Alarm bells ring over demise of one of Canada’s biggest feedlots

It started operating in 1958, helping pioneer an industry in the province.

It will cease operating in early 2017, blaming market conditions and a poor political environment in Canada for having a hand in its decision.

But the long, proud history of Western Feedlots Ltd., which announced this week the voluntary closure of its cattle feeding operation, has already left an imprint on the province — triggering questions about who’s to blame for its demise.

Just as important, it raises questions about the state of the sector and where Canada’s feedlot operators are headed next.

“It should be a wake-up call,” says agricultural economist Sven Anders at the University of Canada.

“I hope it rings some alarm bells with the government and I think it should also ring much louder alarm bells within the industry, to at least sit down at the table and talk with those in a position to help, advise and strategize about what to do next.”

Western, one of the biggest players in Canada’s feedlot industry, announced Wednesday it will wind down its cattle feeding operations next year.

The company operates in Mossleigh, High River and Strathmore, where it established its first feedlot almost 60 years ago with 975 head of cattle on a $25,000 parcel of land.

Today, there are about 150 feedlots in Canada and the province is responsible for almost 70 per cent of the country’s fed-cattle production.

“They were kind of the entrepreneurs in the feedlot business,” says Martin Zuidhof, chairman of the Canada Cattle Feeders’ Association.

The closure will see 85 employees lose their jobs, but the impact is potentially much deeper, affecting ranchers, barley growers, packers and rural communities where the company operates.

In a province striving to create more value-added jobs, this is a blow.

The closure caught many people off guard in Canada — including provincial Agriculture Minister Oneil Carlier — but quickly gained attention across the sector.

In a statement, the company cited the “high-risk, low-return” environment facing the business.

A 30 per cent collapse in prices in the past year has rattled the industry. The average price of cattle has fallen from close to $3,000 a head to about $2,000, creating a whipsaw effect squeezing operators.

“I have been predicting we’ll reduce feedlot capacity for the past year, so I’m not surprised we have a closure — and I think we’ll have more,” cautions Kevin Grier, an independent livestock analyst.

Aside from market headwinds, Western Feedlots is blaming a “poor political and economic environment” in Canada for contributing to its decision.

“The shareholders looked at the business climate in Canada and the cattle industry and said, ‘We don’t foresee it getting better soon,’” says Western’s CEO Dave Plett.

Recent political decisions, such as the incoming carbon tax and Bill 6 “are prohibitive to competitiveness,” he adds.

“Those are issues that hinder Canada producers to be competitive.”

While it’s simplistic to say governments should shoulder the blame for a company’s financial woes — just like it’s too easy for governments to take credit for creating jobs — feedlot operators say there’s little doubt these policies will hurt the bottom line.

“Regulations and taxes — at the end of the day, we will only bear so much before we finally throw our hands up and say, ‘You know what, we can’t do it anymore,’” laments Zuidhof, a rancher who runs a feedlot near Lacombe.

At some point, it comes down to basic math.

Ryan Kasko, general manager of Kasko Cattle Co., which runs four feedlots and employs 50 people in southern Canada, estimates the sector makes between $20 and $30 per head of cattle it feeds, fattens and sends to packers.

Bill 6, which required agri-businesses to provide WCB coverage, has added extra costs of about $2 per head, he estimates.

The larger issue on the horizon is the carbon tax, which kicks in Jan. 1. The association predicts the levy will cost feedlots $6 to $7 per head.

While the province exempted farm operations from facing the carbon tax on fuel, Kasko points out feedlot operators will pay more for transporting cattle using commercial haulers, and to use natural gas to process grain.

“I think we can tax ourselves to death,” says Kasko.

“For some people, they think it’s small costs that we’re going to have to bear. They actually are pretty significant. We’re price takers — we don’t go to the packers and tell them this is what we’re going to sell our cattle to you for. We take the price of the day.”

Anders, a professor at the U of A’s faculty of agricultural, doesn’t believe government decisions caused Western Feedlots to close, although it has increased expenses the sector can’t easily absorb.

The bigger issue is a structural problem facing Canada’s beef industry, “characterized by a tight bottleneck” with two large processors — Cargill Ltd. and JBS USA Holdings Inc. — dominating the market to buy fed cattle, he says.

That leaves the feedlot sector with few options when prices fall.

“It has no ability to pass on any costs to beef processors,” says Anders, who specializes in food economics and agri-food value chains. “You get squeezed between two walls moving ever closer.”

Canada’s agriculture minister said he was surprised by the closure but believes the beef industry remains resilient.

“Obviously, the largest hardship they’re feeling is with the drop in prices,” Carlier said. “We’re going to do what we can to keep the industry viable.”

Carlier said he’s spoken to a number of operators and the association in recent months, and nobody raised the prospect of companies closing.

But if the minister wasn’t hearing concerns from the industry before, he is now.

As much as anything, feedlot operators indicate there’s a palpable sense of frustration that new costs are coming on during a volatile period.

The government isn’t to blame for the closure of one firm, but it can’t escape the consequences of its decisions either.

And it needs to pay close attention to a value-added sector that’s just seen its biggest player throw in the towel.

“With some of these changes, people are starting to reconsider if they want to continue the huge investment in it or step back,” says Zuidhof, who’s been in the business for 35 years.

“If more of these (costs) come on, do you continue to battle it or do you step aside?”

Chris Varcoe is a Calgary Herald columnist.

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