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“Choices Or Consolidation”

Political correctness is an odd state for the beef industry. In an industry that prides itself on the frontier image of the independent rancher unafraid to say what is right or wrong 21st century cattlemen seem most at home in a flock. Maybe it’s more a sign of our times and culture but I keep returning to this theme in these columns because this is a time when the industry needs more rebels, people willing to take up the challenge and steer the boat in a different direction — one that takes us towards more choice, not more consolidation.

I have been working on Alberta’s Grain and Oilseed task team for six months now, looking at the factors that affect our ability to stay competitive in the crop sector on a global basis. Many issues have been highlighted by the stakeholders involved: the lack of investment in research/innovation/value adding, interprovincial transport regulations, aging demographics and an agriculture policy that subsidizes stupidity more than it does change. As large as these issues may seem, they are but a symptom of an underlying disease in the coarse grain sector and that is the lack of marketing choice. Translated the coarse grain industry has one big customer and that is the Canadian Wheat Board (CWB).

As many of you know the origins of the CWB go back to the First World War. It was started in an effort to guarantee wheat supplies for the war effort. After the Great War prices declined, which eventually led to the provincial pools being set up in Alberta, Saskatchewan and Manitoba, however by 1929 with the stock market crash these organizations were effectively bankrupt. The wheat producers of the day had had enough and doubting their own abilities to effectively market grain asked the government to revive the Canadian Wheat Board. So it was officially recreated in 1935 to control the trade. Even today coarse grains for export sales and value-added domestic uses must be sold through this single selling desk monopoly. It may have been right in the ’30s but something that was right 75 years ago may not be what is needed today.

In our task-team consultations it has become apparent that lack of marketing choice is the root cause of all the other issues that are holding back the grain sector. Companies will not invest in new varieties if they cannot get the return on the research and innovation, value added will not happen if companies are forced to buy and sell through one organization, and finally efficiency and prices do not improve when producers do not have choices.

As plain and simple as the solution appears to be, the resistance to change remains steadfast with many in Canada’s coarse grain industry. They would rather hold onto tradition even while they enjoy the benefits of the innovation, growth and profitability in the oilseeds sector that is not under the control of the CWB.

So what does this all have to do with the beef industry? We all know that consolidation primarily on the packing side has been rampant over the past 20 years. The reality is that to turn a live animal into meat in a box it has to go through a packer and to add the value to the meat you have to be able to sell the box. Plain and simple!

For a while in the midst of our BSE fiasco marketing choice and options were on everyone’s mind, but that call to arms has died a slow death since then. Many producers invested in potential upstarts only to see their dreams chewed up by feasibility studies and high-priced consultants.

But a few brands have emerged from the ashes of that time and are continuing to grow. Many look at these brands and the plants that produce them as small potatoes. Compared to the big plants they are. But like an oak starting from an acorn these kinds of businesses take time to mature. Grow them too quickly and the roots will not be able to support you.

We are all well aware that prices have taken a signifi- cant jump in the latter half of 2010. This turnaround is thanks in part to all our ranching friends both here at home and internationally that have decided to leave the business. Prices are not climbing because the big packers that are left have done a better job of marketing the boxes but because there is less beef to go around, so they can tell the customer to either take it or leave it. The result is more demand for calves and cull cows coupled with fewer of them to go around. This is good for the time being but are we any better off in the long run?

Consolidation is still rampant because the model most still seek is one based on producing more, faster, cheaper because it seems to take less skill than trying to sell it for a higher price.

Long term, when we get to the next round of oversupply, I think the consolidation model will look even more daunting than it does today, offering less choice in Canada than ever for those who stick to the flock mentality. In that case most of the flock may become discount feeder cattle suppliers for the U.S. market. So much for all the Canadian beef branding initiatives!

There are options however for those who choose to be mavericks and think long-term. Become part of the supply chains for Canadian brands with those who choose to take the road less travelled. They say repeating the same mistake and expecting a different result is the definition of insanity. Let’s not make the same mistake the coarse grain industry did in 1935 by going down the road of single-desk selling. The beef industry needs choices, not consolidation. That choice is up to you.

Dr.ChristophE.WederisapurebredAngusbreederinthe PeaceregionofAlbertaandalsorunsSVRRanchConsulting. HeisalsoafoundingmemberofPrairieHeritageBeefProducers. Foradditionalinfocheckout

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