Canada’s packing plants are facing competitiveness conditions “as bad as it’s ever been” and a major issue is underused capacity, says an industry leader.
Jim Laws, executive director of the Canadian Meat Council, said in an Aug. 21 interview that the Canadian industry is using just 70 percent of its capacity, even as hundreds of thousands of young feeder cattle have been shipped south during the past year to take advantage of higher American prices.
Meanwhile, a higher Canadian dollar and rising labour costs are squeezing the industry.
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“We are simply not as competitive now as our American counterparts,” said Laws. “Our industry, like most manufacturing sectors, benefited over the years from a very weak dollar. That advantage has pretty well evaporated.”
But an Ottawa-based business research organization and think-tank reported last week that the industry remains profitable, despite the pressures.
The Conference Board of Canada, as part of a report on the Canadian food industry, predicted increased profitability for at least a few years.
“Industry profits will improve in the near term,” it reported. “Cost control efforts will bear fruit in 2006 with profits increasing to $255 million and improving production will drive profits higher in 2007 and 2008.”
Laws said industry leaders have been concerned for several years about the expansion of capacity after the United States border closed in 2003 because of BSE.
He said packer executives warned about the possibility of overcapacity as the government offered expansion incentives and urged construction of more capacity to end dependence on foreign slaughter plants.
“Our message at the time, at Parliament Hill committees and so on, was that the industry will adjust to the market,” he said. “It seemed like a good idea to become self-sufficient but we knew that the moment the border opened, it would become a North American industry again.”
Last week, Statistics Canada reported that during the 12 months to July 1, slaughter levels at Canadian plants fell eight percent from the year before. While exports of cattle to feedlots and slaughter plants in the U.S. rebounded to 1.14 million head, exports of higher-value beef declined.
During the past three years, Canadian slaughter capacity increased 28 percent to a weekly kill capacity of 106,000, said Laws.
Having just 70 percent of that capacity in use “is not the ideal situation of course,” he said. “It is not a great use of investment.”
But underused capacity is just part of the industry problem, he said.
The appreciation of the dollar has made Canadian beef less competitive in the U.S. market and a shortage of workers in Canada means labour costs are increasing. Last week’s Conference Board report supported Laws’ comments about the impact of labour shortage and wage rates on competitiveness.
“Despite cuts to employment, labour cost savings were minimal as labour shortages contributed to a 4.9 percent increase in industry wage rates,” said the report.
Laws said higher wages are just part of the problem.
“In some cases, our plants just can’t find the workers to fill the jobs.”
He said one bright spot is that technology installed in the newly expanded Canadian plants further reduces the need for employees.
