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Disaster looms for cow/calf producers

by Paul Beingessner
Canadian farmer and writer

(Tuesday, July 8, 2003 -- CropChoice guest commentary) -- The Canadian government's response to the economic damage caused by the discovery of Bovine Spongiform Encephalopathy in an Alberta cow has been typical for Agriculture Minister Lyle Vanclief.

Various estimates place the cost to Canada from the closure of export markets, particularly to the U.S., at $11 million per day. As of this writing, we are at day 47 and counting. Impacts throughout the industry are growing steadily. Prices for cattle are so low that virtually none are going to market. Feedlots remain burdened with unsalable cattle that are daily getting bigger, older, and hence less desirable. Workers in all sectors, from packers to feedlots to trucking companies have been laid off.

The packing companies are the least likely to suffer since they are mostly gargantuan multinationals. Feedlot operators, on the other hand, are generally low margin, high turnover small businesses that are now taking the brunt of the economic hit. At this point, they are supposed to be the targeted recipients of government largesse. And given the scope of that largesse, these folks foresee a bleak future.

For now, the Vanclief ultimatum said there will be $460 million to repair the damage to the industry. That money is targeted at feedlot operators and those selling cattle, as well as a $30 million dollar fund aimed at reducing freezer stocks of less marketable cuts. The main program has the unusual feature that as cattle prices fall, so does the compensation. A few cheques have gone out to this point, but industry players like the Canadian Cattlemen's Association say the program is inadequate and poorly designed. The program to reduce freezer stocks does not appear to have begun yet. The fed government also says it will end all compensation the moment the border opens even a crack. Welcome to the world of Vanclief.

Perhaps the biggest uncertainty is for the bedrock of the industry, the cow/calf operator. To date these farmers and ranchers have only watched in increasing fear as the American government shows no interest in opening the border and Korea and Japan give it an added excuse not to do so. But in just over two months, the fall calf run would normally start, with something like 4.5 million calves going to markets across the country. The most optimistic scenarios do not predict a return to last year's price levels, even if the border opens tomorrow.

If the border remains closed, or opens only partially, those feedlots that survive will be exceedingly cautious in their purchases. Farmers will have to choose between selling into a faltering market or backgrounding their calves over the winter and hoping for better next spring. If calf prices fall only 20 cents a pound (there couild be a much greater drop) losses to farmers will total over $500 million. Loan payments and bills that come due in the fall will go unpaid. It is also worth noting that for the third year in a row, large parts of the prairies remain very dry and potential crop yields are falling. The potential for disaster is staggering.

Once the industry struggles back to a semblance of normal, many things will have changed. Disposal of wastes from slaughter houses will be more costly and farmers will absorb that cost in lower prices for cattle and calves. Older cull cows may not find much of a market anywhere - another loss in revenue.

And what can cow/calf producers expect from the federal government to deal with all this? Vanclief made it clear that the cow/calf guys will not need any special aid. They will be fine because they will be able to collect from their NISA accounts.

Would that it were so. But two or more years of drought, including last year's extreme, have drained many NISA accounts. The small amounts that remain in others will be completely inadequate to compensate farmers for their losses.

If he remains true to form, Vanclief will ignore and then minimize this ticking time bomb. Farmers already know there will be losses to the primary producer. They must immediately pressure Ottawa to come up with a plan for compensation.

Just to help the Minister along, I can think of a simple one. Determine the average difference between last year's prices and this year's, and top up the value of each calf sold so it is no less that what was received last year. Farmers are not to blame for mad cow disease and should not be driven from the business because of it.

(c) Paul Beingessner (306) 868-4734 phone 868-2009 fax