11 September 2012

9 minute read

Executive Summary

Canada’s beef sector needs a robust, long-term strategy – and a sustained commitment to execute the strategy – if it wishes to secure its place as a competitive force in domestic and global markets. For this report, the Canadian Agri-Food Policy Institute (CAPI) undertook a comprehensive study of Canada’s beef sector. The feedback indicates that Canada does not possess such a strategy for the beef sector. The research also indicates that the sector is foregoing economic opportunities and its competitive position is falling behind. There is a prevailing view among many in the beef sector that a course correction is required. Stakeholders are keen to have a new dialogue on strategy. But this discussion can only occur if leaders in the sector are willing to act.

Chapter 1 of this report largely focuses on the interview feedback and the key themes generated from what we heard. Chapter 2 sets out the challenges facing the sector – of which the salient points are addressed below. Chapter 3 addresses the opportunities and suggests that “information” can be the basis for improving the sector’s performance in domestic and export markets and achieving a competitive advantage. In Chapter 4, the report shares several case studies on strategy development here and abroad and describes in detail a roadmap to help facilitate the dialogue on strategy. CAPI’s mandate is to foster a dialogue on emerging issues and present alternative solutions as a basis to help the country’s agri-food sector to succeed.

The Canadian beef sector has rallied in the past. After reeling from the 2003 BSE crisis, the sector came together and, working with government, found a direction forward. But the marketplace has since moved on, and the sector faces many new challenges, of which our balance of trade with the US is a paramount concern. CAPI has identified “three pertinent questions” and, based on our research, offers in this report responses and key strategic questions for the beef sector to consider. The prospects of the Canadian beef industry may well depend on how the sector responds to these questions:

Three Pertinent Questions

1. Recent government initiatives to pursue and open new foreign markets should prompt the relevant question: What is the beef sector’s strategy to follow through on emerging opportunities?

CAPI research reveals the sector is not positioned to take advantage of trade doors being opened for it.

• Some 85% of our beef and cattle export trade is with the US. This important market generates $1.8 billion in total sales for Canada’s beef sector. Is it not important to diversify our markets by increasing the proportion of exports to those markets beyond the US that are now open to us?
• The value of beef exports to other countries often exceeds the value received for Canada’s exports to the US. Such substantive dependence on the US appears to be costing Canada valuable opportunities. How does the sector decide what is the optimum export market mix and strategic path forward based on existing and potential strengths?
• Increasing exports depends on having beef supply to export. Yet Canada’s cow herd has declined by 1 million head or 20% since 2005. How do we ensure a critical mass of cattle to meet future market opportunities?

2. In the domestic market, Canada’s trade balance is worsening. Canada is at risk of becoming a net importer of beef. What are beef stakeholders doing about trying to regain our own domestic beef market share?

The data reveal that our significant dependence on the US is generating greater benefits to that country than to our own beef sector.

• In 2011, Canada had a net trade balance in beef of $42 million with the US (excluding beef offal, livers and tongues). In 2002, Canada’s beef trade balance was nearly $1.4 billion. Is the erosion of Canada’s trade balance not a strong signal of a loss of competitiveness?
• The unit value of Canada’s exports to the US is only about 60% of the value of US imports to Canada. We are diverting economic (value-added) activity to the US as American processors, in turn, export higher value product back to Canada. Are we missing a bigger economic opportunity to better serve our own domestic market (i.e., increased and further processing)?
• With Canada “backfilling” product to the US, that country is realizing a greater advantage by significantly expanding exports (beyond) Canada. Since 2005, US beef exports are up 280% on a value basis, and 159% on a tonnage basis. Canada’s exports beyond the US have increased by 45%, in terms of value, and 13% in tonnage of beef. Compared to 2002, Canada’s exports to international markets other than the US were down 3.5% while the US beef industry increased exports to the international market by 51% (excluding shipments to Canada).
• Are we satisfied with the US growing its exports with, essentially, the use of Canadian slaughter and feeder cattle augmenting domestic supply?

3. Consumers and other food stakeholders are increasingly raising concerns about how beef, and their food in general, are produced. What does this mean for positioning beef relative to competing proteins and maintaining consumer trust?

• Global poultry consumption has increased 10.3% over the last three years (2008-2011) while beef consumption has declined 3.5%. Per capita consumption of beef is falling in Canada, and across the OECD. In Canada, it has declined 10.7% since 2001. Pork consumption over that period has declined by 28%, while poultry (chicken, hen and turkey) consumption has increased 3.4%. Price is a key determinant. Beef costs more to produce than other proteins. Moreover, despite improvements, more grain is required per kilo of beef production than for other meat proteins. This also feeds the criticism that beef’s environmental footprint is unsustainable and, for some, a reason not to consume beef. There are also concerns about the perceived healthfulness of beef and the ethical treatment of animals. How are consumer perceptions and concerns with beef shaping consumption behaviour?
• Meat consumption is rising in the developing world. The forecasts for continued growth are very positive given the growing affluence of middle classes. Other countries, however, are also positioning themselves to serve these markets. What are the beef sector’s objectives to target specific market segments?

In our interviews, many beef stakeholders told us that the sector is operating without a strategy, that there is minimal collaboration, no vision, no sense of common objectives and fragmented leadership.

After speaking with over 80 individual stakeholders, we distilled their mains concerns in this way:

Three Key Points of Feedback

1. “The need for a strategy”: Many interviewees suggested that change is required. As noted at the outset, many noted the absence of an explicit strategy for the sector, and no long-term and shared strategic plan that brings stakeholders together.
2. “The need for alignment”: Many interviewees indicated that the sector suffers from a minimal amount of collaboration among its stakeholders.
3. “The need for leadership”: A number of interviewees noted that there are too many voices speaking for the beef sector, coupled with an absence of shared or collaborative industry leadership. Leadership is needed to galvanize (and align) stakeholders in order to adapt to change.

Our objective is to help create the conditions for a new dialogue to occur across the beef sector. CAPI’s role is not to prepare the sector’s strategy but to present ideas for such a strategic dialogue to occur. Its report offers the following suggestions:

Three Suggestions:

A long-term strategy is needed to build the beef brand and to generate consumer trust in the product and production processes.

1. A competitive advantage can be built around the sophisticated use of “information”:

Canada’s current program of cattle and premises identification schemes is largely superior to those in place in the US. Canada is close to having the ability to deliver information up and down the supply chain to benefit producers, processors and consumers. Knowing more about variations in yield, grade and quality of beef cuts is key to consumer satisfaction and to generating greater economic value to the sector. This is about linking the genetic potential of cattle, best animal care handling practices, nutrition and animal health to consumer preferences and to industry marketing efforts.

2. Government must encourage the development of a strategy.

Government has leverage. While a strategy must be industry-led, government should tie its financial support to the development of a robust industry strategy. Government then must align its own policies, initiatives, funding and regulation to enable this strategy. Importantly, government must also approach market access negotiations for the beef industry with a strategic plan which aligns with the industry strategy and positioning.

3. This report emphasizes the need for leadership to initiate change.

Champions in each supply chain need to act. But should there be a national organization with a mandate and the financial means to articulate and support an overall domestic and international strategy? The merits of this idea should form part of the dialogue. Put another way, without such leadership, will the status quo prevail?

A New Approach

The central premise of this report is “what’s the strategy?” and “how do we get there?”

The response starts with dialogue. We offer a lens through which such a robust dialogue can occur: through a “food systems” perspective. The issues are connected and complex; many players need to be part of the conversation; food production and supply are connected to the broader societal context in which the agri-food (and beef) sector operates.

CAPI’s food systems concept has three dimensions.1 First, it is about how supply chains collaborate to profitably meet consumer needs. Identifying common objectives for mutual benefit is critical. Second, food system thinking elevates the discussion to consider broader societal implications. The marketplace is signalling the need to be attentive to this dynamic. Consumers are interested in how food production impacts them and their world. Third, a food systems approach recognizes that supply chains interact and collaborate with many other diverse players, such as those in the fields of health, environment, input suppliers, research, and governments. This report offers a tool (or “Roadmap”) to help structure this conversation by linking their interests.

For this report, CAPI interviewed over 80 beef stakeholders and a broad variety of support players in the fall of 2011. During the winter of 2012, the authors received feedback from industry associations representing the cattle sector at both the provincial and national levels, representatives of the meat packing segment of the sector, representatives of food retailing and the food service sector, governments, and from the diverse membership of the Beef Value Chain Roundtable. Consultations with the sector continued through 2012.

In short, while building on the progressive steps already underway, Canada’s beef sector needs to decide how to position itself in this ever-changing marketplace. Continued indecision will rob us of our very real opportunities.

Further Reading

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You can view the full report by clicking here.

September 2012