New directions for Canadian beef exports as world’s middle classes grow

The Canadian beef business is looking overseas as it continues adjusting to the weight of the sky-high dollar, soaring production costs and sagging profit margins cutting into the industry’s finances.

One ballooning export market is Russia, where the country’s growing middle class is looking for new proteins to pile on its plates.

It’s part of what many in the beef and cattle business expect to be a long-term trend that will see more Canadian Grade A Angus stacked in foreign freezers.

“The winds of change are blowing in the global beef trade,” as demand in developing countries grows, said Travis Toews, president of the Canadian Cattlemen’s Association.

It’s a breeze welcomed by many in the business, who have been whacked by soaring commodity prices and declining sales of beef and cattle to the largest Canadian-beef buying country on earth, the United States.

John Ysselstein, president of Friesvale Farms, is one of those joining the rush into Canadian beef’s Eastern Front.

Ysselstein, whose farm sits outside London, Ont., says he has “four or five” deals in the works with buyers in Russia, including one that would see 2,500 Black Angus cows shipped across the ocean, settled on Russian plains and ultimately in the stomachs of the country’s increasingly cash-rich population.

He said the importance of Russia became clear “when I was in Moscow paying $75 for a T-bone steak.”

“Now that the people (there) are getting some money they want to eat meat,” he added.

Canadian beef exporters are doing their best to woo Russians since their government lifted a four-year ban on Canadian beef in 2007.

The Russian border was sealed shut after a case of mad cow disease was discovered on an Alberta farm in 2003. Now it’s the fifth largest foreign buyer of Canadian beef.

The Canadian Beef Export Federation, an industry trade body, is helping lead the push into Russia. Federation representatives sang the praises of Canadian beef at a Moscow food import fair this February, while Internet browsers can read Russian-language publications on Canadian beef safety standards on the group’s website.

Industry Canada figures show efforts are paying off, with exports hitting nearly $16 million in 2010 — up almost tenfold from 2009, though a drop in the bucket compared to U.S. sales, which rang in at just under $1 billion last year.

Though Americans buy about three-quarters of Canadian beef exports, sales stateside are a far cry from their 10-year peak of $1.7 billion in 2002. They haven’t cracked the billion-dollar mark since 2006, even though the U.S. was one of the first countries to reopen its border after the 2003 mad cow disease outbreak.

Though year-over-year sales to the U.S. increased in 2010, newly released numbers from the American government show cross-border sales to the U.S. plummeted 25 per cent during the first five months of 2011 compared to the same period last year.

Sagging exports can be explained by the simple fact that fewer cattle are being raised in Canada — the national head count is down about 20 per cent, to 4.2 million beef cows, since 2005 — as farmers have seen their feed costs jump. The soaring value of the Canadian dollar has also skimmed industry profit margins.

Meanwhile, the declining greenback is giving American exporters a price advantage against other countries’ beef selling efforts.

“We’re benefiting the most because of the currency,” said Pat Binger, vice-president of international sales for U.S.-based beef seller Cargill, which also operates in Canada.

Assuming there are no import restrictions, “beef will flow to wherever’s the highest price,” said Kevin Grier, senior market analyst at the George Morris Centre, an agriculture think tank based in Guelph, Ont.

But full access for beef products and cattle remains a problem in some countries eight years after the bovine spongiform encephalopathy scare.

“Bit by bit, drop by drop we’ve been getting them back,” said Grier. “But it’s been a slow and painful process.”

A deal inked between Canada and South Korea at the end of June will see the country, which still bans all Canadian beef, reopened to meat from Canadian cows under 30 months old.

South Korea halted Canadian beef imports eight years ago after a case of mad cow disease, or BSE, was discovered on a farm in Alberta in 2003. Cows under 30 months are believed to have a lower risk of catching BSE.

Until the ban hit, South Korea was the fourth biggest buyer of Canadian beef. They could retake that spot once lawmakers in the country sign off on the agreement.

“That would be a good Christmas present for Canadian cattle and beef producers,” said Toews.

Canadian exporters are no longer working in the shadow of the mad cow scare, Toews said, pointing to success reopening countries once shut to Canadian beef, though limitations remain. After the United States, Mexico, Hong Kong and Japan and Russia round out the top five export markets.

But the same global food demand sowing optimism in the industry are also driving up the cost of commodities like grain and corn used to raise cattle.

And soaring input costs, Grier said, mean “(farmers) choose to do other things, like produce grain instead of producing cattle.”

Dan Darling, who has about 700 head of beef cattle on his southern Ontario farm, is adjusting the focus on his 40-hectare property. Though planning to keep his cow-count steady, he’s chopping the amount he feeds the animals to counter high corn feed costs, which he says have almost doubled in three years.

He’s also planting more grain to cash in on the commodity boom.

“If we had thoughts of growing, cattle-wise, we’ve stopped that idea,” Darling said.