Monday, 14 March 2011

Nothing Easy About This

Scott, a farmer,  responded, quite rightly,  to my discussion about local food and empowered consumers, saying that there are no easy answers, just lots of questions.

"Why are the goods trucked 1000s of miles to get here cheaper? Are there values of Island agriculture beyond pure economics. And my personal favorite asked of me when my son was 12.  Why do you work so hard and smell so bad, for so little money?"

We need to make sure we're asking the right questions before we have any chance of solving them, and Scott is doing that.  There may be some answers, not ones we want mind you, if we look at the processing side of the food business, the companies that buy from farmers and sell to food retailers. I recently wrote a piece on one local processor that is struggling, for Agrimag, an on-line/quarterly magazine that had been produced mostly for the farming community on PEI. We hope to expand the coverage  to the rest of the Maritimes, and cover food much like this blog, with both producers and consumers in mind.  The piece had to do with the future of the Atlantc Beef Products  Plant near Bordon on PEI. It's the last Federally inspected beef plant in the region. (Federally inspected means the meat can cross provincial boundaries, expanding the marketing potential. All 3 Maritime provinces have small provincially inspected plants as well.)  Alberta is the big dog when it comes to beef processing, its "boxed beef" the product you're most likely to see in meat counters at the big chain stores.

Make or Break

                 It’s not a fight between David and Goliath, but Goliath and David’s baby brother.  “We’re not running at maximum capacity right now. Even if we were, we’re trying to compete in a North American market where the big runners are doing 5000 animals a day, that’s half of our production in a year, they’re doing in one day.” Mike Nabuurs,  president of Atlantic Beef Products,  says the margins in the meat packing business are razor thin, so size really matters. 

The Albany, P.E.I.  plant has lost money since it opened in  December of 2004.  The losses are getting smaller, from as high as 600 thousand a month 4 years ago, to roughly 80 thousand a month now.  In December of 2007 the Atlantic Canada Opportunities Agency, and the three Maritime Provinces  agreed to a 12 million dollar infusion for capital costs and operating losses. Both  New Brunswick and Nova Scotia have new governments facing huge deficits, and few are expecting these provinces to contribute any more support.  PEI has guaranteed to cover any losses until the Spring of 2012. That makes this a make or break year for the operation, and it’s looking at low end hamburger, and high end beef cuts to give it a chance to survive.

    There’s no more basic beef product than hamburger, but for a variety of reasons Atlantic Beef Products didn’t have a hamburger machine until last summer.  Cattle farmer Dean Baglole was the chair of  Atlantic Beef when it first opened in 2004. He says it was a capital cost the plant just couldn’t afford, but he’s happy to see it installed now.  “It’s one thing to put in a grinder in and grind up some burger. It’s another thing to have a CO2 horn and everything that’s needed  to make sure it’s of the highest quality and that’s what they’ve done now.”

As a reporter for CBC I remember other  discussions going on. Back in 2004 the discovery of one mad-cow in Alberta, and the loss of the U.S. market was dominating the beef business in Canada.  The new plant saw an opportunity to capitalize on this worry. It wouldn’t accept older cull cattle (internationally, cattle under 30 months of age are considered  BSE free because of the long incubation period, if an animal is exposed). Instead Atlantic Beef spent a lot of money on cutting edge technology  that allowed every cut to be traced back to the originating farm. There was even some talk of having inspectors check and certify every brain of being free of mad cow.  But beef processors  in other provinces fought against this, arguing if PEI guaranteed its beef  was mad cow free, then beef from other plants would be suspect. Eventually the Canadian Food Inspection Agency came up with a protocol that all plants had to follow to keep any suspect older cows, or body parts, out of the food chain.  Thankfully consumers stopped worrying about mad cow, but PEI’s marketing edge was lost. Now the plant is accepting the older cull cattle used to make hamburger (using all of the BSE protocols), and it has the right equipment, to generate new sources of revenue.  “We’ve had clients asking for the product for a while, so it’s nice to be able to offer that to them.” And Mike Nabuurs says fresh hamburger has to be sold quickly, and when it comes from Western Canada it’s 2 days older than hamburger sourced in the region, so this should create more interest in the local product.   “Before the ground beef  line was here, all the trim was being sold to ground beef manufacturers or other processors in the region. There was a small margin in that, but there’s definitely bigger margins in the ground beef line we have now.”

    The best news the plant has had recently is the high praise from chefs and high end meat market managers throughout Eastern Canada.  “The quality and taste of the meat is distinctive and unique. The capacity of the plant is a tangible measure of the company’s prioritization of quality over quantity” says the Canadian Business Journal.  The National Post reported  “The method of raising the animals  on  P.E.I.  is far different …because the feedlot consists of a family farm, its pastures and barns.. The beef cattle are allowed to age on the farm longer than normal.”  It’s the kind of recognition  Dean Baglole has been waiting for. “We have some abilities here that they  don’t have in other parts of North America in terms of producing beef and the way it’s produced. I still think it’s things we can exploit and work to our advantage.”

    But, and it’s a huge but, high-end cuts, ribs, strips and tenderloins make up maybe 30 percent of the beef carcass,  it’s the profitability of the other seventy percent that will determine the plant’s success.

     The plant faces one other hurdle that , ironically, is a huge relief  to the roughly 200 farmer/shareholders in the plant.  As 2011 begins  beef prices have finally got back to pre mad cow levels. For the first time in almost six years, farmers are making some money.   “From a producer point of view we’re happy to see some light at the end of the tunnel, it’s looks like for the next year it’s going to stay positive and that’s very important because we’ve lost a tremendous number of producers throughout the Maritimes, they just couldn’t afford to keep going. They need to see some light there, and not just a train running over them. That’s a good thing.  But I’m aware of the pitfalls that can hurt the plant.”  says Dean Baglole.   He also pays attention to the wholesale price of beef, what the plant can get for the finished product, and it hasn’t changed very much, so profit margins for the plant are even tighter now than before, making it more difficult for Atlantic Beef  to break even.

     The future of the plant will be debated during the campaign on PEI leading up to a Fall election.  Farmers will look for promises  of continued support at the plant beyond next Spring, but skeptical taxpayers will have their say too.  Every time there’s a news story on losses at the plant the media  gets some testy comments . “The beef plant was doomed from the the day they turned the soil.”  “All this Government money going into this insane project, with no sustainable business plans.”

         In the end it really won’t be Islanders at the ballot box that ultimately determine the plant’s fate, but Maritimers at the meat counters in  the regions big supermarkets.

    Atlantic Co-op stores continue to be the biggest buyers of beef from the plant, but it’s been a real struggle to get shelf space in the region’s Sobeys and Superstores.  The big retailers complain about  a lack of consistent supply and quality, but Mike Nabuurs says it’s really an issue of price.  “Everybody has a lot of bills to pay, and when it comes to the grocery store it’s easy to say  “I’ll support local”, but if our price is 50 cents or a dollar more, that effects the volume they will actually purchase.”

Mike Nabuurs says  the Federal government must do its part too, by making sure that cheaper imported beef from South America and elsewhere meets the same quality standards as Canadian beef.  Canadian beef plants spend a lot of money meeting  high standards set by the Canadian Food Inspection Agency,  costs plants in other countries don’t have.

    The PEI plant has looked  at some highly specialized markets for Kosher and Halal beef., but the necessary concentration of Jewish and Muslim consumers is a long way from PEI,  so this is a long shot.  Mike Nabuurs says the best chance for success is closer to home, selling to consumers who are willing to look beyond price, but he knows that’s a hard sell. “We’re a small fish swimming in a big pond with some awfully big fish. The major retailers are looking for the best bottom line price, and because our price is generally not  at the bottom, it tends to be at the top of the price list ,  they’ll go to where they can get the best deal. It’s unfortunate because they say they want to support local but ultimately it comes down to the bottom line.”

Mike Nabuurs  has had a lot to to learn about marketing. He says  building the Atlantic Signature Beef  brand  is the only way forward, but building a brand takes time and money, two things the operation doesn’t have a lot of . “We have to do a better job letting consumers know where they can get the product, but if they really started to ask  for it, short of demanding it, from their grocery stores, asking how come I can’t get Atlantic Beef here. If consumers were really willing to look for it, really willing to pay for it, and I’m not talking an exuberant amount, but a little bit more recognizing that  this contribution spins back into the Maritime economy, that would really help.””

    Atlantic Beef Products  is the only federally inspected beef plant in the Maritimes. If it closes more than 60 people will lose their jobs, and Maritime beef producers will face shipping finished cattle to Ontario and beyond, long trips  that cut into the quality and health of the livestock.  Dean Baglole says the economics that pushed farmers to invest in the plant six years ago haven’t changed.  “We had a very high number of producers in the Maritimes bought into it feeling that it was necessary for them to survive, and I really don’t think anything has changed. You look at the price of fuel today and it’s only gone up since the plant was built, so the transportation costs would be higher still. It would be a death knell  to the  industry if the plant were closed.”

     The rocky road the beef plant has been on  has been tough on those sitting in management too.  In 2008 John Thompson, the executive director of  Enterprise Greater Moncton,  brought a lot of marketing expertise to the job, but he went back to his former job after just four months, complaining what had been announced as a six million grant from ACOA, had been transformed into a loan that had to be repaid.  Now Mike Nabuurs has taken up the torch. He went from the frying pan of advocating for farmers as manager of the P.E.I. Federation of Agriculture, to the fire, president of Atlantic Beef Products at this make or break time.  “It’s a different chair there’s no doubt about it. Before I was trying to fight for  farmers, and in this chair I’m still doing that,  just doing it from a different angle. The beef industry, I feel, really needs this beef plant, and agriculture needs it because we’re all tied together.” Nabuurs say there are days when he struggles to do what’s right for the plant,  and for farmers. Small volumes and margins means he has to look for every way to control costs. That means limiting the number of cattle the plant accepts which can frustrate farmers,  and rigorously grading animals  which  can cost producers money.  “There’s a fine line there, trying to do the right things at the plant but recognizing ultimately who that effects.  Sometimes I think the longer I do it, the easier that will become, but I’m not sure that will ever become easy.”

    Maritime Beef producers hope Mike Nabuurs has many more years to find out if it will.

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