Meat processing sector needs smaller players

The hog industry is in crisis mode, cattle feedlots are losing buckets of money and cow-calf producers are sweating bullets. Few anticipated the magnitude at which meat-processing plants would be hit with shutdowns and slowdowns due to COVID-19.

Our food supply chain is proving to be fragile, due largely to the high level of concentration. The two big beef processing plants in Alberta provide the majority of Canadian beef. Pork processors are also few and large.

There are some mid-sized plants and there are still local abattoirs doing custom slaughter and meat sales, but the red meat industry is absolutely dominated by large players with huge workforces and it has proven very difficult to keep the pandemic from spreading among employees.

Canada and the United States are highly integrated, but the U.S. has an even bigger pandemic problem that has hit its processing plants hard. We could be on the verge of widespread euthanasia of hogs that can’t find a market and don’t have any tangible value. What an unfortunate spectacle that could be.

During the BSE crisis nearly 20 years ago, Canadian cattle prices tanked as access was cut off to markets around the world. With borders closed, many organizations and communities thought the solution was to build their own processing plants.

Many beef plants were proposed, but only a few were built and most of those subsequently ran into financial problems. It was often only the second or third owners of the plants who bought them cheaply enough to come up with a financially viable enterprise. To run any meat processing operation, the food safety regulations are more onerous than most people realize and that is an ongoing barrier to new entrants.

With meat processing dominated by large players like Cargill and JBS in beef and Olymel and Maple Leaf in hogs, the system may be efficient and low cost, but it has also proven to be vulnerable.

Although nothing like the current pandemic, big plants have sometimes been temporarily closed due to foodborne illness problems or catastrophes such as a fire. Even one plant going down in Canada or the U.S. has been enough to affect prices at the farmgate.

In the drive for efficiency and low-cost production, many value chains don’t have excess capacity, simply because excess capacity comes at a cost.

We see that in our railway system. It took a long time to clear the backlog of grain and reduce the number of waiting ocean vessels following the rail blockades and other problems this winter.

We live in a world of just-in-time delivery with supply closely matched to anticipated demand. Most of the time we take it for granted. Most of the time, it functions quite seamlessly. When crisis hits, we wonder how we could be so vulnerable.

Agriculture in Canada, particularly in Western Canada, will always be export oriented and reliant on trade. We simply produce much more than can be consumed domestically. However, as we gradually emerge from this pandemic and a new normal is established, expect to see the local food movement emerge stronger than ever.

It may not be the lowest cost, but there’s value in having food producers more directly connected to the consuming public. And there’s security in having small and medium-sized processors capture a much larger share of the market. It’s good for consumers as well as producers.

Kevin Hursh is an agricultural journalist, consultant and farmer. He can be reached by e-mail at kevin@hursh.ca.

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