Sep 12, 2012 by Lee Hart

U.S. beef market is one giant bird in the hand


A Canadian ag/food policy group said this week the Canadian
beef industry has to reduce its reliance on the U.S. market, but the point is
if Canada doesn’t sell beef to the U.S. who else is going to buy it at that
price.

The message that the Canadian beef industry needs to reduce
its reliance on the U.S. market isn’t a new one, but the fact is — looking
around the world — there just aren’t a lot of markets that size, with that
buying power.

The Canadian Agri-Food Policy Institute (CAPI) released a
report this week saying Canada is exporting 85 per

charolais steers small  .jpeg

 cent of its beef and cattle
to the U.S. The weakness of that, says CAPI, is that in return a larger
percentage of higher value processed meat products are being exported from the
U.S. into Canada.

“Today the mindset seems to be to produce cattle and beef or
the United States,” says David McInnes, chief executive officer of the policy
organization, based in Ottawa. “And they’re (the U.S.) getting the value off
it.”

The CAPI release goes on to say:

“Canadian ranchers and beef processors have gained access to
South Korea, China and numerous smaller markets in the past few years and
should create a strategy for reaping the benefits by adjusting production and
processing to suit those higher-paying countries….

“Boosting exports however, depends on having supplies and
Canada’s cow herd has shrunk by 20 per cent since 2005. There is an emerging
view that we can’t optimize the domestic, American and other foreign markets at
the rate we are shipping cattle and beef to the U.S.” says McInnes. “We either
accept that we will remain a primary backfill supplier of beef and cattle to
the U.S. — with its consequences and benefits  — or we need to make a
conscious strategic decision about the markets where we can perform at our
best.”

Saskatchewan beef producer Brad Wildeman, who is chair of
Canada Beef, had yet to see the full report, but said it is all well and good
to make that statement….but….

 “Everyone
agrees that is true, but over my many years involved with the Canadian beef
industry I have said to everyone who wants to diversify, just show us a market
that will pay that value,” says Wildeman. “If you are going to sell for less,
who’s going to make that up. I don’t know anyone who is prepared to sell beef
who says let’s go into that market and make a lot less money just so we can
diversify.”

The recently minted Canada Beef is trying to get out of the
commodity beef market and position Canadian beef as a premium or higher value product.
Probably if Cadillac dropped the price of its 2012 XTS models ($48,900) to the
same level at the Hyundi Tuscon ($17,500) they would sell a lot more cars, but
then the big question would be, how long can Cadillac stay in business at those
prices?

That may not be a perfect analogy of the Canadian beef
industry, but you get the gist.

“People forget that one-third of all beef consumed in the
world gets eaten in North America, under a NAFTA agreement,” says Wildeman. “It
is a big market. The U.S. is the largest market in the world. I remember the
head of Meat and Livestock Australia telling me a number of years ago, they
were selling beef to 80 countries, but he said “we’ll trade 79 of those for one
U.S. market”.

Wildeman agrees that Canada has to keep looking for market opportunities other than the U.S. “The challenge for the Canadian
industry, Canada Beef, and processors are these other markets — they are not
big volume — but other markets where we can add value to some of the products
which now go into grind and we don’t use ourselves. They are small incremental
benefits.”

Wildeman notes too there are number of cultural and trade
issues, which restrict Canadian access to certain markets.

“Some people say the U.S. is doing so much better in beef marketing,”
he says. “But the fact is they have had access to some preferential markets —
like Korea — that we didn’t have access to. That was a very lucrative and high
value market that we were locked out of for a long time.

“You give us unfettered access to Korea and the
under-30-month market in Japan and you’ll see a whole new set of dynamics.

“If the profitability remains in the beef industry, Canadian
producers will grow the herd, more production, more supply and we will have
more to market,” says Wildeman. “The CAPI report no doubt makes some good
points, but I still say they have to answer the one big question “show me the
markets were we are missing out or losing value on?”

Lee Hart is editor of Cattleman’s Corner based in
Calgary. Contact him at 403-592-1964 or by email at [email protected]

 

Lee Hart

Lee Hart


Lee Hart is a long-time farm writer, and honorary member of the Alberta Institute of Agrologists, with many observations on the agriculture industry, who never hesitates to admit he is wrong (should that ever happen.)


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