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Farm-Scape, Episode 2301

Pork producers in Saskatchewan are renewing their efforts to maintain and expand the province's hog kill after Maple Leaf Foods announced plans to close its aging Mitchell's Gourmet Foods hog slaughtering plant in Saskatoon.

Maple Leaf Cancels Mitchell's Expansion

In July 2005 Maple Leaf announced plans to build a 160 million dollar facility that would replace the 65 year old Mitchell's plant. However, last month, as part of a restructuring plan initiated to reverse losses caused primarily by the soaring Canadian dollar, the company announced that the new facility would not proceed and further that the Mitchell’s plant will be closed within 3 years.

While initially Maple Leaf had indicated the Saskatoon plant would continue to operate for three years, the latest indications are that the end will come for the plant within 12 to 18 months.

Pending Closure Raises Several Concerns

“Suddenly there are 850 thousand pigs that have nowhere to go,” says Saskatchewan Pork Development Board (Sask Pork) chair Shirley Voldeng.

Voldeng says those hogs still need to be processed and will have to go out of the province or out of the country which means you're shipping hogs, jobs and profits out of Saskatchewan. The individual producer will be affected in many ways. The first question is whether plants in other provinces have the capacity to kill hogs from Saskatchewan. Then there's the cost of transportation. Freight alone can range from three to nine dollars a pig depending on destination. On top of that is the availability of trucks to take these pigs to further places. The trucking industry is also tight. The distance pigs are shipped is another concern. Time on the truck influences shrink of the animals. They're traveling further on trucks, they have to sit overnight sometimes, so they don't do as well under those situations.

Big Sky Farms CEO Florian Possberg questions whether a hog slaughtering plant with no future can continue to operate that long (12 to 18 months). He suggests, while Maple Leaf's plan to introduce a second shift at it's Brandon kill plant would be constructive for Saskatchewan producers, it isn't done yet. We know there's work to be done there. There have been numerous announcements saying Brandon would be double shifted and it has not happened.

“Even if Brandon double shifts, it still leaves a gap for us but, with Saskatoon shutting down and Brandon not being double shifted, that really creates a big gap for us,” he warns.

All Possible Options to be Considered

The Saskatchewan Pork Development Board plans to explore several possible solutions. Among the options to be considered are possible producer purchase of the existing Mitchell's facility; building a new slaughter and processing facility; partnering with Maple Leaf on a new facility, or attracting a new player into Saskatchewan's meat processing industry.

Previous Study to Provide Considerable Background

Much of the groundwork has already been completed. Sask Pork General Manager Neil Ketilson recalls, “We developed a business plan about three years ago when Maple Leaf bought the Mitchell's plant anticipating that it may be closed at some point in time.”

At that time producers were drawn together to determine whether there would be interest in committing hogs to a Saskatchewan slaughter plant. The response was good with producers prepared to commit about 600 thousand hogs along with a small financial commitment in exchange for a controlling interest in the company through some type of share offering. The plan was also contingent on securing a significant marketing partner to provide additional investment, manage the facility and market the product. The plan was shelved when Maple Leaf announced plans to construct a new facility in Saskatoon.

“What we're doing right now is reviewing that initial plan and reviewing the numbers if you will,” Ketilson explains. We've retained the services of Meyers Norris Penny to assess the feasibility of the business plan and a number of other options that we will explore to determine the best alternative.

Saskatchewan Advantage Remains Unchanged

He stresses that Maple Leaf's restructuring is really about the economics of that particular company and the strategy it wants to have in place be profitable to grow. Often when organizations like that are restructuring they're looking at long term strategic goals that they want to achieve and whether or not a particular plant is making money at the time really doesn't come into play. Just because they're restructuring doesn't mean the economics of processing in Saskatchewan has changed at all. In terms of primary production we have a great deal of opportunity in this province. We have economic and competitive advantages not shared by other parts of the world and we've done a very good job of exploiting those advantages. The advantages that were there prior to the Maple Leaf announcement still exist.

Tight Time Lines Add Urgency

Given Maple Leaf's timelines, the most pressing matter is ensuring continued access to slaughter in the short term.

Ketilson says the first order of business will be to determine whether there is an opportunity for producers to purchase the existing Mitchell's plant.

“Appreciate that we have over two million hogs in the province of Saskatchewan and if there is no packing capacity here we are estimating that the marginal increase in transportation costs will be at least five to six dollars a head.”

He suggests, when you consider that, we think that we could have some producer share option whereby the cost of investment would roughly offset the transportation cost so it would be very good sense from a business point of view to be part of a new facility.

Mitchell's Purchase Viewed as Short Term Solution

Possberg agrees one of the options is to see if new owners can take control of that plant and operate it for number of years to make sure we have shackle space.

However, he adds, “Long term though we know we need a more permanent solution.”

That is why Sask Pork is also looking at the feasibility of building a plant in Saskatoon or other areas of the province. Long term we've always believed for an industry to prosper, it needs to be a complete industry with competitive production combined with slaughter and processing to compete. We always thought that somebody else, in this case Maple Leaf, could provide our solution. Now we know that Maple Leaf doesn't have an appetite to do that.

“Either we need to encourage other players into our market place or we have to be more proactive and get involved in developing slaughter processing ourselves,” he says.

Ketilson notes, back in 2004 Sask Pork approached a number of people that might be interested in some sort of joint venture and had some fairly keen interest from some parties and we anticipate those parties may still be interested. We will approach those people again and see if they're still interested, as well as others.

There are smaller niche players in other parts of Canada who are interested in Western Canada so there is that potential, Possberg adds. On the American side of the ledger we have Tyson's and Cargil that are very successful in the beef slaughter and processing industry in Alberta. I think those companies realize that western Canada has the good fundamentals to build a long term business.

Recommendations Expected by Early Spring

Sask Pork's review is active now.

Ketilson says, “We will be working very hard through the winter exploring the various options and hope that within five to six months we have some direction in terms of what possibilities may exist.”

Change Considered Inevitable

Possberg admits finding the solutions is going to require some creative thinking and for producers to step outside their normal comfort box.

Voldeng agrees producers are concerned, however she points out the industry has survived several challenges in the past ranging from low prices, to different packing situations, to the change in the Canadian dollar. She stresses there are options and suggests, while Saskatchewan's pork industry may change, there is a future.

Staff Farmscape.Ca