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Farm-Scape, Episode 2246

Saskatchewan's Pork Industry is exploring its options after Maple Leaf Foods announced it is not prepared to reverse the decision to close its aging Mitchell's Gourmet Foods hog slaughtering plant in Saskatoon or to sell the facility as an ongoing operation.

In October Maple Leaf announced it will close the Saskatoon hog slaughtering plant as it focuses on double shifting its slaughter plant in Brandon. Last week (November 15), as part of Saskatchewan Pork Industry Symposium 2006, the province's pork producers had the opportunity to question Maple Leaf Foods President Michael McCain directly in a public forum.

Maple Leaf Unwilling to Allow Mitchell's Kill Plant to Remain Open

McCain blames Maple Leaf's “life threatening“ losses over the past two years on the rising value of the dollar coupled with the fact that Canadian plant utilization is running at 64 percent compared to the mid 80 percent range for plants in the US. He insists for Canada's processing sector to restore its economic viability, it must better balance primary processing capacity to available hog supply and available markets for meat.

“If we concentrate on making sure that the two plants, or possibly three, that are that are announced today are functioning well, those two plants in Brandon and Red Deer, the industry can succeed,“ he says.

McCain says Maple Leaf is open to assisting Saskatchewan pork producers in making the transition to delivering to a double shifted Brandon plant but it is highly unlikely the Mitchell's plant will continue to operate. He says he is not prepared to be part of a scenario which not only protects low plant utilization of slaughter capacity but further reduces it.

Saskatchewan Premier Confident in Saskatchewan's Pork Industry

Despite the Maple Leaf decision Saskatchewan Premier Lorne Calvert remains confident in the viability of the province's pork industry. “I actually have some real confidence in the industry. It's based on several fundamentals.“

He explains, we have this large land base, 45 percent of all the arable land in Canada and yet a very low animal density being supported by this large land base. We've got the natural environment which is ideal, good feedstock, good water supply, good air quality, good environmental quality. We have worked with industry to develop what we think is a very good set of regulation and guidance so we've maintained the highest of animal health standards, the highest of environmental standards, the highest labor standards and yet have seen some very positive growth.

Calvert notes the McCains have indicated they want to keep the McLeod Street bacon operation going which is a large employer. However he admits the loss of the Mitchell's slaughter plant combined with the recent loss of the Moose Jaw slaughtering plant is cause for concern. “We see room for greater expansion of production in the province but if that production doesn't have an opportunity to market obviously it's not going to happen or it's not going to work,“ he says.

He indicates he is prepared to pursue every available option including continuing the province's relationship with Maple Leaf as it shifts its focus to Brandon as well as other options that may be available.

Premier Committed to Continued Pork Industry Expansion

Calvert recalls, we laid out a strategy couple of years ago that really did focus on the expansion of processing. There were players interested in expanding the processing in this province. The McCains group has decided that's not the option they want to pursue here but that doesn't change our goal to see both production expansion and processing expansion. We are still very anxious to see increased processing opportunities, develop new market opportunities and to support the new market, the new processing and of course expanded production.

“We know the return on investment can be very healthy,“ he says.

Reduced Canadian Capacity Raises Several Concerns

Despite Maple Leaf's assurances that it is prepared to work with Saskatchewan's producers, the imminent closure of the Saskatoon slaughter plant raises several immediate concerns. Although the Brandon plant is being targeted for a second shift that has not yet happened and many producers remain unconvinced it ever will. Their fear is that Saskatchewan hogs will be forced to move to other facilities, most likely in the U.S., which means higher transportation costs and an increased threat of U.S. trade action.

Producers plan to meet next week to discuss the latest developments, examine their impact on the Saskatchewan industry, explore possible options for the future and set direction. Remaining options include the possibility of producers building their own new slaughter and processing facility, partnering with some other interest on a new facility or attracting a new player to the Saskatchewan market.

Transportation Costs and Potential US Trade Action Major Considerations

Florian Possberg, president of Humboldt based Big Sky Farms, believes a moderate sized plant makes sense. If the reality in Saskatchewan is a million hogs in Saskatoon, maybe you build the most bloody efficient plant to handle a million hogs. You might leave a couple bucks on the table because it's not the same efficiency as a four and a half million head slaughter plant but it's a 17 to 20 dollar freight bill down to Sioux Falls. That's a lot more money that we leave on the highways from here to there that we don't get back.

He stresses “We're about to lose a plant in Saskatoon that does 850 thousand hogs.“ Something to consider, he adds, because we start trucking those million hogs down to Sioux Falls, guess what Sioux Falls is going to be full and then we're on to Fremont, Nebraska and Austin, Minnesota and Marshalltown, Iowa. This is going to get very expensive very fast.

Beyond the expense of shipping one million hogs to the U.S. is the concern over how American pork producers will react to such a sudden strain on their infrastructure. Possberg recalls a couple of years ago we spent 12 million dollars fighting U.S. tariffs on live Canadian hogs. That hurt. That broke a level of trust. You can just know that, if their industry runs into a deficit situation for a period of time, some are going to look around and say somebody else is causing the problem. As long as we have that international border that threat is real.

Finished Products Considered a Lower Trade Risk

Ray Price, the president the Suntterra Group, which operates pork processing plants in Alberta and Ontario, adds, “We've had disruptions on meat but they're really short term relative to live animals so it's always better to have meat.“

You always have options, he says, and you'll always be able to sell pork or beef to somebody somewhere at a price. It's just what price you can sell it for but it's better than not being able to sell it at all. We don't have enough barn space, like we've got open space on the cattle side, to just hold the animals so it's a serious concern to not be able to process the animals in Canada.

Issue Comes Down to Two Choices

Possberg believes we're to the point where our backs are to the wall and we've got one of two responses. “We can work together and find the solution and help each other or we can say the last man standing wins and accept that we're going to have a smaller industry in five years time.“

Staff Farmscape.Ca