The Canada Beef Export Federation’s (CBEF) 2009 exporter member survey held some disquieting news for the Canadian beef industry. The export members’ combined expectations for exports in the benchmark year of 2015 was 521,000 tonnes, with 60 per cent going to the U.S. This is 279,000 tonnes less than their 2015 expectations three years ago, when they estimated that they would be exporting 800,000 tonnes of beef, with about half of that going to markets outside the U.S.
“What our export members are telling us with these lowered expectations for 2015, is that — all other things being equal — they are going to process about 300,000 fewer tonnes of beef for export,” says CBEF president Ted Haney. “This means that 750,000 fewer head of fed cattle will be processed in Canada. Either they will be exported live to the U.S., or our cow herd drops by 825,000 head. They are indicating that it’s likely a combination of both — we will export more live cattle and have a smaller herd.”
The reason for this creeping pessimism is ongoing restrictions to export markets. Exporters are far less optimistic about their ability to use their million-head-per-year processing capacity than they were three years ago.
The exporters’ view of the achievable is traditionally a reflection of market realities, Haney explains. However, while overall exports increased by just seven per cent from 2007 to 2008, of that total, exports to Asia and Mexico increased by 37 per cent. Even with this significant increase, exports still fell short of expectations because of restricted market access. Cow numbers continued to decline.
Prior to the closure of world markets in May, 2003, Canada’s beef exports had been growing by 28 per cent each year during CBEF’s then 12-year history. Dependence on the U.S. had dropped from more than 90 per cent in 1990, to 70 per cent in 2002. That year, beef exports were at an all-time high of approximately 520,000 tonnes. In January, 2003, the exporters expected to sell 600,000 tonnes into export markets in the year 2010.
There was a jump in optimism in 2006 because Canada had made significant progress opening markets during 2005. Packers and processors indicated that they were considering expansions. CBEF’s export members calculated that they would sell 800,000 tonnes into export markets in 2015.
However, late in 2005, government and industry adopted a new all-open-or-nothing trade policy — there would be no more partial deals. This mirrored the strategy implemented by the U.S. government following a setback in its agreement with Korea when ultrasound detected bone chips in boxes of American under-30-month (UTM) beef.
“This signalled the point where Canada stopped showing leadership. The lack of engagement, the willingness to let the U.S. lead, and the lack of willingness to demonstrate the fact that we’re 10 times more trade reliant than the U.S., caused a lot of pessimism,” Haney states. In 2007, with virtually no new access in 2006, exporters lowered their 2015 expectations to 650,000 tonnes.
“Current trade and expectation of future growth drives confidence in our industry. That confidence has a profound effect on the structure, size and direction of the industry,” Haney explains.
“The extent to which we are successful in creating commercially viable access to Asia, Mexico, Europe, Russia, the Middle East and South America will determine the eventual size of our industry. It will make the difference between whether the country maintains six million (beef and dairy) cows or feathers down three million cows to meet little more than domestic demand.”
An export mentality in the making
There are a number of ways in which the Canadian industry can rebuild the optimism necessary to process 4.5 million cattle (1.5 million head just for Asia and Mexico), produce 1.6 million tonnes of Canadian beef, and export 800,000 tonnes of beef (half to markets outside the U.S.) by 2015.
Modernize Canada’s trade negotiation strategies and philosophies
Canada is the fourth-largest export-dependent nation in the world next to Australia, New Zealand and Uruguay. Canada is the 10th-largest beef-producing nation, the third-largest beef exporter, and, as of 2008, was still the largest grain-fed beef exporter, though the U.S. is set to surpass Canada in 2009.
“So, Canada does have a place,” Haney says, “but none of this really matters to anyone else. It matters to us.” The problem is that Canada doesn’t act like an exporting nation. It’s one thing to be export dependent, but another to be export drivers and export exploiters.
CBEF views two recent developments as signs that the federal government is beginning to acknowledge the importance of the beef and pork industries and move away from a domestic-centred trade culture. Both have been the result of industry and some of the provincial governments pushing together for change.
The first is Agriculture Minister
Ritz’s announcement of a trade secretariat — the Agri-Food Market Access Secretariat (AMAS) — that will have the expertise and staff to consolidate and co-ordinate all bilateral technical trade negotiation resources and strategies.
Secondly, the Government of Canada is showing that the international life of the Canadian beef industry is now important enough to dispatch a minister to trading nations to pursue incremental access to markets that the industry has identified as being commercially significant.
Leverage Canada’s controlled risk status
In May of 2007, the World Organization for Animal Health (OIE), granted Canada and the U.S. “controlled risk” status for BSE. So far, the Canadian beef industry has realized little benefit from this status. Canada must work hard to get the advantage for itself, not simply assume that if the U.S. negotiates a deal, Canada will somehow be included.
“The World Trade Organization (WTO) is a place to solve problems and involve a wider range of government representatives in the process,” Haney explains. In normal negotiations, it’s typically the country’s chief veterinarian officer or minister of agriculture who makes the final decision. Ministries of Agriculture around the world generally have a high priority to protect their cattle producers. The WTO process moves the issues from the Ministry of Agriculture to the Ministry of Trade where a legal settlement can be reached on a purely business basis.
“In Canada, we’re uncomfortable with these things. We believe if we explain how good we are and how safe we are, eventually other countries will do the right thing and open their markets,” he says. Before going into any kind of trade negotiation, an “international” country knows with whom it will negotiate, who has the authority, what they know, and delivers a strategy to win trade advantage.
“We’ve learned from past experience that we have to work hard to elevate the priority of our beef within those negotiations or we get turned out very quickly. It’s easier for governments to get trade deals done if they don’t have to deal with the messy issue of beef,” Haney says. “If we, as an industry, don’t pay attention to market access for our product in first-line and second-line markets around the world, there is no one in the world who cares enough to do it for us.”
Non-U.S. trade is the solution
Canadians are the No. 1 consumers of Canadian beef and they are willing to pay more for it than for imported beef. This is not a phenomenon, Haney explains. It holds true in every country — consumers show a preference for homegrown beef.
As a result, Canadian beef sells at a discount to domestic beef in most foreign markets. However, there are some countries in which domestic beef sells at prices higher than the price of domestic beef in Canada, and beef products that don’t sell well in Canada earn premiums in those markets.
In 2008, the Canadian Cattlemen’s Association and the CBEF conducted a series of price comparisons. Seventy products that account for 90 per cent of the carcass, were priced as sold in Canada, as sold in the U.S. and as sold in a combination of Asian and Mexican markets. The analysis indicated that when sold into the Asian/Mexico markets, the industry realized $85 per head more value than when the same set of products was sold in Canada. There were $100 per animal more to be made from the Asian/Mexico markets than the U.S. market because Canadian beef sells at a discount to U.S. beef in the U.S.
Export premiums have increased fed cattle prices by $350 per head since 2004. Normalizing trade in all remaining markets will potentially increase Canadian fed cattle prices by another $120 per head.
Haney says he’s unaware of any market that is waiting for traceability before allowing access. There is a marketing advantage to traceability. It positions Canadian beef closer to domestic premiums in countries that have their own traceability programs, such as Japan and South Korea.
“It’s not a case of ‘do traceability — open a market,’” Haney explains. “It’s up to industry and government to decide if the potential value is worth the cost. It’s up to us to make it work.”