(Editors Note: Karen Spencer with the University of Calgary School of Public Policy had a look at consumer and
beef industry trends (and numbers) over the past year of the COVID-19 pandemic, and although consumers were very supportive of beef and retailers and processors did pretty well, guess what? Livestock producers and feedlot operators tended to get the short end of the economic stick. Here is a Spencer’s report on her findings.)
DID COVID SUPPORT FOR BEEF CATTLE PRODUCERS HIT THE MARK?
Canadian consumers paid more for beef products in 2020 due to various COVID-19 impacts on the supply chain. Beef cattle producers saw a substantial drop in their revenues, while processors, wholesalers and retailers were the net beneficiaries of the higher prices.
With the federal/provincial setaside program designed to aid industry during this uncertain time, how much support was supplied relative to the economic pain seen?
COVID-19 hit Canada quickly. Within a matter of days of the COVID-19 crisis being classified a pandemic by the World Health Organization (WHO), Canadians began shopping for groceries at an unprecedented level, with a year-over-year increase in retail grocery sales of 46 per cent for the week of March 11th. Within this surge, beef sales for the week of March 11th 2020 increased by 55 per cent year-over-year for that week.
As the demand for beef surged in early 2020, the available supply temporarily plunged. In June 2020, industry estimated a backlog of around 130,000 head of cattle that were unable to proceed to slaughter and processing due to major COVID-19 outbreaks in the Cargill High River plant and the Brooks JBS plant, both in Alberta. The two plants combined represent about 70 per cent of all federally inspected beef processing capacity in Canada, and both incurred either temporary shutdowns or major slowdowns in 2020 in order to clean facilities, provide COVID-19 protections to workers, and develop alternate operations procedures as required.
The reduced market demand from processors resulted in an average 2020 farmgate slaughter beef price that was 4.4 per cent lower than the 2019 average price. The prices for the months of April and May 2020 however fell as much as 19 per cent year-over-year (YOY). The reduced throughput combined with lower prices compared to the previous year lowered Canadian feedlot gross revenues by an estimated $379 million comparing YOY. This represents a substantial reduction in income of 6.7 per cent compared to 2019.
While this represents losses in slaughter cattle prices, the prices of feeder cattle leaving cow-calf calf operations also fell 2.8 per cent YOY, with April 2020 prices falling as much as 12 per cent lower YOY.
LESS MONEY FOR PRODUCERS
While producers received less revenues YOY, processors and retailers downstream in the value chain received higher prices. The average Canadian retail price for beef in 2019 was $19.21/kg, while the average for 2020 was $20.41/kg in 2020, a 6.2 per cent increase. In June and July 2020, retail beef prices were higher by 18 per cent and 13 per cent compared to the same months in 2019.16 Processors and retailers moved less beef due to the restrictions on processing capacity in 2020. However, when applying the higher prices to the estimated retail amounts that were processed and sold, downstream retail revenues for beef were 3.3 per cent higher YOY, even when considering the reduced volumes. This amounts to $563 million in additional gross revenues to the downstream processor/wholesale/retail portion of the beef value chain in Canada. Statistics Canada estimates wholesaler margins more than doubled because selling prices rose at a faster pace than their purchase prices.
In May 2020, the Alberta government announced it would help feedlot operators with a $42 million federal and provincial setaside program designed to subsidize feedlots they held over cattle that could not move to the processing facilities due to backlogs. Based upon Agriculture Financial Services Corporation (AFSC) data to yearend 2020, set-aside commitments totalled $21.7 million. This amounts to 5.7 per cent of the deferred $379 million in feedlot revenues. Since the backlogged cattle will at some point be monetized, the set-aside funds can be viewed as helping to cover the carrying costs of withholding these cattle from slaughter. These costs can be considerable, with feed, veterinary fees and related costs comprising 40 per cent of feedlot operating costs, not including livestock purchase costs.
Canadian consumers paid on average 6.2 per cent more for beef products in 2020 compared to 2019, with some months as much as 18 per cent higher year-over-year. Feedlots saw a drop in revenues of $379 million or 6.7 per cent for that same period, while incurring significant additional operating costs. In 2020, downstream supply chain entities, including processors, wholesalers and retailers, saw gross revenues rise by $563 million YOY, more than doubling wholesaler margins. The Alberta and Federal governments helped Alberta feedlot operators with set-aside payments of about $21.7 million to yearend 2020, but a backlog of over 93,000 cattle still existed in the system at December 31, 2020. It is of note that none of the set-aside benefits were directed to cow-calf operators, although they too were subject to substantial price impacts. The COVID-19 impact on Alberta’s beef industry hurt consumers and producers, while other select parts of the industry greatly benefited.