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Recipe for Consolidation PDF Print E-mail
Written by Steve Dittmer   
Friday, 04 April 2008

AFF Sentinel Vol.5#14

We're privileged to receive great e-mails from some great minds in the industry. Seldom do we get one this thorough, however, from a source we trust and who is in a position to know. Rather than mess it up, we're publishing it as is, with the writer's permission and honoring their request for anonymity.

For the past five years the primary mission of R- CALF has been to limit the availability of imported feeder calves and fed cattle in the U.S. market, even though such animals account for only seven to nine percent of cattle slaughtered in the U.S. R-CALF has pursued this mission with two primary strategies. The first strategy has been to restrict and limit as much as possible the reopening of the Canadian border to imports of fed [and non-fed] cattle for slaughter and feeder calves for feeding. The second strategy has been to seek country of origin labeling that would be so complex that retailers would have to purchase beef from animals born, raised and slaughtered in the United States, rather than try to attribute beef at the retail counter to mixed permutations of animals slaughtered in the United States, but born and raised variously in the United States, Canada or Mexico.

Small and medium sized packers who only operate slaughter operations in the United States have been historically dependent on mixed supplies of cattle including cattle born in Canada or Mexico but fed out in the United States, cattle born and fed in Canada or Mexico, and cattle born and fed in the United States. These packers have incurred higher costs as a result of the long running restrictions on importation of live cattle from Canada.

During the last five years the third, fourth and fifth largest packers in the United States continuously cautioned that continued limitation of their supplies of imported cattle was raising their costs and would lead to increased industry concentration. Within the past twelve months, the three companies that were the third, fourth and fifth largest packers in the United States have been purchased by a foreign buyer and in the future will be operated as one. This type of consolidation has been long and openly predicted as an entirely foreseeable consequence of the costly regulatory restrictions, which have been prolonged by R-CALF through litigation.

Now, R-CALF is advocating complex country of origin labeling which will further restrict the ability of the remaining small independent U.S. packing companies to be competitive and to remain independent. The country of origin labeling legislation advocated by R-CALF will effectively prevent the remaining independent packers in Idaho, Washington, Wisconsin, Texas and California from running cattle of mixed origin during the same packinghouse shift. These packers will be deterred from purchasing fed cattle unless they are of single origin, and that will necessarily be U.S. origin because most of their cattle do not come in from Mexico or Canada.

Even though Mexican feeder calves represent a small portion of the cattle that enter U.S. feedlots and slaughterhouses, they are a significant export business for Mexico, a country that is the largest purchaser of U.S. beef. When Mexican agricultural products are excluded from the United States, past experience shows that Mexico will sharply restrict its imports of related U.S. products. In this case U.S. beef will be the likely target.

The result of the restrictive country of origin labeling advocated by R- CALF will be to increase costs for the remaining independent packers. They may have to choose between losing money on a continuing basis or selling their packing businesses at fire sale prices to larger or more efficient packers in the United States and abroad. In the meantime, Mexico is likely to curtail its important market for U.S. beef.

The R-CALF strategy for mandatory "born, raised and slaughtered" country of origin labeling is shortsighted. R-CALF sees this requirement as creating an increased demand for domestic feeder calves but R-CALF fails to take into account either the entirely foreseeable industry consolidation this legislation will cause or the loss of beef exports to Mexico. In pursuing this strategy, R-CALF is like a chess or checkers player who fails to think and plan more than one move at a time, and that kind of limited vision is inevitably a losing strategy.

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Last Updated ( Monday, 05 May 2008 )
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