Review of Pricing in the Beef Industry

With the announcement of a single case of Bovine Spongiform Encephalopathy (BSE) in Alberta on May 20, 2003, the province's cattle and beef industry irrevocably changed. In mere days a thriving billion-dollar value chain virtually ground to a halt as critical export markets vanished when borders closed to Canadian beef.

With no North American experience to draw upon, the future was far from certain. And no one in the value chain, from cow/calf producers, backgrounders, feedlots, packers, processors, wholesalers and retailers, could clearly anticipate short or long-term impacts precipitated by the supply and demand imbalance quickly emerging.

As weeks ensued, industry and government saw troubling indicators that signaled near collapse in the value chain. Packers laid off employees and shortened work weeks. Auction markets closed doors and truckers parked vehicles. Most critically, animals began to back up in a system designed for continuous throughput. Unlike other exportbased commodities such as oil, lumber or grain, the cattle industry could not stockpile its inventory until markets re-emerged. In addition to serious economic concerns for every part of the value chain, genuine issues began to arise around animal welfare. The environmental impact and consumer concern for animals either dying or destroyed rose to heightened debate.

The Alberta government, in full consultation with the cattle and beef industry, the federal government and other provinces, began discussions on a compensation program designed to keep cattle moving through the value chain so that when borders did reopen, the industry would be in good working order.

The Canada-Alberta Bovine Spongiform Encephalopathy (BSE) Recovery Program was introduced to provide compensation for cattle in Alberta feedlots. Those animals were judged to the be most at risk in the value chain -- and at most risk of toppling the value chain -- because feedlots had the least flexibility to weather weeks of stoppage in the system. Next, the Alberta Fed Cattle Competitive Bid Program was introduced as an incentive for producers to sell or set aside fat steers and heifers. Further, the Alberta Fed Cattle Market Adjustment Program continued to help move fed cattle ready for slaughter through the system. The aim of all three programs was to top up prices paid to producers who owned and sold fed cattle, encouraging them to break the log jam of product.

Other programs followed until in all, the Alberta government committed $400 million towards BSE recovery programs in addition to $200 million in federal compensation flowing to Alberta producers. While aimed primarily at the feedlot industry, the provincial government and the industry who designed the programs knew that other
producers such as cow/calf operators and spin-off industries such as trucking would indirectly benefit from 1.2 million head moving through the value chain.

While fully opening old borders and exploring new markets remained a priority for government and industry, stabilizing the cattle and beef market for the benefit of all Albertans was the primary purpose of the BSE recovery effort.