A study funded by cattle producers has found the Canadian packing industry not guilty of price setting during the BSE crisis.
“The debate at the time was whether or not a monopoly or collusive situation existed,” said Kee Jim, finance chair of the Canada Beef Export Federation.
“While market power did increase, however, it was not a situation that required government intervention.”
Market power is the ability to dictate prices for live cattle, and when borders closed in 2003 to beef and animals because of BSE, Alberta’s packers suddenly had more power.
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The economic study on the impacts of BSE and the red meat packing business was written by University of Calgary economists Jeff Church and Daniel Gordon, paid for by the Canadian Cattlemen’s Association and commissioned through the Beef Cattle Research Council, a division of the CCA and the Canada-Ontario Research Development Program.
It focused on Alberta because price information was most readily available from feedlots in that province.
Jim said the study is based on transactional data from feedlots and uses real numbers.
A government committee that examined whether the packers took advantage of producers during the period also found no evidence of a monopoly.
“Their approach was not a quantitative approach. Their approach was more of a survey, think-about-it approach,” Jim said. “This is a hard study.”
The study found that Alberta and American markets were parallel in the pre-BSE marketplace. Alberta quotes for fat cattle were lower than the U.S. but prices tended to be highly correlated and moved together.
The closure of the border saw a drastic decline in the price of Alberta fed steers and a sharp increase in the price of U.S. fat steers that summer. The competitive environment changed because Alberta feedlot cattle were mainly limited to packers in the province, namely Cargill Foods, XL Foods and Lakeside Packers.
When the border opened to a limited number of muscle cuts during the fall of 2003, the Canadian price of fed steers increased but the two markets were still far apart.
The study found that the past correlation between the two markets was still shaky when exports of cattle younger than 30 months were allowed in July 2005.
However, U.S. prices continue to have a strong impact on Alberta prices because of the link between fed steer prices and wholesale beef prices. As the wholesale price in the U.S. rises, so will U.S. and Alberta fed prices. It is hoped these findings could be used in the future if such a situation repeats itself and exports are lost.
“When it comes to trying to balance market power and develop programs that will start to balance market power a bit better, at least you are starting from a position where regulators and governments realize market power has increased,” Jim said.
The study may also provide a foundation for future studies and a possible examination of the wider market once the U.S. allows the import of older cattle and a wider range of beef cuts.
