Kill or Shill: Processing Capacity and Cattle Prices with a Closed Border

The discovery of bovine spongiform encephalopathy (BSE) in Alberta and the subsequent U.S. border closure raised concerns about the reliance of Canada’s cattle industry upon U.S. packers. It became clear that Canada lacked the slaughter capacity to support the number of cattle going to market. This and other factors resulted in steep price declines. Since 2003, slaughter capacity has increased by approximately 46 percent. Given that many of the start-ups are small-scale operations that in many cases lack experience and financial backing, questions arise regarding the viability and sustainability of these enterprises. This study examines existing processing capacity as well as planned expansions and discusses the implications for Canadian cattle prices. Even though the U.S. border reopened in July 2005, concerns about slaughter capacity remain. Animals over 30 months of age must still be slaughtered in Canada. There are also ongoing concerns about Canada’s continued ability to export live cattle to the United States. Future exports are threatened by potential trade actions and by unpredictable animal health issues that could again close the border.