Despite the product being well-received, official says co-op was unable to generate sufficient volume to bring down costs
A farmer co-operative that offers Canadian lamb producers premium prices for finished animals is on life support.
The Canadian Lamb Producers Co-operative issued a statement Jan. 25 confirming that it has filed for bankruptcy protection.
The co-op has been seeking an investor over the past several months that would be willing to finance its operations while production is ramped up and sales are increased to a commercially sustainable level.
In its statement to members, the co-op said lamb products marketed under its LAM brand were “well accepted and … generated a profit.”
However, the co-op was not able to generate sufficient volume to cover its fixed costs on an ongoing basis.
“We have reached the point where we no longer have the means to pay expenses and continue operations,” the co-op said.
“We therefore have no choice but to cease operations and lay off staff.”
Fred Baker, a co-op board member from Mountain, Ont., said the organization has reached a point where it needs to significantly expand production and distribution of its products.
Ramping up operations is essential if the co-op hopes to ensure placement in large retail outlets, he added.
Most of the co-op’s products are sold through small independent retailers, grocers, butcher shops and Federated Co-op outlets.
“It’s always been a challenge for Canadian lamb producers to get our products in front of consumers because the large chains want to be able to source product from one place,” Baker said.
“Our only problem all the way along has been securing enough investment capital to scale up the product and product delivery.… The product that we’ve put on the market so far has been well-received … but eventually you’ve got to scale up … to a commercial level.”
The co-op will remain under bankruptcy protection for 30 days.
During that time, it will be granted protection from creditors and will continue to seek outside investments worth roughly $1.5 million, which would buy the organization some breathing room and allow it to continue operations while it addresses short-term cash flow issues.
Baker said the co-op’s outstanding debts to creditors are relatively small, adding that board members were mindful of taking on additional debt.
“We don’t have much debt right now,” he said. “That’s one of the reasons why the decision to go to bankruptcy protection was made. We don’t want to go further into debt. If it’s not sustainable, it’s probably better to fold the tent before you take on too much more debt.”
Baker said board members have not thrown in the towel yet, but time is running out. Outside investors may be wary of investing in an organization that is committed to producer members retaining a controlling interest, he added.
“I don’t know if I’m hopeful,” Baker said. “The (co-op’s) members haven’t come forward and money is tight out in the investment community, so things will happen as they happen.”
For lamb producers, the loss of the co-op will mean not only the loss of a prominent buyer for finished lambs but also a loss of farmer control in the country’s growing market for lamb products.
Without the co-op, Canadian lamb producers will almost certainly be forced to sell finished lambs at a lower cost to commercial processors.
Alternatively, more lambs will be sold as feeders to commercial finishing operations, which would add another player in the Canadian supply chain and ultimately erode farmgate revenues.
Baker described the potential loss of the farmer co-op as a “terrible blow” to producers. “It’s going to leave producers in the lurch,” he said. “We’ve been down this road before. It’s just one less place for producers to market their lambs and we’ll be back to … trying to put the lambs through feedlots…. Basically, we’ll be back to being price takers and not having a known price (for finished lambs).”