:
Thank you very much, Mr. Chairman.
Good morning to you and to the members of the committee. I greatly appreciate the invitation to appear before you here today.
My name is Patrick Boyle. I am president and CEO of the American Meat Institute, which is based in Washington, D.C., and which was created by the U.S. meat packing industry in 1906.
AMI's 200 general members include some of the best-known meat and poultry food manufacturers in the United States, Canada, and Mexico. Collectively, our U.S. members produce more than 95% of the beef, pork, lamb, and veal in the United States, and nearly 75% of our nation's turkey products.
In many respects, AMI is a North American meat association. Our members include industry leaders in Canada, such as Maple Leaf Foods, Cargill, and XL Beef. In fact, the next witness, Mr. Nilsson, is an AMI director and serves on our executive committee. Similarly, Mexico's largest meat processor, Sigma Alimentos, is an AMI member as well. Since the inception of the North America Free Trade Agreement, companies in these three countries have used comparative competitive advantages to create a very efficient integrated North American livestock and meat market.
AMI membership is a reflection of these economic integrations, and we obviously support and encourage free trade within North America. Conversely, we strongly oppose any measure that would threaten or dampen that free trade. Mandatory country-of-origin labelling, the subject of today's hearing, is clearly such a measure that would dampen and disrupt that free trade. In short, from our perspective, COOL effectively exempts the livestock and meat industry from the proven economic benefits and opportunities provided to all three of our economies under NAFTA.
AMI's involvement in and opposition to COOL goes back more than 10 years since this dubious idea's inception in the mid-1990s. AMI opposed mandatory COOL legislation when it was first introduced and rejected, and continued to oppose it while it was being debated during the 2002 Farm Bill in the United States Congress. We were joined in opposition by major U.S. livestock groups such as the National Cattlemen's Beef Association, the National Pork Producers Council, and their Canadian counterparts. And I also do wish to note that through the entire COOL debate, the Canadian government was also resolute in opposing this mandate.
Our collective opposition was founded on the recognition that mandatory COOL was a thinly veiled non-tariff trade barrier that would discourage livestock imports into the United States, deny Canadian and Mexican livestock producers an effective return on their investments, and add unnecessary cost to the U.S. meat packing industry and the products that we market, without providing any tangible benefit to retail grocers or to American consumers.
As you know, COOL was included in the 2002 Farm Bill; however, we were successful in inserting an implementation delay of two years. Again in 2004, as the effective date approached, we achieved another two-year reprieve. Similarly in 2006, Congress again delayed implementation until 2008. However, as the members of this committee know, elections have consequences, and in 2006 when the Democratic Party achieved a majority in the House of Representatives, along with a majority in the Senate, the proponents of COOL gained an upper hand, and further delays of this mandate became politically non-viable.
At that time it became necessary for AMI to shift its focus and resources away from advocating repeal of COOL to helping draft the most favourable legislative compromise possible under the circumstances and influencing a workable final regulation from the Department of Agriculture.
That mandatory COOL is costly and burdensome is without dispute. Indeed, in the preamble to the final rule published just last January, the USDA reiterated the conclusions about the benefits of the rule it had put forth five years ago in the initial proposal and again last September when it published an interim final rule.
Specifically, the USDA stated that the expected benefits from implementation of this rule were difficult to quantify, and USDA's earlier conclusion, that the economic benefits will be small, remains unchanged. On the other hand, USDA cost estimates were fairly specific. For example, USDA's first-year implementation cost estimates alone are nearly $300 million for the U.S. pork industry, and $1.25 billion for the U.S. beef industry. Moreover, USDA estimated a loss in productivity, after a 10-year period, in excess of $210 million.
Moreover, these numbers are particularly noteworthy when one considers that they are being incurred during a time of economic challenges throughout North America and the rest of the world. These cost estimates do not include the adverse economic impact of COOL on livestock producers in Canada and Mexico.
Looking ahead, I have a few observations. USDA Secretary Vilsack has expressed dissatisfaction with the final rule that he inherited from the Bush administration. He has asked industry to voluntarily comply with his views on additional labelling information and include that origin information on certain processed products.
In my response to Secretary Vilsack, I indicated that there is little evidence that industry is going to incorporate his preferences voluntarily. Instead, AMI has advised our members to comply with the final rule, not with individual preferences. If the USDA wishes to pursue changes in COOL, it would need to do so through the notice and comment rule-making process. At this point in time, I do not believe the USDA has made a decision on that matter.
Regarding the role of and the interest in Congress related to COOL, I believe they are currently in a COOL oversight mode, with little interest or enthusiasm to revisit or revise the statutory mandate. COOL proponents in Congress wish to monitor compliance through the remainder of this year before they even consider taking up the issue again.
I have a final observation concerning the WTO. AMI understands the rationale for Canada and Mexico to challenge COOL at the WTO. In fact, throughout the COOL debate AMI repeatedly told Congress that COOL violates the U.S. government's commitments under the WTO and that Canada and Mexico would likely challenge it with a good chance of success. To the extent that AMI can be of assistance to your government in this dispute settlement process, we are happy to try to do so.
Mr. Chairman, thank you for the time. I look forward to answering any questions you and your colleagues may have.
:
Thank you, Mr. Chairman, and committee members.
I wish to apologize at the start, I am not the eloquent speaker that Patrick is. I always feel embarrassed whenever I have to talk right after him.
My name is Brian Nilsson and I am co-CEO, with my brother Lee, of XL Foods. We are a private family-owned beef and livestock company. We have processing facilities in Calgary; Brooks, Alberta; Moose Jaw, Saskatchewan; Omaha, Nebraska; and Napa, Idaho. We operate on both sides of the border.
It's a pleasure to speak about COOL and competitiveness in the Canadian and North American meat sector. I'm going to touch on a few key points and then I look forward to answering your questions as they come forward.
In our company we believe we have the ability to run world-class facilities and that we can compete with anyone. Our purchase of Lakeside kind of reiterated our thoughts that there should be no shame in being a Canadian company and that we can run things as well as anyone.
In our mature cow processing plants, one of the issues we are currently facing from a competitiveness standpoint is the enhanced feed ban in the SRM rules. That puts an unintended cost on our facilities and has placed a burden on us. We've had to temporarily close our Moose Jaw plant until the fall because of it.
We feel that the effects of COOL have not been as pronounced in Canada as was initially feared. However, it's not that there aren't any effects. On the pork side of the business, we very much see some.
We believe that right now in western Canada we are seeing increased competition in that marketplace because of our purchase of the Lakeside Farm Industries. The U.S. packers are more aggressively trying to buy cattle in western Canada. The truth of the matter is that as Canadians, we are basically trying to deny them any ability to buy. We have to always weigh that thought process. Any discount that the U.S. packers want to put on our producers will be weighed on their ability to buy those same cattle because they can put a discount on.
I look to the fact that since our purchase of Lakeside, we've seen a decrease in cattle exports to the United States. I would not attribute that decrease to any effect of COOL but to our being able to get our operating costs lower and being more aggressive in the marketplace. Much to Patrick's members' chagrin, I would like to say that our goal is that we wouldn't have to ship any cattle to the United States, so we could process them all here.
That's a brief summary of what we are and what we believe.
I look forward to your questions.
:
I'll start. As well, let me talk OTM from Levinoff-Colbex as well, Mr. Chair.
Just to follow up, Patrick is an outstanding speaker, Brian is...good, and now you're getting the worst. But it will improve, it will improve—
Some hon. members: Oh, oh!
Mr. Brian Read: I guarantee you it will improve as we move on to Jim.
I appreciate this. I always find this a humbling experience to be in front of such a talented group.
This issue of competitiveness is really chronic in our meat industry today. Anybody who's involved directly in this packing industry will have to agree with that. One is the SRM, and I come back to where two or three years ago this committee—I know some of them are in this room—recommended that the packers have to look at that policy. I was a supporter of that policy, but we might not be able to afford this luxury. As I said, we've seen some drastic moves, and there are other drastic moves in the meat industry threatening, believe me.
Capacity: we have capacity in this country. We were asked by this committee a couple of years ago to increase capacity. We did that willingly. There was money in the business, and we reinvested. We can compete globally. The quality that we're producing today is much superior to that prior to 2003. We made good product in 2003. We've invested in interventions, food safety initiatives, better chilling capacities, etc., so we can compete globally. But we are a little bit hooked on policy--a little bit; it's a major issue.
The other thing we're going to ask of this room is that we also impose random E. coli testing on imported beef into this country. We currently do that when we export, so we're asking for the same scenario on imported. With that again, I can go on and on, but I'd like to leave it for questions for this group, and I'll move my time to Jim.
Maybe I'm leaving you too much time.
:
My name is Jim Laws, and I'm an executive director of the Canadian Meat Council. I'm very fortunate that both Brian Nilsson and Brian Read are here with me today, both past presidents of the Canadian Meat Council and both running real beef operations in Canada.
As you know, we're the most important of the food sectors in Canada, employing some 67,000 people. And I too won't speak for long either, to make sure you have lots of time for questions.
We did also recently appear before your red meat sector committee, and we also appeared recently before the Subcommittee on Food Safety, and the House of Commons international trade committee. We've given you our recommendations on several issues, and we are sure that you'd rather we not repeat those to you today, such as removal of inspection fees, assistance for the high cost of compliance with the enhanced feed ban, and the need for enhanced slaughterhouse competitiveness, and not necessarily capacity. It is also understood that following your committee's recent visit to Washington and your meetings with different industry groups, you have further questions specifically related to the mandatory U.S. country-of-origin labelling regulations.
In 2008, we did work closely with the Government of Canada and we did fully support its submission to the Government of the United States on their interim final rule on mandatory country-of-origin labelling. The Canadian Meat Council did host a very successful one-day seminar in Toronto on September 10, 2008, where the American Meat Institute's vice-president of regulatory affairs and general counsel, Mark Dopp, was the main presenter. Fortunately for us, many of our members' meat products are sold to the hotel and food service market and to further processors of meat segments that are exempt from mandatorily declaring the country of origin on the labels.
Of course, late in 2008, we did fully support the Government of Canada's official notification to the WTO of its concern for this U.S. rule, and of course the recent letter by U.S. Secretary Vilsack to the U.S. industry asking them to voluntarily comply with his own version of the rule, which is stricter than the published actual final rule. It does concern us, and for that reason we did also recently support the Government of Canada in putting the United States on notice that it plans to reactivate its complaint at the WTO.
With that, we welcome your questions this morning.
:
Thank you very much for attending today on short notice.
Each of you qualified your remarks by comparing yourself to the others who were about to speak or spoke before you.
The questions I ask will probably be the lightest, given that I'm, along with Mr. Hoback, the newest member to the committee with the least experience in agriculture. So just think about the following questions that will proceed from mine after I ask, and it is about COOL.
Mr. Nilsson, I should tell you that Mr. Shipley, Mr. Miller, and I had an opportunity to meet with Collin Peterson, who is the chair of the House Committee on Agriculture, when we were in Washington. We raised the issue of a reduction of $100 a head for the purchase of Canadian cattle. And the reason for this that's been given to Canadian cattlemen is the application of the COOL rules and the need to segregate cattle.
I can tell you clearly, unless Mr. Shipley or Mr. Miller had a different perception, that Congressman Peterson said that we were being basically hoodwinked, that it was an excuse to drive down the cost of cattle. And frankly, at this point, unless you have some overwhelming evidence to the contrary, we're inclined to believe that.
Having said that, however, you will have an opportunity to explain. My question is, isn't it true that U.S. packers already segregate animals of different ages for specific markets, and so how is segregating Canadian and U.S. animals different from segregating animals of different ages? And we want to know what specific changes to the lines of production U.S. packers have to do in order to segregate Canadian livestock that would cause a reduction of $100 a head in cattle in the price.
That's the easy question. The others will ask more difficult ones.
:
I'll start by giving a mild example. I was just at a cattle conference on Monday and was one of the speakers. One of the other speakers was a well-known analyst. She used to work for CanFax, which is the price-recording mechanism we have in Canada. She presented a report and gave projected prices for cattle in Canada.
I found it very interesting, because she showed that if we were relying on the export market to the U.S. packers to establish our price today--the discount you talked about--our market would have to be $75 a head lower than it currently is. She said that right now the Canadian packers are well above export level on their cattle, and that's why we're not seeing a lot of cattle being exported. The cattle that are currently going have been under contract for many months. The cash cattle are not going. So I would say that this discount isn't to the level you would forward.
Since our purchase of Lakeside, we have been very aggressive in bringing the level of processing up in that plant. We believe it's best for the Canadian industry that we process these animals here, ship the meat into the United States, and service our domestic marketplace. If you wish, they are a witness you could call to clarify some of this.
I think there was a concern, when country-of-origin labelling initially came in, that U.S. packers would be able to discount the cattle in Canada, and that the Canadian industry would have an ability to do that. It just isn't the case. We're going through a natural reduction in the herd in the cattle industry right now. The truth is that we will probably get to a level where we have hardly enough cattle to satisfy our own industry, and no extra to export.
I'll lightly touch on the segregation in the U.S., if it's okay, and draw on my experience, because we do have some Canadian plants. I think there are two parts to segregation. This is a rigid segregation, in a sense, but the biggest thing that came out of segregation that people aren't necessarily talking about is that the U.S. packers started to segregate Canadian cattle because of the COOL legislation. They found they weren't receiving the same value for their meat, because they could not export part of that meat to Korea. In Canada we do not have an ability to export to Korea, and the U.S. packers then identified a lack of revenue from the Canadian cattle. So sometimes we will confuse part of this discount that's attributed to segregation to not having the revenue.
This is the same problem we currently have in Canada with our fed cattle. We don't have access to the Korean market, and we've lived with this $25 a head for many years. I think this was the first time the U.S. plants truly were able to identify that. The balance of it is in their segregation cost. There are efficiencies in plants. Like building a car or anything, it's all based on continuous flow, and every time you have to change that flow there's a big cost. So I think that's part of it.
We have seen some retailers in the States that have preferential programs, but that's not a major issue with this.
:
I would like to thank you all for your testimony.
Mr. Read, my first question is for you.
On April 15, I had an opportunity, with my leader, Mr. Gilles Duceppe, and the member for Drummond, Roger Pomerleau, to visit your facilities in St-Cyrille-de-Wendover, the Levinoff-Colbex slaughterhouse. On behalf of my leader and Mr. Pomerleau, I would like to congratulate you on the high calibre of your facilities. This was the first time that I had ever visited a cattle slaughterhouse. I had already visited a hog slaughterhouse; I believe that Mr. Laws was there. I'm going to make a pun, but I do not know how it will translate into English: holy cow, was I ever impressed. It was very interesting.
I would like to know where things stand with respect to your new facilities, your proposed $19-million cutting room. We know that the federal government announced a $50 million program over three years in order to improve slaughter capacity. We asked the minister many questions here, in the committee, and at the House of Commons. I know that, on your side, you are also working with Minister Ritz's office or with Minister Blackburn's office on this issue. On June 5, there was a government press release which repeated the announcement made in the last budget, but we still do not know what the criteria will be. We are starting to find out, because it has been repeated on numerous occasions that this will not be a subsidy but will instead be a loan.
I would like to know, obviously if you can share this information with us, if you have made any progress with this file. Have you had any confirmation from the minister's office about whether or not you will be eligible? Will this be a loan or a subsidy? Do you know the criteria to have access to this program? I would like you to provide us with a small summary of the situation.
:
I can catch up to date.
I guess I missed that in my opening statement. I apologize, I didn't catch the name of the person who was asking Mr. Nilsson the questions.
Now that you've toured our facility and you see the effort that goes into processing to get a pound of meat, I think it would be nice...and I make that offer to everybody in this room, because I think you're going to have time shortly to visit the Colbex-Levinoff facilities, so that you understand that we might not be that big boy trying to put the producers out of this country. Without them, we can't operate.
We've been living under that since BSE. I think it's time we realize and open our eyes up to this environment, that our capacity is disappearing. Maybe it's not important. And that's why building that fab room is critical to our competitiveness. We talked about global production. We want to compete. Do we want to compete globally? Maybe the globe is Canada, but this room has to decide. If that's the case, then we'd reduce this herd by 60% and we wouldn't have to worry about issues around the world; we'd only feed our country. We should decide what we want to do. To always be under the gun that we're trying to pick off the producer is completely wrong. We're trying to stay in business. We employ a lot of people.
To come back to your question, I thank you for visiting us. It's much appreciated.
We plan on moving forward with that. We think it's a necessity. The board is meeting today. We do have some guidelines, but they're vague guidelines on the money. I think the industry would be kind of naive to say we're upset that it's a loan. There will be some people in the room that maybe think it should be, when we thought it was a grant, so maybe we are disappointed there. Again, that decision is unfolding as we speak. We're only now getting the final cost to it, about how much it really is to put that building on with all the permits and the engineering costs, etc. But to maintain a good viable operation for the future, it should happen.
Does that answer your question, André?
Thank you, gentlemen.
I was interested in a statement you made, Mr. Read, about a fundamental question that perhaps we should ask ourselves: what does this market look like? Does it look like a Canadian one? Does it look like a global one? How should we do that? I think that is the challenge, to be honest, and the real question we should ask ourselves. We should basically communicate that to the producers and to those of you in the processing end of the business so you know where you're at. Otherwise, we're asking you to shoot at a dartboard with perhaps no darts to throw.
Based on that, from your perspective, I hear you saying you're doing the things you believe you need to do to be competitive. But how do we solve the juxtaposition between the primary producer, who we've heard from in numerous cases and who's saying that if he is asked to produce more cows or if he simply has more cows, he's not making any more money, and the producers, who are kind of stuck between the consumer, if you will...? How do we manage to get a price point that actually satisfies the processors and the producers at the same time? How do we break through that logjam?
I understand that it's an extremely difficult question. I hate to challenge all of you with that, but somehow we need to get away from this idea that food should be cheap, to the point where the lowest person on the totem pole, which is always the producer, gets less and in some cases is going out of existence. As Mr. Nilsson said, the herd is reducing itself not because folks necessarily want to, but because they say they can't afford to keep it. It's just too expensive.
I realize that's a very broad statement, Mr. Read, but you did challenge us with a fundamental question. I think we need to hear from you what your thoughts are around those fundamental questions.
I'll start with Mr. Read and maybe work down to Mr. Nilsson.
It is a challenge, obviously, that we all will have to deal with when it comes to policy. My sense, in hearing from large and small producers, is that perhaps the policy will have to be somewhat encompassing in the sense that, as Mr. Read has pointed out, to paraphrase your words, I'm not necessarily the biggest guy on the street. We need to have a policy that actually speaks to the fact that not everyone is the biggest guy on the street, and we find that with producers as well, so that will be a challenge.
Mr. Boyle, you mentioned COOL, and that is obviously a topic that all of us have been concerned with here. I think the position here is that we'd like to see it not be there. You may take that as a position, but I think what you were articulating earlier is that you don't necessarily see it going away. So if it's not going to go away, albeit we would love to see it go away, and challenges take a long time--no matter how good the challenge may be, they take an extensive period of time to work themselves through--how do you see your advocacy there in helping to minimize the repercussions on our producers here?
:
Thank you very much, Mr. Chair, and I'd like to thank each one of you gentlemen for appearing before us today.
Mr. Laws, we've seen you so much in the last little while. I think people are starting to wonder if we're dating on the side.
Mr. Read, I think what we've seen here is an example of what can happen when you become frustrated at committee, and I want to make sure I give you an opportunity to address the issue in the way I think I hear from you that you would like the issue addressed. We have to make sure we're careful that your comments aren't taken out of context, because I'm sure you didn't get into this industry hoping to have a captive market and simply only have Canada to sell to and compete with people like XL only.
I do know we have you and Mr. Nilsson, who's from my area originally, here as examples of Canadian companies that can compete with the biggest and best in the world, if they're given the opportunity to compete on a level playing field, and that's one of our problems.
You brought up SRM removal. It is something that the industry did push on us when we did get up here, but not in the exact form that it has taken. I believe one of the problems that you would agree with on SRM removals--and probably around the table--is that we've gone much farther than the U.S. has gone. Even though they said they were going to catch up, the U.S. has yet to catch up. There are other examples of regulatory burden that we put on our producers and our processors that the United States doesn't have. Is this what you would see as one of the biggest factors in moving forward with the competitiveness of our industry?
:
No. What I would say is that I, for sure, want to express that I do not support COOL. Absolutely, I would like it to go away.
One of the things I wanted to point out is that I think we are not having the consequences to western Canada that were initially perceived. A lot of that, again, is just because of the cattle population being smaller and being more aggressive in the packing side. So it was more that. But no, absolutely, removing COOL is one of the key objectives we would support.
I'd like to touch on what Patrick said about the initial letter that Secretary Vilsack sent out. That would be the bad side of COOL. That would affect meat sales. It would create burdens in the packing industry in the United States. It would be very intense when you talk about segregation costs.
That enhanced COOL they've talked about would be really a bad thing. I'm saying we can work through our present form of COOL. Depending on where our cattle population settles out and where we are, you know, I firmly want to process all the cattle here, so then I think the U.S. packers should be irrelevant in this discussion.
Thank you, folks, for coming. They were great presentations.
I want to talk about one of the big difficulties in the industry. Yes, we are seeing a massive selling off of breeding stock over the last 18 months, but one of the huge problems for producers at the producer level is that all costs seem to get back down to them. I mean, if you guys get costs, you're going to try to hold your margins, and it gets back down to them. That's a problem in terms of maintaining the industry.
I want to come back to you, Mr. Boyle. We met with quite a number of congresspeople when we were in...and I think there's COOL fatigue in Congress. They just wish it would go away, as Brian said as well. But we can't let it go away. We have to challenge them under the WTO.
There's a tremendous lack of understanding at the congressional level that this is the most integrated industry beyond auto, that there are supply chains both north and south of the border with established plant structures, etc. All that is jeopardized, I think, as a result of COOL, especially in the hog industry, where it's even worse.
Our dilemma, though, and it may be even more so in hogs, is that if we wait for the WTO, it will be five years. Not so much in beef, but in hogs, I believe, we're on the verge of losing 50% of our hog industry in this country if the government doesn't come through with an ad hoc payment. That's the necessity. I know it's a potential trade challenge, but that's where we're at.
How do we handle it when there's a violation of trade, a non-tariff barrier, as you said, Mr. Boyle? Because it really is non-tariff.
We appreciate your support, by the way, at our meetings both there and here.
Do you have any suggestions on how we protect our producers in the meantime? Winning a challenge at the WTO is no damn good if 50% of our producers are gone.
I'll raise the other question as well, Mr. Chair, because I know I'll run out of time.
Is the SRM removal now allowed to be put in fertilizer in the United States? I don't know if anybody can answer that, but I think it is. Would there be a reaction, from your point of view, with the...?
I know why we got into this in the first place, but it's discounting our cattle, I guess, somewhere around $30 to $40. Perhaps you can give me the figures. Would there be a reaction from the OIE if we dropped our policy, do you think? Because I really think the government should. The Americans didn't follow suit as they were supposed to. What do you think the reaction internationally would be if we made that move, which I think we should do?
That's two or three questions.
:
I'll start on the concept of COOL. It certainly exists. It's both a plus and a minus. It's a plus to the extent that proponents of COOL are dissatisfied with the current regulations and would like to reopen the law and try to get some of the items that Secretary Vilsack has expressed preference for. But it's a curse because the COOL opponents are suffering from the same fatigue and are tired of waging that battle.
This battle began, for the first time, in 1996 on the House agriculture committee. It's a subject with which those members, your colleagues in the United States, are very familiar. There's just a real hesitancy to reopen it in any substantive way.
Frankly, even without the history behind the issue, the law has only been in effect for less than a year. We began compliance on October 1 of last year. I think it's probably not unreasonable to anticipate that the congressional oversight committee would like to monitor compliance for a period of time before they consider revising the underlying statute, whether that would be to expand it or contract it.
In terms of your WTO complaint, you're absolutely right, it's a time-consuming, frustrating process. The Canadian beef industry has experienced it not once or twice but thrice in terms of the EU hormone ban. We succeeded, as you know, on each of those occasions. And that's the interesting question that will arise, assuming that Canada and Mexico succeed in challenging COOL at the WTO. What will the response of the U.S. Congress be? Will it be a European Union response, whereby they just accept the retaliatory tariffs and move on? Or will they look at the underlying statute and the disruptions it has caused and correct the matter according to our international trade obligations?
We may not have a point to re-engage on COOL until that WTO process is completed.
:
Thank you very much, Chair.
When we were down in the United States, we got two messages. This is one of the reasons we're having the meeting today.
One of the messages we had been receiving before we went down to Washington was that the implementation of COOL and the additional letter asking for voluntary compliance had thrown the U.S. slaughterhouses into confusion. They were trying to implement it. There was some sort of cost being borne by them, and this was showing up in lower prices being paid for cattle.
When we got down there, we asked these very questions, and the answer we got down there was that no, for the most part, the slaughterhouses have made a unilateral decision that they're not applying the voluntary.... There's no confusion here. Yes, they will comply with COOL, because that's the law. But this voluntary letter has thrown confusion in, because there has been a decision made that they're not applying it, period. That sort of conflicted with everything we had heard previously, which was that it was the confusion that was impacting our cattle farmers.
I want to go at this from a certain angle. We all appreciate the slaughterhouse capacity here in Canada. You were just talking about there being a contraction of the herd right now. A while ago there was a contraction of slaughterhouse capacity in Canada. And it's not just a short-term thing; you live with the consequences of that for a very long time, and we're living with them now.
I have a concern that if there's a contraction of the herd, a significant contraction, this will have long-term consequences as well. That's why we're trying to put our finger on why it is that the price has dropped so much for cattle. What can answer this?
I want to try to understand the model. For example, if the price goes down in the U.S., it goes down in Canada too. When you have your final products, do you still sell those into the United States? Are you selling processed, packaged meats to restaurants, hotels, and customers in the United States?
My adjoining question would be whether the price you're receiving for those products is roughly the same as it was pre-COOL.
Thank you to the witnesses for coming here today.
I don't know if any of you are familiar with the situation with the beef industry in Atlantic Canada. It's not a big industry when you compare it to the one in western North America, but it's very important. We have one killing plant. It's a small one. It's very modern, but it's small. Most of our producers are under 100 head. They're grass-fed, and they don't use antibiotics, and they don't use hormones. But the situation is that there are only a couple of chain stores in Atlantic Canada, and they purchase through you people, I guess, on a national purchasing program and things like that.
I have two questions, because you guys know the industry and where it's going and how it's evolving.
My first question is probably to the two Brians. Is there a way for that industry to survive? Could your companies sell a different type of product in a niche market? I know people will debate that all beef is the same, but could you sell it to certain stores or restaurants as that type of beef that's free-range, grass-fed, and hormone-free? Could that be in your product line? Would that be a way of that industry surviving?
:
This would be a number that I think would probably shock everyone; it ends up being about 12% of our total production. It varies, maybe between 6% and 14%, depending on the time of year and things like that.
To be quite honest with you, over the last five years and with the turmoil of BSE, I would just as soon not own any some days, because we have probably sustained losses greater than anyone in this industry. But we firmly believe in two things. First, we believe we have to be part of that industry. We're not only a key part of, as I said, the capital that is in there for the producers to sell their cattle to; they need buyers. I think sometimes some of the people who talk about captive supply really want to see that the packers aren't there, because they want one fewer bidder on the producers' cattle. I do not believe that. I want to see the packers in there. I see the consequence of the packer capital being in the industry.
As I said, a plant is a huge machine, and you'd need some.... In Lakeside we start in the morning with maybe 200. We're going to do 4,000 cattle that day, and the first 200 come from our feedlot; and that's because they come across the road, they're dependable, and they're going to be there when we start that plant. If I'm hauling them 100 miles and there's a snowstorm and that plant doesn't start up at that time, I lose $50,000.
So a lot of it is to try to be competitive.
I've been struck by some of the comments by certain producers in Canada that it's costing them x dollars a head, whereas you get feedback from some of the COOL proponents in Washington that it's not the case. As usually turns out to be the case, I think the truth is somewhere in the middle.
There are a lot of variables that go into price discovery, particularly imported livestock price discovery. The exchange rates are one we've talked about. Another is freight costs, depending upon the distance you bring livestock in from a foreign country. There are also quality and yield, which apply to all cattle and hogs we process in the United States, regardless of origin.
But post-COOL, there are other variables that come into play, including the segregation costs we referred to, and any diminution or devaluation in the wholesale price of that commodity, depending upon its origin.
Retailers want one consistent label; they don't want to manage multiple-origin labels in their retail grocery stores. That's because most of the beef and a fair amount of fresh pork today is still shipped to them in primals and subprimals. It's cut and traded and wrapped in the backroom, and if they're not getting one consistent U.S.-labelled product day after day, then they have to start segregating it as well. They have to start managing their inventory, just as we have to manage it at the packing level.
So there have been instances where large packers have decided they're going to use only U.S. beef in their premium product lines, because they can get a good return from their retail customers, not just because of the quality of the product but also because of the uniformity of the label, the ease with which they can manage their retail meat case. To the extent that is not particularly attractive to a product that's labelled “Product of U.S. and Canada” or “Product of the U.S. and Mexico” from a retailer's perspective, there is a diminution in the wholesale value.
So all of those normal historical variables and the two post-COOL variables go into the value of the livestock that we purchase.
I'm not an economist, but economics 101 will suggest that there would be some downward pressure on the livestock price related to imported animals, because of those two added variables.
Just as a follow-up, you've heard a bit of discussion about our visit to Washington. We have been hearing, as committee members—and not just from some of our own industry people, but certainly from some people in the U.S.—that there's displeasure in the United States with COOL among a lot of people in the industry, and the slaughter industry, with the exception of the odd group, such as R-CALF and what have you.
Could any or all of you comment on that? Are you hearing those same comments? I know, Mr. Nilsson, you were saying that COOL has had an effect, but it's maybe not as bad as it could be, if I interpreted you correctly.
But are all of you, or any of you, hearing the same types of comments we're hearing?