Why Canada relies on just 3 meat-packing plants for most of its beef supplies
Outbreaks of COVID-19 at Canada’s two largest meat-packing plants have reverberated across the beef industry, causing a backlog of roughly 100,000 cattle, all of them now stuck on farms and costing ranchers hundreds of millions in extra feed and lost revenues.
The backlog has also renewed concerns about the lack of diversification in Canadian beef processing, which some say is due to the realities of North American supply chains, and perhaps a long-ago regulation made to stop the spread of Bovine Spongiform Encephalopathy (BSE), better known as mad cow disease.
The vast majority of all Canadian-raised cattle are slaughtered and processed by a few massive plants owned by two multinationals: Cargill Inc. and JBS SA.
Cargill’s plant in High River, Alta., reopened on Monday, two weeks after closing because roughly half its 2,000 staff tested positive for the virus. A similar outbreak at a JBS plant in Brooks, Alta., has caused a weeks-long slowdown in production.
Those two plants represent roughly 70 per cent of all federally inspected beef processed in Canada. Add in Cargill’s plant in Guelph, Ont., and the three account for roughly 85 per cent, so there are major consequences from even a brief pause in their production levels.
On Tuesday, the federal government pledged $50 million in aid for cattle producers, which have watched as a glut in supply drove down market price to between $1,600 to $1,800 per animal from roughly $2,600, according to an estimate by Dennis Laycraft, executive vice-president of the Canadian Cattlemen’s Association.
“Without some intervention between now and the end of June, we estimate that our producers are going to lose half-a-billion dollars in revenue because of this backlog,” he said. “The sooner we can get the cattle processed, the sooner we can work our way through this.”
Canada has hundreds of provincially inspected processors, but they only process around four per cent of the Canadian herd, or 4,000 cattle per week, which is slightly less than what Cargill’s plant in High River can do in a day. Federally inspected facilities, which are the only ones able to ship between provinces and export internationally, typically process about 65,000 cattle a week.
There have been calls to add more meat-packing facilities since bovine spongiform encephalopathy (BSE), also called “mad cow disease,” devastated the Canadian cattle sector in 2003, said Michael von Massow, a food economist at the University of Guelph in Ontario.
But in the past decade, small and mid-sized plants have typically been unable to compete with the massive slaughterhouses in the United States that can kill tens of thousands of cattle per day.
“In the grand scheme of things, that Cargill plant (in High River) is the biggest plant in Canada, but, relative to some of the bigger plants in the U.S., it’s not a supersized plant,” von Massow said.
The big plants are so efficient that it is tough for anyone else to compete on price. Canada exports about 700,000 to 800,000 cattle to U.S. meat-packing plants each year.
“We have to have the scale in order to complete,” he said. “The trade-off becomes, if we had more of a safety net with some diversification in processing, our costs go up. Are we willing to pay more for beef in order for that assurance?”
But not that long ago, Canada was completely self-sufficient and able to process all cattle raised in the country. It had to. The U.S. border was closed to live cattle for roughly two years because of the BSE outbreak.
Canada was forced to increase its processing capacity by building new facilities and expanding production at existing plants, said John Masswohl, a retired government relations director for the Cattlemen’s Association who worked through the BSE crisis in the mid-2000s. But the new plants didn’t last.
A lot of the mid-sized plants in Ontario and Quebec focused on processing ground beef from lower-quality, older cattle, such as decommissioned bulls and dairy cows that no longer produced milk.
But a 2007 regulation, aimed at preventing the further spread of BSE, made that process even less cost effective and more difficult to compete with U.S. processors that didn’t have to stick to the same rigorous standard, Masswohl said.
Since BSE is known to spread through specific parts of older cattle — mainly the spinal cord, tonsils, brain and the eyes — those parts have to be removed.
Between 2003 and 2007, there were still ways to make money on those high-risk parts, either as certain types of animal feed, pet food or fertilizer. But the new regulation, known as the enhanced feed ban, outlawed those uses.
“That took away the only revenue-producing stream left for those bits and turned them into a cost to get rid of,” Masswohl said. “It was very soon after this new regulation was implemented in Canada in 2007 that we started losing these facilities, particularly the ones that relied heavily on processing the older animals ... And that’s the situation that we continue to live with a dozen years later.”
But the small and mid-sized plants in Canada would have been in trouble anyway, according to one veteran industry executive.
After the borders reopened to Canadian cattle, the pressures on domestic processors returned, said Brian Read, who was an executive from 1994 until 2009 at the now-shuttered Levinoff-colbex meat-packing plant in Quebec that focused on older cows.
Despite processing cheaper, older cows, those plants struggled to compete with the ground beef price from the bigger players, even though the bigger players were using more expensive “fat cattle” raised specifically for beef, he said.
“When I started in the industry, there were multiple (plants). And they did an average of 500 a week, something like that,” Read said. “Now they’re doing 350 an hour. That’s what’s happened. The big have gotten bigger.”
Building one modern harvest floor — industry parlance for a plant’s killing area — is an investment of more than $200 million, at least, Read said. “It’s not cheap. And if you’re not putting through a big volume, you won’t create enough revenue to pay it back,” he said. “It’s based on volume. It’s pounds per man hour. It’s just more pounds per man hour out of a bigger plant than you get out of a smaller building. The plants are built for that. And for a small guy to invest $220 to $230 million on a harvest floor in a barn, it’s impossible. You just cannot justify the payback.”