The importance of beef exports

by Lotte Elsgaard

In the five long years of recovery efforts since world markets closed to Canadian beef, the Canadian industry today is facing some of its toughest challenges.

From record-high cattle numbers and a self-sufficiency processing capacity in 2006, we have gone to where today we are shipping a million-plus head of live cattle annually to the US, our processors are operating at under capacity, and our dependence on the US market has increased to 80 percent – five percent higher than that of 2002.

We are processing less, we are exporting less and we are more dependent on the US market. By all measurements, these are not the signs of a healthy industry, but of an industry in distress.

How did this situation come about? Economics have certainly been a factor. In the last two years, a strong Canadian dollar and higher production and processing costs led to a significant decline in beef exports – and a greatly increased level of live cattle exports to the US. When our industry is in good health, approximately 60 percent of our production is exported; however in the current environment, we are exporting only about 48 percent. Live cattle shipments to the US, on the hand, topped one million head in 2006 and 1.3 million in 2007, leaving Canadian processors operating at less than 65 percent capacity. This is not sustainable for Canada’s packers, and this is not the road to recovery for Canada’s producers.

While these economic realities have impacted our competitiveness, it is the lack of commercially viable access to our major markets in Asia plus Mexico that stands solidly in the way of our industry’s recovery.

Canada’s cow herd is estimated at 5.9 million head and beef production for 2008 estimated to be 1.3 million tonnes. The Canadian market is an excellent one, but it is simply not a large enough market. Our domestic market can absorb the production from less than three million cows, meaning that we must export all of our production over about 800,000 tonnes. Looking solely to the Canadian market is not an option. We have to remain focused on deriving full value for these beef products we produce over and above those absorbed by our domestic market.

Commercially viable access to our international markets has the ability to add $85 per head in added value for beef derived from under-30-months (UTM) cattle over what can be generated in Canada. This stands in comparison to the reality that those same products sold in the US are sold at a $15 per head discount as compared to the domestic market. That’s a value difference of $100 when we’re selling in Asia plus Mexico as compared to the US. It is this value difference that explains the significant increases in export volume and value in Asia and Mexico in the years leading up to 2002 (from 7,000 tonnes and $24 million in 1990 to 133,000 tonnes and $500 million in 2002). It also underscores the priority that industry and government must place on establishing commercially viable access in Asia.

The extent to which we’re successful in creating commercially viable access not only to Asia and Mexico but to Europe, Russia, the Middle East and South America will determine the eventual size of our industry. What lies in the balance is the difference between an industry maintaining six million cows – and one maintaining three million cows.

Focus on Export Development
The Canada Beef Export Federation (CBEF) is a cooperative partnership of all of the national and provincial cattle producer organizations, all the major beef processors and both federal and provincial ministries of agriculture. This partnership was demonstrated yet again at the Federation’s Annual General Meeting held this September 18th in Calgary. The newly-elected board is made up of seven producers (including representatives from the Manitoba Cattlemen’s Association, Saskatchewan Cattle Marketing Deductions Fund, Ontario Cattlemen’s Association, Alberta Beef Producers and B.C. Cattlemen’s Association), six beef processors and one feedlot operator.

A members’ Strategy Conference, held September 19th in conjunction with the AGM, gave members the opportunity to provide direction to the Federation’s export market development strategies and activities. Direction coming out of that conference was that CBEF should maintain its presence in Japan, South Korea, China, Taiwan and Mexico and that it should allocate more efforts at targeting the Russian, EU and Middle East markets. Clearly our membership remains export-focussed.

In its last fiscal year, the Federation completed 404 individual market development projects, all designed to build recognition and demand for Canadian beef in key and potential export markets for Canadian beef. We believe these programs are seeing results.

Exports to Asia and Mexico increased 18 percent in 2007 – an incredible achievement when total exports to all markets declined by 1.6 percent. We are running ahead of the curve again this year, with January to August beef exports to Asia and Mexico up 17 percent. The value of these 2008 exports has also increased – up 38 percent over the same period last year.

There is great enthusiasm for Canadian beef in our key export markets, and we are confident that as market access is regained, expanded and normalized, export volumes will increase substantially. The Federation’s international representatives have worked hard to maintain relationships with importers, distributors and end users. These, our customers, have experienced great success in the past with Canadian beef – and are eager for the opportunity to do so again.