After a lifetime in the beef business, Brian Nilsson has learned to follow the money.
As co-chief executive officer of XL Foods with plants in Edmonton, Calgary, Moose Jaw, Sask., and Omaha, Nebraska, he has learned chasing lucrative markets outside the United States and Mexico carries extra costs. And Nilsson says the higher costs of age verifying Canadian cattle may not be worth it.
XL was among the Canadian plants that shipped 3,800 tonnes of beef to Japan last year. That amounts to a third of one percent of Canadian beef production. The return to producers was hardly noticed, he told the Canada Beef Export Federation annual meeting in Calgary Sept. 19.
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While the government pushes for age verification to crack the lucrative Japanese market, Nilsson said it would hardly make a dent. If everyone age verified their cattle, shipments might increase to 17,500 tonnes but that would only represent 1.5 percent of Canadian beef production. This would create a $38 million net return or about $12.50 per head.
“We have to be very concerned that we don’t put a burden on the industry tracking things that in turn cost us more than our net benefit,” he said.
“As long as Japan continues to have an under-21-month-and-under restriction, we will not have a true economic gain in that marketplace,” Nilsson said.
In the last five years with the appreciating Canadian dollar, higher feed costs and new regulations in response to BSE, the cost of getting beef to the consumer has increased.
“In Alberta, we are not a low cost producer. We enjoyed a period where we were, when the exchange rate was low,” he said.
The Lakeside purchase in Brooks, Alta., still under regulatory examination, was a move to improve cost efficiency and streamline beef production.
One area of added cost is the requirement to remove specified risk material (SRM) to guard against BSE contamination. Nilsson believes the regulation is necessary because Canada has had 14 cases compared to three in the U.S. In time, the rule should be relaxed.
“I am living the consequences of SRM removal. I understand the costs of regulatory compliance to an industry,” he said.
“If we regulate ourselves so much it affects our cost of production, and we want to raise our costs up $50 a head so we can sell someplace, the United States is more than happy to sell more meat into Canada.
“The consequential gain that we might get somewhere else, we’re going to throw away the best market we have in the world, which is here.”
Nilsson suggested some deals should be abandoned rather than forcing customers to trade.
If U.S. and Canada had refused to budge on the under-21-month rule and held out for under-30 months, the results might have been better in Japan.
“I think we have catered to the world too much. We are the persons who led the charge to the bottom by continuing to comply with regulations that they then use to try and force the rest of the world to comply with,” he said.
Experience taught him compromises to gain offshore markets are costly.
At one point Nilsson Bros. ran a European Union approved plant in Edmonton. It cost $100 per head in production losses not to use growth hormones. It was difficult to make enough profit to cover that concession and the EU will not budge on its anti-hormone stance.
