Thursday, August 05, 2004

Mad cow aid went to fatten packers' profits

VICTORIA - We're quick to demand government action - and cash - when things go wrong.
But a $400-million program to help ranchers cope with the mad cow crisis actually delivered half the money as windfall profits to giant meatpackers, a reminder of how easily things can go wrong when politicians start handing out cash.
And we didn't even get any cheap beef out of the deal.
Alberta Auditor General Fred Dunn examined the federal-provincial plan cobbled together when the discovery of a single BSE-stricken cow led the U.S. to slam its border shut.
The plan worked, he found. Ranchers were cushioned from the worst of the short-term impact.
But because the Canada-Alberta BSE Recovery Program was poorly thought out, it also encouraged ranchers to dump a lot of cattle on to the market quickly. Prices fell as a result, but the ranchers were protected by taxpayers. No big windfall for the farmers; they just avoided disaster.
But the meatpackers, what a deal for them.
As cattle owners, they claimed about $45 million in direct assistance as part of the aid program.
And they scored much more because of the poorly planned aid scheme.
The plan only paid ranchers when they sent their cattle to slaughter.
Ranchers knew there was a limited pool of money available, and could check online to see how much was left in the pot. So they rushed to dump their cattle while there was still aid money. A four-legged stampede to market meant prices plummeted.
Good news for the three giant meatpackers that dominate the market in Alberta. They picked up cattle dirt cheap, kept on selling beef at normal prices and tripled the amount of profit they made on each cow - thanks to your tax dollars. Before BSE hit in May 2003, the packers were making $46 a head. That more than tripled to $176 a head in the six months after the subsidies were put in place, according to the auditor general.
But lousy news for taxpayers, and consumers. It's one thing to be asked to hand money over to cattle producers hit by an extraordinary event. It's quite another to find out that taxpayers are subsidizing corporations' huge profits.
There's several lessons here.
The most obvious is that governments should work harder at getting aid programs right, despite the pressure to act quickly. In this case, the program could have been need-based, eliminating the direct subsidy to the packing companies. It could have provided support for ranchers who chose to wait the crisis out, instead of forcing them all to dump cattle. It could have encouraged an orderly stock reduction. All would have protected taxpayers' dollars.
It's important to get these things right. This $400-million program was only one of several mad cow assistance programs worth a total of $2.5 billion. At the same time governments are being asked for cash to help poultry producers hit by avian flu fallout, fire victims and a host of others. The cost is enormous, and the public needs to be able to count on well-designed programs that achieve a legitimate public policy goal.
This affair should also be a wake-up call for those who have a blind faith in the power of the market to make things right.
In a functioning free market, consumers would at least have got cheaper steaks out of the deal. Faced with the chance to buy cows at low cost, the classic economic theory goes, meatpackers would compete for a larger share of the market by lowering prices.
But that didn't happen. It's too expensive to get into the business for a short time. The market is generally the most efficient way to manage supply, demand and price issues. But not always.
There's a place for government aid. But Alberta's auditor general has shown that attempts to spend our way out of a crisis can go badly wrong.
Footnote: The companies - Lakeside Packers, Cargill and XL Foods - had initially denied the windfall profits. They were also reliuctant to provide information on their operations to a House of Commons committee looking at the aid program. Dunn found the companies had made $117 million in profits in the year before the BSE crisis, and $197 million in just six months after it hit.

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