The George Morris Centre has issued a report that says the federal government’s assistance to farmer-invested beef packing plants is too little, too late.
Federal investments in new meat packing capacity might have worked two years ago at the height of the BSE crisis, but today they might encourage farmers to invest in uneconomical plants, said Larry Martin of the Guelph, Ont., based agriculture think-tank.
Under the Ruminant Slaughter Equity Assistance Program, when a farmer invests $1,000 in a packing plant, the federal government will invest $500. Ottawa will put in up to $20,000 per producer and up to $5 million per plant. The program can distribute $10 million in total.
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Bruce McDonald, head of the Ranchers’ Choice Beef Co-op, said his members welcome the federal initiative. The co-op plans to build a beef packing plant focused on cattle older than 30 months.
“We’ve had significant interest and new (investment) commitments from producers since the Oct. 25 announcement of the federal plan,” he said.
However, Martin said opening the U.S. border to live cattle has changed the Canadian cattle market.
“With the border open and American packers starved for slaughter cattle under 30 months, existing Canadian packers are already starting to kill cows again. This is a sign that packing capacity is beginning to reach some balance again,” said Martin.
The report said the Canadian system could have used the financial assistance to grow while it was still protected by the closed American border.
“Packers were making good profits then and it would have given a new player some time to profit from the closure and get ready for an open border. But that is an opportunity missed now,” said Martin.
Dennis Laycraft of the Canadian Cattlemen’s Association said care has to be taken not to overbuild.
“Only the very best (new) packing operations with the best business plans will survive into the future … federal assistance will aid them, but this is not a build-it-and-they-will-come kind of business,” said Laycraft.
According to Canfax reports, Canada’s fed cattle slaughter capacity at federally inspected facilities is about 75,000 head per week; the 30 month and older cow slaughter capacity is 17,600 head and provincial kills are about 5,000 head. Total weekly kills are about 98,000 animals while weekly marketings are limited to about 85,000 head.
Of the new capacity built in the past year, 70 percent was added by the three largest packers: Cargill, Tyson and XL Foods. They added 6,000 head of fed cattle and 8,000 head of non-fed. Seven other smaller packers added most of the balance.
Canadian plants can now kill 17,000 more animals each week than they could when BSE was found.
Laycraft said weekly capacity will top 107,000 animals soon. Martin said the domestic capacity will exceed supplies.
“We can now kill every fed steer and heifer in Canada. Next year, with the smaller plants that are opening and with expansions at the major plants and reopening of mothballed plants in the East and West, we are going to be able to kill every bovine that comes to market no matter the age,” he said.
Laycraft said the market might begin to limit itself as lenders take into account U.S demand for live animals and the potential in 2006 of the border opening to animals older than 30 months.
“Cow plants in the U.S. are going to start going broke this next year if they don’t get more supply and we’re the ones with one million more cows than we had three years ago. So it won’t likely be too long before our cows start heading south, if Rule 2 comes into effect,” Laycraft said.
Martin and his associates object to the federal support program because they feel it distorts the marketplace and may cause farmers to invest in plants that will be unable to compete against larger packers.
“Attracting producer money may just result in more losses for farmers, compounding the damage done by BSE,” he said.
Martin said adding capacity with public money might send the wrong market signals to investors and could create the need for future bailouts of the meat packing industry.
