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Checking in on the check-off

Just a few years into the refundable check-off in Alberta, who’s winning? Some are concerned in the long run, there’s a lot to lose.

It was a tumultuous time for producers in Alberta, with aftershocks the nation’s cattle industry felt after the check-off was changed from mandatory to refundable in 2010.

Alberta Beef Producers (ABP) is the producer agency charged with collecting the check-off provincially, and also collects the national check-off on behalf of the recipient agency. The $1 non-refundable national check-off is used to fund research and marketing activities on behalf of the entire industry.  From that one dollar, a portion is directed Canada Beef Inc. (CBI), and a portion to the Beef Cattle Research Council (BCRC). In Alberta, 80 cents goes to CBI, and 20 cents to BCRC. The $2 provincial check-off is administered by ABP and is spent on various market and research initiatives. The Canadian Cattlemen’s Association (CCA) is funded through membership fees from provincial organizations across the country, including ABP. A common misconception is that the CCA is funded through the national check-off, but it is actually funded from the provincial check-offs.

At first, because of the way the legislation was written in Alberta, the $1 national check-off was made refundable along with the $2 provincial check-off. That situation lasted for a few months, until the Alberta government could rectify the situation and amended the legislation to collect the $1 national check-off separately. That, however, didn’t exactly make everyone happy. The Alberta Cattle Feeders’ Association (ACFA) reluctantly gave its temporary blessing to make the national dollar mandatory again with an agreement signed between the ACFA and ABP.

That’s not the end of the complexity. For many years, the Canadian beef industry has been trying to set up an import levy so that check-off would be paid on imported cattle and beef. However, in order to make that happen, every beef-producing province had to agree to pay the $1 national non-refundable check-off. That finally all came together last year, and is anticipated to generate between $600,000 and $800,000 annually, which is earmarked for beef promotion.

If that wasn’t complex enough, the plot gets thicker – each province can claw-back its non-refundable national check-off dollar. That’s right – there’s a caveat that allows the provincial cattle organizations to reclaim a portion – or all – of its national check-off contribution if it is invested in specific beef promotion or research initiatives within that province.

As the check-off claw-backs are examined, it’s clear that western Canada is carrying most of the load. Alberta and Saskatchewan are the biggest kids on the cattle playground, so they contribute the most in sheer numbers. However, that’s not the only means by which the West is investing more in the business. In the period ending March 31, 2013, 18 per cent of the non-refundable national dollar was clawed back, which meant a loss of approximately $1.5 million dollars that would have otherwise gone to CBI and BCRC. BC, Alberta and Saskatchewan didn’t ask for a penny back, leaving all of their national dollar in the kitty. Manitoba claimed 10 per cent back, and Ontario took back 55 per cent. Nova Scotia took 88 per cent, and Quebec, New Brunswick and PEI clawed-back a whopping 98 per cent.

However, the tide is changing, and the eastern provinces are becoming more active on the national cattle scene, through CBI and other initiatives such as the recent Straw Man meetings. There’s reportedly less national check-off being reclaimed by the province, and more possibly promised in the future. Additionally, there is widespread and growing acknowledgement within the cattle industry that CBI is underfunded, and one of the potential answers to the problem posed through the Straw Man Initiative was to consider raising the national check-off.

Meanwhile, ABP is still struggling to adjust to ongoing budget challenges as a result of the refundable provincial budget.

“We’ve just finished the second refund period for last year, so the refund requests are coming in this month, so we don’t know what happened in the second half of the year,” said Rich Smith, executive director of ABP.

The refund periods occur twice annually, and cover January 1 until June 30, and July 1 until December 31. Smith says the best means of comparison is by seeing how each period stacks up over the year previous, as the periods represent very different cattle cycles. Refund requests in from January until June in 2013 increased by six per cent and refund value increased by 10 per cent over the same time period in 2012.

“Certainly last winter and spring was a very tough time for cattle feeders. We weren’t surprised to see refunds come up some,” said Smith, adding that refund amounts and the sectors they are refunded to have stayed largely consistent.

“About 34 per cent of the requests come from cattle feeders, but their requests account for 85 per cent of the refunds. Eleven individual operations typically account for over 40 per cent of the refund value. And the 85 largest operations that request refunds  – and that’s only about 10 or 15 per cent of the refund requests – account for 85 per cent of the refund value,” Smith said.

ABP had learned to do more with less – overall, their budget has been reduced by over 30 per cent annually. And that puts the national CCA into a bit of a tight spot.

“For the last five years, it’s been a bit of a struggle for the provinces to meet their assessments. We acknowledge that and have tried to keep our budget as balanced as we can – that was our first priority – and it left very little for any kind of a reserve,” said Rob McNabb, general manager of the CCA. “The best we can do is balance and ensure our budget reflect the ability of our members to pay.”

In determining membership fees for each province, CCA first has to set its operational budget for the year. Then they look at the cattle marketings of each province, and for example, if Alberta is home to 50 per cent of cattle marketings in a year, and Saskatchewan is home to 30 per cent, Alberta is asked to pay for 50 per cent of the CCA budget, and Saskatchewan is asked to pony up 30 per cent. So, the number of head being marketed doesn’t affect what CCA asks for, and likewise, refund amounts aren’t accounted for in CCA’s membership assessments.

Despite that, CCA is well aware when provinces are struggling to fund their membership fees, and McNabb says they’re asking for as little as they can to get by. Smith says it’s an investment that ABP believes strongly in, even if it’s an investment that’s getting harder and harder to make.

“It is a burden meeting the CCA assessment with the loss of revenue to refunds, but we think that the national trade advocacy and policy work done by the CCA is important enough that we try very hard to meet the CCA assessment,” Smith said.

The question everyone seems to be asking is how long all of these organizations can run on reduced budgets and still remain effective. Others question whether they were effective to begin with.

“If people aren’t happy with the representation of their organization, they’re not going to support it. Are they still in touch with the grassroots? It’s not just cattle feeders that are taking refunds, there’s a substantial amount of cow-calf operators that are doing the same thing. And I’ll have you know that not all cattle feeders are taking all their money out. Some are leaving it all in and over and above that contributing to the Alberta Cattle Feeders’ Association,” said Bryan Walton, executive director of the ACFA.

When the push was to change to a refundable check-off in Alberta, the campaign was made on giving producers choice. After all, there were other cattle organizations in the province – not just the ACFA, but also the Western Stock Growers’ Association, the oldest cattle group in the province. The hope was that producers unhappy with ABP might funnel their refunds into other organizations. However, the proportion of refunds actually end up being re-invested into the industry is unknown. And after a historically bad few years in the cattle business, it’s difficult to blame producers for investing their own money into their own operations. Nonetheless, some fear that chronic underfunding coupled with fragmented investments may render producer groups obsolete.

“It really diminishes our ability to make large investments in marketing and research – two key areas that we know will improve the competitiveness of our industry. We’re already lagging behind our competitors in overall investment in research and market development, and that’s the area it’s really hurt us the most,” Smith said.

For example, ABP used to invest $300,000 annually into feed grain research, which is seen as a critical need as corn continues to outpace barley in both yield and variety. “Now we’re barely able to come up with $100,000 a year,” added Smith.

Walton says ACFA is investing money into research, one of which is the Beef Cattle Industry Science Cluster. “That enabled us to lever extra dollars, and that’s on feed grains. We have initiated a project on a new Histophilus vaccine which again is feedlot specific, and the third thing is we are collaborating with one of the pharma companies on barley straw projects,” he said. “The fact that we were devoting money to research speaks for itself.”

In 2013, the ACFA put $100,000 into the cluster, $60,000 into the vaccine and $50,000 into the straw project.

It’s unlikely Alberta’s provincial check-off will ever become mandatory again – after all, provincial check-off was already refundable in B.C., Saskatchewan and Manitoba. And right now, discussion about increasing the national check-off is growing. One of the findings of the last Straw Man meetings was that CBI was underfunded, and one of the potential solutions was to increase the national check-off.

“There’s going to be a push to increase the check-off at the provincial level right across the board,” says Walton. “I think you’re seeing that. The arguments are being formulated and I am pretty sure you are gong to see that this year. I think the options around the national check-off should be explored – do we take it at the packer level? Where should it be mandatory, and where should it be voluntary?” he asks, adding that conditions and expectations will need to be defined and discussed. “We would also come back to the point about governance.”

Walton has a bone to pick with the way the CBI board is structured.

“We believe, and have believed from the beginning, that if you get the governance right, and you get a more corporate style model, with a smaller skill-based board, that it will be well-run,” explained Walton, who believes having prerequisite members to represent Canada geographically isn’t the way to do things.

“There are two seats for cattle feeders on that board, our view was we don’t necessarily require that seat if we see a governance model that is skill-based where people are selected based upon their skill and knowledge, not geography or the sector they come from,” Walton explained.

Walton’s desire will be a hard sell in a time where progress is finally being realized in uniting the eastern cattle industry with their western counterpart. There’s talk that the eastern provinces are going to be leaving more and more of their national check-off dollars in the pool for CBI and the BCRC. A skills-based board for CBI would likely be Alberta-centric, which would alienate the East, and without the eastern buy-in, the conditions allowing the collection of the import levy would disappear, and with it, the $800,000 potential.

The Straw Man meetings were largely about ways to strengthen and unify the industry to secure funding for the future and to increase co-operation across sectors, throughout the nation. The response was positive, and a long-term strategy is being developed as a result of the process. However, the Canadian cattle industry still remains relatively fractured and segmented, thanks in part to the cattle politics in Alberta. There have been efforts over the years to bridge the cow-calf and feeder sectors – for instance, ABP established a group to represent the interests of the feeding sector in Alberta.

“If you look at the cattle feeder council, that’s where cattle feeders used to sit, that was intended to drive cattle feeder priorities, and I’m not sure that that ever really materialized. The real cattle feeders sit at our table,” said Walton.

“We’re certainly trying to get better at working together. I would suggest that divisions within the industry are still a significant issue. I think there are a lot of people recognizing how much that diminishes our ability to be competitive and respond to our competitors outside of the country. We are recognizing we need to take steps to work together better,” Smith said.

Walton echoes his thoughts.

“We are always open to discussing things that we can do to improve the beef industry. We were big supporters of Bill 43, (the legislation allowing check-off to become refundable) but things evolve and we would like to think that there’s an opportunity to look at other options if that’s the desire of our partners. As I said earlier, our approach has been more collaborative,” said Walton.

When the check-off legislation was changed, it wasn’t just the cattle industry that was affected – so was pork and lamb. Darcy Fitzgerald, executive director of the Alberta Pork Producers, says approximately 10 per cent of the levy is refunded, but overall, producers have been unwavering in their support – even through one of the worst times in pork industry history. In fact, in 2010, Alberta Pork voluntarily returned 85 cents of every check-off dollar to producers because times were so bad.

If the industry decides through its producer groups that increasing the national check-off is a viable option, it could make it even more difficult for provincial cattle groups to hang on to their refundable check-offs. And eventually that could catch up to not only the provincial producer groups, but also the CCA.

“Absolutely there’s a risk to doing that,” said McNabb. “But then I think the onus is on us – the marketing, the research and organizations – to demonstrate value, to demonstrate that we’ve got a plan, and a vision for ensuring the growth and sustainability of the industry.”

“The whole funding issue is affecting the whole industry. As marketings go down, even it’s non-refundable, with our herd in decline, there’s less money available through the national levy,” said Smith, who pointed out that Australian producers pay $5 per head, and have a very successful marketing agency.

“The budget for Meat and Livestock Australia is in the order of $170 million a year and our budget for Canada Beef (Inc.) is less than $15 million. They are aggressive, ambitious and they are well-funded,” Smith said.

“We know that in the United States, the levy for marketing and promotion is mandatory, and contributions to policy organizations are voluntary. That’s not a bad system. Then the question is; how are those dollars being spent and is there a good ROI?” Walton asked

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