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Results Report for 2006/07

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The Canadian Cattlemen Market Development Council (CCMDC) is a partnership of the Canadian beef cattle industry, the Government of Alberta, and Government of Canada to fund and oversee a 10-year global marketing plan to help the industry recover from BSE.

The vision of the CCMDC is to recover and expand markets for beef and cattle genetics around the world assuring a profitable, sustainable Canadian industry that results in Canadian beef and cattle being recognized as the most outstanding by Canadian and world customers.

Agriculture and Agriculture et Agri-Food Canada Agroalimentaire Canada 2006/07 RESULTS REPORT Contents

Chairman’s Message 3

Canadian Beef and Cattle Market Development Fund – Profile 5

Executive Summary 7

2006/07 Market Context 16

Marketing Activities and Results

INDUSTRY SUPPORT FOR THE VALUE PROPOSITION -The Overarching Performance Measure 32 GENETICS Market Situation and Indicators 36 Summary of 2006/07 Activities 39 Performance Measures 40 DOMESTIC (CANADA) Market Situation and Indicators 46 Summary of 2006/07 Activities 48 Performance Measures 50 COMMERCIAL BEEF Market Situation and Indicators 54 Summary of 2006/07 Activities 56 Performance Measures 57 UNITED STATES Market Situation and Indicators 62 Summary of 2006/07 Activities 65 Performance Measures 66 MEXICO Market Situation and Indicators 73 Summary of 2006/07 Activities 75 Performance Measures 75 CHINA including Hong Kong, Macau, Mainland China Market Situation and Indicators 80 Summary of 2006/07 Activities 81 Performance Measures 82

Contents 1 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

JAPAN Market Situation and Indicators 86 Summary of 2006/07 Activities 87 Performance Measures 87 TAIWAN Market Situation and Indicators 91 Summary of 2006/07 Activities 92 Performance Measures 92 SOUTH KOREA Market Situation and Indicators 96 Summary of 2006/07 Activities 97 Performance Measures 97 EXPORT PREPAREDNESS for Mexico, Asia and Emerging Markets Summary of 2006/07 Activities 102 Performance Measures 102 SUPPLEMENTARY ALBERTA INITIATIVES 104

Management’s Report 107

Canadian Beef and Cattle Market Development Fund Audited Financial Statements

Canadian Cattlemen’s Association – Canadian Beef and Cattle Market Development Fund Division Financial Schedule of Operations and Net Assets

Canadian Cattlemen’s Association Financial Statement of Operations

Canadian Beef Cattle Research, Market Development, and Promotion Agency Financial Statement of Operations

Contents 2 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT Chairman’s Message

I am pleased as Chairman of the Canadian Cattlemen Market Development Council (CCMDC) to submit the first Results Report for the Canadian Beef and Cattle Market Development Fund. This report covers the first year of funding for July 1, 2006 to June 30, 2007. The funds from the Government of Canada ($50 million) and Government of Alberta ($30 million) were announced in March 2005 to “find more export markets and increase beef sales in existing ones” (as stated in the Alberta government announcement) and to “help launch an aggressive marketing campaign to reclaim and expand markets for Canadian beef” (as stated in the federal government announcement). These funds are entrusted to the Canadian Cattlemen’s Association (CCA) to administer on behalf of the industry. David Andrews CCMDC Chairman Canadian cattle producers through check-off contributions will provide over $90 million to more than match the government funds (commonly referred to as ‘legacy funds’). This total investment of over $170 million during the next 10 years is a cornerstone of the industry’s strategy to recover from BSE and be effectively positioned to compete in the global marketplace for the future.

Producers and government partners in the use of these funds will demand results – and the CCMDC has been appointed by the CCA to accept this huge responsibility. Through this entity, industry and government are working together on enhanced marketing as a key element of the BSE recovery plan “to recover and expand markets for beef and cattle genetics around the world assuring a profitable, sustainable Canadian industry that results in Canadian beef and cattle being recognized as the most outstanding by Canadian and world consumers”.

The recovery of markets closed by the incidence of BSE in Canada has been frustrating, slower than anticipated, and complicated by market restrictions. The Strategic Marketing Plan is intended to achieve the enhanced opportunities for access to high value markets over a 10-year period so it is early days as we report on the first year of funding. The focus of the global marketing strategy is a value proposition intended to clearly differentiate Canadian beef and cattle genetics products. The Canadian Cattlemen Market Development Council has determined through significant consultation with industry and government that the basis for the value proposition will be leadership in animal health and beef safety. The Canadian beef industry has some valuable advantages in taking this position such as climate, clean environment, our mandatory cattle identification system, and a worldwide perception of Canadians as being trustworthy. We believe we can make our claim of providing unique and significant quality benefits to our customers and consumers by building our reputation for leadership in animal health and beef safety.

The acceptance of the value proposition will clearly require commitment from the entire industry if we are to develop credibility in our claims on animal health and beef safety. The commitment of the industry to the enhanced feed ban in the face of increased costs and lost revenue is a great example!

Chairman’s Message 3 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

We will also see increasing opportunities to grow the Canadian Cattle Identification Agency’s ability to provide source verification and quality assurance compliance as we progress. There will also be requirements for research and development to enhance and expand on our existing advantages.

I am compelled to say that increased marketing of Canadian beef and cattle to new or recovered markets is only one component to solving the competitive issues that challenge our industry today. The recovery of the Canadian dollar relative to the United States has highlighted the growing competitive disadvantage between Canada and the rest of the world on issues like feed costs, energy costs and labour costs. Increased value for Canadian beef and cattle is critical to recovery of our competitive advantage but the industry needs to understand there are other competitive components that must be addressed as well.

The CCMDC used a broad cross-section of industry and government representatives to develop a Strategic Marketing Plan. Through the activities of the Beef Information Centre, Canadian Beef Breeds Council, Canada Beef Export Federation and supplementary initiatives fundable from the Alberta funding – we hope to achieve our goals on a long-term and sustainable basis.

The results addressed in this report are for the 2006/07 Marketing Implementation Plan which was developed by the Global Marketing Advisory Committee of the CCA, the federal Beef Value Chain Roundtable, and constituents of the recipient marketing groups. The Canadian Cattlemen’s Association is ultimately accountable for the use of these funds and has approved the Marketing Implementation Plan as well. The activities and results of the first year of funding for 2006/07 are detailed in this report with an emphasis on performance measures.

David Andrews, Chairman Canadian Cattle Market Development Council

Chairman’s Message 4 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT Canadian Beef and Cattle Market Development Fund - Profile

In mid-March 2005, the Government of
Build on Canada’s comparative advantage to Alberta announced that their Treasury Board implement innovative market strategies had approved an allocation of $30 million
Increase sales in existing markets (domestic, from the 2004/05 fiscal year for the creation U.S., and Mexico) of an Alberta International Beef Market
Secure markets for beef from animals over-30- Development Fund. The Government of months Canada also announced a contribution of $50
Intensify programs to be ready for re-entry into million dollars to be used towards a long-term markets such as Japan and South Korea market development fund, referred to as the
Develop new markets such as Russia, EU, ‘Legacy Fund’. The combined contributions Philippines, Indonesia and Singapore comprise the Canadian Beef and Cattle Market Development Fund. To ensure efficient and effective control of decision-making processes, the CCA These funds are entrusted to the Canadian Executive has reprised the successful model Cattlemen’s Association (CCA) to administer of the Beef Industry Development Fund the government contributions combined with (1994-1999) to guide the establishment of a industry funds in a strategic manner. The governance and advisory process. The CCA Canadian Cattlemen Market Development Executive, in consultation with appropriate Council (CCMDC), reporting to the CCA provincial organizations, appoints producer Executive and Board, is an industry-based representatives and external marketing governance structure that oversees the expertise as required to the Canadian approval of marketing plans and allocation of CCMDC. Members of the CCMDC together the Canadian Beef and Cattle Market with the non-voting representatives of Development Fund, which is leveraged by government (federal and provincial) oversee industry funds. the allocation of funds from the Canadian Beef and Cattle Market Development Fund The vision of the CCMDC is: strategically leveraged by industry funds for This fund will be managed to facilitate bold and beef and beef cattle genetics marketing innovative approaches to recovering and expanding initiatives. markets for Canadian beef and beef cattle around the world assuring a profitable, sustainable Canadian The Global Marketing Advisory Committee industry that results in Canadian beef and cattle being (GMAC) has been expanded to include recognized as the most outstanding by Canadian and representation from a wider range of sectors world customers. of the beef supply chain, including the beef cattle genetics sector. This enables the The mission is: GMAC to provide the CCMDC with input and analysis on the strategic approach to The Canadian beef cattle industry, represented by the global marketing of cattle and beef products Canadian Cattlemen’s Association, will utilize the consistent with the funding agreements. The Fund to: GMAC is responsible for input in the
Maintain consumer confidence for all markets as development of the strategic beef cattle a high priority market development plan (10-year) and is a

Fund Profile 5 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT component in the process of evaluating As is required by the federal contribution specific marketing proposals as required. agreement, the long and intermediate strategic Analytical resources from the CCA and other marketing plans and the yearly institutions are being utilized to ensure the implementation plans will be presented in a Council is well-informed on the merits and timely manner to the Beef Value Chain effectiveness of marketing proposals. Roundtable for consideration prior to submission to the federal agriculture minister for approval.

2006/07 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL MEMBERS Council Chair David Andrews Global Marketing Advisory Committee Chair Members Hugh Lynch-Staunton Canadian Cattlemen’s Association President Brad Wildeman Canadian Cattlemen’s Association Vice President Stan Eby Canadian Cattlemen’s Association Past President Darcy Davis Canadian Cattlemen’s Association Executive Member & Alberta Beef Producers Past Chair Ian McKillop Canadian Cattlemen’s Association Executive Member & Ontario Cattlemen’s Association President Dennis Laycraft Canadian Cattlemen’s Association Executive Vice President Ex-officio John Ross Non-voting Agriculture & Agri-Food Canada (AAFC) Jeff Kucharski Alberta Economic Development (AED) Arron Best Alberta Agriculture, Food & Rural Development (AAFRD) Dave Rae International Market Consultant

Manager: Rob McNabb, P.Ag. General Manager, Operations Canadian Cattlemen’s Association

Fund Profile 6 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT Executive Summary

First Results Report for 10-Year Market Development Plan

This is the first Results Report for a 10-year The Strategic Marketing Plan (July 2006) and market development plan to recover and yearly Marketing Implementation Plan for expand markets for Canadian beef and cattle 2006/07 (collectively referred to as the “Plan” genetics around the world to assure a later in this Executive Summary) were profitable, sustainable cattle industry. developed through a collaborative process involving value chain stakeholders throughout Industry and the Governments of Canada and the production and marketing chain, and Alberta are funding this long-term aggressive consultation with the Global Marketing market development plan to reclaim and Advisory Committee of the Canadian expand markets for Canadian beef as part of Cattlemen’s Association, the federal the BSE recovery strategy. The discovery of agriculture minister’s Beef Value Chain BSE in the domestic herd in May 2003 Roundtable, and the industry’s marketing severely impacted the industry causing a organizations (and major Fund recipients). dramatic drop in beef and live cattle exports and substantially reduced cattle prices. This coordinated approach has resulted in the industry’s marketing organizations working The projected cost of the 10-year market closely together on the development and development plan is $170 million. Funding is implementation of the global marketing being provided by the Government of Canada strategy: ($50 million) and Government of Alberta ($30 million), which is being leveraged by over $90 Beef Information Centre (BIC) responsible million from industry. The industry funding for Canadian beef market development is being provided by Canadian cattle programs in Canada and the United States for producers through check-off contributions fed and non-fed beef (which is the collected when animals are marketed. Commercial Beef component in this plan) Canadian Beef Breeds Council (CBBC) The combined government contributions ($80 representing the Canadian purebred industry Canadian Beef and million) comprise the and responsible for genetics market Cattle Market Development Fund . These development for semen, embryos, and funds have been entrusted to the Canadian breeding stock Cattlemen’s Association, the national industry association representing Canada’s 86,000 Canada Beef Export Federation (CBEF) cattle producers. The Canadian Cattlemen responsible for developing export markets Market Development Council is the industry- including Mexico, China, Japan, Taiwan, based governance structure including ex- South Korea, and export preparedness (for officio government representatives established Mexico, Asia and emerging markets). to oversee the Fund. This first Results Report summarizes activities and performance for the A portion of the Government of Alberta first year of funding 2006/07, covering the funding has been designated for period of July 1, 2006 to June 30, 2007. supplementary Alberta projects from applicants that propose innovative export

Executive Summary 7 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT market development initiatives. The Three projects were funded in 2006/07 and Canadian Cattlemen Market Development included: 1) exploring the reintroduction of Council is also responsible for soliciting, Canadian beef products to the European reviewing and approving these supplementary Union, 2) exploring United Arab Emirate as a Alberta market development initiatives. potential market, and 3) a Japan beef summit.

Standardized Market Indicators and Performance Measures

The Canadian Cattlemen Market
New markets and customers created and Development Council through extensive maintained by funded initiatives consultation with industry and government
Industry funding leverage provided to funding stakeholders has established short, funded initiatives medium and long-term marketing targets, and
Level of completion of funded initiatives a standardized set of market indicators and
Objective and benefit realization performance measures for Fund recipients to (including anecdotes) use as a basis to report their results.
Efficiency of CCMDC investments (incremental sales revenue per dollar Market indicators and performance invested in promotion) measures include:
Volume and value of Canadian beef To ensure consistency and independence of exports (total and by target market) market data presented in this first Results
Export market share of total exports Report and for future results reports, CanFax
Canadian industry support for/buy-in to Research Services has been contracted to the value proposition (measured by provide market data. Thus the Market Context Canadian industry investment in section and the Market Overview and Indicators implementing the value proposition across sections in this report have been provided by the Canadian value chain) CanFax Research Services, independent of
Canadian share (penetration) of target funding recipients. CanFax Research Services markets and market segments is a division of the Canadian Cattlemen’s
In-market price differential between Association and is Canada’s source for cattle Canadian and competing (U.S. and market information. Australian) beef products This first Results Report is a benchmark for
Customer awareness and understanding of future performance for the long-term market Canadian beef value proposition development plan.
Size of market influenced by the value proposition (and change in size of this segment over time)

The Value Proposition – Industry Commitment Critical to Success

Since BSE, the global marketplace has absence of Canadian and U.S. beef. South changed dramatically. Cattle health and beef America is increasing sales to markets safety issues are a primary concern and attracted by its lower cost grass-fed beef. competition has intensified between major Canada’s primary grain-fed beef competitors, export nations. Australia made significant the U.S. and Australia, have large, well- gains in key markets such as Japan in the established beef industries and substantial

Executive Summary 8 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT resources dedicated to the marketing of their best in the world and that everyone involved products. Sustainable success in domestic and in producing the product is doing their part to international markets for all aspects of the ensure quality and safety. Canadian beef and cattle genetics industry will require the industry to have 1) expanded, Programs have been ramped up to increase secure access to a diverse portfolio of cattle producer enrollment in quality international markets for all products, and 2) assurance programs such as Verified Beef products that are clearly differentiated from Production. As well, in 2006/07, competing products. enhancements to the national cattle identification program continued and are The underpinning of the long-term market further being pursued – including animal development strategy is a value proposition movement tracking, a national traceability to clearly differentiate Canadian beef and system, and age verification. The industry has cattle genetics products. Clearly differentiated launched a concerted effort to encourage products will enable Canada to offer tangible, Canadian cattle producers to register the birth unique benefits to its customers. These dates of their animals to ensure they can be benefits will create value for the Canadian age verified and available for higher value industry in the form of more secure sales and export markets. (Some export markets have higher product values. reopened but only for product that can be verified as being from animals under a certain The basis for the value proposition is age.) These efforts are described in more leadership in animal health and food safety. detail in the Industry Support for the Value For Canada to achieve the goal of having its Proposition section of this Report. Industry beef and cattle genetics products recognized support for the value proposition is as the most outstanding by Canadian and considered to be the overarching performance world customers, the industry has to be able measure of the long-term market to demonstrate that its systems are among the development plan.

Summary of Marketing Target Outcomes and Activities

GENETICS higher than the Plan marketing target of $6.25 million. Canadian Beef Breeds Council activities in 2006/07 included inbound and outbound In 2006 semen exports went to 17 countries trade missions, participation in major compared to 22 countries in 2002 pre-BSE. livestock shows, advertising, promotional The largest markets, on a value basis, were the materials, and joint initiatives with the Canada U.S., the Netherlands, and Iran. The United Beef Export Federation – including the States market was valued at $4.7 million in development of marketing materials and 2006. The Netherlands has steadily increased activities in markets being developed for both imports of Canadian semen since 2002, Canadian cattle genetics products and beef showing a 54 per cent increase from 2005 to exports. 2006. Exports reached $1.8 million in 2006 and made up 23 per cent of total Canadian Semen semen exports. The value of semen exports In 2006 Canadian semen export volumes were to Iran doubled to $600,000 from 2005 to recorded at 3.4 million straws totaling $7.9 2006 – and accounts for seven per cent of all million (based on available data). This is semen exports. The value of Canadian bovine

Executive Summary 9 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT semen to Mexico from January to May in all increased volume and value of embryos 2007 is up more than seven times from $3,400 imported from Canada in 2006. in 2006 to $24,605, while volumes are down 44 per cent during the same time period. Breeding Cattle Exports Year-to-date exports to countries that were In 2006/07 key international markets sold less than 1,000 straws of semen in 2006 remained closed for Canadian breeding cattle are up 450 per cent. Honduras has already including the United States. The 2006 Plan quadrupled imports in 2007 compared to total marketing targets for live breeding cattle 2006 exports. Year-to-date exports to South volume and value were at zero. While Korea are up 67 per cent compared to total progress has been slow in re-establishing volume exported in 2006. breeding exports, there were some successes. Russia and Egypt opened their borders to Embryos Canadian breeding cattle in 2007 with Russia In 2006, 47,000 Canadian embryos exported importing 1,975 head of Black Angus and to 33 countries valued at $8 million (based on Holstein breeding cattle valued at $7.5 million. available data). This is higher than the Plan This was the largest shipment since May 2003 marketing target which was 10,000 units at $5 – from 250 producers across Canada. Other million value. countries like the Ukraine, Algeria, Lebanon, Morocco, Tunisia, and Korea have also In 2006 the largest markets for Canadian opened their borders to live cattle for embryos in terms of value were Russia, breeding purposes. In 2006, 191 breeding Germany, the United Kingdom, and the animals were exported (based on available United States. Russia was the largest value data). market importing $2.7 million of Canadian embryos in 2006 and $389,000 for part of DOMESTIC MARKET (CANADA) 2007. The United States has been a consistent Note: The domestic market is ineligible for market for Canadian embryos and imported Canadian Beef and Cattle Market Development $601,000 in 2006, and $346,000 year-to-date funding. It is included in this Report as it is a for 2007. China was an important market component of the global marketing strategy. Relevant performance measures have been generating 60 per cent of embryo export addressed to be consistent with Plan results revenues in 2002 valued at $2.1 million. reporting. However, China has decreased embryo imports from Canada since 2003. Shipments The domestic market (Canada) continues to to China were $300,000 in 2006. There were be the largest and most stable market for no embryo exports to China between January Canadian beef. In 2006 domestic and May 2007. disappearance of Canadian beef totalled 822,897 tonnes, down slightly from the Plan Seven new countries imported Canadian marketing target of 844,000 tonnes. (Volumes embryos in 2006, with 2007 seeing two are in carcass weight.) Market share (per cent additional countries added to the list. In 2006 versus imports) was 85 per cent against the Canadian embryo exports to Germany and Plan target of 86 per cent. the United Kingdom increased in value 40 and 15 per cent respectively, while the volume Canadians consumed 1.4 per cent less beef in of Canadian embryo imports increased five 2006. Per capita beef consumption decreased and 16 per cent respectively. Colombia, from 22 kgs in 2005 to 21.7 kgs in 2006. Norway, Ireland, Switzerland, and Argentina After trending down from the mid-‘70s to the early-‘90s, beef consumption has been more

Executive Summary 10 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT stable over the last decade. Per capita beef classes of cattle. A commercial beef consumption has remained in a fairly narrow utilization strategy was developed, working range since 2000 between 21 and 23 kgs. with the manufacturing, foodservice and retail sectors to increase market share and expand A major market dynamic in 2006/07 was a the size of the domestic commercial beef reduction in beef supplies. With the partial market. The commercial beef utilization reopening of the U.S. market as a result of strategy has been successful in growing the Rule 1, eligible live cattle exports from Canada commercial beef market and also in increasing to the U.S. more than doubled in 2006. This domestic share of this market against cheaper reduced the amount of beef processed offshore imports. domestically and impacted supply available for consumption or export. Disappearance of Canadian commercial beef was 179,436 tonnes in 2006, an increase over Domestic marketing activities in 2006/07 the Plan marketing target of 150,172 tonnes. focused on addressing the market drivers of (Volumes are in product weight.) The majority of product perception, quality and consistency, Canada’s markets remain closed to over-30- convenience, and food safety. Programs month product and as a result, the domestic included promoting the nutritional value of market was the only outlet for commercial beef, consumer culinary initiatives, market beef in 2006/07. research, retail, foodservice, product development and communicating with The Beef Information Centre launched an industry partners. The Beef Information aggressive campaign promoting ground beef Centre has incorporated the value proposition as a nutritious and convenient choice for as a key element in its marketing plan and consumers. Retail, foodservice and communicated the Canadian Beef Advantage in innovative product development to increase its retail and foodservice merchandising commercial beef utilization and sales were programs as a major tactic. In 2006/07 the also implemented. These efforts resulted in BIC and Canada Beef Export Federation the launch of 41 new value-added products, initiated planning to develop a brand identity new convenience-based products that for Canadian beef that can be used and displaced offshore product, a fresh retail line adapted in all markets. The BIC conducted a featuring over-30-month middle steaks, and a quantitative usage and attitude study with number of foodservice partnerships. 1,000 beef-eating consumers in Canada as a first step of the brand development strategy as EXPORT OVERVIEW it pertains to the domestic market. In 2006, 84 markets were open to Canadian COMMERCIAL BEEF beef and cattle genetics products with 67 countries accepting all edible Canadian beef The commercial beef market is a segment of products, 16 countries accepting under-30- the domestic market for products from cull month product, and Japan accepting under- cows and bulls. Products from these animals 21-month product. In June 2007, Taiwan are used for ground beef, hamburger patties, reopened to Canadian beef trade. Major precooked deli meats, and heat and serve markets still closed to Canadian beef include entrees. During the BSE crisis, export trade South Korea and Mainland China. The for commercial beef came to a halt and the United States continues to disallow trade in value of cull cattle declined the most of any cattle and beef from cattle over-30-months class. Cow and bull disposal rates dropped and breeding stock pending the significantly, resulting in a backlog of these

Executive Summary 11 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT implementation of a second USDA rule to The U.S. market development program allow for trade in these products. developed significant momentum in 2006/07 due to a fully staffed and dedicated U.S. Market access for Canadian beef exports market development team with the Beef continues to expand as new markets open and Information Centre. Significant focus was expanded access is gained in those markets given to communicating the Canadian Beef that were already open to a limited list of Advantage to solidify and further develop the products. Canada has regained at least partial U.S. market for Canadian beef. access to seven of what were its top 10 export markets in 2002 pre-BSE. Ten Partner Program initiatives completed or actively running have driven significant In 2006 beef exports totalled 386,000 tonnes quantities of new Canadian beef volume to valued at $1.33 billion. (Volume is in product the U.S. market. The Partner Programs aim weight.) Exports were down 20 per cent to establish and increase volume and value to compared to the previous year mainly as a Canadian beef producers by building linkages consequence of reduced available supplies. between Canadian beef suppliers and potential U.S. customers. The focus with key UNITED STATES trade contacts has been educational (i.e. how to position the Canadian Beef Advantage The United States is Canada’s largest export strategically) and identifying opportunities to market for beef and beef cattle. While access build beef volume and value. continues to be restricted to imports of Canadian cattle and beef from cattle that are BIC’s U.S. market development strategy has under-30-months of age, in 2006 total cattle been strategically aligned with Canadian and beef exports were valued at $2.27 billion. packers to identify key markets to focus activities. Those identified markets are Between 2005 and 2006 the composition of California, Nevada, Arizona, Pennsylvania, exports to the U.S. changed. Live cattle Ohio, Michigan, New York, New Jersey, exports have made a strong recovery since Florida and Massachusetts. Secondary mid-2005 when the U.S. reopened to markets include the Pacific Northwest and the Canadian cattle and beef exports from animals rest of the Northeastern U.S. In these under-30-months. This has resulted in beef markets, the BIC focused efforts on exports to the U.S. being partially offset by communicating to trading partners through live cattle exports. The volume of beef various strategies including Canadian beef exports to the U.S. in 2006 was 298,085 seminars, packer sales office training, regional tonnes compared to Plan marketing target of trade shows, and utilization of market 417,513 tonnes. (Volumes are in product weight.) intelligence to identify potential target The value of 2006 beef exports to the U.S. customers. Resources communicating quality was $1.091 million compared to the Plan and safety attributes and the overall value target of $1.95 million. However, in 2007 proposition were developed and distributed to Canadian beef exports to the U.S. have shown the U.S. meat trade. BIC also conducted a positive increase, with exports running five three retail surveys, assessed the natural beef per cent higher in volume and four per cent category to evaluate market potential, and higher in value for the first six months of the initiated first steps towards the development year. of a unique brand identity for Canadian beef in the U.S. consumer market. An online quantitative survey conducted in key target markets (Los Angeles, New York,

Executive Summary 12 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Philadelphia) indicates that in the markets were 11 per cent higher than the same period surveyed, U.S. consumers are willing to try in 2006. Canadian beef, even though they rank U.S. beef higher on all attributes tested versus their CHINA (including Hong Kong, Macau, Mainland China) perception of Canadian beef. Branding Canada has access to Hong Kong and Macau concepts have been developed based on the but is restricted from exporting to Mainland quantitative results and tested in qualitative China. Canadian beef exports to Hong Kong focus groups. and Macau totalled 15,336 tonnes in 2006 against the Plan target of 15,127 tonnes. Mexico, Asia & Emerging Markets (Volumes are in product weight.) This was primarily a result of renewed competition The Canada Beef Export Federation (CBEF) from the United States and a strong Canadian was established in 1989 to improve export dollar. CBEF reports that the wholesale price results for the Canadian beef industry. CBEF of Canadian Prime graded beef has been has local representation in all of its major higher priced than USDA Prime beef which target markets including Mexico, China, has thus created hesitation in volume Japan, Taiwan and South Korea. These purchases for retail. However, Canadian beef offices function as the focal point of buyer- exports to Hong Kong/Macau increased 19 seller activities and actively promote Canadian per cent in the first six months of 2007. beef within the trade. Market development activities are specialized for each market and JAPAN generally include retail and foodservice In 2006 Japan reopened to Canadian beef promotions, development of technical products from animals under-21-months. materials highlighting the Canadian beef value Stringent exporting rules and the need to age proposition, seminars, trade missions, food verify cattle have limited the amount of shows, advertising, public relations, and Canadian beef exports. In 2006, 2,117 tonnes market research. were exported compared to the Plan marketing target of 25,211 tonnes. (Volumes MEXICO are in product weight.) Mexico is the second largest export market for Canadian beef. It was one of the first Canada’s re-entry back into the Japanese countries to reopen after BSE and currently market has been slow, with Canadian beef allows Canadian beef products from animals making up less than one per cent of total under-30-months of age and offal products Japanese beef imports in 2006. Since re-entry from animals over-30-months. In 2006, the greatest competition in this market is Canadian beef exports to Mexico totalled Australia and New Zealand which established 40,243 tonnes compared to the Plan 2006 a significant presence while the market marketing target of 100,847 tonnes. (Volumes remained closed to Canadian and U.S. beef. are in product weight.) The main reason for the Other factors included market access decline was increased export competition challenges and the strong Canadian dollar. In from the U.S. and Uruguay after Mexico the first six months of 2007 Canadian beef reopened its borders to those countries. exports to Japan were 10 per cent higher than Other factors included market access the same period in 2006. challenges and cost as a result of the strong Canadian dollar. However, Canadian beef TAIWAN exports to Mexico for the first half of 2007 Canadian beef was not sold in Taiwan during 2006/07, the reporting period for this Report.

Executive Summary 13 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

In June 2007 Taiwan reopened to Canadian programs and services as well as the boneless beef derived from cattle under-30- Federation’s performance in individual months of age, ending its four year ban on markets, serving to underline what the Canadian beef imports to this market. Federation is doing well and what it needs to improve. CBEF management and directors SOUTH KOREA believe the survey provided a valuable Canadian beef was not sold in South Korea perspective on the Federation’s performance. during 2006/07. The market remains closed The survey will serve as a benchmark for at time of this Report (October 2007). future evaluation and will be conducted annually.

The Canada Beef Export Federation Highlights from the survey are included in this completed a total of 69 activities in support of Results Report in the relevant market its members and their strategic market sections. A few overall key findings are as development programs in the 2006/07 fiscal follows: year. The Partners Market Development Program saw greater utilization with 38
CBEF export members attributed 47 per individual activities being undertaken by cent of their 2006 Asia and Mexico export members, the majority in the area of exports to the Federation's market export readiness. The Federation completed building and information services. five member information and liaison activities
In 2006, 89 per cent of CBEF members designed to keep members informed of CBEF indicated that CBEF services and activities and trade developments in export resources increased potential international markets. The Federation funded seven trade clients' knowledge of Canadian beef advocacy activities in support of facilitating quality and safety systems. the re-entry of Canadian beef in markets that
In 2006, 81 per cent of CBEF members are closed and in newly accessible markets; indicated that printed materials increased and to expand access in markets that are their knowledge of Canadian beef in open. The Federation also subscribed to international markets a lot or some. three market research studies and developed and produced 16 technical marketing In addition to its Mexico and Asia programs, materials for use in international markets in CBEF carried out a number of new market support of Canada’s animal health and food and customer initiatives in 2006/07 through safety systems. CBEF’s Partners Program. This cooperative program between the Federation and its In 2006/07 the Canada Beef Export export members saw eight different export Federation initiated a first of its kind survey to members complete 15 different export find out how well its programs and services readiness and export development activities in are meeting the needs of both its members markets other than CBEF’s key markets: and international clients. Carried out by Ipsos Italy, France, Thailand, Lithuania, Reid, the Canada Beef Export Federation England, Dubai, Indonesia and Kuwait. Performance Survey canvassed the Federation’s CBEF also funded and facilitated inspection membership in Canada and over 600 missions from Egypt and El Salvador, and international contacts in markets where the participated in a trade mission to Russia (in Federation has local representation (Mexico, conjunction with the Canadian Beef Breeds Japan, Hong Kong, China, Taiwan, and South Council). Korea). Extensive in scope and detail, the survey provided feedback on individual

Executive Summary 14 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

2006/07 Global Marketing Budget and Expenditures

The Canadian cattle industry’s global marketing budget for 2006/07 was $20,388,154. This included the domestic market which is not eligible for Canadian Beef and Cattle Market Development funding. Actual global marketing expenditures in 2006/07 totalled $18,628,995.

Industry contributions to global marketing in 2006/07 were $8,562,529.

Canadian Beef and Cattle Market Development Fund 2006/07 allocations to eligible activities were as follows:

CANADIAN BEEF AND CATTLE MARKET DEVELOPMENT FUND 2006/07 Allocation Summary 2006/07 2006/07 MARKET EXPENDITURES BUDGET ALLOCATION

Beef Cattle Genetics $661,974 $696,191 Commercial Beef $2,008,045 $2,320,882 U.S. Market Development $1,577,477 $1,525,384 Mexico, Asia and Rest of World $2,123,632 $4,068,092 TOTAL $6,371,128 $8,610,549

In addition to the above, $25,236 was allocated to three supplementary Alberta-based initiatives.

CCMDC First Year Accomplishments

The development of a long-term coordinated
Developed the first yearly Marketing market development plan for the Canadian Implementation Plan – for 2006/07 cattle industry has been achieved through a
Set up Fund administration, allocated concerted effort by industry and government first-year funding, and prepared the first working together to help the industry recover Results Report. from BSE and be effectively positioned to compete in the global marketplace for the As the first Results Report, there may very future. well be deficiencies and/or improvements that need to be addressed. In moving In its first year (2006/07), the Canadian forward, greater effort will be made to capture Cattlemen Market Development Council: and report back on activities and results. The
Assessed the global market situation and Canadian Cattlemen Market Development opportunities for Canadian cattle genetics Council is committed to ensuring full and beef products accountability back to industry and government stakeholders on their investment
Conducted a comprehensive strategic towards long-term sustainable success in the planning process that established global marketplace for Canadian cattle marketing targets, market indicators and genetics and beef products. performance measures

Executive Summary 15 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT 2006/07 Market Context

Canadian Cattle Inventory

The most recent inventory report released by cattle herd was offset by declines in inventory Statistics Canada provides July 1, 2007 cattle levels in other provinces. By far the largest inventory numbers. This report was the first decrease in cattle numbers occurred in opportunity for industry to evaluate 2006 Manitoba, which saw a decline in numbers of Census of Agriculture cattle inventory 8.3 per cent from 1.68 million head to 1.54 numbers, with the Census resulting in million head. Ontario cattle inventories revisions being made to estimated inventory decreased 3.9 per cent, 2.1 per cent in levels for the last five years. Quebec, 1.8 per cent in British Columbia, and 0.6 per cent in Saskatchewan. CANADIAN CATTLE INVENTORY – July 1 (000 head) Continued reductions in inventory levels have 07 as % of 2006 2007 been a result of several factors including 06 strong domestic cow slaughter, the Total 16,000 15,885 -0.7% resumption of live cattle trade to the U.S. and Bulls 267.6 263.5 -1.5% the subsequent export of significant numbers Milk Cows 1,005.4 979.6 -2.6% Dairy Heifers 503.5 480.0 -4.7% of fed and feeder cattle, and strong domestic Beef Cows 5,204.6 5,112.9 -1.8% cash markets that encouraged heifers to move Heifer into feedlots. Beef cow numbers in Canada 700.8 668.3 -4.6% Replacements declined two per cent to 5.1 million head, Heifer Slaughter 1,247.4 1,289.6 +3.4% while beef replacement heifers declined 4.6 Steers (>1 Yr) 1,655.3 1,790.5 +8.2% per cent to 668,000 head. At the same time, beef heifers for slaughter increased 3.4 per Calves (<1 Yr) 5,415.4 5,300.6 -0.7% cent to 1.290 million head and steers increased 8.2 per cent to 1.79 million head. With a smaller beef cow herd, July 1 calf Canada’s national herd declined for the inventories are down one per cent to 5.3 second consecutive year as the breeding herd million head. As of July 1 the total feeder fell in most provinces according to the July 1 supply (> one year of age) was estimated to be survey. As of July 1, 2007 cattle inventories sat at 15.9 million head, down one per cent Canadian Beef Cow Inventory from last year. After the dramatic decline July 1 seen between 2005 and 2006 when inventories 6.0 fell 880,000 head, and the more moderate decrease of 115,000 head over the last year – 5.5 Canadian cattle herd numbers more closely 5.0 reflect pre-BSE inventory levels of 15.4 4.5 million head. 4.0

Head Million 3.5 In Alberta, the largest cattle producing 3.0 province, the herd rose 2.7 per cent between 2.5 July 1, 2006 and July 1, 2007. This was due to 80 84 88 92 96 00 04 greater demand for steers and heifers among feedlot operators. The increase in Alberta’s Sour ce: Statistics Canada, CanFax

Market Context 16 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

3.08 million, up 4.5 per cent from the same Percentage of Cows Nine years and Over time last year. While heavy and medium July 1, 2007 weight feeder cattle were down 2.5 and 2.8 Total Dairy Beef per cent respectively, lightweight feeder cattle 30% 25% are up over 12.5 per cent from the same time 1.1 mil 1.16 mil last year. 20%

15% For the last few years Statistics Canada has 10% reported on cull cow inventories in order to 58,000 provide a better understanding of what is 5% being held on-farm. Producers noted that 19 0% per cent of the 6.09 million cows on farms CANADA July 1, 2007 were nine years or older (prior to 1998). The number of cows born prior to forward in obtaining further market access 1998 has decreased from July 2005 when 31.6 into the U.S. for animals that are over-30- per cent of cows were born prior to 1998 and months in age. While these older animals are July 2006 when 26.4 per cent were born prior not a food safety concern given the stringent to this date. The number of beef cows that safety measures Canada has in place to were born prior to 1998 was 1.1 million head manage the removal and disposal of specified or 21.5 per cent of all beef cows, which has risk materials, continued interest has been been reduced from 35 per cent in 2005 and 30 seen by importing countries as to the number per cent in 2006. Only 5.9 percent of the of older animals (born prior to 1998) that dairy inventory was nine years or older as a exist within the Canadian herd. With strong result of more aggressive culling in this sector. domestic cow slaughter in both 2006 and 2007, the industry has been able to Understanding the number of animals that are demonstrate a significant reduction in older prior to 1998 and the full implementation of animals which is expected to continue as the feed ban in 1997 is important as we move industry moves forward.

Beef Cattle Marketings and Production

2002 2005 2006 2005/06 YTD 07 2007P Total Beef Production (billion lbs) 3.64 3.50 3.50 -- - 3% 3.4 Fed Beef Production (‘000 lbs) 2,850 2,922 2,858 - 2.2% - 3% 2,775 Fed Cattle Mktgs – Slaughter (‘000 hd) 2,948 3,314 2,813 - 16% - 6% 2,654 Fed Cattle Mktgs – Export (‘000 hd) 573 319 696 + 118% + 14% 791 Non-fed Beef Production (‘000 lbs) 705 498 575 + 15% - 4% 553 Cow Mktgs – Slaughter (‘000 hd) 536 641 751 + 17% - 4% 722 Cow Mktgs – Export (‘000 hd) 372 ------Beef Cow Culling Rate 13.9% 6% 9.2% -- -- 11.2% Volume in Carcass Weight

Canadian beef production volumes account Canadian cow herd is capable of producing. for both domestic slaughter and net live Canadian beef production reached near record slaughter cattle exports, in order to provide levels in 2005 at 3.5 billion pounds. After industry with an understanding of what the observing a strong recovery in 2005 beef

Market Context 17 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT production levels remained steady in 2006. shifted from 91 per cent of fed beef The first six months of 2007 have seen beef production slaughtered in Canada in 2005 to production down, with total beef production 80 per cent of fed beef production being projected to decrease three per cent to 3.4 slaughtered in Canada in 2006. billion pounds. Total fed cattle marketings also decreased While total beef production saw a strong slightly from 3.6 million head in 2005 to 3.5 recovery in 2005 and 2006, it is important to million head in 2006. The drop in fed cattle look at what portion of production was marketings in 2006 was a result of the domestic slaughter as opposed to slaughter resumption of live cattle trade to the U.S., and cattle exports. In 2006 beef production the large number of feeder cattle that were derived from domestic slaughter actually subsequently exported during the second half decreased 9.4 per cent from 3.17 billion of 2005 and throughout 2006. Feeder cattle pounds in 2005 to 2.87 billion pounds, with exported to the U.S. are essentially removed the increase in total beef production a result from the 2006 Canadian beef production of increased slaughter cattle exports. scenario as they are no longer available to be Slaughter cattle exports more than doubled fed or slaughtered in Canada. Even though between 2005 and 2006, reducing the number fed cattle marketings were reduced in 2006, an of animals available for domestic slaughter. increase in carcass weights boosted fed beef production. Steer carcass weights averaged In 2007 beef production from domestic 841 pounds in 2006 which is up 14 pounds slaughter is expected to fall 6.1 per cent to from 2005. 2.69 billion pounds, while beef production from slaughter cattle exports is expected to Canadian Fed Beef Production increase 12.4 per cent to 636,000 pounds. 3500 Lower total beef production levels in 2007 3000 can be attributed to an overall reduction in 2500 cattle marketings. Cattle marketings (domestic slaughter plus slaughter cattle 2000 exports) are expected to fall 2.3 per cent to 1500 4.23 million head, with the decrease in 1000 domestic slaughter marketings to 3.43 million Pounds of Millions 500 head more than offsetting the increase in slaughter cattle exports. 0 80 83 86 89 92 95 98 01 04 07p

Sour ce: CanFax Fed Beef Production Into 2007 fed beef production is expected to Fed beef production decreased two per cent decline three per cent to 2.78 billion pounds. from 2.92 billion pounds in 2005 to 2.86 A combination of reduced fed cattle billion pounds in 2006. In addition to a slight marketings and carcass weights are the main decrease, the proportion of fed beef reasons beef production is expected to production that was domestically slaughtered decrease in 2007. Fed cattle marketings are decreased. Fed cattle marketings for domestic projected to fall 1.8 per cent to an estimated slaughter decreased 15.1 per cent in 2006 to 3.45 million head in 2007. This decline in 2.81 million head, whereas fed cattle exports marketings can be attributed to continued to the U.S. more than doubled in 2006 to increases in feeder cattle exports to the U.S. in 696,500 head. In effect, fed beef production 2007, which have removed these animals from

Market Context 18 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

the 2007 beef production scenario. Carcass Canadian Non-Fed Beef Production weights are also projected to decrease in 2007 800 as higher costs of gain in feedlots increase finishing costs and encourage more aggressive 700 marketing of fed cattle. 600 500 400 Canadian Fed Cattle Marketings 300

Slaughter Export MillionPounds 200 4000 100 0 3000 80 83 86 89 92 95 98 01 04 07p

Source: CanFax

2000 In 2007 non-fed beef production is expected to decrease four per cent to 553 million

ThousandHead 1000 pounds. The decrease in non-fed production is mainly attributed to a reduction in slaughter 0 cow marketings which are projected to 85 88 91 94 97 00 03 06 decrease to 722,000 head in 2007. Part of this Source: Statistics Canada, CanFax, AAFC decrease can be attributed to the fact that a significant number of cull cows that were In addition to a projected decline in fed cattle being retained within the herd due to low cow marketings, the composition of fed cattle prices went to market in 2006. This reduced marketings and consequently fed beef beef cow inventory levels and lessened the production has continued to shift in 2007. number of culls that are likely to be marketed The volume of Canadian fed beef production in 2007. Expectations that Rule 2 (which projected to be exported as slaughter cattle is expected to increase, while fed beef Canadian Cow Marketings production derived from domestic slaughter is Slaughter Export expected to decrease. This will have a 1200 negative impact on the net beef supply and the volume of beef available for export in 1000 2007. 800

600 Non-Fed Beef Production 400 Thousand HeadThousand The increase in total beef production in 2006 200 was mainly a result of the large increase in 0 non-fed beef production (cows and bulls). 80 83 86 89 92 95 98 01 04 07p Production of non-fed beef, also known as Source: Statistics Canada, CanFax, AAFC commercial beef, increased from 498 million pounds in 2005 to 575 million pounds in would allow for importation of over-30- 2006. Domestic cow slaughter increased 17 month cattle and beef to the U.S.) would be finalized in late 2007 may have encouraged per cent in 2006, with 752,000 cows being processed. This is the largest domestic cow producers to retain cull cows with the expectation that the border opening would slaughter since 1986 when 806,000 cows were processed. result in an increase in cow prices. With the reality that Rule 2 will only be finalized in late

2007, slaughter cow marketings could rise

Market Context 19 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT above current projections, which would in Canadian Beef Cow Culling Rate turn result in an increase in non-fed beef 20% production projections for 2007. 15 yr average = 9.9% 15% Beef Cow Culling Rates 10% With the 2006 cow slaughter the largest in 20 5% years, the beef cow culling rate (percentage of beef cows removed from the herd) returned 0% to more normal levels at nine per cent. With 80 83 86 89 92 95 98 01 04 07p the occurrence of BSE in 2003 and Source: CanFax subsequent border closure, the market for cull cows virtually disappeared and producers 2006 with the cull rate sitting just below the chose to retain them within the herd instead 15-year average. Expectations for 2007 are of marketing them. The 15-year average that the annual cull rate will continue to culling rate sits at 10 per cent and in 2003 and increase to an estimated 11.2 per cent, as cow 2004 the beef cow cull rate declined to six per slaughter remains strong and the beef cow cent and four per cent respectively. The herd decreases in size. industry saw a significant improvement in

Domestic Slaughter & Grading

2005 2006 2005/06 YTD 07 2007P Total Canadian Federal Cattle Slaughter (‘000 head) 3,660 3,331 - 9% - 3% 3,230 Total Canadian Slaughter Capacity (head/week) 95,472 99,912 + 6% + 3 % 103,200 Utilization of Canadian Slaughter Capacity 80% 69% -- -- 66%

In 2006 Canadian cattle slaughter (federally Canadian Cattle Slaughter inspected, provincially inspected, and (Federally Inspected Packing Plants) uninspected) totalled 3.63 million head, down 5.0

9.8 per cent from 2005 when 4.03 million 4.5 head were slaughtered. Federally inspected cattle slaughter decreased from 3.66 million in 4.0 2005 to 3.33 million in 2006. Reduced 3.5

domestic slaughter in 2006 can be partially HeadMillion attributed to the resumption of live cattle 3.0 exports to the U.S. in July 2005, which has 2.5 resulted in the subsequent export of large 70 73 76 79 82 85 88 91 94 97 00 03 06 numbers of both fed and feeder cattle to the Source: CanFax, Stats Canada, AAFC U.S.

Steer slaughter was 16 per cent lower in 2006, steer and heifer slaughter are four per cent while heifer slaughter was 14 per cent below and eight per cent below 2006 levels 2005 levels. Meanwhile, cow slaughter was up respectively, while cow slaughter is down four 17 per cent in 2006. In the first half of 2007 per cent.

Market Context 20 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

76 per cent of total marketings will be Canadian cattle slaughter is expected to slaughtered domestically. While this remains continue to decline in 2007 with current above the 10-year average, the decline in estimates showing a 5.4 per cent reduction in domestic slaughter as a proportion of total total slaughter to 3.44 million head. marketings has implications on the utilization Reductions in domestic slaughter in 2007 are of Canadian slaughter capacity. a result of three major factors including: 1) the large number of fed and feeder cattle Since 2003 slaughter capacity in Canada has exports moving into the U.S. that are expanded as existing plants have increased subsequently unavailable for domestic capacity and new plants have come on line. slaughter, 2) higher relative labour costs for Total Canadian weekly slaughter capacity has Canadian plants and a lack of labour to fill all increased from 83,000 head in 2004 to positions, and 3) the implementation of the 103,000 head per week in 2007. While weekly enhanced feed ban in Canada that has resulted slaughter capacity has increased, utilization in higher relative costs for Canadian processors. Canadian FI Slaughter vs Capacity Actual Capacity Slaughter Capacity & Utilization 110000 100000

The difference between total cattle marketings 90000 and federally inspected slaughter narrowed 80000 significantly in 2003 and 2004 when live cattle 70000 trade was restricted. With the resumption of # of h ead live cattle trade in 2005, a more normal spread 60000 has emerged. The 10-year average (93-02) for 50000 federally inspected slaughter as a percentage 40000 of total marketings has been around 74 per F eb-0 7 F eb-0 6 F eb-0 5 O ct-0 6 Dec-0 6 Apr-0 7 O ct-0 5 Dec-0 5 Apr-0 6 cent. In 2003 this percentage increased to 85 O ct-0 4 Dec-0 4 Apr-0 5 J un-0 6 J un-0 5 A ug -0 6 A ug -0 5 per cent and in 2004 it increased further to 90 per cent. With the resumption of live cattle has decreased from 80 per cent in 2005 to 69 trade the proportion of marketings per cent in 2006 and 66 per cent in the first slaughtered in federally inspected plants six months of 2007. Lower utilization rates dropped to 84 per cent in 2005 and to 77 per have a negative impact on processors’ Canadian Cattle Marketings vs FI Sltr operating costs (per head) and consequently 5.0 their profitability. While physical capacity has remained constant in 2007, certain plants have 4.5 reduced their kill or switched to processing

4.0 other livestock in order to minimize losses associated with lower utilization rates. 3.5 In addition to having access to fewer slaughter

Million Head Million 3.0 cattle marketings due to strong live cattle Marketings 2.5 exports to the U.S., processors have struggled Slaughter to maintain high utilization rates as a result of 2.0 70 75 80 85 90 95 00 05 the labour shortage that is concentrated in Alberta but also occurring throughout the rest cent in 2006. Expectations for 2007 are that of Canada. Costs associated with processing

Market Context 21 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT Breakdown of A, AA and AAA Grades animals have increased due to higher wage % of Canadian Total A Grades - 2007 ytd rates and even in light of higher wage rates, A Prime plants have struggled to procure adequate 3.8% 1.0% levels of labour to meet their needs.

Composition of Slaughter & Grading AA AAA 46.4% 48.8% Source: CBGA The composition of slaughter has shifted in the last year with the proportion of fed slaughter declining and being replaced by months of 2007, non-fed slaughter continued non-fed (cow and bull) slaughter. In 2005 to account for 23 per cent of total slaughter. non-fed slaughter made up 18 per cent of In 2006 86 per cent (2.84 million head) of all total slaughter, whereas in 2006 non-fed Canadian federally inspected kill was graded. slaughter accounted for 23 per cent. The In the first six months of 2007, 87 per cent of increase in non-fed slaughter can be solely slaughter was graded, with 1.24 million A attributed to the large increase in cow grade carcasses. Of total A grade carcasses, slaughter in 2006, with cow slaughter shifting Prime made up one per cent, AAA from 16 per cent of total slaughter in 2005 to represented 48.8 per cent, while AA and A 21 per cent in 2006. Within the first six grades totalled 46.4 per cent and 3.8 per cent respectively.

Prices

$/cwt 2002 2005 2006 2005/06 YTD 07 Alberta Fed Steer Price $98.82 $85.58 $86.76 + 1.4% + 7% Fed Basis (AB/Nebraska) - $6.79 - $20.88 - $10.51 - 50% - $11.09 Alberta 850 lb Feeder Steer Price $111.43 $103.62 $106.54 + 3% - 6% 850lb Feeder Basis (AB/NB) - $14.04 -$29.43 - $15.83 - 46% - $18.87 Cow Price $58.91 $29.20 $36.13 + 24% + 10% AAA Cutout Values $188 $171 $169 - 2% + 7% AA Cutout Values $178 $163 $160 - 2% + 9% AAA/Choice Spread -- $5.09 - $2.32 -- - $5.13

Fed Cattle Prices Canadian Fed Steer Prices Alberta and Ontario fed steer prices in 2006 Alberta Ontario averaged $86/cwt and $93/cwt respectively, a $130 price increase of $1.18/cwt and $2.41/cwt $110 from 2005. In general, 2006 prices remained below the 1998-2002 average but above 2005 $90 prices, except for in the fall when fed prices $/cwt $70 failed to rally and went against the historical price trend. Increased average fed cattle $50 prices in 2006 were a result of an open border with the U.S. for under-30-month cattle $30 J/98 J/99 J/00 J/01 J/02 J/03 J/04 J/05 J/06 J/07 exports. Source: CanFax

Market Context 22 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Alberta Fed Steer Basis for both 2006 and year-to-date in 2007, the Alberta/Nebraska in Cdn $ (Cash to Cash) basis has been wider than the 1998-2002 5 yr avg (98-02) 2006 2007 average. This wider basis can be attributed to $5 a strong Canadian dollar, strong demand for $0 fed cattle in the U.S., and increased export

($5) verification costs. A wide basis has encouraged fed cattle to be exported to the ($10) U.S. Cdn $ per cwt per $ Cdn ($15)

($20) Feeder Cattle 1 5 9 13 17 21 25 29 33 37 41 45 49 Source: CanFax Week Feeder cattle prices were strong in 2006, with average prices for 850lb steers in Alberta and Fed cattle exports continued to gain strength Ontario at $106/cwt and $109/cwt throughout 2006, which resulted in a tighter respectively. This was an increase of $3/cwt carry-over coming into 2007. Consequently, and $5/cwt respectively when compared to prices from January to June 2007 are up $6- 2005 price levels. In 2007 feeder cattle prices 7/cwt compared to 2006 prices of $93/cwt have traded in a narrower range with 850lb and $99/cwt for Alberta and Ontario steers. steers trading between $93/cwt and $103/cwt A tight fed cattle supply in the U.S. combined in 2007, as compared to 2006 when they with strong domestic demand has continued traded in the $94-116/cwt range. When to support fed cattle prices in 2007. compared to 2006, feeder cattle prices have dropped off during the first six months of The Alberta to Nebraska cash to cash basis 2007 with the average 850lb steer price for narrowed from -$21/cwt in 2005 to -$10/cwt Alberta and Ontario sitting at $99/cwt and in 2006. The narrowing of the cash to cash $105/cwt respectively. The main reason basis can be attributed to the resumption of feeder cattle prices have decreased in 2007 is live cattle exports in the second half of 2005. due to higher feed prices caused by strong The resumption of live cattle exports demand for feed grains from the growing increased competition for fed cattle and ethanol industry. Last fall corn and barley caused the two markets to move to arbitrage. prices increased due to high ethanol demand Between January and June 2007 the basis has in the U.S. More recently, strong world barley followed similar trends to that seen in 2006 demand has sustained Canadian barley prices with a May and June basis narrower than the even though U.S. corn prices have dropped 1998-2002 average for both years. However back to the $3.25/bushel range. Barley prices were $172/tonne in June, a 12 per cent Alberta vs Ontario 850 Feeder Steer Price increase from the beginning of the year. Alberta Ontario The 850lb feeder steer basis narrowed from $140 -$29/cwt in 2005 to -$16/cwt in 2006. $120 Similar to the trend seen for fed cattle, the narrower basis in 2006 can be attributed to $/cwt $100 the resumption in live cattle exports that $80 increased competition for feeder cattle. However the basis has been wider throughout $60 the first half of 2007, averaging -$19/cwt due Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

Market Context 23 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Alberta 850 lb Feeder Steer Basis However, Eastern Canadian cow slaughter is

5 yr avg (98-02) 2006 2007 down 24 per cent making year-to-date Canadian cow slaughter similar to what was $0 seen in 2006. When compared to 2002 annual ($5) average cow price of $58/cwt, current prices ($10) are still below historical pre-BSE levels. With the continued closure of the U.S. border to

Cdn $ per cwt per $ Cdn ($15) animals over-30-months domestic packers ($20) have limited competition for Canadian cow ($25) supplies, which has resulted in the continued Jan Mar May Jul Sep Nov suppression of cow prices below pre-BSE Source: CanFax Month levels. to strong demand for feeder cattle in the U.S. Historically the 850lb basis narrows in the Boxed Beef Cutout Values spring and in 2007 this trend has remained consistent, with the basis narrowing in May Average AAA boxed beef cutout values and June to be similar to 2006 levels. For the decreased from $171/cwt in 2005 to last two years the basis has been wider than $169/cwt in 2006. Average AA cutout values the five year pre-BSE average, which has followed a similar trend, decreasing in value encouraged feeder cattle to move south into from $163/cwt in 2005 to $160/cwt in 2006. the U.S. The first half of 2007 saw cutout values strengthen to $179/cwt for AAA cutouts and Cow Prices $173/cwt for AA cutouts.

Cow prices have made a strong recovery in Canadian Weekly AAA Cutout Values 2006 from BSE price lows. In 2006 cow 2006 2007 3 yr avg prices were up $7/cwt from 2005 at $36/cwt. 200 Prices were supported by strong demand 190 from domestic processors with 2006 seeing a 17 per cent increase in cow slaughter. The 180 first half of 2007 saw another increase in cow $/cwt 170 prices to $39/cwt. Prices have increased 31 160

per cent from $32/cwt in January to $42/cwt 150 in June. Western Canadian cow slaughter is 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 14 per cent above the same period in 2006. Source: CMC, CanFax

Western Canadian D1, D2 Cow Prices Historically, cutout values typically peak in 70 May when demand is strong due to the 60 barbecue season beginning; cutout values then

50 fall throughout the summer and level off in the fall. In 2006 AAA cutouts saw a 40 countercyclical trend with cutout values $/cwt 30 struggling throughout the spring and 20 strengthening into the summer when they

10 reached a high of $176/cwt. Spring lows in 2006 were the result of multiple influences – 0 Avian flu resulted in a large supply of poultry 76 79 82 85 88 91 94 97 00 03 06

Market Context 24 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

on the market, and simultaneously, large traded consistently below 2006 levels. The supplies of hogs were available. Depressed average chuck primal value decreased from prices of competing meats had a negative $1.18/lb in 2005 to $1.07/lb in 2006, while influence on beef demand and therefore beef the average round value decreased from cutout prices. Summer highs were supported $1.43/lb to $1.31/lb during the same time by strong domestic demand for Canadian period. These primal values have beef. strengthened moving into 2007, with January to June averages at $1.19/lb for the chuck and In the first seven months of 2007 the AAA $1.38/lb for the round – up from $1.09/lb cutout has followed a more historical trend and $1.31/lb respectively for the same period with cutout values reaching a high of in 2006. $187/cwt in May. Strong domestic demand for Canadian beef has continued to support In this chart the U.S. cutout has been cutout prices. An appreciating dollar also converted to Canadian dollars to allow for increases boxed beef cutout values compared comparison between the two markets. A to the U.S. cutout when converted to U.S. negative value indicates the Canadian cutout dollars. was at a premium to the U.S. cutout.

The chart below shows the year-over-year per US Choice/Canadian AAA spread cent changes in the various AAA primal 80 values between 2005 and 2006. Increase in primal values for both ribs and loins carried 60 the boxed beef value in 2006, with year-over- 40 year changes mostly negative for both round 20 and chuck primals. In 2006 primal rib and $/cwt Cdn 0 loin values were higher at $2.72/lb and $3.23/lb compared to 2005 prices of $2.67 -20 and $3.06. For the first six months of 2007 Jan-04 Jan-05 Jan-06 Jan-07 Sep-03 Sep-04 Sep-05 Sep-06 the cutout has seen primal rib values remain May-03 May-04 May-05 May-06 May-07 steady with 2006 levels at $2.74/lb. So urce: CMC, USDA Meanwhile, loin values have strengthened in 2007, running five per cent higher at $3.49/lb Generally speaking, wide U.S. premiums were when compared to the same time period in apparent throughout 2003 when the U.S. 2006. In 2006 primal chuck and round values border remained closed to both beef and cattle. This gap has narrowed with the Year/Year % Change in AAA Cutout Value of opening of the border to under-30-month Various Beef Primals beef and cattle in late 2003 and mid-2005. Chucks Ribs Loins Rounds The Canadian AAA cutout actually traded at a 30% premium to U.S. Choice in the second and third quarter of 2006 and again in the second 20% quarter of 2007. The U.S. Choice/AAA 10% spread typically narrows in the second quarter

0% with the Canadian AAA cutout at a premium in the third quarter before narrowing again in -10% the fourth quarter; this trend has held true for -20% 2006 and the first half of 2007.

7-Jul-06 7-Jan-06 7-Jun-06 7-Feb-06 7-Sep-06 7-Oct-06 7-Apr-06 7-Aug-06 7-Dec-06 7-Mar-06 7-Nov-06 7-May-06

Market Context 25 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

The Canadian AA cutout has traded at a U.S. Select/AA spread typically narrows in the premium or been at par with the U.S. Select second and fourth quarters with the Canadian cutout throughout 2006 and the first half of AA price gaining compared to U.S. Select. As 2007. Prior to June 2005 the U.S. Select above, strong demand for Canadian beef has cutout traded at a premium to the AA cutout. supported this market in 2007. Similar to the U.S. Choice/AAA spread, the

Exchange Rate Monthly Canadian Dollar Throughout 2006 the Canadian dollar Jan 90 to current continued to appreciate and reached a 30-year $0.95 high in 2007. The strong Canadian dollar has $0.90 been a result of a generally weaker U.S. dollar, $0.85 rising commodity prices, and capital inflows $0.80 related to mergers and acquisition activity. The U.S. current account deficit, which hit 6.5 $0.75 $0.70 per cent of GDP in 2006, resulted in the U.S. Terms US - $ Cdn dollar depreciating about 20 per cent on a $0.65 trade weight basis, including a 50 per cent $0.60

drop against the Euro and nearly 40 per cent J/90 J/91 J/92 J/93 J/94 J/95 J/96 J/97 J/98 J/99 J/00 J/01 J/02 J/03 J/04 J/05 J/06 J/07 against Sterling. Elevated commodity prices Source: Bank of Canada and the capital flows they trigger into Canada’s resource sector have supported the rate appreciates by one per cent, cattle loonie’s rapid climb. Canada has benefited and beef prices decrease by one per cent. from over $200 billion in inbound merger and acquisition activity with future potential in the At the same time, research demonstrates that energy sector. Thanks to the oilsands, Canada the exchange rate does not have a direct represents 50 to 60 per cent of investable oil impact on beef and cattle trade. While this is reserves in the world. Firm oil prices that contrary to the belief that a depreciating support the Canadian dollar put pressure on currency results in greater exports and an non-resource export commodities like grains appreciating currency results in less exports, and beef prices. the continued strength in live cattle exports and beef trade despite an appreciated dollar The beef industry and other export-oriented provide support to research findings. Instead, industries have been significantly challenged exchange rate impacts are directly reflected in by the appreciated dollar. From feeder cattle prices in the domestic market with an through to beef cuts, as well as grain, appreciated dollar resulting in lower Canadian Canadian prices are determined by U.S. prices cattle and beef prices. due to the ability to arbitrage in an open North American market. The exchange rate An appreciated Canadian dollar also has a plays a direct role in commodity pricing in the significant impact on the competitiveness of Canadian beef industry, with a highly Canadian packers relative to their U.S. correlated inverse relationship between the counterparts. When U.S. operations evaluate exchange rate and cattle and beef prices. their Canadian plants, the Canadian dollar is Research has shown that as the exchange converted to U.S. dollars. When comparing packing plant costs at the margin on a U.S.

Market Context 26 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT dollar basis, an appreciating Canadian dollar align their operating costs to improve their makes Canadian plant costs higher and erodes competitive position, which is a challenge in their competitiveness when compared to their light of current labour shortages that have U.S. counterparts. The appreciating dollar has resulted in higher labour costs. meant Canadian packers must more closely

Trade

2002 2005 2006 05/06 YTD 07 2007P Canadian Beef Exports (MT) 521,467 458,384 368,095 - 20% + 6% 389,077 Canadian Beef Exports (million $) $2,221 $1,853 $1,332 - 28% + 6% $1,406 % of Beef Production Exported 58% 44% 45% -- -- 50% Fed Cattle Exports (‘000 head) 1024.38 319.12 703.83 -- + 14% 802.36 Feeder Cattle Exports (‘000 head) 574.91 274.46 327.06 -- + 13% 367.94 Volume in Product Weight

Canadian Beef and Cattle Exports

In 2006 Canadian exports of beef and live Canadian Beef and Cattle Exports cattle were up nine per cent from 621,500 1200 4.50 Kilograms tonnes in 2005 to 679,000 tonnes in 2006. 4.00 1000 $ Value The total value of beef and live cattle exports 3.50 remained constant in 2006 at $2.51 billion. 800 3.00 With beef exports in 2006 down 20 per cent 2.50 600 from 2005, the increase in total exports in 2.00 Billion$

2006 was made up entirely of live cattle MillionKgs 400 1.50 exports to the U.S. Since live cattle began 1.00 200 moving across the border in July 2005, the 0.50 Canadian industry has seen the resumption of 0 0.00 live cattle trade to more normal levels. 1994 1996 1998 2000 2002 2004 2006

In the first full year of the U.S. border being which have been caused by high labour costs reopened to Canadian live cattle exports, fed and labour shortages, have meant lower and feeder cattle exports continue to increase. domestic slaughter – and encouraged fed In 2006, 704,000 head of slaughter cattle and cattle to move to the U.S where strong beef 327,000 head of feeder cattle were exported. demand has fuelled increased slaughter and Expectations are for both fed and feeder competitive bidding for Canadian cattle. cattle exports in 2007 to be up another 14 per cent and 13 per cent respectively, with fed Feeder cattle exports have also increased as a cattle exports projected to total 802,000 head result of labour shortages in the feeding and feeder cattle exports projected to total industry. (In some cases feedlots are not 368,000 head. Several factors have been operating at capacity and are bidding less involved in the continued strength of fed and aggressively for cattle due to labour feeder cattle exports to the U.S. Struggling challenges.) As well, demand for feeder cattle utilization rates in domestic slaughter plants, has been very strong in the U.S. While strong

Market Context 27 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Canadian Cattle Exports Canadian Beef Exports 1800 U.S. Japan Mexico S. Korea Other 1600 1400 Feeder 600 1200 Slaughter 500 1000 400 800 300 600 200 Thousand Head . Head Thousand 400 Thousand100 Tonnes 200 0 0 84 86 88 90 92 94 96 98 00 02 04 06 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007p Source: Statistics Canada, AAFC, CanFax Source: Statistics Canada, AAFC, CFIA

market signals in the U.S. provided indications Canadian Volume and Value of Beef that the beef herd should be expanding, Exports drought throughout many major beef cattle producing regions has discouraged expansion Beef exports in 2006 were down 20 per cent and in fact resulted in the cattle herd to 368,000 tonnes, while the value of beef contracting slightly. Thus, U.S. feeders have exports declined 28 per cent from $1.85 responded to market signals by procuring billion in 2005 to $1.33 billion in 2006. increased volumes of Canadian feeder cattle. Reduced beef exports in 2006 are a consequence of reduced available supplies for To evaluate the proportion of beef exports resulting from reduced domestic beef production that is exported, total beef exports slaughter and strong domestic demand. As and slaughter cattle exports are considered discussed previously, with the resumption of against total beef production. In 2006, fed and feeder cattle exports to the U.S., exports continued to climb accounting for 50 domestic fed cattle slaughter was down per cent of total beef production. significantly in 2006.

This reduced the amount of beef slaughtered domestically and available for consumption or export. While non-fed production did % Total Beef Production Exported increase substantially in 2006, the majority of (incl slaughter cattle exports) Canada’s export markets remain closed to 70% over-30-month product and as a result the 60% bulk of non-fed beef produced is being 50% consumed domestically instead of being 40% exported.

30% When beef exports are considered as a per 20% cent of total domestic beef production 10% (excluding slaughter cattle exports), beef 0% exports as a per cent of production declined 82 84 86 88 90 92 94 96 98 00 02 04 06 from 40 per cent in 2005 to 34 per cent in Source: CanFax Research Services 2006. The decrease in share of beef production exported can be attributed to

Market Context 28 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

trade restrictions in many other export Beef Exports as a % of Domestic Beef Production markets that Canada previously accessed. In (excl. slaughter cattle exports) 2006 the U.S. imported 298,000 tonnes of 60% Canadian beef, down 20 per cent from the 50% previous year. In 2007 beef exports volumes 40% to the U.S. are up five per cent, while export

30% values are running four per cent higher.

20% Mexico is the second largest export market 10% for Canadian beef, importing 11 per cent of 0% total Canadian beef export volumes in 2006. 1990 1992 1994 1996 1998 2000 2002 2004 2006 Imports to Mexico decreased 23 per cent in 2006 to 40,200 tonnes, but have shown a strong recovery in 2007 with imports from strong domestic demand for beef, which Canada up 11 per cent in the first six months. increased three per cent, combined with the The third largest market for Canadian beef large reduction in domestic beef slaughter that continues to be Hong Kong and Macau. In occurred in 2006. 2006 Hong Kong and Macau imported 15,300 tonnes of Canadian beef, four per cent of The first six months of 2007 have seen an total Canadian beef exports. While Canadian increase in overall beef exports, with both the beef is being exported to Japan, stringent total volume and value up six per cent from exporting rules and the need to age verify last year. Beef exports for 2007 are currently cattle has limited the amount of product projected to total 389,000 tonnes valued at moving into this market. In 2006 beef $1.41 billion. exports to Japan totalled 2,100 tonnes, which is about nine per cent of what was exported to Canadian Beef Exports, 2006 Japan in 2002 (24,000 tonnes). Mexico Other Hong Kong & 11% 4% Macau Canadian Beef Imports 4% In 2006 Canada imported 135,000 tonnes of beef, an increase of 22 per cent from 2005. Beef imports in 2006 still remain well below the 252,000 tonnes that was imported in 2002. The majority of the increase in beef imports U.S. in 2006 was a result of higher U.S. beef 81% Source: Statistics Canada Canadian Beef Imports

U.S. Aust N.Zealand Argentina Uruguay Other 300 The United States continues to be the largest 250

importer of Canadian beef, accounting for 81 200 per cent of our beef exports. The U.S. share of Canadian beef exports has increased 150 considerably since 2002 when only 70 per Million Kgs 100 cent of beef exports were shipped to this 50 market. The shift in market share is partially 0 attributed to continued border closures and 98 99 00 01 02 03 04 05 06 07p Source: Statistics Canada, AAFC, CanFax Market Context 29 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT shipments into Eastern Canada. Imports U.S. has continued to export higher levels of from the U.S. reached 88,000 tonnes, almost beef products into Eastern Canada; double 2005 U.S. imports of 46,800 tonnes. expectations are that U.S. imports will be 17 per cent higher in 2007 to total 103,000 Imports from Australia were up slightly in tonnes. If U.S. imports remain strong and 2006 to 10,000 tonnes, while imports from all reach 103,000 tonnes in 2007, this would put other non-NAFTA countries were down with U.S. imports at their highest level in over 10 product being displaced by strong domestic years. Year to date, imports from Australia non-fed beef slaughter. The first six months and New Zealand remain below last year of 2007 have seen beef imports running 17 levels, while imports from both Brazil and per cent higher than year ago levels. Current Uruguay are running 35 per cent and 179 per projections are for beef imports to total cent above year ago levels. 158,000 tonnes in 2007. The

Market Access Situation and Outlook

The following is the current list of trading partners which have resumed trade in Canadian beef and/or cattle subsequent to the border closures following Canada’s first BSE case in May 2003:

UTM = under-30-month product / U21M = under-21-month product / OTM = over-30-month product Selected Beef Products Live Embryos UTM boneless UTM boneless U21M OTM offal No Cattle and and offal boneless, and Market for Semen bone-in and all UTM All Beef Access Breeding Only offal Products ◊ India ◊ Algeria ◊ China ◊ Hong Kong & ◊ Philippines ◊ Japan ◊ United ◊ Macau ◊ Morocco ◊ South Korea Macau ◊ Antigua & States ◊ New Zealand ◊ Kazakhstan ◊ Australia ◊ Vietnam Barbuda ◊ Mexico ◊ Cuba (& all ◊ Tunisia (all ◊ Argentina ◊ Thailand ◊ Cayman cattle) live cattle) ◊ Brazil ◊ Egypt (& live cattle) Islands ◊ EU (hormone- ◊ Uruguay ◊ United Arab Emirate free beef ◊ Turkey ◊ El Salvador products only, subject to plant ◊ Ukraine (& ◊ Guatemala certification) breeding ◊ Honduras ◊ Bermuda cattle) ◊ Jamaica ◊ Barbados ◊ Romania ◊ St. Kitts & Nevis ◊ Bahrain ◊ South Africa ◊ Taiwan ◊ Russia (& breeding cattle) ◊ Lebanon (& live cattle) ◊ Trinidad & Tobago ◊ Macedonia

Increasing level of trade access

Market Context 30 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Market access for Canadian beef exports from animals of all ages and bone-in product continues to expand as new markets open and from animals that are under-30-months of expanded access is gained in those markets age. While the Philippines is a relatively small that were already open to a limited list of market for Canadian beef, continued products. The ultimate success of the movement forward in gaining access to Canadian beef industry is dependent on access markets and expanding access within existing to all markets for all products, and Canada has markets is a positive step for the Canadian regained at least partial access to seven of beef industry. what were its top 10 export markets in 2002. The Canadian industry continues to wait for Most recently the industry has seen the Rule 2, which would allow for greater access reopening of Taiwan for boneless beef from for Canadian beef and cattle to the United animals under-30-months of age. Prior to States. It is anticipated that Rule 2 will be 2003 Taiwan was Canada’s fifth largest beef finalized in late 2007 or early 2008. The export market with 8,000 tonnes (valued at Canadian government has also been engaged $42 million) being shipped in 2002. It is an in discussions regarding a free trade important market for middle meats such as agreement with South Korea. Indications strip loin, rib eye, etc. – and has historically from government officials are that this could offered the highest value per kilogram of beef be finalized in the near-term. The Canadian exported. With the U.S. focusing heavily on Cattlemen’s Association continues to lobby the Korean market, there may be significant for resumption in beef trade prior to the free opportunity for Canadian packers in Taiwan. trade agreement being signed, and it is Canada has also recently seen an expansion of positive that South Korea has now begun the access in markets such as the Philippines process to lift the ban on Canadian beef. which is now allowing boneless products

Market Context 31 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT Canadian Industry Support for the Value Proposition - The Overarching Performance Measure

This performance measurement is defined in the Strategic Marketing Plan as “Canadian industry support for / buy- in to the value proposition (measured by Canadian industry investment in implementing the value proposition across the Canadian value chain)”.

Increasing Industry Awareness of the Value Proposition

Positioning the industry as a world leader in will continue to be of utmost priority in animal health and beef safety requires a coming years. In order to increase industry coordinated approach across the value chain. support and buy-in for the value proposition, With the approval of the Strategic Marketing it is critical to first ensure that producers Plan in March 2006, the industry now has a understand what it means to be a leader in responsibility to focus on implementing animal health and food safety, how that will significant and demonstrable animal provide a more sustainable market position in production, health and beef safety our export markets, and what the implications enhancements and systems. The leadership at are to producers. In addition, the industry the Canadian Cattlemen’s Association (CCA) must be prepared to make an investment in has committed to further implementing the the infrastructure and processes required to value proposition across the industry and this achieve this goal.

Communications

This will require a coordinated To address this challenge, the CCA’s 2007 communications effort to raise awareness of annual convention had as its theme Celebrating the value proposition. In September 2006, 75 Years – Looking Back and Stepping Forward. the Strategic Marketing Plan was presented to The speakers at the convention focused on the National Beef Communicators Working the benefits of implementing changes that Group. This group includes the would move the industry forward and the communications professionals from the challenges in doing so. The speakers included provincial and national beef cattle researchers such as Dr. Jill Hobbs from the organizations and affiliated organizations, University of Saskatchewan to discuss such as the Beef Information Centre, Canada traceability; Terry Grajczyk, national manager Beef Export Federation, and Canadian Beef of the Quality Starts Here Verified Beef Breeds Council. This was a first step in the Production Program; and an industry panel to development of a coordinated national discuss Canada’s marketing efforts and communications plan that will continue to positioning. The intent of the program was to raise awareness of the value proposition. provide the opportunity for producers to Through articles in Cattlemen magazine, news evaluate for themselves the potential benefits releases, and inclusion in CCA presentations, that could occur in the long-term as a result of a concerted effort has been initiated to inform strategic positioning of the industry. In producers of the Strategic Marketing Plan and addition, the convention brought in expertise the implications to producers. from Meat and Livestock Australia to

Industry Support 32 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT demonstrate, as a case study, how Australia quality assurance programs and a full tracking has positioned itself by focusing on providing system to meet the expectations of their value to its customers – implementing their export markets.

Animal Health Initiatives

Premise Identification and Traceability iii. The technology must be capable of reading ID at a rate which In the past year, the Canadian Cattle accommodates normal commerce Identification Agency (CCIA) has been iv. Tolerance ranges for readability must be working to enhance the already robust ID acceptable to industry standards system in place. The CCA supports the CCIA v. Producer information must remain in their national approach to premises confidential identification and animal movement tracking in Canada which includes the need to allow The CCA is also developing a set of timelines premises registration within the CCIA for the full implementation of a national beef database, with a coordinated effort across all cattle traceability system that will outline the provinces to populate and verify premises steps necessary to have full traceability in a information. The CCIA has now established manner that does not affect commerce. a plan that will see 100 per cent of all current producer accounts include legal land Age Verification descriptions to further enhance the ability of the industry to respond in case of a foreign The Age Verification program is a voluntary animal disease outbreak. program to allow for animal birth date information to be recorded and associated The CCA has also been engaged in industry- with an individual animal identification government discussions on implementing a number through the CCIA. This program is national traceability system. The industry supported and accepted by the Canadian increasingly recognizes that a full animal Food Inspection Agency (CFIA) as an movement tracking system could be a alternative to dentition for domestic meat significant benefit by demonstrating to our inspection purposes and live animal or meat international trading partners that the systems exports. Beef exports to Japan must be age in place in Canada are capable of addressing verified less than 21 months of age, making issues in a timely and efficient manner. the number of age verified cattle available in Recognizing that moving toward a full Canada the limiting factor for Japanese traceability system could potentially be costly exports. and reduce the industry’s competitive positioning, the CCA has established a set of The number of age verified calves recorded by principles for the development of a CCIA was less than 5,000 head on an annual traceability system: basis prior to 2004. Since then the number of age verified calves recorded in the CCIA The scope of traceability for beef cattle: database has increased dramatically, with 1.29 i. Shall not impede or delay commerce million head age verified in 2006. In the first ii. Costs of the system must not result in seven months of 2007, 86,000 head have been the industry becoming non-competitive age verified. However, this is not an accurate representation of the number of animals that

Industry Support 33 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Number of Age Verified Calves assist producers with uploading data into the 1.4 database.

1.2

1.0 Additionally, the CCIA has hired eight mobile

0.8 field representatives throughout Alberta to: 1)

0.6 act as a liaise between auction markets, Million head . head Million producers, and CCIA staff; 2) share 0.4 information with industry stakeholders 0.2 regarding policy deadlines, age verification, 0.0 2003 2004 2005 2006 2007 YTD reader and tag technology; 3) provide industry So urce: CCIA stakeholders with assistance in the use and are likely to be age verified in 2007. Between selection of RFID readers, software and January and April 2007, the CCIA recorded a value-added components; 4) work with 59 per cent increase in birth date entry activity industry stakeholders to troubleshoot as compared to 2006. Historically, producers processes and ensure efficient and effective have submitted over 165,000 birth date operating protocols; and 5) organize and transactions per month to the database. facilitate regional producer meetings to ensure However in October 2006, during fall run ongoing producer education. The province of when most calves are marketed by cow-calf Ontario, through the Ontario Cattlemen’s producers, there was a record-breaking Association and Beef Improvement Ontario, 625,000 birth date submissions. Based on has also hired a number of field 2006 transaction data the number of age representatives to assist producers with verified calves entered into the system in 2007 uploading data and to conduct age verification is expected to rise substantially as we head workshops. into the fall. The Ministry of Agriculture in British Considerable effort has been and will Columbia has also provided support and continue to be made on informing Canadian resources to the CCIA in regards to the age producers of the value of age verification. verification program. The British Columbia The CCA, CCIA, provincial beef cattle Cattlemen’s Association, in partnership with associations, and provincial governments have the provincial government, has conducted collaborated in seeking alternative ways to numerous information sessions across the encourage producers to age verify their calves. province, and is also providing assistance to Within Alberta, the CCIA and Alberta producers to upload data to the database. Agriculture, Food and Rural Development The Saskatchewan Cattle Feeders Association conduct producer age verification workshops has implemented various initiatives and at auction marts, feedlots, field days, etc., to training sessions to encourage and assist demonstrate the age verification system and producers with the submission of age verification information records within the national database.

Food Safety

Verified Beef Production (VBP) is Canada's consumer confidence in the products and on-farm food safety program for beef cattle – good practices of Canada’s beef producers. a dynamic program designed to uphold Quality Starts Here (QSH) was the initial

Industry Support 34 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT program under which Canada's beef on-farm October 2006 to encourage increased food safety effort started. producer participation.

It was a broad education program aimed at The newly revamped program includes less exploring the importance of improved paperwork, simpler auditing procedures, and standards for food safety and quality. VBP increased flexibility to meet individual essentially took on-farm food safety producer needs. Further enhancements requirements developed under QSH and include an online training module under made those requirements HACCP-based and development as another delivery option for auditable, allowing the requirements to be producers. These enhancements now need to recognized by the Canadian Food Inspection be communicated to Canadian producers to Agency. An industry-led program, VBP is a encourage increased participation. The CCA key element in providing verified assurance of leadership recognizes the importance of using good on-farm food safety practices to our the VBP program as a tool in providing customers and contributes to the positioning further reassurance to our customers of the of the Canadian beef cattle industry as a leader systems that are in place for food safety. In in animal health and food safety. this past year, a new website has been launched and a communications strategy Approximately 5,000 producers have taken developed to inform producers of the the workshop to date; however only 232 improvements to the program. These efforts producers have completed the registration will continue as part of the CCA’s overall audit. To help address the low rate of communications strategy. registration, the program was streamlined in

Industry Support 35 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT Genetics

2006 Marketing Targets

The Canadian beef and cattle genetics industry has established a set of marketing targets for sales over the near to medium-term. For this Results Report period, 2006 targets for genetics were:

Volume (units) Semen 250,000 Embryos 10,000 Live Breeding Cattle 0 Value ($ 000) Semen 6,250 Embryos 5,000 Live Breeding Cattle 0 CCMDC Strategic Marketing Plan July 1, 2006

Market Situation and Indicators

Value (million $) 2002 2005 2006 2005/06 YTD 2007 2007P Total $37.00 $16.55 $16.87 + 2% + 44% $24.37 Semen $13.81 $9.12 $7.88 - 14% - 20% $6.37 Embryos $3.48 $7.42 $8.03 + 8% -- $8.00 Cattle $19.71 $0 $0.965 +100% 1000% $10.00 Volume Semen 2,973,470 5,669,081 3,446,739 - 39% 127% 7,821,499 Embryos 10,375 12,189 47,450 + 289% - 64% 17,306 Cattle 11,001 0 191 - 100% 100% 5,280 Source: CFIA, Statistics Canada

Market information and trade data for which reduces the accuracy of this data. Canadian beef cattle genetics is limited due to While efforts are being made to work imperfect and fragmented data collection and closely with AAFC and CFIA to improve reporting processes for purebred cattle, the accuracy and timeliness of Canadian embryos, and semen. This makes it difficult beef cattle genetics data, due to current to establish clear market indicators that can be data limitations it is important that focus used for the genetics industry. It is important be placed on analyzing overall historical to note that data on breeding cattle and trends seen in the data as opposed to embryos does not distinguish between beef individual data points. and dairy. Errors are also commonly made when coding live animal exports (i.e. purebred Exports of Canadian purebred products breeding animals are coded as commercial increased dramatically since 1998, reaching a slaughter cattle or animals for breeding), high of over $112 million in 2002 when captured sales are adjusted to reflect actual

GENETICS 36 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT sales.1 The initial impact of BSE is Market Share of Bovine Semen Exports dramatically evident in the 2003 numbers, U.S. Iran Netherlands which totalled $59 million, a level not seen 100% since 1992. 80%

This graph shows the value of sales that are 60% captured by CFIA and Statistics Canada for 40% purebred cattle, embryo, and semen exports. While exports of purebred cattle previously 20% predominated and made up the major portion 0% of exported genetics, throughout the post- 2002 2003 2004 2005 2006 YTD BSE period bovine semen exports led genetics Source: Statistics Canada 2007 exports. With the continued expansion of market access for purebred cattle in 2007, semen export volumes were recorded at 3.4 genetic exports are projected to increase in million straws. 2007. In 2002, the largest markets for Canadian Genetic Exports Value semen were the U.S., the United Kingdom, Semen Embryo Cattle Total Japan, Germany, France, Spain, and Brazil. $40 Since 2003, semen exports have seen a shift in $30 where Canadian semen exports are going. In 2006 the largest markets, on a value basis, $20 were the U.S., the Netherlands, and Iran. The

Million Cdn $ MillionCdn United States market was valued at $4.7 $10 million in 2006, a 54 per cent drop from $10.1 $0 million in 2002. In 2002 the U.S. dominated 2002 2003 2004 2005 2006 2007p Canadian semen exports, accounting for 73 Source: CFIA, Statistics Canada per cent of the total value of exports. In 2006 U.S. market share has fallen to 59 per cent, Semen while in 2007 the U.S. has again increased its market share accounting for 84 per cent of all Semen exports have decreased in value from Canadian semen exports on a value basis. $13.8 million in 2002 to $7.9 million in 2006. Overall, semen exports in 2006 were down 56 per cent from 2002 values and down 14 per cent from the 2005 value of $9.1 million. In Value of Canadian Semen Exports 2006 semen exports went to 17 countries $16 compared to 22 countries in 2002. Data $14 monitoring the volume of Canadian semen $12 exports is limited; therefore no historical data $10 is available for comparison. In 2006 Canadian $8

Million $ $6 1 It is well-recognized within the industry and $4 government that the reported export value of purebred $2 live animals only captures approximately 20 per cent of $0 actual sales. The official sales values are in the range of 2002 2003 2004 2005 2006 YTD 2007 $36 million in 2002, and have been adjusted to Source: Statistics Canada compensate for purebred sales that are not officially captured.

GENETICS 37 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

The value of exports to the United Kingdom Embryos and Germany peaked in 2004 at $199,000 and $176,000 respectively, before dropping off in Embryos and semen vary significantly in 2006 when no semen exports were reported. quality and therefore the largest valued Japan’s imports of semen from Canada markets are not necessarily the largest volume peaked in 2004 at $1.2 million and have markets. Embryo exports have increased in steadily declined since to $270,000 in 2006. value 131 per cent from $3.5 million in 2002 Reported semen exports to France and Brazil to $8 million in 2006. This represents an have also steadily declined since 2002, with no increase in volume from 10,000 to 47,000 exports reported in 2006, while semen exports embryos over the same period. Embryos to Spain were 53 per cent of 2002 values in were shipped to 33 countries in 2006 2006. compared to 18 countries in 2002.

The Netherlands has steadily increased The largest markets for Canadian embryos in imports of Canadian semen since 2002, 2002 were China, Japan, the U.S., Brazil, and showing a 54 per cent increase from 2005 to Hungary. However, there have been many 2006. Exports reached $1.8 million in 2006 changes in Canada’s embryo export markets. and made up 23 per cent of total Canadian In 2006 the largest markets for Canadian semen exports. The value of semen exports embryos in terms of value were Russia, to Iran doubled to $600,000 from 2005 to Germany, the United Kingdom, and the 2006 – and accounts for seven per cent of all United States. semen exports. The value of Canadian bovine semen to Mexico from January to May in Market Share of Canadian Embryo Exports 2007 is up more than seven times from $3,400 70% China United States Russia in 2006 to $24,605, while volumes are down 60%

44 per cent during the same time period. 50% Year-to-date exports to countries that were sold less than 1,000 straws of semen in 2006 40% are up 450 per cent. Honduras has already 30% quadrupled imports in 2007 compared to total 20%

2006 exports. Year-to-date exports to South 10% Korea are up 67 per cent compared to total 0% volume exported in 2006. 2002 2003 2004 2005 2006 2007-May

Source: Statistics Sixty per cent of embryo export revenues Value of Canadian Bovine Semen Exports were generated from sales to China in 2002 Brazil France Iran Japan South Korea Spain Netherlands at $2.1 million. However, China has 2.0 decreased embryo imports from Canada 1.6 since 2003 with embryo exports valued at $923,000 in 2005 and $300,000 in 2006. 1.2 There have been no exports to China

Million $ Million between January and May 2007. Russia has 0.8 emerged as an important export market for 0.4 Canadian embryos. In 2006 it was the largest market in terms of value at $2.7 million; this 0.0 is up 134 per cent from $1.2 million in 2005. 2002 2003 2004 2005 2006 YTD 2007

Source: Statistics Canada In 2007 exports to Russia were $389,000.

GENETICS 38 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

The United States has been a consistent Seven new countries imported Canadian market for Canadian embryos in terms of embryos in 2006, with 2007 seeing two value, increasing from five per cent share of additional countries added to the list. In 2006 export revenue in 2002 to 10 per cent in 2006. Canadian embryo exports to Germany and U.S. imports grew from $174,000 in 2002 to a the United Kingdom increased in value 40 peak of $775,000 in 2005 and have levelled and 15 per cent respectively, while the volume off at $601,000 in 2006. In 2007 year-to-date of Canadian embryo imports increased five embryo exports to the U.S. are valued at and 16 per cent respectively. Colombia, $346,000. Norway, Ireland, Switzerland, and Argentina all increased the volume and value of embryos Value of Canadian Embryo Exports imported from Canada in 2006. United States China Japan Germany Russia United Kingdom 3.0 Breeding Cattle Exports

2.5 Exports of breeding cattle prior to May 2003 2.0 were concentrated in four key markets 1.5 including the United States, China, Mexico,

Million $ 1.0 and Brazil. In 2002, 11,000 breeding animals

0.5 were exported valued at $19 million. Key international markets have remained closed 0.0 for Canadian breeding cattle since 2003. 2002 2003 2004 2005 2006 2007-May Source: Statistics Canada While progress has been slow in re- establishing breeding exports, there have been China’s volume of embryo imports from some successes. In 2006, 191 breeding Canada has decreased from 7,000 embryos in animals were exported. Both Russia and 2002 to 2,300 embryos in 2005. However, Egypt opened their borders to Canadian embryo import volumes increased in 2006 to breeding cattle in 2007 with Russia importing 30,755 embryos which makes China Canada’s 1,975 head of Black Angus and Holstein largest market in terms of volume accounting breeding cattle in May 2007 valued at $7.5 for 65 per cent of all Canadian embryo million. This was the largest shipment since exports. Since the value of Chinese exports May 2003 – from 250 producers across actually decreased from 2005 to 2006, this Canada. Other countries like the Ukraine, indicates a difference in the quality of Algeria, Lebanon, Morocco, Tunisia, and embryos exported. Russia’s volume of Korea have also opened their borders to live embryo imports increased from 2,000 cattle for breeding purposes, which should embryos in 2005 to 7,900 embryos in 2006. encourage greater export volumes moving Prior to 2005 Canada did not export any into the second half of 2007 and 2008. embryos to Russia. Russia’s market share of total Canadian embryo exports was 17 per cent of volume in 2006.

Genetics Summary of 2006/07 Activities

The Canadian Beef Breeds Council and its development, and service of export markets. members conducted 121 separate activities The activities included 17 inbound missions (represents 86 per cent of planned activities) to Canada, 88 outbound missions to in support of export market access, market destination countries, with the remainder (16)

GENETICS 39 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT composed of the development of collateral In 2006/07 the Canadian Beef Breeds Council support/promotion such as the production of also partnered with the other major industry print and video material, and the hosting of marketing organizations – the Beef two world breed conferences (Simmental in Information Centre and Canada Beef Export Calgary and Charolais in Edmonton). Federation – on a number of important activities including the hosting of international Inbound missions include key industry missions and production of collateral support decision-makers that are hosted for study of materials. the Canadian purebred industry and are often held in conjunction with major domestic Collaboration with government officials events. As well, inbound missions include (federal and Alberta) has been instrumental in training projects in management and developing priorities and strategies for re- advanced technologies (artificial establishing market access and in support of insemination/embryo transfer) in support of ongoing market development activities. The sales. The interaction with key individuals Beef Value Chain Roundtable, Beef and Cattle provides the opportunity to learn other Producers Advisory Committee, Beef and cultures, language, habits, skills/abilities, Cattle Producers Trade Advisory Group, as requirements, and management approaches. well as other committees/groups, are Cattle must be matched to their environment. examples of important initiatives in the Canada enjoys a reputation for quality bos public/private partnership to resolving taurus cattle/genetics exhibiting a variety of impediments that challenge the industry in traits across a number of breeds inclusive of a export markets. number of phenotypic and genotypic characteristics – including balance, structure Overall Outcomes in 2006: correctness, muscling, thickness, calving ease, Access for Semen: 57 countries growth, carcass merit, adaptability, polled and Access for Embryos: 49 countries efficiency. Access for Breeding Cattle: 5 countries

Genetics Performance Measures

CANADIAN SHARE OF TARGET MARKETS AND MARKET SEGMENTS In 2006 the distribution of exports of Canadian beef genetics shifted, with increases According to member data provided to the in market share for both South America and Canadian Beef Breeds Council, the Australia/Asia as follows: distribution of Canadian beef cattle genetics 1. North America 36% has continued to expand, as additional 2. South America 32% markets open and access is expanded. In 3. Australia/Asia 14% 2005 the top selling regions of the world for 4. Central America 11% Canadian beef genetics were as follows: 5. Europe 6% 1. North America 41% 6. Africa/Middle East 1% 2. South America 26% 3. Central America 18% Expectations are for the distribution of 4. Europe 9% Canadian beef genetic exports to continue to 5. Africa/Middle East 4% shift, with a continuing increase in market 6. Australia/Asia 2%

GENETICS 40 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT share for South America expected to occur in recognized as a source for genetics of high 2007. quality. Activities focused on increasing distributor networks and enhanced attendance Africa and/or participation at events in the region Goals for this region were to regain access to and in Canada, particularly exhibitions. markets for breeding cattle and increase sales of semen and embryos. The results derived Delegates from the Canadian Western from CBBC promotional efforts were Agribition and Farmfair as well as the increased demand for semen and embryos, as Canadian Beef Breeds Council were well- evidenced from reporting provided by received at Royal Highland, Royal U.K., industry sources. Feicorte and Expointer livestock shows. Invitations to attend Canadian shows were Asia accepted. Attendance at Farmfair, Agribition Goals for Asia were regained access to and the Calgary Stampede International Room markets for breeding cattle, increased sales of by international visitors and buyers has semen and embryos, stable networks increased. Farmfair reported 390 guests in established through education on the 2006 over 193 in 2005. Agribition reported superiority of Canadian genetics and the 417 guests in 2006, compared to 385 guests in transfer of technological advances, and 2005 – many from western European heightened awareness of the health status of countries. The Calgary Stampede reported the Canadian herd – with Canada positioned 2,239 guests from 40 countries in 2006, as the number one supplier of high quality compared to 2,011 guests from 31 countries value-added beef genetics. in 2005. Seven outbound missions were conducted including France, Germany, Regained access for semen and embryos were Sweden and the United Kingdom. Seven achieved and the Canadian Beef Breeds inbound missions from Austria, Finland, Council is actively pursuing negotiations for Norway, Scotland, and Sweden were live cattle. Full access to the market in China conducted. (including breeding cattle) is required for regional stability for the beef genetics Eastern Europe industry. Goals were: to regain access to markets for breeding cattle, increase sales of Opportunities were identified for providing semen/embryos, develop projects with genetics to the leading breeding centers, genetic procurement component and include including Thailand, Indonesia, Malaysia and training and transfer of technology, sales of Tanzania. Projects are being initiated at the semen and embryos to Russia, and increase government level for breeding programs attendance at trade shows. involving Senepol and Hereford cattle. Five outbound missions were conducted to China Access for breeding cattle to Russia was and two outbound missions to Vietnam, with successfully negotiated by the CFIA with a plans underway for follow-up missions. resulting sale of 1,975 head of breeding cattle to Russia, and was followed by additional Western Europe orders for semen and embryos (10,000 beef Goals were: to regain access to markets for embryos over two years: Angus, Hereford, breeding cattle, increase sales of semen and Simmental, Limousin). While beyond the embryos, and increase sustainable sales of reporting period for this Report, an additional Canadian beef genetics with Canada 1,350 breeding cattle (Angus, Hereford)

GENETICS 41 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT departed by ship mid-October 2007. Several resulting in sales of 50 Charolais and 50 Red inquiries have been received by the Canadian Angus embryos. The Canadian Beef Breeds Beef Breeds Council with respect to Council has received confirmation that a subsequent orders for cattle. Interest was also follow-up mission was conducted to Mexico indicated through inbound trade missions to transplant 80 Charolais embryos involving from Kazakhstan (coordinated by Alberta two different farms. Agriculture, Food and Rural Development) and the Ukraine with respect to breeding Latin America programs being developed to improve cattle Goals were to improve and stabilize trade herds utilizing Canadian genetics. Requests relationships. Cuba reopened its border to for technical support and training continue. Canadian beef products in December 2004. It Six outbound missions were conducted to is expected that eventual implementation of Russia. Rule 2 in the United States will help facilitate the export of breeding cattle to Latin America North America once in place. Goals were: to regain access for breeding cattle followed by completed sales, increase South America sales of semen/embryos, develop projects Goals were: to regain access for breeding with genetic procurement component cattle and increase volume of sales of embryos including training and transfer of technology, and semen, increase awareness of harmonization of ID programs and genetic opportunities for expansion of Canadian evaluation systems, development of genetics trade, and increase participation in production alliances, and increase shows – ultimately resulting in increased participation at livestock shows in Canada. awareness and demand for Canadian genetics.

The Canadian Beef Breeds Council obtained A memorandum of understanding was signed support from many American attendees at between Canadian Western Agribition and various conferences with respect to urgency Expointer Livestock Exhibition in Porto of resolution of U.S.-Canada border issues. Alegre, Brazil for mutual promotion and Further developments were announced by the exchange of information. Promotional USDA with respect to identification. The materials were distributed showcasing lifted Prohibition Order allowing for Canadian genetics. A memorandum of importation of U.S. breeding cattle is understanding was signed between federal promoting much discussion and dialogue. Agriculture Minister Strahl and his Brazilian Twenty-nine inbound missions conducted by counterpart which includes gathering breed associations as well as the CBBC were intelligence on Brazil’s government and successful in raising the profile of Canadian industry competitive thinking – and to purebred cattle and furthering discussion improve relations (an inaugural consultative around the need for the U.S. Rule 2 to be committee met June 19-20 at a government- published. From these missions many to-government level). The number of visitors inquiries were received regarding the to Canadian livestock shows increased. Four Prohibition Order and positive discussions outbound missions were conducted to Brazil, have ensued with respect to trade. CBBC three to Argentina, and one inbound mission representatives have been well-received; and from Uruguay. These missions included five major breeds showcased. Twelve participation in Feicorte and Expointer outbound missions were conducted to the livestock shows and an inbound mission from United States and two missions to Mexico,

GENETICS 42 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Uruguay to attend the Canadian Western events (including the World Simmental Agribition in Regina. Congress and World Charolais Congress) was also produced in Spanish, Portuguese and Oceania Russian and distributed internationally. Many Goals were: to regain access for breeding requests for information were fielded and cattle, increase volume of sales of embryos materials were shipped to all major and semen, and increase participation in international shows including Royal Highland, shows – ultimately resulting in increased Royal U.K., Feicorte, and Expointer. Ads awareness and demand for Canadian genetics. were placed in major Canadian publications regarding the ‘power of genetics’. The There was an incremental increase in the Canadian Beef Breeds Council and its number of delegates from Australia and New members hosted numerous international Zealand to the World Simmental and World guests. CBBC delegates and representatives Charolais Congresses, as well as Canadian from various livestock shows and breed livestock shows – resulting in increased associations participated in government demand for sales of genetics. One inbound meetings and met with livestock genetics mission was conducted from Australia as well organizations to provide information about as three outbound missions. the quality of the Canadian purebred herd.

Global The CBBC collaborated with industry Goals were: partners through:
Generate an incremental increase in
Production of a genetics industry reference industry communication for all regions in multiple languages (Mandarin, Russian, with direct contact through a strategic plan Ukrainian, and French)
Incremental increase in market
Joint brochure and newsletters in development in all regions conjunction with the Canada Beef Export
Improved health protocols and reductions Federation in tariff and non-tariff barriers
U.S. media tour organized by the Beef
Incremental increase in number of Information Centre that hosted U.S. meat potential customers contacted trade media to educate them about the
Increased requests for information Canadian industry and value proposition
Articles in international publications
Trade delegations including Indonesia,
Project/activity alliances (e.g. Feicorte, Kazakhstan, Chile, and Colombia Brazil Exhibition network with Agribition)
Trade shows/missions to Cuba and
Production of high quality messaging Mexico, and the production of the genetics
Collaboration with the Canadian industry reference in Spanish and Cattlemen’s Association, Canada Beef Portuguese. Export Federation, Beef Information Centre, Canadian Animal Health There have been other investments by Consultative Committee and Canadian Canadian genetics industry partners in support Livestock Genetics Association on of export market development, i.e. breed common health issues – along with associations. An effort is underway by the working groups for animal health service CBBC to qualify the level of that industry providers, research facilities, educational investment. The objective is to be able to facilities, and farms and ranches. report on this initiative in mid-2008.

Material produced by various breed associations promoting upcoming shows and

GENETICS 43 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Canada and the Canadian beef genetics export markets. To this end, a major initiative industry faces stiff competition in the of the Canadian Beef Breeds Council is the international marketplace by a number of Purebred Risk Assessment (PBRA) Project countries. The list of competitor-countries active under the Private Sector Risk includes the United States, Australia, New Management Partnerships (PSRMP), a Zealand, members of the European Union, program of Agriculture and Agri-Food and local stocks found in destination Canada and part of the Agricultural Policy countries, among others. Canada is often at a Framework – Business Risk Management. disadvantage to many of the tactics employed Through the PBRA project, perils and risks by other countries including program support, facing purebred producers have been financial incentives, and zootechnical identified. Now through collaborative efforts programs such as genetic evaluation systems. (private/public) risk mitigation strategies and tools are being developed with, and for, CUSTOMER AWARENESS AND producers to help secure the ongoing UNDERSTANDING OF CANADIAN BEEF economic viability and growth of the VALUE PROPOSITION purebred beef cattle sector in Canada.

The Canadian Beef Breeds Council has SIZE OF MARKET INFLUENCED BY THE undertaken communications, global outreach VALUE PROPOSITION and market development so that international customers view Canada as a preferred supplier Major competitors in the genetics field are the of beef cattle genetics and related services, United States, Australia, New Zealand, based on standards for high quality and members of the European Union, and local product safety. A value proposition statement stocks found in destination countries, among and icon have been developed that others. Canadian exports are differentiated communicate: Canadian Purebred Beef with respect to the service aspect which Cattle Genetics: Performance • includes training in AI and embryo transfer. Predictability • Profitability. The positioning of Canada as a leader in animal NEW MARKETS AND CUSTOMERS CREATED production, health and beef safety is AND MAINTAINED BY FUNDED INITIATIVES reinforced in all aspects of international marketing and relationship development. Russia, Kazakhstan and Ukraine are sources These descriptors: Performance, Predictability, for new markets and customers created by and Profitability align with, and support, the increased presence at livestock shows such as overall value proposition of the global VIV (a series of livestock shows marketing strategy. http://www.viv.net/sites/www_vnuviv_net/ en/index.asp), and federal government trade A complementary, industry-wide description missions (AAFC). of the Canadian Beef Advantage and the building of an overarching unique identity for INDUSTRY FUNDING LEVERAGE PROVIDED Canadian beef to launch the brand in target TO FUNDED INITIATIVES markets have also been initiated in conjunction with industry partners. Industry leverage provided to funded initiatives has been maintained at the 25 per It is important to note that a viable, business- cent level. An effort to substantiate total focused purebred sector within Canada is purebred sector involvement is being essential in order to develop and service undertaken with the objective of accurately

GENETICS 44 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT reflecting market development funding as a OBJECTIVE AND BENEFIT REALIZATION coefficient of total sector investment. This is expected to be completed by June 2008. The Canadian Beef Breeds Council and its members have been actively pursuing access LEVEL OF COMPLETION OF FUNDED to Russia for semen and embryos as well as INITIATIVES live cattle. As a direct result of continuous discussion and persistent negotiations, a Initiatives funded by the CCMDC are protocol was signed by Russia to accept ongoing in terms of completion. Regained Canadian live cattle and a sale for 1,975 head access to the U.S. market for live cattle is a was completed. Revenue to the Canadian near-term possibility in light of the industry is approximately $7.5 million. The publication of Rule 2. A total of 121 activities training component of the project involved were conducted including 17 inbound and 104 the presence of a Canadian veterinarian for up outbound. Completed activities represent 86 to 20 days to train Russian technicians to per cent of planned activities. implant embryos. The estimated cost for 20 days of training at $1,500 US/day equalled 2006/07 Genetics International Marketing Activities $30,000 US. The training and implantation is Conducted Compared to Planned Activities critical to securing the project for future exports and becomes a differentiation Country Planned Completed Inbound Outbound Activities Activities between Canada and other exporting Argentina 3 4 0 4 countries. Delivery occurred in the spring of Australia 10 10 2 8 2007 and more orders are being negotiated. Austria 0 3 2 1 These activities are a prime example of Brazil 8 7 0 7 activities being conducted by CBBC and its Chile 2 1 0 1 members through CCMDC-funding resulting China 15 5 0 5 in resolution of trade issues and in turn Colombia 4 1 1 0 market access for Canadian livestock genetics. Costa Rica 1 1 0 1 Denmark 2 1 0 1 Other successes include collaboration on Finland 0 1 1 0 activities with the Canada Beef Export France 0 2 0 2 Federation and Beef Information Centre as Germany 3 1 0 1 previously described. Hungary 1 1 0 1 Jamaica 0 1 0 1 EFFICIENCY OF CCMDC INVESTMENTS Mexico 13 5 0 5 Norway 1 1 1 0 (incremental sales revenue per dollar invested in Pakistan 0 1 0 1 promotion) Russia 16 10 2 8 Scotland 2 3 3 0 At time of this Report’s production, sales Sweden 3 2 1 1 revenue was still in the measurement phase Switzerland 0 1 0 1 and will be reported on within the next Thailand 1 1 0 1 quarter, based on input from breed UK 6 7 1 6 associations and the Canadian Beef Breed Uruguay 5 2 2 0 USA 30 30 1 29 Council’s associate membership. Vietnam 2 2 0 2 Promotional 13 17 Totals 141 121 17 104

GENETICS 45 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT Domestic (Canada)

2006 Marketing Targets

The Canadian beef and cattle genetics industry has established a set of marketing targets for sales over the near to medium-term. For this Results Report period, 2006 targets for the domestic market were:

Disappearance of Canadian Beef (MT) 844,000 Market Share (% vs. imports) 86 CCMDC Strategic Marketing Plan July 1, 2006 (volume in carcass weight)

Market Situation and Indicators

2000 2005 2006 2005/06 2007P Domestic Consumption (MT) 982,474 971,312 970,535 - 0.001% Imports (MT) 266,458 126,416 147,638 + 17% -- Disappearance of Cdn Beef (MT) 716,016 844,896 822,897 - 3% Imports % of Consumption 27.1% 13% 15.2% + 17% -- % of Consumption that is Canadian Beef 73% 87% 85% -3% -- Disappearance - 2.5% as a % of Domestic Production 59% 59% 64% -- Beef Consumption (kgs/person, retail wt) 23.4 22.0 21.7 - 1% -- Canadian Retail Beef Prices ($/kg) $9.19 $11.59 $11.58 0% $12.00 Canadian Beef Demand Index (1980=100) 61.36 65.85 63.85 - 3% -- (volume in carcass weight)

Domestic Consumption Canadian per Capita Meat Consumption Canadians consumed 1.4 per cent less beef in Beef Pork Chicken 2006. Per capita beef consumption decreased from 22 kgs in 2005 to 21.7 kgs in 2006. 40 After trending down from the mid-‘70s to the early-‘90s, beef consumption has been more 30 stable over the last decade. Per capita beef 20 consumption has remained in a fairly narrow Kgs/Person range since 2000 between 21 and 23 kgs. 10 In 2006 total domestic beef consumption 80 82 84 86 88 90 92 94 96 98 00 02 04 06 remained relatively constant when compared Source: Statistics Canada to 2005 – with a total of 970,535 tonnes being beef consumed was imported. This remains consumed. The proportion of beef well below pre-BSE levels seen in 2001 and consumption that was produced in Canada in 2002 when beef imports amounted to 30 per 2006 was 85 per cent, while 15 per cent of all cent of total beef consumption.

DOMESTIC 46 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Canadian Beef Consumption While consumption and demand both saw a Domestic Imports slight decrease in 2006, consumption of 1,200 Canadian-produced beef as a share of total 1,000 beef production increased from 59 per cent in

800 2005 to 64 per cent. Despite reduced domestic beef production in 2006, domestic 600 beef disappearance did not see a

'000Tonnes 400 proportionate decline. Instead of seeing a 200 reduction in domestic supplies of beef, the 0 decrease in beef production was reflected in 90 92 94 96 98 00 02 04 06 reduced beef exports. Source: Statistics

In addition to measuring changes in beef Disposition of Canadian Beef consumption, it is important to consider the 2,000 dynamics between consumption and retail 1,500 beef prices. The beef demand index (which is calculated using Statistics Canada per capita 1,000 beef consumption data and retail beef prices adjusted for inflation) measures the change in '000Tonnes 500 demand for beef. Essentially the beef demand index evaluates changes in 0 consumers’ willingness to pay for beef. 90 92 94 96 98 00 02 04 06 Between 2005 and 2006 retail beef prices Domestic Consumption U.S. remained relatively constant but when they Japan Mexico Source: CanFax H.K. & Macau ROW were adjusted to remove inflation, the retail beef price declined 2.1 per cent between 2005 and 2006. When the small decrease in As outlined in the Market Context section, consumption is considered in conjunction AAA boxed beef cutout values decreased with a 2.1 decrease in the real price of beef, from $171/cwt in 2005 to $169/cwt in 2006. consumers’ demand for beef actually declined At the same time retail meat prices remained slightly in 2006. relatively stable with an average price of $11.58/kg in 2006. When retail prices are adjusted for inflation the retail beef price Canadian Beef Demand Index (1980=100) declined 2.1 per cent between 2005 and 2006. 100 This has meant that total real beef expenditures in Canada declined from $6.45 80 billion in 2005 to $6.31 billion in 2006. During the same period total real pork 60 expenditures declined from $4.14 billion to

40 $3.91 billion, and real chicken expenditures Demand Index Demand increased from $4.42 to $4.46 billion. 20 Beef’s market share of total meat 0 consumption (beef, pork, and poultry) was 80 82 84 86 88 90 92 94 96 98 00 02 04 06 Source: CanFax, 1999 U.S. Beef Demand Study 34.5 per cent in 2006, which declined slightly

DOMESTIC 47 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

disappearance (domestic beef production Canadian Real Meat Expenditures minus exports plus imports) down 2.5 per Deflated Retail Price x Domestic Disappearance cent when compared to the same time period $8 in 2006. Knowing that slaughter and domestic beef production in 2007 are $6 currently below year ago levels and beef exports are showing a strong increase, a $4 decrease in domestic beef disappearance is Billion$ not unexpected. Retail beef prices for the $2 first six months of 2007 have increased five Beef Pork Chicken per cent when compared to the same time $0 period in 2006, with an average price of 79 82 85 88 91 94 97 00 03 06 $12/kg. Source: Stat istics Canada, CanFax

from 2005 when beef held a 35 per cent Market Share of Beef, Pork, & Chicken market share. Meanwhile, market share for Beef Pork Chicken pork and poultry both increased slightly to 27 3,500 and 38.5 per cent respectively. Pork 3,000 consumption increased from 17.5 kgs in 2005 2,500 to 17.7 kgs in 2006 but still remains well 2,000 below 2004 when consumption was 20.3 kgs per person. Chicken consumption rose slightly 1,500 to reach 31.8 kgs per person on an eviscerated '0001,000 Tonnes basis in 2006 as compared to 31.4 kgs in 2005. 500 0 Domestic consumption and disappearance are 80 82 84 86 88 90 92 94 96 98 00 02 04 06 difficult to project and as a result direct Source: Statistics Canada estimates are not provided for 2007. The first five months of 2007 have seen domestic

Domestic Summary of 2006/07 Activities

BIC MARKET OBJECTIVES : Based on BIC long-term strategic plan. Product Perception 1) Encourage consumers to choose Canadian beef more often versus competing products, by improving attitudes towards health, nutrition, safety, convenience and taste. 2) Continue to develop and communicate a brand identity for Canadian beef. 3) In conjunction with the CCA, maintain preparedness on current and emerging issues, with a capability to respond effectively to a range of potential crisis situations. 4) To strengthen understanding of the needs of customers and consumers of Canadian beef products.

DOMESTIC 48 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Quality and Consistency 5) Strive for 100 per cent consumer satisfaction with Canadian beef palatability through improvements in product consistency and tenderness. Convenience 6) Increase consumer recognition that Canadian beef is a convenient meal option. Food Safety 7) Build consumer confidence in the safety of Canadian beef products and contribute to reducing the risk of food- borne illness related to beef consumption.

The domestic market is the largest and most retail and consumer initiatives. To improve stable market for Canadian beef. BIC’s Canadian beef quality and consistency, BIC strategies for marketing objectives target the commissioned experiments with Lacombe market drivers of product perception, quality Agri-food Laboratories to evaluate five and consistency, convenience and food safety. current BIC cooking recommendations.

Promotion of Nutritional Value of Beef
Market Data The promotion of the nutritional value of To successfully drive consumption of beef and its role in a healthy diet is critical to Canadian beef a solid understanding of the overcome barriers to beef consumption. marketplace is mandatory. For example, the This was achieved through communication opportunity to increase beef usage among the with consumers, health professionals, light beef-eater segment, representing 50 to government and industry stakeholders – as 65 per cent of Canadian beef-eaters, was well as conducting research into beef’s role in identified. Market data enables BIC to health and disease. The identification and establish benchmark data for product- monitoring of nutrition and food safety focused initiatives in new markets (e.g. issues and policies (such as changes to rotisserie roast and the competing deli Canada’s Food Guide, trans fat regulations, chicken products). cancer and various pathogens) is a focus for BIC. A multimedia nutrition campaign Beef.
Retail Goodness in every bite was launched to BIC’s retail initiatives enhanced beef highlight beef as a lean nutrient-rich choice. merchandising by providing operator training, delivering technical resources,
Consumer Culinary Initiatives supporting branded programs and Consumer culinary initiatives included trend implementing targeted marketing initiatives. monitoring, culinary research, and consumer BIC conducted retail seminars across Canada promotions (in-store and direct-to- that highlighted new market trends and consumer). Five new promotional booklets consumer-driven cuts. A new trade booth were launched to support in-store was developed to leverage BIC’s technical merchandising. In total 7.4 million booklets resources and marketing messages. BIC has were sent direct to consumers while 3.5 supported branded beef programs with million booklets leveraged BIC’s nutrition Cargill Foods, A&P, The North West advertising campaign. BIC’s consumer Company, Loblaws and Metro. database for future permission-based marketing promotions was established with
Foodservice 5,000 names. A series of seven online beef At foodservice, BIC placed a strong focus on cooking lessons were launched to support communicating the Canadian Beef Advantage

DOMESTIC 49 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

by maintaining a high degree of beef product eight industry newsletters with a distribution and merchandising knowledge with key of 465,000. The Inside Cut newsletter was segments of the supply chain. BIC led distributed to more than 40 foodservice numerous foodservice distributor and distributors in Canada that service over 80 industry trade shows reaching 9,000 per cent of Canada’s foodservice representatives from the foodservice sector. establishments. Advertorials in trade journals Several large partnered promotions were and partner publications increased BIC’s launched with national operators including reach with a distribution of more than Pizza Pizza, la cage aux Sports, Panago Pizza, 125,000. abc Family restaurants, Pizza Delight, Kelsey’s and Delta hotels. BIC also
Consumer Communication supported the launch of the rib medallion at Consumer communication initiatives all Canadian Keg Restaurants which aims to included consumer media relations and issues better utilize heavy ribs. preparedness. A key goal is to increase consumer awareness of beef’s positive
Product Development attributes by generating media coverage and Value-added product development aimed to maintaining current and factual information provide cost-sharing opportunities for value- on issues that impact the beef industry. To added product development in the retail and increase stakeholders’ awareness of BIC foodservice sectors. Efforts were focused on activities and reinforce the value of BIC, each secondary cut utilization strategies and BIC Report newsletter was sent to beyond the grind applications for lesser cuts approximately 80,000 producers. Six feature to maximize carcass cutout value. A total of articles and news stories reaching over 70,000 14 product development Partner Programs producers were secured in leading agricultural for under-30-month beef were concluded. publications. Value-added product development samples include chopped steak roasts, ginger beef and
Customer Service Centre (CSC) satays, beef sausages, beef short ribs, Customer Service Centre operations assist seasoned steaks and seasoned roasts. internal BIC teams to work with consumers, media, health professionals and the beef trade
Communication with Industry Partners through integrated website, database Communicating with industry partners is management and fulfillment services in order integral to BIC’s programs. Trade to increase awareness and understanding of communications produced and distributed the Canadian value proposition.

Domestic Performance Measures

CUSTOMER AWARENESS AND “very positive” and 23 per cent replied UNDERSTANDING OF CANADIAN BEEF “somewhat positive”. VALUE PROPOSITION Comments regarding BIC’s foodservice services/resources include: An Ipsos-Reid industry survey conducted in
“They have good promotional and informational spring 2007 indicated a very positive response tools (fact sheets for instance).” rate to awareness and understanding of BIC
“They assist the end-users (restaurants), to inform trade-directed programs. In the foodservice them and to reassure them (grading system, sector 62 per cent of respondents replied control) with the knowledge the BIC possess.”

DOMESTIC 50 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

“Information provided was accurate and available Efforts to increase consumer awareness of in a timely manner.” beef’s positive attributes through media coverage generated excellent results. By A comment regarding BIC’s foodservice complementing BIC culinary, nutrition and promotional programs include: retail activities, 62 articles were generated in
“Revenue from beef menu items went from eight per major daily newspapers across Canada with a cent to 62 per cent. Sales figures also show a combined readership of 4.6 million. Related huge increase in sales of non-primal cuts - now 42 radio and television coverage reached an per cent of sales.” additional five million people. As well, on-air contests with 111 radio stations exposed 58.4 In the retail sector, awareness and million listeners to positive beef messages. understanding of BIC trade-directed programs Overall, total non-paid consumer was also high; 56 per cent of respondents communication initiatives reached 68.8 replied “very positive” and 44 per cent replied million consumers. “somewhat positive”. Neither sector had a “negative” reply. In conjunction with the Canadian Cattlemen’s Comments regarding BIC’s retail Association, BIC maintained preparedness on services/resources include: current and emerging issues, with a capability
“They are here to provide information regarding to respond effectively to a range of potential beef attributes, recipes and cooking methods.” crisis situations. BIC monitored daily media
“Whatever they have developed is done very coverage and tracked 29 emerging issues professionally - whether it's cutting charts or throughout the year – preparing and updating informational materials available at the counter - key messages, backgrounders and industry the artwork etc. is very professional.” updates as appropriate. BIC worked with the Canadian Cattlemen’s Association to develop Comments regarding BIC retail promotional a joint crisis response protocol and simulation programs include: that defined responsibilities of staff, action
“They provide excellent point-of-sale material; plans and performance measures for developing partnership programs, branding implementation in the event of a crisis. programs.”
“This partnership had positive repercussions on To positively influence consumer perceptions sales.” of the healthfulness, convenience and quality attributes of Canadian beef, several new in-
“Both have resulted in increased volume and store and direct-to-consumer initiatives were sales.” launched. Examples include Lean Beef – Healthy Recipes booklet and the Roast Beef Communicating the Canadian Beef Advantage Cooking Lessons booklet series with a and leveraging the value proposition has been distribution of 2.5 million. To further a key tactic in the foodservice and retail leverage the convenience of Canadian beef, program areas since 2005/06. the quick roast was repositioned as mini quick roast. In addition, five web-based beef Four major consumer media campaigns cooking lessons were launched with a reach of promoting whole muscle cuts and ground approximately 4,700 visitor sessions per beef were conducted. The campaigns month. encouraged consumers to choose Canadian beef more often versus competing products In 2006/07 a significant effort was made to by improving attitudes towards health, encourage consumers to choose Canadian nutrition, safety, convenience and taste. beef more because of its nutritional goodness.

DOMESTIC 51 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Phase 1 of the Beef. Goodness in every bite share versus pork and poultry. By nutrition campaign reached 50 to 80 per cent comparison 2002 total consumption was of the target audience. As a result, survey 950,612 MT with 33.5 per cent market share. respondent attitudes improved to statements such as: “Beef is good for me”, “I don’t have a Key relationships were established within the problem eating beef three times per week”, “When retail sector across the country representing trimmed of outside fat beef is lean”. In Phase 2 over 90 per cent of total domestic volume of approximately 75 per cent of the target retail beef sales. In the foodservice sector, key audience was reached via print and radio relationships were well-established within the advertising. The campaign was successful in distribution sector, representing over 85 per maintaining consumers’ intent to eat beef on a cent of all distributor volumes, which in turn daily basis. This is not insignificant given distributes to approximately 50,000 chain and there is ongoing negative publicity independent restaurant operators. surrounding the category. As part of the nutrition campaign, the consumer booklet Overall unpaid consumer media initiatives in Lean Beef was distributed to close to 3,500 2006/07 reached 68.8 million Canadian retailers. consumers (reaching Canadians more than once), an increase of approximately 58 per Health professional audience awareness of cent over the previous year. beef’s role in the diet was achieved through the HealthLink bulletin (12 issues distributed The BIC website targeting consumers, health to 2,570 health professionals); Nutricast™ professionals and the beef trade averaged over webcasts reaching 1,750; and distribution of 23,000 unique visitors per month. BIC’s 335,000 resources through the Physicians Customer Service Centre (CSC) responded to Hotline. According to a survey conducted at 1,173 email inquiries through the website and the Dietitians of Canada conference, more responded to almost 6,000 calls to the toll- than three-quarters of health professionals free line for information and resources. who responded to the survey have used BIC Overall, CSC responded to 24,595 orders and print resources in the past. In addition, 83 per delivered 5.4 million beef resources to cent of respondents have received consumers and trade customers. information from BIC. The BIC Report newsletter was circulated to Through BIC’s website www.beefinfo.org and 80,000 cattle producers on a quarterly basis [email protected] along with a toll free line through provincial association publications. (1-888-248-2333), consumer and stakeholder As well, 89 feature articles on BIC activities information requests are supported. This past were printed in 17 farm publications reaching year, approximately 6,000 toll free calls were a total circulation of 560,000 people. Also, six received, and approximately 5.4 million BIC feature stories in agricultural media resources were shipped in response to all publications such as Cattlemen magazine, consumer, stakeholder and internal client Western Producer and Country Guide reached requests. 70,000 producer readers. Additionally, weekly stories on BIC activities were circulated in five SIZE OF MARKET INFLUENCED BY THE e-newsletters reaching 1,500 producers each VALUE PROPOSITION week.

Domestic beef consumption for 2006 was 970,535 MT representing 34.5 per cent market

DOMESTIC 52 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

NEW MARKETS AND CUSTOMERS CREATED taste when historically beef had ranked AND MAINTAINED BY FUNDED INITIATIVES superior in taste. The study concluded that for light beef eaters, taste and satisfaction are BIC continues to have strong domestic indistinguishable from health and nutrition. relationships with all key customers in the This positioning will be used to launch the retail, foodservice and processing sectors. In Canadian beef brand in 2007/08 fiscal. 2006 Wal-Mart opened its first super-center format. There has been a strong commitment In 2006/07, almost 50 per cent of health to 100 per cent Canadian beef. Other retailers professionals participating in Nutricast™ who continue to maintain a commitment to (who completed an online survey) attended Canadian beef include Costco, Sobeys, Metro, for the first time, indicating that Nutricast™ A&P, Safeway, Loblaw’s, Overwaitea, is still attracting new audiences among health Thrifty’s, and Co-op, among others. professionals. More than 97 per cent of those surveyed indicated that they would participate Costco Canada continues to be the main in future Nutricast™. driver of a 100 per cent Canada AAA program. BIC cost-shared the development Issues impacting Canadian beef have the of a customer-focused brochure highlighting potential to erode consumer and stakeholder cutting instructions for whole sub primals. confidence in beef and in check-off funded The program has been rolled out three times organizations. Maintaining a high level of since the initial launch. Tonnage increases preparedness has enabled BIC to sustain have increased significantly over the duration consumer confidence in beef safety at pre- of the program. BSE levels.

Key foodservice clients that continue to INDUSTRY FUNDING LEVERAGE PROVIDED maintain a commitment to Canadian beef TO FUNDED INITIATIVES include McDonald’s and The Keg. Foodservice, retail and processing Product development initiatives include development achieved a total leverage ratio of innovative product launches that focus on 5.86:1. In total the BIC investment was convenience and carcass utilization. Twelve $526,307 which leveraged an investment of different fresh, pre-marinated roasts utilizing $3,086,400. More specifically Foodservice end cuts were launched. Muscles utilized initiatives leveraged $2,104,000 of industry include eye of round, sirloin tip, cross rib, investment versus $176,725 of BIC inside round, inside blade, outside round, strip investment. Retail initiatives leveraged loin and rib eye. To date, over 4,010,000 kg $435,400 versus $122,582 of BIC investment. of the pre-marinated roasts have been sold. Processing Development initiatives leveraged $547,000 versus $227,000 of BIC investment. As part of the brand development process and working with a branding agency, a Other BIC initiatives were successful in quantitative usage and attitude study was leveraging additional industry funds. Cross undertaken with 1,000 beef eating consumers. promotions with Heinz leveraged $50,000 Key learning included that especially among which was used to re-invest in consumer light beef eaters (consumers who eat beef one promotion programs. BIC investment of to two times per week), there is a vague sense approximately $80,000 generated media of unease about eating beef; this new data coverage valued at approximately $380,000 – a revealed that beef rated parity to chicken on return of 4.75 to 1.

DOMESTIC 53 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT Commercial Beef

2006 Marketing Target

The Canadian beef and cattle genetics industry has established a set of marketing targets for sales over the near to medium-term. For this Results Report period, the 2006 target for commercial beef was: Disappearance of Canadian Commercial Beef (MT) 150,172 CCMDC Strategic Marketing Plan July 1, 2006 (volume in product weight)

Market Situation and Indicators

2002 2005 2006 2005/06 YTD 07 2007P Commercial Beef Market (MT) 202,783 219,617 226,202 + 3% + 0.2% 226,727 OTM Beef Production (MT 124,730 157,399 181,248 + 15% - 4% 174,221 Disappearance of Canadian Commercial Beef (MT) 49,892 155,825 179,436 + 15% - 3% 174,521 OTM Beef Value (million $) $450 $489 $535 + 9% - 1% $530 Non-NAFTA Imports (MT) 152,891 63,792 46,766 - 27% + 16% 54,249 OTM Beef Prod/Comm Beef Mkt 25% 71% 79% -- -- 76% Cow Mktgs – Slaughter (head) 536,169 641,893 751,943 + 17% - 4% 721,866 Cow Mktgs – Export (head) 372,294 ------85% Trim Price ($/cwt) $164 $141 $134 - 5% + 3% -- (volume in product weight)

The domestic commercial beef market Commercial Beef Utilization consists of all domestically produced non-fed Non-NAFTA Imports 250 Domestic Utilization 100% beef less exports, plus non-NAFTA beef Market Share imports of product considered to be similar to 200 47 54 80% Canadian commercial beef. Since 2002 the 64 150 67 60% commercial beef market has continued to 130 expand, increasing from an estimated 203,000 153 100 40% 179 172 tonnes (boneless) in 2002 to 220,000 tonnes 156 000Tonnes 119 in 2005 and 226,000 tonnes in 2006. 50 20% 73 50 Domestic commercial beef production (non- 0 0% fed production) is comprised mainly of cow 2002 2003 2004 2005 2006 2007P slaughter. Domestic cow slaughter was up 17 per cent in 2006 to 752,000 head, making it though the price was significantly below the the largest Canadian cow slaughter in 20 years. 2002 cow price average of $58/cwt. Cow prices were up 24 per cent in 2006 with an annual average cow price of $36/cwt. This With a record large cow kill, commercial beef supported large cull cow marketings even production (non-fed production) increased 15

COMMERCIAL BEEF 54 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT per cent from 157,000 tonnes (boneless) in Over-30-Month Beef Values 2005 to just over 181,000 tonnes in 2006. While non-fed beef production was record Over-30-month (OTM) beef values are large in 2006, few countries are accepting difficult to measure in Canada as cow cutout Canadian beef from animals that are over-30- prices are not reported. Consequently the months. As a result, the majority of this best proxy measure available at this time is the product is consumed domestically. In 2006 85 per cent boneless beef price which is Canadian non-fed beef production made up utilized because a significant portion of cow 79 per cent of the total commercial beef beef is trim product. The value of domestic market. This is up from a 71 per cent market non-fed (OTM) beef production is estimated share in 2005 and is a dramatic increase from by multiplying total OTM beef production by 2002 when domestic non-fed production the price for 85 per cent trim product. Based accounted for 25 per cent of the commercial on this calculation, OTM-beef increased in beef market. value by 9.5 per cent from $489 million in 2005 to $535 million in 2006. The increase in Increased Canadian non-fed beef production the value of domestic OTM-beef product can has continued to displace non-NAFTA for the most part be attributed to increased imports since the border closure in 2003. beef production, with trim prices trending After 2003 non-NAFTA imports fell significantly, with product being diverted to Boneless Beef Price - 85% CL more attractively priced export markets. In Manufacturing Beef 2006 non-NAFTA imports were just below Domestic Aus/NZ Imports US Imports 47,000 tonnes, which is down from 64,000 2.00 tonnes in 2005 and less than one-third of 1.80 2002 import levels of 153,000 tonnes. 1.60 In 2007 the commercial beef market is $/lb. 1.40 expected to increase by 1,000 tonnes to 227,000 tonnes. At the same time, domestic 1.20 non-fed beef production is expected to 1.00 decrease four per cent to 174,000 tonnes. J/01 J/02 J/03 J/04 J/05 J/06 J/07 The decrease in non-fed production is due to a reduction in slaughter cow marketings which downwards in 2006. The annual average price are also projected to decrease by four per of 85 per cent boneless beef was $134/cwt in cent. Large cow slaughter numbers in 2006 2006, down from $141/cwt in 2005. The first reduced beef cow inventory levels and half of 2007 saw prices up at $138/cwt. With lessened the number of culls that are likely to a slight decrease in domestic non-fed beef be marketed in 2007. An increase in non- production projected for 2007, the total value NAFTA beef imports is expected to offset the of non-fed (OTM) beef production is decrease in domestic production, with a estimated to be down slightly to $530 million. projected increase in non-NAFTA imports by 17 per cent in 2007 to 54,000 tonnes. The Prior to 2003, Canadian trim prices typically proportion of the commercial beef market traded at a premium to imported trim product made up by domestic fed beef production is prices which encouraged imports of trim expected to fall from 80 per cent in 2006 to product into Canada. After May 2003 the 76 per cent in 2007. Canadian 85 per cent trim price went from trading at a $12/cwt premium in 2002 to an

COMMERCIAL BEEF 55 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

$11/cwt discount in 2004 when compared to trim product to a $20/cwt discount in 2004. imported Australia and New Zealand trim Since then the gap has narrowed significantly, product. This spread has tightened within the with Canadian trim trading at a $4/cwt last year, with domestic trim product trading discount in 2006 and $0.72/cwt discount for at an $8/cwt discount in 2006 and $7/cwt the first half of 2007. While Rule 2 is not discount for January to June 2007. expected to be finalized in 2007, larger cow slaughter in Canada has tightened cow The relationship between U.S. and Canadian supplies resulting in increased cow prices and trim prices has followed a similar trend to that consequently higher trim prices. As domestic seen with Canadian and Australian/New prices rise closer to prices of imported trim, Zealand prices. In 2002 85 per cent trim increased trim imports are being drawn into prices went from trading at a $14/cwt the domestic market. premium when compared to imported U.S.

Commercial Beef Summary of 2006/07 Activities

BIC MARKET OBJECTIVES: At foodservice BIC is strategically aligned 1) To increase the size of the domestic with product and promotional efforts of the commercial beef market. majority of quick service chain restaurants to 2) To increase market share versus non- successfully maximize beef marketing NAFTA imports by addressing barriers to opportunities. Partnering with national chains increased use of Canadian beef products such as Burger King, McDonald’s, Arby’s, in the domestic market. Harvey’s and Quizno’s will potentially 3) To add value to commercial beef products increase sales of commercial beef. Quizno’s through new product innovation. prime rib sandwich promotion has significantly exceeded volume expectations To preserve the integrity of ground beef as a and created a competitive environment for a nutritious and convenient choice new high quality prime rib sandwich in the quick consumer-directed ground beef advertising service restaurant sector. The McDonald’s and communication was launched. Lean and partnership resulted in BIC being the first extra lean ground beef’s participation in company to have the Make it Beef logo appear Health Check™ was leveraged through new on McDonald’s food packaging. point-of-purchase materials (recipe booklet, rail strips, shelf danglers and stickers) as well BIC continues to facilitate the development of as consumer advertising in targeted markets. innovative product development within the retail and foodservice sectors and to Retail initiatives aimed to identify communicate the unique advantages of opportunities for private label or new product utilizing Canadian commercial beef within the development. BIC partnered with Kerr processing sector. Under the cost-shared Farms to create three-pack ground beef Partner Programs, new product samples have product for Costco stores, the Meat Factory been developed with interest generated for the to support demonstrations of pot roast and launch of new retail products, including shaved beef, and XL Fine Foods to develop a chopped steak roasts, beef sausage and frozen utility steak program. seasoned boxed steak. This ‘beyond the grind’ approach has the potential to increase cull cow returns to beef producers.

COMMERCIAL BEEF 56 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

BIC continues to fulfill its role in maintaining Innovation, and through integration with other consumer confidence through assessing and retail and foodservice communication. preparing responses to impacting issues such as food safety and consumer perception issues BIC conducts regular tracking research on around OTM beef products. consumer attitudes and beef safety, as well as on market changes by product category. Trade communications aims to maintain Understanding market data on commercial interest and awareness of Canadian beef products allows BIC to make commercial beef through electronic newsletter recommendations to partners on beef product Beef Up Your Business Product Development and opportunities.

Commercial Beef Performance Measures

CANADIAN SHARE OF TARGET MARKETS - BIC’s commercial beef strategies are AND MARKET SEGMENTS focused on enhanced carcass utilization of domestic cull cows that include BIC has engaged in product-related underutilized cuts and value-based discussions with approximately 150 customers specifications. While comparative pricing or potential customers of commercial beef information is not available for these types products. Out of those, BIC has entered into of product - since imported product is cost-share partnerships with 19 customers typically standard specs - the that have resulted in 41 new products being differentiation of Canadian products has launched into the marketplace. played an important role in adding value and differentiating the two markets. The IN-MARKET PRICE DIFFERENTIAL increase in value that can be added BETWEEN CANADIAN AND COMPETING through enhanced utilization and product BEEF PRODUCTS specifications creates a significant point of differentiation between domestic and In-market pricing data as it relates to imports that current market data does not commercial beef products have traditionally accurately capture. been based on lean point trim values which historically have been the highest volume of CUSTOMER AWARENESS AND commercial beef imports. However, in 2006 UNDERSTANDING OF CANADIAN BEEF cuts represented over 60 per cent of offshore VALUE PROPOSITION imports. While direct pricing comparisons have traditionally offered insights, it is To complement the Beef. Goodness in every bite important to consider the following. consumer nutrition campaign, the nutrition - Lean point trim values are often used as a benefits of lean and extra lean ground beef proxy value for the in-market price were communicated via print and radio differential in this market, as limited advertising, as well as one-page advertorials in information/pricing data is available in leading publications in the Ontario market this area. (reach of over 1.1 million in Ontario). - It is important to remember this is only a proxy and cannot accurately capture the In conjunction with the Canadian Cattlemen’s value differential between import and Association BIC maintained preparedness on domestic products. current and emerging issues, with a capability

COMMERCIAL BEEF 57 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT to respond effectively to a range of potential consumers and trade customers. (Data based on crisis situations. BIC worked with the CCA both domestic and commercial beef markets). to develop a joint crisis response protocol and simulation that defined responsibilities of NEW MARKETS AND CUSTOMERS CREATED staff, action plans and performance measures AND MAINTAINED BY FUNDED INITIATIVES for implementation in the event of a crisis. BIC monitored daily media coverage and BIC was successful in creating and tracked 29 emerging issues throughout the maintaining new markets and customers. The year preparing and updating key messages, funded initiatives included promotions with backgrounders and industry updates as high volume customers such as McDonald’s appropriate. and Burger King that utilized the Make it Beef logo, ensuring domestic supply and leveraging SIZE OF MARKET INFLUENCED BY THE the awareness of the Make it Beef campaign. VALUE PROPOSITION As stated by Scott Gibson, senior manager, supply chain for McDonald’s Canada, “The The size of the commercial market in Canada promotion was a success and showed our customers in 2006 was 226,202 MT. Canadian beef how much we value our association with the Canadian represented 79.3 per cent of the total market beef industry.” share. In 2007 it is projected to be 228,302 MT with a 76 per cent market share. The size Promotions were also executed with Quizno’s of the market in 2002 was 202,783 MT with a for sandwiches utilizing main muscle middle 25 per cent market share. meats and leveraging the Make it Beef logo, linking to domestic supply. A prime rib BIC technical resources were distributed to sandwich promotion sold 794,000 sandwiches over 5,500 industry partners and key decision- which utilized 136 MT of over-30-month makers within the processing sector in Canada prime rib over an eight week period. The delivering key messages around quality, safety, success of the promotion enabled them to raw material specifications, carcass utilization, make the product a regular menu item. and innovative product applications. Successful relationships with processors such The consumer radio campaign resulted in 23 as The Meat Factory, whose many product radio and five television interviews for a total lines which feature Canadian beef, were audience reach of five million. As well, 23 developed and maintained through funded printed articles in daily newspapers resulted in initiatives and linked to a Canadian brand a total circulation of 1.6 million readers. identity. “BIC’s Partner Programs have been Overall, 6.6 million Canadian consumers were instrumental in enabling The Meat Factory to develop reached through the campaign. award-winning precooked beef products for retail and foodservice industries,” says Andrew Thomson, The BIC website targeting consumers, health president, The Meat Factory (TMF). ”Not only professionals and the beef trade averaged over were we eligible to access funds from BIC for the 23,000 unique visitors per month. BIC’s creation and launch of these new products, the Customer Service Centre responded to 1,173 expertise and knowledge BIC shared with us was email inquiries through the website and invaluable. The Partner Program has made an responded to almost 6,000 calls to the toll- important contribution to our business. ” free line for information and resources. Overall, BIC responded to 24,595 orders and New markets were created within the retail delivered 5.4 million beef resources to sector for fresh product lines that feature

COMMERCIAL BEEF 58 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT quality enhanced over-30-month middle meat Issues impacting Canadian beef have the steaks for discount retailers. A total of 41 potential to erode consumer and stakeholder new value-added products were launched confidence in beef and with check-off funded into the marketplace during the 2006/07 fiscal organizations. Maintaining a high level of year. Three product lines include fully cooked preparedness has enabled BIC to sustain pot roast, shaved roast beef, and fully cooked consumer confidence in beef safety at pre- prime rib roast for foodservice. BSE levels.

BIC partnered with Arby’s Canada to develop INDUSTRY FUNDING LEVERAGE PROVIDED a Canadian roast beef product designed to TO FUNDED INITIATIVES displace imported offshore product. The resulting sandwich utilized 20.4 MT over a Commercial beef initiatives achieved a total limited time offer, and has since become the leverage ratio of 13.1:1. This represents a BIC standard specification of raw material. investment of $329,000, generating a leverage investment of $4,301,000. More specifically, Several convenience-based products were foodservice initiatives leveraged $3,565,000 of launched which include: industry investment versus $140,000 invested
New York Stick, a new beef entry into the by BIC. Retail initiatives leveraged $127,000 growing handheld category versus $29,000 invested by BIC. Processing
Eight products developed and ready for development initiatives leveraged $609,000 market launch with Kobe Classic such as versus $160,000 invested by BIC.  Japanese Style Mini Beef Burgers  Original Mini Burgers Other BIC programs were successful in  Dragons Breath Mini Burgers leveraging industry funds. Cross promotions  Beef Slices (Nanami) with Heinz and General Mills leveraged  Japan Rolls (Usugiri) $15,000 which allowed increased investment  Nippon Maki into web-based consumer promotions.

A three-year research partnership with Leduc LEVEL OF COMPLETION OF FUNDED Food Processing Centre was funded to INITIATIVES investigate the effect of injection marination on over-30-month muscles. The project will BIC completed $2,008,044.81 of also produce: $2,260,733.00 total planned activities. This
A good practices manual for marinated results in an 88.82 per cent completion rate of beef products outlining effective planned activities. An additional $225,707 processing variables to maximize was allocated for activities that are underway processing efficiency, eating quality, and for completion during 2007/08. consumer acceptability of over-30-month beef muscles. OBJECTIVE AND BENEFIT REALIZATION
A microbiological risk assessment of marinated beef products under ideal Objective 1: To increase the size of the conditions and optimized processing domestic commercial beef market. parameters.
Opportunities for technology transfer to The size of the overall commercial beef industry. market expanded by 3,883 MT from 2006 to 2007p. With sustainable increase in domestic production, key decision-makers in the

COMMERCIAL BEEF 59 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT domestic processing, quick service-restaurant/ BIC strives to ensure consumer confidence in foodservice and retail sectors will be able to the safety of Canadian beef. Quarterly establish long-term commitments to Canadian consumer tracking indicates that safety ratings packers and be less dependent on imports. As have returned and continue to be maintained the processing sector becomes more at pre-BSE levels. In June 2007, 87 per cent competitive through innovation, carcass of consumers rate Canadian beef as safe utilization and cutout values have the (rating 5-10 on a 10 point scale). potential to increase to meet the market growth. Objective 2: To increase market share versus non-NAFTA imports by addressing barriers Several initiatives aimed to improve consumer to increased use of Canadian beef products in perceptions of the nutritional value and the domestic market. convenience of ground beef. Two new ground beef recipe/promotion booklets The Canadian commercial beef market share included Health Check™ branding and versus non-NAFTA imports was a high of 79 content – Clever Casseroles and Get Grilling Lean per cent in 2006 versus 71 per cent in 2005, Ground Beef. The estimated consumer reach is and 63.8 per cent in 2004. By utilizing three million. A Reader’s Digest consumer multiple tactics aimed to maximize the impact survey reported that 87 per cent recalled of industry collaboration – processors, seeing the booklet and read it, 63 per cent retailers, quick service restaurants, restaurant kept it, 15 per cent passed it on to someone operators and private label brand owners are else; and 55 per cent indicated that the Health recognizing that Canadian over-30-month Check™ logo changed their opinion about beef can be a viable source of raw materials. the healthfulness of ground beef. An Ipsos Canadian over-30-month beef is recognized as consumer evaluation of Get Grilling indicated not only price competitive versus imports, but that 68 per cent of consumers who saw the also delivers key attributes that can enhance piece kept it, 11 per cent passed it on, and 79 production efficiencies and overall product per cent did or intended to make a recipe. A quality. Tactics utilized include technology new Summer Sizzling Barbecue cross promotion transfer, product development and booklet included five beef recipes (one of innovation, product image enhancement, which was Health Check™); 1.25 million of product sales promotions, and quality and these were distributed. Cooking Lessons for Best safety research transfer to industry. Backyard Burgers booklet was launched on BIC’s website along with a cooking Evidence of that success is included in instruction video (French and English), and activities throughout all trade sectors that yielded an average of 4,700 visitor sessions have increased utilization of over-30-month per month. products. The Commercial Beef Needs Assessment initiative completed in this fiscal In 2006 consumer recognition that Canadian that included interviews with key industry beef is a convenient meal option increased. stakeholders identified that “The uncertainty The meal solutions category (formerly heat around their ability to secure a reliable domestic supply and serve) has grown to a retail value of $54.1 of Canadian commercial beef was probably the loudest million, growing strongly at plus six per cent message coming back from the value-added processor versus year ago. Beef continues to dominate and quick service sectors”. this relatively new category (AC Nielsen Dec 2006). Objective 3: To add value to commercial beef products through new product innovation.

COMMERCIAL BEEF 60 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

BIC has been a key facilitator and advocate of way). BIC investment of $100,000 was an industry collaborative approach to value successful in leveraging a $2 million enhancement of over-30-month beef advertising campaign for an eight-week term. carcasses through processing innovation and Results include a 12 per cent lift over base recognition of the unique advantages offered sales volumes (equates to approximately 204 by Canadian beef versus imports. A strong MT) incremental sales of 4.5 lbs for every $1 focus is placed on development of new invested, or .22 per incremental lb sold. products and processes that significantly McDonald’s annual beef sales equate to enhance overall consumer acceptance of 27,669 MT per year. products utilizing commercial beef stocks. Particular focus has been on convenience- based products that deliver on consumer demands for fully cooked, and heat and serve beef products.

EFFICIENCY OF CCMDC INVESTMENTS (incremental sales revenue per dollar invested in promotion)

Total commercial beef expenditures of $2,008,044.81 were leveraged across several initiatives and sectors that deliver both intangible and tangible outcomes. Significant intangible results such as building key industry relationships are important but may not be directly linked to tonnage volumes or sales promotions with a high degree of certainty or transparency.

Examples of limited time sales initiatives that offer direct, measurable performance by incremental sales per dollar invested are generally restaurant or retailer-specific campaigns. Outcomes of funded initiatives include:

McDonald’s partnership on ‘Hockey Bash’ campaign that recognized the Canadian beef brand by featuring the Make it Beef logo on the inside of over 6,000,000 Big Mac containers (this was the first time any outside company/organization was represented this

COMMERCIAL BEEF 61 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT United States

2006 Marketing Targets

The Canadian beef and cattle genetics industry has established a set of marketing targets for sales over the near to medium-term. For this Results Report period, 2006 targets for the U.S. were:

Exports (MT) 417,513 Exports (billion $) 1.95 CCMDC Strategic Marketing Plan July 1, 2006 (volume in product weight)

Market Situation and Indicators

2002 2005 2006 2005/06 YTD 07 2007P Cdn Beef Exports Value (million $) $1,679 $1,549 $1,091 - 30% + 4% $1,135 Cdn Beef Exports Volume (MT) 363,453 370,446 298,085 - 20% + 5% 312,990 Canadian Share of Import Market 34% 30% 27% ------U.S. Beef Imports as a % of Cdn Prod 30.3% 29% 22.4% -- -- 25.7% U.S. Beef Consumption -- (kgs/capita retail wgt) 30.7 29.7 29.9 1% -- U.S. Beef Demand Index (1980=100) 55.4 60.7 57.1 -6% -- -- Canadian Imports as a % of U.S. -- Consumption 3.68% 3.91% 2.98% -- -- (volume in product weight)

The United States is Canada’s largest export Beef & Slaughter Cattle Exports to the U.S. market for beef and beef cattle. While access as a % of Canadian Production continues to be restricted to imports of Beef Slaughter Cattle Canadian cattle and beef that are under-30- 60% months in age, in 2006 total beef and cattle exports exceeded 609,000 valued at $2.27 50% billion. This represents a small increase from 40% 2005 when total Canadian beef and cattle 30% exports reached 533,500 tonnes with a total 20% value of $2.21 billion. 10% What has changed between 2005 and 2006 is 0% the composition of exports to the U.S. 00 01 02 03 04 05 06 07p Upon the resumption of live cattle trade in Source: CanFax Research mid-2005, live cattle exports made a strong 2006 beef exports to the U.S. declined to 22 recovery and have continued to increase. This per cent of production. At the same time has resulted in beef exports to the U.S. being slaughter cattle exports to the U.S., as a partially offset by live cattle exports. In 2005 percent of production, increased from seven beef exported to the U.S. represented 29 per per cent in 2005 to 16 per cent in 2006, with cent of Canadian beef production, whereas in

UNITED STATES 62 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Canadian Beef Exports to the U.S. 400 Tonnes Value (mil $) $2,000 350 $1,600 300 250 $1,200 200 $800 150 Million$ '000Tonnes 100 $400 50 0 $0 98 99 00 01 02 03 04 05 06 07p Tonnes 327,228 368,155 354,715 352,453 363,453 253,508 343,138 370,446 298,085 312,990 Value (mil $) 1,166 1,481 1,382 1,715 1,723 1,222 1,532 1,552 1,092 1,135 Source: CanFax

2006 representing the first full year of live Labour and productivity issues within cattle exports. domestic plants also contributed to reduced domestic slaughter of fed animals in 2006. With both slaughter cattle exports and beef Even with the large decline in beef exports to exports up for the first six months of 2007, the United States in 2006, market share of the expectation is that beef exports to the U.S. total Canadian beef exports to the U.S. will make up 26 per cent of Canadian beef remained at 81 per cent. In 2006 Canadian production, while slaughter exports will reach beef exports to the U.S. represented 22 per 18 per cent of total production. Current cent of Canadian beef production (excluding estimates for 2007 are that total beef and slaughter cattle exports), down from 29 per cattle exports to the U.S. will reach 665,000 cent in 2005. tonnes valued at $2.5 billion dollars. The U.S. is the largest beef-consuming nation When beef exports to the U.S. are evaluated and also the largest importer of beef. At the separately, 2006 saw a significant decline in same time, demand for beef has struggled in beef exports. Beef exports to the U.S. recent years with per capita consumption declined from 370,446 tonnes in 2005 to remaining constant at around 30 kgs per 298,085 tonnes in 2006, and the value of these person (retail weight) and beef demand exports declined from $1.55 billion to $1.09 declining six per cent in 2006. Canada billion. The reduction in beef exports in 2006 supplies three per cent of the beef that is was a result of two main factors. As discussed consumed in the U.S., having declined after in the Market Context-Trade section earlier in peaking in 2005 when it supplied 3.9 per cent this Report, reduced calf numbers and large of all U.S. beef consumed. Meanwhile feeder cattle exports throughout the second Canada was the second largest source of beef half of 2005 and all of 2006 reduced the imports in 2006 when it supplied 27.4 per number of animals available to be marketed as cent of all U.S. beef imports in 2006, whereas slaughter cattle in Canada (and thus reduced in 2005 Canada supplied 30 per cent of all the number of animals that domestic slaughter U.S. beef imports. Australia replaced Canada plants could bid on to process domestically). as the largest supplier into the U.S. in 2006, In addition, large numbers of slaughter cattle capturing a 28.8 per cent market share. were also exported to the U.S. in 2006 due to strong U.S. demand for these animals.

UNITED STATES 63 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Total U.S. Beef Consumption measure that can be compared on an annual U.S. Domestic Production ROW Beef Imports Canadian Beef Imports basis to monitor relative shifts in value. In 14,000 2004 U.S. Choice traded $12/cwt over

12,000 Canadian AAA product and Select product traded $7/cwt over AA product. In 2005 10,000 Canadian product continued to trade below 8,000 U.S. product, but the price differential had 6,000 narrowed significantly. The average price

1,000 CWE MT 4,000 difference between Canadian and U.S.

2,000 product in 2006 saw the AAA cutout trade $2/cwt over Choice and the AA cutout trade 0 $10/cwt over Select. This trend has 2000 2001 2002 2003 2004 2005 2006 Source: USDA continued in 2007, with AAA values $3/cwt In 2007 Canadian beef exports to the U.S. above Choice values in the first six months of have shown a positive increase, with exports the year and AA values $9/cwt above Select. running five per cent higher in volume and four per cent higher in value for the first six months of the year. Beef exports to the U.S. Canadian Beef Exports to the U.S. by are projected to reach 312,990 tonnes with a Product Type, 2006 total value of $1.14 billion – and make up 81 Veal Bone In per cent of all Canadian beef exports. Misc 5% 2% 10% In order to allow for a price per unit Offal Boneless comparison between Canadian and U.S. 4% Cuts product in the U.S., cutout values for 35% Canadian AAA were compared to U.S. Choice on a Canadian dollar basis. This of course is a rather simplistic measure and could be considered inflated (to Canada’s advantage), Trim as it does not account for costs associated 44% with getting product into the U.S., lack of grade equivalency for Canadian beef in the The composition of beef exports to the U.S. U.S. market, and differences in composition has been tracked and monitored for the last of products exported by Canada into the U.S. two years. This information provides an At the same time it does provide an overall important perspective in terms of monitoring Canadian AAA vs. U.S. Choice Cutout Value shifts in product composition and value of beef exports to the U.S. In 2006 bone-in AAA Choice 300 product made up two per cent of total beef exports, as compared to one per cent in 2005. 260 Meanwhile boneless cuts fell from 44 per cent 220 to 35 per cent of beef exports during the same 180 time period. Trim has maintained a steady Can$/cwt market share between 43 and 44 per cent, 140 while offal market share increased from 2.6 100 per cent to four per cent.

Jan-04 Jan-05 Jan-06 Jan-07 Sep-03 Sep-04 Sep-05 Sep-06 May-03 May-04 May-05 May-06 May-07 Source: CMC, USDA

UNITED STATES 64 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

U.S. Summary of 2006/07 Activities

BIC MARKET OBJECTIVES: well as through paid advertising. The 1) Increase export volumes to the United electronic Beef Up Your Business newsletter is States for all eligible beef products at as distributed to approximately 1,000 U.S. high of value as possible relative to USDA contacts. Website visits during the trade Choice and Select grades. advertising campaign increased by 25 per cent. 2) Reduce vulnerability to potential trade BIC also worked to establish relationships impairment. specifically with U.S. trade media to increase 3) Further establish the Canadian Beef understanding and profile of Canadian beef Advantage with suppliers of Canadian beef. and its market development programs.

The U.S. market development program The growth of Partner Programs, particularly developed significant momentum in 2006/07 with Hispanic clients, represents a strong due to a fully staffed and dedicated U.S. opportunity to have impact and build market development team. Significant focus momentum, a positive position given the was given to communicating the Canadian Beef upcoming mandatory U.S. Country of Origin Advantage to solidify and further develop the Labelling (COOL). Total Canadian beef U.S. market for Canadian beef. moved through these programs during the past year represents an additional 3.7 million The program currently has 10 Partner pounds of new Canadian beef volume. The Program initiatives completed or actively establishment of these successful projects has running that have driven significant quantities generated excellent returns for the Canadian of new Canadian beef volume to the U.S. beef industry, and achieved a positive market. The Partner Programs aim to response from supply chain partners to establish and increase volume and value to continue and grow these and other Canadian beef producers by building linkages opportunities. BIC has also met with most of between Canadian beef suppliers and the Canadian packers (Atlantic Beef Products, potential U.S. customers. The focus with key Gencor, Natural Valley, St. Helen’s, Ryding trade contacts has been educational (i.e. how Regency, Cargill and XL) to communicate to position the Canadian Beef Advantage goals and determine how BIC can provide strategically) and identifying opportunities to service to them regarding their U.S. marketing build beef volume and value. efforts.

U.S. market initiatives also deliver technical Communications through website services to enhance communication (www.canadianbeef.info), media, publications capabilities within the United States. BIC and printed resources play a very important conducted over 25 targeted presentations to role in BIC’s U.S. marketing programs. New U.S. trade and client organizations in resources are being developed, including an 2006/07. The seminars have strengthened independent Hispanic retail kit, to provide client understanding of Canadian beef as well support to Hispanic retailers and build on the as building strong trade-driven relationships at opportunity to grow Canadian beef volumes all levels of the value chain. in this important market. BIC’s role in monitoring, analyzing and assessing the Trade communications include impact of issues, events and trends that may communicating the Canadian Beef Advantage have the potential to erode customer directly to the retail and foodservice trade as

UNITED STATES 65 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT confidence in our product is ongoing and essential to solidify the U.S. market.

U.S. Performance Measures

CANADIAN SHARE OF TARGET MARKETS • A similar proportion (22%) comment AND MARKET SEGMENTS positively about animal health and feeding practices. BIC’s U.S. market development strategy has been strategically aligned with Canadian Two-in-three of respondents agree that packers to identify key markets to focus Canadian beef offers a positive quality and activities. The key markets for which all value proposition compared to USDA-graded activities will be focused are: California, beef (while only 10 per cent disagree). Nevada, Arizona, Pennsylvania. Ohio, Michigan, New York, New Jersey, Florida, When considering the Canadian beef value and Massachusetts. Secondary markets proposition, several favourable responses include the Pacific Northwest and the rest of were provided. Currently, most respondents the Northeastern U.S. believe that Canadian beef is about the same as similarly-graded USDA beef for flavour Within those market segments BIC is (86%), appearance and colour (85%), and high focusing on the retail, foodservice and standards of animal health at the beef processing segments. The total number of producer level (83%). Canadian beef is customers reached directly or indirectly in perceived to offer an advantage for its grading these markets exceeds 145,000. standards and quality/value proposition. Twenty-four per cent reported that Canadian CUSTOMER AWARENESS AND beef offers an excellent quality and value UNDERSTANDING OF CANADIAN BEEF proposition and 32 per cent reported overall better grading standards in comparison to VALUE PROPOSITION U.S. beef. In September 2007 BIC conducted a survey with U.S. industry partners, customers, and BIC was consistently reported as providing potential customers to measure awareness of high quality and useful information and key components of the value proposition and services. Eighty-one per cent reported BIC’s value of BIC’s services and resources. services/resources enhanced their understanding of the Canadian grading system Key results of the survey include: and how it compares to the USDA grading system. One hundred per cent of respondents had something positive to say about Canadian Seventy to seventy-one per cent reported that beef. BIC enabled them or their organization to better understand the overall quality, safety • 1-in-3 (32%) talk positively about the quality standards of Canadian beef. and value of Canadian beef. Sixty-six per cent reported that BIC enabled them or their • 1-in-4 (25%) mention the Canadian beef grading system (in terms of it being better, organization to better understand food safety with higher standards). programs and interventions utilized in producing Canadian beef.

UNITED STATES 66 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Respondents had very positive impressions of In 2006/07 BIC hosted four Partners for BIC services/resources. Over 97 per cent of Success seminars which were held in respondents rated BIC-printed materials, such Philadelphia, Santa Monica, Boston, and San as posters, manuals or brochures, and Jose. Canadian beef seminars have attracted seminars or presentations as excellent or very 127 end-user customers. good. Between 87 per cent and 91 per cent of respondents rated BIC’s Partner Programs, BIC participated in 11 trade shows, resulting financial tools and Internet resources as in an estimated 90,000 buyers directly excellent or very good. contacted. Presentation content focused on communicating quality, value and safety of Fifty-seven per cent increased their company’s Canadian beef, and to create linkages with ability to grow sales of Canadian beef based buyers and Canadian packers. Trade shows on quality and value. (distributors/packers only) that BIC participated in include: • American Chefs Federation – Philadelphia Three-quarters of buyers/distributors • Expo Comida Latina – Los Angeles surveyed had personal experience with buying • Western Foodservice Expo – Los Angeles Canadian beef. Forty-one per cent stated • Florida Foodservice Expo – Orlando “yes” that purchase was influenced by BIC • Expo Comida Latina/Kosherfest – New info while 33 per cent said “no” to purchase York was not influenced by BIC information. • National Grocers Association – Las Vegas • American Meat Institute – Orlando Ninety-two per cent of past buyers intended • Natural Food Expo – Anaheim to buy or sell Canadian beef again in the next • NAMP Annual Conference – Chicago six months. Among non-buyers, a strong 69 • Marine Hotel Association – Miami per cent believed they are likely to buy or sell • National restaurant Association – Chicago Canadian beef in the next six months. Aligning with domestic packers to Beef buyers/distributors/packers surveyed communicate BIC objectives is strategically perceived that Canadian promotional support significant to maximize synergies and for Canadian beef is better than U.S. impact. Canadian sales and marketing promotional support for U.S. beef. seminars enabled BIC to reach 15 sales • 56% believed Canadian support is better representatives. Each sales representative (31% say “much” better) would market directly to approximately 50 • 15% believed US support is better (9% individual U.S. customers, which translates say “much” better). to 750 end-user customers.

The following represents key domestic SIZE OF MARKET INFLUENCED BY THE contacts made: VALUE PROPOSITION • Cargill Foods – High River, Alta.

• Cargill Foods – Guelph, Ont. In the identified U.S. markets, BIC has • Gencor Foods – Kitchener, Ont. focused efforts on communicating to trading • St. Helen’s – Toronto, Ont. partners through various strategies including • Ryding-Regency – Toronto, Ont. Canadian beef seminars, packer sales office • XL Meats Calgary – Alta. training, regional trade shows, and utilization • Rancher’s Beef – Balzac, Alta. of market intelligence to identify potential • Natural Valley Farms – Wolelesly, Sask. target customers.

UNITED STATES 67 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Communicating the unique attributes to BIC’s These company-specific training seminars strategy to sales forces of U.S. sales offices have enabled BIC to directly reach 302 sales that represent Canadian packers enables BIC representatives that cover an estimated 6,500 to leverage efforts to maximize the value of potential end-user customers. Canadian beef sales. These seminars focus on educating the sales force on the overall Resources communicating the quality and quality, safety and value of Canadian beef with safety attributes and overall value proposition a strong focus on grade equivalency to U.S. of the Canadian Beef Advantage, reach potential grades. The information is utilized to enable customers and drive awareness of the sales forces to sell Canadian beef on its Canadian beef brand – and have been actively relative quality versus USDA grades versus a distributed through packer sales networks, discount approach that had historically been trade shows, the www.canadianbeef.info used to secure price point based sales. website and trade communications.

The following represents key contacts made Within this fiscal year the U.S. market with U.S. packers: development team utilized: • Tyson Foods – Dakota Dunes, S.D.  3,500 copies of the Canadian beef Quality • Tyson Sales Centre – Lawrence, Ga. that Inspires Confidence marketing resource • Tyson Sales Centre – Birmingham , Ala. to trade customers (key messaging: • Tyson Sales Centre – Chicago, Ill. Canadian grading, quality, production • Cargill Meat Solutions – Wichita, Kan. systems, safety systems, cattle ID and • Cargill Food Distribution – Tracy, Calif. animal health, pristine environment, • Cargill Foods Distribution – Chicago, Ill. processing capabilities)  5,000 Canadian beef merchandising guide Aligning with domestic packers and U.S. sales posters (key messaging: Canadian/U.S. offices of Cargill and Tyson has enabled BIC grade equivalents, competitive to reach 96 sales representatives who in turn merchandising opportunities with sell Canadian beef directly to an estimated Canadian beef) 48,000 end-users – with messaging around  2,500 Spanish marketing/merchandising Canadian beef quality, value and safety. guides (key messaging: Canada/U.S. grade equivalency). Company-specific training sessions were conducted for these companies and included BIC’s Customer Service Centre distributed content communicating the quality, value and 25,594 resources (all delivering key messages safety of Canadian beef, along with identifying supporting the value proposition) to U.S. partnership opportunities for retail and customers in 2006/07. Email distribution of foodservice: the U.S. Beef Up Your Business electronic newsletter reached 1,000 U.S. trade • Amigo’s Foods – Chicago, Ill. customers. • Vista Food Exchange – Atlanta, Ga.

• Vista Food Exchange – Jensen Beach, Fla. In conjunction with the Canadian Cattlemen’s • Vista Food Exchange – Forest, Mass. Association, BIC maintained preparedness on • Vista Food Exchange – Bronx, N.Y. current and emerging issues, with a capability • Gordon’s Foodservice – Grand Rapids, to respond effectively to a range of potential Mich. crisis situations. BIC worked with CCA to • Gordon’s Foodservice – Louisville, Ky. develop a joint crisis response protocol and • Gordon’s Foodservice – Miami, Fla. simulation that defined responsibilities of

UNITED STATES 68 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT staff, action plans and performance measures
"The BIC is a valuable resource for SKH. Their for implementation in the event of a crisis. Partner Program has allowed for greatly BIC monitored daily media coverage and expanded promotions of Canadian beef which tracked 29 emerging issues throughout the have contributed to increasing volumes. There will year preparing and updating key messages, be additional partnership requests in the near backgrounders and industry updates as future with the goal of continuing our momentum appropriate. created with the help of our first partnership program.” NEW MARKETS AND CUSTOMERS CREATED –John Gerlach Stauffer’s of Kissel Hill AND MAINTAINED BY FUNDED INITIATIVES
“The BIC has been a great supporter of our BIC conducted and distributed three retail Canadian beef program that we have recently surveys (Southern California, Florida, U.S. rolled out in the GFS® - Florida Division. The Northeast) geared to building a better resources and talents will be put to great use at the understanding of retailers’ position and Florida Restaurant and Lodging Show where understanding about Canadian beef. they will present three new custom cut steak concepts using our new Canadian GFS® An in-depth assessment of the natural beef Foodservice Boxed Beef. This show will attract category in the U.S. was completed to assist restaurant and hotel customers from all over BIC and potential Canadian brands evaluate Florida and nearby states and it should prove to its market potential. be a great kick-off to our new program. We could not have done it without BIC support. ‘Building Partner Programs that cost share up to a to be the Best’. Together, WE make it happen." maximum of 75 per cent of total project costs –Ted Van Atta have been established with 11 U.S. trading Gordon Food Service, Florida partners in various sectors, outlined below: Distributors
“Ritter Foodservice had been searching for a beef partner for years that would commit to a long- • Gordon’s Foodservice term strategy to BRING ALIVE our beef • Amigo’s Foods category and would share in our long-term vision • Vista Foods for what it could become. Well we found it with Retailers the BIC; never would we have thought their commitment would be so strong, professional and • La Bonita visionary. The team has been non-stop since we • Rincon first met, sharing resources to benefit and support • Stauffer's of Kissel Hill Canadian beef with both retail and foodservice • Bonanza Foods customers, real strategic planning and supply • C&K Meats chain all for the benefit of growing OUR beef Processors category and adding value in our customers minds. We love what the BIC has done for us and what • Cho Won Foods the future will be. BIC IS TRULY A • All in Good Taste REMARKABLE TEAM WITH ONE • Old World Provisions GOAL.....THE CUSTOMER!!!! p.s Jeff To demonstrate BIC successes, several Trafford’s commitment to our success is industry comments below highlight the unparalleled!” positive impact of BIC services/resources. –Jeff Katelan Director of Sales and Marketing Ritter Foodservice

UNITED STATES 69 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

"Our relationship with BIC has grown and was allocated for activities that are underway strengthened over the past few years. Our for completion in 2007/08. customers and sales force have benefited from the educational material and customer resources along OBJECTIVE AND BENEFIT REALIZATION with direct market development. BIC's work in traditional and ethnic markets has helped CFD The development of a unique brand identity and Cargill Canada grow in the U.S." for Canadian beef in the U.S. consumer –Hal Sankey, Cargill Food Distribution market that includes strategy, positioning and architecture for Canadian beef is well
“The dedicated team at the BIC has put our underway. An online quantitative survey was company in touch with valuable Canadian conducted in key target markets (Los Angeles, suppliers and has helped to further educate our New York, Philadelphia). The study staff on beef from the ‘farm to fork’. Thank you. concluded that in the markets surveyed, U.S. Sincerely,” consumers are willing to try Canadian beef, –Michelle Whaley even though they rank U.S. beef higher on all Vista Food Exchange, Inc. attributes tested versus their perception of Canadian beef. Branding concepts were
“The information presented to us by Jeff Trafford developed based on the quantitative results and Marty Carpenter opened the eyes of our sales and tested in qualitative focus groups. Focus staff but more importantly opened the minds of group results will be used to develop many of our customers. The wealth of positioning for Canadian beef for the U.S. information provided by BIC abolished any market. doubts as to the marketability of Canadian beef.” –Manny Rangel, Chief Financial Officer Objective 1: Increase export volumes to the Amigos Foods United States for all eligible beef products at as high of value as possible relative to USDA
“BIC has been an invaluable resource in C&K's Choice and Select grades. effort to broaden its purchasing from Canadian packers. To a small, yet rapidly growing From July 2006 through June 2007 the wholesaler like C&K, I cannot imagine a better Canadian cutout value has traded at a long-term partner than BIC in both sourcing and premium to USDA Choice for the most of marketing of quality Canadian beef.” the year, specifically during the high demand –C&K Foods periods of May-September. Boxed beef exports continue to decrease with the increase INDUSTRY FUNDING LEVERAGE PROVIDED of live cattle exports and reduced slaughter TO FUNDED INITIATIVES rates.

Total BIC investment directed to partnered US Choice/Canadian AAA spread initiatives was $68,990. Total Partner dollars 80 leveraged $291,228 of partner investment. 60

40 LEVEL OF COMPLETION OF FUNDED 20

INITIATIVES $/cwt Cdn 0 BIC completed $2,103,302 of $2,336,654 total -20 planned initiatives. This resulted in a 90 per

cent completion rate. An additional $233,358 Jan-04 Jan-05 Jan-06 Jan-07 Sep-03 Sep-04 Sep-05 Sep-06 May-03 May-04 May-05 May-06 May-07

Source: CMC, UNITED STATES 70 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

customers. We have used the BIC in customer Objective 2: Reduce vulnerability to potential tours in Canada to educate them on our best total trade impairment. value and the quest to equilibrate the value of Canadian beef in North America. Production Through BIC trade-directed seminar series from our Canadian facilities is an important part and trade show participation, BIC has been of our business. BIC has provided assistance in able to segment key markets with a specific building value and understanding that has helped focus on regional independent retail chains, to facilitate the growth in value and volume of ethnic markets and foodservice distribution. Canadian beef with our customers.” This has enabled BIC to target customers to –Norman Bessac, VP Marketing which Canadian beef can offer a competitive Cargill Meat Solutions advantage, and eliminate their concerns around potential impact from impending
“I just wanted to take a moment to express our Country of Origin Labelling legislation. BIC thanks for the work that your team has done to has aligned with packer sales offices in key help Tyson Fresh Meats promote the sales of our markets to identify the customers in which the beef products out of the Lakeside facility in Canadian plants have the most ability to Canada. You've now made presentations to satisfy demands and add value through several key customers including Sysco, Quantum, increased levels of service and quality, offer Rare, Amigos and Buckhead. We remain packers the least logistical limitations, and confident that all these customers will be key leverage the BIC Partner Program for outlets for Canadian beef products as we move additional marketing incentives. ahead. I've found the staff of the BIC to be energetic, accommodating and informative and Objective 3: Further establish the Canadian appreciate your willingness to help support and Beef Advantage with suppliers of Canadian beef. promote the sales of Tyson’s Canadian Beef products. Thanks very much for your efforts!” Through ongoing educational seminars and –Jerry Holbrook trade shows, BIC has been influential in SVP Fresh Meat Sales & Marketing developing the sales approaches of Cargill and Tyson Fresh Meats Tyson’s U.S. sales offices, as well as distributor customers, to enhance their
“Tyson's sales presentations resonate well with its understanding of, and ability to communicate customers, but when the BIC Team follows up the value proposition around quality, value with very detailed information regarding and safety of Canadian beef. Canadian beef, the customer becomes much more comfortable discussing Canadian beef and its
“Cargill and I personally have built a attributes.” relationship with Marty and the BIC over the –Randy Saager past years. We have worked collaboratively on Tyson Fresh Meats Foodservice Sales promoting the value of Cargill Canadian beef in to the United States. The initial focus has been
“I would like to compliment the BIC, especially educating our sales people on the Canadian beef's my contacts Jeff Trafford and Marty Carpenter, equivalence. Marty and his team have been most on the outstanding efforts they have shown in cooperative in this journey, at times at a moments bringing awareness to retail and foodservice notice. The BIC team has also embarked on a customers alike with all the features and benefits journey educating our CFD teams and their of Canadian Beef. Sincerely,” respective Canadian friendly customers. The –Scott Leckrone, Tyson Fresh Meats CMS's foodservice team has used the expertise of the BIC to educate both their teams and selected

UNITED STATES 71 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

EFFICIENCY OF CCMDC INVESTMENTS (incremental sales revenue per dollar invested in promotion)

Volume driven by funded initiatives is in excess of 1,663 tonnes additional volume, as reported directly by partners on all cost- shared initiatives.

BIC investment on those specific initiatives totalled $68,900. Incremental sales of 53.22 lbs for every one dollar invested, or .018 per incremental lb sold.

UNITED STATES 72 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT Mexico

2006 Marketing Target

The Canadian beef and cattle genetics industry has established a set of marketing targets for sales over the near to medium-term. For this Results Report period, the 2006 target for Mexico was:

Exports (MT) 100,847 CCMDC Strategic Marketing Plan July 1, 2006 (volume in product weight)

Market Situation and Indicators

2002 2005 2006 2006/05 YTD 07 2007P Beef Exports Value (million $) $289.66 $209.28 $152.96 - 27% + 19% $182.02 Beef Exports Volume (MT) 77,887 52,336 40,243 - 23% + 11% 44,670 Canadian Share of Import Market 16.1% 19.4% 11.5% -- -- 11.1% U.S. Share of Import Market 79.7% 73% 83.6% -- -- 84.2% Mexico Imports % of Cdn Prod 5.04% 4.53% 2.69% ------Cdn Product Price (CDN$/cwt) $168.69 $181.38 $172.44 - 5% -- -- U.S. Product Price (CDN$/cwt) $178.07 $200.89 $183.86 - 4% -- -- (volume in product weight)

Mexico’s ban on Canadian beef was partially Canadian Beef Exports to Mexico lifted in October of 2003 to allow for the 90 350 import of over-30-month offal and all 80 Volume 300 products from animals that are under-30- 70 Value 250 months of age. Despite this market access, 60 Canadian beef exports to Mexico declined 50 200 throughout 2005 and 2006 after peaking in 40 150 2004. The main reason for a decline in 30 1,000Tonnes

100 MillionDollars exports was increased export competition 20 from the U.S. after the border was partially 10 50 reopened in March 2004. Mexico also 0 0 reopened its border to beef imports from 98 99 00 01 02 03 04 05 06 07p Uruguay in August 2006, which resulted in a S ource: St at istic s Cana da, CBEF, AAFC, CFIA further increase in competition. Canadian beef exports remained at 11 per Canadian beef exports to Mexico decreased cent. Eight-five per cent of Canadian beef 23 per cent from 52,300 tonnes in 2005 to exports to Mexico were boneless beef in 2006. 40,200 tonnes in 2006. Meanwhile, the value In 2006, Canadian beef exports to Mexico of these exports decreased 27 per cent from represented 2.7 per cent of Canadian domestic $209 million in 2005 to $153 million in 2006. beef production (excluding slaughter cattle Even with the large decline in beef exports to exports), which is down from 4.5 per cent in Mexico in 2006, Mexico’s share of total 2005 and 7.8 per cent in 2004.

MEXICO 73 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Mexico was the fifth largest beef importing Canada's Market Share of Mexico Imports nation in 2006. Demand for beef has 35% continued to increase – being fuelled by 30% steady population growth, a growing economy, and a stable exchange rate. Canada 25% supplies 2.5 per cent of beef consumed in 20% Mexico, having declined after peaking in 2004 15% when Canada’s share was five per cent. 10% Meanwhile, Canada was the second largest 5% source of beef imports in 2006, supplying 11.5 0% per cent of all Mexican beef imports in 2006. 98 99 00 01 02 03 04 05 06 07p The U.S. is the largest beef supplier into Source: GIRA Mexico with a market share of 83.6 per cent. While Canada’s market share fell from 19 to by total volumes. U.S. prices are then 11 per cent in 2006, U.S. market share converted into Canadian dollars using an increased from 73 to 83.6 per cent. The U.S. annual average exchange rate. This of course has been slowly gaining market share since is a rather simplistic measure that does not 2000 when it supplied 70 per cent of all account for differences in the composition of imports. Mexico has willingly taken increased products exported by each country, volumes of competitively priced product from fluctuations in the exchange rate, and various countries outside of the U.S., but with other factors. However it does provide an reduced domestic beef supplies and strong overall measure that can be compared on an demand in both Canada and the U.S., annual basis to monitor relative shifts in value. Canadian beef imports into Mexico have seen The Canadian beef price per cwt for beef a downturn. exports to Mexico has been consistently lower than the U.S. price since 2001, with the However, Canadian beef exports to Mexico greatest price difference in 2005 at for the first half of 2007 are running 11 per approximately $20/cwt. In 2006 this price cent higher than the same period in 2006. differential narrowed to $11.4/cwt. Beef exports are projected to reach 44,670 tonnes with a total value of $182.02 million in Mexico exported high quality beef to Japan 2007. At the same time, Mexican imports for the first time in December 2004. Grain from the U.S. have dropped sharply in 2007 finishing of cattle is gradually expanding, with with January to May imports for beef and veal an estimated 35 per cent of cattle fed in down 14 per cent. feedlots in 2006. Strong domestic demand and opportunities to export into Asia have In order to allow for a price per unit supported firm steer prices and resulted in comparison between Canadian and U.S. domestic beef production increasing 2.6 per product in Mexico, total values were divided cent in 2006.

MEXICO 74 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Mexico Summary of 2006/07 Activities

The Canada Beef Export Federation and public relations activities, and one market continued to maintain local representation research project. with three staff members in the Mexico office in 2006/07. This office functions as the focal Significant penetration into new market point of buyer-seller activities and actively niches was accomplished, as was a promotes Canadian beef within the trade, as regeneration of confidence in the Federation’s well as in cooperation retail and foodservice and the Canadian industry’s commitment to end-users. In the last year, the program focus increase market share and demand. This was was on delivering technical materials and re- accomplished through the printing and establishing Canadian beef in the market on massive distribution of educational and the basis of differentiating it from the promotional materials to current and potential competition; and developing new niche clients, the redesign of the website in Spanish, markets. The Mexico office completed one and a face-to-face strategy with clients. These VIP beef awareness mission, six CANADA initiatives were successful in opening doors BEEF seminars, 17 retail and foodservice which in the past have been closed to CBEF, promotions, three food shows, 28 both in the retail and HRI (hotel, restaurant, promotional materials projects, 11 advertising institutional) sectors.

Mexico Performance Measures

CANADIAN SHARE OF TARGET MARKETS industry representatives and government AND MARKET SEGMENTS regarding market access issues including imports of product derived from over-30- CBEF Mexico has maintained close contact month cattle and harmonization of inspection with the Canadian Embassy in Mexico – as and test processes. well as with representatives of Mexico’s Ministry of Agriculture, meat inspection A series of Seminars (Building Demand and authorities, and SALUD (human health Differentiation) were conducted in Monterrey, authorities) – in order to expand market Mexico City and Cancun as a powerful tool of access. CBEF Mexico played a key part in information and encouragement for our April 2006 funding and organizing a round of customers to have a solid understanding of inspection visits from SALUD to several where the Canadian beef industry stands Canadian plants. Those visits were in order to today and what it has to offer. While these get approval from Mexican authorities to re- seminars were open to the general public, the allow bone-in beef product from those key audience was representatives from the facilities into Mexico. A few months after the foodservice and retail sectors. The strategy to round of visits (in July), SALUD announced reach both sectors was also reinforced by their permission for another five Canadian CBEF’s presence at Mexico’s most prestigious plants to start exporting bone-in beef into shows (i.e. Expocarnes, Antad and Abastur) Mexico. CBEF Mexico was also an active as well as by participation in different tabletop participant throughout the Canada-Mexico displays organized by the Canadian Embassy Partnership. Meetings held in Mexico City in in Mexico in high-end resort areas. March 2007 with Mexican cattle and meat Continuous visits, email exchanges and calls

MEXICO 75 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT to key clients (current and potential big CBEF became more effective and closer. In volume consumers) were also part of the Canada, CBEF increased awareness for its office’s everyday job, with the aim to increase export members through newsletters; the awareness in the Mexican market of the distribution of developments through emails benefits of selecting Canada’s beef products and website trade flashes; annual and semi- as the best option for their companies and annual meetings, including written clients. Two special brochures of Canadian proceedings; VIP missions to motivate beef distributors in Mexico and Monterrey members to pursue opportunities and were printed and distributed at every CBEF relationships; and the Partner Market event in order to provide potential clients Development Program which shared the cost with updated contact information of of market familiarization and market entry. companies that can supply their demand for Canadian beef. A complete yield test was IN-MARKET PRICE DIFFERENTIAL performed with different cuts from diverse BETWEEN CANADIAN AND COMPETING countries of origin as a way to show clients BEEF PRODUCTS how good our products are, as well as to find out where on which Canadian products there Prices for Canadian and U.S. beef in Mexico is still room for improvement. Specific have shown remarkable parity in the last seminars were delivered to culinary institutes months. This was not a common situation in and specific clients. CBEF Mexico efforts the past. In early days, a discount price for resulted in regaining space and presence at Canadian beef was generally demanded by the retail meat counters in the most important Mexican market due to misconceptions and Mexican supermarkets as well as in five-star lack of knowledge about Canadian product restaurants through the implementation of and its advantages over U.S. competitors. aggressive promotional campaigns that, in However, some factors still create significant most cases, not only maintained consumer differences which put Canadian product at an loyalty levels, but also resulted in remarkable unfair disadvantage with U.S. product. increases. A dedicated follow-up with the Freight costs for Canadian beef increases the most respected importers-distributors in product cost, particularly for those clients Mexico has started to pay dividends for the who make their purchases under a formula Canadian beef industry. (USDA + X) basis. As well, some cuts are sold at a better price in Canada or Northern The CBEF Mexico office completed monthly U.S: There is no point in exporting those competitive intelligence reports for the products to Mexico if a lower value will be information of export members regarding obtained for them; if a client in Mexico wants Mexico’s country situation and, specifically, one of those specific cuts, a higher price will the beef market, including opportunities and have to be paid in order to get it. The same constraints for exporters. CBEF Mexico has product exported into Mexico from Southern also provided several business leads to CBEF U.S. will be cheaper. In the case of certain members as a way to push for allocating offal (e.g. lips and cheek meat) product specs bigger volumes of Canadian product. The from Canada deliver a lower yield compared VIP missions conducted in Canada provided to U.S. product, and logically clients demand a export members with the opportunity to cheaper price because of the shrink once the interact directly with key Mexican customers product is cooked. This situation can easily and exchange useful points of view with be fixed through the implementation of a CBEF Mexico representatives. different leaning process at the plants. Communication between CBEF export Finally, a stronger Canadian currency has members’ representatives in Mexico and

MEXICO 76 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT made prices for Canadian beef higher due to 98 per cent indicated increased understanding higher labour and transportation costs. of Canada's ability to supply safe and high quality beef; 95 per cent indicated increased CUSTOMER AWARENESS AND understanding of Canadian beef grading UNDERSTANDING OF CANADIAN BEEF system advantages over other suppliers; 97 per VALUE PROPOSITION cent indicated increased understanding of CBEF programs, services and resources; 92 In 2006, 80 per cent of surveyed customers per cent rated the seminar as valuable; 95 per indicated CBEF services and resources cent expressed interest in receiving more increased their understanding of the quality of information from CBEF; and 89 per cent Canadian beef including the Canadian beef requested follow-up contact from CBEF. grading system. At a Demand Building Seminar held March 27, In 2006, 68 per cent of surveyed customers 2007 in Monterrey with 300 participants: indicated CBEF services and resources 95 per cent indicated increased understanding increased their understanding of food safety of Canada's ability to supply safe and high programs and interventions used on Canadian quality beef; 95 per cent indicated increased farms producing cattle. understanding of Canadian beef grading system advantages over other suppliers; 100 In 2006, 66 per cent of surveyed customers per cent indicated increased understanding of indicated CBEF services and resources CBEF programs, services and resources; 100 increased their understanding of food safety per cent rated the seminar as valuable; 95 per programs and interventions used in Canadian cent expressed interest in receiving more meat processing establishments producing information from CBEF; and 80 per cent beef. requested follow-up contact from CBEF.

In 2006, 78 per cent of surveyed customers At a Differentiation Seminar held October 24, indicated CBEF services and resources 2006 in Mexico City with 90 participants: increased their understanding of the 98 per cent indicated increased understanding competitive advantages of using Canadian of Canada's ability to supply safe and high beef versus other sources of imported beef. quality beef; 96 per cent indicated increased understanding of Canadian beef grading In 2006, 85 per cent of surveyed customers system advantages over other suppliers; 98 per indicated CBEF services and resources cent indicated increased understanding of increased their understanding of how CBEF programs, services and resources; 97 Canadian beef grades compare to those used per cent rated the seminar as valuable; 100 per by the United States for its beef. cent expressed interest in receiving more information from CBEF; and 92 per cent In 2006, 70 per cent of surveyed customers requested follow-up contact from CBEF. indicated CBEF services and resources increased their understanding of purchasing SIZE OF MARKET INFLUENCED BY THE specifications and regulations for importing VALUE PROPOSITION Canadian beef. Mexico imported a total of 341,525 tonnes of At a Demand Building Seminar held November beef in 2002. This market decreased to 16, 2006 in Mexico City with 96 participants: 310,169 tonnes in 2006. A total of 41 per cent of surveyed beef buyers in this market

MEXICO 77 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT used or purchased Canadian beef. A total of LEVEL OF COMPLETION OF FUNDED 36 per cent of surveyed beef buyers in this INITIATIVES market indicated that CBEF programs and resources have increased the amount of The Canada Beef Export Federation Canadian beef they sold or processed. completed $698,113 of $960,000 in planned CCMDC-supported market development NEW MARKETS AND CUSTOMERS CREATED activities in Mexico during the 2006/07 fiscal AND MAINTAINED BY FUNDED INITIATIVES year. This represents a 73 per cent level of completion of funded initiatives. This was a Several new clients and niches have been transition year for senior management in created for Canadian beef during 2006/07 Mexico, which resulted in less use of retail and through CBEF Mexico initiatives. For foodservice promotion funds. example, Sigma Alimentos and Bafar, Mexico’s top two further processors which OBJECTIVE AND BENEFIT REALIZATION did not previously use Canadian beef have become clients. In the retail sector, Of the 41 per cent of 227 Mexican clients that companies such as Soriana maintain loyalty to have purchased Canadian beef products, 31 Canadian product, and Wal-Mart has initiated per cent indicated they were very satisfied or purchases of Canadian beef. Tiendas Arteli is satisfied while only three per cent indicated an excellent example of a growing Canadian that they were dissatisfied. beef product presence in their meat cases. Among other clients, Alimentos San Mateo, Canadian beef exports to Mexico decreased Dipcen, Carnes Selectas Inc., Grupo Ayvi, by 23 per cent in 2006 to 40,243 tonnes ($153 Carnes Victoria, and Sana Alimentos as well million). This has been the primary result of as several more have maintained, and in some cost (strong Canadian dollar and tight labour cases increased their preference for Canadian markets) and market access challenges. beef. In the foodservice sector, companies like Xo De Chihuahua and most recently The Expocarnes show held in February 2007 Comnor, are now good supporters of at Monterrey was a major success for CBEF Canadian beef. Regular meetings conducted Mexico. This show provided CBEF with a by CBEF Mexico with these clients, resulting renewed and strengthened image among the in a higher level of communication and Mexican meat industry, as well as providing interaction accompanied in most of the cases the Federation with an excellent source of with promotional efforts, have started paying contacts for potential promotional activities. dividends. The distribution of thousands of educational materials at this show has helped to increase INDUSTRY FUNDING LEVERAGE PROVIDED the awareness of Canadian beef in Mexico. TO FUNDED INITIATIVES

The Canadian cattle and beef industry contributed in excess of 25 per cent of all funds in support of CCMDC programs.

MEXICO 78 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

EFFICIENCY OF CCMDC INVESTMENTS (incremental sales revenue per dollar invested in promotion)

CBEF completed 11 retail and foodservice promotions utilizing the Sales Promotion Recommendation Form performance tracking system during the 2006/07 fiscal year. Sales to participating businesses increased by 71 per cent over base during the promotion period. The Federation invested a total of C$0.12 per kg of increased sales.

CBEF has invested an average of $17/tonne of Canadian beef sold to Mexico since 1996- 1997. This has ranged from a high of $39/tonne in 1997-1998 to a low of $6/tonne in 2000-2001.

Every dollar invested in the Canada Beef Export Federation has resulted in an average of $55.21 in total export sales to Asia and Mexico. Every dollar invested in CBEF has resulted in an average of $3.24 in new export sales to Asia and Mexico. Both measures of performance are recovering from BSE disruptions in 2003.

MEXICO 79 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

China including Hong Kong, Macau, Mainland China

2006 Marketing Targets

The Canadian beef and cattle genetics industry has established a set of marketing targets for sales over the near to medium-term. For this Results Report period, 2006 targets for China were:

China Exports (MT) 4,034 Hong Kong/Macau Exports (MT) 15,127 CCMDC Strategic Marketing Plan July 1, 2006 (volume in product weight)

Market Situation and Indicators

Hong Kong & Macau 2002 2005 2006 05/06 YTD 2007 2007P Cdn Beef Exports Value (million $) $2.9 $76 $56.4 - 26% + 12% $62.9 Cdn Beef Exports Volume (MT) 625 20,403 15,336 - 25% + 19% 18,250 Mainland China Cdn Beef Exports Value (million $) $7.1 ------Cdn Beef Exports Volume (MT) 2,651 ------China (including HK & Macau) Canadian Share of Import Market 7.1% 17.8% 16.4% ------U.S. Share of Import Market 47.1% ------China Imports as % of Cdn Prod 0% 1.8% 1.4% ------Canada's Export Prices $/cwt $139.07 $168.95 $166.85 - 1% U.S. Export Price $/cwt $130.08 ------(volume in product weight)

Canadian exports to China are separated Canadian Beef Exports to Hong Kong & Macau into two markets – Mainland China, and Hong Kong and Macau. While Canada is 25 80 currently able to export product into Hong 70 20 Kong and Macau, it is restricted from Volume 60 exporting beef into Mainland China. Value 15 50 Canadian beef exports to Hong Kong and 40 Macau increased dramatically after 2003, 10 30

with beef exports peaking in 2005 when 1,000Tonnes

20 MillionDollars 20,403 tonnes were imported for a total 5 value of $76 million. Export volumes to 10 Hong Kong and Macau were six times 0 0 98 99 00 01 02 03 04 05 06 07p larger in 2005 when compared to 2002. Source: Statistics Canada, CBEF, AAFC

While volumes and values decreased in 2006 beef exports running 19 per cent above year to 15,000 tonnes valued at $56 million, the ago levels in terms of volume – and 12 per first six months of 2007 have seen Canadian cent higher in terms of value. In 2007

CHINA 80 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Canadian beef exports to Hong Kong and Macau are projected to reach 18,250 tonnes Hong Kong & Macau's Market Share of 5.0% valued at $62.9 million. Hong Kong and Canada's Exports Macau’s market share of Canadian beef 4.0% exports was steady in 2006 at four per cent of total beef exports. Exports to all of China 3.0% (mainland, and Hong Kong and Macau) as a 2.0% per cent of Canadian beef production declined from 1.8 per cent in 2005 to 1.4 per 1.0% cent in 2006. 0.0% 98 99 00 01 02 03 04 05 06 07p Mainland China has seen a dramatic increase Source: Statistics Canada, AAFC, CFIA in beef consumption in recent years due to increased consumer incomes in urban areas. consumption make up less than one per cent. Between 2000 and 2006 beef consumption Canada’s market share of Hong Kong, Macau, has increased 39 per cent. China has a large and China’s beef imports peaked at 17.8 per domestic beef production industry that cent in 2005, before dropping to 16.4 per cent supplies the majority of domestic demand, but in 2006. Significant export competition exists increased demand for high quality grain fed within the Chinese market from the U.S., beef has encouraged increased beef imports. Australia, Brazil, and New Zealand. The U.S. With domestic production in China being was the largest supplier in 2002 when it held a fairly large, imports as a per cent of beef 47 per cent of market share.

China Summary of 2006/07 Activities

The Canada Beef Export Federation market were open. Together, these two continued to maintain local representation offices completed one VIP beef awareness with one staff member in the Hong Kong mission, three CANADA BEEF seminars, 47 office and one staff member starting in retail and foodservice promotions, three food October in the Shanghai office in 2006/07. shows, 14 promotional materials projects, With market access still to be regained in three advertising and public relations Mainland China, this office focused on activities, and one market research project. delivering technical materials and promoting Canadian beef within the trade. The Hong Having established a substantial level of Kong office continued to function as the importers/distributors/end-users bases, the focal point of buyer-seller activities in the China office spent considerable effort on region. The office delivered a slate of positioning Canadian beef with a message and enhanced promotional programs designed to image unique and meaningful to the market actively promote Canadian beef in and which also carries the quality advantage. cooperation with retail and foodservice end- The Western ‘Premium Grain-fed’ was users, and to expand established trade combined with the Chinese ‘Real and Natural distribution channels in the region. It should Taste’; resulting in a message that conveys the be noted that expenditures in the Shanghai specialty and quality image, as related to the office were reduced by approximately 50 per pursuit of premium and quality food in the cent of what they would have been if this market.

CHINA 81 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

China Performance Measures

CANADIAN SHARE OF TARGET MARKETS consumers. Showing the strong team AND MARKET SEGMENTS cooperation example to late adopters of Canadian beef led them to believe in the good In additional to continuous communication support provided by CBEF, if they committed with officials on the technical discussions to to taking a market position for Canadian beef resolve concerns about repeated BSE cases, in their sectors. The direct premium quality- CBEF China is always proactively tasting experience of Canadian beef at high- communicating with major importers to end Japanese-style supermarkets (in major stabilize their concerns/ worries about shopping and residential areas) helped to repeated BSE cases. Such efforts helped in maintain market acceptance in high-end avoiding any spread of downside expectations consumer groups. CBEF encouraged the in the local beef trade community due to continuous reminder of the good taste of repeated BSE cases, in turn alleviating Canadian beef to consumers, in view of the pressure from local parties and authorities to higher selling prices of Canadian beef. tighten market access. The China CBEF office intensified marketing support to major CBEF Hong Kong provided tasting retailers to confidently and repeatedly present promotion support and marketing Canadian beef in their daily sales, so as to themes/messages to strengthen confidence to strengthen confidence at the general public launch Canadian beef packs. Such levels via major media. CBEF China involved strategies/approaches have been highlighted more downstream parties of beef distribution in Sales Promotion Recommendation Form reports in CBEF programs, to create a stronger team and project applications. spirit and shared stakes in the established Canadian beef trade and business. These CBEF China fully utilized the VIP mission to activities resulted in a much greater base of bring in key as well as potential beef importers stakeholders in supporting improved market and clients, to have direct and in-depth access. contacts with export members. CBEF export members were involved in the nominations of CBEF China extended the CBEF business invited guests. Export members were association and cooperation via major introduced to key importers for in-depth importers downstream to their distribution product and focused business meetings during and retail clients. This increase in distribution organized visits to local markets. Export network coverage and channel alignments was members repeatedly used CBEF platforms highlighted by the participation in CBEF (meetings, communication services, food business seminars. This can strengthen the shows, etc.) to strengthen their subsequent major importers’ interests and resource business-making with local parties. CBEF commitments to maintain and develop the China proactively communicated with export volume momentum in importing Canadian members about the promotion programs that beef. CBEF China also stimulated awareness involved their products (types, volumes and and acceptance by consumers via joint timings) to enable useful understanding on the marketing/advertisement. Emphasizing team sell-through and sales momentum of their (famous importers/distributors, foodservice products. This created confidence in export providers/retailers) endorsement on the members regarding market development premium quality of Canadian beef, helped to potential in additional to just spot-trade. deliver a strong marketing message to CBEF China completed monthly competitive

CHINA 82 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT intelligence reports, providing export services and resources increased their members with country and market understanding of the quality of Canadian beef intelligence, including opportunities and including the Canadian beef grading system. constraints for Canadian beef exports to these markets. In Canada, CBEF increased In 2006, 52 per cent of surveyed customers in awareness for its export members through Mainland China and 82 per cent of surveyed newsletters; the distribution of developments clients in Hong Kong/Macau indicated CBEF through emails and website trade flashes; services and resources increased their annual and semi-annual meetings, including understanding of food safety programs and written proceedings; VIP missions to motivate interventions used on Canadian farms members to pursue opportunities and producing cattle. relationships; and the Partner Market Development Program which shared the cost In 2006, 51 per cent of surveyed customers in of market familiarization and market entry. Mainland China and 75 per cent of surveyed clients in Hong Kong/Macau indicated CBEF IN-MARKET PRICE DIFFERENTIAL services and resources increased their BETWEEN CANADIAN AND COMPETING understanding of food safety programs and BEEF PRODUCTS interventions used in Canadian meat processing establishments producing beef. Based on feedback from CBEF export members, local representatives, and major In 2006, 49 per cent of surveyed customers in importers – the price of Canadian beef is at Mainland China and 65 per cent of surveyed parity with U.S. beef and above Australian clients in Hong Kong/Macau indicated CBEF beef. The wholesale price of Canadian Prime services and resources increased their graded beef is higher priced than USDA understanding of the competitive advantages Prime beef. This is creating hesitations in of using Canadian beef versus other sources volume purchases for retail. For regional of imported beef. wholesale markets, U.S. prices are nominally two to five per cent higher depending on In 2006, 46 per cent of surveyed customers in grades: the higher the grade, the wider the Mainland China and 62 per cent of surveyed difference. The major driving factor for price clients in Hong Kong/Macau indicated CBEF difference is, apart from general supply- services and resources increased their demand situations, good product understanding of how Canadian beef grades specifications which are always convincing the compare to those used by the United States buyer to pay higher. For example, one for its beef. specific Canadian beef processing establishment is perceived as the highest In 2006, 56 per cent of surveyed customers in priced with substantial margin over U.S. Hong Kong/Macau indicated CBEF services products for the major trade item (short ribs). and resources increased their understanding of purchasing specifications and regulations CUSTOMER AWARENESS AND for importing Canadian beef.

UNDERSTANDING OF CANADIAN BEEF At a Demand Building Seminar held October 17, VALUE PROPOSITION 2006 in Shanghai with 100 participants:

100 per cent indicated increased In 2006, 58 per cent of surveyed customers in understanding of Canada's ability to supply Mainland China and 88 per cent of surveyed safe and high quality beef; 96 per cent clients in Hong Kong/Macau indicated CBEF indicated increased understanding of

CHINA 83 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Canadian beef grading system advantages over and resources have increased the amount of other suppliers; 100 per cent indicated Canadian beef they sold or processed. A total increased understanding of CBEF programs, of 80 per cent of surveyed beef buyers in services and resources; 100 per cent rated the Mainland China indicated that CBEF seminar as valuable; 100 per cent expressed programs and resources have increased their interest in receiving more information from interest in purchasing Canadian beef when it CBEF; and 92 per cent requested follow-up is available for sale. contact from CBEF. NEW MARKETS AND CUSTOMERS CREATED At a Demand Building Seminar held October 18, AND MAINTAINED BY FUNDED INITIATIVES 2006 in Hong Kong with 250 participants: 98 per cent indicated increased understanding Extending the CBEF business association and of Canada's ability to supply safe and high cooperation via major importers downstream quality beef; 99 per cent indicated increased to their distribution and retail clients was a understanding of Canadian beef grading CBEF initiative to enhance network coverage system advantages over other suppliers; 100 and channel alignments. The success of this per cent indicated increased understanding of initiative is highlighted by the response when CBEF programs, services and resources; 100 CBEF organizes business seminars. This can per cent rated the seminar as valuable; 97 per strengthen major importers’ interests, cent expressed interest in receiving more resources, and commitments to maintain and information from CBEF; and 78 per cent develop the volume momentum in importing requested follow-up contact from CBEF. Canadian beef. An initiative to create awareness and acceptance by consumers via At a Differentiation Seminar held January 25, joint marketing/advertisement has also been 2007 in Guangzhou with 170 participants: successful. Emphasizing team (famous 98 per cent indicated increased understanding importers/distributors, foodservice of Canada's ability to supply safe and high providers/retailers) endorsement on the quality beef; 96 per cent indicated increased premium quality of Canadian beef, is understanding of Canadian beef grading delivering a strong marketing message to system advantages over other suppliers; 96 per consumers. Showing the strong team cent indicated increased understanding of cooperation examples to late adopters of CBEF programs, services and resources; 100 Canadian beef is leading them to believe in per cent rated the seminar as valuable; 97 per the good support provided by CBEF if they cent expressed interest in receiving more commit on taking a market position for information from CBEF; and 94 per cent Canadian beef in their sectors. As well, the requested follow-up contact from CBEF. direct premium quality tasting experience of Canadian beef at the high-end Japanese-style SIZE OF MARKET INFLUENCED BY THE supermarkets (in major shopping and VALUE PROPOSITION residential areas) maintains market acceptance with high-end consumer groups. CBEF China imported a total of 60,169 tonnes of encourages the continuous reminder of the beef in 2002. This market increased to 61,864 good taste of beef from Canada to consumers, tonnes in 2006. A total of 98 per cent of in view of the higher selling prices of surveyed beef buyers in Hong Kong/Macau Canadian beef. used or purchased Canadian beef. A total of 68 per cent of surveyed beef buyers in Hong Kong/Macau indicated that CBEF programs

CHINA 84 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

INDUSTRY FUNDING LEVERAGE PROVIDED During the peak beef consumption season, TO FUNDED INITIATIVES repeated and prominent newspaper advertisements for Canadian beef were placed The Canadian cattle and beef industry by the chains themselves. As well, sales contributed in excess of 25 per cent of all momentum is extending as Canadian beef funds in support of CCMDC programs. products become regular items on shelves in major supermarket chains throughout the year LEVEL OF COMPLETION OF FUNDED instead of just for the peak consumption INITIATIVES season. For example, Wellcome Supermarket is highlighting Canada AAA and the premium The Canada Beef Export Federation quality taste message (value proposition) completed $400,886 of $575,000 in planned created by CBEF, via joint marketing with CCMDC-supported market development CBEF Hong Kong. CBEF Hong Kong activities in China (incl. Hong Kong and provided tasting promotion support and Macau) during the 2006/07 fiscal year. This marketing theme/message support to represents a 70 per cent level of completion strengthen their confidence to launch of funded initiatives. Retail and foodservice Canadian beef packs. promotions were suspended in Mainland China due to that market remaining closed to EFFICIENCY OF CCMDC INVESTMENTS Canadian beef. Certain other market (incremental sales revenue per dollar invested in development costs were allocated to CAFI in promotion) order to utilize that annual funding and preserve CCMDC resources for future use. CBEF completed 39 retail and foodservice promotions utilizing the Sales Promotion OBJECTIVE AND BENEFIT REALIZATION Recommendation Form performance tracking system during the 2006/07 fiscal year. Sales Of the 98 per cent of 64 Hong Kong/Macau to participating businesses increased by 343 clients that have purchased Canadian beef per cent over base during the promotion products, 82 per cent indicated they were very period. The Federation invested a total of satisfied or satisfied while only two per cent C$2.13 per kg of increased sales. indicated that they were dissatisfied. CBEF has invested an average of $136/tonne Canadian beef exports to Hong Kong/Macau of Canadian beef sold to China since 1992- resumed in 2004. Exports increased 1993. This has ranged from a high of dramatically in 2004 (10,324 tonnes) and 2005 $419/tonne in 2002-2003 to a low of (20,403 tonnes) until the United States $25/tonne in 2004-2005. regained access to the market. Canadian beef exports decreased in 2006 by 25 per cent to Every dollar invested in the Canada Beef 15,336 tonnes ($57 million). This loss of Export Federation has resulted in an average exports has been the primary result of cost of $55.21 in total export sales to Asia and (strong Canadian dollar and tight labour Mexico. Every dollar invested in the Canada markets) and renewed competition from the Beef Export Federation has resulted in an United States. average of $3.24 in new export sales to Asia and Mexico. Both measures of performance Canadian beef has become a brand in the top are recovering from BSE disruptions in 2003. two supermarket chains in Hong Kong.

CHINA 85 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Japan

2006 Marketing Target

The Canadian beef and cattle genetics industry has established a set of marketing targets for sales over the near to medium-term. For this Results Report period, the 2006 target for Japan was:

Exports (MT) 25,211 CCMDC Strategic Marketing Plan July 1, 2006 (volume in product weight)

Market Situation and Indicators

2002 2005 2006 2005/06 YTD 07 2007P Cdn Beef Exports Value (million $) $96.09 -- $15.53 -- - 17% $12.89 Cdn Beef Exports Volume (MT) 23,971 -- 2,117 -- + 10% 2,308 Canadian Share of Import Market 2.1% -- 0.6% -- -- 1.0% U.S. Share of Import Market 46.9% 1.2% 2.4% -- -- 6.6% Japanese Imports as % of Cdn Prod 2.52% -- 0.20% ------Canada's Export Prices ($/cwt) $181.83 -- $332.80 + 100% -- -- U.S. Export Price ($/cwt) $206.86 $396.36 $265.44 - 33% -- -- (volume in product weight)

Canadian beef exports to Japan resumed in 2006, with all beef products from cattle that Canadian Beef Exports to Japan are under-21-months in age allowed for 35 200 180 export. In 2006 2,117 tonnes of beef were 30 Volume 160 exported to Japan at a total value of $15.53 25 140 million dollars. Stringent exporting rules and Value 20 120 the need to age verify cattle has limited the 100 amount of product Canada is able to move 15 80

10 60 MillionDollars into this market, with 2006 volumes only nine 1,000 Tonne 40 5 per cent of what was exported in 2002. In the 20 first six months of 2007 Canadian beef 0 0 exports to Japan are running 10 per cent 98 99 00 01 02 03 04 05 06 07p higher than the same time period in 2006. Source: Statistics Canada, CBEF, AAFC, CFIA Total exports volumes are projected to reach 2,308 tonnes for a total value of $12.89 whereas in 2006 Canadian imports made up million in 2007. Japan’s share of Canadian less than one per cent of total Japanese beef beef exports peaked in 2001 at six per cent. consumption. In terms of Canada’s market Currently beef exports to Japan represent 0.5 share of Japanese beef imports; Canada’s per cent of total Canadian beef exports and market share was three per cent in 2001. 0.2 per cent of Canadian beef production. Canada’s re-entry back into the Japanese market has been slow, with Canadian beef Canadian beef exports into Japan made up 2.1 making up less than one per cent of total per cent of total beef consumption in 2001, Japanese beef imports in 2006. Since re-entry

JAPAN 86 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT the greatest competition in this market is Canada's Market Share of Japanese Imports Australia and New Zealand who were able to 5% establish a significant presence while the market remained closed to Canadian and U.S. 4% beef. Australia continues to import the 3% majority of beef, accounting for 88 per cent of 2% all beef imports. The U.S. has been slowly regaining market share but still remains well 1% below its previous share of 45 per cent, 0% accounting for only 2.4 per cent of all beef 98 99 00 01 02 03 04 05 06 07p imports in 2006. Source: GIRA

Japan Summary of 2006/07 Activities

The Canada Beef Export Federation The 2006/07 fiscal year saw the Japan office continued to maintain local representation undertake an innovative approach to derive with three staff members in the Japan office expanded business opportunities from the in 2006/07. This office functions as the focal CANADA BEEF seminars. In contrast to point of buyer-seller activities and actively the normally broader-based seminar format, promotes Canadian beef within the trade as the office began to hold individual seminars in well as in cooperation with retail and partnership with strong, established importers foodservice end-users. In the last year, the of Canadian beef to prepare for the stabilizing program focus was on delivering technical of beef supplies from Canada. These materials and differentiating Canadian beef seminars were more focused on the sales from the competition. Facing significant promotions held for beef that the individual market access restrictions and resultant Japanese importer received from specific lower levels of product availability, there export members. The seminars featured was less emphasis on retail and presentations by representatives of the host foodservice promotions in this fiscal year. importer, the export member and CBEF The Japan office completed one VIP mission, Japan, each providing their respective seven CANADA BEEF seminars, 30 retail viewpoints to seminar participants, which and foodservice promotions, seven food included beef distributors, end-users and shows, 22 promotional materials projects, 29 other potential customers. The seminar and advertising and public relations activities, and the individual success stories gave the two market research projects. participants a clearer understanding about Canadian beef and directly resulted in new business.

Japan Performance Measures

CANADIAN SHARE OF TARGET MARKETS buyer, Hanamasa Co., resulting in a large AND MARKET SEGMENTS promotional event at the company’s Ginza head office featuring the first shipment of As soon as Canadian beef was again allowed Canadian beef following the lifting of the entry into Japan, CBEF approached a leading import ban. The event was a collaboration

JAPAN 87 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

with the Canadian Embassy to Japan to members in Japan, as well as providing celebrate the return of Canadian beef, and it pertinent price guidelines to provide was widely covered by newspapers, television profitability. In Canada, CBEF increased and other media. Following this, CBEF held awareness of its export members through briefings in four major cities to celebrate the newsletters; the distribution of developments resumption of imports, inviting many people through emails and website trade flashes; from the industry. CBEF had productive annual and semi-annual meetings, including talks with them on business prospects. The written proceedings; VIP missions to motivate Federation also held major seminars, such as members to pursue opportunities and the Demand Building Seminar and Differentiation relationships; and the Partner Market Seminar, where CBEF presented the dynamic Development Program which shared the cost approach of the Canadian beef industry, with of market familiarization and market entry. participation by CBEF executives from Calgary. IN-MARKET PRICE DIFFERENTIAL BETWEEN CANADIAN AND COMPETING In cooperation with several pro-Canadian BEEF PRODUCTS clients for Canadian beef, CBEF held Canadian beef seminars, inviting prospective In the Japan market, Canadian and U.S. beef customers of their customers, the end-users. are basically selling at parity. Canadian beef is Several Japan representatives of CBEF derived from cattle age verified by the exporter member companies attended the Canadian cattle identification system; but U.S. seminar and emphasized the superiority of beef is derived from cattle where both A40 their products. At the seminars, the and ID are used to verify age. According to Federation also talked specifically about Tyson Japan, in a comparison of price CBEF Japan activities to promote Canadian differences between Tyson-U.S. and Lakeside: beef so that seminar participants would be Lakeside products are higher than Tyson-U.S. more interested in, and knowledgeable about, products where beef is age verified under A Canadian beef. Annual VIP missions were 40; but lower than Tyson-U.S. products where also hosted; inviting people from the industry beef is age-verified by ID system – the price to better understand the beef industry in differentiation being five cents per pound. Canada through firsthand experience. Cargill, on the other hand, uses the ID system to verify age for export business to Japan, and CBEF Japan created a brochure listing they seem to be a pricing leader not only for member details, including profiles, production U.S. products but also Canadian products. In capacities and pictures, as well as a leaflet particular, beef products from the Guelph listing those members, and distributed them plant are the highest priced in North America to the industry. Opportunities were set up at because they are providing products with a seminars for CBEF exporter members to smaller box that is handier for managing sales. make presentations to customers. At larger events like Foodex, CBEF introduced CUSTOMER AWARENESS AND members by listing them on sign-boards and UNDERSTANDING OF CANADIAN BEEF in other ways. Member introductions are VALUE PROPOSITION made regularly in the CBEF Japan newsletter.

CBEF Japan’s monthly competitive In 2006, 79 per cent of surveyed customers intelligence report kept export members indicated CBEF services and resources informed of current developments both in the increased their understanding of the quality of country and in the meat sector, including opportunities and constraints for export

JAPAN 88 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Canadian beef including the Canadian beef grading system. At a Differentiation Seminar held January 30, 2007 in Tokyo with 180 participants: In 2006, 78 per cent of surveyed customers 100 per cent indicated increased indicated CBEF services and resources understanding of Canada's ability to supply increased their understanding of food safety safe and high quality beef; 97 per cent programs and interventions used on Canadian indicated increased understanding of farms producing cattle. Canadian beef grading system advantages over other suppliers; 100 per cent indicated In 2006, 76 per cent of surveyed customers increased understanding of CBEF programs, indicated CBEF services and resources services and resources; 100 per cent rated the increased their understanding of food safety seminar as valuable; 97 per cent expressed programs and interventions used in Canadian interest in receiving more information from meat processing establishments producing CBEF; 90 per cent requested follow-up beef. contact from CBEF; and 61 per cent indicated that the cutting demonstration would assist In 2006, 55 per cent of surveyed customers their business. indicated CBEF services and resources increased their understanding of the SIZE OF MARKET INFLUENCED BY THE competitive advantages of using Canadian VALUE PROPOSITION beef versus other sources of imported beef. Japan imported a total of 627,119 tonnes of In 2006, 65 per cent of surveyed customers beef in 2002. This market decreased to indicated CBEF services and resources 594,068 tonnes in 2006. A total of 61 per increased their understanding of how cent of surveyed beef buyers in this market Canadian beef grades compare to those used used or purchased Canadian beef. A total of by the United States for its beef. 28 per cent of surveyed beef buyers in this market indicated that CBEF programs and In 2006, 71 per cent of surveyed customers resources have increased the amount of indicated CBEF services and resources Canadian beef they sold or processed. increased their understanding of purchasing specifications and regulations for importing NEW MARKETS AND CUSTOMERS CREATED Canadian beef. AND MAINTAINED BY FUNDED INITIATIVES

At a Demand Building Seminar held October 19, From the time of the lifting of the import ban 2006 in Tokyo with 260 participants: in December 2005 through the 2006/07 fiscal 100 per cent indicated increased year, Canadian beef fairs were conducted with understanding of Canada's ability to supply brand new customers. These are customers safe and high quality beef; 95 per cent with whom CBEF had never held a Canadian indicated increased understanding of beef fair, even pre-BSE, such as Super Canadian beef grading system advantages over Sunbelx, Uokatsu retailer, Suzuki Chikisan (a other suppliers; 98 per cent indicated tenant to other supermarkets), Super Matsuya, increased understanding of CBEF programs, Daikyou (a tenant to other supermarkets), services and resources; 100 per cent rated the Nishitetsu store, Japan Meat, Daisan Foods, seminar as valuable; 97 per cent expressed Nanars retailer, and the beef bowl restaurant interest in receiving more information from Matsuya. CBEF Japan communicated with CBEF; and 92 per cent requested follow-up them directly and also kept in close contact from CBEF.

JAPAN 89 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT communication with their distributors. CBEF Under the circumstances of lack of beef Japan is certain that their daily contact, close supply, CBEF determined that the 2006/07 relationships, and recommendations to fiscal year would be a time of again laying encourage distributors to create new business some groundwork. CBEF Japan therefore access to potential customers resulted in focused on tying in with pro-Canadian beef building up actual business with these exporters and distributors, and worked supermarkets. CBEF Japan in collaboration together with them to approach retail and with distributors and importers pursued foodservice as equal partners. The result is initiatives to create new business that CBEF Japan has established strong opportunities. relationships on the basis of interacting to share the Canadian beef business. For INDUSTRY FUNDING LEVERAGE PROVIDED example, Mitsui Bussan and Sumikin Bussan TO FUNDED INITIATIVES as exporters; and Marudai Foods, S Foods, NMP and Maruichi Sanshou as distributors; The Canadian cattle and beef industry are on-board and working together in mutual contributed in excess of 25 per cent of all interest. CBEF expects expanded retail and funds in support of CCMDC programs. foodservice business as a result.

LEVEL OF COMPLETION OF FUNDED EFFICIENCY OF CCMDC INVESTMENTS INITIATIVES (incremental sales revenue per dollar invested in promotion) The Canada Beef Export Federation completed $958,355 of $1,650,000 in planned CBEF completed 20 retail and foodservice CCMDC-supported market development promotions utilizing the Sales Promotion activities in Japan during the 2006/07 fiscal Recommendation Form performance tracking year. This represents a 58 per cent level of system during the 2006/07 fiscal year. Sales completion of funded initiatives. The limited to participating businesses increased by 103 quantity of Canadian beef exported to Japan per cent over base during the promotion reduced large-scale retail and foodservice period. The Federation invested a total of promotion opportunities. C$4.27 per kg of increased sales.

OBJECTIVE AND BENEFIT REALIZATION CBEF has invested an average of $148/tonne of Canadian beef sold to Japan since 1989- Of the 61 per cent of 61 Japanese clients that 1990. This has ranged from a high of have purchased Canadian beef products, 32 $280/tonne in 1991-1992 to a low of per cent indicated they were very satisfied or $53/tonne in 1998-1999. satisfied while only six per cent indicated that they were dissatisfied. Every dollar invested in the Canada Beef Export Federation has resulted in an average Canadian beef exports to Japan resumed in of $55.21 in total export sales to Asia and 2006 with exports reaching 2,117 tonnes ($16 Mexico. Every dollar invested in the Canada million). This low level of exports has been Beef Export Federation has resulted in an the primary result of cost (strong Canadian average of $3.24 in new export sales to Asia dollar and tight labour markets) and market and Mexico. Both measures of performance access challenges. are recovering from BSE disruptions in 2003.

JAPAN 90 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Taiwan

2006 Marketing Target

The Canadian beef and cattle genetics industry has established a set of marketing targets for sales over the near to medium-term. For this Results Report period, the 2006 target for Taiwan was:

Exports (MT) 8,067 CCMDC Strategic Marketing Plan July 1, 2006 (volume in product weight)

Market Situation and Indicators

2002 2005 2006 2005/06 YTD 07 2007P Cdn Beef Exports Value (million $) $41.51 ------Cdn Beef Exports Volume (MT) 7,971 ------Canadian Share of Import Market 5.5% ------U.S. Share of Import Market 20.2% 10.4% 22.7% ------Taiwan Imports as % of Cdn Prod 1.62% ------Canada's Export Prices $/cwt $236.22 ------U.S. Export Price $/cwt $219.19 $307.05 $240.21 - 18% -- -- (volume in product weight)

Canada’s exports to Taiwan steadily increased from 1998 to 2002. In 2002 Canada exported Canadian Beef Exports to Taiwan 7,971 tonnes of beef to Taiwan for a total 9 45 value of $41.5 million. Canada supplied 5.5 8 Volume 40 per cent of Taiwan’s beef imports in 2002. 7 Value 35 Canada regained access to the Taiwan market 6 30 for boneless beef from animals under-30- 5 25 months of age in June 2007. The U.S. 4 20

1,000Tonnes 3 15 regained access to Taiwan in 2005. Their MillionDollars market share of total beef imports reached 2 10 22.7 per cent in 2006; this is greater than the 1 5 20.2 per cent they had in 2002. 0 0 98 99 00 01 02 03 04 05 06 07p Source: Statistics Canada, CBEF, In 2002 Taiwan was Canada’s fifth largest AAFC destination for beef exports. Taiwan has $249/cwt between 2000 and 2002. This is historically offered the second highest value compared to Japan and South Korea where per kilogram for beef exported next to Japan, the 2000-2002 average values are $263 and with an average value for Canadian product of $170 respectively.

TAIWAN 91 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Taiwan Summary of 2006/07 Activities

The Canada Beef Export Federation show, 10 promotional materials projects, one continued to maintain local representation advertising and public relations activity, and with one staff member in the Taiwan office in one market research project. 2006/07. With Taiwan still closed to Canadian beef, this office focused on The Taiwan office also took its website in a delivering technical materials and promoting creative new direction to take advantage of Canadian beef within the trade. As well, a the widespread popularity of the Internet in major focus was to coordinate advocacy Taiwan. The office launched a ‘Canada Beef activities with clients and key associates to Tasty 300 Alliance’ aimed at linking influence market access processes, and restaurants and steak houses as well as monitor progress and provide information to retailers and meat shops to CBEF Taiwan and the Canadian government on next steps. to become sales partners. Anticipating the These actions were designed to build support return of Canadian beef, the ‘Alliance’ plan for Canadian beef with key clients and to will provide each participant with an improve prospects for market access. It individual webpage on the CBEF site to should be noted that expenditures in this present their company information and market were reduced by approximately 50 per Canadian beef promotions. Through these cent of what they would have been if the distribution channels, Canadian beef will have market were open. The Taiwan office widespread access to reach consumers all completed one VIP beef awareness mission, cross Taiwan. four CANADA BEEF seminars, one food

Taiwan Performance Measures

CANADIAN SHARE OF TARGET MARKETS to communicate the Canadian beef value AND MARKET SEGMENTS proposition and the industry’s commitment to the market have greatly assisted this outcome. CBEF Taiwan's main duty was to help bring about the opening of the Taiwan market to The meat associations in Taiwan have built Canadian beef as soon as possible. CBEF websites for customers, such as the U.S. Meat invited some important Taiwanese legislators Export Federation-Taiwan, Australian Meat to Canada with the purpose of bringing an and Livestock Corporation-Taiwan and CBEF understanding of the Canada beef industry to Taiwan. In 2006/07, CBEF Taiwan created a them, as well as to emphasize the strict animal new version of its website, providing a great health and food safety control systems in amount of content. CBEF Taiwan created a Canada. CBEF and the Canadian Trade special section called The recipe on its website, Office in Taiwan have made many great showing consumers many easy ways to cook efforts; the Taiwan beef market finally beef. The CBEF Taiwan website became a reopened to Canada beef on June 23, 2007. top choice, with very high Internet browsing Most importantly, some areas of government traffic over other meat association websites in and industry that were previously opposed to Taiwan. CBEF Taiwan reports that the opening of the market now do not seem consumers love the website and visit it often. to have any negative opinions of Canadian CBEF Taiwan has received high approval beef. CBEF believes that its ongoing efforts from the beef consumer and the industry as it

TAIWAN 92 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT has put many efforts toward the re-entry of Canadian beef to the Taiwan beef market and In 2006, 75 per cent of surveyed customers to create beef consumption in Taiwan. indicated CBEF services and resources increased their understanding of food safety CBEF Taiwan’s monthly competitive programs and interventions used in Canadian intelligence report kept CBEF export meat processing establishments producing members informed of current developments beef. both in the country and in the meat sector, including developments in the market In 2006, 75 per cent of surveyed customers reopening process. In Canada, CBEF indicated CBEF services and resources increased awareness of its export members increased their understanding of the through newsletters; the distribution of competitive advantages of using Canadian developments through emails and website beef versus other sources of imported beef. trade flashes; annual and semi-annual meetings, including written proceedings; VIP In 2006, 76 per cent of surveyed customers missions to motivate members to pursue indicated CBEF services and resources opportunities and relationships; and the increased their understanding of how Partner Market Development Program which Canadian beef grades compare to those used shared the cost of market familiarization and by the United States for its beef. market entry. At a Demand Building Seminar held March 2, IN-MARKET PRICE DIFFERENTIAL 2007 in Taipei with 146 participants: BETWEEN CANADIAN AND COMPETING 97 per cent indicated increased understanding BEEF PRODUCTS of Canada's ability to supply safe and high quality beef; 99 per cent indicated increased Canadian beef was not sold in Taiwan during understanding of Canadian beef grading the 2006/07 fiscal year. Price comparisons system advantages over other suppliers; 99 per are not possible for this period. Canadian cent indicated increased understanding of beef sold at parity with U.S. beef and at a CBEF programs, services and resources; 100 premium to Australian beef (of similar quality) per cent rated the seminar as valuable; 99 per prior to May 20, 2003. cent expressed interest in receiving more information from CBEF; and 100 per cent CUSTOMER AWARENESS AND requested follow-up contact from CBEF.

UNDERSTANDING OF CANADIAN BEEF At a Differentiation Seminar held November 21, VALUE PROPOSITION 2006 in Ilan with 165 participants:

99 per cent indicated increased understanding In 2006, 83 per cent of surveyed customers of Canada's ability to supply safe and high indicated CBEF services and resources quality beef; 99 per cent indicated increased increased their understanding of the quality of understanding of Canadian beef grading Canadian beef including the Canadian beef system advantages over other suppliers; 98 per grading system. cent indicated increased understanding of

CBEF programs, services and resources; 99 In 2006, 77 per cent of surveyed customers per cent rated the seminar as valuable; 89 per indicated CBEF services and resources cent expressed interest in receiving more increased their understanding of food safety information from CBEF; and 78 per cent programs and interventions used on Canadian requested follow-up contact from CBEF. farms producing cattle.

TAIWAN 93 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

SIZE OF MARKET INFLUENCED BY THE reductions in programs were implemented VALUE PROPOSITION due to this market remaining closed to Canadian beef during the entire fiscal year. Taiwan imported a total of 71,757 tonnes of beef in 2002. This market increased to 83,229 OBJECTIVE AND BENEFIT REALIZATION tonnes in 2006. A total of 63 per cent of surveyed beef buyers in this market used or Of the 63 per cent of 212 Taiwan clients that purchased Canadian beef. A total of 88 per have purchased Canadian beef products, 41 cent of surveyed beef buyers in this market per cent indicated they were very satisfied or indicated that CBEF programs and resources satisfied while only four per cent indicated have increased their interest in purchasing that they were dissatisfied. Canadian beef when it is available for sale. The biggest success story of the Taiwan office NEW MARKETS AND CUSTOMERS CREATED in 2006/07 was the continued strong support AND MAINTAINED BY FUNDED INITIATIVES of Taiwan’s importers to Canadian beef through the fourth year of market closure. In past years, CBEF Taiwan's market strategy The Taiwan office dedicated considerable focused on traditional steak houses and effort to maintaining close relationships with restaurants. During 2006/07 CBEF Taiwan these importers – providing information on actively worked on creating new customers in Canada’s animal health and food safety hot pot restaurants and sukiyaki (or barbeque) systems and updates on trade access restaurants. These kinds of restaurants are the negotiations, and communicating the new foodservice trend in Taiwan. Hot pot Canadian industry’s unswerving commitment houses and barbeque restaurants showed to the Taiwan market. These efforts have increasing demand for beef, and CBEF been repaid tenfold; importers continue to Taiwan began to establish good relationships express strong interest in importing Canadian with more hot pot and sukiyaki restaurants. beef, with even earlier customers CBEF Taiwan believes this effort with those communicating their intent to sell Canadian restaurants can result in more profits. beef.

INDUSTRY FUNDING LEVERAGE PROVIDED EFFICIENCY OF CCMDC INVESTMENTS (incremental sales revenue per dollar invested in TO FUNDED INITIATIVES promotion) The Canadian cattle and beef industry contributed in excess of 25 per cent of all CBEF has invested an average of $222/tonne funds in support of CCMDC programs. of beef sold to Taiwan since 1992-1993. This has ranged from a high of $782/tonne in 1992-1993 to a low of $78/tonne in 2001- LEVEL OF COMPLETION OF FUNDED 2002. INITIATIVES Every dollar invested in the Canada Beef The Canada Beef Export Federation Export Federation has resulted in an average completed $90,856 of $497,000 in planned of $55.21 in total export sales to Asia and CCMDC-supported market development Mexico. Every dollar invested in the Canada activities in Taiwan during the 2006/07 fiscal Beef Export Federation has resulted in an year. This represents an 18 per cent level of completion of funded initiatives. Planned

TAIWAN 94 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT average of $3.24 in new export sales to Asia and Mexico. Both measures of performance are recovering from BSE disruptions in 2003.

TAIWAN 95 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

South Korea

2006 Marketing Target

The Canadian beef and cattle genetics industry has established a set of marketing targets for sales over the near to medium-term. For this Results Report period, the 2006 target for South Korea was: Exports (MT) 20,169 CCMDC Strategic Marketing Plan July 1, 2006 (volume in product weight)

Market Situation and Indicators

2002 2005 2006 2005/06 YTD 07 2007P Cdn Beef Exports Value (million $) $59.76 ------Cdn Beef Exports Volume (MT) 17,342 ------Canadian Share of Import Market 3.7% ------U.S. Share of Import Market 62% -- 2.5% ------S. Korea Imports as % of Cdn Prod 0.38% ------Canada's Export Prices $/cwt $156.31 ------U.S. Export Price $/cwt $177.13 -- $298.89 ------(volume in product weight)

The South Korean market remains closed to Canadian Beef Exports to South Korea Canadian beef imports. In 2002, which represents the last full year of trade, Canada 25 120 100 exported 17,342 tonnes of beef to South 20 Volume Korea for a total value of $59.7 million. In Value 80 2002 Canada accounted for 3.7 per cent of 15 South Korean beef imports and three per cent 60

1,000Tonnes 10 of all Canadian beef exports. 40 MillionDollars 5 20 Like Japan, South Korea’s beef imports have fallen since 2004 as a result of food safety 0 0 98 99 00 01 02 03 04 05 06 07p concerns and higher prices, which were Source: Statistics Canada, CBEF, AAFC, CFIA caused by restricted beef supplies when the border was closed to U.S. and Canadian beef imports. Historically the U.S. controlled a When comparing the per unit beef price going major portion of South Korea’s beef imports, into South Korea, the U.S. price per cwt was holding a 62 per cent share of imports in lower in 2000 and 2003, but the Canadian 2002. In the last couple of years the U.S. has price per cwt was lower in 2001 and 2002. had sporadic access to this market and U.S. and Canadian prices tend to be close in consequently remains a very small supplier, the South Korean market with an average with Australia and other countries becoming difference between them at $10/cwt between significant suppliers in this market. 2000 and 2003.

SOUTH KOREA 96 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

South Korea Summary of 2006/07 Activities

The Canada Beef Export Federation Of special note as a new initiative, the Korea continued to maintain local representation office developed a new method of delivering with two staff members in the South Korea its ‘Differentiation’ seminars. By utilizing two office in 2006/07. With South Korea still screens and projectors, it was able to show closed to Canadian beef, this office focused video of a meat cutting demonstration in real on delivering technical materials and time. At the same time, the second screen, promoting Canadian beef within the trade. As connected to a laptop computer, was used to well, a major focus was the coordination of show the corresponding fabrication and advocacy activities with clients and key merchandising diagram (with pictures of cuts). associates to influence market access While in real time the fabrication of primal cut processes, and monitor progress and provide into sub primal cuts was being conducted, the information to the Canadian government on second screen showed the next steps. These actions were designed to slicing/merchandising of cuts into portion or build support for Canadian beef with key case ready cuts. This method was applied to clients and to improve prospects for market three seminars in 2006/07, maximizing the access. It should be noted that expenditures educational benefits of the seminar and in this market were reduced by approximately enhancing the professional image of the 50 per cent of what they would have been if Federation and the Canadian beef industry. the market were open. The South Korea The seminar was evaluated by the culinary office completed one VIP beef awareness students of Kyunghee University to be the mission, seven CANADA BEEF seminars, 25 best educational program conducted by promotional materials projects, 16 advertising outside educators in 2006. and public relations activities, and one market research project.

South Korea Performance Measures

CANADIAN SHARE OF TARGET MARKETS them with the Canadian parties so that AAFC AND MARKET SEGMENTS and CFIA officials could at least partly use them in negotiation with their counterparts in The CBEF Korea office had direct Korea. The Korea office arranged for communication with the National Assembly, meetings between Canadian beef industry Ministry of Foreign Affairs and Trade, leaders and Korean government officials, Ministry of Agriculture and other government politicians, or academic members of Korea’s bodies regarding their political and technical risk assessment team so that there could be concerns and plans of the Korean direct exchange of information and opinions government surrounding market access issues. with each other over market access. The Based on this effort, CBEF Korea shared Korea office had exchange of information and intelligence with the Federation’s Calgary opinions with the Embassy of Canada and office, the Government of Canada and the Alberta Korea office on the action and Alberta government in the form of status or strategy to gain market access to Korea’s beef progress reports. The Korea office also market on a daily basis. formulated and delivered suggestions for strategy to gain market access and shared

SOUTH KOREA 97 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Most of the Federation’s existing major When the border is closed, it was not easy to importers (such as Hanjung Food, Zenith, take action to increase awareness of the Phill Bong, NACF, Green World, Shinsung Korean market for CBEF export members. Distribution, KOSCA, High Food, Highland, During the border closure, several export and Ag Meat Trading) have been maintained members visited Korea. The Korean office by the CBEF Korea office in several ways – arranged for meetings between export and their enthusiasm to resume and members and potential buyers, and conducted strengthen business with the Canadian beef a market research tour to retail and wholesale industry has grown at least partly owing to markets. This helped CBEF export members this effort. The Korea office conducted face- raise their awareness of the Korean market to-face business meetings with and to find business partners in advance importer/distributors and retail and before the market opens. The Korea office foodservice end-users almost every two to also provided service to Korean customers three days, conducted an email information that want to open communication with or service to about 400 clients, and sent out visit export members to identify mutual newsletters to almost 1,000 clients. Even business opportunities. In the case where during BSE border closure, some new export members have their local customers have been created, with a number representative offices in Korea, the Korea of importers and end-users approaching the office often talked with the latter about BSE Korea office in different ways. Some of them progress and possible programs to promote placed orders for the Federation’s information their beef both on a generic and branded materials through the Internet; others level. This effort might have helped CBEF contacted the Korea office to inquire for export members to perceive the potential products or business relationships; or demand from Korea’s beef market. The approached the Korea office thorough the Korea office completed monthly competitive food show. The Korea office included all of intelligence reports, keeping export members these people in CBEF’s database and current with the country and beef market provided them with the Federation’s situation in Korea, as well as developments in information service. In addition to the above, the market reopening process. In Canada, an annual seminar/reception served as the CBEF increased awareness for its export most effective tool through which the Korea members through newsletters; the office was able to communicate the presence distribution of developments through emails of the Federation and the firm commitment and website trade flashes; annual and semi- of the Canadian beef industry to the Korean annual meetings, including written market. The potential demand for Canadian proceedings; VIP missions to motivate beef maintained during border closure is members to pursue opportunities and attributable to the presence and operation of relationships; and the Partner Market the local office in Korea. Development Program which shared the cost of market familiarization and market entry. “Despite the physical absence of Canadian beef, Korean clients have felt that Canadian beef is always IN-MARKET PRICE DIFFERENTIAL within their reach and close at hand. This would lead BETWEEN CANADIAN AND COMPETING to their higher level of preparedness to purchase BEEF PRODUCTS Canadian beef before and after the border opens and will be turned into commercial success for our export Canadian beef was not sold in South Korea members.” during the 2006/07 fiscal year. Price –Amos Kim, CBEF Korea Director comparisons are not possible for this period.

SOUTH KOREA 98 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Canadian beef sold at parity with U.S. beef CBEF programs, services and resources; 92 and at a premium to Australian beef (of per cent rated the seminar as valuable; 96 per similar quality) prior to May 20, 2003. cent expressed interest in receiving more information from CBEF; and 96 per cent CUSTOMER AWARENESS AND requested follow-up contact from CBEF. UNDERSTANDING OF CANADIAN BEEF VALUE PROPOSITION At a Differentiation Seminar held November 23, 2007 in Seoul with 137 participants: In 2006, 90 per cent of surveyed customers 97 per cent indicated increased understanding indicated CBEF services and resources of Canada's ability to supply safe and high increased their understanding of the quality of quality beef; 97 per cent indicated increased Canadian beef including the Canadian beef understanding of Canadian beef grading grading system. system advantages over other suppliers; 97 per cent indicated increased understanding of In 2006, 89 per cent of surveyed customers CBEF programs, services and resources; 100 indicated CBEF services and resources per cent rated the seminar as valuable; 97 per increased their understanding of food safety cent expressed interest in receiving more programs and interventions used on Canadian information from CBEF; 100 per cent farms producing cattle. requested follow-up contact from CBEF and 97 per cent indicated that the cutting In 2006, 83 per cent of surveyed customers demonstration would assist their business. indicated CBEF services and resources increased their understanding of food safety SIZE OF MARKET INFLUENCED BY THE programs and interventions used in Canadian VALUE PROPOSITION meat processing establishments producing beef. Korea imported a total of 367,797 tonnes of beef in 2002. This market decreased to In 2006, 80 per cent of surveyed customers 241,525 tonnes in 2006. A total of 37 per indicated CBEF services and resources cent of surveyed beef buyers in this market increased their understanding of the used or purchased Canadian beef. A total of competitive advantages of using Canadian 77 per cent of surveyed beef buyers in this beef versus other sources of imported beef. market indicated that CBEF programs and resources have increased their interest in In 2006, 87 per cent of surveyed customers purchasing Canadian beef when it is available indicated CBEF services and resources for sale. increased their understanding of how Canadian beef grades compare to those used NEW MARKETS AND CUSTOMERS CREATED by the United States for its beef. AND MAINTAINED BY FUNDED INITIATIVES

At a Demand Building Seminar held March 6, Most of the Federation’s existing major 2007 in Seoul with 210 participants: importers (such as Hanjung Food, Zenith, EZ 93 per cent indicated increased understanding Prime, Hanwha Trading, NACF, Mach of Canada's ability to supply safe and high Trading, Green World, Shinsung Distribution, quality beef; 92 per cent indicated increased KOSCA Supply & Trade, KRSC, High Food, understanding of Canadian beef grading Highland, and Ag Meat Trading) have been system advantages over other suppliers; 93 per maintained by the Korea office in several cent indicated increased understanding of ways. The Korea office conducts face to face

SOUTH KOREA 99 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT meetings with about 10 to 15 satisfied while only seven per cent indicated importer/distributors and three to five retail that they were dissatisfied. and foodservice end-users per month, sends email information to about 400 clients, and The Korean market remains closed to distributes newsletters to almost 1,000 clients. Canadian beef. As long as they do not go bankrupt or change their line of business, almost all of them have The biggest success story of the Korea office maintained contact with the CBEF Korea concerns two events that the Korea office office for updates on BSE and any sort of arranged in conjunction with the visit of information on the Canadian beef industry. Canadian Cattle Market Development Council Even during BSE border closure, some (CCMDC). Members of this Council had a customers have been created. There were 10 round table discussion with 10 major to 20 importers and end-users that placed Canadian beef clients. Following this, the orders for CBEF information and Federation conducted a Demand Building promotional materials. Other clients Seminar where more than 200 clients were contacted the Korea office to inquire about present and the Canadian Cattle Market products or business relationships through Development Council announced its plan for phone calls or face-to-face meetings. The funding to support the Federation. In the Korea office included all of these people on questionnaire about this seminar, 96 per cent its list of clients to keep them exposed to the of participants expressed their interest in Federation’s information. receiving more information on Canadian beef, and 96 per cent expressed interest in being INDUSTRY FUNDING LEVERAGE PROVIDED contacted by the CBEF to discuss Canadian TO FUNDED INITIATIVES beef business. The participants in this seminar commented that they were impressed The Canadian cattle and beef industry by the continuing strong commitment of the contributed in excess of 25 per cent of all Canadian beef industry to Korea’s import funds in support of CCMDC programs. beef industry and its long-term plan for this market despite the long border closure. Trade LEVEL OF COMPLETION OF FUNDED journals as the Meat Journal, Meat Magazine, INITIATIVES and Food Monthly reported on this seminar as a visible expression of the Canadian beef The Canada Beef Export Federation industry’s firm intention to achieve long-term completed $240,103 of $695,000 in planned growth in Korea’s beef market. Through CCMDC-supported market development these events, the Canadian beef industry and activities in Korea during the 2006/07 fiscal Korean clients were able to reaffirm their year. This represents a 35 per cent level of commitment to each other. This will lead to completion of funded initiatives. Planned commercial success and shared growth in reductions in programs were implemented post-BSE times. After the seminar, some due to this market remaining closed to clients said that the presence and activities of Canadian beef during the entire fiscal year. the CBEF Korea office has made them feel that Canadian beef is always within their reach and close at hand. The familiarity with OBJECTIVE AND BENEFIT REALIZATION Canadian beef maintained during border Of the 37 per cent of 170 Korean clients that closure is attributable to the presence and have purchased Canadian beef products, 42 activities of the Federation’s local office. per cent indicated they were very satisfied or Some of the participants said that this would lead to a higher level of preparedness to

SOUTH KOREA 100 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT purchase Canadian beef before and after the border opens.

EFFICIENCY OF CCMDC INVESTMENTS (incremental sales revenue per dollar invested in promotion)

CBEF has invested an average of $49/tonne of beef sold to Korea since 1992-1993. This has ranged from a high of $111/tonne in 1997-1998 to a low of $25/tonne in 1999- 2000.

Every dollar invested in the Canada Beef Export Federation has resulted in an average of $55.21 in total export sales to Asia and Mexico. Every dollar invested in the Canada Beef Export Federation has resulted in an average of $3.24 in new export sales to Asia and Mexico. Both measures of performance are recovering from BSE disruptions in 2003.

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Export Preparedness for Mexico, Asia & Emerging Markets

Export Preparedness Summary of 2006/07 Activities

In Canada, the Canada Beef Export developments in export markets. The Federation completed a total of 69 activities in Federation funded seven trade advocacy support of its members and their strategic activities in support of facilitating the re-entry market development programs in the 2006/07 of Canadian beef in markets that are closed fiscal year. The Partners Market and in newly accessible markets; and to Development Program saw greater utilization expand access in markets that are open. The with 38 individual activities being undertaken Federation also subscribed to three market by export members, the majority in the area research studies; and developed and produced of export readiness. The Federation 16 technical marketing materials for use in completed five member information and international markets in support of Canada’s liaison activities designed to keep members animal health and food safety systems. informed of CBEF activities and trade

Export Preparedness Performance Measures

CUSTOMER AWARENESS AND NEW MARKETS AND CUSTOMERS CREATED UNDERSTANDING OF CANADIAN BEEF AND MAINTAINED BY FUNDED INITIATIVES VALUE PROPOSITION A number of new market/new customer CBEF export members attributed 47 per cent initiatives were carried out in the 2006/07 of their 2006 Asia and Mexico exports to the fiscal year through CBEF’s Partners Program. Federation's market building and information Administered by the Canada office, this services. cooperative program between the Federation and its export members saw eight different In 2006, 81 per cent of CBEF members export members complete 15 different export indicated that printed materials increased their readiness and export development activities in knowledge of Canadian beef in international markets other than our key markets: in Italy, markets a lot or some. France, Thailand, Lithuania, England, Dubai, Indonesia and Kuwait. The Canada office In 2006, 89 per cent of CBEF members also funded and facilitated inspection missions indicated that CBEF services and resources from Egypt and El Salvador, and participated increased potential international clients' in a trade mission to Russia; these with a knowledge of Canadian beef quality and safety focus on widening the base of trade for systems. Canadian beef and engendering new market growth. The Canada office continued to provide an active base of support for the sustained efforts of CBEF international offices and its export members to achieve positive results in maintaining existing market share and capturing new niche markets and customers for Canadian beef.

EXPORT PREPAREDNESS 102 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

INDUSTRY FUNDING LEVERAGE PROVIDED satisfied or satisfied while only six per cent TO FUNDED INITIATIVES indicated that they were dissatisfied.

The Canadian cattle and beef industry Canadian beef exports to Asia and Mexico contributed in excess of 25 per cent of all decreased by 26.9 per cent in 2006 to 58,397 funds in support of CCMDC programs. tonnes ($228 million). This has been the primary result of cost (strong Canadian dollar LEVEL OF COMPLETION OF FUNDED and tight labour markets) and market access INITIATIVES challenges.

The Canada Beef Export Federation A survey commissioned by the CBEF to find completed $472,541 of $500,000 in planned out how well its programs and services are export preparedness activities within the meeting the needs of both its members and Partner Market Development Program during international clients provided valuable the 2006/07 fiscal year. This represents a 94 perspective on the Federation’s performance. per cent level of completion of funded Carried out by Ipsos Reid, the Canada Beef initiatives. Export Federation Performance Survey canvassed the Federation’s membership in Canada and over 600 international contacts in OBJECTIVE AND BENEFIT REALIZATION the markets where the Federation has local A total of six per cent of 507 surveyed representation: Japan, South Korea, Hong international clients (Japan, Korea, Taiwan Kong, China, Taiwan and Mexico. Extensive and Hong Kong/Macau) indicated in 2006 in scope and detail, the survey provided that they prefer to purchase most of their feedback on individual programs and services imported beef from Canada. Of the 450 (61 as well as the Federation’s performance in per cent of 734 respondents) international individual markets, serving to underline what clients (Japan, Korea, Hong Kong/Macau and the Federation is doing well and what it needs Mexico) that have purchased Canadian beef to improve. The first of its kind to be products, 52 per cent indicated they were very undertaken, the survey will be conducted annually and will serve as a benchmark to evaluate the Federation’s performance.

EXPORT PREPAREDNESS 103 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Supplementary Market Development Initiatives (Alberta-based)

Background

The Alberta portion of the Canadian Beef and supporting the development of exports markets for Cattle Market Development Fund also Canadian beef and cattle genetics and/or facilitate the provides an opportunity for applicants outside export of Alberta value-added beef products. of the three main marketing organizations. Applications will be considered that are The CCMDC invites applications from aligned with CCMDC’s identified priorities, as Alberta-based companies or organizations set out in the CCMDC Strategic Marketing that propose innovative marketing initiatives Plan.

Supplementary Alberta-based Projects Funded in 2006/07

The Alberta portion of the Canadian Beef and Cargill’s Canada – Japan Beef Summit Cattle Market Development Fund supported In order to develop new innovative marketing three projects in 2006/07. opportunities and solutions for the Japanese market, Cargill planned a one-time Exporting Canadian Beef to the European “Canada/Japan Beef Summit”. The summit Union engaged Cargill’s Japan and Wichita-based The Canadian Beef Export Company (CBEC) sales teams, as well as their beef plant was funded to explore the reintroduction of operation personnel from both Cargill- Canadian beef products into the European Guelph and Cargill-High River. Topics Union, starting with the U.K., on a more level addressed during this training session included playing field to other imported beef products. methods to increase efficiency and improve Initially, this was to be achieved through the current carcass utilization, better customer development of marketing support programs order-fill and new products that could be that provide point-of-sale product education marketed in Japan by Cargill’s customers. It materials and events. The objective of the became apparent during the plant tours and materials was to bring attention to the meetings that the restrictions placed on differences between Canadian products and producing Japanese product in Canadian beef products that are currently sold in the U.K. facilities added significant costs. Participants market, as well as establish a positive natural challenged each other to find new ways to image that can be associated with Canadian fabricate and market beef that would not beef. CBEC was working in conjunction with require adding labour to the production Rancher’s Beef to establish a consistent beef process given the current labour market, supply into the market. As Rancher’s Beef is particularly in Alberta. The Japan sales team now closed, future progress on this initiative went back to the market with the clear will be limited until a new product supply can message that Canadian producers and be sourced. processors are together providing a wholesome product for the Japanese market. Since the visit, volumes to Japan have increased by approximately 30 per cent.

SUPPLEMENTARY ALBERTA INITIATIVES 104 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Exporting Canadian Beef to the United Results of the meetings conducted included Arab Emirate the establishment of an import distribution Canada Agra Trading Ltd. held a series of company that will work with Canada Agra meetings with individuals in the United Arab Trading Ltd. in sales and distribution Emirate (UAE) in January 2007. The purpose throughout UAE and Middle East countries. of these meetings was to review import and Preliminary arrangements were made for the inspection requirements for Canadian meat, creation of a local company and labelling develop relationships with officials and requirements (English/Arabic labels) were potential import distribution companies, and established for each package of meat. It was determine mid and long-term Canadian beef also recognized that the knowledge around export market development plans. The beef quality is limited in the UAE. meetings also focused on researching the Consequently Canada Agra Trading Ltd. costs and competitiveness of exporting placed a representative in the UAE for one Canadian beef product into the UAE and month to assist and train the import determining the opportunity to revise current distribution company’s personnel about market restrictions to allow for the import of Canadian beef and veal attributes and quality. Canadian beef from animals that are over-30- Discussions also took place regarding the months of age. expansion of current market access to allow for the import of Canadian beef products from animals that are over-30-months in age.

The Process Moving Forward

For 2006/07 the CCMDC evaluated organizations through a quarterly call for applications for supplementary activities on an proposals. A comprehensive list of Alberta- ad-hoc basis. This was necessary in the first based beef packers and value-added year as the CCMDC started promoting this processors has been developed to which the new source of funding and as three main call for proposals will be sent on a quarterly marketing organizations worked to develop basis. Project proposals must be received on their first coordinated marketing or before the following deadlines to be implementation plan. As the marketing considered for funding in that quarter: organizations have worked to ensure that their th • First Quarter Deadline: January 15 business plans are in alignment with the th • Second Quarter Deadline: April 15 strategic plan developed by the CCMDC, it is th • Third Quarter Deadline: July 15 has been recognized that it is important to th • Fourth Quarter Deadline: October 15 ensure consistency in the evaluation and reporting for the supplementary activities Funding decisions for each quarter will be funded as well. Consequently, the CCMDC made within two months of the proposal has worked to implement a comprehensive deadline for that quarter. process to solicit, review, and implement Alberta-based value-added marketing Supporting information pieces that provide initiatives. background information on the fund, eligibility criteria, and the CCMDC’s identified Moving forward, beginning with the 2007/08 priorities are available on the CCA website for business year, the CCMDC will solicit potential applicants. Standardized application proposals from Alberta based companies or and final reporting forms have also been

SUPPLEMENTARY ALBERTA INITIATIVES 105 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT developed to ensure that all information Fund (ALIDF), which solicits applications in required is provided and that there is the areas of product and trade development. consistency across all projects and initiatives The intent of working with ALIDF is to when reporting on their results and facilitate coordination of projects, minimize achievements. duplication, and identify opportunities to leverage funding given the different funding In order to further encourage and solicit priorities and eligibility/funding conditions of applications that propose innovative initiatives CCMDC and ALIDF. to support the development of export markets for Canadian beef and cattle genetics and/or Applications received for Alberta-based facilitate the export of Alberta value-added valued-added marketing initiatives will go beef products, CCMDC is working with both through a review process, which will involve AAFRD’s processed foods division and the an external review committee to assist Alberta Livestock Industry Development CCMDC in their decision-making process. Fund. The intent is to coordinate with staff The intent of the review committee is to within the AAFRD’s processed foods division provide recommendations to the CCMDC as who liaise with processors in order to more to which projects best meet the objectives and directly identify opportunities for the funding priorities of the Council and are most likely to of innovative market development projects. contribute to the enhancement of the Similarly, CCMDC is working with the Canadian beef and beef cattle industry. Alberta Livestock Industry Development

SUPPLEMENTARY ALBERTA INITIATIVES 106 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL 2006/07 RESULTS REPORT

Management’s Report

On behalf of the Canadian Cattlemen Market Development Council (CCMDC), the staff of the Canadian Cattlemen's Association and the respective recipient organizations, it is my pleasure to submit this report and the following financial statements. The financial statements of the Canadian Beef and Cattle Market Development Fund have been prepared by management which is responsible for the integrity of the information presented. A supplementary package of the individual financial statements of the three major fund recipients (Beef Information Centre, Canada Beef Export Federation and the Canadian Beef Breeds Council) is available on request from the CCA office.

The funds concerning this report (from the Canadian Beef and Cattle Market Development Fund, also referred to as the “Fund”) have been entrusted to the CCA to administer. The Canadian Beef and Cattle Market Development Fund is comprised of Alberta and federal government investment matched by industry funding for long-term market development for Canada’s beef cattle industry. The CCMDC, reporting to the CCA Executive and Board, is the industry-based governance structure to oversee the approval of marketing plans and allocation of funds.

The preparation of the financial statements was in conformity with GAAP (generally accepted accounting principles) which requires management to make estimates and assumptions that affect amounts reported in the financial statements. Management has determined such amounts on a reasonable basis in order to ensure that the financial statements are presented fairly, in all material respects.

In meeting its responsibility for the reliability and integrity of the financial statements, management has developed and maintains a system of accounting and reporting which provides for the necessary internal controls to ensure transactions are properly authorized and recorded, and liabilities are recognized.

Further, as trustee of the Canadian Beef and Cattle Market Development Fund, the CCA signed agreements with the Government of Alberta and Canada which included: Fund operations and management; marketing priorities; eligibility for funding; process for proposals, review and control; conflict of interest guidelines; investment guidelines; and accounting policies and procedures, all of which are detailed in the CCMDC Business Plan.

CCA management has dutifully observed and followed the requirements of the Fund agreements, and has diligently communicated these requirements to fund recipients and requested their full compliance as a condition of payments from the Fund.

R. G. (Rob) McNabb, P.Ag. General Manager, Operations Canadian Cattlemen’s Association

MANAGEMENT’S REPORT 107 CANADIAN CATTLEMEN MARKET DEVELOPMENT COUNCIL

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