Interim Report of the Standing Committee on Agriculture and Forestry
The Honourable Joyce Fairbairn, P.C. Vice-Chair: The Honourable Leonard J. Gustafson
The Honourable Joyce Fairbairn, P.C.,
Chair The Honourable Leonard J. Gustafson, Vice-Chair
The Honourable Senators:
*Jack Austin, P.C. (or William
James F. Kelleher, P.C.
*Noël A. Kinsella (or Terrance Stratton)
Donald H. Oliver
Robert W. Peterson
In addition, the Honourable Senators
Percy E. Downe, Rose-Marie Losier-Cool, Frank W. Mahovlich, Elaine McCoy,
Grant Mitchell, Pierrette Ringuette, Herbert O. Sparrow and Marilyn
Trenholme Counsell were members of the Committee at various times during
this study or participated in its work.
Staff from the Parliamentary
Information and Research Service of the Library of Parliament:
Line Gravel Clerk of the Committee
ORDER OF REFERENCE
Extract from the Journals
of the Senate, Thursday, October 19, 2004:
Honourable Senator Fairbairn, P.C. moved, seconded by the Honourable Senator
Standing Senate Committee on Agriculture and Forestry be authorized to hear
from time to time witnesses, including both individuals and representatives
from organizations, on the present state and the future of agriculture and
forestry in Canada.
That the papers and evidence received and taken on the
subject during the Third Session of the Thirty-seventh Parliament be
referred to the Committee;
That the Committee submits its final report to the Senate
no later than December 23, 2005, and that the Committee retain until January
31, 2006 all powers necessary to publicize its findings.
The question being put on the motion, it
some agricultural sectors, such as the grain and oilseeds industry, seem to
face chronic unfavourable conditions, the Canadian cattle industry has
always been very successful at taking advantage of market opportunities.
Trade liberalization with the United States has been the driving force of
the growth of that industry in the last two decades. The integrated North
American cattle market has however proven to be operating on a fragile
equilibrium: one single case of BSE resulted in an immediate shut down of
Canada’s foreign markets, including the most important one south of the
The fall-out from the discovery of
Bovine Spongiform Encephalopathy (BSE) in Canada in May 2003 will have
lasting effects on the Canadian cattle industry. The negative impact of the
border closure is still being felt across the country. Canadian
ranchers have always been fierce promoters of the independence of their
industry from government intervention. However, because the BSE crisis is
beyond the control of the industry, a new form of cooperation between
farmers, ranchers, processors and governments is required
to find solutions to the crisis.Members
of the Senate Committee recognize the tremendous cooperation among all
This is a follow-up to another
report entitled, The BSE Crisis – Lessons for the Future, tabled in
April 2004. At that time, the Committee,
under the Chairmanship of Senator Donald Oliver, felt there was an urgent
need to study the implications of this situation and explore potential
solutions, with the aim of preventing the recurrence of such a disaster.
The Committee then recommended
shifting the industry from being “live animal oriented” to “meat and
processed products oriented” and increasing the
meat processing capacity in Canada. It was also the Committee’s view that
Canada, the United States and Mexico
must find a way to use tools within the North American Free Trade Agreement
in a manner that would preclude instant closing of borders in the face of
any similar occurrence in future trade difficulties.
Over the past 6 months, the
Committee heard from government ministers and officials, farm groups,
bankers, processing industry groups and a number of farmers who are trying
to expand Canada’s beef packing capacity. The committee also travelled to
Washington, D.C., in March 2004 to strengthen connections with
representatives in both Houses of Congress as well as key national farm
organizations and think tanks located in the U.S. capital.
report offers an overview of the efforts that have been made and provides
directions to improve the current measures developed to reach the goal of
facilitating increased domestic slaughter capacity. This report is the
result of an extraordinary series of meetings. The Committee wants to thank
all the witnesses for their time, frankness and clarity of their
presentation, which have been the basis for our recommendations.
Since 20 May 2003, the work of the
Standing Senate Committee on Agriculture and Forestry has focused on the fallout
from the first discovery in Canada’s domestic cattle herd of Bovine Spongiform
Encephalopathy (BSE), commonly known as “Mad Cow Disease.” Following that
discovery, the United States quickly closed its borders to our cattle, as did
several other nations. These events had a profound impact on our cattle
industry and on related industries, processors, truckers and the marketplace
In April 2004, the Committee tabled an
interim report, The BSE Crisis – Lessons for the Future, that focused
particularly on the need to increase meat processing capacity in Canada. Prior
to the border closure, Canadian ranchers had access to packing plants not only
in Canada but also in the United States. They were thus able to benefit from
keen competition between packers when they wanted to sell their livestock.
However, the extent of Canada’s dependence on our neighbour’s infrastructure to
process our animals proved to be a weakness once the U.S. border was closed to
all live cattle. The closure has also done great harm to the U.S. processing
industry, which relied on the supply of Canadian cattle. It has become clear to
the Committee that one lesson learned from the current BSE crisis is that Canada
must restructure its packing industry. That view is shared by the government,
which on 10 September 2004, announced a strategy to
reposition the Canadian livestock industry.
The four elements of the strategy are:
sustaining the industry until capacity is
increasing the international market share
of Canadian beef.
In recent months, the Senate Committee
on Agriculture and Forestry has heard from government ministers and officials,
farm groups, bankers, processing industry groups and a number of farmers who are
trying to expand Canada’s beef packing capacity. The committee also travelled
to Washington, D.C., in March 2004 to strengthen connections with
representatives in both Houses of Congress as well as key national farm
organizations and think-tanks located in the U.S. capital. Anticipating that
the border would open on 7 March 2005, BSE issues were at the top of each
agenda. The new Secretary of the U.S. Department of Agriculture (USDA),
Mike Johanns, told the U.S. House
Agriculture Committee he was looking forward to reopening the border.
Regrettably, hopes collapsed on 3 March 2005, when
a federal judge in Montana issued a preliminary injunction to stop the border
opening. Although the border issue is still in the hands of the U.S. judicial
system, the Committee believes that Canada must continue its pressure on the
United States and continue to assist its own processing capacity to be ready to
face tougher competition when the border reopens. We must not underestimate
that challenge, and the Canadian cattle industry must make hard choices to
continue to grow. The Committee firmly believes that the necessary evolution of
the industry will reinforce Canada’s reputation as a reliable source of safe,
high-quality beef. The industry, with governments’ support, must make the
Canadian packing industry stronger so it can benefit all cattle producers and
Canadians across the country.
outlines the recent evolution of the North American packing industry, and then
focuses on some key elements of the government’s strategy
that are designed to help build new packing capacity. The remainder of the
report highlights witnesses’ concerns with respect to a number of issues
including a national domestic standard, food and feed safety regulations,
traceability, BSE testing, export markets and the beef import policy.
Prior to the discovery of BSE in May 2003, trade of live
cattle and beef products occurred on a North American basis. In 2002, almost
half of the cattle sold in Canada were exported as either live animals or meat.
Of this amount, over 70% of Canada’s exports of beef products and virtually all
of our exports of live cattle were destined for the United States. Canada
typically exported approximately 1.1 million head of cattle to the United States
The cattle industry on both sides of the border became
increasingly vulnerable as the packing industry developed into an integrated
North American trade. While, due to a number of production factors, the size of
the U.S. cattle herd declined by 8% over the past nine years, a growing supply
of Canadian cattle allowed U.S. slaughter plants to continue operating at
capacity. By the same token, under-capacity for slaughtering in Canada made
Canadian beef producers increasingly dependent on American slaughterhouses.
Canadian and U.S. Annual Cattle Slaughter Rates (Million head)
The border closure resulted in an immediate and substantial
decline in the available supply of cattle for U.S. packers and an oversupply in
Canada where cattle production greatly exceeded existing slaughter and
In Canada, the packing industry responded to the new market
conditions, principally by building domestic slaughter capacity. In 2004,
capacity growth was driven in part by expansion of existing operations through
the addition of extra shifts, Saturday kills, or routine overtime. In addition,
Gencor Foods Inc. in Ontario, and Blue Mountain Packers in British Columbia
reopened slaughter plants. New packers entered the market. Notably, Atlantic
Beef Products Inc., a new plant located in Prince Edward Island, commenced
operations in December 2004.
At the end of 2004, Canada’s federally inspected slaughter
capacity was approximately 81,000 head per week.
Provincially inspected slaughter added another 4,500 head per week, providing a
total Canadian slaughter capacity of 85,500 per week or approximately 4.3
million head annually. The Canadian slaughter rate in both federally and
provincially inspected facilities was just over 3.9 million head in 2004; this
was the highest rate since 1978, when 4 million head were processed.
Slaughter capacity continued to grow during the first half of
2005 as the newly opened firms completed their set-up phase and kills expanded
to maximum plant capacity. In addition, Tyson Foods and Cargill Limited both
announced significant expansions. Depending on utilization rates within the
plants, slaughter in 2005 is projected to range between 4.2 and 4.6 million
head, an increase of between 21 and 33% compared to pre-BSE levels (2002).
Other proposals currently under discussion could result in additional capacity
over the next two years, facilitating an annual slaughter target of 5 million
animals by 2006. This would represent an increase of over 40% compared to the
In the United States, the impact of border restrictions was
greater in regions where packing plants relied heavily upon Canadian cattle
imports for capacity utilization. Canadian imports represented 30% of cattle
slaughter in Utah, 19% in Washington and 10% or more in Minnesota, Michigan and
New Jersey. As a result, many U.S. slaughter plants are facing financial
difficulties, and have stopped production and laid off workers:
Several plants have closed, including the Iowa
Quality Beef plant (Tampa, Iowa) in August 2004, the Simplot Meat Products plant
(Nampa, Idaho) in September 2003, and the Ferry Brothers plant (Ferndale,
Two Swift and Co. plants cancelled shifts,
including the plant in Greeley (Colorado) where only about 3-5% of cattle
slaughtered had come from Canada; and
More recently, Tyson Foods suspended
slaughtering operations in its plants in Denison (Iowa), Norfolk and West Point
(Nebraska), Boise (Idaho) and Pasco (Washington), affecting 2,100 workers over
six weeks (January and February 2005). These plants had been running at less
than 75% of capacity, 10-15% below historical levels, because of the lack of
cattle to process.
And Now? Sustainability of the Packing Industry in Canada
The U.S. border remains closed to all live cattle and meat
from animals older than 30 months. Nevertheless, this situation will not last
indefinitely. For many witnesses, confronting U.S. competition when the border
fully reopens has become the next major challenge for the industry. At that
time, it is expected that U.S. packers will try to regain their lost share of
the Canadian cattle supply by offering more competitive prices to producers,
thus making it less profitable to process cattle in Canadian plants. Many
witnesses agreed that returning to the same dependence on exports of live cattle
is not an option for the long-term sustainability of the beef industry, and they
suggested options for sustaining the recent increased capacity in Canada.
Over the years, the meat packing business has been
characterized by low margins which have led to the consolidation of the
industry. Even today in Canada, four facilities are responsible for processing
close to 80% of the Canadian production of fed cattle, and two facilities
process 90% of cull animals. According to the Canadian Meat Council, this
consolidation, by allowing processors to increase efficiency and ultimately
profitability, has enabled the Canadian industry to compete internationally.
It is precisely the increase in profitability, particularly
following May 2003, that raised some Parliamentarians’ concerns when significant
decline in prices paid to Canadian cattle producers did not equal similar
decline in retail prices for beef. In response to these concerns, the
Competition Bureau began an examination on February 2004 with the mandate to
determine if “there were agreements among beef packers to lower prices paid to
cattle producers or among grocers to raise or maintain retail prices for beef.
The Bureau also examined whether pricing patterns were the result of one or more
dominant firms engaging in a practice of anti-competitive acts that restricted
The Bureau found no evidence of collusion or abuse of
dominance by beef packers or grocers. It concluded that beef prices are set in
a North American basis because of the reopening of the U.S. border to boneless
beef exports from cattle UTM, and cattle prices dropped because producers have
no other choices than selling to Canadian slaughterhouses, resulting in a
massive oversupply. Cattle prices tend to be volatile since they are normally
set in auction markets, and lower cattle prices do not necessarily lead to lower
consumer prices for beef because the latter includes a number of other fixed
costs such as labour and transportation. Finally, the Bureau concluded that the
size of a business, even one that dominates a particular market, does not itself
raise an issue under the Competition Act unless the business engages in
conduct to restrict competition.
Consolidation in the packing industry, however, has long been
a concern for cattle producers in North America. When
a small number of large firms dominate, they can exert significant control over
purchasing prices. That concentration of market power enables these firms to
generate higher profits, especially when conducting business with much smaller
and less organized participants, like farmers.
Accordingly, some observers have expressed concern over an April 2005 proposal
by the American giant Cargill Foods Ltd to take over the third-largest meat
packing plant in Canada, Better Beef Ltd., located in Guelph, Ontario. If the
takeover receives the Competition Bureau’s approval, Cargill will control over
50% of the federally inspected fed cattle slaughter in Canada. The proposal was
nevertheless well received by the cattle industry because of the potential to
enhance export opportunities.
Canada is taking advantage of the opportunity offered by the
current crisis to restructure its packing industry and reduce its dependence on
exports, particularly of live animals. Market forces, on the other hand, appear
to be dictating a trend toward concentration for the North American packing
industry if it is to remain competitive on the world market.
One of the lessons learned from the BSE crisis, however, is
that concentration and increased competition from the United States need not
inevitably lead to the pre-BSE trend of fewer packing plants in Canada. The
Canadian beef industry must continue its current effort to become more “meat and
processed products oriented” rather than “live animal oriented,” as the
Committee indicated in its April 2004 report, The BSE Crisis – Lessons for
the Future. The industry has come to realize that some risks inherent in
the beef industry are more manageable with processed products than with live
In order to
both capture value-added benefits and ensure the long-term viability of the
industry, one strategy of the Canadian packing industry must be to secure the
supply of Canadian cattle. This strategy has been successfully pursued by the
larger international conglomerates. More vertical integration in the packing
industry will be made possible through a strong partnership between cattle
producers and the packing plants, such as farmer-owned plants
(co-operative or majority shareholders), and strategic alliances with retailers
or secondary processors. Many groups of farmers are currently involved in
projects to start up new packing plants, recognizing that by acquiring plants,
they can become less vulnerable to other crises. The Committee notably commends
the Fédération des producteurs de bovins du Québecon its effort to buy
two packing plants in order to move up the value chain and retain a larger share
of the profits. Such arrangements can also allow a fully traceable system from
the calf to the meat, a feature that may appeal to some customers.
Another strategy being pursued mainly by smaller processors
is the development of differentiated products.
Smaller packers are becoming increasingly successful at targeting their products
regionally and developing niche markets that may not be attractive to larger
producers. Smaller firms are also becoming more knowledgeable about related
concepts such as branding and marketing, and can adapt more quickly to emerging
consumer preferences. New plants such as Atlantic Beef Products Inc. are
currently pursuing that strategy for long-term sustainability. Another strategy
that benefits large and small producers alike is the industry’s efforts,
with government assistance, to diversify its world customer base in order to
reduce future dependence on the U.S. market.
There was broad agreement that adequate start-up capital is
vital to ensure the long-term competitiveness of new facilities. Given the
cattle industry’s difficult financial situation, however, governments need to
provide financial support for the transition to a new domestic marketplace that
will give producers the option of investing in value-added products and
processes, and create the appropriate domestic competitive tension with the
large commodity-based processors.The
Committee notes that many of these concepts have been incorporated in the
government’s current strategy to assist
Canada's livestock industry in repositioning itself to ensure its long-term
viability. The strategy
announced in September 2004 includes continuing efforts to reopen the U.S.
border, taking steps to increasing ruminant slaughter in Canada, introducing
measures to sustain the cattle industry until capacity comes on line, and
expanding access to export markets for both livestock and beef products.
The Committee strongly believes, however, that we must not
create an overcapacity to the detriment of long-term viability. Many
slaughterhouse proposals and initiatives are being discussed, and the risk of
overcapacity may be a factor in some financial institutions’ reluctance to
invest in these ventures. The Canadian Co-operative Association indicated to
the Committee that it encourages the federal government to work with the beef
industry to explore ways to coordinate the development of new slaughter
facilities and the marketing of beef.
while consolidation is driven by market forces and appears inevitable to compete
on the North American and world markets, there is room for smaller packing
plants if they can secure their supply of cattle, raise adequate start-up
capital and possibly target niche markets. In facilitating the emergence of
these smaller-scale plants, the government could give more power to producers:
it would increase the options available when they market their livestock, and/or
producers would go up the value chain. The following two sections will provide
recommendations to give impetus to restructure a packing industry where
smaller-scale packing plants thrive alongside consolidated commodity-based
processors to the benefit of cattle producers.
As part of the strategy to reposition the livestock industry,
the government introduced a ruminant Loan Loss Reserve Program (LLRP) to support
loans for the expansion and establishment of small and medium-sized slaughter
facilities. In addition to the initial $37.5-million reserve initially made
available under the program, a further $17.1 million was committed to the
program in the 2005 Budget. The objective of the program is to reduce the risk
to private lenders, facilitating financing for viable business proposals.
To date, two formal agreements have been signed with
financial institutions to deliver the program (Farm Credit Canada and the
Alberta Treasury Branches). The Minister of Agriculture and Agri-Food informed
Committee members that negotiations were progressing with six chartered banks to
conclude agreements with them. As of 30 April 2005, no loans had been finalized
under the LLRP, although several applications were under consideration.
Along with members of the industry, financial institutions
noted the importance of ensuring the long-term viability of new projects. A key
principle of the program is that loans are to be made on commercial terms, with
lending decisions made by participating financial institutions based on a
business plan. While the reserve program mitigates some of the risks associated
with new projects, lenders noted that it does not replace the need for a viable
long-term plan that takes into account the reopening of the U.S. border to live
cattle. Moreover, some witnesses noted that protection offered under the LLRP
may be inadequate to convince lenders to support new projects.
Industry representatives suggested several revisions to the
existing program that would better meet the needs of producers and others
interested in setting up new facilities, as well as the lending institutions.
There was broad agreement that adequate start-up capital is vital to ensure the
long-term competitiveness of new facilities, as well as to secure bank financing
– an element that is absent from the current program. The Committee heard
several recommendations on this subject.
The Fédération des producteurs de bovins du Québec noted its
support of an earlier recommendation made by the Canadian Cattlemen’s
Association (CCA) to replace the current program with a matching capital
program. The Federation also supports new tax incentives for investment in
slaughter facilities put forward by the CCA, including investment tax credits
and accelerated amortization. Alternatively, the Canadian Co-operative
Association suggested replacing the current program with a loan guarantee
program. The Canadian Co-operative Association also advocates tax measures aimed
at facilitating the provision of equity. It suggests implementing a cooperative
investment plan that would provide a tax credit for individuals investing in
agriculture cooperatives, including slaughterhouses. The program would assist
new cooperatives in raising the initial capital required before seeking
The Committee will monitor closely how the LLRP is meeting industry’s needs as
the situation evolves. Nevertheless, considering that the
LLRP does not address the need for adequate start-up capital, a crucial element
to ensure the long term viability of new projects,
Recommendation 1: the Committee recommends that the
government complement the existing Loan Loss Reserve program with a capital
matching program thereby addressing the need for adequate start-up capital to
help ensure the long-term viability of new projects.
Recommendation 2: the Committee recommends that the government develop new
tax incentives for investment in slaughter facilities including a cooperative
investment plan that would provide a tax credit for individuals investing in
The Fédération des producteurs de bovins du Québec also recommended modifying
the program to improve accessibility. Firstly, the program should be made
available to all producers wishing to acquire slaughterhouse facilities, even if
the acquisition does not immediately result in an increase in capacity.
Moreover, the Federation notes that the program should not impose a ceiling on
the sales of the eligible businesses. The Committee believes that farmers’
investment in packing plants is a good way to secure the supply of Canadian
cattle in slaughterhouses and make cattle producers less vulnerable to other
Recommendation 3: the Committee recommends that the government expand the
eligibility of existing programs to producers or producer groups wishing to
Sound business plans are crucial to the sustainability of new packing capacity.
Farm groups, however, do not have all the expertise for business planning in the
value-added industry. Furthermore, the cooperative business model is one of the
options available for farmers, who want to invest in slaughterhouses, therefore
Recommendation 4: the Committee recommends that the government reallocate
funds from the strategy to reposition the Canadian livestock industry to enable
farm groups interested in building slaughterhouses, including co-operatives, to
undertake business planning and obtain expert assistance.
Recommendation 5: the Committee recommends that the federal government
reallocate funds from the strategy to reposition the Canadian livestock industry
to provide additional funding for the Advisory Services component of the
Co-operative Development Initiative to enable regional co-op groups to provide
expertise on the co-operative business model.
Part of the funding promised under the Canadian livestock
industry repositioning strategy is currently going to the Canadian Food
Inspection Agency (CFIA) to streamline processes for the approval of new
slaughterhouses under the Meat Inspection Act. In order to register a
slaughter plant under the meat inspection regulations, an application must be
submitted to the CFIA, along with detailed plans, blueprints and specifications
of the establishment. The submission is reviewed by the agency and is
conditionally approved if it meets the requirements prescribed in the
regulations. Once the facility is built, the agency inspects it to ensure that
it was built according to the approved submission. If the inspection is
satisfactory, the building is registered and a registration number is issued.
Since the repositioning strategy was announced on 10
September 2004, the CFIA has received several requests for registration,
including the following:
Seven companies requested new plant
registration, including the two establishments that started their operations at
the end of 2004 (Blue Mountain Packers in British Columbia and Atlantic Beef
Products Inc in Prince Edward Island). The CFIA anticipates that the remaining
five establishments will be operational in approximately 6 to 12 months.
Two existing federally registered plants passed
final inspection by the CFIA and are approved to expand their slaughter
capability to beef.
Three federally registered beef establishments
have requested approval to expand.
The Committee, however, heard concerns about the approval
process. It took almost 5 months for the Blue Mountain Packers plant in British
Columbia to be federally registered by CFIA, although the establishment was
already an approved plant before it was bought by the current operators. The
representative from Gencor Foods Inc. in Ontario, whose plant was approved in
2004, also mentioned that the blueprint approval process was not user-friendly.
In his opinion, a process that should take 6 weeks can take 6 months.
Since then, however, the CFIA has implemented changes to its
blueprint review. The blueprint approval has been decentralized and is now done
in the area where the plant is located. The CFIA has also established a team of
experts to expedite the review of new establishments for registration and
licensing approvals. Nevertheless, it is still too early to tell whether these
changes will be effective, and the Committee will monitor this issue very
Increased packing capacity also means that more inspectors
will be needed in the various establishments to inspect the meat. The federal
model of inspection oversight requires that veterinarians and inspectors be in
the plant throughout the time when animals are slaughtered. They provide
oversight from a food safety perspective and an expert market standard
The CFIA has requested and received new resources to be able
to keep pace with the industry as new plants come on-line and existing plants
expand their capacity. The CFIA is monitoring the registration approval
process, and, as new establishments approach the date when they are due to
become operational, the Agency is proceeding with some anticipatory hiring and
training of veterinarians and inspectors, so that they can be in place the
moment these plants begin operations. As of 3 May 2005, the CFIA had hired an
additional 10 veterinarians and inspectors to meet expansion plans, and the
Agency anticipates that significantly more personnel will be hired over the
course of 2005. The CFIA has also received some limited resources for use in
assisting provinces in the inspection of provincial abattoirs, specifically for
the purpose of ensuring that specified risk materials are properly removed.
In addition to facilitating the creation of new plants or the
expansion of existing ones, the government can act in a number of areas to
create a better operating environment for the packing industry. The two major
areas of potential action are in food safety standards and international trade.
Slaughterhouses that sell their products solely in the
province where they are established come under the responsibility of their
provincial government. To be able to sell in another province, a slaughterhouse
must be registered with the CFIA and comply with federal Meat Inspection Act
requirements. The standard for interprovincial trade is therefore the same as
for the foreign export trade.
Provincial packing capacity is relatively small (4,500
head a week), but it offers a window of opportunity that, if fully used, can
address some regional problems. For example, the Fédération des producteurs de
bovins du Québec mentioned that producers in Abitibi-Témiscamingue (Quebec) are
located close to an Ontario provincial slaughterhouse but have to ship their
cattle to Montréal for slaughtering. Many witnesses suggested the development
of a national domestic standard that would allow interprovincial trade without
authorizing foreign export trade. Witnesses also felt that, in order to be
effective and credible to our trading partners, that standard should be under
the responsibility of the federal government.
As mentioned above, the current standard
for interprovincial trade is the same as for foreign export trade. According to
the CFIA, certain terms and conditions in the federal standard that are demanded
by our foreign trade partners could be removed from a purely domestic national
standard, which would make interprovincial trade possible without authorizing
foreign exports. CFIA officials indicated to the Committee that there is now an
agreed-upon “meat code,” which reflects an agreement between the provincial and
federal governments with regard to basic minimum food safety standards for meat
processing plants. For the new meat code to be operational, it would have to be
enshrined in provincial regulations. Since the federal government has
jurisdiction over interprovincial trade, the Meat Inspection Act would
also have to be amended to either:
allow interprovincial trade of meat produced in
plants that are not necessarily approved by the federal government; or
create another level of federally registered
plants different than those allowed to export.
There are other implications since, in
accordance with WTO obligations, the standard for interprovincial trade would
then become the standard that Canada would request of foreign countries shipping
meat to Canada. Since some imported meat products would meet the domestic
standard, they could not necessarily be processed and re-exported. A thorough
traceability system would then be needed to segregate products meeting the
domestic standard and those meeting the export standard.
In its December 2004 report
Value-Added Agriculture in Canada,
the Senate Committee expressed its concern that interprovincial agricultural
trade issues and barriers continue to exist and called on the federal and
provincial governments to act on their Agreement of Internal Trade promise to
review agricultural trade in Canada. It is the Committee’s view that
interprovincial trade is too often a hurdle to the sustainability of the
agriculture industry. Therefore,
Recommendation 6: The
Committee recommends that the Canadian Food Inspection Agency immediately
undertake a legislative review, in consultation with the industry and the
provinces, and with due consideration of all trade implications, to propose
changes to the relevant acts and regulations in order to implement a domestic
standard allowing establishments that comply with this standard to trade with
other provinces without being fully registered to trade on the international
As scientific information surrounding health issues evolves
very quickly, the meat packing industry must constantly adapt to new
requirements dealing with food safety, and commit significant amounts of money
and resources to ensure their products meet the highest standard possible. The
government has recently proposed or introduced new health and safety
requirements for the meat industry, including the mandatory implementation of
Hazard Analysis Critical Control Point (HACCP) programs and the removal of
bovine specified risk materials (SRM)
from the feed chain.
end of 2005, the implementation of an
HACCP program will become
mandatory in all federally registered meat and poultry establishments. As of
December 2004, 86% of federally registered meat and poultry establishments had
an HACCP program. Some of the new packing plants that testified before the
Committee, however, mentioned it will be hard for them to meet the end-of-year
Value-Added Agriculture in Canada,
the Senate Committee recommended that the federal government enhance funding to
help small-scale food producers and processors achieve HACCP standards or other
similar food safety and monitoring standards. Evidence provided during our
hearings on the packing capacity in Canada gives the
Committee additional reasons to reiterate this recommendation.
Another new food safety requirement that affects the meat
packing industry is the removal of SRM from all animal feed. SRM are now
removed from the food system but can still end up in animal feed for
non-ruminants such as hogs and poultry that are not susceptible to BSE. On 10
December 2004, the CFIA proposed a regulation that would require removing SRM
from all animal feed, pet food and fertilizers. CFIA officials indicated that
the proposed regulatory amendments will strengthen the feed ban and will serve
to mitigate the effect of BSE in Canada more rapidly. Preventing SRM from
entering the feed production chain enhances the existing feed ban by diminishing
the effects of potential cross-contamination of animal feeds that could occur as
feed is produced and distributed, as well as any inappropriate on-farm use.
CFIA officials mentioned that the regulations could enter into force in the
spring or early summer of 2005, following the end of the comment period and the
publication of the regulations in the Canada Gazette, Part II.
In July 2004, the U.S. Food and Drug Administration also
requested comments on the removal of SRM from all animal feed.
In Washington, the Committee heard that the U.S. industry is
opposed to this measure. Although teams of international animal health experts
that reviewed the Canadian and U.S. responses to the discovery of BSE cases
recommended this measure, the National Cattlemen’s Beef Association believes it
is not supported by science, since there is already a high compliance rate with
current ruminant-to-ruminant feed bans in Canada and the United States.
ruminant-to-ruminant feed ban is effective, the removal of SRM from all animal
feed will accelerate the eradication of BSE in Canada. The Committee believes
our trading partners around the world must see Canada as doing everything to
eradicate BSE from the national herd as quickly as possible. The Committee
therefore supports this initiative.
Witnesses, however, expressed concerns on
the costs for the industry of such a measure as well as the potential
environmental impact. One witness indicated that 375,000 pounds of SRM per week
will have to be disposed of in Ontario only, and estimated the Canadian
production of SRM at 2 million tonnes per week. If the regulatory proposal
comes into force, the disposal of SRM will have to be addressed.The
generally accepted method is rendering and the rendered SRM can be buried in
landfills or incinerated.
The proposed regulations do not deal with
the issue of SRM disposal but Agriculture and Agri-Food Canada (AAFC)
is leading consultations with all stakeholders, including the
provinces, which have primary responsibility for waste disposal. AAFC tries to
identify the best options for SRM disposal in each province because the
environmental conditions vary from one area to another. The most significant
challenge remains the transportation of the material, given that in most
instances the density of animal population is not very high.
Many foresee that traceability, the ability to track a food
product from the farm of origin to the plate, will become something that will be
required more and more in markets around the world. It is very important that
Canada support any initiative to explore traceability from the first
identification of animals through to the abattoir and onward into the market
chain, so that if any problems arise it is possible to track the source of the
Canada has already set up an animal identification system
that puts our country many steps ahead of our trade competitors, including the
U.S. CFIA officials indicated that the next objective is to register each
animal’s date of birth in the data bank, as well as movements between farms. In
Quebec, the provincial government has already the legislative framework in place
to gather this type of information.
Through program requirements or regulations, the CFIA is
creating, expectations for industry in terms of traceability on an establishment
or on a product basis. Generally, the industry is required to be able to trace
forward one step and trace back one step. In other words, it must be able to
identify where the product is coming from and where it is going to. If an issue
is identified with respect to food safety, the Agency wants to be able to follow
that product throughout its life cycle. Through Can-Trace, an industry-led
initiative, Canada is also trying to develop voluntary minimum requirements for
national whole-chain tracking and tracing standards.
Atlantic Beef Products Inc. recently obtained funds
from the Atlantic Canada Opportunities Agency (ACOA) and
AAFC in order to implement a full traceability system for its products.
In addition to food safety advantages, the technology that
this plant wishes to implement would be able to virtually re-create a carcass
and the cuts of each particular animal, and give the actual value per animal.
Atlantic Beef Products has entered into an agreement
with the federal government whereby it will test the technology and the
equipment. Based on this traceability enhancement pilot project in Prince
Edward Island, AAFC may decide that there is merit in expanding the system
A full traceability system would have many similarities with
HACCP programs, notably in terms of technical capabilities and record-keeping
procedures. For many
years, the CFIA had a voluntary program, the Food Safety Enhancement Program (FSEP),
to help packing plants develop HACCP programs. The Committee believes the
Canadian packing industry must stay ahead of its competitors and explore the
possibility of being able to fully trace products. Therefore,
Recommendation 7: The Committee recommends that the Canadian Food Inspection
Agency develop a program similar to the Food Safety Enhancement Program (FSEP)
to help develop traceability systems in meat processing plants. Such a program
should be funded to allow the meat industry to have such systems in place by
When the world closed its doors to Canadian cattle and beef
in May 2003, many options were discussed to try reopening foreign markets to
Canadian meat. Since Japan, our third-largest export market for beef products
before 2003 (after the U.S. and Mexico), tests all slaughtered animals for BSE,
some suggested Canada should do the same to regain access to Asian markets.
The World Animal Health Organization (OIE) does not recommend
testing all slaughtered animals as a measure to protect consumers from BSE. The
removal of SRM is currently the best method to ensure the safety of meat. Given
the long incubation period of the disease, young animals do not necessarily
react to the test and it may create a false sense of security. Furthermore, if
Canada were to test all animals for BSE, all carcasses or portions derived from
a carcass would have to be detained until the results were known. This would
require logistical changes in the plants (to provide extra storage, for example)
and add significant further costs to the actual cost of the test.
Japanese authorities have commissioned scientific reviews to
explore the idea of moving away from testing all animals. The Committee
understands that Japan has already made a decision to move away from 100%
testing and is going through a very elaborate process to implement a new system
that is based on age verification. With the advice of their scientific
community, Japanese authorities are considering establishing an age limit under
which it will be deemed safe not to test for BSE. Only animals over that age
would be tested. This would be more in line with practices in the European
Union, where countries do not generally test animals less than 30 months old.
There have been proposals in Canada, however, to test all
animals for “branding” purposes. Industry associations appreciate that there
will be markets that will demand testing, and have suggested a pragmatic
approach that provides for additional testing for meat destined for specific
countries and markets that require 100% testing.
Nothing currently prevents a meat packing plant from hiring a
private laboratory to do the testing, but there seems to be an interest in
involving the federal government. For example, the Canadian Co-operative
Association recommended that the federal government consider providing 100%
testing of meat being exported to specific markets that demand it. CFIA
officials indicated that the Agency is willing to discuss private-sector
proposals to access specific niche markets that demand 100% testing, or any
other type of testing that foreign markets might require related to residues of
hormones, drugs, etc.
The Committee believes it is important that the federal
government facilitate the work of meat packing plants that want to access
specific niche markets. The government must provide quick and easy access to
technologies such as test kits, or new processing methods such as hot boning, to
maintain the Canadian beef industry’s competitiveness.
The Committee believes it is important that the federal
government facilitate the work of meat packing plants that want to access
specific niche markets. In that context, the government has the responsibility
to provide quick and easy access to technologies such as test kits, or new
processing methods such as hot boning, to maintain the Canadian beef industry’s
competitiveness. The government must therefore give priority to the necessary
research that would allow the industry to have access to such tools aimed at
providing a competitive edge to the industry.
Increasing the meat packing capacity in Canada is a strategic
move by the beef industry to become less vulnerable and less dependent on the
export of live cattle. It does not, however, change the industry’s dependence
on export markets. According to the Fédération des producteurs de bovins du
Québec, 60% of Canadian cattle production is exported either live or in beef
products. It is therefore useless to increase the packing capacity if Canada
does not have the opportunity to market the meat internationally. At the same
time as the industry increases its capacity to produce beef products, Canada
must work to reopen markets to Canadian beef and cattle around the world.
Canada has had some success in reopening certain markets to
Canadian beef products, including the partial reopening of the U.S. and Mexican
borders to some categories of beef products in August 2003. On 30 November
2004, Hong Kong agreed to resume imports of Canadian boneless beef from animals
under 30 month (UTM) with all SRM removed. Cuba also
reopened its border to a wide range of beef and beef products from Canadian
cattle of any age. Cuba went further in March 2005 and agreed to
conditions for imports of Canadian cattle, sheep and goats, bovine semen and
In March 2005, the United States
completed a rule-making process to provide the necessary authority to reopen the
border to certain classes of live ruminants and a broader range of ruminant
products. This so-called U.S. “BSE minimal risk rule” amends the requirements
regulating the importation of animals and animal products, and creates a new
category for regions in which BSE has been detected in the national herd but in
which precautionary measures have been taken that reduce the risk of BSE being
exported to the United States. The rule, which was scheduled to take effect on
7 March 2005, adds Canada to this new category. In February 2005, U.S.
Agriculture Secretary Johanns announced that the USDA would delay the effective
date for allowing imports of beef from animals over 30 months (OTM), but the
rest of the rule – notably the provisions allowing the importation of live UTM
cattle for slaughter – would be implemented as scheduled. The rule does not
include either OTM cattle or breeding cattle and replacement dairy heifers. A
separate rule-making process addresses these classes of animals.
Anticipating that the U.S. border would
reopen on 7 March, the Committee went to Washington to strengthen connections
with representatives in both Houses of Congress as well as the U.S.
Administration and key national farm organizations.
On 3 March 2005, the Senate passed a resolution of disapproval of the rule.()
In order to keep the rule from going into effect, this resolution would have to
be passed by the House of representatives and signed by President Bush. In
various meetings, the Committee was told the resolution is unlikely to be
supported by a majority of representatives. Furthermore, the White House issued
a press release on
3 March 2005 stressing its support for an
open border, praising the work of Canada’s scientists and government, and making
it quite clear that President Bush, for the first time, would exercise his veto
power should Congress demand a closed border.
Independently of the congressional review, on 2 March 2005, a
federal judge in Montana ordered a preliminary injunction to halt the
implementation of the rule until the Court has the opportunity to review it.
This preliminary injunction was obtained following a lawsuit filed by the
Ranchers Cattlemen Action Legal Fund United Stockgrowers of America (R-CALF
USA). USDA appealed the preliminary injunction decision. This appeal, which
will be heard in the U.S. Ninth Circuit Court of Appeals in San
Francisco, and the Court case in Montana regarding the
implementation of the rule, are expected to be dealt with this summer.
USDA officials indicated to the Committee that the U.S.
Administration is hopeful that the case will be judged on its merits, because
the merit is there; the USDA was very cautious in writing the rule and is
prepared to reopen the border. USDA officials also mentioned that the rule
providing for the reopening of the border to OTM cattle is in the process and
the USDA wants to expedite it.
The Committee recommended in its previous report that one
issue for which Canada should continue to fight is trade based on rules and
scientific standards. Resuming normal trade for all
types of beef products with the United Stated and Mexico, including meat from
OTM animals, will send a strong signal to other trading partners in the world.
In our meetings in Washington, many shared the Committee’s view that we
cannot expect our export markets, notably Japan, to follow a science-based
approach if North American countries do not themselves follow such an approach.
As part of that process, the CFIA has already changed its
regulations to further align Canada’s BSE-specific policy for imports from the
United Stated with science-based international guidelines for safe trade,
which are designed to protect public and animal health. The
import regulations to allow for a range of U.S. commodities
that have been prohibited since a case of BSE was detected in
Washington State in December 2003 came into force on 29 March 2005.
This was an important step towards a harmonized North American import standard
In its April 2004 report, The BSE Crisis – Lessons for the
future, the Committee recommended to enhance the harmonization of sanitary
and phytosanitary standards with Canada’s NAFTA partners and set up a permanent
NAFTA agricultural secretariat with the mandate to use these standards and
generate reports including recommendations for actions by NAFTA partners to
regulate the trade flow when a sanitary or phytosanitary issue occurs.
In addition to BSE, there are still some issues between the
United States and Canada on import requirements related to bluetongue and
Canada removed the requirements for feeder cattle imported from the United
States. However, the restrictions to import breeding animals remain and are
still an irritant, especially in the Northern Tier States where cow/calf
operators are very dependant on selling their breeding cattle. These two
diseases do not incur an economic loss of production and Canada’s environment
kills the insects responsible for the diseases. Minister Mitchell indicated
that Canada’s regulations on these two diseases will be reviewed.
While the fate of the Canadian beef industry lies to some
extent in the hands of the U.S. judicial system, we cannot forget that Canada’s
best insurance is tomaintain the best possible animal health
standards in our country and encourage the North American market to do the
As markets gradually reopen to Canadian beef products, it
will be important to regain market shares that are now filled by other
international competitors. On 10 March 2005, the government announced a
$50-million federal contribution to the Canadian Cattlemen’s Association’s
Legacy Fund to launch an aggressive marketing campaign to reclaim and expand
markets for Canadian beef. This money will help to develop new
international markets for Canadian meat products, and to regain our market share
once some now closed markets such as the Japanese market reopens. The Committee
fully supports this initiative and sees the expansion of markets for Canadian
beef as an important part of the sustainability of Canada’s increased packing
Canada offers two levels of access to beef imports from
around the world. For its North American Free Trade Agreement (NAFTA) partners,
there are no quantitative limitations – under normal conditions – on how much
beef Canada can import from the United States and Mexico. In addition, all beef
trade in North America is tariff-free. Canada and Chile have a similar
agreement in place.
The import of beef from all other WTO countries is limited by
a Tariff Rate Quota (TRQ). In accordance with its WTO commitments, Canada is
required to provide tariff-free access to up to 76,409 tonnes of fresh, chilled
and frozen beef and veal annually. Normally, any amount above that total is
subject to a 26.5% import duty. Two countries are guaranteed a specific portion
of the TRQ amount. Because of historic Commonwealth ties, Australia and New
Zealand are entitled to 35,000 tonnes and 29,600 tonnes of the TRQ,
respectively. The remaining 11,809 tonnes is open to imports from any country
certified by the CFIA, including Australia and New Zealand.
In special cases, authorization may be granted to waive the
tariffs on amounts exceeding the TRQ threshold. If a company cannot find a
Canadian supplier that can offer an equivalent product at an equivalent price,
that company may apply to the Minister of International Trade for a supplemental
import permit. For example, in 2002 – the most recent year unaffected by the
BSE crisis – Canada authorized supplementary imports of about 65,082 tonnes over
and above the 76,409-tonne TRQ threshold.
The companies that typically apply for supplemental import
permits are those that do value-added processing on the basic meat cuts
available from slaughterhouses. Such business primarily supplies the
convenience food market. The companies require a stable, reliable supply of
very specific cuts of beef from meat packing plants that they then further
process to meet the needs of their customers, such as delicatessens and
fast-food companies. These meat purveyors have generally found that the
products they require are readily available from slaughterhouses in Australia
and New Zealand at very competitive prices.
By contrast, cattle processing capacity in Canada is limited.
Prior to the discovery of BSE, about half of Canada’s beef and cattle exports
to the United Stated consisted of live animals destined for meat packing plants
in that country. In the case of those that were processed domestically,
companies found it more lucrative to export different cuts of meat to the U.S.
market than to supply the specific needs of the specialty meat purveyors.
When the world closed its doors to Canadian cattle and beef
in May 2003, the federal government took several steps to help the domestic
industry. Among these was a move to restrict imports of foreign beef in the
hope that local supply could be used to meet the demand. Canada’s commitments
under the WTO and NAFTA prevented it from arbitrarily closing its border, but
Canada could limit supplemental tariff-free imports over the TRQ threshold.
On 4 June 2003, Canada tightened its supplemental import
policy; a month later, it effectively cancelled the policy altogether. However,
the United States partially reopened its borders shortly thereafter. Canadian
exports of certain cuts of meat from animals under 30 months old were permitted,
but the border remained closed to meat from older animals and to live cattle.
The partial border opening did nothing to relieve the glut of
cattle in Canada. Domestic processing capacity was limited; with partial access
regained, Canadian meat packers once again began to export to the U.S. market.
The end result was that specialty meat purveyors were unable to secure a
reliable supply in Canada, but were not granted supplemental import permits to
acquire the product abroad.
Finally, in April 2004, the Canadian government reinstated
the supplemental import tariff exemptions, and companies were once again able to
import products tariff-free above the TRQ. As a result, Canada finds itself in
the position of having an excess supply of cattle but still importing specific
cuts of beef over and above its minimum WTO obligations.
Some small packers suggested to the Committee that any
shipment of meat above the 76,409-tonne TRQ should attract the tariff, and that
Canada should again cancel its supplemental import tariff exemptions.
Nevertheless, according to the Canadian Meat Council, importers have to contact
several suppliers in Canada before the supplementary import quota, or permit, is
issued. Suppliers are given 48 hours to respond as to whether or not they can
provide this product. If Canadian suppliers cannot provide the product, then it
is actually beneficial for the Canadian market to import it; otherwise, the
market for beef could be lost to some other source of protein. Moreover,
International Trade Canada statistics show that in 2004 virtually no
supplementary import quotas were issued (457 kg), and a little less than
two-third of the tariff-free quota of 76,409 tonnes was actually imported
Canada has a low incidence of BSE and the
Committee is satisfied that the proper measures are in place to protect
consumer and animal health. Canada is certainly taking steps
to be prepared for the next crisis. As Dr. Gravel of the CFIA indicated:
“In a way we are like firefighters. You cannot staff for the
major fire that is happening all the time. You have to find a medium between
having a certain percentage of your troops as a reserve and not wasting
taxpayers’ dollars […] waiting for the emergency to happen. That is the major
challenge. To what extent do we have the capacity inside to deal with a crisis
and also when we get to a bigger crisis, have access to additional funding or
partners that will help us manage that crisis. Whether these partners would be
provinces or industry or others, and that is what we have been trying to do.”
believes that preparing for future crises entails looking at where our industry
is vulnerable and taking steps to reduce this vulnerability. Farmers need
reassurance that another crisis will not have such lasting consequences, and
having a stronger packing capacity will be a part of that process.
Canadian cattle and beef industry has benefited from integrated North American
trade, the BSE crisis has shown that borders still exist and can
profoundly affect our agricultural
industries. By increasing its packing capacity, the industry will become
stronger and more sustainable whether or not the U.S. border reopens.
The implementation of programs to reduce the industry's
vulnerability is certainly a necessary precondition to a more sustainable
future; but Canada's demonstration that it is monitoring and managing this
crisis is, in the Committee's view, an equally important element of a strategy
for the industry's recovery.
 U.S. Department of Agriculture
National Agricultural Statistics Service, Livestock Slaughter: Annual
Summary,2004, 2003, 2002, 2001.
 Cull animals (typically those
older than 30 months from dairy and breeding herds) made up
approximately 10,500 head of this total; fed cattle comprised the
remaining 70,500 head per week.
 SRM are cattle tissues that may
contain the agent that causes BSE (brain tissue, bone marrow, etc.).
Fifty two senators voted in favor
of the resolution of disapproval (including 13 republicans) and 46
against (including 4 democrats)
 Under the new import
regulations, some of the commodities now allowed include feeder cattle
less than 30 months of age and goats and sheep less than 12 months of
age for feeding or immediate slaughter, and bulls destined for animal
semen production centres. Bone-in sheep and goat meat from animals under
12 months of age is also now permitted.
 Bluetongue and anaplasmosis are
livestock diseases found in the United States, but
not in Canada.
 Dr. André Gravel,
Canadian Food Inspection Agency, Standing Senate Committee on
Agriculture and Forestry, Issue No X, 1st Session, 38th
Parliament, Ottawa, 3 March 2005.
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