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XL Passes One Test, Fails Another

Producers are victims of hard bargaining at Moose Jaw plant

The news out of Saskatchewan last month about XL Foods locking employees out of the cow plant at Moose Jaw is bound to have raised eyebrows in the West, if not right across the country.

Of more immediate concern to the company might be the reaction at 50 Victoria Street in Gatineau, Quebec — the home of the Competition Bureau of Canada. As this issue goes to the printer it has been six months since the bureau put a conditional stamp of approval on the Tyson sale of Lakeside Packers and its tertiary businesses such as its feedlot to XL Foods of Edmonton.

In approving the sale the bureau left itself the option to demand remedial action should the deal in some way result in a lessening or prevention of competition.

The chief concern in February, when the bureau made its decision, was the fate of the Lakeside plant. Many feeders opposed the sale, believing that Tyson would hang on if it weren’t allowed to sell the plant. Others feared that the company would simply mothball the plant if the sale did not go through, eliminating a major buyer and a working plant, right at a time when the U.S. was adopting a more rigorous country-of-labelling regulation that, as things turned out, made it harder for U.S. buyers to purchase Canadian cattle.

Did the deal harm or benefit Canada’s competitive position? Last month, Kevin Grier, a senior analyst with the George Morris Centre in Guelph, gave us at least a partial answer to that question. While six months isn’t enough time to come to a final conclusion his six-month report card suggests the bureau has reason to be confident that it made the right decision.

In assessing the competitive stance of the industry since the sale he examined three indicators: the Alberta-Texas Panhandle spread, the fed cattle slaughter rate in Alberta and exports of Canadian cattle.

Up to Sept. 18 when he published his analysis the spread was -C$9.40/cwt, compared to -C$8.00 last year. Most of that wider spread however, was generated in the first quarter. For the second and third quarters, the spread averaged -7.25, compared to -8.85 in the same two quarters last year. The main point, he says, is that despite COOL, there is nothing in the pricing scenario that points to the acquisition of the Lakeside plant by XL Foods being an issue.

He then compared monthly Alberta slaughter for the last six months to the trends in the pre-BSE period from 1998-2002 average as well as the past two years. Alberta slaughter this year has exceeded last year and the pre-BSE average, especially since May. He expects most of the increase this year is due to the XL closure of the Moose Jaw plant as some more Saskatchewan and Manitoba cows made their way to Alberta. Nevertheless, he notes, the two Alberta packers are maintaining an aggressive slaughter pace.

“Based on slaughter rates and the tighter spread in the second and third quarters, there is a strong argument to be made that packers are actively competing for cattle,” says Grier.

In terms of exports, he says COOL has limited U.S. packer interest in cash-markets Canadian cattle. Cash business was very limited in the second and third quarter due to the tight spreads and basis.

“There remains a great deal of uncertainty regarding the level of U.S. competition due to COOL,” says Grier. “Nevertheless, at the end of the first six months of XL ownership it has been seen as a good start. In addition, the intangible of having local ownership that is heavily invested in the entire cattle supply chain is also positive.”

From Grier’s perspective, competition concerns have not proved out so the Moose Jaw lockout shouldn’t raise any notice by the Competition Bureau. It does, however, remain a real concern to Manitoba and Saskatchewan producers who have been forced to spend more to get their cull cattle to a market this summer and fall, and were looking forward to the plant coming back on stream.

There are many cynics in the trade who looked at the declining number of cows available in the West and figured XL had no intension of reopening its Saskatchewan plant.

The company, however, has maintained that it does want to reopen the Moose Jaw facility once it negotiates a labour contract that allows it to be competitive. Negotiations broke down in April, about the same time XL closed the plant citing a lack of available slaughter cattle.

At our deadline the local union had rejected the latest offer by the company. So the battle of wills continues. In the meantime Saskatchewan and Manitoba producers are left to wonder how long they will have to keep shipping all their cows to Alberta or the U.S.

About the author


Gren Winslow

Gren Winslow is a past editor of Canadian Cattlemen.

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