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Dissecting The National Checkoff

Your $1 per head may buy a lot less this time next year

It seems like we’ve been talking about the national checkoff (NCO) in the pages of this magazine for more than a decade. So it is somewhat surprising to realize that it is now under threat before it has even been fully implemented.

In a way the NCO debate has been an essentially Canadian experience. The Canadian Beef Cattle Research, Market Development and Promotion Agency which administers the levy was established under federal legislation in 2002. But checkoffs are a provincial responsibility, so every province has to enshrine the $1 payment in their own checkoff legislation and that is still pending in Quebec and Prince Edward Island.

Only when all provinces sign on will Canada be able to assess the $1 national levy on imports of cattle and beef. You might remember that was a key reason we started down this road so many years ago.

An import levy could put another $800,000 in the pot to fund cattle research and marketing programs both here and abroad.

That is just one of the many interesting facts found in the first review of the NCO done by Guelph ag economist John Cranfield. This long-overdue study was only completed in March and released to the public on April 12 by the NCO agency.

If you think it is unfair to slap a levy on importers, consider another interesting fact from Cranfield’s report. About $7 million of the $82 million the U.S. collected in checkoff in 2008-09 came from the $1 per head and beef equivalent the Americans levy on imports. It doesn’t take much effort to figure out a lot of that came from Canadian cattle and beef in a box.

By way of comparison Canada’s NCO raised $8.2 million in the same year.

Here’s another fact: for every $1 invested in research and marketing from 2005 to 2008, producers received $9 in net economic benefits. Actually, the $9 is an average. The annual return grew over the three years from about $7 to $11 for every $1 spent.

In a sense your $1-per-head checkoff is seed money. The NCO agency spreads it amongst the Beef Cattle Research Council (BCRC), the Beef Information Centre (BIC) to promote beef sales in Canada and the U. S. and the Canada Beef Export Federation (CBEF) to promote export sales. (Soon we will need only two categories, seeing BIC and CBEF have agreed to merge into one marketing organization.)

They in turn leverage your $1 several times over with matching funds from governments, the Legacy fund managed by the Canadian Cattlemen’s Association and other funding agencies. The overall rate of this leverage is six to one.

They’ve gotten better at finding these matching dollars over time. The portion of the BIC budget paid for by the NCO has dropped from 98 per cent in 2002-03 to 42 per cent in 2008-09. CBEF’s ratio dropped from 40 to 32 per cent and the checkoff share of the BCRC research budget shrank from a high of 90 per cent in 2003-04 to 23 per cent last fiscal year.

Producers in each province decide how their share of the national levy will be divvied up. But in total 55 per cent goes to domestic and U. S. marketing (BIC), 29 per cent to export promotion (CBEF), six per cent to research and 10 per cent to administration.

All of this has taken on new significance since April 1 when Alberta’s provincial checkoff became refundable. It’s interesting to note that the national portion of the provincial checkoff is now mandatory in all provinces except Alberta, which accounts for 65 per cent of the country’s beef production.

Cranfield’s study was started long before that decision was taken in Alberta however his work does give us an idea of the financial fallout a large refund rate would have. About $11 in economic benefits would be lost to cattle producers for every $1 refunded. It works out to $13 million at a 40 per cent refund rate and $23 million at a 70 per cent rate.

Of course, if the refunded money is funnelled into some other effort to increase the sales or value of beef in Canada or export markets by some other group, then the losses would be significantly less.

This study also offers some advice on where to cut spending to get the biggest bang for your buck if the refund rate is high. Excluding the administration costs, the NCO investment ratio has traditionally been 93:7 between marketing and research. But research has a much higher rate of return longer term, something like $46 versus $7.55 for marketing. According to the study producers would benefit by $17 million with a 90:10 split and $76 million with a 50/50 split.

This is all very interesting but I can’t help but think it might have been more useful had it come out last fall when the debate over the Alberta checkoff was in full roar.

About the author

Editor

Gren Winslow

Gren Winslow is a past editor of Canadian Cattlemen.

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