Estimation of Economic Impact of the Canadian Cattle Industry

Background

The cattle and beef sector is an important driver of economic activity in Canada. However, that is not always apparent by looking at Farm Cash Receipts (FCR) alone. By only looking at direct sales, as represented by Farm Cash Receipts, the industry’s contribution is undervalued as it does not consider the spin-off effects created throughout the supply chain. As such for many years the Canadian cattle industry used FCR for cattle and calves and a sales multiplier of 4 to communicate the beef cattle industry’s broader contribution to the economy. The multiplier was developed in 1992 and was updated to 5.23 in 2012.

This project is designed to update the 2012 Study, “Estimation of Multiplier Effect for the Canadian Cattle Industry” with the long-term goal to update the multiplier every ten years to capture structural changes in the industry and support industry communications to government.

Objectives

The major objective of the study was to estimate economic impacts of beef cattle production in Canada on selected measures of economic growth at present and forecast its impact for the year 2030. Main economic indicators of interest are:

• Canada or regional gross domestic product
• personal incomes in Canada and regions
• employment in allied sectors.

Since production practices do vary from one part of Canada to others, a regional differentiation needs to be made.

This project also includes the addition of scenarios forecasting the beef industry’s contribution to Canada’s post-COVID economic recovery if expansion occurred. This will answer the question of how expansion of the industry could benefit Canada as a whole. The future (2030) impact of the industry will be based on:

• Expansion of the cow/calf sector in Western Canada
• Expansion of the feedlot sector in Alberta and Saskatchewan
• Expansion of the packing sector (addition of a packing plant in eastern/western Canada).

What you did

The researchers developed an input-output model for the Canadian cattle industry that quantifies the intricate and far-reaching relationships that exist in the complex economic systems of the beef cattle industry.  Provided that due consideration is made for any double counting, a sum of the direct, indirect, and induced impacts would constitute the total economic impact of cattle production sector.

Estimation of economic impacts of a change in final demand for a commodity or production of a sector requires caution. Gross multipliers that add up individual sub-sectors (e.g. cow-calf, backgrounding, feedlot, packer) overstate the impact of the total sector. The degree of overstatement in the total economic impacts arises from the double counting of inputs in the direct impact for the total economic impact analysis. For this reason, they are of limited use for policy making. To avoid this, the inputs are removed from subsequent (sequential) economic impact analyses, and if all these impacts are added together, the result is a net total economic impact of the whole sector for a region or nation. This is the approach used in this study.

What you learned

For Canada in the 2018-20 period, the cattle sector had $51.6 billion in goods and sales, contributed $21.8 billion to gross domestic product at market prices, including $11.7 billion in labour income and is directly or indirectly associated with creation of 347,352 full-time equivalent jobs (includes direct, indirect and induced impacts). Total sales of goods and services (also called output) is similar to the gross income of a farmer.

Multipliers:

• The cattle sector contributed $3.35 to the Canadian GDP for every dollar of farm cash receipts.
• For every worker employed in the sector, another 3.9 (based on indirect and induced impacts) workers are employed elsewhere in the economy; with an employment multiplier of 4.86 person-years on a full-time equivalent basis.
• For every $1 of income received by workers and farm owners, another $6.22 are created elsewhere – resulting in an income multiplier of 7.22. 

Outlook to 2030:

As the Canadian economy is looking to recover from covid, with numerous sectors experiencing significant reduction in employment numbers. The number of workers that are expected to retire in the beef sector by 2029 combined with any growth could result in a shortage of 14,000 workers as the domestic labour supply will not be able to fill this gap (AGRI-LMI, 2020). This could affect expansion plans for all sectors of the beef industry. AGRI-LMI (2020) forecast that labour productivity in the beef cattle sector will increase from 0.9% to 1.2% average annual percentage change.

Agriculture Canada’s Medium-Term Outlook forecast Canadian beef cattle herd to be 5% larger than in 2020 by 2027. USDA (2020b) forecast that beef prices will rise to 2025-2027 then fall to 2030 as the US beef herd rebuilds. The expansion of the cattle herd in the USA is expected to put pressure on Canadian domestic beef prices resulting in a decline in wholesale prices of 9% by 2030. The Canadian beef cattle herd is expected to expand by 5% to 2027 then decline by 2% to 2030 in response to lower beef prices. These forecasts are based on “normal” weather or at least no prolonged droughts over the 2020s.

What it means

The major conclusion of this study is that cattle production in Canada is a significant economic activity that leads to other changes in the economic fabric of the nation. Each of these regions enjoys not only direct impact, but also those generated through secondary mechanisms – indirect and induced.

The regional impacts are uneven. In Eastern Canada, for every dollar’s worth of farm level activities 1.58 times the activities in the processing sector are produced. This perhaps may reflect the additional value added by the sector. But in Alberta this value is only 1.24, perhaps affected by relatively higher fresh beef exports to other countries.