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37th PARLIAMENT, 3rd SESSION

Standing Committee on Agriculture and Agri-Food

EVIDENCE

CONTENTS

Wednesday, March 10, 2004

1535

The Chair (Mr. Paul Steckle (Huron—Bruce, Lib.))

Mr. Willie Van Solkema (Canadian Business Manager, Cargill Foods)

1540

1545

The Chair

Mr. Willie Van Solkema

The Chair

Mr. Willie Van Solkema

The Chair

Mr. Brian Nilsson (Co-President, XL Beef)

1550

1555

The Chair

Mr. Garnett Altwasser (Chief Executive Officer, Lakeside Packers)

1600

The Chair

Mr. Gerry Ritz (Battlefords—Lloydminster, CPC)

Mr. Brian Nilsson

1605

Mr. Gerry Ritz

Mr. Brian Nilsson

Mr. Gerry Ritz

Mr. Brian Nilsson

Mr. Garnett Altwasser

Mr. Gerry Ritz

Mr. Garnett Altwasser

Mr. Willie Van Solkema

Mr. Gerry Ritz

Mr. Willie Van Solkema

Mr. Brian Nilsson

1610

Mr. Garnett Altwasser

The Chair

Mr. Dick Proctor (Palliser, NDP)

Mr. Willie Van Solkema

Mr. Dick Proctor

Mr. Brian Nilsson

Mr. Willie Van Solkema

Mr. Dick Proctor

Mr. Brian Nilsson

Mr. Dick Proctor

Mr. Brian Nilsson

1615

Mr. Willie Van Solkema

Mr. Dick Proctor

Mr. Willie Van Solkema

Mr. Dick Proctor

Mr. Brian Nilsson

Mr. Dick Proctor

Mr. Brian Nilsson

The Chair

Mr. John O'Reilly (Haliburton—Victoria—Brock, Lib.)

1620

Mr. Brian Nilsson

Mr. John O'Reilly

Mr. Brian Nilsson

Mr. John O'Reilly

Mr. Brian Nilsson

Mr. John O'Reilly

Mr. Brian Nilsson

Mr. John O'Reilly

Mr. Brian Nilsson

Mr. Willie Van Solkema

Mr. John O'Reilly

Mr. Brian Nilsson

Mr. John O'Reilly

Mr. Brian Nilsson

Mr. John O'Reilly

Mr. Brian Nilsson

1625

Mr. Willie Van Solkema

Mr. Garnett Altwasser

The Chair

Mr. Rick Borotsik (Brandon—Souris, CPC)

Mr. Garnett Altwasser

Mr. Rick Borotsik

Mr. Garnett Altwasser

Mr. Rick Borotsik

Mr. Garnett Altwasser

Mr. Rick Borotsik

Mr. Garnett Altwasser

Mr. Rick Borotsik

Mr. Garnett Altwasser

Mr. Rick Borotsik

Mr. Garnett Altwasser

Mr. Willie Van Solkema

Mr. Rick Borotsik

Mr. Willie Van Solkema

Mr. Rick Borotsik

Mr. Brian Nilsson

Mr. Rick Borotsik

1630

Mr. Brian Nilsson

Mr. Rick Borotsik

Mr. Brian Nilsson

Mr. Rick Borotsik

Mr. Brian Nilsson

Mr. Rick Borotsik

Mr. Brian Nilsson

Mr. Rick Borotsik

Mr. Brian Nilsson

Mr. Rick Borotsik

Mr. Brian Nilsson

Mr. Rick Borotsik

Mr. Willie Van Solkema

Mr. Rick Borotsik

Mr. Willie Van Solkema

Mr. Rick Borotsik

Mr. Willie Van Solkema

Mr. Rick Borotsik

Mr. Garnett Altwasser

Mr. Rick Borotsik

Mr. Garnett Altwasser

Mr. Rick Borotsik

Mr. Garnett Altwasser

Mr. Rick Borotsik

The Chair

Hon. Wayne Easter (Malpeque, Lib.)

Mr. Garnett Altwasser

1635

Hon. Wayne Easter

Mr. Garnett Altwasser

Mr. Brian Nilsson

Hon. Wayne Easter

Mr. Brian Nilsson

Hon. Wayne Easter

Mr. Brian Nilsson

Hon. Wayne Easter

The Chair

Hon. Wayne Easter

1640

Mr. Brian Nilsson

Mr. Willie Van Solkema

Mr. Brian Nilsson

Mr. Willie Van Solkema

The Chair

Mr. Dick Proctor

Mr. Rick Borotsik

Mr. Dick Proctor

Mr. Brian Nilsson

Mr. Dick Proctor

Mr. Brian Nilsson

Mr. Dick Proctor

Mr. Garnett Altwasser

Mr. Dick Proctor

Mr. Willie Van Solkema

Mr. Dick Proctor

Mr. Brian Nilsson

Mr. Dick Proctor

Mr. Brian Nilsson

Mr. Dick Proctor

Mr. Brian Nilsson

1645

Mr. Dick Proctor

Mr. Brian Nilsson

Mr. Dick Proctor

Mr. Brian Nilsson

Mr. Dick Proctor

The Chair

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.)

Mr. Garnett Altwasser

Mr. Larry McCormick

Mr. Brian Nilsson

Mr. Larry McCormick

1650

Mr. Willie Van Solkema

Mr. Larry McCormick

The Chair

Mr. Rick Casson (Lethbridge, CPC)

Mr. Brian Nilsson

Mr. Willie Van Solkema

Mr. Brian Nilsson

Mr. Rick Casson

Mr. Willie Van Solkema

Mr. Rick Casson

Mr. Willie Van Solkema

Mr. Brian Nilsson

Mr. Garnett Altwasser

Mr. Brian Nilsson

Mr. Willie Van Solkema

Mr. Garnett Altwasser

Mr. Brian Nilsson

Mr. Willie Van Solkema

Mr. Brian Nilsson

Mr. Willie Van Solkema

Mr. Rick Casson

Mr. Brian Nilsson

Mr. Rick Casson

Mr. Brian Nilsson

Mr. Rick Casson

Mr. Garnett Altwasser

Mr. Rick Casson

1655

Mr. Garnett Altwasser

Mr. Rick Casson

Mr. Willie Van Solkema

Mr. Brian Nilsson

Mr. Rick Casson

Mr. Garnett Altwasser

Mr. Brian Nilsson

Mr. Rick Casson

Mr. Garnett Altwasser

The Chair

Hon. David Kilgour (Edmonton Southeast, Lib.)

Mr. Willie Van Solkema

Hon. David Kilgour

Mr. Willie Van Solkema

Hon. David Kilgour

1700

Mr. Garnett Altwasser

Mr. Willie Van Solkema

Hon. David Kilgour

Mr. Garnett Altwasser

Hon. David Kilgour

Mr. Garnett Altwasser

Hon. David Kilgour

Mr. Garnett Altwasser

Hon. David Kilgour

Mr. Garnett Altwasser

Hon. David Kilgour

Mr. Garnett Altwasser

Mr. Willie Van Solkema

Hon. David Kilgour

Mr. Garnett Altwasser

Hon. David Kilgour

Mr. Garnett Altwasser

Hon. David Kilgour

Mr. Garnett Altwasser

Hon. David Kilgour

Mr. Garnett Altwasser

Hon. David Kilgour

Mr. Garnett Altwasser

The Chair

Mr. Dick Proctor

Mr. Garnett Altwasser

1705

Mr. Dick Proctor

Mr. Garnett Altwasser

Mr. Dick Proctor

Mr. Brian Nilsson

The Chair

Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.)

1710

Mr. Brian Nilsson

Mrs. Rose-Marie Ur

Mr. Brian Nilsson

Mrs. Rose-Marie Ur

Mr. Brian Nilsson

Mrs. Rose-Marie Ur

Mr. Brian Nilsson

Mrs. Rose-Marie Ur

Mr. Brian Nilsson

Mrs. Rose-Marie Ur

Mr. Willie Van Solkema

Mrs. Rose-Marie Ur

Mr. Brian Nilsson

Mr. Willie Van Solkema

Mrs. Rose-Marie Ur

Mr. Brian Nilsson

Mrs. Rose-Marie Ur

Mr. Willie Van Solkema

Mrs. Rose-Marie Ur

Mr. Willie Van Solkema

Mrs. Rose-Marie Ur

Mr. Brian Nilsson

1715

Mrs. Rose-Marie Ur

Mr. Willie Van Solkema

The Chair

Mr. Monte Solberg (Medicine Hat, CPC)

The Chair

Mr. Monte Solberg

The Chair

Mr. Brian Nilsson

The Chair

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.)

1720

Mr. Willie Van Solkema

Mr. Garnett Altwasser

Mr. Murray Calder

Mr. Garnett Altwasser

Mr. Murray Calder

Mr. Garnett Altwasser

The Chair

Mr. Murray Calder

The Chair

Hon. Mark Eyking (Sydney—Victoria, Lib.)

Mr. Brian Nilsson

1725

Mr. Peter Adams (Peterborough, Lib.)

The Chair

Mr. Willie Van Solkema

The Chair

Mr. Willie Van Solkema

Mrs. Rose-Marie Ur

Mr. Garnett Altwasser

The Chair

CANADA

Standing Committee on Agriculture and Agri-Food

NUMBER 007

3rd SESSION

37th PARLIAMENT

EVIDENCE

Wednesday, March 10, 2004

[Recorded by Electronic Apparatus]

¹ (1535)

[English]

The Chair (Mr. Paul Steckle (Huron—Bruce, Lib.)): Ladies and gentlemen, we will begin our meeting.

We want to thank our witnesses today for appearing. We want to continue the study we have been working at for some time, looking at the pricing of beef at the wholesale and retail levels in the context of the BSE crisis that was first known to us as of May of last year.

As the chair of the committee, I am seeking direction from my colleagues around the table as to how we can best address this. Obviously we need to bring all the players to the table. We have had a number of others here, and we hope today we can have from you people the honest responses we expect to receive. It is fair to say that we are going to ask you to justify a number of actions that we believe have led to huge profit-taking on the back of an industry that is already on the verge of bankruptcy and collapse. We also have a consumer audience--and they are captive, I might add--that, because of its commitment to our Canadian beef, is compelled to pay high prices for beef products, doing so for the most part without questioning the justification. Your full cooperation is required for us to bring this matter to a meaningful conclusion.

With those few comments, I want to introduce the witnesses at the table to members of the committee: from Cargill Foods, Willie Van Solkema, from XL Beef, Brian Nilsson, its co-president, and from Lakeside Packers, Garnett Altwasser, chief executive officer, who was with us on August 11 last.

We ask you to put forward your comments, after which we will have the panel of members here question you. We ask you to be succinct in your responses, but forthright. We trust that today's meeting will bring finality to some of the questions we have. If it doesn't, we will have to seek measures that perhaps will bring those questions and responses forward.

First we will have Mr. Solkema.

Mr. Willie Van Solkema (Canadian Business Manager, Cargill Foods): Good afternoon. I am the Canadian business manager for Cargill Foods in High River, Alberta. Cargill operates a state of the art beef packing plant employing 2,000 people, with a capacity of 4,200 animals per day. I would like to thank the committee for this opportunity to talk with you.

Cargill operates a North American beef processing business. Until recently our markets were fully integrated, and producers and processors had access to an open border for the movement of live animals and beef products. As with producers, our Canadian processing operations depend on access to the U.S. and foreign markets. Since these markets have been largely taken away, there has been a dramatic impact on the supply and demand situation in Canada. In making my comments today, I remain hopeful that we are near a critical resolution to current supply pressures in Canada with the U.S.'s recent announcement of the reopening of the comment period on the proposed rule that would amend the regulations regarding the import of animals and animal products from Canada. It is important to recognize that this achievement comes through the efforts of the Canadian government and our industry working on a collaborative basis.

There is no part of our industry more negatively affected now than feedlot producers. Their live cattle are banned from the U.S., and this has resulted in significant oversupply of live animals in Canada over the past several months. Feedlot operators, like processors, must have access to the U.S. market to remain profitable. While we hope the U.S.'s announcement will bring relief to our industry by re-establishing our export abilities, we have existed in a significant oversupply situation in Canada for some time now. The oversupply of cattle in Canada has put significant downward pressure on producers' bottom lines. It's a simple equation: more cattle with no increase in demand means lower prices.

At the same time, our North American processing operations have also suffered considerable losses. We have laid off close to 1,000 workers throughout our North American facilities. Oversupply of our own stocks has resulted in the donation of well over $1 million in surplus product to food banks and charities across Canada. We now pay to have certain rendered products that we were selling in the marketplace at this time last year removed from our facility. Offal and thin meats and other subprimal cuts of beef normally sold to Asia are essentially worthless and being used in low-value trim for ground beef, resulting in up to a $200 loss in value per head. The rising Canadian dollar has stripped another $150 per head from the value of our products. While we have ramped up production in Alberta to create an outlet for producers' cattle, it has until recently not been enough to deal with the significant oversupply of live animals. However, in the last month we have seen prices to the producer rebound as supply numbers drop in our system.

The immediate and complete reopening of the U.S. market to live cattle and beef products is the only solution that will bring sustainable relief to the producer. Since the first case of BSE was discovered in May, we have worked as hard as possible to re-establish trade for live cattle and beef products within North America and in other foreign markets. Specifically, Cargill Incorporated has intervened directly in the U.S. federal registry process, calling for an opening of the U.S. border to animals and beef products. We have worked closely with each of our major trade associations, such as the Canadian Meat Council, the Canadian Cattlemen's Association, the National Cattlemen's Beef Association, and the American Meat Institute, calling for the same border openings. Moreover, Cargill has advocated the adoption of appropriate feed controls within Canada and the United States, which would save our entire industry, producers in particular, millions of dollars a year in revenue, in an effort to maintain our competitive position in global markets.

¹ (1540)

The pain our industry, particularly producers, is suffering cannot be underestimated. These producers are our suppliers, they are our customers, and without this important sector remaining profitable, we undergo substantial and irreversible damage to our Canadian beef industry. Hence we fully recognize the concerns that have been raised concerning the packer and retail levels. Our export markets represented 70% of our total beef production in Canada pre-BSE. This is no longer the case. We are now forced to devalue an animal by hundreds of dollars as a result of export markets being closed through forces out of our control. Let me stress that there is no advantage whatsoever to our North American business in having producers that operate at an unprofitable level or do not have access to the U.S. or foreign markets.

Our concern is the same as theirs: reopening borders to live animal and beef product trade as quickly as possible. An open North American market is the very foundation on which our business is based. We are at a critical point in our industry, and we need to focus all efforts on the re-establishment of export outlets for our live animals and beef products. Lessening of this common goal will be at the expense of our producers, our processing industry, and our industry as a whole.

As a case in point, I would like to draw your attention to the news release from the Canadian Cattlemen's Association just days ago indicating that our industry must work together and not get into finger-pointing exercises when the real solution lies in the opening of foreign markets. At this time I would like to read that. It came out on March 2. It says:

Claims that one sector of the beef industry is profiteering at the expense of others are simplistic and require more in-depth analysis. While gross packer margins may have increased, this information doesn't reflect other factors, such as the drop in value of a carcass due to the loss of export markets for offals, the additional costs of removal and disposal of specified risk materials, etc. Efforts are under way to get a more complete and accurate picture.

Government support has helped many farmers and ranchers in these difficult times. Consumer support through increased purchases of beef has also been vital in keeping cattle moving through the marketplace. Sending a false message to consumers that their beef purchases don't help farmers and ranchers is damaging to the entire industry.

This comes from the Canadian cattlemen. We have worked closely with government and regulatory leadership in Canada and the United States and believe our goals are attainable if we remain committed and focused and work collectively.

I would like to draw on a few articles that I think are very misleading and cause harm to the whole beef industry. The Ontario Beef Industry Council issued a paper, and one of the statements in there is, “Reopening the border may be resisted by international packers, as it removes the advantage that the packers currently have in the marketplace.” I would like to address that by saying that in the U.S. we have seven beef facilities. Five of those beef facilities use Canadian cattle, both cows and fed cattle. When the border closed, there was a disadvantage to those plants, and it negatively affected their results. That is part of what we mean when we talk about a North American marketplace.

Also, I would like to point out that early in December the Canadian Meat Council, along with the Canadian Cattlemen's Association, put together a comment on the proposed rule, there again clearly showing that the packers and the Canadian Meat Council have worked together since day one on these issues.

I would also like to point out a letter of the American Meat Institute, which Cargill belongs to in the U.S., written to Ann Veneman, the Secretary of Agriculture in the U.S. It states:

We are writing to urge you to use the full range of your authority immediately to reestablish trade in cattle, beef and beef products produced in BSE minimal risk countries like Canada. In our view, the full restoration of trade access from Canada to the United States is an essential pre-condition for the American cattle and beef industry to regain reciprocal market access within North America, especially in Mexico, and ultimately to other major foreign markets.

There again is clear advocacy of free trade.

¹ (1545)

Here is another letter that went out from the AMI, in response to the USDA' s decision to reopen the comment period on the proposal of establishing regions that present minimal BSE risk. AMI President J. Patrick Boyle said:

The U.S. meat industry supports USDA's proposal to allow certain cattle and beef products from BSE minimal risk countries into the U.S. However, we believe the proposal should go even further by allowing all animals for slaughter to enter the U.S. if appropriate risk mitigation measures are taken. It is inconsistent to allow meat from older animals--but not the animals--into the U.S., given the control measures in place by the U.S. to remove specified risk materials...

Another comment—

The Chair: I'd like to draw your attention. Are all three of you speaking?

Mr. Willie Van Solkema: Yes.

The Chair: Then we need to keep it short, because we are not going to have enough time to do the questioning. So perhaps you could wrap it up.

Mr. Willie Van Solkema: I'm almost done.

The other one I would like to read out here is from the Canadian Cattle Buyer in February 27. This is done by Kevin Grier of the George Morris Centre. There are just a few things I'd like to point out here. It says:

The George Morris Centre has been criticized by both producers and beef buyers for saying that packers have not been gouging anyone in the beef supply chain. We stand strongly by that statement... Furthermore, it is important to remember that the oversupply of cattle is caused by the border closure. That is a problem not of the packers making. It is a problem that is not going to be solved by accusations.

Another important point to note is that based on our ongoing and constant discussions with retailers and food-service suppliers, there is no issue with consumers regarding beef prices. Consumers are not asking questions, or are not backing away from beef because they think prices should be lower.

Actually, the entire industry should be thankful that consumers are not concerned about the price of beef. If consumers thought they were being taken advantage of, they would simply purchase less beef. That, of course, would be very detrimental to cattle producers in Canada.

Furthermore, the more the media chooses to focus on the price of beef, the more the ultimate root cause of the issue will be discussed. The ultimate root cause of the issue, of course, is the two BSE cases. It seems to make sense for the cattle industry that the less said about BSE and beef, the better. Those who continue to try to stir up media and political interest in beef pricing will ultimately succeed in making this a consumer issue. When it becomes a consumer issue, the entire beef chain will be a loser for it.

I have just one last comment. With regard to packer margins, it makes intuitive sense that returns have been very good this fall and winter. However, back in the early summer, when they lost tens of millions of dollars each week, there was no media interest whatsoever. Furthermore, while their gross margins are large, so are their operating costs. It is also interesting to note that during the last five weeks, packer margins have been declining rapidly and appear to be very narrow on a net basis. That fact will receive little coverage.

The Chair: Mr. Nilsson.

Mr. Brian Nilsson (Co-President, XL Beef): Thank you.

My name is Brian Nilsson. I'm here representing XL Foods, which is a company that my brother and I own. I would be what you guys all want me to be. Some 100 years ago, my grandfather started trading cattle in Sweden, hauling them on a boat from Sweden to Norway. My grandfather emigrated here. My dad traded cattle, I traded cattle, and I went into the packing business. If anybody says you can't make it in the packing business fighting with the Americans, they didn't try hard enough. We've been in the packing business about seven years now. We bought a plant that was going broke and we turned it around.

I would like to point out that I was asked to appear here a couple of weeks ago. I received three days' notice and I wasn't able to attend on such short notice. They said they'd talk to my brother. I'll be very clear. I phoned him, and we would remember those conversations. We are very apt to be here when someone asks us to be here.

On the day I was supposed to be here, I was dealing with my 15 livestock auction managers to try to deal with the crisis that was going on in the feeder cattle business in Canada at that point. You had a crash because the banks pulled the liquidity out of this industry and lots of feedlots were pulling back from it. We were trying to talk to those producers to make sure they knew that the slaughter market was fine. We have a strong slaughter market in western Canada, and I'll tell you, it's competitive. Anybody who says it is not competitive hasn't been watching in the last two months. We have been following the U.S. market, and we have had a better market than they have for the variances in the marketplace. We needed to talk to those producers. So I apologize that I wasn't able to make it; I would have been more than glad to be here.

I would also like to say, so everyone knows, that we have actually seen a rebound in the feeder market in western Canada of over $150 a head in the last four weeks. Sometimes we have to remember that the market does function. We had a tremendous fall in the feeder prices. As I said, the money moved back in. Things happened that were bringing it back up. Yesterday, as I said, we saw a really strong sale at our markets, and there was a lot of recovery going on.

One of the questions that come up is about packer profits. I did a comparison in my company last week. My sale price on my meat last week was roughly $275 an animal less than it was a year ago. I compared what I was paying for steers, and I'm paying about $300 less. So the $25 is basically.... My operating costs are actually...today I am not doing as well in killing steers as I was a year ago. I think I said this in August and I'll say it again today: anybody who thinks this is a fun place to be, come on down, send the cheque, and I'll go and do something else for a living, because this is not a fun place to be. But I'll tell you one thing, I'm committed to this cattle and beef industry more than anybody else is. We didn't come for 100 years just to quit it.

The bulk of that is based on the sale of offal, the reduced sales of meat products, and basically, lower value for some domestic items. We're selling products for less. The retailers are showing they are selling it for 15% less, and that is part of this reduced value.

I want to point out one thing that has been in the media, because I do have some interest in it, and it involves Subway. We run a variety of plants. We have further processing plants, we have cooking plants, we have a lot of different parts, rather than just killing and slaughtering; we're in the whole chain. Now, I don't know exactly what's going on in Subway, but I'll tell you what I do know. We have taken on some business for a large multinational because they can't bring their product out of the United States, and they have said, can you make this product? What they told me was, you can make it for two months, and we'll give you exactly two months' notice so we can move it back into the United States once that meat can move back in here. I believe that is the same thing that is going on in Subway. They were getting it sliced in the United States, they don't want to make the change, and they are making us look bad by saying there is no beef in Canada. Nobody stood up and asked me if I wanted to slice meat for Subway. And I'll tell you one thing: it would happen so fast they wouldn't know what happened to them.

Excuse me, I get emotional when I talk, because this is something that is very dear to me. You don't know how many times my dad has phoned and said, “Are you doing something wrong?” I said, “Dad, I am not doing anything wrong.”

¹ (1550)

I believe the greatest strength our industry has had is the ability to pull together in crises and to implement policies to help open markets. I believe the cattle industry and the packing industry showed that this last summer. Where we are today is so far removed from where we were in July, because back then we didn't have an open border and I couldn't sell meat. I'll tell you, we were plugged full. Today we can sell meat; we can get it into the United States and we can get it into Mexico. We're moving this product, the plants are running full steam, and we're basically getting it moved.

That is basically what we are going to do at XL. We are going to continue to try. We have invested a lot of money to try to expand our capacity in these last four months. By the first of April we hope to have an expansion in place to kill more cattle. That is our job, and we know what we're supposed to do.

Thank you, Mr. Chair.

¹ (1555)

The Chair: I will now turn to Mr. Altwasser for his comments.

Mr. Garnett Altwasser (Chief Executive Officer, Lakeside Packers): Thank you, Mr. Chairman.

I too want to mention the short notice for the hearing two weeks ago, when we were committed and could not attend. But we're not unhappy to be here today.

I think it's important to look back to August 11 and recount things. I went over my notes from when I was here before, and over what happened since that time, because I don't think everything is as negative as maybe the press and the industry have considered here. I think the border opened in record time for cuts of boneless beef to the United States. I think the Americans treated us really well.

As well, the questions about CFIA are answered, I believe, in the fact that the border did open quickly. I think four months is a commendable job, especially if we compare the investigation in Canada with the one that has gone on, and is still going on, in Washington, and recognize that the markets aren't totally arbitraging. As Brian said, they've come a long way.

When we were here in August, the price of fat steers was 35¢. I went back through the price series over this fall, and on October 25 the price of fat steers in Alberta was 2¢ short of $93. Yesterday, last week, they were $87. So the market is functioning, albeit not as it would arbitrage if the border were open for live cattle.

With calves this fall in western Canada, people had the opportunity to sell their calves for 10¢ to 15¢ less a pound than a year ago. And if we consider the fact that this year we didn't have a drought year but a grass year, the calves were heavier. On my own ranch, we sold our calves for more money per head than a year ago. We've all made our decisions on whether to sell or not sell.

As far as cows go, while the price of cows has been depressed, if we calculate, versus a year ago, the market return on cows plus the government payout or government subsidy, our culled cows off our own place brought within $100 to $200 per head less. I suggest to you that this is not a bad performance considering this country is in the middle of a BSE wreck. The industry has responded with large volumes. In Alberta in the first two months of this year, January and February, our kill levels in Alberta were up 19%, and across the country up 15%.

While the cow kill is down 20%, it's really not because of the total price realization and the return that the producer can get. He bred those cows. He's expecting to take a calf out of them. And I have to tell you that from a production standpoint, in our own plant, our people have not had a day off, other than Sunday, since Christmas week. They're working at full bore. Our kills are up. We're working six days a week. Of course, we operate a double shift.

As far as consumer support goes, consumer pricing, there has been a reduction in pricing at retail. That said, there's always a bargain at retail. If you take a look at trim and ground beef, which is the most consumer-friendly, quickly prepared food, ground beef at one point or another, at one chain or another, is always at a bargain in this country. And that's a cheap beef product. As well, we're able to export the middles and arbitrage a North American pricing standard on the middles and increase our cut-out.

Now, that said, we're still suffering in that marketplace. Whereas we were taking 5¢ to 7¢ discount for product out of our plant exported into the U.S., under these conditions of trying to buy a market back we're suffering a 25¢ discount.

So the market isn't totally arbitraged, but I have to tell you that the market is working. Whether we're backgrounders, feedlot operators, packers, or retailers, every decision that's been made since May 23 has been made with the full knowledge that we do have BSE in this country, and we need to be responsible for our own actions.

I know you've had considerable discussion on supplementary quotas, and I'd like to talk about that for a little bit. Our company has been on record from day one as opposing supplementary import quotas into this country. For a long, long time nobody would listen to us, and the net result with supplementary permits has been that, prior to BSE in this country, we imported more product, by a factor of two per capita, than the Americans did.

º (1600)

The year prior, we imported 130,000 tonnes of imported boneless cuts into this country versus 760,000 tonnes into the United States. If you compare the respective populations, we brought in two times the amount per capita. On the other hand, from the supply or the production side, when you consider that we have to export 60% to 70% of our product, and we have a much greater need to export than the Americans, here we are bringing in twice as much imported product as do the Americans.

So what was the net result? Over the years, the packing business has consolidated. We had the packing business shut down in this country. In my career, I can count for you over 30 plants in western Canada that locked their doors while we exported cows into the United States. Live cows went south. We had full arbitrage, but we lost the capacity to kill. We lost the jobs. I think it would be an absolute travesty to consider supplemental permits in this country when in fact we are such a large exporter and we need to export that proportion of our product.

We perform the dirty work in our business. We take the cattle and we turn them into meat products. The jobs are physically demanding. We are committed to kill as many cattle as we possibly can. We're operating six days a week. Our plant did not lay off any people, but we lost people through the summer period through the uncertainty. We're back to normal.

We operate a margin business, and I think we have to be really careful that we don't make some major decisions here, considering that the border opening may be a long way away. We need to always have some optimism in our minds that the full resolution will be border opening, and hopefully it's sooner than later.

Thank you.

The Chair: Thank you, Mr. Altwasser.

Our first questioner will be Mr. Ritz.

Mr. Gerry Ritz (Battlefords—Lloydminster, CPC): Thank you, Mr. Chairman.

Gentlemen, thank you for coming again. I'm happy you could make it today.

A lot of sectors are calling you guys the “Pirates of the Prairies”; you're skimming off and so on. Today you made an excellent case for your side of it. I guess the big difference is that you pay a lot of taxes and hire a lot of folks here too, and you get to give that side of your operation here.

My concern, and what I'm hearing from my producers at home, is access. And I guess I direct this more to Brian, because I have a lot of Heartland Livestock auction up in my country, the Battlefords, Lloydminster, Kindersley, and all in through there. They're concerned that they don't have access to your plant unless they go through your auction system. There seems to be a movement out there that if they auction through a private auctioneering firm or something like that, and don't go through your auction process, a discount is applied.

I'm just wondering how you would address that.

Mr. Brian Nilsson: [Inaudible—Editor]...because I can confirm that we are on every market. But I'll tell you where there are problems. Over the last six months...and you have to remember that when you get into a crisis, things happen.

Now, you used to be able to haul your three cows into a little market someplace up in who knows where, up in Interlakes, where there aren't many cattle. You still probably got 5¢ a pound less than you would if you came to one of my major markets, because they had to be brought by drovers, small dealers who would gather them and take them to three or four little auctions. When the value was lower, it looked worse, but there was never a point....

Last summer we tried to do some scheduling, because we were getting quite a few cows coming at us. So we tried to do some scheduling, sure, but we made sure every producer had access to our plants.

Specifically in Saskatchewan, we've had to run our one plant in Saskatchewan as mostly fed cattle, and the other plant as cows, because of the segregation policy we're having to work with. So that was a change for Saskatchewan. We're not killing as many cows at the Saskatchewan plant. They thought I did that because I was trying to spite Manitoba and Saskatchewan. I'll tell you one thing: I have spent more money in the last two years trying to develop the industry in those provinces, because I believe that's where the growth in the industry is going to come.

So we didn't do this in the context of trying to change anything. This was forced on us from the segregation policies that had to happen so that I could send meat to the States. At the end of the day, you have to do these things, and I know that. There's no ulterior....

I'll tell you one thing: prices are higher at my market, because I'll fire the manager who doesn't do a good job.

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Mr. Gerry Ritz: Okay. Thanks.

One of the concerns or considerations I'm wondering about is, in your overall overhead costs, the cost of that raw material. What is that as a percentage of your overhead and everything else?

I'll give you an example. A friend of mine runs a major malt plant. He claims to me, whether he pays $2 a bushel for barley or $12 a bushel for the raw barley, it really doesn't have any impact on the overall cost of his operation and the malt he produces. I'd like to know if there is some kind of comparison like that, with a cow wandering in. What actual percentage of your overall costs is the cost of that carcass? Have you ever had a breakdown like that, or can you give me one?

Mr. Brian Nilsson: Would you like one of the big guys to answer?

Mr. Gerry Ritz: Yes, all of you, actually.

Mr. Brian Nilsson: Okay.

All I'm going to say is what I saw last summer. When these plants slowed down--and you have to remember there was a period when my Moose Jaw plant was actually shut--we actually used our Moose Jaw plant to do the emergency slaughter for CFIA, at a tremendous risk to us financially. Anyway, we got the plant going again once we could get more meat processed. I saw huge variations--if you're running the plant full or running it slow. We're just getting back to where we can run full.

We were a really large shipper of cow carcasses to the United States. When that border closed on May 20, 25% of my business quit; it was that fast. I could not process those cows. I didn't have enough fabrication capacity in my plants to do it. We spent a lot of money so that by the first of April we will be able to process everything we can slaughter, so we can get back to full speed. There's a huge range in what it costs you to run your facility.

Mr. Garnett Altwasser: Just as a broad comparison, on a full bore basis--and I was just trying to run some mental numbers while Brian was speaking--your raw material costs would be about 85% of your total. The cattle costs would be about 85% of the total. We run a margin business, and I would suggest to you it's around 85%.

Mr. Gerry Ritz: So 5¢ or 10¢ or 20¢ a pound difference would make a huge difference.

Mr. Garnett Altwasser: Absolutely.

Mr. Willie Van Solkema: Can I make a comment also?

I think the other thing we want to add here--and this certainly happened in our facility--is that we have x amount of fixed costs at those facilities, and when BSE hit and we went to about half production, those fixed costs were still there. So if you look at it on a per head basis, those costs went up astronomically.

Mr. Gerry Ritz: What do your overall year-end numbers look like? You had a pretty decent first quarter, the second and third quarters were dismal, and in the fourth quarter you maybe came back a little. You can tell us or not, I guess--you can decide not to--but overall, what does your overall year look like?

Mr. Willie Van Solkema: The only comment I'm going to make is that at Cargill we look at our beef business from a North American standpoint, and what I can tell you from a North American standpoint is that the last six months have been very poor--from a North American standpoint.

Mr. Brian Nilsson: I'll tell you what it's like in Canada for me. I told my wife when I left on Monday morning for meetings in Calgary, you know, this is going to be the strangest week of my life. We have a couple of private investors in our company. On Monday I'm having a meeting with my shareholders, and they're going to give me heck for not making enough money this year, and on Wednesday I'm going to get heck for making too much.

That's what it was. I didn't have the best year of my life, for a lot of reasons.

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Mr. Garnett Altwasser: From Lakeside's perspective, in the first three months post-BSE we had tremendous losses. In fact, we still have product coming back from Korea. The claims we're settling on that product are in excess of 25% of the original invoice costs. For example, if $100,000 worth of product was shipped--our original invoice cost--by the time we get it back and destroy it or sell it, with demurrage, storage, freight, and everything that is attached to it, a $100,000 invoice is costing the company about $125,000. And that's still happening. But more to the point, during the first three months we had tremendous losses, then we stabilized, and as we went through to the end of our fiscal year, which is the end of September, our earnings last year were less than our earnings the year before.

Since that time the market has been up and it's been down. We've had some weeks of good earnings. Those earnings are shrinking, and we're partway into a new year.

The Chair: Okay, that's the end of that questioning.

We'll go to Mr. Proctor, seven minutes.

Mr. Dick Proctor (Palliser, NDP): Welcome, gentlemen.

Mr. Van Solkema, you raised the matter of the Alberta Beef Industry Council, and I would like to start because I think a lot of people in this room are here because of that report that came out recently. So I'm going to toss out some of the things that are in that report and have you respond to them.

Number one is that Alberta packers' gross margins are up 200% since May 20, and these margins are double what the U.S. packers receive. I would like your response to that.

Mr. Willie Van Solkema: When you look at what we've sold product at, it is less than what it was last year at the same time. So I can't tell you where they're getting these figures from.

I can tell you that the gross margin--because I used to do the pricing for our company--is yield times price. The price we get for our products times the yield of those products is less than what it was last year at this time. That is a fact. So I don't know where they get their numbers from.

Mr. Dick Proctor: All right.

Then it says: “...Cargill and Tyson, slaughter 90% of the finished cattle in Alberta.... They are setting the purchase price for beef, then selling to grocery stores at the same, pre-mad-cow rate.”

Mr. Brian Nilsson: I take exception to that.

My brother and I run XL Foods, and I'll tell you one thing: I keep these guys honest. That's our job, and anybody in the cattle-feeding business who says otherwise needs to stand up and tell us why. We don't actually feed as big a percentage sometimes as we kill, but we make sure we're in the marketplace. And we are probably one of the strongest players in that marketplace.

I've read that report, and that's just by people who want to get caught up with the big Americans. I like to think that I might not be...but I kill 1,800 cattle a day. I kill half of what Willie does, and I built an operation on a shoestring that I didn't have a whole lot of money for. So I'm in there. I think on a lot of days both these guys wish I was gone, but it ain't happening tomorrow.

Mr. Willie Van Solkema: That's right. It's a very competitive market out there.

Mr. Dick Proctor: It says that the $800-million BSE recovery program padded the bottom line of the packing houses, that the cow-calf operators are left behind in the process.

Anybody?

Mr. Brian Nilsson: What's the question?

Mr. Dick Proctor: The question is, what is your response to that? They're saying a lot of people think that the packers have made out like bandits. You're saying that's not the case. Certainly there is nobody saying the cow-calf operators became rich in this process. Most of them have not seen any money, especially if they didn't take any cattle to market.

Mr. Brian Nilsson: I'd like to comment on a fellow who phoned in to my brother. He hadn't heard this, but one of the customers who phoned him said, “Boy, you should have caught what was on the radio the other day. You finally got a bit of good news”. I said, “What was that?” He said it was on the Rutherford show. Somebody was phoning in about the cattle prices and how bad it was, and this farmer phoned in and said, “You know, I sold my cattle at Nilsson Brothers this fall. I got more money than I got the fall before. Obviously these people don't deal in the right spot”.

It's easy to ask where did the $800 million went. It went into the whole industry. It flowed down. We had a really good market this fall, and that was the net result of that $800 million. I explained to that gentlemen that I didn't have as good a year as I had last year, financially. So if you think I have it somewhere....

What you're dealing with is the same thing as happened to a producer here a month ago, who was selling his cattle for 60¢ a pound. And he said, “Boy, the market's terrible”. He sold 600-pound steers. He sold into a market that was severely depressed because the banks were pulling credit and were seizing this marketplace up. He wasn't selling 85¢-a-pound fat cattle. This market's functioning really well right now. Today 600-pound steers are back at 95¢. If you want to use extremes all the time, you can make any scenario you want, and that's what that report was about. I think it was basically built to try to get a reaction. It probably has done more harm to the industry than anything that could be done, and rather than working together.... I find these actions have been very derogatory for the industry.

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Mr. Willie Van Solkema: I'd like to make a comment that several of the Alberta cattle feeders who are part of this council actually looked at the report a couple of days ago and said, “That's not what we were talking about, you know, all these issues”. There are some cooler heads prevailing and they're saying that certain people are blowing this thing out of proportion.

Mr. Dick Proctor: Mr. Van Solkema, you talked in your introduction about how you look at it from a North American viewpoint. I have a farmer--who is not in my riding but in Saskatchewan--who was in Minot, North Dakota, last week. He reports that as far as he can tell, U.S. cattle prices are up at least 10% to 15% over 2003, and prices in the supermarkets in the United States are lower than they are here in Canada, factoring in the Canadian dollar. U.S. older cattle get 50¢ a pound. He sold three animals in Canada at 15¢, 17¢, and 19.5¢ a pound. The grand total was $690 for the three animals. That was the price he had, and they're getting 50¢ a pound in the U.S. You talk about North American market pricing.

Mr. Willie Van Solkema: It's clearly because of the BSE issue that those cattle can't move.

Mr. Dick Proctor: But they have BSE in the States.

Mr. Brian Nilsson: What they don't have is this. On cows right now, if you go to see what the store in the States has to pay for their ground beef, you'll see they're paying substantially more than the store here.

I know what I sell the cow meat to the retailers at, and it's substantially lower than it's worth in the United States. That's because we have to move that cow meat here. I have no access to the U.S. market with that. The United States is a deficit market for lean meat, so their lean meat stays high, even though they have BSE. We are a surplus market for lean meat because we used to ship it out. So last week when I was still selling cow meat for $1 a pound Canadian, which would bring $1.60 in the United States, well, that reflects into what cows bring.

I would want to know, when he received 15¢ to 19¢, whether that was a month ago, two months ago.

Mr. Dick Proctor: Last week, that's what he said.

Mr. Brian Nilsson: There is one thing we have to keep track of when we talk about this. When you take the value of the offal and all these things, it's $200 that comes off. If you happen to have a cow that used to only bring 30¢ a pound--there were cows that brought 30¢ when some were bringing 50¢--and you take $200 off that, well, she is only bringing 10¢ now. So there's a big range in what a cow is worth.

I can show you cows today that are worth 5¢, but I can tell you that at my plant, to date, my average procurement cost on cows is 30¢. You're telling me he received 17¢. Well, it depends on the kind of cow he sold. There's a big difference.

The Chair: Time has expired. We have to move on.

Mr. O'Reilly, seven minutes.

Mr. John O'Reilly (Haliburton—Victoria—Brock, Lib.): Thank you very much, Mr. Chairman, and thank you, gentlemen, for coming. We appreciate the fact that you're very forthright and you're very telling in your stories.

I have this problem. I come from central Ontario and I have all kinds of beef farms. It's a large agricultural riding. So I want to give some quotes that I receive. The first one is a letter I have from a guy who raises beef, who I know quite well. He said, “Personally, I have lost over $100,000, and I'm a small operator. Most of us have been turned down in an effort to borrow money to feed our cattle.”

The next is about the fact that there's 40% to 50% less at the sale barn floor, input costs have risen, processors are buying at 50% less than last year, and the price at the butcher shop is relatively the same. Who's ripping off the beef farmers?

When I go to the National Farmers Union, they say, “Packers and retailers are pocketing as much as one dollar per pound: abusing farmers and consumers alike.”

When I go to Mr. Brinkman from the University of Guelph, he indicates, “The processors buy it for less and could sell it for less. But if they sell it for less, it would increase the demand for beef product, which we couldn't supply, and would put pressure to import from the U.S., which we can't do because of mad cow”.

Now, what the consumer out there is getting is relatively the same price at the butcher shop. The farmer is getting scuppered by the banks, because they will not lend them money to feed off the cattle that they have. They're getting nothing for them at the sale barn. Somebody--and that's what this committee is here for, Mr. Chair--is making money on the backs of the farmers, and that's what we're here to find out. If it isn't you, who is it? If it is you, then how do you do it?

That's what we're trying to find out here. This is not an inquiry to damage your reputation or to stop you from making a profit. I was in business before I came in here. What we have is desperate farmers who cannot borrow from the bank, who are going out of business left and right, who can't feed their families. They're losing their houses, losing their equipment. Who's at fault?

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Mr. Brian Nilsson: I would like to comment.

First of all, right now the price of cattle in western Canada--and I assume eastern Canada is about the same; I know it's pretty close to the same--is not 50% less; it is 25% less. We're selling the meat for about 20% less.

Mr. John O'Reilly: The Woodville sale barn prices are 50% less than they were last year on the floor of the sale barn. That's what I'm talking about.

Mr. Brian Nilsson: Right, but that's for a feeder animal, not for a slaughter animal, not with the packers or processing.

Mr. John O'Reilly: So who's making the money on this?

Mr. Brian Nilsson: Well, nobody, because the guy who's buying that is now saying, I think I have more risk, so I'm going to either make more money.... That's what I was trying to explain when I was here last time. I was trying to make sure the producers understood that the feedlot sector is now saying, there's risk here and we don't want to take risk; we want to pay you less for those feeder cattle. They have to be able to finish them to get them to the packing plants so they can get a fair return, because today in the packing system we are only paying 20% or 25% less than a year ago, and we're selling the meat for 20% or 25% less.

Mr. John O'Reilly: So my farmers are all wrong?

Mr. Brian Nilsson: No, your farmers aren't wrong, because if someone was selling a 600-pound steer, he might be getting half as much.

Mr. John O'Reilly: That's right; that's exactly what we're talking about. So who's making the profit on it? That's what we want to know. That's the bottom line.

Mr. Brian Nilsson: Nobody. They don't know. It's a speculative market, because somebody's buying it and taking a chance on what they're going to get. That's how the market functions.

Mr. Willie Van Solkema: Those animals have to be fed for another 150 or 200 days before they come to our facilities, so that price hasn't even been established yet.

Mr. John O'Reilly: What do I tell my farmer who's lost $100,000? I have lots of them.

Mr. Brian Nilsson: You can tell them to come on down. I lost $10 million. I think in this country--that's the nice part about it--you can make and lose, and we're sure figuring out the lose part really well.

Mr. John O'Reilly: I was in the real estate business. I've been rich and I've been poor.

Mr. Brian Nilsson: Yes, that's the great thing about this deal: you can make or lose all you want. The fact is, yes, it is a terrible time. We deal with 30,000 producers out there through livestock markets, and I'll tell you one thing, this is as bad a thing as I've ever seen come down.

But the other point is that I think we all have to take the point of view that we have to be able to sustain losses. Nobody has guaranteed us that we will always make money, so as individuals we have to look at that sometimes.

Mr. John O'Reilly: So we have elements that include the finisher, the processor, the wholesaler, and the retailer. Which one is getting the extra money?

Mr. Brian Nilsson: That's what I've just been saying. Right now, for the most part, take the stuff we used to sell to the rest of the world. You know, I don't see a big market in Canada for sphincter muscles.

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Mr. Willie Van Solkema: I think it's part of the point that an animal used to garner so much value; it doesn't any more. We don't get the same value. I don't understand why nobody wants to look at the lost value. It's been documented; it's there; it's true. Now, when you look at the muscle cuts that get sold to the retailers, that only represents a very small percentage of that animal.

Mr. Garnett Altwasser: The other thing you're missing is that if you're comparing the 600-pound feeder animal, there's a speculator buying that. I run a feedlot as well, and last fall I speculated wrong. As it turned out, I paid $25 per hundred pounds more for those cattle than I should have, as hindsight would tell me.

Now we're going to overcompensate, to try to buy those cattle for less money. The kind of cattle these three plants kill is 13- to 14-hundredweight finished cattle, so when we're talking in terms of where the money went, that's what we have to deal with.

The other portion of it is that they talk in terms of the by-products that are not harvestable anymore. In our own particular plant we're burying meat and bone meal and we're burning cattle in our dryers. We've converted our dryers over to burn cattle. The Canadian Beef Export Federation has documented $200 per head in sales that were being sold into offshore markets that are now going into trim or into rendering. There's a real, true loss here.

As for the product we're selling into the United States, our discount is five times greater than it was pre-BSE.

The Chair: Your time has expired, Mr. O'Reilly.

Mr. Borotsik.

Mr. Rick Borotsik (Brandon—Souris, CPC): Thank you very much.

I'd just like to touch on that too, Garnett, if I could. You're selling into the U.S.; boxed beef is marketable in the U.S. Are you telling me that for your boxed beef, the cuts you're selling into the U.S., you're selling it for less now than you did pre-May 20?

Mr. Garnett Altwasser: We run a price comparison on a weekly basis.

Mr. Rick Borotsik: Are you selling that boxed beef for less now than you did pre--

Mr. Garnett Altwasser: Let me finish. When IBP bought this plant in 1994, we expanded into the boxed beef. It was one of our goals to achieve pricing parity of Canadian product with American product. We struggled for a long time, and we've never been able to totally achieve pricing parity with U.S. product, but we were getting pretty close. I would suggest that pre-BSE we were 5¢ to 6¢ within what our sister plants in the U.S. were selling for comparable product.

Mr. Rick Borotsik: What is it now?

Mr. Garnett Altwasser: Now we're two bits behind.

Mr. Rick Borotsik: So you're saying--

Mr. Garnett Altwasser: We're five times behind what we were before. We were a nickel behind before; we're now two bits behind.

Mr. Rick Borotsik: What is it on a percentage basis? The cuts are obviously going to bring different value.

Mr. Garnett Altwasser: Well, there are different cuts. Those are the middle cuts.

Mr. Rick Borotsik: On a percentage basis, what percentage less now are you post-May 20 as opposed to pre-May 20?

Mr. Garnett Altwasser: Well, it depends on the particular cut. I'm just saying that across the board it's about 25¢.

Mr. Willie Van Solkema: The other point I'd like to make is that the change in the exchange rate has affected the value we get out of our U.S. sales. When the exchange rate was $1.50 and you were selling a product at $1 U.S., your return was $1.50 Canadian. Well, the exchange rate is now $1.33; that's a lot less money.

Mr. Rick Borotsik: So that is something that was going to have to be taken into consideration regardless of May 20. Dollars fluctuate, and you hedge dollars, don't you?

Mr. Willie Van Solkema: What I'm saying is that the value we get back in Canadian dollars for those products has been less because of the exchange rate.

Mr. Rick Borotsik: But don't you hedge in your industry?

Mr. Brian Nilsson: No.

Mr. Rick Borotsik: There's no hedging at all?

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Mr. Brian Nilsson: You can't take a forward hedge, because you're buying the cattle and you're selling the meat. If you take a big long forward hedge, you're speculating on what you're going to get for your product.

Mr. Rick Borotsik: By the way, you're right, profit is not a dirty word. What we're hearing right now from the producers, though, is that they're losing; the feedlot operators have lost, and some of the backgrounders have lost. They're looking to see where the money is being made, but what you're telling us is that there is no money being made.

So I say that federal and provincial programs have gone into the industry--we know that--for hundreds of millions, we're told, in some cases billions. I want your honest answer. Have those programs worked, in your opinion? If they have worked, should there be more? And if they haven't worked, what's the answer for the cattle industry right now?

Mr. Brian Nilsson: I think you're going to get three answers.

Mr. Rick Borotsik: With billions of dollars into the programs, have they worked?

Mr. Brian Nilsson: My belief is that the programs have worked.

Mr. Rick Borotsik: Has the money been getting to the producer?

Mr. Brian Nilsson: Yes. That's why we had a good market last fall for feeder cattle. That was the flow-through we saw. We saw a flow-through, and that's why the producers were getting a better return for their cattle last fall.

Mr. Rick Borotsik: Has it been getting to the cow-calf operator?

Mr. Brian Nilsson: Well, that's the fellow who sold the feeder cattle. He didn't get a direct cheque from the government, but the feedlot in turn invested money in him.

Mr. Rick Borotsik: Prices are up for the calves.

Mr. Brian Nilsson: Yes.

Mr. Rick Borotsik: Have the programs worked, Willie?

Mr. Willie Van Solkema: I think the program have worked from the standpoint that they got the industry moving. Without the programs we'd still be sitting at a 20,000-head slaughter in a week. They moved the cattle, they got the industry going again, they got cattle being rebought and put back in--

Mr. Rick Borotsik: Should there be more?

Mr. Willie Van Solkema: I think the answer is that we need the borders open.

Mr. Rick Borotsik: Absolutely.

Mr. Willie Van Solkema: That is the answer.

Mr. Rick Borotsik: Can I go to supplemental quotas for a second? I don't have a lot of time.

Garnett, you were adamantly opposed to that. The processors were here two weeks ago and they were adamantly in favour of it. What they're saying is that they cannot access Canadian beef because you are not providing it or supplying it. Who's right, you or them?

Mr. Garnett Altwasser: Well, I reviewed the tape of the proceedings, and I think Bennie Dejonge answered correctly: if you got the money, I got the meat.

Some hon. members: Oh, oh!

Mr. Rick Borotsik: So they're prepared to pay less money for American product than what you're prepared to provide the Canadian product for.

Mr. Garnett Altwasser: What's the question?

Mr. Rick Borotsik: Well, the question is, can you not provide it at their price? Why can't you provide Canadian beef at their price?

Mr. Garnett Altwasser: Because it's our job to maximize the return on the products we sell. If they want to keep the meat at home, they're going to have to pay the price.

I might suggest to you that the specifications they put on some of those products are different from what we've been accustomed to dealing with. We're in the process of putting together a large boxing operation where we can freeze boxes to their specifications and in the quantity they require. For fresh product they get all the product they want.

Mr. Rick Borotsik: Do I have more time?

The Chair: No, not on this round. We'll get back to you.

Now we go to Mr. Easter.

Hon. Wayne Easter (Malpeque, Lib.): Thank you, Mr. Chair.

Like everyone else around here, Mr. Chair, I think there is a huge concern that somebody is getting ripped off in the system. Certainly, we all know that the primary producers are, I believe, the ones carrying the greatest burden and are at the greatest risk in the industry at the moment. That's the issue we have to deal with.

On the more positive side, based on Garnett's earlier comments, I'm pleased to hear that you oppose supplemental quotas. Rick was pretty nearly in tears here the other day when the value-added beef processors were in, and he just mentioned them. This is what they had to say on the record, and I quote, “Canadian beef packers cannot supply required raw material to Canadian value-added beef processors”. They went on with a great argument as to why they needed to bring in product from Uruguay, etc., blended in to supply Subway, etc.

Brian had said he would love to move into that business. How do we pull those two together? Personally I have always strongly opposed supplemental imports. I think we do have the Canadian product in Canada. There must be a way of bringing these two sides together so that we can be utilizing this Canadian product at Subway, etc.

Mr. Garnett Altwasser: If I might start, the fact is we have BSE in North America and in this country, and we've all gone through a tremendous amount of change. We've had to adapt. We're doing things that we didn't think were possible. We're taking SRMs out. We're burying meat meal. We're slowing down our production in terms of producing everything boneless.

What I suggest is that the further processors need to have some flexibility as well. Life is different. Life is not going to be the same as it was pre-BSE. In terms of frozen versus fresh, in terms of specifications as to the various lean points and the formulations for least-cost formulations, they need to have some flexibility. We are working hard to give them all the frozen product that they want, but they have to have some flexibility as well. The meat is there. It may not be in the exact form. It may in a 2,000-pound combo bin versus a nice, neat 60-pound frozen box of material, but the meat is there.

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Hon. Wayne Easter: If I could come then to the question that was asked earlier, where is the money going in the industry in terms of the share of the value change from primary producer to consumers? The prices haven't come down much to speak of at the retail level, but primary producers are going broke. I've heard your arguments on rendering, etc.

What I would like to know is, do you have any idea where the government money went, the $460 million in assistance to the cattle industry? There's certainly a view out there by producers that it didn't get to them, because prices deteriorated. There's a view that you people ripped them off. It's that simple. If I talk to a producer, that's what he'll tell me.

The program was announced on June 18. The cattle prices for the week ending June 13, Mr. Chair, were $76.71 for steers and $78.74 for heifers. The next week, June 18, after the announcement, those prices had dropped to $67.16 and $61.88 respectively. The next week after that, June 27, they had dropped further to $47.02 for steers and $49.24 for heifers. When you put all that together, the bottom line is that within two weeks after the announcement of the $460 million to the industry, prices had fallen $29.69 for steers and $29.50 for heifers.

You'd almost assume from those numbers that you ended up by having cheaper prices and the money ended up in your pockets and not in producers'. How do you refute that argument, or can you, or do you agree?

Mr. Garnett Altwasser: No, I think it bears comment. The fact of the matter is, prior to that program, the industry was at a stalemate. We needed to buy the cattle cheaper because we were cut out of the U.S. market. The producer had his costs in these cattle and didn't sell. If you go back through the kill volumes, there were six weeks where the kill volumes were very light; in fact, they were about half.

The bottom line is that the government money did not create cattle or take cattle away. The supply and demand for cattle remained the same, whether the government money was there or not. What the government money did was give the producer an assurance that if he sold the cattle to where they were going anyway, he was going to get a portion of the money to bail out his losses. The business started to operate and they started to move cattle.

That's what happened when the government money was put on the table. I would suggest that the supply-demand, and where the pricing was going on the cattle, was not going to be any different with or without the absence of government money.

Mr. Brian Nilsson: I think I'd like to comment, too. The thing that happened, because I saw it happening very quickly in that time period, was that we rendered $100 to $150 a head in trims and things that used to sell. The fact is that the system was so plugged up that we had said to the government that they needed to either buy the meat or do something. They said no, they were going to do the producer program, and do what had to be done to get rid of the meat.

Hon. Wayne Easter: We did buy out the inventories.

Mr. Brian Nilsson: No, you bought no inventory from me. I gave $1 million to the food bank.

Hon. Wayne Easter: The Government of Canada, in June, July or August--I forget which month--bought out a lot of inventories on the lower-quality cuts that were in storage at the time.

Mr. Brian Nilsson: No, they bought no meat. There was a program where there was supposed to be an incentive to increase production, because we said that we were going to have to render lots more. I think that was the $30 million, of which, I'd like to point out, none of these three packers have received $1 yet.

Hon. Wayne Easter: Mr. Chairman.

The Chair: There was $30 million of federal funds.

Hon. Wayne Easter: There was $30 million. I certainly want the researcher to find out then.

I was involved on the inside, in the make-up of the program. The $30 million was supposed to go to empty freezers. The argument processors were using for bringing in American beef was that the freezers were full, so the $30 million was to go to empty freezers. Didn't that happen?

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Mr. Brian Nilsson: We emptied our freezers. I rendered it.

Mr. Willie Van Solkema: We took the loss on all of this.

Mr. Brian Nilsson: Yes. I can show the statements that I rendered and took it to the dump. I did whatever it took to clean this stuff out, and so far I haven't seen anything.

Mr. Willie Van Solkema: We're the same.

The Chair: We're going to go to Mr. Proctor for five minutes.

Mr. Dick Proctor: I want to stay on this $30 million. You're all saying that you didn't receive a penny of it. We had the Agriculture folks here on Monday. They said, I thought, that the figure was $9 million.

Mr. Rick Borotsik: It was $9.9 million.

Mr. Dick Proctor: It was $9.9 million that went directly to the packing plants to assist with the fact that you weren't being able to sell some of the products that you've referred to here today, the offal and others.

Mr. Brian Nilsson: Ontario and Quebec received money.

Mr. Dick Proctor: Why wouldn't your three plants have received money? Why would only--

Mr. Brian Nilsson: Because the provincial government is in charge of it, and they're waiting to make sure that we're good guys. It has to be administered through the provinces. We've put our applications in.

Mr. Dick Proctor: Some people have said that to try to resolve this or to try to help out others in the industry, we should move to a mandatory minimum slaughter price. How do you respond to that, to help out some of the folks that we feel are really being hurt in this process? What impact would a mandatory minimum slaughter price have on your industry?

Mr. Garnett Altwasser: I think a minimum price would be one of the most negative things, as a signal and as an impact on our cattle producers. This industry, especially out west, has brought risk takers, entrepreneurs, people who are prepared to try to make money in the industry. From an industry perspective, if we want to drive capital away from an industry and go to some centrally managed controlled system, then in the long term we'll drive capital out of our business.

The other thing is that the slaughter price is only one component of an industry that's driven by a multitude of people making individual decisions, whether it's costs to gain, feed costs, calves, yearlings, and ultimately the slaughter price. Quite frankly, one person's problem is one other person's opportunity, and that's what we're seeing happening in the feeder cattle market.

I believe that the prospect of a profit is what we want to generate in our business. That will heal our problems more quickly than anything--the ability for the risk takers to look into our business and say that they think there's money to be made here.

Mr. Dick Proctor: Okay.

We're in a comment period, or at least the United States has a comment period on all of this that opened yesterday and closes April 7. One of you--and I forget which one--indicated some optimism that perhaps.... Cargill and Tyson, an integrated North American company.... What are you hearing about the possibility of the border reopening to live cattle exports before the U.S. presidential election in November?

Mr. Willie Van Solkema: I think it's very favourable. The comment period finishes on April 7, and at that point in time they actually have to establish the final rule. What we're hearing is that they definitely want to move forward with it, and although it may take a little bit more time, I'm somewhat optimistic that somewhere in this June timeframe we will have live exports of under-30-month cattle into the U.S.--barring any unforeseen circumstances.

Mr. Dick Proctor: Does anybody else want to add?

Brian.

Mr. Brian Nilsson: I just want to say, though, one thing we need to quit doing is making the producer feel every time we turn around that it's going to be better. If we hadn't done that, we would have relieved a lot of stress. That's what's hurting them so much: we keep telling them it's going to be better. They didn't make decisions last fall to sell because they were waiting. Every time they turned around somebody said, hey, it's going to open. We give a lot of bad direction. As Willie said, I think we have a chance that this might be real this time. But we have to be careful; this misdirection we give to the producers is terribly hard on them.

Mr. Dick Proctor: In fairness, Brian, you have to say that nobody foresaw December 23. We all talk about May 20, but nobody knew--

Mr. Brian Nilsson: You can't say that.

Mr. Dick Proctor: What do you mean, we can't say that?

Mr. Brian Nilsson: I didn't purchase any feed or cattle last fall because I felt the marketplace did not adequately reflect the risk. When you talk about the entrepreneurs, Garnett just dropped $20 million because he bought, and I'm going to be here now buying because I have my money left. You can't say there are people out there who didn't do it.

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Mr. Dick Proctor: But there was a general consensus--

Mr. Brian Nilsson: There was no general consensus.

Mr. Dick Proctor: Okay.

Mr. Brian Nilsson: It's open when it's open.

Mr. Dick Proctor: All right. There was no general consensus.

There was a strong feeling that the border was going to reopen to live cattle exports in the January-February period before December 23, before this cow in Washington state. I don't know. That's what we were being told. It looked good; we were in the comment period, I think, back then, prior to December 23.

The Chair: Your time has expired, I'm sorry.

Is there any response to that?

We'll move to Mr. McCormick.

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.): Thank you, Mr. Chair, and thank you, gentlemen, for being back here.

Welcome, Willie, to this world here.

Brian, if we can call you by your first name, you talked about getting emotional. I really appreciate the fact that you have a stake in this industry and you're going to be here for the future. That's what we all want. We want our industry to be strong. But while you're emotional, and while you people are making money, our producers are being shut out at the bank, and their families and our communities are suffering. I appreciate your support, but it's not there for the producers.

My question is this. On August 11 you shared with us the fact that Lakeside--and Garnett is one of the smartest beef people in the country--had lost money for two months, or maybe it was three months. But when you were here on August 11, you did mention, Garnett, that you were making money then. That's good; that's what business is about. But you were making money on August 11, with the prices at that time. Then we come along with taxpayers' money--we all pay taxes, too many taxes--and we put only $400 million or something out at that time. Within 48 hours the prices dropped. As my colleague Mr. Easter said, the prices continued to drop for two weeks.

That's the question I'm getting at. Where did the money go? I know about the cost of the by-products and so on, but what can you say to Canadians? What answer can you give me? How come, as soon as we put the money out, you dropped--you people, your company? You're the ones that control the market in Canada. The price fell drastically, by about a third or more.

Mr. Garnett Altwasser: If I might, we don't control the market in Canada. We buy cattle in competition, and Brian says he's going to be there to give us a bloody nose most every day of the week, and he does. The bottom line is that as the market arbitrages, we buy cattle on an hour-to-hour basis, and we make no bones about the fact that it's our job to buy the cattle as cost-effectively as we know how. Prior to the program being announced, there was no trading. The industry was at a stalemate. The cattle were not trading, and we were losing valuable slaughter time. Cattle were building in the feedlot; cattle were getting heavy; the discounts were widening on those cattle because we were producing an inferior product.

When the program was announced, there was courage there that the producer would sell cattle and the business started to operate again. I suggest that the market did not fall to 35¢ because of the program; the market fell because that's where it was going anyway.

Mr. Larry McCormick: It's easy to say there's a free market there. Brian has built a very successful company, and we want it to be successful. But the two witnesses here--Tyson and Cargill--control probably only 90% of the market in the west. It may not be control, but if you buy 90% of the animals, most Canadians would think that was control.

But I have a question. Today you mentioned that a 600-pound steer today is back at 95¢. I know you people are the experts, but what was that steer at approximately six weeks ago?

Mr. Brian Nilsson: It was probably at 65¢.

Mr. Larry McCormick: Again, you witnesses told us you were making money on August 11. It's been a while since August 11, and there is nothing illegal about making money and making excessive profits. It's part of free enterprise to buy low and sell high. But we're all concerned here, and I believe we're all here for the same reason--so we will have an industry tomorrow.

I've always thought the only way to the solution--except for the end solution of the border being open.... If it were grain, I would like to see all partners be part of the solution, not part of the problem. Gentlemen, the perception is that you're part of the problem--the major part, not part of the solution. You don't seem to be concerned about the perception of Canadians, the attention that was paid to this.

So my last question is, how can you be part of the solution rather than a perceived cause of the problem?

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Mr. Willie Van Solkema: I believe we are part of the solution. As individual companies and as part of the Canadian Meat Council, we are dealing with the Canadian Cattlemen's Association to find solutions. Garnett and I sit with about 60 producers from Alberta who meet almost weekly to discuss solutions to this. We're very open. We come to these meetings and are active participants in trying to find solutions.

Maybe we haven't done a great job in communicating this to the general public. We can be faulted for that, but I'll tell you that every one of us here is putting in more hours to try to deal with this situation, and we don't get credit for it. Maybe that's our fault.

Mr. Larry McCormick: You know there are not too many in this room--it might be on camera today--who don't get credit--

The Chair: Mr. McCormick, we have to move along.

Mr. Casson.

Mr. Rick Casson (Lethbridge, CPC): Thank you, Mr. Chairman, and thank you, gentlemen.

I want to get back to a couple of issues you raised, and one new one here. I want to talk about the basis difference between the U.S. and Canada. You talked about it being 6¢ or 5¢ a pound, and now it's 25¢. Aren't we operating under the same conditions on both sides of the border, where they have to remove SRMs, and their dropped credits are the same as ours, or is there some difference there that we're not picking up on here?

Mr. Brian Nilsson: No. On what Garnett is trying to explain here, I can give you a real-life example. All three plants used to sell a lot of 50-50 trim to a United States processor that made product for Taco Bell. They came out here about a month ago and said, “We will only buy U.S. product. We won't buy Canadian”. I now have to sell to the guy who knows I can't sell there, so the product that was maybe bringing me 50¢ a pound, I now get 40¢ a pound for, because that guy knows.

When this thing opened in September, nobody realized that. I don't know how many times my meat guys told me about this. There's a yellow sheet that lists the price you're supposed to get for meat in the United States. You go down there and try to sell the meat. The guy makes you an offer and you say, “That's not what the yellow sheet says. I should be getting more”. Then he says, “Well, then sell it at home if you don't like the price”.

Mr. Willie Van Solkema: There's not enough market in Canada for those certain items.

Mr. Brian Nilsson: We can't dump this stuff on the Canadian market and kill the market here, so we take the price and don't get the American price. We have access, but we're not getting the same price.

Mr. Rick Casson: Historically, the difference has been 5¢ or 6¢, and now it's 25¢.

Mr. Willie Van Solkema: Right.

Mr. Rick Casson: It's based on the fact that the border is not completely open and the marketplace is distorted to some degree, or what...? You have to help me here.

Mr. Willie Van Solkema: There are certain customers who will not buy Canadian meat because of the BSE issue.

Mr. Brian Nilsson: With BSE in the States now, they're doing what our consumers did for us. Our consumers rallied around the Canadian beef industry, and the same thing is happening in the United States. Their consumers are rallying around their industry and saying, “If you buy Canadian, it's less”. We can't change that.

Mr. Garnett Altwasser: It's a buyer's market down there at all levels.

Mr. Brian Nilsson: Yes.

Mr. Willie Van Solkema: There are some opportunistic buyers in the U.S. who know we only have one option for certain items, like 50-50 trim. It has to go to the States. We cannot sell the volume we produce in Canada.

Mr. Garnett Altwasser: But having said that, it's a heck of a lot better to ship it to the U.S. than not to kill the cow.

Mr. Brian Nilsson: Or render it.

Mr. Willie Van Solkema: Or render it, as we did—

Mr. Brian Nilsson: In the summer.

Mr. Willie Van Solkema: Right after BSE hit.

Mr. Rick Casson: Okay, I'll leave that one.

There's another more important one that I want to deal with, the packer ownership of feeder cattle.

I think you've all indicated you own cattle. You fatten them, you have feedlots, and you bring those into your plants. Is that true?

A witness: Yes.

Mr. Rick Casson: What percentage of the....

Mr. Brian Nilsson: Garnett has almost quit now because he can't take it anymore.

Mr. Rick Casson: Yes, after the big hit. But a lot of people....

Mr. Brian Nilsson: I've almost got him beat right now. Give me another six months of this, and I'll get him down.

Mr. Rick Casson: What percentage of the cattle on feed right now do the packers in this country own?

Mr. Garnett Altwasser: We disclose those numbers on an annual basis to CanFax. The number we owned last year was 18% of our kill.

Mr. Rick Casson: Do you raise those cattle under the same conditions and the same tax restrictions as a feedlot operator has? Can you move them into your plants and manipulate and make the market work better for you because you own that many cattle?

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Mr. Garnett Altwasser: Let me just give you a little history. In our particular case, our company goes back to 1966. We built a packing plant in 1974. So the bottom line in the Lakeside company was that the feedlot built the packing plant. We developed both sides of the road until we sold it in 1994, and that continued.

So the proportion of slaughter cattle that would come out of our own facilities hasn't changed very much over the year. There's been no grand plan; that's just the way it's worked out.

What we do is buy heavyweight feeder cattle, or nine weight feeder cattle; we finish them for 140 to 150 days; and we move them across the road and sell them, on the weekly market average, to our plant.

Mr. Rick Casson: And you don't feel that has any adverse effect on the open market?

We have lots of smaller operators who say they can't get into the marketplace at certain times. They offer cattle for sale and nobody will buy them. Is that right?

Mr. Willie Van Solkema: No, but it I think it's also the case that we're slaughtering 45,000 a week, and 75,000 cattle get offered that week. There are going to be some cattle that can't physically get into the plants.

Mr. Brian Nilsson: When the border was closed, that's exactly what we said. We were killing 45, and there were 70 in the queue.

At our company, 6% is all that we own. We don't own as many as they do—but that's part of the business. I believe it's a good part. It's actually been fundamental in stabilizing the feeder market. One of the reasons the market was good last fall was that these two guys were in it, though nobody gives them credit.

Mr. Rick Casson: Are we going to run out of fat cattle or market-ready cattle, because the numbers that are—

Mr. Garnett Altwasser: We run out of money before we--

Mr. Brian Nilsson: You run out of money before you run out of cattle—you bet. That's an old saying.

Mr. Rick Casson: Are we going to run out of market-ready cattle? The feedlot numbers are so low.

Mr. Garnett Altwasser: The market has improved now in response to fewer cattle being on offer.

A witness: The market is tighter.

Mr. Garnett Altwasser: I think it will continue to be tight.

The question is when there will be a large flow of the market-ready calves that were put on feed. We distorted the way those cattle went on feed last fall. So it's anybody's guess as to when the calf run will come. Our own expectation is that it will be later rather than sooner.

The Chair: Time has expired for Mr. Casson.

We'll move to Mr. Kilgour.

Hon. David Kilgour (Edmonton Southeast, Lib.): Mr. Chairman, I wonder if the people who answer the questions could be his colleagues to his left. Would that be all right?

The consolidated beef industry action plan says on page 9....

Are you familiar with this, both of you?

A witness: We've seen it.

Hon. David Kilgour: It says:

Using the latest available prices from the Canadian Boxed Beef Reports...from CanFax...the average packer gross margin for the period of Sept 22 to Feb 16, 2004 is $431 per carcass. This compares to $144 per head one year ago and to $208 per head (Cdn$) for the U.S. during the same Sept 22 to Feb 16 time period.

In other words, packer margins are 200% higher than one year ago and 107% higher than what is currently the case in the U.S.

The industry witnessed further price distortions created by the loss of a functioning market whenthe government implemented cash support programs to the industry in 2003. The packers simplydiscounted the price they were prepared to pay for the cattle by the amount of the governmentsupport payment.

How do the two of you comment on that?

Mr. Willie Van Solkema: Well, I'll make the first comment.

When people talk about gross margin, I don't know, again, how they calculate it or where they get the prices from. What I will tell you is that I personally have been working on behalf of the Canadian Meat Council with the Canadian Cattlemen's Association and CanFax because we dispute the numbers of the gross margin. We're working with them to put forward the prices that the packers get on a weekly basis because I strongly feel that those prices are overstated.

There again, when we talk about moving 50-50 trim into the U.S. at a 10¢, 15¢, or 20¢ a pound discount, because there's no trade in Canada on 50-50, where does whoever puts that price reporting get the price? There are no prices reported in Canada on that 50-50 trim. He goes to the yellow sheet, takes it off, puts it in the formula, and all of a sudden, here's this nice gross margin. We don't actually get that.

What I'm telling you is that within a month we will be putting a process in place where actual packer prices will be put into that model.

Hon. David Kilgour: Is Mr. Altwasser going to give the same answer?

Am I right that there are about 50,000 cow-calf producers that you deal with and 140 feedlot operators?

I'm only talking to these two, please, Mr. Nilsson.

Mr. Willie Van Solkema: Could you ask the question again?

Hon. David Kilgour: Are there about 50,000 cow-calf operators and about 140 feedlots?

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Mr. Garnett Altwasser: I don't know what the answer is. I don't know.

Mr. Willie Van Solkema: I don't know how many we deal with. There again, for cow-calf we deal mainly with feedlots.

Hon. David Kilgour: Let's talk about your purchasing practices a bit. Okay? Do you enter into closed bidding?

Mr. Garnett Altwasser: Well, let me describe to you how we buy cattle. I'm not sure what your question is.

Hon. David Kilgour: Since time is short, the fact of the matter is--is it not?--that when you make a bid on cattle that you don't get because somebody has bid higher, you insist on knowing what the other bids were for the cattle. Am I right about that?

Mr. Garnett Altwasser: We bid on cattle under the terms and conditions under which those major feedlots sell. Those feedlots will solicit bids. They'll describe the cattle, they'll solicit bids, and those bids will close at a certain time. When the time has passed, the feedlot operator will declare to sell or not to sell and disclose what the prices of all the bids were.

Hon. David Kilgour: Yes, but the conditions that the other bids be immediately released are your conditions, they're not the feedlot conditions. Right?

Mr. Garnett Altwasser: No. I would say no. The bottom line is that those are the conditions under which the feedlot operator is selling the cattle.

Hon. David Kilgour: Let me put it to you, Mr. Altwasser, that you will not bid on somebody's animals in a feedlot unless they agree immediately to release the other bids that were made. Don't tell me otherwise, because I was told yesterday by a feedlot operator that it is your practice. I believe it's Cargill's, as well.

Mr. Garnett Altwasser: I don't think that's true.

Hon. David Kilgour: Are you saying that on the record?

Mr. Garnett Altwasser: We don't know of people that we haven't bid on cattle.... We bid on all cattle, that I'm aware of.

Mr. Willie Van Solkema: It's a sealed-bid process.

Hon. David Kilgour: Yes, but I said, for the third time, that you insist on knowing what the other bids are before you will bid on a given feedlot operator's cattle.

Mr. Garnett Altwasser: Frankly, I haven't dealt with that issue for so long that I'm not sure where that's taking us. On the basis of the cattle we're buying, the bids are disclosed after the sale.

Hon. David Kilgour: Where I think it's taking us, Mr. Altwasser, is to captive supply. Do you know that term?

Mr. Garnett Altwasser: Sure.

Hon. David Kilgour: Do you know that your parent company was found to have engaged in captive supply practices in Alabama and was found guilty of that?

Mr. Garnett Altwasser: From what I understand--

Hon. David Kilgour: How different are your practices here from what they are, say, in Alabama?

Mr. Garnett Altwasser: Well, I'm not sure what the situation is in the U.S. The case was heard in Alabama as it relates to cattle purchases across the greater part of the United States. I'm a long way removed and Lakeside was not involved with that, of course, but as I understand it, it had to do with marketing agreements versus open markets. The judge has yet to render a judgment on the jury's recommendation.

In terms of marketing agreements, we buy a few cattle forward that producers want to contract, and we hedge on the board. We have one customer from whom we buy cattle on a weekly average. The rest are bought in open competition.

Hon. David Kilgour: Have you seen this verdict of the jury? It's seven points, and they come up, plainly, with a $1.2 billion damage estimate.

Mr. Garnett Altwasser: I've not seen that. I've read it in the press and in the clippings.

The Chair: We'll leave that line of questioning for now. We'll go to Mr. Proctor again.

Mr. Dick Proctor: Let's just stay on that, if I may.

How was Tyson able to manipulate that market? As I understand it, the U.S. Packers and Stockyards Act and the judge have concluded that Tyson has basically ripped off American consumers to the extent of some $60 billion and that's why the conviction was in excess of $1.2 billion.

My question is, how did it happen? How did Tyson manipulate the U.S. market, and can it be manipulated here to the same extent?

Mr. Garnett Altwasser: I would have to say that I'm not fully informed as to what went on, but from the limited information I have, I think that's fairly strong language in terms of being ripped off. While the jury has come back with a recommendation, the judge has not ruled on it. There is no judgment handed down yet. I would suggest to you that while this case has gone on for a long time, the last chapter is not written and it will go on for a long time from here forward.

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Mr. Dick Proctor: Do we have anything that is similar in Canada to this Packers and Stockyards Act? I'm asking the question because this committee has tried, through the Competition Bureau, to have a better understanding of what has happened since May 20, and basically I think we've been told, at least at one time, that they don't have the authority to look at it.

Mr. Garnett Altwasser: I'm not sure of the total powers of the Packers and Stockyards Act, but I have to tell you that prior to 1994 as a cattle feeder--I've come through my career as a cattle feeder, and I'm a Johnny-come-lately as a packer--one thing we never entered into was practices like that.

In 1994 when I sold the company, the chairman of IBP, who's name was Bob Peterson, looked me in the eye and said, there's only one thing you'll ever get fired for. IBP is a New York-listed company, and if you should ever talk to a competitor about buying cattle, you will be immediately dismissed.

Mr. Dick Proctor: Let me shift to Mr. Nilsson.

We know that in any business you have preferred suppliers--or bigger suppliers, if you want to use it that way--and smaller suppliers, and there is a feeling amongst smaller producers that there was a real difficulty, at least at the outset, in getting their cattle to market.

I'll give you a specific example that involves your company. I was told that one particular individual, every day that the BSE recovery program was in effect, called XL Beef and had 27 steers that he wanted to move to market, and was told every day that it was not possible, that there was no room to accommodate those steers. The day the BSE recovery program ended, he received a call from XL saying, “We can take your cattle tomorrow”. I don't know whether it happened or not. He phoned me and told me that it did happen.

My point is that there are a number of small people in this business who feel they can't really speak out because they fear retribution; they fear they will be cut off in the future. But they're the ones who are being hurt, and they're the ones every one of us around this table is concerned about.

Mr. Brian Nilsson: I'd like to say that I'm probably more concerned. I deal with those individuals at my markets. I deal with them everywhere. I have more relationship with the producers in this country than anybody sitting at this table, way more than the big guys from the United States or anything. We have a really close relationship.

There are multiple things I would have to know about this instance of 27 steers. The Manitoba producers had a really hard time because they didn't have relationships in Alberta.

We went out of our way. In fact, I just did a profile for Federated Co-operatives Limited, one of the accounts we did, where we showed we actually purchased twice as many cattle on a pro-rated basis out of Manitoba than we should have for the number of cattle they had in Manitoba. We purchased twice as many. If anybody got shorted...I didn't take as many Alberta cattle.

During the last two weeks of the BSE program we did not kill any of our own cattle. That ended up being a terribly wrong decision, because I didn't get payments on some of those cattle because I killed them later. But I tried to get as many producers...so they could kill their cattle under that program.

So my company went out of their way to help producers. I can't say on those 27 steers that it didn't happen, but remember, those last three weeks were just pandemonium because everybody in the world wanted to come through my door, and my door's only this wide. I can't fit you all through here. What part don't we know?

The Chair: Thank you, Mr. Nilsson, Mr. Proctor.

Now we move to Mrs. Ur.

Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.): Yes, as was said earlier, the packers run on a margin business, and I want to say so do farmers, but unfortunately, negative. They have fixed costs, as you do. I understand that. But they have no one to pass along their costs to. Farmers are price takers, not price makers. That's the problem.

You indicated that we need to be thanking our consumers, and I certainly do. But the consumer out there believes that the primary producer is getting a fair price for their product. You know very well they're not. That is the problem we have. The perception out there is that everyone's sharing this burden, but they're not. So how do I explain that to my consumers? Why aren't they getting their fair price?

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Mr. Brian Nilsson: First of all, the consumer, on the average...it does show that the actual overall average of retail sales is lower.

Mrs. Rose-Marie Ur: Not where I live.

Mr. Brian Nilsson: Well, move west, because we sold 59¢ ground beef--

Mrs. Rose-Marie Ur: I love southwestern Ontario. I can't move.

Mr. Brian Nilsson: Sorry. Well, you never know. Come on out. We'll put you at the ranch. You'll love it.

Mrs. Rose-Marie Ur: Good.

Mr. Brian Nilsson: There has been a lot of study done at retail, and it showed that the overall average retail price had come down. The consumer has enjoyed a lower price. Did the retailers make a little more money? I'm sure there were times when they did. I know I sold a lot of meat a lot more cheaply through this year.

It's this loss of value. The problem is that the loss of value flows back down so that it ends up being at the primary producers. There's nobody sitting here who doesn't want to get the borders open and get that value back for everybody.

I'm also a primary producer. We run two ranches where we run cows. I can tell you it was not a great year. But I had some great years the last three years or four years on those ranches. Nobody came and said, you have to give some of that money back. We're in agriculture. This stuff happens.

Mrs. Rose-Marie Ur: So am I. I was a farmer in my previous life. I've had the ups and I've had the downs as well, so I can appreciate that statement.

Also, new Stats Canada studies say, confirming what the farmers are saying, that there is a dramatic disparity between prices at the farm gate and prices at the store shelf. Would you agree with that Stats Canada report?

Mr. Brian Nilsson: It's still the way the money flows down. I don't know, I suppose everybody studies these things. I just know I don't have it and everybody else says they don't have it. For the most part, if I take right now, the difference is about $200. As you said, it's 20%. It's $200 to $300. I can account for this $200 or $300. I know that not everybody has it.

Mrs. Rose-Marie Ur: Thank you very much.

Mr. Willie Van Solkema: I think what's missing in here, though, is that if you take a live animal, what actually goes to the retailer is only 25% of that live animal. If you sell that 25% at close to an average price or what was equivalent, the other 75% is severely discounted. We're still losing all that value.

Mrs. Rose-Marie Ur: That was there before BSE.

Mr. Brian Nilsson: No, that's what BSE did.

Mr. Willie Van Solkema: No, that 75% was garnering a lot of value.

Mrs. Rose-Marie Ur: No, but you never sold an animal for the whole price beforehand. You had the different cuts at a different value.

Mr. Brian Nilsson: Yes, but it helped create the price. That's what helped create the price; it was that all these things were sold. As I said, we sold all this product around the world, and it helped keep the price of our meat lower.

Mrs. Rose-Marie Ur: Thank you.

Mr. Van Solkema, you stated that you consider your company in the North American market. I appreciate that. I have information here. It's from the U.S. branch for Cargill: net earnings, 2002, $798 million; 2003, $1.290 billion. It goes on to say, and this is January 13, 2004: “Cargill today reported $513 million in earnings from continuing operations for the 2004 second quarter ended Nov. 30, up 62% from $316 million in the same period last year.”

Do you share the same profitability here in Canada as your U.S. company?

Mr. Willie Van Solkema: What you're seeing, or what that is, is the worldwide operations of Cargill. We operate in 60 countries around the world. That's what that figure is.

Mrs. Rose-Marie Ur: You don't have the breakdown? These are U.S. They post their numbers in Canada in U.S. figures.

Mr. Willie Van Solkema: I can tell you that the beef operations for North America are down versus last year.

Mrs. Rose-Marie Ur: What is it costing you to remove the SRMs from the animal? Do you have a breakdown of what it costs to do that? You keep referring to the fact that your costs are up. How much did that increase your costs?

Mr. Brian Nilsson: My costs have probably changed more than theirs did, because we did more cows and I had to do more plant segregation. This number could be $30, $50—it moved around a lot. It depends on what you had to do.

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Mrs. Rose-Marie Ur: Okay.

Mr. Willie Van Solkema: The other challenge we have is that we are a strictly under-30-month fed plant. The thing is that we had to change processes in our plant. Whether we run one animal or 500 animals that are over 30 months, that cost is still there. But we had to do it because we have to segregate those animals. It's a fixed cost. As I say, whether we run one or 500, it's the same cost. And we don't specifically go out to buy over-30-month animals.

The Chair: We must move to.... Mr. Solberg wants in, but before he does come in, I need the approval of my colleagues to allow him. Does everyone agree to allow him to speak? Okay.

Mr. Solberg, you're on.

Mr. Monte Solberg (Medicine Hat, CPC): Thanks very much, Mr. Chairman, and thank you to my colleagues. I appreciate this; I really do.

First of all, let me declare that I've known Garnett for a long time. He is in my riding, and I can see his office from my house, just about, so I should declare that up front.

I appreciate the frankness of all the witnesses. I think this is very helpful. People of course are concerned about this situation. Everyone is frustrated with it. As rural members, we all get letters and backgrounders from cow-calf folks and feedlot operators who are in terrible distress. It's a terrible situation for a lot of people.

I guess these are really more comments and observations than questions, but please comment on them if you will.

What people want to find is a villain. They want to find a villain amongst the packers here for what's happened. I understand people suspect that because somebody is doing poorly it must be that somebody else is doing well. But I want to argue that's not necessarily the case. I think you've made the case that you've lost money, at least initially, and at the end of the year, you're saying, you did worse this year than you did in previous years.

People talked about the Competition Bureau. Well, obviously if people have evidence of price-fixing and illegal activities, clearly that should be brought forward, shouldn't it? Shouldn't people be bringing this forward? But there is no evidence. There's a lot of innuendo and there are lots of suggestions that something must be wrong. If there's price-fixing, I would say by all means let's pursue that to the end of the earth. But we don't have any evidence.

David's waving a chart around. Well, by all means, David, if you have evidence, take it to the Competition Bureau and tell them you have evidence of price-fixing.

A witness: We tried to.

The Chair: Let's either get on with the questioning or finish the conversation. He has the right to comment.

Mr. Monte Solberg: Well, excuse me. I guess my final point is that this is a crisis situation. People are suggesting, or they're talking around the idea of putting in place a bunch of rules today, in a crisis situation, that would not be appropriate in a situation where the market returns to normal. If we were in a normal situation, we would not be having this discussion today. In other words, I'm very concerned that we're about to propose a bunch of regulations and do a bunch of things that in a few months may be completely unnecessary.

Anyway, those are simply observations. I've declared my bias. I've known Garnett for a long time. If people want to comment on this, that's fine, but I simply wanted to get it on the record.

The Chair: Are there any comments?

Mr. Nilsson.

Mr. Brian Nilsson: One comment on that is this. You said they're looking for a villain; I think we have to understand the villain is a thing called a prion, and it's BSE. You can track every country that's ever had this. You've had the same thing happen; that's the villain in this deal. We're living with this disease.

The Chair: We'll leave it at that, and we'll go to Mr. Calder.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Mr. Chair.

I'm going to go back to my colleague Mr. O'Reilly's line of questioning. I know, from what my wife tells me when she goes grocery shopping, where the price of meat is at the retail store. Basically, you have tenderloin at around $20 a pound, you have boneless rib-eye at around $12 a pound, you have standing rib roasts at around $10 a pound, you have T-bone steaks at around $9 a pound.... I can keep going on.

I know also that within the beef industry, from the guys who are raising the bred heifers, last year, before May 20, those were worth around $17.50 and now they're worth about $5.86. So they're losing. There's a shortfall of over $1,100.

I also know that the backgrounder guys were buying calves last year at about $1.25 a pound, which for a 550-pound calf would be $687. They fed them, and this year, at 790 pounds, they're ready to go on to a finisher at 80¢ a pound--the price, $632. So that's $55 less than what they bought them for, plus they have all their feed and time into them too. I also know regarding the finishers, as you're saying right now, the price is anywhere from 80¢ to 95¢ a pound.

I know the cattle industry is not making the money, and you say you're not making the money. That only leaves, then, the wholesaler and the retailer. So I guess my question to you would be, which one of these two guys is guilty? I know somebody is making money out of this.

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Mr. Willie Van Solkema: I think it goes back to the point we made, that when you look at that live animal--that's 100%--what goes into the retail counter is only 25% of that animal. The balance of the 75% has lost an extreme amount of value. If the cattle market was equivalent to where it was, let's say, last year at this time, yet we didn't have open borders for our product, I can guarantee the price in retail would be higher, because that's the only part of the animal that has some value right now. The rest of it doesn't.

Mr. Garnett Altwasser: If I might, the comparison you make on retail, of filet all the way down to rib steak, is the very high-quality cuts that, as an industry, we can export into the United States and drive that kind of ticket out. But in terms of value for the consumer, the end cuts of the product, the chuck meat and the ground beef, in this country are very much an advantageous bargain. Those products are convenient, and they're sold very much at a reduced price. Those are some of the products that Willie says we need to arbitrage and we can sell at a discount in Canada, but the other products can be exported, so they're going to pay close to world price for them.

Mr. Murray Calder: But even hamburger is at around $2 a pound. I know for a fact, from different dairies within my riding, they're selling cows right now at anywhere from 18¢ to 7¢ a pound.

Mr. Garnett Altwasser: Then they'd better haul them to Alberta, because we're paying 35¢ for them as we speak.

Mr. Murray Calder: Well, they're not paying in Ontario, and I know if you're talking about, at that point, parts of the cuts that used to have value, you still have the tailings that will be run into the prime number one hamburger. Why, then, is hamburger not cheaper than what it is right now?

Mr. Garnett Altwasser: We have sold hundreds and hundreds of loads of either ground beef or trim at levels that would make your eyes water. In terms of pricing those products out of our plant, they are extremely cheap.

The Chair: Mr. Calder, I'm sorry to break in, but Mr. Eyking wants in yet, before we close--

Mr. Murray Calder: Okay.

The Chair: --and I'm going to take him as the last questioner. I'm sorry. There are a couple here who haven't spoken.

Hon. Mark Eyking (Sydney—Victoria, Lib.): I guess my question is a bit of a follow-up to Mr. Calder's. It's probably a little different.

With the high concentration of the retailers in this country, and also processors and packers, is there much room out there for new processors? Is it hard to get into the market? Is it hard to have enough volume to sell to the big retailers?

I saw an article in the news this morning, and I think it's kind of sad to see that a lot of farmers are taking meat-cutting courses because they figure it's a better way to make money. But with our food safety and all the conditions now, hopefully farmers can still make money producing cattle instead of having to be butchers.

Do you think there's much room for it? I know that's kind of a strange question to you guys, but is it a very hard business to get into?

Mr. Brian Nilsson: I'm going to answer that one, Garnett, because I got into it.

Basically, what I am going to say is that when we bought the plant, I had every guy in the cattle business tell me, boy, you're stupid. You should never do that. You can't fight those big Americans. Well, I built a business around it. Anybody can get into this business if they want. That's how it works. We're entrepreneurs. We take some money...I basically took a chance. I mortgaged my company and said I was going to buy a packing plant to get into this.

Yes, I deal with all the retailers. I fight with these guys every day, giving away meat to make sure we're in the marketplace.

There is a lot of opportunity for producers if they want to start into this business, but the fact is that if that border opens in June and you build a plant, you will be broke because there is too much capacity. That's what I fight. When you are running these plants and the border's open, it is tough. It's tough now. It's not a gravy train now, but it's really tough when you're fighting.... The hardest part is when you can export cattle to the United States and that plant down there only has that extra 5% volume feeding into its system, and it can do that for free just about, so it can pay more.

The producers in the country have to remember they helped this situation by selling out the Canadian packing industry to the U.S. packing industry by shipping their cattle south.

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Mr. Peter Adams (Peterborough, Lib.): I have a point of order, Mr. Chair, and I do apologize because, as you know, I'm very supportive of these hearings as an associate member of the committee. But I have to point out to you that at 5:30 there is an all-party round table in this room.

The Chair: In that case, I'm going to cut off the questioning.

I understand that we had asked for another hour. We did make an effort to try to keep this thing alive for a bit because there's a lot that has to be said.

I restrained myself for an hour and a half or two hours, but there is something I need to say. It is so difficult for a committee to get primary producers to the table, particularly from Ontario, because of the retribution they would face from the packers in Ontario. Is that kind of environment also prevalent in the west, or is it only in Ontario? Do you understand what I'm talking about?

Mr. Willie Van Solkema: I'll comment on that.

Garnett and I and Lee Nilsson, Brian's brother, go to Alberta meetings almost weekly. I sit on conference calls with producers almost daily. I really get upset when we start talking about retribution. I have no problem sitting down to talk with producers to discuss the issue. They are very forthright. I just don't understand where this type of inquiry comes from concerning producer retribution. It is absolutely false.

The Chair: Trust me, in a public meeting such as this, I would not make that statement if it were not true. I know what I'm talking about. I just trust that the ethics in Alberta, Saskatchewan, and Manitoba—and I realize Manitoba is a little different--

Mr. Willie Van Solkema: I talk with producers daily.

Mrs. Rose-Marie Ur: You don't have slaughter there. That's what he meant.

Mr. Garnett Altwasser: There is a lot of competition in western Canada, and really it is hard-fought competition for cattle in western Canada.

The Chair: In Ontario, if they were promised cattle by a producer and some of the cattle went to someone else, they would never buy the producer's cattle again, particularly one buyer.

Those people are afraid to speak. They would not come to this table. That's why we want clarity. We want honesty. We want an understanding of these issues. That's why we had this meeting today.

I want to thank you very much for coming to the table. There is much more that could have been asked and much more we could discuss, but we must get out of this room.

Thank you, gentlemen, for coming. If we feel we need to ask you back again, we will do so.

The meeting is adjourned.