David Millsap was struggling with negative margins for two years and then COVID-19 hit, resulting in a rollercoaster ride leaving the beef farmer in even more of a quandary about the future of his industry.
“Our markets are very volatile and we’re always at risk of losing money,” says Millsap who runs a beef finishing operation and farms 600 acres five kilometres southwest of Creemore.
Meat processing capacity had already been limited because of the closure of a large plant in Toronto last September and was putting a strain on beef farmers who were unable to get prices to match their costs, says Millsap.
When COVID-19 found its way into Alberta meat processing facilities, the capacity to process beef fell even more dramatically.
In High River, Alta, the Cargill plant shut down for two weeks after several workers were struck with the virus and in Brooks, Alta., JBS reduced its operations. Combined, the two meat packers process 70 per cent of the beef produced in Canada.
Everything from large plants to small abattoirs felt the pressure of having to process all the beef produced on Canadian farms with so much of its capacity curtailed.
And although Ontario’s processing industry has not been interrupted, Millsap, a fifth generation farmer who is getting the sixth generation set up to eventually take over, felt the hit as some of that western beef moved easterly for processing.
Nationally, 60,000 cattle are normally processed every week - 12,000 in Ontario. During the height of the pandemic, that nearly halved and was slowly being restored.
The world health pandemic highlights a pre-existing problem in the supply chain in which the beef farmer is inevitably squeezed, said David A. Johnston, professor and director of the Master of Supply Chain Management Program at the Schulich School of Business at York University.
The question, he said, is whether COVID-19’s spotlight on the industry may prompt a re-thinking of how the whole food supply chain works.
Johnston points to lengthy commercials now running where Loblaws’ head Galen Weston talks about a change in food retailing to make it more sustainable, suggesting the entire system might well be on the verge of change.
“A lot of people are now receptive to the idea that we need a different way of doing this because it’s too risky what we’re doing right now,” said Johnston. “We’re just exposing ourselves to more of these disruptions and the insecurity it causes for consumers.”
The agricultural industry, which has a significant presence in Simcoe County, has been ringing warning bells about food security. The beef farmers say they need help and are asking governments to remove restrictions on programs designed to help them and consider more of a focus on food suppliers right through the supply chain.
“Prior to COVID we’ve been sucking it up pretty hard here,” said Millsap. “The losses have been prolonged for us in the industry here in Ontario and severe enough that the safety net programs are only making up a portion of our losses.”
Beef farmers already dealing with negative margins then saw further declines. Last month, Millsap sold 200 cattle that were ready for market at $300 per head below cost of production. At that rate he was looking at a loss of close to $300,000 for his 950 cattle this year.
Millsap also incurred a five per cent increase in costs when ethanol plants stopped producing ethanol, reducing the availability of a byproduct used to feed cattle.
And then a strange thing happened. The Alberta plants got back online and prices jumped up, right at the start of barbeque season, catching everyone off guard.
Millsap decided to take advantage of the opportunity and prepared another 40 cattle for market, even though they weighed 1,400 pounds and not the 1,500 pounds that would fetch optimal dollar if they went a month or so later.
“Never in my career have I seen selling cattle at $300 a head loss and then go to an even margin of selling at the cost of production in three weeks. Never, ever has ever happened before. Don’t ask me to explain it, I”m scratching my head myself,” said the lifelong cattleman who is also a director of the Beef Farmers of Ontario.
That leaves him with 710 cattle, which may all end up going out early if it means not selling them at a loss.
And that’s where the farmer reaches the crossroads.
There’s no doubt that Millsap will continue the family’s farming legacy. But with a country appearing to head into a recession, he reasons there will be less money available for Canadians to buy quality beef. Combine that with ongoing meat processing challenges and Millsap starts thinking that it might be a good idea to sit on the fence for a while.
Jack Chaffe has heard that refrain from other beef farmers.
The problem, said the vice president of the Beef Farmers of Ontario, is if that happens and other sectors within the country’s agricultural community follow suit, there will be an impact upon food supply both in Canada and elsewhere. About 45 per cent of Canadian beef is exported.
He points to his own operation in Perth County. The 3,000 cattle he brings to market every year feeds about 30,000 people.
“If a producer like myself gets out of this business, that would be a shortfall,” he said. “Agriculture was one of the driving forces behind building this country and we can’t let that slip away.”
Chaffe said the situation is fluid and there are fears about the ability to make ends meet in the short term. Farmers, like Millsap, who have generations of equity in their farms might be able to withstand a blow, but those without that vast history and generations of equity will not be able to find their way out of a prolonged negative market.
The beef farmers are turning to governments for support. They have asked the Ontario government to move a cap introduced to the Ontario Risk Management Program three years ago. The $100-million program helps to cover losses, of that $18 million is allocated to beef, which Chaffe says is $62 million short of what is needed.
“That shortfall has left a lot of producers in arrears,” he said.
The farmers are also asking the federal government to restore original levels to the AgriStability program which provides a top-up for farmers who have sustained losses exceeding 30 per cent.
From his farm in the Creemore hills, Millsap wonders about the future of his industry.
“It’s kind of disheartening, we have the infrastructure here and I’m always very positive… we’re doing an excellent job on production.... and producing high quality cattle and they are in demand around the world for us to export beef to numerous countries around the world. It’s just that we have this little problem here with processing capacity that’s pressing our prices to a point where we’re continually taking losses,” he said.
