Canadian Cattle Industry : Canadian Cattle Industry : Adapting to the Changing Adapting to the Changing

LandscapeLandscape

Brad WildemanBrad WildemanPresidentPresident

Canadian CattlemenCanadian Cattlemen’’s Associations Association

October 2008October 2008

Industry Overview

Canadian cow inventories down 5% to 4.5 million head

Canadian Beef Cow NumbersJanuary 1

2.5

3

3.5

4

4.5

5

5.5

70 73 76 79 82 85 88 91 94 97 00 03 06 09p

Year

Mill

ion

Hea

d

Sour c e : St a t i s t i c s C a na da

Cow slaughter increased by 16%, while 147,000 cows were exported

Canadian Slaughter Cow Marketings

0

200

400

600

800

1000

1200

81 83 85 87 89 91 93 95 97 99 01 03 05 07Year

Thou

sand

Hea

d

S laughte r Expo rts

Sour c e : St a t i s t i c s C a na da , C a nFa x, AAFC

Canadian cattle inventories totaled 14.7 million head in July 2008

Canadian Total Cattle & CalvesJuly 1

11

12

13

14

15

16

17

18

66 69 72 75 78 81 84 87 90 93 96 99 02 05 08

Year

Mill

ion

Hea

d

Sour c e : St a t i s t i c s C a na da

Expansion in the US cattle herd has been limited by drought, feed costs, and market

uncertaintyU.S. Beef Cow Inventory

January 1 - 1973 to 2010 projected

25

30

35

40

45

50

73 76 79 82 85 88 91 94 97 00 03 06 09p

Year

Mill

ion

Hea

d

Current Economics

Cattle on feed continues to decrease

Alberta Weekly Fed Steer Price

$70

$75

$80

$85

$90

$95

$100

$105

1 6 11 16 21 26 31 36 41 46 51Week

Cdn

$ p

er c

wt

3 yr mo v avg 2007 2008

Break Even vs Market PriceYEARLING STEER

$70

$80

$90

$100

$110

Jun-

06

Sep-

06

Dec

-06

Mar

-07

Jun-

07

Sep-

07

Dec

-07

Mar

-08

Jun-

08

Sep-

08

Dec

-08

Cdn

$ p

er c

wt

B re ak-e ve n Cas h

S o u r c e : C a n F a x T r e n d s W e s t

Canadian Cattle Exports

0

200400

600

8001,000

1,200

1,4001,600

1,800

84 86 88 90 92 94 96 98 00 02 04 06 08p

'000

Hea

d

FeederSlaughter

So urce: Stat is t ics Canada, AAFC, CanFax

Canada slaughter cattle exports are down 17% and feeder cattle are up 33% to the U.S.

US COOL and the New Reality for Canada

US, Russia, EU and Japan largest beef importers

Top 10 Beef Importing Nations, 200726.2%

18.7%12.9%12.7%

7.1%5.6%

4.5%4.0%

2.9%1.9%

0% 5% 10% 15% 20% 25% 30%

United StatesRussiaEU-27Japan

MexicoKoreaEgypt

CanadaPhilippines

Taiwan

Source: USDA

World Imports(000t cwe)

0

200

400

600

800

1000

1200

1400

1600

1800

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

CanadaChinaEU-25JapanKoreaMexicoRussiaUSA

Source: USDA FAS

The U.S. has always been our largest trading partner

They are also our largest importer

Ranked Frequency of Consumers Indicating Ranked Frequency of Consumers Indicating Product Trait is a Top 5 Purchase DeterminantProduct Trait is a Top 5 Purchase Determinant

While the U.S. is a high value market, grinds and stew beef still represent 55% of overall consumption, and home consumption

Ground42%

Stew13%

Steak20%

Beef dishes7%

Other cuts5%

Processed13%

Source: USDA "Factors Affecting U.S. Beef Consumption" October 2005

Breakdown of U.S. Per Capita Beef Consumption by Beef Type

Breakdown of U.S. Per Capita Beef Consumption by Place

Home65%

Restaurant29%

Other6%

• Beef, pork and lamb included in 2002 Farm Bill• The new revised law also includes chicken and goat

meat• Ground beef now allows “may contain” type labelling• Still applies only to retail, not food service• Reduced recordkeeping and penalty provisions• 4 categories

– USA Origin– Multiple Countries of Origin– Imported for Immediate Slaughter– Meat from Foreign Sources

• Clearly states it is not a food safety measure.

United States Country of Origin Labelling

UNITED STATES COUNTRY OF ORIGIN

• (A) From animals exclusively born, raised, and• slaughtered in the United States;• (i) From animals born and raised in Alaska or Hawaii• and transported for a period of not more than 60 days• through Canada to the United States and slaughtered in

the United States; or• (ii) From animals present in the United States on or• before July 15, 2008, and once present in the United• States, remained continuously in the United States.

Multiple Country Labelling• (b) If an animal was born, raised, and/or slaughtered in

the United States and was not imported for immediate slaughter may be designated as Product of the United States, Country X, and/or Country Y where Country X and Country Y represent the actual or possible countries of foreign origin.

• (c) If an animal was imported into the United States for immediate slaughter (with in 14 days) the resulting meat products derived from that animal shall be designated as Product of Country X and the United States.

• Recent clarification will allow mixing (b) and (c) together using the (c) label.

IMPACTS1. Uncertainty creates gridlock2. Increased segregation costs decreases

competitiveness of beef vs. other meats3. Restricted access to plants that are unwilling to

segregate beyond one or two categories4. Shift imports to food service business5. Increased costs to the entire system6. Discriminates against slaughter cattle which

virtually all come from Canada7. May fundamentally change how Canadian beef

is marketed

Trade Challenge?• Canadian Cattlemen Association along with

Canadian Pork Council have requested Gov’t of Canada to initiate a trade challenge within NAFTA and WTO

• Gov’t has indicated they are preparing their case,

• However, COOL will be around for some years, so have to adjust through superior marketing alternatives for customers.

So How Can Canada Respond?

There are only 4 options

1. Do Nothing2. Focus on domestic market3. Focus on Rest of the World4. Offer a Better Value Proposition to all

customers

1. Do Nothing

Do Nothing

• Prices discounts for Canadian cattle are already $40-70/hd.

• Packers are either refusing to slaughter Cdn. Cattle or are only slaughtering 1 day/week.

• Feeder cattle exports have virtually ceased.

• Legal remedies are 2+ years away.

2. Focus on domestic market

3. Focus on Rest of the World

Reliance on Exports

Top 10 Beef Exporting Nations as a % of Production, 2007

78.0%67.8%

64.1%35.7%

29.0%25.3%

16.5%5.4%

2.2%1.3%

0% 20% 40% 60% 80% 100%

New ZealandUruguayAustralia

CanadaIndiaBrazil

ArgentinaUnited States

EU-27China

Source: USDA

Canada was the third largest beef and cattle exporter in the world, and the largest exporter of grain-fed

beef.

World Beef & Veal Exporters - 2008p1,000 Tonne CWE

29.1%18.5%

10.7%8.2%

7.9%6.9%

6.3%5.0%

1.8%1.7%

4.0%

- 500 1,000 1,500 2,000 2,500 3,000

BrazilAustralia

CanadaUSAIndia

ArgentinaNew Zealand

UruguayMexico

EU-27Other

Sour c e : GIR A

Increased Market Access would create more exports

• Restricted market access continues to affect the value of our cattle by over $100 per head.

• Compliance with different technical requirements across multiple countries has also added significant costs to industry.

• A new WTO agreement with tariff reductions and trade liberalization would increase the value of beef exports by nearly $1 billion or 170,000 tonnes annually

• This is predicted to resulted in a $0.40/lb increase in live cattle prices (GMC)

Longer term the future looks very promising

Source: OECD/FAO Agricultural Outlook

Global beef consumption is continuing to grow

CBEF Middle Eastern Beef Opportunities 42

1. A quarter of total meat consumption takes place in China

Breakdown of total meat consumption 2005

Global meat demand pulled by:Population growthEconomic growthUrbanisation

Total meat consumption bridge2005/2015: 21% consumption growth

0

50

100

150

200

250

300

350

2005 China NAFTAS.AmericaMENA CIS EU Far EastOthers 2015

mill

ion

tons Others

Far EastEUCISMENAS.AmericaNAFTAChina

Source: GIRA

+31.0 +5.6+3.9 +3.6 +3.0 +1.5 +1.9

259.8

315.2+5.0Others12%

China24%

NAFTA15%

EU13%Japan

7%

India7%

S.America7%

CIS4%

MENA3%

Oceania3%

Africa3%

Far East2%

CBEF Middle Eastern Beef Opportunities 43

Global Beef consumption: +8 million tonne in10 years (+1.2% p.a.)

70 122

62 140

50 000

55 000

60 000

65 000

70 000

75 000

2005 China USA Japan India MENA Mexico Others 2015

'000 t cwe Beef consumption growth by major contributing countries/regions - 2005/2015

Source: GIRA

+4 775+896 +471 +425 +248 +227

+940

CBEF Middle Eastern Beef Opportunities 44

500

1000

1500

2000

2500

3000

3500

4000

4500

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

EU Malebeef R3US

EU Cow

AU

UY

BR

ARSource: GMC Dec 06

Figure SYN-BF 9a Cattle Producer Prices, 1995-2007 (current USD/t cwe)Cattle producer prices have increased significantly

since these data were recorded, reflecting tight supplies, rising costs and demand still holding up.

4. Offer a Better Value Proposition to all Customers

and Improve our Production Efficiencies

World Beef Consumption 2006(p)

26%

17%

14%

13%

5%

5%

4%

3%

2%2%

1%8%

U.S.EU-25ChinaBrazilArgentinaMexicoRussiaIndiaJapanCanadaAustraliaOther

Source: USDA FAS

Canadian Beef Advantage

1. Maximize the value of every cut and product from every animal we sell.

2. Coordinated global marketing efforts to differentiate our beef on the basis of quality and safety.

3. Recognizing Canada’s strength will remain in the production of high quality (grain fed) beef.

4. Regaining as full a range of market access as we can in terms of both the scope of products and countries

Establishing the “Canadian Beef Advantage”

• Animal health & beef safety

• Genetics/breeds• Animal ID• Age verification capability• Production programs

(QSH)• Product quality

(consistency, palatability)• Yield and profitability• Service and Technical

support

Canadian Beef Advantage- 3 main thrusts

1. Develop a distinctive brand that consumers easily recognize domestically and internationally

2. Develop and support marketing strategies that capitalize on Canada's reputation for quality and safety

3. Develop an information sharing system to facilitate continual improvement throughout the supply chain

Based on Key Interdependent Attributes

Animal Health and Food Safety

Production Verification

Information SharingResearch

CoordinatedMarketing strategies

Information sharing for continual improvement

GradingInformation

Performance and Health info

Costumerintelligence

DNA profile

Cow/calfManagement

data

CCIA Database

Key Deliverables• Feedback information up and down the chain for

continual improvement initiatives• Provide process verification for: age, source,

movement tracking, production processes, special attributes, health and environmental protocols

• Arm our marketers with new tools to develop value-added trade opportunities both domestically and internationally.

• Identify superior performers in the area of grade and yield, performance, health, and fertility; then distribute their DNA characteristics back to the genetics industry

Potential Results for Cattle Producers

• Auditable verification system for customers• More defined breeding, feeding and

marketing strategies for producers• Improving our overall herd can result in

several hundred dollars per head by eliminating poor performers or creating more superior performers; up to $400/head.

• More coordinated and informed industry

Short Term challenges

• Slowing US economy • US COOL legislation• Legal proceedings in the US (RCalf USA)• Slow response to reopening key

international marketplaces

QUESTIONS?