Our coverage this week of the Maple Leaf restructuring focuses on the immediate impact on hog producers in Saskatchewan and Manitoba.
But the company’s livestock and feed operations across Canada will be affected as it scales back primary production to focus mainly on supplying its processed food business, the sector where Maple Leaf makes its best profit margins.
Ultimately, the success or failure of these actions, and similar changes likely in Olymel’s future, will determine whether the 10-year expansion of Canada’s hog industry was built on a stable foundation.
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Centralizing Maple Leaf’s slaughter operations in Brandon means the Saskatoon, Winnipeg, Lethbridge, Burlington, Ont., and Berwick, N.S., kill plants will be sold, closed or somehow revamped. The Burlington plant is Ontario’s largest hog processing operation.
The company said its preference is to sell the Burlington, Lethbridge and Berwick plants at fair market value.
Maple Leaf also says it will limit its feed business to supplying its own animals. That means keeping only one or two of its more than one dozen feedmills that operate under the Landmark Feeds brand in the West and Shur-Gain in the East and probably selling the rest.
The result of the hog plant consolidation is that Maple Leaf slaughter is expected to drop to between four million and five million from seven million now.
Although Maple Leaf says it wants to sell these plants, who would buy them? Certainly hog producers like the competition that these plants provide the marketplace. But if they weren’t profitable for Maple Leaf, would they be so for others?
They are much smaller than the plants that dominate the North American industry. Kevin Grier, a hog industry analyst with the George Morris Centre, has noted that the most efficient American plants are large and run double shifts. This raises several questions.
Will someone be able to come up with a strategy to run small plants in a strong Canadian dollar environment? Or will the plants close, forcing producers to send more Canadian hogs to the United States?
Maple Leaf pinned most of its troubles on the rising loonie, but it also noted increasing competition from China, Brazil and Chile, where production does not face the same costs associated with Canada’s level of food safety, humane animal handling, environmental and labour standards.
A little more than a decade ago, when the federal government axed grain transportation subsidies, the agricultural industry responded with a great investment in hog production and processing. That investment produced good results when the Canadian dollar nosedived, but now appears to be in trouble. The safety valve is to ship piglets south to be fed on cheap, subsidized American corn and slaughtered in American plants.
But will problems develop there too? U.S. pork exports have been a bright spot for the past couple of years, supporting hog prices at a level higher than expected given the size of the herd.
But corn prices are rising, largely due to rising ethanol production. Also, what would happen if a
World Trade Agreement is reached in which American grain subsidies are cut?
Would North American pork still be competitive on the world stage?
Likely, adjustments will be made to restore competitiveness, but it won’t be all smooth sailing.
