Private sector should initiate | Ottawa reneged on $10 million loan
A failed beef slaughter plant in South Dakota was a significant factor in the decision to terminate a cattle levy in Manitoba, says the province’s agriculture minister.
Ron Kostyshyn ended a $2 checkoff on cattle sold in the province Aug. 30 and announced the closure of the Manitoba Cattle Enhancement Council (MCEC), which administered the levy.
The $2 levy had been in place since 2006, when the province created MCEC and gave it a mandate to expand beef slaughter capacity in the province.
The council’s flagship project was a proposed $40 million slaughter plant in Winnipeg, which was supposed to kill 500 head per day for the halal and kosher beef markets.
Kostyshyn said this summer’s bankruptcy of Northern Beef Packers, a 1,500 head per day cattle slaughter plant in Aberdeen, S.D., demonstrated how difficult it is for a small or mid-sized plant to compete in the slaughter industry.
“When you have an Aberdeen, South Dakota (plant) … where they fired up and they were in business for less than a year … within a year they got into receivership, I think that’s a true template of how challenging it is in the beef processing industry.”
Kostyshyn said overcapacity in the beef slaughter business was another factor in the decision.
“If you look down in the States right now, we’re down to the 1960s cattle numbers,” Kostyshyn said, adding the size of Manitoba’s herd is also down. “There is still not a strong appetite for producers to get back into the cattle industry.”
Cam Dahl, general manager of Manitoba Beef Producers (MBP), agreed the Northern Beef Packers story conveyed a strong message about the beef slaughter business.
“That (bankruptcy) gave us considerable pause as well,” he said.
“And it’s not the only one. There have been a number of plants of that size, across North America that have not been able to make it.”
Producers have been highly critical of MCEC for the last few years, suggesting the levy was nothing but a tax on ranchers and the Winnipeg plant concept was doomed.
As testament to the frustration, MBP passed resolutions at successive annual general meetings that called on the province to end the levy. MCEC had collected $5.6 million in voluntary check-off dollars since 2006 after taking levy refunds into account. Many producers criticized MCEC for spending $1.1 million of that money on consultants and other professionals.
“(That’s) one of the frustrations,” Dahl said. “I would say the most frustrating thing for cattle producers is that there isn’t a processing plant as a result of this effort.”
Kostyshyn defended MCEC’s government appointed board and its staff, noting it takes financial re-sources to “facilitate” the construction of a cattle slaughter plant.
“The MCEC board and staff have worked very hard…. They were very dedicated individuals that wanted this to be successful. They weren’t there for a pony ride,” he said.
“There is a price (for) … six years of having a manager and staff dealing with the check-off dollars. There was a price we paid to purchase the site.… There (were) also taxes.”
The provincial news release an-nouncing the closure of MCEC suggested the federal government was partly responsible for the downfall of the proposed Winnipeg plant. Ottawa pulled a $10 million loan for the project in 2011, citing deficiencies in the business plan.
The federal government redirected the $10 million toward the expansion of the HyLife Foods hog slaughter plant in Neepawa, Man.
“I’m not one that’s going to sit here and criticize the federal government,” Kostyshyn said.
“But… there was an understanding that the $10 million was to be used towards the Marion Street project and unfortunately it was pulled out…. When $10 million gets yanked, it’s pretty tough to recover from that shock.”
MCEC leaders failed to find private investors to replace the federal funding, which was also a significant factor in the decision to end the levy.
MCEC did commit funding to Plains Processors, a provincial slaughter plant in Carman that is expanding its operation and intends to become a federally licensed facility.
“If Calvin Vaags (the owner of Plains Processors) gets the support that was promised to him, that would be one thing that MCEC would put on (its) list (of accomplishments),” Kostyshyn said.
Dahl said the MCEC saga is an example of how government can play a supporting role in slaughter plants but not the starring role.
“Projects like this should be led … and initiated by someone in the private sector who sees an opportunity and pursues that,” he said.
“I don’t think we can make the puzzle (pieces) fit if they don’t.”