When Canada's International Trade Minister Art Eggleton
recently described the chicken industry as "one of the success
stories in Canadian agriculture", some producers couldn't help
but wince.The Canadian broiler business has grown 80 per cent in the 15 years leading up to 1994, and even more since. But observers both inside and outside the industry are now admitting that things didn't go as expected and have differing views on where it is headed.
Overproduction and high feed costs are driving further change in the chicken industry, which has already destabilized in recent years.
It was just two years ago this month that a tremendous increase in chicken production began moving out of producers' barns and into packers' plants. In the fall of 1993, Ontario's producer board and processors pushed the rest of the country to accept a new "bottom-up approach" to manage supply, with production being dictated by what processors felt they could sell.
They cranked up Ontario production a whopping 23 per cent. An inter-provincial battle emerged and farm gate prices dropped, as Quebec, the country's other large producer, joined the fray. In the end, the national agency was forced to redefine itself. Today, chicken production is still up, but the position of key players has changed.
It had been predicted that, under the new system, Ontario would hurt other provinces by targeting their markets. But recent figures show otherwise. Ontario's share of national production actually fell 2.4 per cent during 1995. And some of the large processors have lost share within the province. Maple Leaf Poultry, Burlington, has seen its percentage of the province's processing capacity fall to the high 20s from the mid 30s.
Ironically, the increases in market share have been made in the smaller provinces, and with smaller processors as well. Now, processors and producers alike are becoming restless as they are squeezed against rising surpluses and high costs. Tony Tavares, president of Maple Leaf Poultry, says processing companies can't recover the large price increases they've had to put up with recently. But it didn't help producer-processor relations last month when copies of a draft processors' association brief calling on Ontario Agriculture Minister Noble Villeneuve to rein in producer powers were stacked in the washrooms at the Toronto hotel where the chicken board annual meeting was held.
The processors' final brief, provided to Farm & Country by Tavares, cites the cost of quota as the biggest cost facing the industry, and says governments must plan soon to start phasing it out of existence. Despite an American trade action that threatens supply management in Canada, Ontario chicken quota still trades for between $17 and $18 a unit, down only slightly since last fall.
The processor brief says the producer-driven industry in Canada must change drastically to meet the inevitable competition from the U.S. Tavares says it is unfortunate that the spotlight has been focused on the issue of quota. Long-term solutions are needed to cut high costs in the Ontario industry, he says. In the short term, he favours trying to hang on and ride out the unusual grain markets of 1996, selling chicken and not shorting the market. "That's the approach that most of the processors are taking," Tavares says.
"The industry needs to make itself more competitive in what will be a more competitive world in the next few years. Let's not lose sight of that," says Tavares, who resigned from the Canadian Chicken Marketing Agency (CCMA) a few months ago because he felt that he was spending too much time away from Maple Leaf Poultry business.
Tavares sees a tendency to spend too much time on process and detail and not enough time on the big picture. The old system was producer-driven and there wasn't enough of a total view taken, he says.
So what does Tavares mean by a "total view"? Processors have to get involved "where they haven't been invited" - deciding on barn configurations, and where new barns are located. As an example, he cites the pocket of chicken production in eastern Ontario where there are a group of "very efficient producers". The lucky few with inter-provincial quota ship to nearby Quebec but because of history, many ship their birds six or seven hours west. For the sake of the business, this inefficiency needs to be resolved, Tavares says.
He feels the same way about the possibility of pooling chicken prices in Ontario so that all producers have a chance at exporting chicken and filling up extra barn space.
Only federally-slaughtered birds are eligible for export, however. The producers who ship 10 or 12 per cent of the province's production to provincially-inspected facilities would be excluded. The Ontario chicken board expects to make a decision on an export policy later this month.
Nor does Tavares think that pooling, where all chicken is bought by the board and then resold to the processors, is workable. "I could make a case that milk is milk. A chicken isn't a chicken. It's not the same in size or genetics."
There has to be more work between processors and producers to put programs together to their mutual benefit, Tavares says. Market share isn't the big concern of Maple Leaf Poultry, Tavares says. Maple Leaf's slaughter is down from three years ago, while total Ontario production is up. He says Maple Leaf's share has slipped from 38 per cent to 28 per cent. "We aren't playing the share game," he insists.
Commodity production is not the way to go to compete with a flood of imports, which are bound to come into Canada sooner or later. "If all we have is a more efficient industry and products aren't identified as being unique, we will have a tougher time from branded products" such as Tyson's, which are popular in the U.S.
"What we want to do is to grow our branded business in a sustainable, profitable way." Maple Leaf is looking at two product lines, branding product and food service.
Tavares doesn't think he will see a major change in the way that the industry is going now that the strident producer voice of Ed Benjamins, Moorefield, is no longer heard at the negotiating table or at the CCMA meetings in Ottawa. Benjamins recently resigned as the provincial representative, but failed in a bid to be the board chairman.
Benjamins, who says he isn't bitter about it, has been replaced in Ottawa by former Ontario board chairman John Maaskant. The new board chairman is Shelburne's Ron O'Connor, who has been the chicken board's negotiator with the processors and has a reputation for being tough.
Despite processors' talk of getting rid of quota, producers put the blame squarely on them. At the chicken board meeting in Toronto last month, Grimsby producer John Philippeos circulated copies of an early draft of the processors' brief to the minister, even putting them in washrooms. "It doesn't surprise me that the processors send out letters like that to the minister," he says.
Processors were warned when the bottom-up program began that overproduction was on the way, Philippeos says: "Nevertheless, they went ahead with it.
"They couldn't move the product, storage stocks went up and it was all their fault."
Philippeos says growers can't go back, but returns just aren't what they used to be. "My barn was built in 1969. I keep pumping money in, in repairs, and I know that one of these days I'm going to have to rebuild this barn and I don't have any money to do it.
"If we don't get a turnaround in this business in the next three or four years, a lot of people are just going to say 'the heck with it'. The chicken business is not worth having. "A lot of people say 'Can't you be more efficient?'...The only other thing I could do is build my own feed mill and hatchery."
Times are tough, Philippeos says. While three-way deals on chicks, feed and processing are generally frowned upon in the industry, Philippeos says they are "only an issue today because we are so far below cost of production. It's pretty hard to be morally correct when you can't make your payments."
Urs Kressibucher, who helped circulate Philippeos' copy of the processors' brief, is also furious about it.
"It boggles my mind how they would even consider that it wouldn't cause a few ripples in the industry," says Kressibucher, who raises roasters and cash crops 150 acres at Beaverton.
Kressibucher thinks the processors expect the Harris government is open to this kind of action.
Apart from Ontario's internal strife, the national agency has been working "amazingly well" with processors on an export policy, says Alberta's director on the national chicken agency, John Kolk. Exports have been mandated by the federal government and niche markets are being targeted in other countries. Exports are seen as an asset because they increase throughput at every stage of chicken production. "But it's not going to work if you hit the low end of the market," Kolk says. The Canadian niche will be high-end markets and the Middle East, where the super-competitive U.S. is universally disliked.
Alberta already has an export policy in place. But Ontario views it as processor-driven and is looking for an export policy of its own.
Meanwhile, Kolk says, Ontario chicken pricing is causing havoc elsewhere in the country, where pricing structure is based on what farmers get in the poultry-raising heartland of Ontario. Ontario's chicken producers are getting well below the cost of production for their birds. But an 'escalator clause' linked to soymeal and corn prices helps make up the difference. "We need to set price and volume far enough in advance that processors aren't tempted to play games with volume in the hope that they're going to be able to squeeze the price," Kolk says.
"We've got nothing solid. We are setting the price the day before the production comes out of the barn."
Kolk says the industry has not evolved as predicted two years ago. At the time, the feeling was that revamping the allocation system "would allow the big guys to take over the business." So far, it hasn't occurred, he says.
Kolk thinks that the big processors have much tougher task masters: "the bond markets and the money markets that demand a return on investment." By contrast, he thinks that the smaller processors, like the Co-op in Nova Scotia, are more competitive because "nobody is pulling the money out of them." Kolk thinks "the minute the processors make money, they're going to try to chew each other up again."
In eastern Ontario's Glengarry county, Larocque Hatchery owner Mashoud Janjua blames the processors for the current chicken market ills.
"The bottom-up approach is something the processors wanted. They got that. They wanted more chicken, they got that." Quota is the grower's pension plan, Janjua says.
He still thinks that in spite of the way that the industry has gone the last few years, processors like Tavares still want control of it from the feed to the grocery store door.
Others, however, are more optimistic. CCMA Chairman Lloyd Sandercock, a diplomatic, mild-mannered producer and agribusinessman from Saskatchewan, is widely recognized for his role in shepherding the industry through the tumultuous negotiations which characterized the Quebec-Ontario chicken war.
"Despite a few cloudy spots, I think we're doing pretty well,"
Sandercock says.
Files from Robert Irwin.-
Farmers will pay for Mad Cow mania
Northern Ireland dairy farmer Jason Rankin has never had a mad
cow on his place. But he and every other cattle farmer in
Britain are paying the price for those who have.
At press-time it seemed likely that a cattle culling of major proportions would take place in Britain with the March 27 announcement of a worldwide export ban on British beef and by-products. Rankin will probably be only one of tens of thousands of farmers who will see their animals slaughtered as Britain tries to come to terms with a health scare of immense proportions.
Spawning the scare world wide was the announcement in late March by British health officials of a probable link between Bovine Spongiform Encephalopathy (BSE), also known as mad cow disease, and Creutzfeldt-Jakob Disease (CJD) in humans. Despite previous government assurances that there was no connection, persistent rumours had dampened British beef consumption by between 10 and 20 per cent since last fall. With the announcement of the link, prices collapsed. Within a week, farmers weren't even bothering to take their cattle to market.
A massive depopulation seems likely, but the implications for genetic providers such as Canada remain uncertain. "It's early in the game," says Herb McLane, Canadian Beef Breeds Council, a Calgary-based umbrella group for national beef breeding organizations.
The British herd totals between 11 and 13 million head, and 70 per cent are dairy cattle. It is thought that four million are so-called oldstock, cattle that were possibly exposed to contaminated feed before stiffer rules about rendering came into effect in 1989. Poorly-rendered offals from scrapie-infected sheep are thought to have caused the disease to spread from one species to another.
Trading networks are long and well-established with Britain, McLane says, and so are health protocols, especially for embryos, where Canadian washing technology is considered to be state-of-the-art in disease control. Only a week before the BSE issue blew up, Canada shipped Britain a load of Simmentals. Beef and dairy genetic trade with Britain totals about $20 million annually. McLane says Canadian breeders are ready and willing to help with repopulating herds in Britain. But a lot of questions remain to be answered, even after a slaughter policy is launched.
One is how producers will be compensated. Britain's Agriculture Minister Douglas Hogg was pushing for aid for 120,000 livestock farmers from a Europe-wide funded money pool. But the EU will pay for only beef animals, and two thirds of the cattle sold in Britain are culled dairy cows. One scenario has been that older animals, mostly from dairy herds, will be killed off and incinerated. But a proposal to kill off the entire national herd of 11 million cattle keep resurfacing.
Also in question is any required clean-up time after herds are cleared out and before new animals are moved in. "We just don't know," McLane says.
In general, BSE has been a dairy disease. Most of the 160,000 cattle slaughtered since 1989 under government edict were dairy animals.
The logistics of disposal don't add up, McLane says. There is currently capacity to kill and incinerate 15,000 head a week. At that rate, it would take more than five years to complete even a selective slaughter or 15 years to delete the entire herd.
And then there is the issue of compensation. The cost could run into tens of billions of British pounds.
Rick McRonald, operations director, Semex Canada, Guelph, agrees that a lot depends on what happens in Britain and says that at first, Canadian semen sales would be hurt. Initially, a slaughter of British dairy cows would be a disaster for the Canadian semen industry. Sales there now total between $8 to $10 million in semen sales, roughly 450,000 doses a year - nearly all Holstein.
Canada is the number two semen provider there, McRonald says, after Holland and ahead of the U.S. "We don't want to be seen as profiting from someone else's misfortunes," he says. "They will have to repopulate and get their genetic material from somewhere else and there will be a lot of countries there to provide it."
Meanwhile, in Canada, both the federal government and the Canadian Cattlemen's Association (CCA) have taken quick steps to quell concerns.
The CCA fired off bulletins to retail stores, assuring them that there was nothing wrong with Canadian beef and offering advice on how to deal with customers.
Federal Agriculture Minister Ralph Goodale made it clear to the media in Toronto, Canada's largest consumer market, that beef was perfectly safe to eat. He got considerable air-time on CTV's Canada AM, broadcast nationally, and on Toronto radio stations that normally don't give food or agriculture a second thought.
"Canada's food safety system is second to none," he said. And he pointed out that a decision several years ago to refuse to let leftover meat from British Armed Forces at a Canadian Forces Base in Manitoba go to a local food bank is now seen in a different light.
"It was not pleasant ordering the destruction of the food, but it was absolutely essential to maintain the integrity of the Canadian agri-food system."
McLane agrees that the federal government has been tough and has maintained the integrity of Canadian breeding stock. A single cow had been diagnosed with BSE in Alberta in 1993. It had been imported from Britain and was destroyed, along with its herd mates. Also killed were other cattle which were imported at the same time. A Quebec farmer went to court and successfully prevented his prized Highland bull from being slaughtered; however, it was quarantined. It died last year, apparently of old age.
In Britain, concern remains that the disease may be transmitted, not only by feed, but from parent to offspring. This theory is purely speculation, and the Conservative government has tried to debunk it. But Labour MPs in Parliament assert that the government lacks all credibility now.
Basing expansion on its own merits
Manitoba dairy farmer Louis Balcaen has some advice for
farmers who plan to expand: don't do it just because he did
it.
Balcaen, a former chairman of Dairy Farmers of Canada, the national producer lobby group, isn't counting on winning a trade panel dispute with the U.S. He thinks his farm can survive the falling prices that accompany incursions of American products into the Canadian market, at least partly because of the advantages afforded by its geographic location. Balcaen farms on the outskirts of Winnipeg, in the heart of Manitoba's dairy belt. He feeds cows on crops from productive class two and three land. Roads are good in the area. Milk processors, equipment suppliers and his veterinarian clinic are nearby.
So most of the responsibility for making the operation survive depends on his own management and foresight.
His operation is now growing into a major expansion with a goal of milking between 500 and 600 cows three times a day. He is already part way there, after taking on the land, quota and cows from his brother who sold his nearby farm a few years ago.
Milk production has already been doubled to 1.5 million litres over three or four years, without increasing labour. A 26-year-old milking parlour has been replaced because it was inefficient.
Balcaen is carrying more debt than before, but it is still within the parameters considered necessary by farm financial advisers.
He warns farmers calculating a cashflow to finance expansion to expect it tougher than ever to get a price for their milk. "Base expected incomes on today's prices, or even lower, don't build in an increase," he says. Be conservative on incomes, liberal on expenses. Debt-to-equity ratio should be no more than one to one, and assets should be valued at three to four times gross annual income, with operating expenses no more than 50 per cent of gross sales.
The repayment period should be five years for quota and equipment, 10 and 25 years for land and buildings. "Do it right the first time," he says. Anyone making an investment of between $100,000 and $1 million should spend a few dollars planning.
Any farm like this needs excellent facilities for handling animals and gather and loading areas. "We haven't built a building too big yet."
Plan ahead to avoid environmental problems with ground water and air pollution, he says.
Hired help is now involved on the Balcaen operation. The milking centre has a lunch room with lockers, a refrigerator and a microwave.
Running this type of an operation requires a lot of time planning. "Most farmers love physical work." On a large farm "the rules change," Balcaen says. "The time at your desk is your most important responsibility.
"If you aren't good at delegating work, maybe you should think twice about expanding."
Family farming isn't an issue when it comes to dairying, Balcaen says. The industry doesn't lend itself to integration. But he thinks that dairy farmers can look at some new ways of operating, such as a joint operation of a milking facility, with each farmer owning 50 cows and still retaining feeding and heifer facilities.
Balcaen says "not the least of benefits is an improved lifestyle" for farmers who share joint operations, because milking chores are spread out and labour-saving technology is used. But it's not for everyone because farmers tend to be individualistic, he warns.
Schmidt Farm Store is back
Organic milk activist Michael Schmidt is back, albeit in a
more mellow style. Last month he opened a new location for The
Farm Store, in Flesherton, with a ribbon-cutting ceremony
attended by Ontario Agriculture Minister Noble Villeneuve and
local MPP Bill Murdoch.
Schmidt became famous across the province in early 1994, when his Durham-area store was raided by local health unit officials who seized unpasteurized dairy products which were being sold there. Unpasteurized products are considered to be unsafe for public consumption. Schmidt appealed the seizures to the Ontario Health Protection Appeal Board in Toronto in May. When the appeal board declared the milk products were dangerous, Schmidt's insurance carrier cancelled liability insurance on his farm and he was forced to close The Farm Store, and sell much of his acreage.
The following spring, Schmidt campaigned in the provincial election as an independent candidate and lost, to Murdoch. Schmidt says the new location is about five times as large as the old one on a farm near Durham, and there is a wider range of products available. Furthermore, there are no contentious products being sold at this place.
Schmidt says he is selling Organic Meadow brand milk, produced on organic farms in the Grey-Bruce-Huron county area and processed at Steen Dairy, at Erin. Other products sold at the store include organic cheeses, both domestic and imported, and organic fruits and vegetables from California.
After the ribbon cutting, Schmidt didn't have much time for the press. He was too busy running the till.-DS