Alberta pork producers got a boost from the sale of a Red Deer packing plant to Quebec-based pork processor Olymel, says the general manager of Alberta’s hog marketing company.
“It’s a different game altogether now,” said Mack Rennie of the Western Hog Exchange.
Last week, Olymel bought the fresh pork division of Premium Brands Inc. for $90 million. The sale includes Fletchers, the state-of-the-art processing plant in central Alberta.
The major shareholder of Olymel is Cooprative fdre de Qubec, a federation of Quebec agriculture co-operatives with more than 33,000 members. Olymel is the second largest hog processor in Canada and the largest fresh pork and poultry exporter.
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The company processes 16,000 hogs, 16,000 turkeys and 300,000 chickens daily at 15 facilities in Quebec and one in Ontario. Its annual revenue is more than $1.3 billion.
Olymel’s foray into Western Canada means there are two strong pork processors on the Prairies vying for producers’ hogs, Rennie said. Maple Leaf Meats in Manitoba is the other.
“I’m excited about having these two strong players,” said Rennie.
“There are two ‘A’ players and they’ve both got money to compete against one another.”
The purchase of the plant, with capacity to slaughter 16,000 hogs a day, will give producers assurance the prairie pork industry will remain strong, he said.
“It gives them the confidence that the packers want to kill hogs.”
Rjean Nadeau, chief executive officer of Olymel, said buying the Alberta-based plant was an opportunity for the company to expand and be closer to its Asian markets.
“We’ve been aware of Red Deer and we felt it was a good opportunity for us,” said Nadeau of St. Hyacinthe, Que.
“Alberta is one of the ideal places to grow pork.”
Olymel kills four million hogs a year. It kills half of the hogs in Quebec and buys 10,000 hogs a week from Ontario producers to help fill its needs.
Market to fill
With its Asian customers demanding more pork and its eastern plants working at capacity, Olymel needed a processor with room for expansion, Nadeau said.
“We need to satisfy our customers, especially in Asia and Japan. We have to get some more hogs.”
Exports account for about half of Olymel’s $1.3 billion in annual sales. Export sales to Japan are worth about $250 million annually.
“We have been there for many years. We have built the reputation of quality of pork, quality of packaging and respecting the specifications of the Japanese.”
The Red Deer plant has the potential to kill 16,000 hogs a day with two shifts, but is presently killing 6,000 hogs a day.
Nadeau said he hopes to increase production to 8,000 hogs a day within a few months.
Plant officials have said in the past they had trouble securing enough hogs to increase the plant’s production. Some analysts have said that’s due mainly to price competition from Maple Leaf and American packers.
Olymel will invest $10 to $12 million in a new cutting room to increase the weekly hog slaughter capacity to 40,000.
The cutting room constraints and a shortage of hogs are preventing the plant from operating at full capacity.
With the addition of the plant, Olymel will increase annual fresh pork export sales to Japan by $200 million within two years, said Nadeau.
Olymel has assumed the contracts producers had with Premium Brands. It will also keep the plant’s 800 employees.
As part of the deal, Premium Brands will buy meat from Olymel for further processing for seven years.
Will Kalutycz, chief financial officer of Premium Brands, said the sale of the Fletcher’s plant to Olymel allows Premium Brands to focus on processing and distribution of pork.
“It allows us to focus on what we do best and allows Olymel to do what they do best,” said Kalutycz of Vancouver.
With the money from the sale, Premium will pay down debt and invest in its other processing and distribution businesses in British Columbia, Manitoba, Saskatchewan, Oregon and Washington state.
“This is very positive for our company and positive for our shareholders,” he said.
Premium may also look at opening a bacon plant in Edmonton.
“It’s a definite possibility,” said Kalutycz.
Saskatchewan Wheat Pool is a major shareholder in Premium Brands. It will continue to have a supply arrangement with Olymel for the hogs it raises through Heartland Pork.
