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The cattle crisis: 100 years of Canadian cattle prices

Graph of Canadian cattle prices, historic, 1918-2018
Canadian cattle prices at slaughter, Alberta and Ontario, 1918-2018

Earlier this month, Brazilian beef packer Marfrig Global Foods announced it is acquiring 51 percent ownership of US-based National Beef Packing for just under $1 billion (USD).  The merged entity will slaughter about 5.5 million cattle per year, making Marfrig/National the world’s fourth-largest beef packer.  (The top-three are JBS, 17.4 million per year; Tyson, 7.7 million; and Cargill, 7.6.)  To put these numbers into perspective, with the Marfrig/National merger, the largest four packing companies will together slaughter about 15 times more cattle worldwide than Canada produces in a given year.  In light of continuing consolidation in the beef sector it is worth taking a look at how cattle farmers and ranchers are fairing.

This week’s graph shows Canadian cattle prices from 1918 to 2018.  The heavy blue line shows Ontario slaughter steer prices, and is representative of Eastern Canadian cattle prices.  The narrower tan-coloured line shows Alberta slaughter steer prices, and is representative for Western Canada.  The prices are in dollars per pound and they are adjusted for inflation.

The two red lines at the centre of the graph delineate the price range from 1942 to 1989.  The red lines on the right-hand side of the graph delineate prices since 1989.  The difference between the two periods is stark.  In the 47 years before 1989, Canadian slaughter steer prices never fell below $1.50 per pound (adjusted for inflation).  In the 28 years since 1989, prices have rarely risen that high.  Price levels that used to mark the bottom of the market now mark the top.

What changed in 1989?  Several things:

1.       The arrival of US-based Cargill in Canada in that year marked the beginning of integration and consolidation of the North American continental market.  This was later followed by global integration as packers such as Brazil-based JBS set up plants in Canada and elsewhere.

2.       Packing companies became much larger but packing plants became much less numerous.  Gone were the days when two or three packing plants in a given city would compete to purchase cattle.

3.       Packer consolidation and giantism was faciliated by trade agreements and global economic integration.  It was in 1989 that Canada signed the Canada-US Free Trade Agreement (CUSTA).  A few years later Canada would sign the NAFTA, the World Trade Organization (WTO) Agreement on Agriculture, and other bilateral and multilateral “free trade” deals.

4.       Packing companies created captive supplies—feedlots full of packer-owned cattle that the company could draw from if open-market prices rose, curtailing demand for farmers’ cattle and disciplining prices.

Prices and profits are only partly determined by supply and demand.  A larger factor is market power.  It is this power that determines the allocation of profits within a supply chain.  In the late ’80s and continuing today, the power balance between packers and farmers shifted as packers merged to become giant, global corporations.  The balance shifted as packing plants became less numerous, reducing competition for farmers’ cattle.  The balance shifted still further as packers began to utilize captive supplies.  And it shifted further still as trade agreements thrust farmers in every nation into a single, hyper-competitive global market.  Because market power determines profit allocation, these shifts increased the profit share for packers and decreased the share for farmers.   The effects on cattle farmers have been devastating.  Since the latter-1980s, Canada has lost half of its cattle farmers and ranchers.

For more background and analysis, please see the 2008 report by the National Farmers Union: The Farm Crisis and the Cattle Sector: Toward a New Analysis and New Solutions.

Graph sources: numerous, including Statistics Canada CANSIM Tables 002-0043, 003-0068, 003-0084; and  Statistics Canada “Livestock and Animal Products”, Cat. No. 23-203

 

 

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If you’re for pipelines, what are you against?

Graph of Canadian greenhouse gas emissions, by sector, 2005 to 2039
Canadian greenhouse gas emissions, by sector, 2005 to 2030

As Alberta Premier Notley and BC Premier Horgan square off over the Kinder Morgan / Trans Mountain pipeline, as Alberta and then Saskatchewan move toward elections in which energy and pipelines may be important issues, and as Ottawa pushes forward with its climate plan, it’s worth taking a look at the pipeline debate.  Here are some facts that clarify this issue:

1.  Canada has committed to reduce its greenhouse gas (GHG) emissions by 30 percent (to 30 percent below 2005 levels by 2030).

2.  Oil production from the tar sands is projected to increase by almost 70 percent by 2030 (From 2.5 million barrels per day in 2015 to 4.2 million in 2030).

3.  Pipelines are needed in order to enable increased production, according to the Canadian Association of Petroleum Producers (CAPP) and many others.

4.  Planned expansion in the tar sands will significantly increase emissions from oil and gas production.  (see graph above and this government report)

5.  Because there’s an absolute limit on our 2030 emissions (515 million tonnes), if the oil and gas sector is to emit more, other sectors must emit less.  To put that another way, since we’re committed to a 30 percent reduction, if the tar sands sector reduces emissions by less than 30 percent—indeed if that sector instead increases emissions—other sectors must make cuts deeper than 30 percent.

The graph below uses the same data as the graph above—data from a recent report from the government of Canada.  This graph shows how planned increases in emissions from the Alberta tar sands will force very large reductions elsewhere in the Canadian economy.

Graph of emissions from the Canadian oil & gas sector vs. the rest of the economy, 2015 & 2030
Emissions from the Canadian oil & gas sector vs. the rest of the economy, 2015 & 2030

Let’s look at the logic one more time: new pipelines are needed to facilitate tarsands expansion; tarsands expansion will increase emissions; and an increase in emissions from the tarsands (rather than a 30 percent decrease) will force other sectors to cut emissions by much more than 30 percent.

But what sector or region or province will pick up the slack?  Has Alberta, for instance, checked with Ontario?  If Alberta (and Saskatchewan) cut emissions by less than 30 percent, or if they increase emissions, is Ontario prepared to make cuts larger than 30 percent?  Is Manitoba or Quebec?  If the oil and gas sector cuts by less, is the manufacturing sector prepared to cut by more?

To escape this dilemma, many will want to point to the large emission reductions possible from the electricity sector.  Sure, with very aggressive polices to move to near-zero-emission electrical generation (policies we’ve yet to see) we can dramatically cut emissions from that sector.  But on the other hand, cutting emission from agriculture will be very difficult.  So potential deep cuts from the electricity sector will be partly offset by more modest cuts, or increases, from agriculture, for example.

The graph at the top shows that even as we make deep cuts to emissions from electricity—a projected 60 percent reduction—increases in emissions from the oil and gas sector (i.e. the tar sands) will negate 100 percent of the progress in the electricity sector.  The end result is, according to these projections from the government of Canada, that we miss our 2030 target.  To restate: according to the government’s most recent projections we will fail to meet our Paris commitment, and the primary reason will be rising emissions resulting from tarsands expansion.  This is the big-picture context for the pipeline debate.

We’re entering a new era, one of limits, one of hard choices, one that politicians and voters have not yet learned to navigate.   We are exiting the cornucopian era, the age of petro-industrial exuberance when we could have everything; do it all; have our cake, eat it, and plan on having two cakes in the near future.  In this new era of biophysical limits on fossil fuel combustion and emissions, on water use, on forest cutting, etc. if we want to do one thing, we may be forced to forego something else.  Thus, it is reasonable to ask: If pipeline proponents would have us expand the tar sands, what would they have us contract?

Graph sources: Canada’s 7th National Communication and 3rd Biennial Report, December 2017

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