BSE’s Silver Lining

It was the deciding game of the Stanley Cup finals between the Calgary Flames and Tampa Bay Lightning in May 2004 when more than 300 ranchers crowded into Grant Hirsche’s Hereford Palace sale barn to talk about an issue having greater impact on their lives than a hockey championship.

It had been a year since a single Alberta cow had been diagnosed with bovine spongiform encephalopathy (BSE), a fatal, brain-wasting condition connected to a similar condition in humans who eat contaminated beef. Limited trade with the United States in boneless beef derived from cattle younger than 30 months had resumed in September 2003, but for many ranchers it was a matter of surviving until live cattle trade resumed. Canadian packing plants could not handle the backlog of market-ready cows and producers were losing millions of dollars in sales.

The Beef Initiative Group rose out of that meeting. Throughout the summer and fall, ranchers criss-crossed Canada pleading the case for producer-owned packing plants to provide competition to the big three processors: XL Foods in Calgary, Cargill Foods at High River and Tyson Foods at Brooks, the latter two American-owned.

“We wanted packing plants that would be big enough to make a difference where we could go ahead and give our customers what they wanted,” says Hirsche, who ranches near High River. If customers wanted specialty cuts or testing of all animals for BSE, the producers would do it, he says.
The group approached provincial and federal governments, proposing that taxpayers help finance the building of plants until they turned a profit and loans could be repaid. Alberta said no to investing public money in plants, though British Columbia and Saskatchewan

politicians showed some interest. In the end the concept went nowhere.
“Everybody seemed to like the concept, except there really was no political will to proceed,” Hirsche says. “Government wasn’t willing to go that route and felt the industry would take care of itself.”
Besides a lack of financing, Hirsche says, Ottawa was remiss in streamlining federal inspection regulations for construction requirements, food safety standards or hiring inspectors and veterinarians.

A bigger, more competitive packing industry in Alberta has long been a dream of cattlemen seeking more domestic customers for their stock as well as politicians wanting to keep value-added jobs and profits in the province. The Beef Initiative in fact was just one of 90 or so packing-plant proposals floated over the past three years, and a few in fact have proceeded. Combined with expansion by the big three packers, they have boosted Canada’s total weekly processing capacity from 73,000 to around 93,000 animals per week, reports the market analysis firm Canfax – a 27% increase. And more facilities are in the works.

Hirsche, for one, decided to take matters into his own hands.

He started selling his beef from a refrigerated truck at the side of the highway leading into Okotoks, south of Calgary. The response was tremendous and, with partner Doug Fraser, he opened a butcher shop in Okotoks last year. The partners refurbished a provincially inspected abattoir in Nanton where they process 20 head of cattle and 100 lambs every week. Unfortunately, they cannot sell outside of Alberta, a regulation Hirsche finds ridiculous. Meat cannot cross provincial borders unless it is processed in a federally inspected plant. “I can’t sell beef to my friends in Saskatchewan and I don’t have enough money to become federally inspected,” he says with frustration.

Truth be told, most of the expansion of the processing industry to date has come from established plants. Tyson’s Lakeside Packers, for example, invested $17 million to expand the plant’s beef carcass coolers and slaughter operation. Lakeside’s beef slaughter capacity increased from 3,800 cattle per day to 4,700. Cargill Foods kills about the same number daily as well. But two producer-owned Alberta operations have managed to beat the odds and get proposals off the drawing board.

Rancher’s Beef, owned by 47 producer shareholders, focuses on being a specialty processor to service domestic niche markets, the United States, Asia and the European Union. The company plans to slaughter and process 800 head per day and is not worried about the major packers pushing it out of business. If the big players undercut everyone else with the lowest prices for beef, it ultimately affects their margins as well, says Doug Price, a partner of Sunterra Farms at Acme and a major shareholder of Rancher’s Beef. “As soon as you lower the price as a margin player your profitability is gone,” he says.

Price’s family owns the Sunterra Meats and Sunterra Markets chain of gourmet grocery stores, and he contributes years of processing and sales experience to the new company. Sunterra is well entrenched in the Japanese market through its Trochu Meats pork plant and has learned to meet Asian buyers’ specifications.

“We cut meat totally differently when shipping to the Japanese than we do for Canada. You can’t do that in a big plant. You set up the assembly line and away you go and there are no changes,” he says.
Rancher’s Beef is copying that model and plans to be in full production this May at its Calgary-area facility. It started a small killing operation with a contract through Sunterra Meats at Innisfail last year. The carcasses are sent to Calgary where they are broken down into boxed beef.

In addition to being a smaller, more nimble company, Rancher’s Beef has some other advantages, says company president Tony Martinez. The company can handle custom orders, has installed the most modern food safety procedures and offers complete traceability on all meat products using the mandatory national electronic identification program required for all cattle in Canada. Every carcass can be traced back to the farm where the animal was born, something Japanese regulators say they want in order to restore consumer confidence in imported beef.

“Is the meat any safer? I don’t know, but it certainly gives them a level of confidence that it is,” says Martinez. Price and Martinez have several theories as to why this company is succeeding while others failed. “It is just a lot harder than they thought to put the cash together. I think they ran into roadblocks when it came to putting the financing together,” Price says.

Martinez says many would-be processors did not understand the food processing business, and once the American border reopened to live cattle under 30 months, pressure on Canadian plants was relieved.

Since the border opened last July, Canfax reports 213,000 feeders went to American feedlots by the end of 2005 and it predicts up to 400,000 will be exported in 2006. Fattened cattle going direct to slaughter in the U.S. average around 15,000 per week. This is comparable to pre-BSE levels.

The major problem for the beef industry remains handling animals over 30 months. Fewer markets are interested in them because of increased BSE risk in older animals. Pre-BSE, more than 40% of these animals went to U.S. slaughter plants. Once borders closed, they remained on the farm and were almost valueless. Cow prices fell to five cents a pound or less when they were formerly worth 45-50 cents a pound. Finding space to kill them has slowly improved but prices remain low at 20-30 cents a pound.

Many of the plant proposals were for over-30-month-old cattle but only one Alberta plant has moved forward. Ranchers’ Own Meats Inc. is a producer-owned cooperative of about 500 shareholders who joined a 300-member ranchers’ group called Border Beef, to invest in a 60,000-square-foot plant between Stony Plain and Edmonton. Construction starts this spring. When it is completed in 2007, it will process about 400 cattle per day, says company consultant Dave Horner.

Co-operative members promise to deliver a certain number of cattle to the facility and use that delivery contract to pay for shares in the plant. Company buyers will also seek cattle in the open market.

“A lot of people weren’t aware of what it takes to put up a beef abattoir. There has been a significant amount of work done by the founders of Ranchers’ Beef and this co-operative,” says Horner.
The plant will offer a full trace back to the farm of birth and hopes to sell beef to Asia, the European Union and the U.S. once markets open for older cattle. The company has already secured domestic contracts to buy meat, as well as agreements with hide and rendering companies to take byproducts.

With a steady supply of older cattle from Alberta, B.C. and Saskatchewan, company consultant Ivan Boles is confident the co-operative can compete and may even help boost cow prices. He does not expect a flood of cattle to head south once the border opens to older animals. The strengthening Canadian dollar, higher freight rates due to rising gasoline costs and more costly inspection fees at the border make live cattle purchases unattractive to potential buyers.

“These will drive down what the packers from the United States can come in and economically bid for these animals, and truck them live to the U.S. processing plants,” Boles says. Provided Canadian packers are competitive – and with the latest equipment and safety procedures, they appear to be – it is more economical to send the beef in a box to the U.S. rather than transport live animals in a truck hundreds of miles for processing.

Boles is confident his plant can succeed where other proposals never got beyond planning meetings. “There are a lot of hurdles to overcome…As these hurdles became insurmountable for other people, we solved the problems and we kept going,” Boles says. The plant’s other advantages include close proximity to a large labour pool in Edmonton and the crossroads of four major highways in the province. The co-operative also ensured it had adequate operating funds until the company starts to turn a profit.

In hindsight, Boles says BSE may have had a silver lining in that it forced the Alberta beef industry into action rather than continuing to rely on U.S. buyers to take surplus cattle. “Out of the dark cloud of BSE, the Alberta beef industry will come out as a stronger, more viable industry,” he says.

Current Issue