Cover Story: The Prospects for Ontario Lamb
Sunday, November 2, 2008
Strong demand, good growth potential, but is the leadership there?
'The number of consumers of sheep and lamb is growing like gangbusters,' says the chair of the Ontario Sheep Marketing Agency. But tensions are building over how to grow the market and producers are questioning whether the OSMA leadership can take the industry to the next level
by MARY BAXTER
• Vince Stutzki was working in the seed industry when he and his wife Heather acquired a neighbour's flock of sheep as a part-time enterprise in the late 1980s. It didn't take long for the Paisley-area couple to recognize that there was money to be had by expanding their operation.
• Fred Baker jokes that he got into sheep production because, when he finished university, his father, a dairy farmer, had sold off the quota. That was in 1980. He's been involved as a producer at Mountain in Dundas County ever since and was one of the industry's most vocal advocates until 2006.
• Bill McCutcheon, who farms north of Grand Valley, grew up with beef and hogs. When it came time to launch into livestock production on his own, the former Ontario ministry of agriculture sheep specialist chose sheep. You didn't need elaborate housing or feeders, he says, and return on investment was relatively quick. "It was something you could grow with and add-on."
Sheep production has the reputation of attracting hobbyists but, as these three producers show, it can appeal to those with more experience. Interest from other types of livestock producers is growing, say industry insiders such as Tony Facciolo, owner of Bolton-based Holly Park Meat Packers. In particular, hog and cattle feeders are taking "a real hard look at lambs because their industry is in such turmoil."
Kim Sytsma is one such producer. Sytsma, a director on the Ontario Cattlemen's Association, operates a cow-calf farm with her husband, Charlie, and son, Will, near Brockville. She says that, if they had the financing, they would take the plunge into sheep. "It's challenging to have all your eggs in one basket," she says.
Sheep appeal to Sytsma because of the industry's growth potential, which she attributes to the increase in the number of immigrants, many of whom are more used to eating lamb than beef. Allan Burn, chair of the Ontario Sheep Marketing Agency (OSMA), agrees. "The cattlemen would love to be us," he says. "The number of consumers of sheep and lamb is expanding like gangbusters."
Of the lamb consumed in our country's domestic marketplace, 50 per cent comes from Canadian producers. Imports from New Zealand, Australia and the United States fill in the gap. Market research and Canadian statistics show that, in a growing population, lamb consumption per capita grew 68 per cent from 0.75 kilograms in 1996 to 1.24 in 2007.
What's more, lamb commands a premium price at the grocery store and auction sales. In 2007, prices for lambs weighing 80 to 94 pounds averaged $160.78 per hundredweight. Prices roughly follow a six-year cycle where price climbs as a result of fewer lambs to a point where production catches up and price falls. Many estimate that there are 18 months to two years ahead of good prices.
But not all is gravy on the plate of lamb. Tensions are building over how to grow the market; producers are questioning the leadership of their provincial organization; and some, like Baker, fear that if action doesn't come soon, the opportunity to take the industry to the next level will be lost.
Ambitious program
John Steele, who farms with his wife Eadie, suggests that the industry's woes have long roots. Steele is a professionally trained shepherd who emigrated from Britain to Canada nearly two decades ago. He and Eadie run a flock of 1,500 ewes on 700 acres in Peterborough County. They partner with two others to sell their lambs direct and through auction, as well as offering ewes as replacements in commercial flocks.
He observes that sheep production was common at one time in Ontario but dwindled as approaches to farming changed. Without the production knowledge and with changes to farming, it became hard to envision what a large commercial sheep venture should look like, let alone achieve it.
In the 1990s, to narrow the knowledge gap and raise production standards, the Ontario industry introduced an ambitious program called the Ontario Lamb Improvement Breeding Strategy. One aim was to improve lamb quality and increase the amount produced in Ontario through breeding, production and education initiatives. Another was to use forward contracting to establish new markets and ensure that the surplus animals produced wouldn't affect open market prices.
With the initiative in place, the industry gathered momentum. Provincial sheep specialist Anita O'Brien doesn't have the figures to prove it but says that, by 2003, many with mid-range flocks were poised to expand (a large flock is more than 500 animals, or the equivalent in feed needed of that for about 84 cows).
Then the BSE crisis hit. Producers on the brink of expansion instead downsized or got out. In BSE's aftermath emerged an industry of flock size extremes. There are now 180 large-flock operators in the province. That's considerably more than before the crisis, but it is only a tiny proportion of the 1,515 farm operations earning 50 per cent or more of their income from sheep in 2007. Smaller producers, many with less than 100 animals, dominate.
It's these producers who drive marketing directions and, right now, auctions and local sales present good opportunities. Talk to any producer and they'll tell that you there's a market for every type of lamb produced. So there isn't a lot of incentive to change production habits in order to meet the growing demand. With such a rosy picture, why would they want to?
Jennifer MacTavish, executive director of the Canadian Sheep Federation, warns that if Canadian producers leave it to someone else to meet the burgeoning domestic demand, there's a danger retailers will become accustomed to buying lamb from other sources. As their buying habits become more established, it could become more challenging to sell the Canadian product. Some have speculated that, without action, markets could be lost altogether, she says.
That's Fred Baker's worry. He says that New Zealand and Australia are getting better and better at putting fresh product into the market. Soon, the only advantage Canadian lamb will have is that it's locally produced. Changes need to take place now while prices are high, because that's when abattoirs and stores "want to talk to you," he says. "That's the time to develop branded products and expand into untapped markets."
Developing new markets means providing a reliable supply and consistent quality. That's where the industry's breeding strategy was supposed to step in, but it has collapsed. In 2003, OSMA sold off the program's breeding and research flock. Two years ago, it opted out of the strategy's forward contracting arrangements.
Most say the forward contracting program was flawed from the outset and BSE tipped it over the edge. Contracts were based on rolling auction prices that were slower to recover to pre-BSE levels than the auction market. Producers went to greener pricing pastures. Guaranteeing a consistent quality and supply to the processor became difficult.
Aspects of the strategy continue in private hands. For smaller flock producers who might be interested in scaling up production and entering new markets, though, there's no industry-wide sales network to tap. "It just blows me away how much demand is there," remarks Baker. "But the disconnect between the farm gate and that demand is what is so distressing. And it's so difficult to organize a way to fill that market."
Inefficient slaughtering
Problems at the processing level are also impeding market development. Facciolo points out that there is no dedicated slaughter plant – either provincially or federally – in Ontario. At Holly Park, lamb makes up less than one third of the 1,000 animals processed in a week. "We're very inefficient when it comes to slaughtering lambs," he admits, explaining that the plant is designed to accommodate larger animals. That's the case at most plants across the country, he says, even at a plant that's dedicated to lamb processing in Alberta.
In contrast, New Zealand and Australia have plants specifically designed for lamb processing. "Down there they have plants that do 500 in an hour; well, here it takes us a day and half to do 500."
Moreover, 94 per cent of lamb processed in Ontario (the province processes most lambs in Canada) goes through a provincially licensed plant and federal legislation doesn't permit meat products from these plants to cross provincial or international borders. Larger grocery chains with central buying desks, such as Loblaws, acquire meat through federally licensed plants to gain greater flexibility in distribution.
Holly Park has applied for federal licensing and Facciolo hopes that it will arrive in the spring. If it does, that may not be good news for the sheep producers who supply the plant. Ramping up beef processing is the motivation behind the application and this activity may displace some of the lamb. He says that he may consider outsourcing the lamb processing.
He'd like to boost production. The plant supplies smaller retail chains such as Longos, a high end grocery chain serving the greater Toronto area.
He also sees potential to get into the food service industry. But supply is always a hurdle. With the industry dominated by small-scale producers, he says the volume just isn't there to tackle new markets.
Baker and others are also concerned about the leadership of the provincial organization, which has had three general managers over the past five years. This summer, the organization embarked on a new hiring search for yet another. Baker observes that there was no board representation at an industry-wide roundtable in July, hosted by the Canadian Sheep Federation and held in Ottawa. The roundtable is part of the federation's longer-term strategy to categorize market opportunities more closely and formulate plans to capture the markets.
Keith Salisbury, a Lanark County producer involved in a niche market venture with two others, was one of those who attended. He says that there was a lot of interest expressed around the table between producers and processors to work together across the country to get Canadian lamb into stores.
Locally, Salisbury is working on his own value chain. He and his partners raise Katahdin sheep using organic practices but, because there is no organically certified abattoir in the area, the animals are not certified organic. They sell the animals at farmers' markets in Ottawa and Carp and also to the local restaurant trade. They're selling 900 animals a year at retail sales prices approaching $8 per pound.
Salisbury sees big potential in supplying the Ontario restaurant industry and figures value chains could help Ontario producers supply the whole provincial market – if they wanted to. He's just not sure that the board is interested in pushing OSMA in that direction.
Over the past summer, he's raised this issue and others to do with the agency at meetings and in a letter to local farm media. He and others have complained to the Ontario Farm Products Marketing Commission, which oversees commodity-marketing organizations, about the agency's focus and communication practices.
The commission responded by dispatching representatives to regional annual meetings to gather producers' perspectives. Members were expected to discuss the results of the feedback at their October board meeting, says commission staffer Marilyn Sewell.
She would not speculate on what the commission's next steps would be.
Lack of 'grooming'
Burn points out that OSMA is not alone in its high turnover rates – it's happening in several of the commodity organization boards, and not just with staff but also board members. He suggests many farm boards lack succession plans and notes that organizations, such as the Ontario Federation of Agriculture, have developed ways to help those coming up through the ranks.
"They see talented individuals in a district or in an area and they encourage … groom them," he notes. In contrast, "All our directors are very, very dedicated to the sheep industry, but they sometimes don't have some of that grooming that may help."
Burn confirms that there was no OSMA representation at the Canadian Federation's July meeting, but points out the provincial organization hosted its own value chain workshop in January. He argues that OSMA is pulling its weight and says that the organization's participation in the Homegrown Ontario marketing program promoting provincial meat products through smaller retail outlets and butcher shops has fostered consumer awareness about the availability of Ontario lamb.
He admits to volume problems within the provincial supply chain but suggests that, once producers become aware of the greater demand fostered by the Homegrown Ontario branding program, they will recognize the importance of expanding. "Our producers have to understand that the only one we're going to be hurting is a foreign government if we expand. And I really don't believe that New Zealand would retaliate (by more aggressively promoting their product) for only three per cent of their market."
He points to the organization's efforts to persuade the province to introduce a program guaranteeing processor payments, which has been a significant stumbling block to establishing forward contracting arrangements. OSMA is also involved in a ewe-financing program pitch to the government to help producers expand.
Stutzki might be a member of a large sheep operator group with a membership of 60, but he doesn't think dissension helps the industry and believes that all sheep producers need the OSMA umbrella. "We need a voice," he says. That voice is needed to lobby for government support for research to help increase productivity and standardize supply, he says. He points to the money spent on genetic research in the hog and feather industries. It's not happening in the sheep industry.
Although sheep auction prices might seem strong right now, the cost of inputs is rising. When they're combined with the industry's inherent production and delivery inefficiencies, profit margins shrink, drastically.
Housing sheep across their production cycle requires more space than cattle, relatively speaking, explains O'Brien. Preventive measures to deal with predators can cost as much as $10 a lamb. Shipping lamb from eastern to central Ontario for auction alone can run up to $12 a head. Do the math and it takes roughly $108 to ship the equivalent (in terms of the amount of feed) of one calf to market. "If a beef producer had to pay $108 to market their calf, they'd be screaming bloody murder," she says.
Most of those interviewed admit that establishing forward contracting opportunities and value chain arrangements are key for advancing the industry. The approach offers security for going larger.
"As farmers, we all have too much risk and somehow we have to reduce the risk that we carry," says McCutcheon. "We have to have some sort of assurances when we produce lamb to a certain spec that we're going to get paid a certain amount of money." BF
Ontario's largest lamb finisher
Ask James Lewis if he's the largest finisher of lambs this side of the Alberta border and he'll say, "Maybe." Ask him if he knows of any others in Ontario with larger lamb finishing operations than his and he'll tell you, "No."
James farms 4,500 acres with his brother Anson and father Don near Holstein in Grey County. Along with lamb finishing, they run a Red Angus purebred beef operation and maintain a 300-400 ewe flock.
In 2007, the finishing operation accounted for 50 per cent of the family's gross operations.
James is in charge of the finishing facility, which can hold between 4,500 and 5,000 lambs at a time. He began in 1996 and initially acquired his lambs from Western Canada and shipped them to the United States. "With the dollar where it was, it was making really good money," he says.
After the BSE crisis closed international borders to Canada's ruminant trade in 2003, James scaled down and made some changes. He began importing lambs from the United States, one of only two operations in the country to do so. The other, Sunterra Farms, is based in Alberta.
James says he will also acquire lambs from sales rings in Kitchener and Brussels and will still buy the occasional lamb from Western Canada. Lamb quality in Ontario has improved and now exceeds western standards, he says.
International borders may have opened once again to the lamb trade, but James sees little opportunity south of the border. He now focuses solely on meeting domestic demand. He has a sales arrangement with one provincial packer that requires him to finish lambs to certain standards. Demand is good and the arrangement allows him to predict the number of animals he needs to finish.
With today's feed prices, however, profit margins are slim. Their breadth depends on managing mortality rates, streamlining production and marketing "to an extreme."
There have been other challenges. Changes to Ontario lamb labelling requirements under the Homegrown Ontario meat marketing campaign have eliminated some potential markets for his products. The program now requires lamb to be raised and fed in Ontario to qualify. It had previously included lamb fed 30 to 60 days in the province.
"It's a pretty interesting industry." James says the variety of religious beliefs that allow lamb is what first got his family intrigued in the market. "Everybody perceives to need a lamb for a different reason." BF
Forward contracting lives on through a private venture
Two years ago, the Ontario Sheep Marketing Agency ended its forward contracting program with Bolton-based Holly Park Meat Packers. But some large-scale producers continued the arrangement privately with the packer.
Bill McCutcheon, who farms near Grand Valley, organizes the venture through his company, Ontario Lamb Marketing Inc. Initially, four producers participated. Today, that number has grown to 20 and McCutcheon estimates that they will ship 11,000 lambs to Holly Park in 2008.
Paisley-area producer Vince Stutzki has been involved since the beginning. He says that managing risk is the venture's advantage.
The arrangement with the packer requires delivering a steady supply year round and the group finishes their animals to a specific set of standards. To help achieve this, they use the Canadian-developed Rideau sheep breed for their ewes.
In turn, prices are based on cost of production and a return on labour. The volume of lambs processed averages about 200 a week but can climb as high as 1,000 a week at Easter. BF