.
We now know that we do have what we believe to be a low incidence of BSE in Canada. We have had two cases. We have moved to respond to the May case. The response includes not only the requirement to remove SRM from the food, but also increased surveillance activities. You may know that we are targeting to achieve over 38,000 samples tested by December 2005. We have increased our efforts in cattle identification across the country, not only in terms of the systems to identify cattle but also our verification efforts to identify properly. We are also moving forward with a strengthening of the feed ban to require the removal of SRM.
With all of these measures and the achievement of our surveillance goals, we believe we will be in a position to demonstrate that the suite of measures has been effective in reducing, if not mitigating almost completely, the incidence of BSE in Canada over time.
Senator Downe: I thank you for that. Obviously we are making progress, but is it not correct that we currently have SRM going into our food chain, but it was eliminated in the United Kingdom years ago?
Ms. Mountjoy: The removal of specified risk material from food is happening in the United Kingdom, Canada and the U.S., as well as other countries. That is the primary public health food safety measure.
The United Kingdom has required the removal of SRM for some years now. We will be requiring the removal and redirection of bovine SRM in Canada — we hope to be able to do that — through regulatory amendment over the course of the coming months. We have had in place for some time now, since 1997, a feed ban that prohibits the feeding of bovine SRM to cattle.
Senator Oliver: I have a simple and naive question. All of your evidence today deals with two main issues. One is slaughter capacity in Canada. That is, how many live animals we have the capacity to kill. The second is what to do with cattle over 30 months.
Is there any way, with the new slaughter plants coming on stream, that the government can say, ``We will regulate and licence these new plants, but one of our conditions is that a certain percentage of what you slaughter must be cattle over 30 months?'' Is there any merit in trying to do something like that to overcome this aged cattle slaughter problem? Do you understand what I am getting at?
Ms. Mountjoy: Yes.
Mr. Lavoie: Yes I do. I believe it would be a precedent to dictate something like that to the private sector.
I do not know if we have the legal instrument to make such an order. We can ask our legal adviser to investigate whether this type of action would be possible.
We must realize that the market is responding. For example, by the end of 2005, it is estimated that the new slaughter capacities coming on stream will be enough to eliminate the accumulated surplus of fed cattle. At the current pace, it will likely be some time in 2007 before we can accommodate the surplus of non-fed cattle, the old cows.
However, as I mentioned earlier, the old cows, except for dairy cows, can be bred for one additional year. They are surplus, but that does not necessarily mean you cannot use them. There is an alternative for them. That is why we must be prudent here.
Within two to two and a half years, we will be okay. We will be okay in terms of fed cattle at the end of 2005 if the current expansion facilities that have been announced come on stream.
Senator Oliver: The federal government has given $387 million to help sustain the industry until the slaughter capacity gets up to a certain level. You say that date is 2007.
Mr. Lavoie: For the non-fed cattle, for the old cows.
Senator Oliver: Will that $387 million be enough? If not, will that create another crisis?
Mr. Lavoie: We believe it will be enough. Much of the expansion that I mentioned in my opening remarks, for 2004 and 2005, is coming on stream. They were announced before the program was announced. The program will be perfectly useful in generating additional projects and creating more competition and a better regional balance, because even with the current known expansion, you will soon have some regions of the country that will not have local facilities of importance. For example, Manitoba and Quebec argue that they need more than one major player that does 90 per cent of the kill. Atlantic Canada has responded with the Atlantic Co-op.
The industry and the market are moving in this direction. I believe we will achieve the objective without having to impose the types of conditions to which you referred.
The Chairman: I think all of you know that I come from Lethbridge, Alberta, which is down in the southwest corner of the province and is surrounded by this particular crisis. We certainly have the producers, feed lots and truckers. We have the two large slaughterhouses in that general area, about which we have been talking, that are owned by Cargill and Tyson.
This committee put out a report last spring specifically on the BSE issue. It was in response to the emergency. We had only two recommendations. One of them was extending the capacity to slaughter cattle in Canada outside the two main organizations that have been doing it in our province.
This has raised a considerable number of innovative proposals, as you would know. They arise across the country. They certainly arise in Alberta and have from the moment that this issue hit our country.
There is an important question out there: What are we learning from what has happened? Are we learning from the innovative people who want to get involved that we do need this Canadian capacity, regardless of the other slaughterhouses? We need this Canadian capacity increase to defend ourselves against future issues such as the one that we have been struggling with, and will continue to struggle with for a while.
It would seem that the government's program takes this view as well, in that the loan loss reserve has been included. As I understand it, that is intended to assist those innovative people who are wanting to build smaller plants with a view to niche marketing and to being competitive in their own way, and not fighting against the larger organizations, which themselves are wishing to expand.
Could you tell us exactly how much of the $66.2 million of the federal funding is earmarked for the loan loss reserve?
This reserve is to support private lenders, who are being encouraged to offer the money to the people who wish to start the new packing plants.
There is a strong view in my area that, first of all, this is not enough, that they are not seeing a strong Canadian vision coming from the federal government because of this, but also, that private lenders are already indicating no great enthusiasm to take advantage of this loan loss reserve. It is critical to the building of these new plants. The decision you make is hugely significant, because the minute the border opens, of course, the big players will be right there ready to go. I believe the government has given an indication that it thinks having the courage to build the financial resources to create these new Canadian entities has become not only a good thing, but a necessity in this industry.
Could you take us through this loan loss reserve process, because so far, there is a big question mark surrounding it, not just among the people who want to build the plants, but through them to us, that it has not been snapped up with great enthusiasm as a tool by private lenders?
Mr. Lavoie: The amount that is earmarked for the contribution toward a loan loss reserve is $37.5 million. The program operates on a similar basis to a program that existed with the Western Diversification Agency. A bank or a lending institution, it could be a Caisse Populaire, a credit union or other lender, that wants protection may make an application to the government, to the department, to create a reserve equal to 40 per cent of the loan being issued to a group of individuals, a company or a co-op that wants to invest in new facilities or to expand existing facilities. This applies for federally inspected facilities.
The lending institutions would have preferred a 100 per cent guarantee, but that is not what is being offered. We are offering to share the risk, but the project must be sustainable in the longer term, as has been indicated earlier today. It must be a project in a non-essential sector that is assessed by the private sector, including in an opening border situation. It must be sustainable.
There has been a lot of interest. We have not received many applications so far. People are still asking how this functions and so on. The uncertainty in the market is not helping here. A lot of people are now taking a wait-and-see attitude because they wonder what the new rules coming from the U.S. will be. Will it impact on the future profitability of any investment? Should we wait a couple of months? You have all types of consideration like that that come into play in the decision.
I believe that so far, we have around 38 or 39 projects where the promoters are in discussions with their lenders, preparing business plans, trying to identify the specific needs that they would like to operate toward and so on. I am pretty sure that in the coming months, there will be more applications coming forward. It has actually generated new ideas, because over the last two months the number of projects has more than doubled.
The Chairman: I understand your response and I do think that there is a view out there that people are ready at this point to put the shovel in the ground. Most of them have their own financial program that they have put together, but there is still some anxiety about the possible support to get things going. However, there is no doubt in the minds of some of those who are applying that this is not a short-term strategy. This is a long-term issue for Canada, so that if borders close on us again, we will not be left in a situation where we cannot respond within our own market.
Senator Sparrow: Ms. Mountjoy, you mentioned just a few minutes ago that the SRM was not permitted in cattle feed. Has it not been rejected for any feed, for poultry and so on? I thought that the product could not be used at all.
Ms. Mountjoy: In 1997, when we introduced the feed ban, it was to restrict the feeding of bovine SRM to cattle. As a government, we are now indicating that we want to ban the bovine SRM from the animal feed chain all together. This latest initiative would accomplish what you are suggesting that we do.
Senator Sparrow: It has not been done though.
Ms. Mountjoy: No.
Senator Sparrow: Why is it taking so long? The indication in the case of the one cow that we had was that it may have been from eating feed for use for some other species. Is that correct? I am just concerned that if we are still marketing the product for other uses, then the cattle could still come in contact with it.
Ms. Mountjoy: Part of the international panel report going back to the May case did indicate that there was a suite of measures that Canada should consider implementing as quickly as we could. Those involved banning SRM from food, the increase in surveillance efforts and the cattle ID, as well as looking at the strengthening of the feed ban by requiring the removal and redirection of bovine SRM. This suite of measures was suggested to Canada on the basis that it would serve to further mitigate the risk of BSE in the cattle herd in Canada.
We know now that there is a very low prevalence of BSE in the national herd here in Canada following on the May case in 2003 and the U.S. case that was traced back to Canadian origin. We are moving as quickly as we can to implement the final set of recommendations requiring the removal and redirection of bovine SRM from all animal feed.
Senator Sparrow: Is this a concern now for the international market, that we have not acted on that or completed the ban on the use?
Ms. Mountjoy: I speak of the international BSE experts, some of whom participated on the panel that was convened following the May case. Their expectation is that Canada will move forward as quickly as it can to implement this final measure.
They recognize, as we do here, that it is not an easy issue to address. Requiring the removal and redirection of bovine SRM from all animal feed creates a disposal issue for the stakeholders. That issue is being dealt with. It is a complex question. We are making progress and intend to pre-publish a regulatory amendment in the Canada Gazette very shortly.
Senator Sparrow: I do not want to make a statement if it is incorrect, but I would be afraid that this is holding up allowing finished beef to enter international markets.
How does the industry dispose of that portion of offal at the moment? We have no assurance that it is not going into the feed system. It is going in. How does the industry dispose of that portion of the offal?
In the near future, will we see the international market opened up for the offal, which is an important component of slaughter cows? The hide, hooves and everything else that normally goes to international markets is shut out at the moment. It is an important component of the value added in the production, particularly in dairy cows. The Quebec dairy cow industry is affected in that way.
Does it appear that in the future, the international markets will never — never is a long time — accept that offal from the Canadian industry?
Ms. Mountjoy: Madam Chair, to respond to that question, I would call upon my colleague Dr. Bill Anderson, Director, Food of Animal Origin Program, CFIA. He deals with the question of export requirements for Canadian products, including the ones that have been mentioned.
Dr. Bill Anderson, Director, Food of Animal Origin Program, Canadian Food Inspection Agency: When Canada was designated as a country with BSE, one of the things at which we looked was the OIE standards. The World Organization for Animal Health is known as the OIE. It sets standards for countries around the world for the exchange of animal products and live animals.
Per the OIE code, with a case of BSE, you do not export meat and bone meal from ruminant animals. When we found our case, we stopped exporting these materials to other countries around the world.
We hope that with the proposed amendment to strengthen our feed ban and the removal of the SRMs from ruminant material, the OIE would allow us to get back into the international market for ruminant meat and bone meal without SRM. That will require some amendments to the OIE code and for us to proceed with our regulatory amendment to remove SRMs completely from the animal feed chain.
Senator Sparrow: How long will that take?
Mr. Anderson: We have publication in the Canada Gazette coming very shortly. There will then be a consultation period. Of course, we have to look at the comments received.
As Ms. Mountjoy has said, disposal is quite a logistical issue. Where do these SRMs now go? Can they be used in other kinds of product that are not for consumption by animals or humans? Are there safe ways of disposal without the problem of environmental contamination? All of those things are being looked at as we move forward on this particular proposal.
Ms. Mountjoy: If I may add to Dr. Anderson's response, we would be delighted to see this in place in the spring of next year. That would include not only the regulatory amendment, but also the implementation, supported by the verification by CFIA inspectors throughout the system.
I perhaps could have been clearer in my response to your question about where bovine SRM is currently going. When we implemented the feed ban in 1997, we said that cattle could not be fed to cattle. However, the cattle by- products that move through the rendering system are still fed to non-ruminant species — poultry, hogs, et cetera.
We are concerned about the possibility of cross-contamination through the feed manufacturing system, in transportation or accidental feeding on a farm. Therefore, we are moving forward to strengthen the feed ban even further by taking bovine SRM completely out of animal feed.
Senator Gustafson: Regulations vary between the provinces for small slaughter plants. For example, at Gainsborough, Saskatchewan, they were not allowed to sell a side of beef in Manitoba because the two provinces had different regulations on slaughter plants. You had to have bricks or cinder blocks in the construction in one province. The other province stipulated that the slaughterhouse should be constructed of two-by-fours lined with steel.
Are those regulations still that ridiculous?
Mr. Prince: I will try to explain briefly the way the meat inspection system works in Canada. What you say is correct. A provincially licensed or registered facility cannot export to another province. That is because of the federal Meat Inspection Act that requires CFIA registration in order to export either outside of a province or outside of the country.
The federal standard is required for interprovincial and export trade.
Provinces also have meat inspection legislation. Provinces are responsible for the slaughter processing standards that are maintained within a province.
Senator Gustafson: If we cannot overcome this small problem between provinces, how in Heaven's name will we overcome the problem that exists in the North American continent among Mexico, the U.S. and Canada? Where are we now in these negotiations, because nothing will happen until we get regulations that will be seen as positive by the United States, Canada and Mexico? If we cannot get that North American common understanding on regulations, we will be here for ever.
Mr. Prince: Common standards between Canada and the U.S. is not a major issue. We have similar meat inspection requirements, and we have a great deal of trade back and forth and recognize each other's systems.
The good news is that work is taking place at the federal-provincial level to move towards a national meat code. That code would set one standard for Canada, and provinces would then adjust their systems to meet that standard. Ultimately, once we get agreement on that, then we could move to the type of system that you are talking about.
Senator Gustafson: The problem is that we have put many small operations out of business because of the regulations in provinces and elsewhere. Many of the people that were in the business of slaughtering a dozen cattle a week and processing those for the local market have gone out of business. Some are now restarting their business. Certainly, we have to bear some responsibility in regards to the regulations that were forced upon these smaller operations. Now we are putting the regulations back in.
At the same time, the biggest players made profits of 280 per cent, according to their quarterly statements. It seems that the farmers are the ones taking the hits in this situation. I phoned Whitewood Auction Mart, and culled cows were selling for from 8 cents to 12 cents per pound, fleshier cows were going for from 20 to 12 cents per pound, and there is just no way that the farmers can exist at those prices.
At the same time, the big packing plants got the big money from our government input to solve the problem.
The Chairman: Thank you. This is obviously a vital, ongoing issue. Do not be surprised if you are asked to appear before the committee again.
Our next witnesses today are from the Canadian Cattlemen's Association, which has been working night and day for months on these difficult issues. We will hear from Mr. Stan Eby, President; Ms. Ann Dunford, Market Analyst; and Mr. Jim Caldwell, Executive Director. Welcome to the committee.
Mr. Stan Eby, President, Canadian Cattlemen's Association: Thank you, Madam Chair. We would prefer to make a couple of short comments and then take questions. We think that will be the best way to impart the appropriate information.
Once again, it is a pleasure to be with you.
Our industry hoped that we would have seen more progress on the border issue since our last appearance before the committee in March. However, there have been some improvements. While the industry is still struggling and some producers are having severe financial problems, there is a light at the end of the tunnel. We saw that just a few days ago when President Bush was in town. There is hope in that.
Prices have improved from the low levels of earlier this year and our exports and processing numbers have been steadily increasing. Our major concern is still getting the U. S. border open to live cattle and an expanded list of beef products. We can take encouragement from President Bush's comments earlier this week that he will make it a priority to speed up this process.
The CCA has left no stones unturned in trying to get the border open. We have worked with CFIA, Agriculture and Agri-Food Canada and the Canadian Meat Council. We have a full-time legal counsel in Washington and have worked with our counterparts in the U.S., including the National Cattlemen's Beef Association, the American Meat Institute and the National Meat Association. We have lobbied the USDA and US Trade Department. We have made a number of visits to the U.S., together with the ongoing effort by the Canadian Embassy. The Canadian Embassy has been a tower of strength in Washington for us.
We know that the Prime Minister and the President have discussed this on more than one occasion. We believe that our lobby effort has been taken about as high as it can go, although it is disappointing that we have not made greater progress to date.
We have also talked to the lending institutions in Canada to ask them to do what they can to assist their customers and get us through this difficult time. We know that the Minister of Agriculture and Agri-Food Canada has worked closely with the Bankers Association, and the Minister of Finance has also visited with them. We certainly appreciate that kind of involvement. We have worked with government officials at both the federal and provincial levels to develop programs that will provide financial assistance to producers, including cash advances. The current set-aside program appears to be working well and achieving results in the majority of cases right across Canada.
We know there are still problems in the industry. We have problems with mature animals or cull cows and bulls that continue to back up and are a concern to both beef and dairy producers. Prices for these animals remain low. The BSE issue has been painful since May 2003, but we believe the industry will come out of the process stronger. We now know that we cannot and should not depend on the U.S. to be our largest market for both beef and cattle. We have also learned that we can sell more products domestically and that we must find new markets around the world for the increased process capacity that we are building.
The Canada Beef Export Federation continues to push for new international markets while the Beef Information Centre develops new markets on the domestic front. They have done a credible job on the commercial beef utilization effort to move this manufacturing grade meat here in Canada. That is an ongoing effort. We are now processing more cattle than ever before and we are selling all that we can process.
We are developing a long-term strategy that will position our industry ahead of our competitors. We already have an advanced tracking system and we will be refining it in the future. Age verification and trace-back capabilities will become of the utmost importance in the years ahead and we must stay ahead of the competition.
I heard the Prime Minister make a comment last evening that Canada is the country of the future. We feel that we have done a number of things for the industry for the future. Taking us to the future is very painful.
The Beef Value Chain Round Table continues to bring together all of the sectors of the beef industry, from processors to retailers and producers. The CCA believes that with everyone working together, the industry will have a bright future despite our current setbacks.
I will ask Ms. Dunford, our market analyst, to give you some background from her perspective.
The Chairman: Before Ms. Dunford does that, I should add to your own comments that I do not think we would be here today in the state that we are, in spite of all of the trials and tribulations, if there had not been an extraordinary cooperation between the cattle industry and governments at all levels. Without that cooperation and being at the table to help make the decisions and the policy that has been developed in this very difficult time, we would not be in the positive situation in which we find ourselves. This committee would like to thank you for the contribution that you have made.
Ms. Ann Duford, Market Analyst (CANFAX), Canadian Cattlemen's Association: I gave you a handout with charts that I thought I would open with. Sometimes, it is easier to understand visually when we talk about where we are at with capacity and where we see things going. We will then take some questions.
We are currently on track in the first chart, ``Canadian Weekly Federally Inspected Slaughter,'' in 2004 to run about 25 per cent higher than 2003. Even compared to 2002, we are up 13 per cent, and on 2001 we are up 15 per cent. These numbers are the largest in many years, as Mr. Eby mentioned. Most of this capacity increase has come by way of more days per week of slaughter, longer shifts and some expansion of capacity that has occurred, so far, mostly within existing operations.
The chart beside it, ``Canadian Cattle Marketing versus Slaughter,'' — to go back over some history — started being tracked back in 1960. As you can see, into the early 1980s our capacity and our marketing were basically matched. What we produced we were able to process in this country. It was from the mid-1980s on that we started to see that divergence and Canadian packing plants went by the wayside as they became older and obsolete and were not replaced. At the same time, our industry was going through some good growth in the late 80s and early 90s. Our marketing numbers increased to about 4.5 million head. We were processing about 3.3 million prior to 2003. That difference was the live cattle that were moving into the U.S. market.
This year, we are forecasting 3.9 million head by the end of the year, compared to about 3.3million previously. It was close to 3 million last year. We are seeing a significant increase. I will talk a little more about the expansions beyond 2004.
The chart to the left, ``Canadian Federally Inspected Cow Slaughter,'' shows that we are projecting running slaughter rates for culled cows above 2003 levels by about 14 per cent by the end of the year. It is still down from 2002 and 2001, by 12 per cent and 15 per cent respectively. We are still trying to get the culled cows processed at the same level that we were.
You have heard in previous meetings of the committee about some of the expansion that we see occurring. We are currently sitting today, on a federally inspected basis, at just over 81,000 head. Each week the number picks up. We had recent kills as high as 83,000, but the average is roughly 81,000. At the end of this year and early next year, we are looking at a significant add-on occurring in Moose Jaw. That plant has been unable to double shift until now due to lack of cooler capacity. They will see a significant increase and will be online early in the new year. At the same time, we saw increases level off through the fall. Atlantic Beef is the plant in the Maritimes that is coming on stream this month. Rangeland is a plant in British Columbia that was newly reopened and started processing cattle in November. These are new additions that will take it to about 85,000 head.
From there, early next year some further increases at the various plants as they come on stream and get workers trained will add more kill capacity to get us closer to 90,000.
The next major step is later in 2005, summer to fall, with the recently announced expansion at Tyson in Brooks to take the capacity to 95,000 a week. These are the capacity numbers and they illustrate what the plant will be able to do. Market conditions will dictate whether or not they run at capacity. To get us over 95,000 head, we would need to see new capacity hit the ground.
On the second page of the brief, I illustrate those capacity numbers. As we go out past 2004, we have 3.9 million in 2004, about 4.6 million in 2005 and then roughly 5 million by 2006. This assumes that we would be looking at an additional plant by then.
The next chart takes into account cattle supply versus slaughter capacity. These data include culled cows and young cattle. We are including everything in the marketing number here. There is no question that as you look at the surplus numbers in 2004-05, these are the hump years — if you will — where we have the struggle with not enough capacity to match supplies. That certainly narrows as we get into 2006-07, as the previous presenter said.
I will not get into the bottom table, but it gives you information as to what our supply and capacity expectations are for the Canadian industry. I would be pleased to take any questions.
Senator Gustafson: That is a fairly rosy presentation. That is not what I am hearing from the grassroots farmers. In fact, we had a farmer in here from Alberta yesterday, who, I understand, appeared before the Western caucus, and who said that the bank had foreclosed on him. That was a $15-million or $16-million operation, and the situation is serious out there. The older cattle are not bringing money into the auction marts. You must be well aware of that.
Ms. Dunford: Yes. I was commenting on capacity, as I was asked to. Sorry.
Senator Gustafson: The problem with capacity is how long can we continue if the Americans do not open the border to the beef that is over 30 months? How long can we stockpile this? We were told earlier that some of that will be in storage to 2007. That will be so freezer burnt that no one will want to eat it.
I think we will have to start to face reality. Whitewood Auction Mart, as I told the other presenters, told me a week ago by telephone that culled cows were going from 8 cents to 12 cents and fleshy cows from 20 cents to 12 cents. There are all kinds of stories out there about how farmers have brought back cheques. In fact, at that auction mart a collector bought the cheque from the farmer for $10, because he only received $2.50 for an animal.
The situation is very serious. If in fact we cannot export cattle over 30 months, how long will it be before we will have to pull our herds back?
I understand that Canadians consume about 50 per cent of what we grow. In Canada we will be chewing on a lot of old beef, because the Americans will take our young cattle one way or another. The words of the President were very straightforward. He mentioned young cattle. I was not pleased about that.
Ms. Dunford: I want to make one comment. You are correct. Previous to 2003, we were consuming about 50 per cent of Canadian beef production. That has changed dramatically in 2004. This year, we are running at about 70 per cent. Canadians have come to the support of producers and we are running closer to 70 per cent for domestic consumption. Your points are very valid.
Mr. Eby: We have also cut down our imports dramatically. Our information is that we can consume over 30 month, cull-type animals here in Canada because we are importing a large quantity of that beef.
There is no question there is a major problem with cull animals and the value of them. We are not sure where the value of cull animals should be because of a number of issues.
Your comment about things being in storage until 2007 is something new to us. We are not aware of anything going into freezers at the present. Our processors tell us there is a market for everything they can process. Ms. Dunford, have you heard anything on storage over 30 months?
Ms. Dunford: No.
Mr. Eby: As for the President making the comment about young cattle, yes, our understanding has been the rule that is in process was for live cattle under 30 months and an expanded list of beef products initially. As well, there would be a second bill that would address the breeding stock and other ruminants, the over 30 months. This is the procedure as we understand it.
We are certainly looking at the border opening to cattle under 30 months as step one; step two is moving forward with the other products. If the border opens to the animals under 30 months, that starts to free up processing capacity for culled animals. We need more competition in the marketplace for the cull animals to raise the prices you are indicating. On the price of cull animals, the same thing is happening in Ontario as you are referring to in Saskatchewan. We need the competition.
Senator Downe: Is your association concerned about consumer confidence and foreign confidence in the food supply? We heard this morning that the Canadian Food Inspection Agency has still not removed all SRM from feed for all animals. Is that a concern for your association?
Mr. Eby: Yes. We have been discussing this not only with the Canadian Food Inspection Agency, but also our cohorts in the U.S., because we realize that this is an integrated, competitive market. How do we remain competitive both as producers and processors? In the area of consumer confidence, we feel that we are producing a safe product. We know how to control BSE by removing the SRM from ruminant feed.
Ms. Dunford: Can I add to the consumer confidence comment? In 2003, as you are all well aware, we saw a 5 per cent increase in disappearance of Canadian beef, and again, huge support from consumers. We are not quite maintaining that pace in 2004, but we are most certainly about 2 per cent above the level of consumption in 2002. That would be to the end of September. The data today would suggest that we are still seeing consumer confidence as far as disappearance of beef is concerned.
Senator Hubley: Welcome this morning. I have a question to clarify something. Your presentation has a lot of positive aspects to it. However, there is the reality. I sense, when I hear about the cooperation that you have been able to establish with your American counterparts, everyone seems to agree that the border should be open. I suppose now it is strictly a political decision.
You mentioned something about consumption. Are we still importing beef products from the United States today?
Ms. Dunford: Yes, there are some very small imports. They are down close to 70 per cent of what they were in 2003 and 2002. There is a small amount of beef flowing north, but mostly into food service operations that are using U.S. programs. It is drastically lower than it was. Overall imports, from Australia, New Zealand, Uruguay and the U.S., are down close to 65 per cent.
Senator Hubley: There are fewer imports from other countries. Is that indicative of us filling those voids, that we are consuming more Canadian product?
Ms. Dunford: Absolutely. That speaks to my comments a few minutes ago about disappearance of Canadian beef production; we are now at 70-plus per cent of what is being consumed here, up, again dramatically, from the 50 per cent in 2002.
Mr. Jim Caldwell, Executive Director, Canadian Cattlemen's Association: On the matter of fewer imports, a lot of it has to do with the price of the product that Senator Gustafson was talking about. Our decrease in imports has been on those products that would normally go into the grinding trade, which we used to get from Australia and New Zealand. They cannot compete with our prices for those products at the present time. Uruguay is exporting into the United States in higher numbers. Our business is to get that sort of trade, of using those animals, geared up, and the plants and the further processors going on those products so that we can supply that market that was originally supplied by the Australians, New Zealanders and Uruguayans. That is what we are trying to capture in ramping up our processing of older cows. The problem is that you cannot simply do it overnight, but we are making progress in that area.
Prior to 2003, we were importing up to 120,000 tons of product from offshore, excluding the U.S. Now, we are importing around 60,000 to 65,000. Our quota is 76,000.
Senator Hubley: Would you explain the quota to me?
Mr. Caldwell: I should let the president explain this, but this was negotiated during the GATT round or WTO round. That was the allocation we received. The Americans also received one relative to the amount they have. Ours is higher in proportion. Anything over 76,000 is supposed to be subject to a tariff. You may have heard that what we called ``supplementary'' quotas were issued prior to that time. This means that the government did not charge them any tariff on that product. They were getting 120,000 tons into Canada without any tariff on it. That is basically how it worked.
Mr. Eby: The Canadian Cattlemen's Association has lobbied strenuously to have the supplementary import permits cut off completely. As Mr. Caldwell mentioned, 130,000 tons cut into this cull. We will call it the commercial manufacturing trade. We have been successful to date. Regulations have not been passed, but nothing has come into Canada in 2004 under a supplementary import permit.
Senator Oliver: My questions are for Ms. Dunford. You showed us a chart. You came up with some numbers that two people have said show a glowing picture. However, I want to ask you some questions about your chart and your projections for numbers to find out whether they meet the anticipation of the government.
The CCA developed a recovery strategy for the livestock industry and was consulted by the federal government in developing its strategy for repositioning this industry. According to you today, your first chart shows almost 80,000 head killed. You note that the current capacity of 79,000 head killed per week could be increased by 3,000 head by November 2004, to 86,000 head a week in early 2005 and 93,000 by the end of 2005. The goal is 98,000 head killed per week by 2006.
In your opinion, taking into consideration such things as regulations, limiting factors in the laws and the availability of trained manpower, are these objectives realistic? Can you staff the plants to achieve the kill that you anticipate?
Second, is the federal government aiming at the same slaughter targets that you show in this chart?
Third, there is some controversy over the numbers you have put forward. Do these figures include older animals of 30-plus months or only slaughter animals aged 30 months and under?
Ms. Dunford: On the first two questions, basically, these numbers are coming from the operations that are looking at an expansion. If you go through the list, most of them are currently under way. Federally inspected slaughter represents about 94 per cent to 95 per cent of the total. The provincial abattoirs would represent another 5 per cent or 6 per cent above the numbers on these charts, which are referred to as ``F5.'' That would be above the numbers quoted on these charts.
I spoke with one of the operations managers at the Moose Jaw facility last week. It will have one of the biggest increases in the short run. It will be 4,000 head a week. They have had excellent support from the Saskatchewan government. They have the workers already in training in the plant. They will be ready to double shift right off the bat on January 1. They are already preparing for this expansion.
There is no question of not reaching the first step of 85,000 to 90,000 head. Some of it depends on the physical expansion capacity for cooler space, but you do not need additional workers to run cooler space. Most of that is in place.
Meeting the target at Tyson in 2005 will require additional workers in the Brooks area. I would suspect that if they are aiming for this kind of expansion, they have already accounted for the labour side.
The data that the industry and the federal government have been using are closely matched. We have been working together on the numbers. We come up with our marketing forecast by looking at the cattle herd and the cattle cycle. Historically, we look at the number of heifers per cow, the number of steers that come to market per cow and those kinds of things.
Historically, we have built our marketing data that way, and that is what is used in our equation. Those numbers have been shared with and used by the federal government.
The data here include a culling rate of about 10 per cent for older cattle. The data do include over 30-month cattle.
Senator Oliver: What about the other 70 per cent, of plus 30 months?
Ms. Dunford: A normal culling rate would be 10 per cent to 11 per cent historically in a beef herd and 25 per cent to 30 per cent in a dairy herd. Those are accounted for in these data
[Translation]
Senator Gill: I would imagine that your association has members from all Canadian provinces, and that you have statistics available. Given that we are currently going through a difficult period, could you tell us how many breeders and producers are still in business and how many have gone out of business compare to previous years when trade was easier and there was a decent level of exports to the United States?
[English]
Mr. Eby: On your first question, all provinces are not members of the Canadian Cattlemen's Association. Quebec is not a member.
Senator Gill: Why?
Mr. Eby: Mr. Caldwell is our historian, but they were a member until the late eighties and then decided not to be. We have tried to work closely with them. I worked with Michel Desserault and Gib Drury. We were in close consultation with them all year. Quebec beef producers are not members of the Canadian Cattlemen's Association.
Regarding the number of producers, we have approximately 90,000 producers of beef cattle. Have we lost producers? Yes, but we do not have a definite number on that. I must point out that in the beef industry, even in good years we lose members who market at the wrong time.
I have been in this business for over 35 years and timing is important. A free market system such as the cattle business can be cruel, as Senator Gustafson is quite aware. Timing and market conditions can vary from year to year.
Ms. Dunford, do you have any numbers on producers? That is a difficult one.
Ms. Dunford: No, I do not have any concrete data on the number of producers we have lost in this past year.
[Translation]
Senator Gill: Could the reduction in the number of producers be attributed to the fact that medium producers are buying out smaller ones? Such situations are not always the result of bankruptcies.
[English]
Mr. Eby: I will attempt to answer that question. We know that there has been more concentration in ownership, especially on the feeding side. That has been happening for quite a number of years in our industry. Livestock auction markets or dealers have been attracting outside investment. We know that ownership has changed at that level.
At the cow-calf level, I would say that we are much more consistent. The ownership does not attract the investment because it is a hands-on operation at that level.
Mr. Caldwell: I might answer your question briefly. The association in Quebec were members until the Canadian Cattlemen's Association adopted a free trade policy when the Free Trade Agreement came about. I want to put it on the record that we have very good relationships with the Quebec producers and their association. They have contributed to our advocacy fund to help lobby efforts, for example.
In Quebec, as you are probably very much aware, the situation is somewhat different, in that they are guaranteed a cost of production on all animals except culled cows. That is why they are having a problem at the present time, because it is the only system where they are not covering the cost of the production. That is why you hear them talk about that. They do not talk about their fat or feeder cattle, but they talk about culled cows. Culled cows are a problem across the country, as Senator Gustafson says.
We have to set the record straight. Unfortunately, many of the reports we see on television show producers talking about getting $2.50 for their animals. Those are culled cows. It is unfair, because consumers do not know what the problem is when they go to Loblaws or Loeb and pay much more than that for the product. The products they are buying are from younger animals that are rated single A or higher, for which 80 cents to 85 cents a pound is paid to the cattle operator in Western Canada. We are not being fair when we show these people on television talking about getting 15 cents for animals, because that is not the kind of beef being bought at the supermarket.
Senator Sparrow: Except hamburger.
Mr. Caldwell: Except hamburger. Hamburger has been at a good price.
Senator Mahovlich: I was at an auction years ago. The price of those cattle was incredibly high. It was $80,000 a head or some such ridiculous price. South Americans were buying those cows.
Who became the major competitor when our border was closed? Did the States go to South America?
Do we have to compete with the South Americans for that market?
Mr. Caldwell: Senator, it was probably Holstein cattle they were buying at that time. Certainly some high prices were paid for them, but that was a different situation. Prior to that, we were getting high prices for purebred beef stock, too.
Senator, the Americans did not need any markets. They were shut out of Japan, not quite at the same time, but they were self-sustaining and so did not have to bring in any more. Their only exports of meat products were basically to Asia, which they used to ship to Canada, but we lost that market. Everything equalled out for them pretty well. They were neither importers nor exporters so they were all set.
Senator Mahovlich: They just looked after themselves.
Mr. Caldwell: They did not need to import or export any more so everything worked out for them; 25 per cent of their production is exported whereas over 50 per cent of our production was exported.
Ms. Dunford: To clarify that, it was not even that much. They were exporting about 10 per cent and importing about 8 per cent. That is a small ratio and an important issue. The problem was the difference in products. Historically, they would export high-quality products to Japan and import low-quality products. It was more the definition of what was coming in and going out. As far as tonnage was concerned, as Mr. Caldwell said, it all worked out.
Mr. Caldwell: We do want to get back to those high-priced cattle again.
Senator Sparrow: Perhaps you could educate me a little further on the slaughter of older cows. If we had a closed market for the import of hamburger products from Australia, for example, could we consume all our older animals? Could we have a self-sufficient market to supply our hamburger trade? You are talking about a 70,000-tonne import of offshore beef from other than the United States, which would be hamburger products.
How self-sufficient would we be if we did that? Why cannot we do that? Is the international trade organization so strong that we must import that product?
Mr. Eby: Mr. Caldwell explained the import situation that was negotiated. To set the record straight, there is more to the cull industry than just grinding beef. There are tenderloins and a number of other products from the cull cows that then go to various trades. The further processing is a big industry. They were able to go offshore to buy the product at a price advantage and with no import tariffs, and so that is what they did. The U.S. has never allowed a supplementary import permit. Their tariff rate quota is about 10 times the size of Canada's, with no exceptions. Ours was set at 76,409 tonnes, and if people cannot get what they want, then we give them an import permit at no additional cost to them. That has decimated our cull processing capacity here in Canada because the U.S. had a market and it was easy for us to ship those cows to the U.S. marketplace. We are trying to re-establish a processing facility for our complete industry. To date, we have been integrated, but we are realizing that we have to be more self-sustaining to be more viable and less vulnerable in the long term. We can consume the manufacturing commercial grade beef that we process in this country.
Ms. Dunford: I would like to make one comment for clarification on the big picture numbers. From all cattle, under and over 30 months, Canadian farmers produced 3.6 billion pounds of beef in 2002. Canadian consumers ate about 2.2 billion pounds. There is no question about our ability to consume. Most of what is being exported is the young beef. Concerning your question on being self-sustaining on total production, we know that a country the size of Canada will need export markets, but I think our dependence on other markets is critical.
Senator Sparrow: I was referring to the older animals and that capacity to produce. You told us that there is not sufficient production capacity to service the domestic or export markets, although they are working at capacity. My question is not yet answered. Could we eat our way out of the over-30-month cattle issue if we were not faced with the import of the 76,000 tonnes per year? This leads to the next question: Could we better utilize provincial slaughter capacity than we are currently? That product cannot cross the provincial borders. In fact, Saskatchewan could produce with their provincial slaughtering facilities, and if there were the possibility of exporting that product to Ontario — the larger market — could we eat our way out of that surplus of 30-month or older cows? Could we find an innovative way for Canada to use that product rather than have it slaughtered and buried at 15 cents per pound? Is there a way to create such a market?
Mr. Eby: The answer is yes. We eat Canadian beef because it is a national industry. The Beef Information Centre, with significant federal government assistance, is working on a commercial beef utilization strategy. That is moving forward and addresses your concern, senator — can we eat our way out of this over-30-month cattle issue? It is my understanding that the answer is yes.
Senator Sparrow: Why are we not getting at it?
Mr. Eby: We are at it. It took a number of years for our processing capacity to move away from us and it takes time to rebuild it. You asked about provincial inspection and I think we should look at that area. There have been attempts in the past to coordinate provincial and federal inspection so that this could move, but I do not know what happened.
The federal minister made an announcement on September 10 about increasing capacity and having reserve funds set up for federally inspected plants only so they could move that product across the country, from province to province.
Senator Sparrow: We should look closely in our study at the aspect of utilizing those provincial facilities.
Senator Oliver: I have a concern. If in six months, as the President said yesterday and the day before, there is a possibility that the market might open for the export of live cattle from Canada to the United States, and if we have put a great deal of money, time and effort into new slaughter capacity from the West Coast to the East Coast and then many of the live cattle start marching over the border, are we not afraid that some of these new plants will not have sufficient numbers of animals for slaughter to sustain profits? Are we not creating a business problem?
Mr. Eby: One of the most asked questions as we have moved through our strategy is on that very issue. Can we keep the cattle in Canada? I will attempt to answer that.
We see some strong producer involvement in some plant initiatives, in the form of a commitment to supply the plant. We see the largest players making major investments and they will be competitive in keeping cattle here. There is a danger, yes. A producer will know, as Senator Gustafson knows, that if those cows are worth 25 cents per pound more in an export market, then they will go to export.
Senator Oliver: There may be a huge difference just because of the currency exchange rate.
Mr. Eby: I would like to back up a little on some of the things that the Canadian Cattlemen's Association have been involved in, along with the federal government, with our overall strategy. This is part of the increased processing facilities and can we keep them viable in the long term? The business plan going into this is critical. We have also had some strong players that are there now. How do we compete? How do we share this market? That is part of the business planning of these new facilities. That is being watched fairly closely. The initiative from the federal minister for a loan loss guarantee to the financial institutions was to put the onus on them to make sure that that business plan was viable for the long term. We think we are building in as many safeguards as we can to keep the cattle in Canada and keep the processing industry strong.
Senator Oliver: How can the marketplace compete with the bigger slaughterhouses if you do not want government interfering with the marketplace?
Mr. Eby: Once again, this is a very common question. There are some markets that the large players do not want to service. They may be more costly to service. There is a price that comes with niche marketing. There may be a return, but there is a cost to doing that. We see some of these smaller plants servicing those markets. That is one area of marketing. One of the pillars in our strategic plan is domestic and international marketing to assist in that very situation. How do we keep those people involved in the right market and in a long-term viable state?
Senator Oliver: You could do this through perhaps a Canadian brand or by developing a value-added unique Canadian product.
Mr. Eby: That is exactly what the commercial beef initiative is working on.
Senator Oliver: We did a study here in this committee on value added regarding that very thing.
Mr. Eby: We would certainly be pleased to cooperate with you in any way that we can on the work that is ongoing in the industry.
Senator Gustafson: Can we in Canada compete with the Americans? The Americans have sold our beef in the Asian market for years. Our calves have gone to Kansas. I have been through all those feed lots. A large percentage of all the beef in North America is processed and fed in Kansas alone. Calves come from Mexico and from Canada.
The Americans have done a good job of marketing our beef into the international marketplace because of the extensive trade relations that they have with Asia and so on. Can we compete with them? If we cannot, maybe we are better off to sell through the Americans than trying to do that on our own.
Ms. Dunford: The Canadian Beef Export Federation would be more able to answer this question properly. There is no question that history shows that the Japanese most certainly like the idea of Canadian beef. Canadian beef has done well in Japan and has been exported there directly. I am not sure how to answer that.
Senator Gustafson: How do those numbers compare with the amount of cattle that went south? I live on the Sault Ste. Marie line and there is truckload after truckload of cattle moving when the industry is in a normal situation. In North Dakota they are complaining about all these trucks coming through. There are seven or eight trucks in one line. That tells me that those cattle have been going south.
Mr. Eby: In an attempt to answer some of that, Ms. Dunford had done some work, along with collecting cattle facts, in the US earlier this year about the competitive feeding rates. At that stage, back in March or April, we were at about 17 cents a pound Canadian. It is cheaper to feed cattle here on a barley ration than on the corn ration. This situation moves with the barley/corn ratio, as you are aware. That has been the integrated nature of our market.
Can we compete? Yes, we can. The USDA Choice has become a brand. It is a grade in reality. It is a brand around the world and sells at a premium. One of the initiatives of Canada Beef Export Federation is to get equal value for our top grade.
In the pork industry, Canadian pork is the brand of the world. The short answer is yes, we can compete. We see that we can compete. The large processors are competitive with their processing costs going into those export markets.
Ms. Dunford: I would agree. As you have mentioned, as far as feeding costs are concerned, we are competitive — other than in a drought like 2002, when our feeding cost were not competitive with the U.S. I would suggest we are also competitive with the state-of-the-art processing plants that we have here now and their expertise in marketing.
Senator Gustafson: What percentage of our feed lots are owned by American interests? Lakeside Feeders in Calgary was bought out by Iowa Beef Producers originally, and then sold to Tyson. About 80,000 head of cattle are being fed there by an American firm. That is one firm. When I was in Kansas, the Iowa Beef Producers were looking for a place in Northern Saskatchewan to set up a feed lot because it is cheaper to take the cattle to the feed than the feed to the cattle. They said that they had fed the cattle all the corn they could grow in a reasonable surrounding area of Kansas that could be trucked there at a reasonable rate so they could compete.
We are facing a serious problem here in my thinking. When you are feeding that amount of cattle, it gives you a lot of control, especially when you own the packing plant.
Mr. Eby: Very true. I mentioned earlier the concentration of ownership. We see this in retail processing and more of a concentration at the production level. How do we balance that? This is basically your question.
Senator Gustafson: Also, what are the numbers?
Mr. Eby: How do we keep competition active in that situation? I certainly do not have the answer to that. We see it happening. We see outside investment coming into the cattle industry because it takes large volumes of capital.
Senator Gustafson: On the same issue, you said earlier — and I believe it was absolutely true — that they will not get into the cow-calf business because it is a hands-on business and it is difficult, hard work. They will leave that up to the small farmers and the cow-calf operators.
On the other end of the scale there is a lot of money to be made, especially when times are good.
Mr. Eby: I have a few comments on what Senator Gustafson mentioned earlier in his first question. The CCA is presently working on a plan, because back in July we felt we could get the price of finished cattle to 80 cents and the price of calves to about $1. The geography of Canada is difficult, as you well know. There are regional disparities and we are aware of that. In the most heavily populated areas, fed cattle, finished cattle, were trading as high as 85 cents last week. We all know what has happened to the exchange rate with the U.S. dollar from July to December. Our price of fed cattle has strengthened. The price of our replacement cattle has exceeded our expectations.
For the cull price, we realized that we needed to free up some processing capacity and that is why we looked to get the border open. If a few of these plants could kill cows two day a week, our cull animal problem would not evaporate but it would come into balance much quicker. Once again, we get regional disparities and we have to recognize that.
As a national association, we feel that our program has been reasonably on target.
The Chairman: I was looking back over your remarks, Mr. Eby, and I underlined several sentences that I think will stay with us: ``We now realize that we cannot and should not depend on the U.S. market for nearly all our beef and cattle exports. We also have learned that we can sell more products domestically, and we must find new markets around the world.'' That fits in with what we have been hearing from the government.
With those principles in mind, I would assume that if they are well planned and well financed, you would be encouraging a greater capacity from Canadian operators in this country than we have had for some time?
Mr. Eby: Yes, we would definitely be encouraging Canadian investment in processing. As producers, we think that further processing is a major industry that in some ways is not visible. I would suggest that you may want to look at the grinding groups and the further processors entering the hotel restaurant and institution trade. That helps us move this commercial beef through and also takes some of the lower values off our fed cattle.
As primary producers, we look at the initial processors. There is a group in between those processors and the wholesale and retail level that is very important to the long-term viability of our industry.
The Chairman: We will see if we can hear some comments from that group. We thank you for coming and helping us move forward with our study. We wish you the best of luck.
Mr. Eby: We thank you for the opportunity to have input. We look forward to doing whatever we can. With your cooperation, we look forward to moving our industry ahead.
The committee continued in camera.