4 January 2012

3 minute read

North America

"We have resisted public quantification of the cost as this may well become a point of arbitration in Geneva if the US refuses to resolve the issue and Canada seeks authority to impose tariffs on US exports equivalent to the negative impact of COOL," says the organisation.

Nevertheless, the Canadian Cattlemen’s Association (CCA) can highlight some of the factors that will go into that assessment should it be necessary.

One indication of the differential impact of the COOL measure is a change in proportion of US cattle on feed placements that are comprised of Canadian feeder cattle. When this ratio was measured, examining both the time period before and after the COOL measure came into effect on September 30, 2008; a large and statistically significant econometric estimate was derived confirming the substantial influence of COOL.

Overall, the COOL measure caused a loss of US imports of Canadian feeder cattle of about 480,000 head in the first 80 weeks after the COOL measure came into effect. That is an estimated reduction of 6,000 head per week, which is substantial when it is considered against average weekly feeder cattle exports prior to implementation of the COOL measure of 10,494 head in 2007 and 8,372 head in 2006.

Econometric estimates of the influence of the COOL measure on the ratio of imports of fed cattle to US slaughter show that the COOL measure decreased imports relative to slaughter by 30 per cent, or a decline of about 400,000 head during the same period.

That is an estimated reduction in slaughter cattle exports of 5,000 head per week, which is substantial when it is compared to average weekly fed cattle exports to the US prior to the implementation of the COOL measure of 16,333 head in 2007 and 13,534 in 2006.

The fed cattle basis, which measures the difference between Canadian and US fed cattle cash prices, was examined to measure the impact of the COOL measure on the price differential between the two markets.

Econometric analysis analyzing weekly fed cattle prices from 2005 through 2010 and full years through September 2009 found that in both cases the COOL measure widened the negative price basis for fed cattle by about 30 per cent of the initial basis, or about US $4 per hundredweight. Based on the live weight of a typical animal of about 1,200 pounds, this works out to a price difference of about US $48 per head for Canadian fed cattle.

For feeder cattle, the strong impact of the COOL measure on US import quantity dominates any potential price impact.

It is important to note that the effect of the basis difference caused by COOL is felt on every fed animal sold regardless of whether it is exported or not, so any quantification of the impact of COOL would have to include total Canadian marketings, not just exports to the US.

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