Written by Nicholas Bannon
The COVID-19 pandemic caused major disruptions that have rippled through Canada’s beef sector, but it appears that a complete disaster scenario has been avoided, as the industry rebounds and beef production rises.
This rebound follows the reopening of the Cargill meat processing plant in High River, Alberta, after a temporary closure of the plant due to a COVID-19 outbreak saw more than 900 employees become infected with the virus.
When the Cargill plant in High River closed, the amount of cattle processed in Western Canada took a dive, falling from over 50,000 cattle processed per week at the end of March, to less than 10,000 cattle processed per week for the last week of April (Figure 1). This level of production was nearly 80% less than what the weekly production was at the same time last year. The closure of the High River plant greatly affected the national processing capacity as well. Cattle processed across Canada fell to just 20,000 cattle per week at the end of April, 60% less than one year ago (Figure 2).
It is important to recognize that COVID-19 outbreaks that have forced closures of beef processing plants don’t just affect the managers and workers that rely on these plants for their livelihood. The temporary closure of a large beef processing plant has wide-ranging supply and demand effects all the way from the farmer that raises the cattle, to the consumer who purchases beef in a grocery store.
On the supply side, the temporary closure of the Cargill Plant in High River meant that suddenly a lot of farmers who previously had their cattle processed at the High River facility now had to find another buyer for their cattle. This put downward pressure on cattle prices as farmers became more forced to accept a lower price for their cattle due to increased supply with decreased capacity.
For the first three months of 2020, Alberta cattle prices hovered around the previous two-year average of $139 per hundredweight. In April, after the Cargill plant closed, prices tumbled to $122.24 per hundredweight, 10 percent lower than March prices (Figure 3).
Across the country in the province of Ontario, cattle farmers did not feel the same pinch in prices as their Alberta counterparts did. Cattle prices in Ontario have remained stable during the pandemic, with April prices decreasing by only 1% compared to March (Figure 4). This is good news for farmers in Ontario, as they spent most of the early months of 2020 trying to recover from the drop in prices following the permanent closure of the Toronto based Ryding Regency facility, due to E. coli contamination in late 2019.
Although Eastern Canada beef processing facilities have experienced little disruptions as a result of COVID-19 compared to Western Canada facilities, this did little to mitigate the overall effects that the closure of the High River plant had on the national sector.
This is because Eastern Canada beef processors do not process nearly the same amount of cattle as Western facilities. Additionally, given that there was not a strong upswing in the number of cattle processed in Eastern Canada facilities, it is likely that these facilities were already operating at or near capacity. It was simply not possible for even just some of the cattle that would have been processed at the Cargill High River plant to be diverted east (Figure 5). Eastern Canada was shipping cattle west due to shortages of processing capacity in the east because of capacity limitations due to the closure of the Ryding Regency plant.
In a typical week, Western Canada plants process over 3 times the number of cattle compared to Eastern Canada. In 2019, the average number of cattle processed in Eastern Canada facilities was just under 13,000 cattle per week, whereas Western Canada facilities processed an average of 48,000 cattle per week. Following the High River plant closure, Western Canada facilities were processing less than Eastern Canada facilities, at 10,000 cattle per week, versus the 14,000 cattle per week that were processed in Eastern Canada facilities.
Fortunately, there was only a two-week period where national production was more than 50% below what was processed one year ago, and in recent weeks the number of cattle processed has begun to return to normal levels. Following the reopening of the Cargill plant in High River, Western Canada facilities have increased production to 46,000 cattle per week, and national processing is back up to 60,000 cattle per week. Nationally, this is only 2% less than the amount of cattle processed at the same time last year.
On the demand side, Canadian consumers were not faced with the same relative price swings compared to those faced by producers in Western Canada. In Statistics Canada’s most recent release of the monthly average retail prices for food, the price of ground beef and stewing beef per kg only increased by 1.5% and 3.4% respectively, in April. These are both relatively small increases, suggesting that persistent price increases of 20% or more, are unlikely. One possible explanation for the small increase in retail beef prices, is that processers had enough beef in frozen storage to temporarily fill the gap created by the closure of the Cargill High River plant, and thus ensured that there was not widespread retail beef shortages and significant retail price increases.
If the temporary closure of the High River plant taught Canadians anything, it is that the Canadian meat processing sector is very tightly concentrated. There are just 22 federally registered beef and veal processors in Canada, however just two plants, (Cargill in High River, Alberta and JBS in Brooks, Alberta) are responsible for 70% of Canada’s beef processing capacity. The reason for this, is that beef processing plants experience economies of scale, meaning that the larger they are, the greater the efficiency of the plant and the lower the costs of production. Essentially, they can produce more for less.
When a plant as large as the Cargill plant in High River closes, even just for a short time, it has wide-ranging implications on the national food system. However, the fact that beef processing plants are back to processing 60,000 cattle per week, and retail beef prices are not soaring, reveals that the Canadian food system is resilient and has responded well to the shocks caused by the COVID-19 pandemic. In the weeks and months to come, the bottlenecks created in processing facilities that saw livestock prices fall and retail prices increase, should begin to relax. Barring any future outbreaks, it appears that the worst effects of the pandemic on the beef processing sector are over.
Sources
Statistics Canada. Table 32-10-0077-01 Farm product prices, crops and livestock
Statistics Canada. Table 32-10-0077-01 Farm product prices, crops and livestock
Recommended citation format: Bannon, Nicholas. "For Canadian Beef Processors, the Worst of COVID-19 Appears to be Over". Food Focus Guelph (89), Department of Food, Agricultural and Resource Economics, University of Guelph, June 11, 2020.
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