The 2012 MCEC Annual Report is now online. You can view and download it here, along with other past reports. The Annual Report was presented at MCEC’s annual general meeting which was held Thursday, April 4, 2013 at MCEC’s offices.
That fact was recently confirmed by Canfax market analyst Brian Perillat, who told MCEC: “One of the main reasons why Manitoba’s prices are lower is because they are the furthest distance away from any federally-inspected slaughter plants.”
The analysis shows the average price differential over the first 10 months of 2011 between Alberta and Manitoba on fed steers was $10.16/100lbs. On an average fed steer of 1,300 lbs, that works out to about $130 per animal. We also know that the minimum price differential on other cattle is $50/head for transportation alone.
Click here to read more in our Winter 2012 newsletter.
MCEC administers an investment fund that is fed by a refundable $2 per head levy on every head of cattle sold in the province. That money is then matched by the province turning every $2 into $4. MCEC’s mandate is to use that fund to invest in projects to strengthen the Manitoba beef industry, with a special focus on bringing federally-inspected beef slaughter and processing capacity back to the province.
Fully 85 per cent, or 7,400 out of 8,700, of Manitoba’s cattle farms decided on their own against applying for a refund in 2010, according to data from MCEC.
“We talk to producers all the time and they tell us that they know the risk to our industry if we don’t get new federally-inspected beef plant capacity back in the province,” said Gaylene Dutchyshen, vice-chair of MCEC. “It’s a positive sign that so many cattle producers are voting with their wallets on this very important issue.”
Another significant reason for cattle producers to support MCEC’s initiative is that they know having a local beef plant will mean more profitability and sustainability for individual farms and the whole sector. Manitoba beef producers earn substantially less for their livestock than their Alberta counterparts. In the first 10 months of 2011, the difference was as high as $130 per fed steer (avg weight 1,300 lbs).
“When you’re looking at trading a $2 levy for the chance to earn up to $130, the math is pretty simple,” said Dutchyshen. “We pay high prices for transportation and other costs to get our animals across the country or into the US. It makes perfect sense for producers here to continue to pull together towards building a beef plant here at home.”
MCEC was born in the wake of the 2003 BSE crisis that closed the US border to Canadian beef exports. While Alberta and Ontario producers still had access to local slaughter facilities, Manitoba producers were faced with surging herds and plummeting prices.
MCEC along with the management team behind the proposed new Winnipeg-based beef plant crunched the numbers and discovered that Manitoba producers are losing out on more than $5 million a year compared to their Alberta counterparts. The reason is simple: Alberta is home to federally-inspected beef plants and Manitoba is not.
The analysis shows the price differential over the first 10 months of 2011 between Alberta and Manitoba on fed steers was $10.16/100lbs. On an average fed steer of 1,300 lbs, that works out to $130 per animal.
We also know that the minimum differential on other cattle for transportation alone is $50/head.
The proposed new Winnipeg plant is expected to take 62,500 head/year.
- 40 % to be fed cattle: 25,000 x $130 = $3.25 million
- 60 % to be non-fed: 37,500 x $50 = 1.88 million
- Total: $5.13 million
In addition to these, plant management has a number of letters of intent to purchase beef from the plant from respected international buyers. They are seeking a reliable source for quality Canadian beef that meets certain specifications.
“[This plant] truly represents the opportunity to bring a much needed new business model to the Canadian beef industry … It represents an opportunity to break out from the prevailing commodity based strategies and structures that limit the capturing of new value and the distribution of this value back to producers.” – Jerry Bouma, Toma & Bouma Management Consultants.
Manitoba cattle producers need the facts about the recent re-allocation of federal funds under the federal Slaughter Improvement Program. They have a right to know what was done and said and draw their own conclusions.
MCEC was pleased when the federal government joined the chorus of support for the proposed CFIA inspected slaughter facility with a promise of $10 million funding in 2009. At the time the federal government set five conditions: that the plan demonstrate how risks to the operation will be managed or reduced; demonstrate how marketing will be done; provide greater certainty in financial projections; bring margins in line with industry standards (even though it was a niche model); and develop a plan for strong management and labour.
Early in 2010 MCEC determined new management was needed to move the project forward. Experience and connections were needed for a niche concept favoured by MCEC and the management team had run successful operations in North and South America. They had just come to the end of a three year non-compete covenant on the successful plant they had sold in Uruguay. The team knows how to operate a mid-sized plant profitably in this competitive industry. They reviewed the business plan and addressed the remaining conditions including demonstrating how niche markets – such as kosher beef – can deliver higher margins on smaller volumes.
The project also secured financing and enthusiastic support from a major bank for up to $18.2 million. The bank’s term sheet stipulated that the loan would be executed as soon as the government did the same. We garnered local and international interest, improving this project at every turn.
We moved ahead on the assumption that the federal funding would be more secure, not less, with the stronger plan, stronger management and bank financing on the table. We kept Ottawa informed, sent them everything they asked for even when they weren’t clear and we continued to fund the project alone to ensure we met the deadline set by Ottawa – all expenses had to be incurred by March 2012.
The federal government provided three written reasons on July 13, 2011 for withdrawing the funding.
First, they stated the business plan was “not viable.” We strongly disagree with that assessment because the plan is based on broad real-world experience proven by this management team. The plan also attracted support from many industry observers. The federal government provided no numbers or detailed rationale for their conclusion.
Second, they said the bank’s terms weren’t definitive enough because the term sheet remained subject to change and final documentation. One of those final documents was the federal loan itself. So far the bank remains committed for up to $18.2 million alongside MCEC’s $7.5 million equity commitment.
Third, they declared that the business plan didn’t call for the plant to repay the money within 10 years. The first plan from the new management team projected full debt repayment in just five years, which the consultants hired by the government rejected as “too optimistic.” It was stretched to 10 years at their request. Financial scenarios were drawn up to show how the plant could achieve it and where the numbers would fall apart. They then used one of the worst case scenarios (projected at their request) to say the money would not be repaid.
The federal government is saying that the civil servants at the Slaughter Improvement Program reviewed the business plan 10 times. We did send them a lot of data, so there were updates – all of which strengthened the plan. We certainly didn’t send them 10 different plans and we have no sense of why 10 reviews would be needed. The bank put its commitment on paper after one review.
We worked in good faith with Ottawa to the end. The management team explained, clarified, and responded to every request, and readied the site for construction on time and on budget with construction scheduled to be underway by the end of this summer.
In the final analysis, it would seem they were looking for something different, perhaps a commodity beef plant? We are not sure. They were not clear during the process in our view and the re-allocation of the funds was shocking. We were disappointed that the government and its consultants simply wouldn’t accept the niche business model which we believe stands the best chance for success. They acknowledged a difference of opinion between their ‘expert’ consultants and our management team but repeatedly refused to meet with management to clarify these essential matters. We continue to trust that the real experts are those who can do it in the real world.
Regardless of how MCEC and the management team were treated, it is cattle producers who are our focus. With no federally-inspected beef slaughter capacity in Manitoba, producers are dependent on shipping outside the province. Given the oligopoly in beef slaughter, we also remain largely trapped in a commodity model. The federal government has failed to assist in protecting against another crisis like BSE in 2003 and failed to participate in growth in the Manitoba beef industry.
We stand by the management team and their business plan. Many in the private sector have encouraged us to carry on, and we are grateful for their support. We also remain hopeful that the federal government will find an opportunity in the future to assist this vital project. We can’t let up now.
MCEC forum to explore attributes of successful beef plants and update producers on 2010 activities
Winnipeg, December 1, 2010 – The Manitoba Cattle Enhancement Council is hosting its second annual producer forum on Monday, December 6 at the Victoria Inn in Brandon to discuss the attributes needed for successful new beef packing plants.
“It’s important that we continue to talk with producers about what it will take to make new federally-inspected beef plants successful,” said MCEC Executive Director Kate Butler. “The forum will also give us an opportunity to provide an update on our activities as a council over the past year.”
The free event will feature some speakers who will address domestic and international value chain and trade initiatives. But primarily, the forum is an opportunity for producers to exchange information and to help guide MCEC’s strategic planning. The Forum runs from 1 to 5 p.m.
Speakers for the event include:
- Jerry Bouma – Toma and Bouma Management Consultants – Building Successful Value-based Beef Plants
- John Saunders – CEO of IMI Global – How Data Collection is Changing Beef Production and Marketing
- Kate Butler – Executive Director of MCEC – 2010 MCEC Update
Butler noted that in 2010 the council helped recruit a new management team with deep international experience to oversee the start-up phase of the plant at 663 Marion St. Throughout the year, the council has continued to work closely with the provincial and federal governments to support the plant.
Additionally, MCEC continues to work with other project proponents to help them pursue options to upgrade existing facilities to federally-inspected certification.
MCEC was created in 2006 to administer a unique investment pool funded by a producer levy and matching grants from the province. Its mandate is to invest in initiatives that will lead to increased slaughtering and processing capacity in Manitoba or that will enhance the market for value-added cattle products.
To register for this event, please call MCEC at (204) 452-6353, or toll-free at (866) 441-6232, or email email@example.com. Space is limited, so register today.
Director Dooley Communications