A per-animal-unit tax imposed by Lethbridge County last year has the potential to harm the feedlot industry and is not as fair as other options to raise money for roads and infrastructure.
That’s the assessment in the University of Calgary School of Public Policy report on the “head tax” that applies to confined feeding operations in the county, where about 33 percent of Alberta’s beef is produced.
Authors Bev Dahlby, Melville McMillan and Mukesh Khanal said the tax is a permanent increase to feedlots’ fixed costs, which could increase by as much as 20 percent of the average operating margin per head of cattle. That could force some out of business.
The report put forth three alternatives to the tax, which it said could generate the same amount of revenue for the county and reduce pressure on feedlots to provide needed funds for road and bridge maintenance and repair.
“These alternatives are fairer, more equitable and more efficient than the CFO (confined feeding operations) levy. In the interests of maintaining both county roads and a healthy feedlot industry, Lethbridge County should replace the CFO levy with one of them,” the report said.
The tax was $3 per animal unit this year and will be $2.50 per animal unit next year, said Lethbridge County Reeve Lorne Hickey. All of the money raised goes to maintain and upgrade road and bridge infrastructure.
Hickey said the county was asked to supply numbers for the report but was not asked to provide its rationale for implementing the head tax along with a new tax on farmland and gravel operations.
That said, he added there was good information in the report, but the alternatives suggested for revenue generation may not comply with the Municipal Government Act.
The alternatives suggested in the report, in simplified terms, include:
- charging trucking companies a fee based on road use by employing GPS technology
- employing a levy based on a feedlot’s capacity plus its distance from a provincial highway
- levying a tax based on how many livestock per feedlot exceed the capacity of that feedlot/farm’s capacity to grow sufficient feed for the animals
The report said the head tax has “potentially negative ripple effects” for feed production, cattle producers, meat packers and consumers.
When first implemented, the tax drew the ire of feedlot owners in the county, which is known as the heart of Alberta’s cattle feeding industry. Several feedlot owners filed a lawsuit declaring it illegal, but a judge ruled it was within municipal taxation powers.
The ruling leaves the door open for other municipalities to impose a similar tax.
Casey Vander Ploeg, vice-president of the Alberta Cattle Feeders Association, said the report held few surprises but it highlighted what the association views as a larger problem.
“The authors note that the whole situation in Lethbridge County has arisen by the fact that the current property tax system doesn’t make any accommodation for confined feeding operations,” said Vander Ploeg.
“That aligns perfectly with our thinking on what the root of the problem here is, and the root of the problem is an outdated property tax system for farmland that doesn’t accommodate the whole range of different farm types and the different types of agricultural production.”
The ACFA is thus advocating for changes to Alberta’s tax system so that all agricultural producers regardless of commodity are paying their fair share of taxes in the counties where their operations are located.
Vander Ploeg said a 2002 Alberta MLA committee report indicated the need for changes to the system and made some recommendations, but nothing arose from it.
“We’re starting to reap some of the consequences of that inaction with what’s happening in Lethbridge County.”
The recent policy paper includes information from other jurisdictions that have plentiful feeding operations, but none of them have employed the type of tax imposed in Lethbridge County.
Hickey said the tax had low costs for implementation and was the best among alternatives considered by county council at the time. He has a quick response to accusations that the tax puts an unfair burden on feedlots.
“Our answer to that it is, when you look at the overall issue, who uses the infrastructure the most?”
In fact, the report indicates most of the feed used in county feedlots must be trucked in from elsewhere and so are most of the feeder cattle. Operations such as manure hauling also affect roads.
The report’s authors said they could not predict how many feedlots might close due to higher taxes because operating margins vary for each. However, it suggested that, depending on the scope of the closures, it could affect the market price for fed cattle, the price of feeder cattle and the price of feed grain and forage.
The tax could also result in a shift of feedlot operations to other municipalities.
Vander Ploeg said the head tax coupled with other factors affecting producers, such as the carbon tax, new federal tax proposals and costs related to workers’ compensation and occupational health and safety, are creating an ever-larger burden.
“All of this piles up and at some point business people say, ‘you know what? We don’t think the reward of this potential venture is worth the risk.’ Then long-term investment suffers. That’s the bigger risk too, because long-term investment in the economy is the fuel for economic growth.”