! Evolution of the Canadian Beef Industry! Requirements for future success! The industry s opportunities

Transcription

1 Evolution of the North American Beef Industry Larry Martin November 22, 24 Regina, Saskatchewan The Presentation! Evolution of the Canadian Beef Industry! Requirements for future success! The industry s opportunities Evolution of the Canadian Beef Industry Canadian Beef: Three Stages! rapid growth parallel to US! Three production cycles! Peak in ~ 1975! Consistent with the US! Result of : falling real grain prices in NA rising incomes growing demand Beef Cows on Farm (July 1st, Inventory), Canada Stage 2: Major Reduction! Still consistent with US (next slide)! Seeds sown at the beginning of the 197 s Retail price freeze in US Grain price shock! Beginning of declining demand for beef (two slides ahead)! Changed the grading system, changed the animal! Productivity began to rise

2 Beef Cows on Farms and Total Disappearance, Canada Billion pounds 6 3 Stage 3: Rapid Growth Beef Cows () Total Disappearance (Billion pounds) Stage 3: Rapid Growth! Absolute departure from US (next)! Rapid growth in productivity (+2)! Reasons Crow offset CUSTA Crow WTO market access Exchange rate? Beef Cows on Farms US & Canada (July Inventory) US Canada US Canada Source : Statistics Canada & USDA Beef Production per Cow & Herd Size NA lbs per Cow 44 The Industry Also Moved West and Businesses Got Fewer and Bigger NA Production (lbs per Cow) NA Inventory () 34

3 Canadian Cattle Marketing Volumes 97-2 Av Alberta West East Canada C&B Slaughter 24,396 31,88 218, ,678 C&B Export NA 72,33 165,43 237,76 Fed Slaughter 1,998,97 2,96, ,954 2,675,872 Fed Exports NA 581, , ,997 C&B Marketings 382, , ,754 Fed Marketings 2,678, ,27 3,414,869 Source: AAFC and Canfax Slaughter Plants! 77% of fed slaughter in Alta! Cow slaughter ` 6%-4%! Cow exports ~ 4% of slaughter! Top 4 plants are about 8% of slaughter. Results from: Commodity orientation Declining demand in the 198 s and 9 s Economies of size Canadian Beef Cattle Distribution Beef Cow-Calf Number of Inventory Operations % of % of Total Total Feeding Number of Operations % of Total Inventory % of Total Atlantic 1% 3% 1% 11% Quebec 5% 7% 4% 4% Ontario 7% 17% 16% 46% Manitoba 11% 11% 8% 8% Saskatchewan 29% 25% 9% 6% Alberta 41% 33% 59% 21% BC 6% 5% 3% 4% Total 1% 1% 1% 1% Trends! West dominates in production and slaughter Crow, availability of forages, economics of transportation! Eastern slaughter is half what it was 25 years ago! Cow-calf proportionally hasn t changed much! Western operations tend to be larger and they are (or were) growing! Top 2 lots represent about 5% of throughput Canadian Cattle Marketing Volumes Bunk Capacity # of Lots Capacity as % Of Total Alberta 1,-5, % 5,1-1, 47 23% 1,1-15, 11 9% 15,1-2, 1 12% 2,1 and over 11 35% Trade! Canadian Industry became very trade dependent! Following shows trends in beef trade, plus trade in live cattle, already shown Saskatchewan 1,-5, 17 39% 5,1-1, 3 17% 1,1 and over 3 44% Source: Canfax

4 Beef : Production, Imports, Exports and Disappearance, Canada Million pounds 4, 3, 2, 1, Beef Import Beef Export Beef Production Disappearance Trade Summary! Approximately 5% of Canada s beef production is exported.! Approximately 7% of Canada s beef exports are destined for the United States.! The share of US exports has been declining in recent years. The US share was at 95% just ten years ago.! The next largest customer is Mexico with a share of about 15% followed by Japan with 5%. Beef Cows on Farm (July 1st, Inventory), US The US Industry Evolved Similarly Source : USDA Billion pounds Beef Imports and Exports, US! Similar: Comparison Of US and Canada Moved west Larger operations Few packers Increased productivity More oriented toward trade! Dissimilar Canadian cow herd grew Canada became major net exporter Beef Import Beef Export Beef Production Disappearance 24 Source : USDA

5 In Other Words! Before BSE, this was a fabulous success story! Canada s competitiveness had to be regarded as tops in the world Looking Forward! What will it take to sustain growth in sales of beef?! Provide value to consumers quality and price Quality 1. Convenience 2. Taste 3. Consistency 4. Tenderness 5. Nutritious 6. Perception Beef Was Losing Out Opportunities for Differentiation! All consumers are not alike what s value for me is not the same as for you! This gives the opportunity for segmentation and branding! Success depends on providing the same thing every time! All beef is not the same, and we created problems with demand as a result Deflated CPI Beef Canadian Beef Demand ' '1 83 ' ' Per Capita Consumption (Pounds) Sources of Problems! Industry has been price/cost driven! Industry transactions occur with no view to vertical coordination! There has been little investment in branding! Pricing is done on averages, not on quality characteristics! Quality signals don t get through to cowcalf producers

6 In Other Words Future Opportunities 3) Aligning the Supply Chain with the Customer! Instead of the coordinated and dedicated supply chain! We have had a series of unrelated markets Beef Supply Chain Producer Processor SAME GOAL : Wholesaler Retailer CUSTOMER In effect, traditional supply chains are a series of markets CONSUMER FOOD DISTR. FOOD DISTR. FOOD MFR FOOD MFR 1 ST HANDLER 1 ST HANDLER FARM FARM The Result! Obviously, poor coordination, inconsistent product that can t be branded! Sorting costs, almost always higher than scheduling! Risk quality, price and market for producers and packers! Disaffection with the market system INPUT SUPPLY Future Opportunities Market Opportunities! Domestic market branded differentiation! Export market rapid future growth and branded World meat consumption doubled between roughly 199 and 2 Developing country share rose from 49% to 59% World population growth is slowing Many developing countries are growing faster than developed countries WTO may add market access Future Opportunities Access Risk! We know better than anyone that disease can threaten access! Could face a disease (without a passport) that is a real threat! Will face regulatory challenges motivated by protectionism! Canada and US evolved as increasingly integrated! We need to work together to ensure against loss of access in the future

7 Future Opportunities Changing the Supply Chain! To access the opportunities, we need to move to a different market mechanism! Some progress has been made with quality grids. Not good enough! Need risk/reward sharing pricing mechanisms! Best done through alliances! Alternative is greater degree of vertical integration Summary! Until the BSE event, the beef industry is a great success story for western Canada! Government intervention can be completely disruptive! The opportunities of the future will be in branding and differentiation export and domestic " Producers in Canada and US focus on integrating the two countries regulatory policies. " The current market mechanism needs to be replaced with reward and risk sharing if we move to a branded strategy