Canada’s packing industry is still slaughtering cattle at pre-BSE levels, despite taking steps to address its capacity inadequacies, says the vice-president of the Canadian Cattlemen’s Association.
“We have enough capacity to slaughter everything we can produce if we wanted to. The reality is that doesn’t occur,” Brad Wildeman said during a recent presentation to the Saskatoon chapter of the Canadian Association of Farm Advisors.
The BSE crisis served as a wake-up call to the cattle industry, which realized it was far too reliant on U.S. slaughter facilities. In response, established packers expanded and new companies entered the business.
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Capacity has steadily grown to the point where Canada will have the ability to slaughter 106,000 head per week by the middle of this summer.
But so far this year the weekly slaughter has been more like 60,000 to 70,000 head, which is about where it was in the years before the BSE crisis. So despite the industry’s best efforts to address its slaughter shortcomings, tens of thousands of fed cattle continue to be exported to the United States every week, said Wildeman.
Since January, cattle exports to the U.S. have largely outpaced the pre-BSE average for the five year period between 1998 and 2002.
“We’re seeing the cattle go south in huge numbers.”
Despite that conundrum, slaughter space continues to grow. By 2007 weekly kill capacity is expected to reach 108,000 animals. He advised organizers of proposed new plants to develop a business plan that goes beyond meeting a deficiency that no longer exists.
“I think they need to be very careful about building until they look at all these new realities.”
One of those realities is that the U.S. cattle industry is rebuilding its herd, which means American packers are short of cattle and eager to attract Canadian animals to top up their slaughter numbers.
Another reality contributing to the disappointing slaughter numbers is the soaring Canadian dollar.
A National Beef Industry Development Fund report released in March shows that as the dollar appreciates, beef prices decline faster than cattle costs, which puts a financial squeeze on Canadian packers.
The strengthening dollar has also made labour costs less competitive with American packers. According to the report, the costs for line and support workers amounts to about $125 per head for a large, efficient plant operating on the Canadian Prairies at full capacity.
That one expenditure represents 63 percent of a packer’s total operating costs, Wildeman said, so as the dollar continues to rise, Canadian plants lose ground to American counterparts.
“Our competitive edge that we used to have (versus) the U.S. on the labour side is gone and in fact we’re working at a disadvantage to them.”
One solution would be to decrease wages in Canada to reflect the new economics but a labour shortage in southern Alberta, where most of the packing business is located, makes that unfeasible.
“(Labour costs) are going to be a huge problem for our industry going forward,” Wildeman said.
Canadian packers have been helped by strong domestic demand. Overall consumption has stayed at pre-BSE levels but because of limits on imports, domestic packers are supplying an increasing portion of that demand.
Canadian packers are meeting that demand by slaughtering cows, which still can’t be exported to the U.S. A number of plants that used to exclusively process animals younger than 30 months are now killing older cattle.
“We’ve seen Cargill move into slaughtering cows, which was something that was never done pre-BSE,” he said. But even that bright light in the packing sector could soon dim.
“What happens when over 30-month cattle can move back into the U.S. again?”
Wildeman expects that will happen in late 2007.
