Effects of Mad Cow Scare Felt on Both Sides of Border

For decades, Canadian cattle ranchers like Mark Ellis considered the American border a small irritant in an otherwise close and generally happy tale of globalization.

Canadians, enjoying lower feeding costs than American ranchers, sold their cattle to feedlots and packing houses south of the border. Those U.S. plants packaged the beef for American dinner tables and marketed it to grocery stores and restaurants in Tokyo and Seoul.

It was a win for both sides.

Now this close relationship appears to be unraveling, thanks to a lawsuit by a group of Montana ranchers over fears of the spread of bovine spongiform encephalopathy, also known as mad cow disease, from Canadian herds. In March, a federal judge issued an injunction barring the Bush administration from lifting a ban on imports of Canadian cattle.

To Ellis, 40, a fifth-generation rancher in the province of Saskatchewan who lives with his wife and four children on the Saskatchewan River, that move was nothing more than old-fashioned protectionism.

“They’re just a bunch of rich, political guys,” he said angrily when asked about the Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America, or R-CALF USA, the group that filed the lawsuit.

This turmoil in the North American beef industry -- with increasing discord on both sides of the border -- is a powerful lesson in how a seemingly small dispute can have huge ramifications in a globalized world.

Prices in Canada have plunged. Ellis gets $150 to $200 apiece for his older cattle, less than one-third of what he received prior to the mad cow scare. Canadians saddled with unsold animals are pouring hundreds of millions of dollars into expanding or building new packing plants. Meanwhile, more than three dozen packing houses in the U.S. have closed, in part because of a shortage of cattle.

The changes are dramatic, given the close cross-border relationships that had developed in the North American beef industry, spurred by the passage of the North American Free Trade Agreement in 1994.

After NAFTA, beef processing within the region shifted to the United States, home to the world’s largest beef-consuming population. The lifting of trade barriers made it easier for the four leading U.S. beef processors -- Tyson Foods Inc., Cargill Inc., Swift & Co. and National Beef Packing Co. -- to consolidate their control of the processing industry. They invested in modern facilities, benefiting from the economies of scale that brought costs down.

The large U.S. multinationals also became the primary marketers for North American beef in lucrative export markets in Asia.

Cattle flowed both ways across the border, depending on currency fluctuations, weather and other things that affected costs. Canada was particularly competitive in the growing and feeding of cattle because of lower costs for feed and land. Canadians shipped as many as 1 million animals a year to the U.S., which purchased nearly half that country’s cattle and beef products.

But the cross-border flow screeched to a halt May 20, 2003, when a cow infected with mad cow disease was discovered on a farm in Alberta, Canada. Three more diseased Canadian cows were eventually discovered, including one that had been shipped to Washington state. Dozens of countries, including Japan, South Korea and Mexico, banned U.S. and Canadian beef imports.

The U.S. Department of Agriculture reported Friday that another animal tested positive for the brain-wasting disease, reigniting fears that foreign countries would shun U.S. beef again. The government said the suspect animal did not enter the human food or livestock feed supply because it was a “downer” -- unable to walk when delivered for slaughter.

The USDA said that more tests would be conducted in the U.S. and Britain to determine whether the animal was infected and that results would be available in about two weeks.

The U.S. and Canada estimate they have lost billions of dollars in export sales since 2003.

Mad cow disease is believed to be caused by abnormal proteins and is passed on when cattle eat feed that has been contaminated. In Britain, where the disease surfaced in the 1980s, 183,000 animals have tested positive for the disease. In rare cases, humans have contracted the illness by eating the meat.

In the months that followed, the U.S. and Canada tested hundreds of thousands of cattle, strengthened their testing systems and imposed measures to prevent diseased animal parts from being ground up for feed. In the fall of 2003, the Bush administration began allowing boxed Canadian beef into the U.S. market and a year later announced that it would reopen the border for Canadian cattle in early 2005.

That triggered a rift in the U.S. beef industry. R-CALF, a ranchers group based in Montana, filed its lawsuit to stop the border opening, contending that the Bush administration was risking the contamination of the U.S. cattle herd.

Some U.S. ranchers fear that opening the border will depress cattle prices. Prices of slaughtered cattle rose by more than 25% in late 2003 and are still higher than pre-mad cow levels, according to Cattle-Fax, a beef industry analysis firm in Denver.

But Leo McDonnell, the feisty 53-year-old founder of R-CALF, says he is not just trying to preserve his profit. He said the border should remain closed until the Canadian government conducted more rigorous tests and imposed stricter measures to prevent the spread of mad cow disease in the feed system.

“I don’t find anything protectionist about this,” said McDonnell, who sells his breeding stock to Ukraine, Argentina and other countries. “We’re talking about maintaining high food safety standards on our imports. That’s the responsible thing to do.”

But the Bush administration, and some of the country’s leading beef and farm groups, contend it is safe to reopen the border. The USDA appealed the injunction and the U.S. Court of Appeals in San Francisco has agreed to hear the case July 13.

The administration and farm groups said the U.S. beef industry couldn’t afford to wait too long, given how quickly the processing sector is being reshaped. Cargill Beef, which has cut back shifts at its U.S. facilities, is expanding its processing plant in Alberta and recently purchased a large Ontario beef processor, Better Beef Ltd. Tyson Foods has also reduced production at its U.S. plants and is expanding the output at its Alberta plant.

Last year, Canada exported 1 billion pounds of beef to the U.S., up from 740 million pounds a year earlier.

“The market is restructuring before our eyes,” U.S. Agriculture Secretary Mike Johanns warned recently during a visit to a small Utah beef packing plant that had lost 20% of its business since the border closed. “American producers and processors will be left out in the open if the border is not reopened.”

Jim McAdams, president of the National Cattlemen’s Beef Assn., the nation’s largest industry group, said having access to cattle across North America allowed U.S. processors to operate their plants more efficiently and diminished their vulnerability to drought or disease. If processing shifts to Canada, he fears the feedlot business will follow, making it harder for U.S. ranchers to sell their cows.

Instead of benefiting from the strengths of the huge U.S. market and Canada’s lower feeding costs, he said, the two industries would be fighting each other, leaving openings for competitors in Australia and South America.

“Keeping that border closed is going to turn Canada from being a partner with the U.S. into being a competitor, and the rest of the world is dancing with glee,” said McAdams, a fourth-generation Texas rancher.

Canada’s fiercely independent cowboys aren’t waiting around for the courts or the markets to decide their fate.

“The producers have really come to the conclusion that now, or in the future, we can’t be in a situation where we are ... waiting for Americans to take action that’s going to control our fate,” said John Masswohl, director of international relations for the Canadian Cattlemen’s Assn. in Ottawa.

This month, a rancher-owned cooperative started construction on a $35-million beef packing plant in Spruce Grove, Canada, that is slated to open in 2006. Ranchers Meats expects to kill 800 cows and bulls a day.

A group in Manitoba plans to open a facility using equipment it purchased from a shuttered facility in Washington state. Daryl Charlton, a 55-year-old fourth-generation rancher, is one of 377 ranchers in Alberta and Saskatchewan who ponied up about $700,000 to purchase a 10% share of the facility and agreed to provide 7,500 cattle a year to the plant for slaughter.

Charlton, who tends about 1,100 cows and 2,500 yearlings on his 10,000-acre ranch in central Alberta, said the Canadian beef industry had no choice but to strike out on its own.

In addition to adding packing capacity, the Canadian government has expanded its mad cow prevention program and has implemented an electronic tagging system that allows cattle to be traced from birth to slaughter. By beefing up its meat safety system, the Canadians hope to convince nervous buyers in Asia that their beef is safe to buy.

Charlton, who said his family had been buying and selling cattle across the border for decades, recognizes that Canada, with its sparse population, can’t afford to turn its back on trade. But he said it was time for Canadians to develop an industry that could “be part of the added value chain right from the farm to the retail level.”

As for the Americans? By the time they’re ready to open the door, Charlton said, it might be too late to mend fences.

“Those guys are pretty free enterprise, but they’ve become pretty socialist in a hurry,” he said. “This is a very short-term decision they’ve made and I think its eventually going to hurt them down the road.”