Executive Summary of a paper by the National Farmer’s Union. November 2008.
Excerpt: The places where profits are created and where they are captured often are not the same places. Profits are created as a result of efficiencies; profits are captured as a result of power. Thus, because market power shifts can trump efficiency gains, even the most efficient can be left bereft of profit.
The relative balance of power in the cattle/beef sector changed as packers became larger and global. The balance changed as packing plants became less numerous, reducing farmers’ options for delivery. The balance changed as packers came to own or control more of their cattle supply. And the balance of power changed as markets merged—as trade agreements thrust Canadian and US farmers into a single, hyper-competitive continental market. All these shifts in power triggered similar shifts in the distribution of profits. These power and profit shifts underpin the current cattle price crisis.
Nearly all such shifts occurred on both sides of the border. Canadian farmers are suffering as a result of changes here and also as a result of changes in the US. It is, however, a mistake to minimize or discount the effects of events here; to simplistically claim that
Canadian prices are set in the US. Canadian policies and developments directly affect both Canadian and US prices. An example of this is our decision to ramp up production and exports in the 1990s. Had Canada decreased production, as did US producers, North American cattle prices would be higher today. To cite another example, Canada’s decision to sign the Canada-US Free Trade Agreement (CUSTA) and the North American Free Trade Agreement (NAFTA) increased continental integration, strengthened the power of the packers, and pushed down prices in all three NAFTA signatory countries. Yet one further example: the takeover by Cargill (and later Tyson) of the Canadian packing sector gave those companies increased ability to move cattle and beef across the border to the detriment of cattle prices in both nations. Finally, dramatically increased levels of captive supply in both Canada and the US have had price-depressing effects in both countries.
Key is this: packers and retailers increased their power in the 1980s and ’90s. By doing so, they made farmers relatively less powerful and, thus, less profitable.