Slaughterhouse Drive

How co-operation could trump competition in Alberta’s beef industry

By Suzy Thompson

Two years ago, in January 2003, a cow in Marwyn Peaster’s herd of red and black angus “just went down,” according to the Peace Country rancher. Four months later, Canadian Food Inspection Agency (CFIA) officials confirmed the cow had tested positive for bovine spongiform encephalopathy, also known as BSE or mad cow disease, a fatal nervous system syndrome in livestock that is linked to degenerative and deadly Creutzfeldt- Jakob disease in humans. Peaster’s entire herd, nearly 200 head, was culled and tested. No other cases of BSE were found, yet the United States, Japan, Australia and more than 20 other countries closed their borders to Canadian beef. Within weeks the price of Canadian cattle ready for slaughter plummeted from $107 for 100 pounds to as little as $65.

Peaster ranches near Wanham, a village about halfway between Grande Prairie and Peace River that used to be known for its annual plowing match. Today, people driving past on the highway point and call it ground zero of Alberta’s BSE crisis—a crisis that has exposed fundamental problems in the Canadian beef industry.

Alberta has roughly 40 per cent of Canada’s beef cows and more than 70 per cent of the country’s slaughtering (or packing) capacity. It’s clear how important beef is to the provincial economy. What’s not as obvious, however, is the hegemony of agribusiness corporations such as the “big three”—Lakeside Packers, Cargill Foods and XL Foods. In addition to processing most of Alberta’s beef, they also own much of the cattle. Cows are fattened as quickly as possible in huge factory feedlots, with hormones used to accelerate growth. Rapid, high-volume production and processing are the cornerstones of an industry that depends on large-scale export. Half of Alberta’s beef is exported, most of it to the U.S. When Alberta farm cash receipts from cattle fell from $3.8-billion in 2002 to $2.5-billion in 2003, it was largely because the American border was closed.

With many of their brethren facing bankruptcy, a group of Peace Country ranchers are trying to reduce their dependence on the agribusiness corporations that run the province’s beef industry. As cogs in the sector’s economies of scale, they’re at the mercy of a system that provides little protection. In fact, because the cost of purchasing cattle accounts for 85 per cent of total packer expenses in an industry with narrow profit mar- gins, one of the few ways companies can prosper is by paying as little as possible for cows.

So these ranchers want to step up from the bottom rung; they want to handle production, processing and marketing themselves. Several other fledgling co-ops in Alberta, and in at least six other provinces, have similar ideas. Tired of being caught in the currents of globalized trade, they believe producer-owned slaughterhouses that share profits equitably will give farms and small towns a shot at a sustainable future.

Ten months after Peaster’s cow tested positive, with the American border open to some beef but still closed to live cattle, and farmers sometimes selling cows for less than the commissions charged by auctioneers, about 60 ranchers squeezed into a small conference room at the Provincial Building in Fairview, a small farming town north of Wanham. The parking lot filled up with muddy pick-ups as grim-faced men and women arrived to listen to Peace Country farmer Neil Peacock and Calgary-based co-op consultant Raymond “Chick” Hurst talk about how to take back control of the beef industry.

Standing in front of an overhead projector in the dimly lit room, Peacock and Hurst introduced the Peace Country Tender Beef Co-op, outlining a plan to build a $4.2-million slaughter- house and a $350,000 testing lab, and pay producers fair market value for their livestock. Prices, the men said, would be set once a year, calculated using a 10-year average plus 5 per cent. The co-op would pay a premium for high-quality grades and offer dividends from the sale of value-added products such as hides and raw dog food. To get involved, producers would only have to commit to buying at least 10 shares, or “hooks,” at $60 a share.

To ensure that the co-op’s output would find markets, members would have to adhere to strict protocols. They could not feed animal products to their cattle, eliminating the risk of BSE contamination. Cows could not be given any antibiotics for an extended period prior to slaughter, and unfit animals would not be sent to the co-op. Penalties for breaking these rules would range from fines to expulsion. To further entice buyers, the co- op would grind meat from each cow separately, so customers could track the history of a piece of meat back to the rancher who raised it.

Most importantly, the co-op would become the first private company in Canada to do CFIA-approved BSE testing on every single cow it processed, unlocking access to foreign markets—a controversial policy opposed by the Alberta government, the Canadian Beef Export Federation and the Canadian Cattlemen’s Association over fears that comprehensive, non-governmental testing would damage consumer faith in any untested beef and ultimately hurt the industry. The American government shares these concerns and has denied similar testing requests in the U.S. What opponents of widespread testing are not saying, of course, is that the practice—if it spreads—would reveal the shortcomings of an industry that has evolved around breakneck-paced processing.

For evidence that their idea would work, Peacock and Hurst pointed to Canada’s east coast. The four-year-old Atlantic Tender Beef Co-op, the men said, pays member producers in the Maritimes 5 per cent more than they were getting before the BSE crisis began. By working with the Atlantic co-op and three other beef co-ops on the drawing board in Alberta, Peacock and Hurst are confident their co-op will gain a foothold in both domestic and overseas markets, and help save the livelihoods of Alberta ranchers.

“You got to sell lots of cattle to make any money and you have to get lots of pounds on them fast to make any money, because of the margins the big boys have put on the feedlots. So these guys are what’s destroying the industry and the communities. Not BSE—Wall Street.”
—Neil Peacock

“With a regular business, you can calculate the costs and the price you want. Farmers don’t have that option,” Hurst said. “They buy land, do the labour, support themselves, but the finished product is just sent to auction and you take what you get.

“How many of you have to work off the farm to make extra money?” he continued. “Can you imagine the president of Husky Oil doing that? Large corporations don’t have to do that. We have such a loose system of looking after how we sell our end product. If you had the power to make a change in how farmers do business, would you do it? Small towns are dying because the kids had to go to the city. The co-op gives them a chance to stay home, and the spin-off industry can save our communities.”

“This is going to save your ranches, and it’s also going to save our communities,” Peacock added. “Since BSE hit, we’ve seen the unfairness of the system. The industry is controlled by a very few people.”

Peacock feels the Canadian beef industry’s aversion to testing, and to a ban on hormones, is the reason other countries won’t buy our cattle. “We won’t do it,” he said, “because the ‘big three’ tell us that we have to have hormones because of economies of scale. You got to sell lots of cattle to make any money and you have to get lots of pounds on them fast to make any money, because of the margins the big boys have put on the feedlots. So these guys are what’s destroying the industry and the communities. Not BSE—Wall Street.”

The co-op pitch resonated with many of the ranchers who congregated in Fairview that weekday afternoon because of growing concerns about flawed aid packages and packer profiteering. The provincial and federal governments responded to the BSE crisis with subsidy programs for cattle producers, such as the Canada/Alberta BSE Recovery Program. It gave producers a “deficiency” payment for 90 per cent of the difference between the price they received for slaughtered cattle and the price they should have received for product sold into the U.S. Unable to export to the U.S., producers were forced to sell their cattle to meatpackers at rates far below normal. And because the subsidy was only available if cattle were slaughtered by a specific date, the recovery program led to an oversupply that sent prices falling even lower.

Despite the payments producers were getting for their beef, wholesale and retail prices remained unchanged. Ranchers saw that their aid cheques were relatively small and that price tags weren’t dropping in stores. They began to suspect that the multinational packers were getting the bulk of both the aid and the profits.

It took months for the truth to emerge, but it turned out they were right. In April 2004, an all-party parliamentary committee in Ottawa investigating allegations of price gouging found Lakeside Packers, Cargill Foods and XL Foods—which together process more than 90 per cent of Alberta’s beef—in contempt of Parliament for refusing to open their books. The companies eventually showed the Alberta government their financial statements, and last July the province’s auditor general, Fred Dunn, released a report confirming that profit (before interest and taxes) at the three big packers jumped 281 per cent after May 2003. The big three made $79 a head before the mad cow crisis began and $216 a head afterward.

Packers also received much of the $402-million in BSE aid distributed in Alberta as of June 2004. Why? Because they had taken advantage of the buyer’s market created by BSE and now own most of the province’s cattle. Alberta’s agriculture minister at the time, Shirley McClellan, defended the results, saying “It’s ‘Gee you paid the big guys,’ and ‘Gee the little guy didn’t get much.’ But you know what? The little guy didn’t lose much, either.

The little guy didn’t have that much invested or he would have got a bigger cheque.” Lakeside, whose massive slaughterhouse in Brooks is a subsidiary of Arkansas-based

Tyson Foods, received $33-million. Cargill, whose High River facility is part of Minnesota- headquartered Cargill Inc. took in $9-million. There are 24,000 cow-calf operations in the province and 500 major feedlots, yet one quarter of one per cent of producers received more than half of the money spent on compensation in Alberta.

The Ottawa-based Canadian Meat Council represents beef packing plants across Canada. Since the start of the BSE troubles, its executive director, Jim Laws, has been busy defending their actions. He has appeared before the Standing Policy Committee on Agriculture seven times. It wasn’t the packers’ fault they received so much BSE aid from government, argues Laws. “The money went to owners of cattle and it just so happens that some of the packers own large feedlots,” he said. “The program was there, the rules were set out, and the packers who owned these cattle applied for the money, as did others, and they got it. Sure it went to the slaughterhouses, but it really went to the feedlot operations of the slaughterhouses. Sure it’s the same company, but that wasn’t their fault.”

Alberta Beef Producers chairman Arno Doerksen, whose organization represents the province’s ranchers, is reluctant to criticize the large packing companies. Asked about their increased profits, he called today’s market “dysfunctional.” Asked about their resistance to parliamentary oversight, he said, “We know what’s happening but it’s very difficult to do something effective about it.”

There are 24,000 cow/ calf operations in the province and 500 major feedlots, yet one quarter of one per cent of producers received more than half of the money spent on compensation in Alberta.

Doerksen doesn’t oppose co-ops. He praises producers for being “innovative in the way they’ve tried to deal with this situation.” Yet groups like ABP argue that because the U.S. border is open to beef from cattle younger than 30 months but still closed to all other beef and live cattle, the industry’s priority has to be increasing slaughter capacity in Canada to reduce the bottleneck of live cattle that’s driving down prices for producers. Lakeside Packers, for instance, is spending $17-million to increase its capacity 20 per cent by the fall of 2005, upping its slaughter figures by 1,000 to 5,000 head per day. Doerksen considers full BSE testing a long-term issue: it won’t guarantee an open border and, by slowing down the system, it could reduce slaughter capacity by up to 60 per cent.

The conventional solution, it appears, is to confront the crisis with even higher volume. But some ranchers aren’t convinced that bigger slaughterhouses will translate into more money for the little guy. And even government is starting to show doubt. In the latest BSE rescue package, unveiled last September, Ottawa promised $488-million and the Alberta government an additional $230-million, with $66-million in federal money set aside to support smaller slaughterhouse start-ups.

Neil Peacock, the interim chairman of the peace country tender beef co-op, farms near Sexsmith, just north of Grande Prairie. A third-generation farmer who raises purebred Pinzgauer cattle, Katadhin sheep, goats and quarter horses, Peacock uses one word—“devastation”—to sum up BSE’s impact on the region. “A lot of people are close to bankruptcy,” he said. “They don’t have power, they don’t have gas. That 281 per cent profit the packers made could have been shared. But it was greed, greed, greed.”

Sitting down at his kitchen table and shuffling aside piles of papers, Peacock says he got home late the night before after a day of meetings and driving. He was in the middle of a major development. The co-op had roughly 350 members—and counting—with some from as far afield as Brandon, Manitoba, and Vancouver, and as far south as Rimbey. Co- op directors had settled on a slaughterhouse that would process 25 cattle an hour and were already considering a second plant. They had met with representatives of three other Alberta beef co-ops and the Atlantic co-op, and agreed to form a confederation to help each other with marketing and lobbying. Then, in early September, the PCTBC, which was set to build in the Peace Country town of Beaverlodge, pulled up stakes in favour of Dawson Creek, British Columbia.

It was a carrot-and-stick decision. The co-op and its more than 100 full-time jobs were lured across the border by 15 acres of low-cost, city-owned land in Dawson Creek and promises of support from B.C.’s Liberal government, including a pair of provincial liaisons working to help find grant money and fast-track development. Alberta’s government waved the stick. One co-op director, Charlie Lasser, a former mayor of Chetwynd, B.C., who sat down with Premier Gordon Campbell to help cinch the deal, recalls a meeting with Alberta

MLAs Gord Graydon, Mel Knight and Pearl Calahasen. “I’ve never been so belittled,” said Lasser. “They treated us like dumb farm boys. Pearl was the best of the three, yet Pearl said to us, ‘Look, we’re a conservative government and you people aren’t conservative enough.’ She said that flat out to us. I went away thoroughly disgusted.”

Moreover, at an August 2004 golf tournament in the Peace Country community of Eaglesham, Premier Ralph Klein said that although he supports the beef co-op, he would have to “break the law” to help it financially. Citing the province’s Financial Administration Act, which prohibits the government from investing in businesses, Klein said, “Now will these producers have me go to jail just so that they can make money? What they are asking me to do is to break the law. Well, the law is the law is the law.”

“Beaverlodge is really mad at us,” said Peacock, who’s now hopeful a second plant can be built in Peace River, “but what can you do? We have to do what’s best for the co-op. The Alberta government does not support co-operatives . . . . I guess a co-operative philosophy is directly in conflict with a conservative philosophy.”

To Peacock, a co-op is a family, a community—“a whole social concept.” It’s a business too, and the PCTBC has agreements in place with unnamed western Canadian supermarket and restaurant chains to take all of the products it can produce. It also has more interest from buyers in Japan, Germany and other European Union nations than the co-op can meet, according to Peacock. “We have a market,” he said, noting the co-op would prefer to sell to domestic customers first. “We’re gonna prove to the world that you can run a business ethically, morally and make a profit—and share that among everyone.”

“The Alberta government does not support co-operatives. I guess a co-operative philosophy is directly in conflict with a conservative philosophy.” —Neil Peacock

The peace country tender beef co-op plans to begin production by the fall of 2005. If it and Alberta’s other beef co-ops can get up and running, they may be a position to tackle political problems someday, says Chick Hurst, who’s been advising four groups through his own co-op, Calgary-based Co-Options Consulting. The PCTBC is working with Prairie Prime Processing Co-op Ltd., Alberta Value Chain Co-op Ltd. and a proposed $36-mil- lion Pincher Creek packing plant. Several other co-ops—such as the planned $40-million Rancher’s Choice Beef Co-op packing plant on the northeast fringe of Calgary and a pro- posed $25-million facility in Spruce Grove, west of Edmonton—are also proceeding.

Vern Hafso, a farmer and councillor in Beaver county, east of Edmonton, is working with the beef co-op in his region. He feels there’s a dramatic difference between expanding existing packing plants and creating co-ops. “We can have all the capacity by the big players that we want in this province and we won’t solve the problem,” said Hafso, “because the problem is that the big players can manipulate the price at any time. They know the price of their end product when they’re purchasing cattle to put through their facility. They’re taking the maximum profit that they can get away with. To me that’s not morally right. The price of that product should be based on production costs, and the retail price should be based on production costs. There are no other plants out there besides the co-operatives that are looking at sharing any profits.”

To Hurst, co-ops represent an opportunity for change—and not just until the U.S. border opens, but in the long run. “If farmers are committing to their own organization, they’re not going to jump ship to Cargill just because at that moment they’re offering more money,” he said. “Not only do they make more money [with a co-op] in the long-term, they own the industry. And maybe this is the part we should try to keep a little quiet, but they’ll have extremely powerful political clout.”

Like when thousands of rural Albertans banded together and formed the United Farmers of Alberta, the party that ran the province from 1921 to 1935. Or when farmers helped usher in 36 years of Social Credit leadership by shifting their support to the new party.

“There’s this mindset that if you can’t make it on your own, you’re not a ‘real’ farmer,” said Hurst. “There’s an old Chinese proverb: independence without interdependence is false pride. Here in Alberta, we’ve lost that understanding. We’ve lost that egalitarian mindset.”

Susan Thompson is a freelance writer and journalist in Peace River.


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