NIAGARA FALLS, Ont. – The post-BSE decision to invest tens of millions of dollars to expand Canada’s packing industry capacity may have been good politics but was bad industry economics, says an American livestock industry expert.
The decision to expand the Canadian packing industry when access to American plants was blocked was understandable, said Darren Hudson, associate professor at Missouri State University and an author of a three-country study on the future of the livestock industry in North America.
But he questioned whether it was a setback for the overall North American industry.
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“I’m not sure from a supply chain perspective that was the best thing to happen,” Hudson told the Canadian Cattlemen’s Association annual conference Aug. 16.
In a later interview, he said the most logical version of the industry is to have packing plants in the United States where the most cattle are and to have live Canadian cattle flowing south, even though some Canadians see that as shipping processing jobs south.
“If there was real value to having Canadian slaughter capacity, we would have built it before BSE,” he said. “Private industry would have seen the opportunities, gone in and captured it. From a supply chain perspective, which is what most companies think about, it really isn’t as efficient as having the cattle come down here (to the U.S.)”
He said American plants are larger and therefore have economies of scale.
“So what you end up with (after the Canadian expansion) are plants that are efficient for the Canadian market but not efficient for the American market,” said Hudson. “From the Canadian perspective, that’s a good thing. They do have more control over their destiny. But it adds more costs to the system.”
However, he predicted “some permanence” to the new Canadian capacity.
The investment has produced modern facilities that use newer technology and that could prove an advantage as companies decide which of their facilities to close in future.
“The Tysons and Cargills and big slaughter companies are not going to walk away from multibillion dollar investments just because the border is open.”
Since BSE politics closed the American border in May 2003, denying access to American slaughter plants for Canadian animals, Canadian slaughter capacity is projected to grow almost 50 percent by the end of 2007. From a weekly slaughter capacity of 73,000 head in 2003, the industry is expected to grow to a capacity of 107,000 by next year.
However, not all the new capacity is being used.The capacity use last year was 88 percent, Canadian Cattlemen’s Association market analyst Anne Dunford told the annual meeting last week.
This year, it is running at 70 percent as more young cattle are sent south to American slaughter plants now that the Canada-U.S. border is open to animals younger than 30 months.
Meanwhile, even as he criticized Canada’s effort to reduce dependence on American slaughter plants, Hudson predicted there will be more border closings in the future, when those Canadian plants will be handy for the domestic cattle industry.
“The increased attention on biosecurity testing at the border is going to lead to more identification of diseases, which is going to lead to more border closings,” he said.
However, he said future border closings should be more short-lived once the United States develops rules in line with international scientific standards.
