REGINA — The effect of tariffs on the Canadian beef industry will depend on how high they are and how long they last, said well known cattle producer Kee Jim.
But they will be ugly, he said.
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“Any type of tariff will result in a reduction in the value of the cattle directly proportional to the tariff rate less the value that can be realized in the next best market,” he said during a Livestock Marketers of Saskatchewan webinar.
The trouble for Canada is that the U.S. is the best, and closest, market.
Jim said no one knows what U.S. president Donald Trump’s end game is, but the move toward protectionism is part of a global trend that the U.S. is driving.
“Their foreign policy has changed pretty dramatically,” he said.
“They’re not willing or prepared to be the global peacekeeper.… They’re having a look inward here, and this is an extremely bad omen for the rest of the world with respect to trade, with respect to political stability and a whole number of issues.”
Those who think this will pass when Trump leaves office in four years are likely wrong, Jim said. He suggested a prolonged period is ahead.
Trump’s obsession with tariffs is hard to understand, Jim said, because they don’t benefit anyone and it’s unclear what he is prepared to do if they negatively effect his own economy.
He ran on a platform of reducing inflation, but tariffs will cause prices to go up.
Since Trump said he would put 25 per cent tariffs on everything, he hasn’t actually done that. There is a 25 per cent tariff on steel and aluminum from Canada and a 10 per cent tariff on all goods from China. However, there is also a March 1 deadline for additional measures.
Jim said Canada exported 495,000 tonnes of beef last year worth about $5 billion. Of that, 374,000 tonnes, or 76 per cent, went to the U.S. Between boxed beef and live cattle, 44 percent of total production goes south.
About 100,000 tonnes come north, and that’s about half of what Canada imports from all suppliers, he said.
Canada supplies about 22 per cent of American imports.
Jim said the U.S. exports about 15 per cent of its production to get increased value.
“They’re exporting some of the middle meats and importing some of the trim from countries like Australia, New Zealand and Uruguay. So the U.S. is in a much less vulnerable trade position because they can basically eat everything they produce, and in Canada … our consumption is about half what we produce,” he said.
Any disruption results in massive consequences to the market and cattle prices.
Jim said those who say tariff disruptions wouldn’t be as bad as the BSE border closures have to consider the nature and magnitude of the tariffs.
Canada has exported 131,000 head of feeders over the last five years, while importing 313,000 feeders. About 543,450 head went directly south for slaughter.
“We do not in Canada have the capacity that’s necessary for clearing all of the cattle. We have to send cattle to the U.S. either as feeders, as fats or as beef in a box in order to create any level of arbitrage in the market,” he said.
This constrained packing capacity has created a situation not unlike BSE and COVID, he said. There is no way to organize a flow of cattle to the packer other than by price, and it will be at the lowest price.
He also said what’s different from BSE is that multiple industries will be affected by the disaster. He reminded webinar participants that the majority of the cattle and beef sector is a western Canadian industry.
“I’d like to pose that we are political leverage,” said Jim.
“When Ottawa is going to have to deal with multiple industries that are affected by tariffs, I just think it puts us in a very, very vulnerable and difficult situation to have the view overall that, well, the government will bail us out of this one, just like they did during BSE.”
He said that’s not a good business strategy if the tariffs are widespread. As well, it’s a strategic error to dismiss the potential impact of tariffs because he is convinced the direct hit will be on the fat and feeder cattle markets.
