Canadian cattle are finally making their way across the U.S. border again, after being banned for more than two years. Time to sum up what the experience has cost, and what happens next.
Back in 2002, Canadian exports of live cattle, beef and veal amounted to just over $4 billion, about $1.8 billion of which was live cattle. With the imposition of the beef trade ban in May 2003, exports of live cattle fell to $600 million in 2003, and then to zero in 2004. Exports of boneless beef from cattle under 30 months of age resumed in the fall of 2003, but the final tally for total beef and cattle exports for 2003 was about $2 billion, or roughly half the 2002 level.
As we moved into 2004, Canadian producers began to wonder whether a solution would ever emerge in the trade dispute. In response, some invested in new slaughter capacity in Canada, and increased their exports of processed boneless beef instead of live cattle. This brought 2004 boneless beef sales to a level 14% above their 2002 peak. Nevertheless, because exports of live cattle fell to zero, total exports for 2004 were still only about half their 2002 level.
What happens now? Exports of live cattle have resumed, but the flow is still relatively modest. This is because inspectors must check that every exported cow is under 30 months of age. A best-case scenario would see trade back in full swing by September or October. This could result in total beef and cattle exports in 2005 of around $2.5 billion, or perhaps a little higher. Total exports could then regain their previous full-trade level of around $4 billion in 2006.
This would be good news, but a major question mark remains around beef prices. Given the ban on imports, U.S. prices have been quite elevated for the past two years. In contrast, Canada’s excess supply has depressed prices here. Market forces are likely to bring a convergence to prices on both sides of the border, which means higher Canadian prices and more income for Canadian producers but not as much as indicated by recent U.S. prices, which will surely fall.
A return to normal could boost Canada’s export growth by as much as 1% in 2006, which would add at least 0.2% to GDP growth, more if you take spin-off spending into account. The future is also a little brighter, given that some producers added domestic slaughter capacity in response to the ban. This positions them well to supply a growing marketplace with high-value beef exports.
The total cost of this disruption in the marketplace? Something approaching $6 billion in lost export sales, plus all the attendant upstream and downstream effects here in Canada. Something less than 1% of one year’s GDP for the country, but for some producers, everything they had.
The bottom line? The difficulties of the beef market are by no means over, but we can dare to hope that the worst is behind us. And it could have been much worse after their discovery of mad cow back in 1986, U.K. producers ended up exiting the export business altogether.
Stephen Poloz is Senior Vice-President and Chief Economist, Export Development Canada.
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