Report reveals fragility of Canadian beef industry
bn) since the discovery of a single BSE-infected cow in Canada last
year, according to a new report from BMO's Economics Department.
The US border has been shut to live Canadian cattle since May 2003, when a single cow with bovine spongiform encephalopathy was discovered in Alberta.
That animal was condemned at slaughter, so no meat from thecarcass entered the food system.
"In economic terms, the closing of the border has been devastating to Canadian ranchers and their families," said Rick Egelton, senior vice-president and deputy chief economist, BMO financial group.
"Cattle producers have been hit by lower output, weaker prices, and narrowing margins."
Meat packers have also been badly hit by the embargo onCanadian cattle and beef exports. Slaughter fellsharply in June this year and, on a monthly basis, ran below theprevious year's levels for the rest of 2003.
For the yearas a whole, slaughter fell by just over 8 per cent. BMO says that this decline- the largest in more than ten years - might have beenlarger had it not been for government programmes, whichprovided income support to livestock producers andfacilitated movement of cattle to packing plants.
Ted McCarron, senior vice-president of BMO Bank ofMontreal's prairies division, argues that exports must be resumed asquickly as possible if the Canadian beef industry is to survive.
"Canada's ranchers are good, hard-working people of strong character," he said. "They are adjusting their business practices and doing everything they possibly can, but what they really need is to have the US office of management and budget complete its final review quickly and allow for the importation of live cattle in weeks, not months."
There are some hopeful signs. An improvement in market access has facilitated arecovery in foreign beef sales since September 2003, when the United States began allowing imports of Canadian boneless beef from animals less than 30 months old.
The US action prompted several other countries to do likewise. From September 2003 toAugust 2004, monthly beef exports averaged €97 million or approximately 90 per cent of pre-BSE levels. The recovery has been limited to beef as the continuing US import ban has meant that live cattle exports remain virtually non-existent.
But although cattle prices have risen from their lows immediately following the May 2003 announcement, they remain weak today. Moreover, the large increase in the number of cattle on farms suggests that prices could remain soft during the next year, even if cross-border markets are reopened.
Cattle producers, therefore, have continued to face poor market conditions in 2004, with cash receipts through the first six months close to 30 per cent lower than the average for the five years ending in 2002.
The longer-term viability of the sector will be dependent on the degree to which consumers remain confident in the beef supply. There is some reason to be optimistic - unlike earlier episodes where domestic consumption plummeted - such as in the United Kingdom - demand in Canada and the United States has held up well.
This was likely due to greater awareness about the disease alongwith the perception that Canadian and US risk mitigation systems arereliable.
Indeed, the €4.6 billion UK beef industry has never fully recovered. Following reports of a possible link between BSE and new variant CJD in 1996, domestic sales of beef products declined immediately by 40 per cent, and in April 1996 household consumption was 26 per cent below the level seen in the previous year.
Export markets were completely lost. The price of beef cattle fell by over 25 per cent, and many abattoirs had to temporarily close down or put their workers on short time.
