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80 DECEMBER 13, 2012 | WWW.PRODUCER.COM | THE WESTERN PRODUCER SUBSCRIBE. SUBSCRIPTION/RENEWAL ORDER FORM Name Account # Address City/Town Postal Code Phone ( ) Email Year of Birth One Year: Two Years: I’m an active farmer/rancher I’m interested in agriculture I would like to pay by (check one): Cheque enclosed Visa Mastercard CARD NUMBER EXPIRY DATE Signature Date MY BILLING INFORMATION: Name Account # Address City/Town Postal Code Phone ( ) Year of Birth Email It’s the most Wonderful time of the year... While While you’re you’re at it, fi ll out the subscription subscription form and get one for yourself! yourself! MONTH YEAR To give the best Christmas Christmas gift to those those producers producers who are nearest nearest and dearest dearest to you. Purchase Purchase Western Western Producer Producer gift subscriptions subscriptions now. It’s the one Christmas Christmas gift that keeps keeps on giving giving week week in, week week out. Mail to: The Western Producer, Box 2500, Saskatoon, SK S7K 2C4 or Call 1-800-667-6929 Subscription Prices One Year Two Years SK & AB residents (GST 5% inc.) $87.07 $161.95 MB residents (GST 5% & PST 7% inc.) $92.87 $172.75 I would like to give a GIFT SUBSCRIPTION to: Name Address City/Town Province Postal Code Phone ( ) One Year: Two Years: Name Address City/Town Province Postal Code Phone ( ) One Year: Two Years: Subscription Prices One Year Two Years ON residents (HST 13% inc.) $93.70 $174.29 BC residents (HST 12% inc.) $92.87 $172.75 NS residents (HST 15% inc.) $95.36 $177.38 Per copy retail add taxes $4.25 United States US/year $179.66 All other countries CDN/year $358.19 I would like to pay by (check one): Cheque enclosed Visa Mastercard CARD NUMBER EXPIRY DATE Signature Date MONTH YEAR
BEEF | SLAUGHTER BY ROBERT ARNASON BRANDON BUREAU Stephen Koontz has advice for anyone looking to build a beef slaughter plant in North America — don’t do it. “Year in and year out, if I can talk a producer group out of building a packing plant, I’ve had a good year,” said Koontz, an agricultural economics professor at Colorado State University. Producer groups or businesses thinking about building a plant usually understand that four companies, Cargill, National Beef, JBS and Tyson, dominate the beef packing industry in North America. Nonetheless, most new entrants don’t fully comprehend the big four’s cost advantage, Koontz said. When asked about the viability of a $40 million, 250 head per day halal and kosher slaughter plant that the Manitoba Cattle Enhancement Council is proposing for Winnipeg, Koontz said it’s crucial to understand the cost per kill of a new plant and how it correlates to the number of animals processed. In a 2007 paper in which he analyzed packer data, Koontz determined that the average cost of slaughter at the four major packers was $120 to $165 per head, or a mean of $140 per head. In comparison, the slaughter cost at smaller plants were $200 to $375 per head. Updating the figures to 2012, Koontz estimated it now costs the big four $160 to $175 per head. Assuming that costs have increased a similar amount for smaller packers, those plants would now spend $230 to $440 per kill. As an example of scale in the industry, Cargill’s packing plant in Dodge City, Kansas, kills 6,000 animals per day, but Koontz said even beef plants of that size must operate at full capacity. “Packers do make money, but it’s an extremely low margin business…. The critical thing with these plants is that they’ve got to run two shifts per day, five days a week and one shift on Saturday,” Koontz said. “If you’re looking at any small plant, they’re usually running one shift per day, sometimes four days a week. That just won’t cover the cost of your building and your people.” Koontz’s cost estimates are similar to numbers cited by Canadian Cattlemen’s Association president Martin Unrau during a speech in Brandon in late November. He said costs are around $165 per kill at certain JBS plants in the United States and closer to $400 per kill at smaller plants. A CCA spokesperson said in an email that Unrau’s figures are two years out of date and can’t be applied to a proposed slaughter plant such as the ProNatur project in Winnipeg. ProNatur spokesperson Adam Dooley said it’s difficult to compare this type of project to large commodity players in the beef industry, because the Winnipeg plant will target niche markets. “We have calculated our cost per animal and it is competitive,” Dooley said. NEWS Economist advises against slaughter plant Analyzing costs | Low margins in slaughter plants make business difficult for new and small players BY BARRY WILSON OTTAWA BUREAU Prairie grain farmers are having a good year, but that should not be attributed to the end of the CWB monopoly, says National Farmers Union president Terry Boehm. He also argued during a video appearance before the House of Commons agriculture committee Dec. 6 that government changes to agricultural regulations and rules are turning the clock back to an era when farmers were at the mercy of market forces and powerful monopolies. During the past century, farmers have lobbied for and won the right to have a greater say in the government Low margins force beef slaughter plants to run at full capacity. | FILE PHOTO Although cost is a significant factor, Koontz said another argument against building a beef slaughter plant in North America is that existing facilities aren’t operating at full capacity. Based on data from his 2007 study, Koontz said the industry had approximately 25 percent excess capacity. A few plants have closed over the last five years, but the North American cattle herd has also contracted. Therefore, Koontz said excess capacity may no longer be 25 percent, but it’s at least 15 percent. The plant in Winnipeg is planning to sell its beef into the kosher and halal market, which should partially compensate for increased killing costs. In a study published this year in Agricultural and Resource Economics Review, Lee Schulz of Iowa State University found that steaks with a religious claim earn a market premium THE WESTERN PRODUCER | WWW.PRODUCER.COM | DECEMBER 13 , 2012 of $1.18 per lb. compared to steaks that aren’t kosher or halal. The premium is helpful, but Schulz determined it’s relatively small compared to organic beef, which garners a premium of $2.98 per lb. Koontz said cost per kill ultimately determines if a plant succeeds or not. “It’s really hard to get enough premiums to offset a higher cost plant,” he said. “The theory of premiums is great. But … what market is not being satisfied now that you’re going to satisfy? Or whose market are you going to take away from them?” Cargill already produces certified halal beef at its Dunlop plant in Guelph, Ont., which processes 1,500 head per day. The Islamic Food and Nutrition Council of America certifies the beef from the Guelph plant, which is much closer to the major Canadian markets for halal beef than Winnipeg. GRAIN | MARKETING High grain prices not linked to end of CWB monopoly, says NFU president Maintaining stance | National Farmers Union president Terry Boehm contends costs for producers will rise regulatory and co-operative grain system, the Saskatchewan farmer told MPs during the first NFU appearance before the committee in months. “We’re systematically dismantling that collaborative system under the guise of buzzwords like modernization, rationalization, an assortment of pieces along that line and really recreating an adversarial system where farmers fundamentally end up paying for all the costs in the system, as they always have,” said Boehm. After weeks of testimony about how this year, with its record grain and oilseed prices, has been a good one for prairie farmers, Conservative MPs pressed Boehm on how farmers are doing in the aftermath of the CWB monopoly. The Conservatives pressed for and eventually won the battle over ending the CWB monopoly, but the NFU was one of the strongest defenders of the single desk. Peace River Conservative MP Bob Zimmer said his farmer constituents have seen positives in the market since the end of the CWB monopoly Aug. 1. Are NFU farmer members better off this year than last year? “The prices are not determined entirely by single desk or no single desk or voluntary or otherwise,” said Boehm. “We have droughts that have created relatively buoyant prices, so for the moment farmers are getting high prices, but you can’t attribute that to marketing freedom or a voluntary board.” Zimmer responded: “It’s been a good start, I must say.” On Dec. 4, Western Barley Growers Association director and past president Brian Otto told MPs on the committee it was more than a good start. He said deliveries are at a decade high level, elevators are moving crop quickly and railways and export terminals are turning deliveries around quickly. “This is how a commercial marketplace should work and certainly creates an atmosphere that will attract investment into our industry.” In his testimony, Boehm said his organization is dedicated to a farm BY ROBERT ARNASON BRANDON BUREAU 81 NORTHERN BEEF PACKERS | CATTLE South Dakota packing facility opens doors It’s been six years since the project was initially proposed, but a $109 million beef slaughter plant in Aberdeen, S.D., finally began processing cattle this fall. Northern Beef Packers, which is partially owned by Korean investors and was built to alleviate a beef processing gap in the Dakotas, is now processing cattle. As it scales up production into 2013 and 2014, plant managers expect to process 1,500 cattle per day. If a second shift is added, the plant’s kill capacity could reach 3,500 per day. The plant plans to buy cattle from North and South Dakota, Minnesota and Iowa because producers in those states now ship cattle south to plants in Nebraska. Laure Swanson, Northern Beef Packers marketing director, told the Bismarck Tribune that Canadian producers have expressed interest in selling cattle to the plant. Aberdeen, which is about a sixhour drive south of Winnipeg, may offer significant transport savings for Manitoba producers, who normally sell cattle to plants in Alberta or to processors hundreds of kilometres south of Aberdeen. NORTHERN BEEF PACKERS PLANS TO PROCESS 1,500 CATTLE PER DAY. 3,500 CATTLE COULD BE PROCESSED IF THE PLANT ADDS A SECOND SHIFT model that differs from the large farm assumption of current policy. “We believe that small-sized and medium-sized family farms should be the fundamental food producing units in Canada,” he told MPs. “Our mandate is to work for economic and social justice for those farmers.” He said government policies on the CWB, the Canadian Grain Commission and the railways are returning the farm economy to a time when farmers had less power. “All of these policies that we’re seeing are really shifting the clock back without actually looking at the entire public good, (without) economic cost-benefit analysis taking place,” he said.
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