Canadian Meat Council Presentation to the Standing Senate Committee on Agriculture and Forestry February 26, 2004 James M. Laws, P.Ag. Executive Director

Who is the Canadian Meat Council? The Canadian Meat Council represents federally inspected packers and processors of red meat in Canada. Our major beef packer members include companies such as Cargill in High River Alberta, Lakeside IBP Tyson in Brooks Alberta, XL Foods in Edmonton Alberta, St. Helens Meat Packers in Toronto, Better Beef in Guelph Ontario, Delft Blue in Cambridge Ontario, Bellivo Transformation in Ste Angele Premont in Quebec, and Levinoff Meat Products in Montreal.

Federally Inspected Plants All of our members operate federally inspected plants that have invested heavily in order to comply with strict federal regulations. We support a single federally inspected food inspection system for all of Canada.

Federally Inspected Plants We employ full time quality control managers and a federal veterinarian and inspection staff are present at all times during slaughter. Recent interventions to improve food safety based on science cost $1.5 million per plant.

Free Enterprise Market The market for cattle and beef in Canada is a competitive free market. Prior to the closure of international borders with the discovery of one case of BSE in Canada, the market was really a fully integrated market with the USA of live cattle, beef and veal.

The first market is the market for young feeder cattle. Farmers and ranchers sell animals of 6 to 12 months of age averaging 600 pounds live weight to feedlot operators who feed and fatten cattle for slaughter. Feeder Cattle

The second market is the slaughter market in which feedlot operators sell young cattle aged 18 to 24 months to the packers at an average live weight of 1300 pounds. It is from these animals that the prime cuts are obtained. Slaughter Cattle

The third market is for dairy cows and beef breeding cows classified as D1 through D5 cows typically over the age of 30 months. Most of the meat from these animals goes to stewing beef and ground hamburger and further processing. Cows

The fourth market is for veal calves. Producers sell veal calves aged 18 to 20 weeks to the packers at an average live weight of 525 pounds. Veal Calves

The overall live animal market The markets are functioning. Fat cattle and cows are being actively bid on and purchased. Meat is being sold by packers. Plants are operating at near capacity.

How do packers in Canada market beef? Packers dont sell directly to consumers. We sell to retailers, further processors (who make sausages and luncheon meats, etc…), restaurants, food services distributors and wholesalers. We are only one part of the chain.

Major Retailers Major Canadian retailers only purchase meat from federally inspected plants so that they can move meat between provinces. These plants are HACCP accredited and retailers are assured of the highest consistent quality from internationally recognized slaughterhouses for their Canadian customers.

WE ARE ONE LINK IN THE SUPPLY CHAIN – A CRITICAL ONE Feedlot Packer Distributor Consumer Cow-Calf Farmer Retailer Further Processors Restaurants Food Service

How do packers in Canada market beef and veal? Consumers at retail purchase only 50% of the beef and veal packed and consumed in Canada. The remaining 50% is sold to further processors and food service. Retailers typically buy the cuts that the customers are looking for. The market moves continually to meet demand for quality, grade, price and location and is based entirely on free enterprise.

Weve Lost Major Export Markets Export markets represented 70% of the total beef production in Canada prior to the discovery of one case of BSE in May When international markets slammed shut to Canadian beef over the next few days havoc was created in the marketplace and huge numbers of live cattle were backed up.

Beef Stranded in the Pipeline Over $12 million worth of Canadian beef and beef products were stranded in Japan and Korea after the announcement of a single case of BSE found in Canada in May It costs us a lot of $ to keep this product in frozen containers overseas. Demurrage and destruction of product are additional costs-total $18 million. Nine months later, as of the 13 th of February 2004 there are still 691 tonnes of beef stranded in Korea: 510 are in the container yard and 181 are in bonded warehouses.

Beef Stranded in the Pipeline After BSE The estimated financial loss to the packer sector is at a minimum $50 million during the first weeks of the crisis. (pre BSE value of cattle + devaluation of inventory) The situation resulted in unfortunate job lay-offs in the various packer locations across the country as the operations tried to reduce costs.

Value of Export Markets Since export markets were closed to Canadian beef in late May of 2003, huge amounts of products that were sold to an overseas markets are now having to be kept in Canada and rendered. Products such as beef tongues, kidney, tripe (stomach), feet and tails that were valued in Japan and Korea- two major markets for Canadian beef exports- are now sent to rendering or sold into significantly lower valued export markets.

Value of Export Markets- Short Ribs In fact, another valuable cut- short ribs- were in such high demand that the entire North American production was being sold to Korea. Now, short ribs are sent to trim which ends up in hamburger- and we all know that the price of hamburger at retail has been selling at very low prices. Currently we are only getting 20% of the value of short ribs that we were getting prior to the loss of our export markets in May 2003.

Value of Export Markets Canadian Beef Export Federation information shows that the value difference in the price of Canadian offal and thin meats between export and domestic market is approximately $192 per head! And this number changes as markets open and close (value down 63%). The loss of the extra value of these products has significantly reduced the revenue received per animal.

Its going to take a lot of work to get these markets back It took a great deal of time and resources to develop the markets that we had for our beef and beef products in Japan and Korea. Other countries such as Australia, New Zealand and Brazil are now filling those markets. Even if the borders were to open to us tomorrow, packers are going to have to invest a lot of time and money to regain those markets. We are starting again from ground zero because our relationships have been severed- even with those customers who weve had a relationship with since 1980!

Meat Sent To Food Banks It is estimated in the months following the discovery of one case of BSE in Canada in May of 2003 that Canadian packers gave away 1.5 million pounds of meat to food banks across Canada.

Rendering Credits Lost Packers have also now lost the credit that they used to receive from rendering of the meat and bones. In fact, many packers are now paying 7 to 10 cents per kilogram to have the rendered material taken away. Blood costs $200 per load to truck away. In some areas the cost to send materials away has changed by up to $40 per head.

Exchange Rate Effect On Prices Canadian boneless beef is now moving into the United States and has been since September With the strengthening of the Canadian dollar and falling prices for beef in the USA since the discovery of one case of BSE in Washington in Dec 2003, Canadian packers are receiving less for their beef from the US market in Canadian dollars. There is a 20% difference in exchange rate compared to what it was last year at this time.

Canada versus US beef grades Before BSE we tried to get a USA equivalent for our beef i.e. AAA vs. Choice. When the border re- opened the spread between the two widened and the USA processor is able to purchase AAA quality Canadian beef less than quality Choice USA beef

Slaughter Capacity The industry has the capacity to process approximately 70,000 cattle per week. Immediately after the BSE discovery in May packers dropped down to less than 30,000 per week and then went up to 45,000 per week several weeks later. Given the new reality of serving only the Canadian market there was far more supply than demand. At the request of the Beef Round Table Industry Committee and the Federal Standing Committee on Agriculture, Canadian packers were asked to get slaughter back up to capacity. We are now back up to more than 65,000 cattle per week being slaughtered.

Investment in Plants and Equipment Our beef packer members have a total of $800 million invested in capital and equipment. In addition, they employ over 10,000 people working in slaughterhouses across Canada. A recent study showed that there is a spin off effect of 6 jobs created for every one job in the packer sector.

Specified Risk Materials Since July of 2003 Canada requires the removal of specific risk materials (SRM) at slaughter from all cattle aged 30 months or older. SRM are defined as the skull, brain, trigeminal ganglia (nerves attached to the brain), eyes, tonsils, spinal cord and dorsal root ganglia (nerves attached to the spinal cord) of cattle aged 30 months or older, and the distal ileum (portion of the small intestine) of cattle of all ages.

Specified Risk Materials The segregation of cattle on the kill floor in order to properly assess the age of the animal is done by reading the teeth of animals. This takes time and is a crucial step in the process and has added more costs to the process. This has added extra costs to the process. Ensuring the safety of Canadian beef is a top priority for us regardless of cost.

The Veal Industrys Situation The Milk-fed veal industry is almost a totally integrated market. The packer either owns the veal farm operations or has a farmer on contract to house and feed the animals owned by the packer. That means that the processor absorbed the losses that occurred in the veal sector as a result of the BSE.

The Veal Industrys Situation None of the programs put into place to remove large amount of beef from the farm after May 20th worked for the milk fed veal industry. Veal normally has a much greater price per lb. than beef does. It left the industry with a distinct disadvantage for several reasons:

The Veal Industrys Situation The market forced the price of veal down to that of beef. (From $2.50 to $0.50). This left us with a much greater loss compared to the beef producer because the % of government coverage was the same as for beef while the reduction differential fell much further. Prior to BSE the veal industry inventories were 1.5% of sales. Now, frozen inventories are at 14.5% of sales.

The Veal Industrys Situation When the US border closed to Canadian meat and live animals in May of 2003, one major player in the Canadian veal industry had an additional problem in that they could not ship their finished calves to be slaughtered in a factory that they owned in the United States. With their slaughter capacity at maximum in Canada they had to pay a premium to another slaughterhouse to pay for custom slaughter of their additional calves. This is yet another example of how integrated that industry had become.

The Veal Industrys Situation Milk fed veal, cannot be put on hold. Our growth window is weeks. If it is not marketed within a short time beyond 20 weeks it is no longer veal and looses much of its value. North American veal barns are not designed to accommodate animals much beyond 20 weeks of age.

The Veal Industrys Situation Pre-BSE our exports were 80 % of our production. This made it necessary for us to put everything we produced from May 22 to September 7 (other than Canadian sales) into the freezer. There has been some relief from the opening of the border for meat products but the problem for us is still critical. We are still discounting frozen veal substantially in order to move the product out of the freezer.

The Veal Industrys Situation When a single case of BSE was discovered in Washington State just before Christmas, Canada closed its borders to all live cattle imports from the USA and now farmers cannot source enough young dairy calves to fill their barns. Calves used to be imported from New York State and Vermont. As a result, the price of veal calves has doubled here in Canada.

New Investments Are Required In The Future To comply with more stringent animal tracing regulations that are coming, the packers will have to invest a great deal of money in the future for updated information technology hardware and software at the various locations. Plant upgrades (building and equipment) that are currently ongoing to keep in business and stay competitive. We are going to have to spend more money to stay in business. The markets remain very uncertain with our entire industry sized for exports and a North American market. If we dont regain our export markets soon corrections will be in order.

Prices of Meat at Retail Data from Stats Canada clearly shows that the average retail prices for 6 different meat cuts: Round steak, Sirloin steak, Prime rib roast, Blade roast, stewing beef and regular ground beef were all lower in $ per kilogram year over year from 2002 to 2003 for the months of August and September and many cuts were lower in October through December. The Consumer Price Index for fresh and frozen beef was in December 2003 down from in November 2003.

HIGH END STEAKS ARE ½ PRICE VS. YEAR A GO - DECEMBER SOBEYS ½ price vs. year-a-go was $8.99/lb

WE DID WHAT THE BEEF INDUSTRY ASKED MOVE OUR EXCESS BEEF 2 FOR 1 SALES 2 for 1 sales 50% savings for consumer

½ price steak

Support beef industry ads

Encourage Consumption Of End Cuts

Less than ½ price Roasts

60% less than Last year on ground beef