| | A recent study looked at how a 73 year-old program could be updated to finance the creation of value chains.
Since its founding in 1936, Alberta’s Feeder Association Loan Guarantee Program has made an important contribution to the growth and success of the province’s beef cattle industry.
During this time, the program has guaranteed a total of $6.74 billion in calf-crop financing for members of the province’s community-based cooperative feeder associations, which now number 56. In 2008, for example, the program financed 19.5% of the province’s calf crop, with financing valued at $216 million.
As beef industry players know well, a series of structural changes have come to the industry in recent years. One is the creation and adoption of value chains, linking producers, processors and retailers with a common aim of providing the consumer with a premium product at a premium price.
Security: on the hoof or in a box?
“One model of a value chain is a producer-driven supply chain,” says Dale Engstrom, Stony Plain-based Senior Manager, Strategic Partnerships, with Alberta Agriculture and Rural Development (ARD). “In this model, producers maintain ownership throughout the chain, carry the risk throughout the chain, and purchase the processing services they need on a cost-plus basis.”
This development gives rise to several important questions: How could feeder associations maintain the value of the security they hold – currently the live animal – while the animal goes from live to carcass to boxed beef to case-ready beef? Is that security still viable as the value chain progresses, and is it still acceptable to the financial institution and to the guaranteeing entity, the Government of Alberta? What is the nature of the risk involved and how can that risk be managed?
A recent study commissioned by Engstrom and ARD probed these very questions. Among the study’s preliminary conclusions:
1. Value-chain security is possible. Bar-code technology can be used to maintain identity, ownership and security on group lots of cattle from carcass to meat case. New DNA-based technology has the potential to track individual animals from feed pen to meat case.
2. Security of supply is vital to value-chain success. “Even if a program is only processing 50 head per week, that's 2,500 head in a year,” says Engstrom. “You need to be lining up the cattle about a year in advance to ensure you have the needed volume, and this requires substantial financing.”
3. Patient capital will help value chains grow. The capital needs of a natural beef or organic beef value chain can be 30% higher than a comparable commodity beef program. Knowing that financing is available should encourage the formation of new chains and the growth of existing ones.
New DNA-based technology has the potential to track individual animals from feed pen to meat case.
Says Engstrom: “The study’s findings will be presented to the Government of Alberta and the Alberta Livestock and Meat Agency in March. From there, we hope to have a pilot project to demonstrate to ARD, feeder associations and the financial institutions how this new-look financing could work.”
For more information on new ideas for financing through Alberta’s feeder associations, please contact Dale Engstrom at 780-968-3551 (dial 310-0000 for toll free) or email dale.engstrom@gov.ab.ca. |
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