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National levy is paying off

Checkoff: News Roundup from the September 2016 issue of Canadian Cattlemen

A new study by University of Alberta resource economists James Rude and Ellen Goddard found the $1 national checkoff provides an average benefit of $14 for producers.

The study, funded by the Canadian Beef Cattle Research, Market Development and Promotion Agency and Canfax Research Services, is an update on a 2010 report done ahead of the merger of the Beef Information Centre, the Canadian Beef Export Federation and the National Checkoff Agency. As such it acts as something of a report card on the merger and the management of the agency, better known as Canada Beef.

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The $14 benefit from 2011-12 to 2013-14 is up from the $9 average between 2005 and 2008. The average benefit grew steadily between 2011 and 2014, implying that despite positive benefits, the industry has been under-investing in research and marketing.

The change in benefit-cost ratio for research, overseen by the Beef Cattle Research Council, had a benefit-cost ratio of $34.50, down from $46 in 2005-08, while marketing, managed by Canada Beef, had a benefit-cost ratio of $13.50, up from $7.55 in the previous study.

Generally, an inverse relationship exists between the amount of money spent on an activity and its marginal benefit-cost ratio. It is this diminishing marginal return that helps explain why as investment increased for research over the past five years, the benefit-cost ratio declined, just as marketing dollars declined and the benefit-cost ratio increased.

Newly elected agency chair Linda Allison says, “The 14:1 benefit seen from each national checkoff dollar confirms the value of producer investment. However, with the declining purchasing power of the national checkoff and reduced marketings in recent years, under-investment is evident. It is imperative that we continue to find ways to optimize the return for our producers across the country.”

While the checkoff provides the core industry funding for research and marketing programs, it does not fully cover the costs so during this period of shrinking checkoff dollars the industry leveraged the checkoff, by attracting on average $3 for every $1 for research and $1 for every $1 for marketing between 2011-12 and 2013-14.

National checkoff revenue to March 31 for 2015-16 was $6.8 million compared to $7.6 million the year before, which provided roughly half of the agency’s revenue for the year. The Legacy Fund, which wrapped up last year, kicked in nearly $3.5 million,(compared to $5.4 million in 2014-15) to go with $1 million from Growing Forward II , another million from Western Economic Diversification and $918,000 from the levy on imported beef.

Overall they collected $13.3 million, a million less than the year before. Given that the Legacy Fund is done, the total will drop significantly next year without the proposed increase in the national checkoff.

From that $13.3 million, roughly $1.3 million went to the Beef Cattle Research Council and $9.8 million to Canada Beef. Provincial research projects accounted for another $1 million, administration half a million, and rest was invested.

During the agency’s annual meeting last month, delegates rejected a Saskatchewan motion to separate the checkoff agency from Canada Beef with its own board of directors made up of producers and importers. Up until this year the checkoff had been administered by Canada Beef, the industry’s marketing arm. Now it operates as a separate division of Canada Beef and the general manager reports to the same board of directors, which includes packer and retail representatives.

An Ontario attempt to gain a share of the import levy for provincial projects was also rejected.

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