Friday, 30 December 2011

Now Comes the Hard Part

This is what happens when governments spend more money than they take in, and PEI has been doing that almost continuously for twenty-five years, Liberals and Conservatives both.  Robert Ghiz's late father Joe left office when budget cutting rather than nation building became government's preoccupation, and it was left to Catherine Callbeck to do the heavy lifting. In the Spring of 1995 Callbeck's Liberal government broke a signed agreement with the public service and implemented the infamous 7.5% wage roll-back. This did a lot to get Conservative Pat Binns elected in 1996, and in 1999 there were a brief few minutes of a budget surplus, then it was back to business as usual.  Robert Ghiz says he's not going anywhere and will be around to fight the next election in 2015.  He has a lot of difficult decisions to make.

The Guardian headline "Province Reviewing Aid for Struggling Beef Plant" was not unexpected, despite promises of ongoing support for the plant during the election campaign.  And it's obvious from reader comments that a lot of Islanders think it's a no-brainer... "shut it down.", "bad management" and "greed" jumped out, although greed normally means someone is making more money than they should and I'm not sure who that is.

The meat packing business in North America is very competitive, and like so much else, size matters. The margin.. the difference between what a plant pays a farmer for live cattle, and what it can sell  finished carcasses for.... is tiny, so volume is everything, and volume is the one thing the Atlantic Beef Products Plant doesn't have, and it's been that way on PEI for decades.

In the early 1980's Canada Packers, a meat packing giant in Canada at the time, announced it was going to shutdown its Charlottetown plant because it was unprofitable. This began a long-standing practice of PEI governments using taxpayer dollars to keep local markets and meat packing jobs here, first with Canada Packers which became Maple Leaf  Foods, then the NOFG operation, and now Atlantic Beef.  Was it/is it money wasted?  
A lot of people did the kind of work few of us would take on, bought homes, raised families, and they certainly wouldn't think it was wasted.  Beef and pork farmers get paid based on prices established at the Chicago Board of Trade (a North American price), and have always taken discounts over the years to help local meat plants stay in business. Even now some cattle farmers  send their livestock to the closest federally inspected plant in Ontario where prices are higher, although other farmers say that transportation costs and wear and tear on the cattle eat that up.  
The irony right now is that losses at the beef plant have gone up specifically because cattle prices are finally returning to profitable levels in Canada, after five lost years caused by the discovery of one "mad-cow" in Alberta, and the loss of the U.S. market for several years.   Until wholesale prices from the supermarket chains go up to cover these added costs (and Atlantic Beef is competing against beef imports from South America and boxed beef from huge slaughter plants in Western Canada), losses will continue  but again provincial dollars aren't going to secret Swiss bank accounts, but circulated and taxed here in the Maritimes.
And there's more to consider. Food/farm thinkers know that  a farmer from Swoope Virginia called Joel Salatin has become the poster boy for progressive, sustainable agriculture. At the heart of his Polyface Farms is something PEI is very good at producing: grass. It adds organic matter to the soil and is the best way to prevent errosion.  Teamed with alfalfa and clover, it "fixes" nitrogen from the air cutting down on the need for commercial fertilizer, and of course the manure from livestock is essential to healthy soil.  There could also be financial benefits from growing grass which soaks up carbon dioxide, if and when carbon credit trading ever begins in Canada.  But here's the thing... there's only one reason to continue to grow grass, and that's if there's cattle to eat it (Salatin is very firm on this),  and PEI won't have much of a livestock industry if the only federally-inspected plant in the Maritimes is closed. Then there are the tourists who fully expect to see cows grazing in fields, and hay being cut, and don't think this doesn't matter.  It almost seems like "beef plant aid" is as much an investment in the economy and the environment as the tax holiday for aerospace firms, or subsidies for public transportation, or the hundreds of other ways taxpayers money is spent.
 Here's what I'm hoping. Both Nova Scotia and New Brunswick had been contributing to the losses at the plant, but new governments there facing their own huge deficits stopped paying. Obviously there's little incentive for them to contribute again if PEI ensures the plant will stay open. The only thing that will get them to re-think is if farmers in the other respective provinces become concerned too that it will close. I think the other provinces should contribute, and I'm hoping this is Robert Ghiz's play. (He is a good poker player and knows how to bluff).

There have been lots of different mixes of managers and staff over the years:  a very experienced manager from New Zealand, a marketing expert from Moncton who lasted only a few months, board appointments from very successful meat packing operations in the region, brokers with lots of contacts an experience,  but it keeps coming back to economic basics, small margins, not enough volume.  Margins could improve with specialty products ("natural" beef, grass-fed or pastured beef which has a big following in the U.S. North-East, organic beef,  kosher and/or halal) all are being considered.  It's a chicken and egg problem for the plant: it can't market any of these until it has them, farmers won't make production changes until they know there's a buyer willing to pay the premium price, and everyone is in survival mode at the moment (farmers have millions of dollars in federal loans to repay).
 So you've got a livestock industry worth about $125 million, putting money into the pockets  of hundreds of people beyond the farmgate.  The "aid" for the meat plant should be judged on the same basis as other expenditures, and if viewed fairly I think will be seen as an excellent investment.

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