Competitive advantage does not lie with commodity beef
The Canadian beef industry functions in a global market, exporting 50 percent of its beef and cattle production, 80 percent of which goes to the United States (CBEF Website). As a global market player, beef producers must contend with global factors
that are often beyond their control. World feedstock shortages, growing demand
for grain to make ethanol, rising oil prices and the rise in the Canadian
dollar relative to the US dollar have negatively affected Canada's competitive position
in the beef industry. If Canada is to remain competitive in the global beef
industry what factors are within producers' control to provide a new
competitive edge to Canadian beef? Will a future competitive advantage lie in
achieving further production cost efficiencies in a commodity market, or can
the Canadian industry turn to further product differentiation as the future
basis for its competitive advantage?
The current situation in the beef industry illustrates the danger in building a competitive strategy around external factors around which the industry has little control. Canada expanded its beef industry at a time when the Canadian dollar was weak and there were low-cost feed supplies. However, these sources of competitive advantage have eroded, negatively affecting beef production profit margins. The Canadian dollar has been steadily appreciating since 2003 and it has been trading at or near par with the U.S. dollar for the last several months. The push for energy security in the United States through mandated biofuel content has increased the demand for oilseeds and feed grains; prices for barley have increased over 30 percent in the last year.
Global market access is critical for Canada's beef industry. Efforts to develop export markets have been ongoing, but for the most part the country still relies heavily on the United States. Has dependence on the U.S. market been a competitive disadvantage? By continuing to rely on one market for the bulk of our exports has Canada's beef industry stifled the incentive to capture new markets through innovation and product differentiation? The impending COOL regulations and the threat of a U.S. recession add further uncertainty to the stability of U.S. market access. Will the industry simply work harder to maintain U.S. market access or will it instead look elsewhere for future export market growth?
Canada needs to move beyond the commodity beef market. Australia has essentially monopolized the Japanese beef import market from the United States and Canada during the BSE fallout. South America is a looming threat as a low-cost producer with strong potential for productivity gains as long as foot and mouth disease is kept in check. An example of South America's growing power is the recent announcement by Brazilian meat company JBS SA to purchase Smithfield Foods Inc. and National Beef Packing Co. which will make it the world's largest beef producer.
Canada is in a good position to reformulate its competitive strategy. The Canadian beef industry's experience with BSE has caused it to adopt stringent rules and protocols on quality assurance, food safety, specified risk materials and cattle traceability. The United States lags far behind Canada with respect to establishing a credible national animal identification and traceability system. If played correctly, the costs incurred today by Canadian producers and packers in establishing strong food safety protocols and credible traceability systems will place Canada in a superior competitive position down the road if food safety requirements continue to increase.
External factors have eroded previous production cost advantages for the Canadian beef industry. In order for the beef industry to build a sustainable long-run competitive edge, it will have to focus on factors within its control. Research suggests that consumers want quality assurances, and that traceability systems bolster and lend credibility to those quality assurances. Can the CCIA cattle identification system be a tool to help establish that credibility by allowing producers to 'bolt-on' additional quality verifications? As consumer preferences change and gain more influence, will the efforts of Canada's beef industry players be recognized as a credible system responsive to consumer needs? Will the demand for branded beef products (e.g., Canada Gold Beef , Prairie Heritage Beef ) that offer convenience and value-added traits, raised on operations that are organic or natural or animal welfare friendly, continue to grow? And will Canada move beyond commodity beef production to find its new competitive edge through product differentiation, value-adding, quality-assurance and branding?
This entry is adapted from a presentation delivered by Dr. Jill Hobbs at the 2008 Saskatchewan Beef Symposium held February 6-7, 2008 in Saskatoon, SK.
Jill; Good summary of the situation. One factor you might have added is that some Canadian producers have an economic advantage through their particular resources, as for example: range land or crop aftermath. But your implication that we may not be the lowest cost producer, however we probably are the highest quality producer gives us some advantage over Brazil, Argentina, Australia, and as you mentioned the US.....Red