Western Canada’s hog processing industry just got a little more concentrated.
United States-owned Schneider Corporation last week took the first step along the road toward taking over control of Mitchell’s Gourmet Foods.
The two companies announced that Schneider has bought a 32 percent interest in Mitchell’s, in what was officially described as a “strategic alliance.”
The firms will now go ahead with a $50 million expansion to Mitchell’s Saskatoon pork processing operation, to be completed by the summer of 2001.
Under the terms of the financing, Schneider will increase its equity position as it provides cash to Mitchell’s for the expansion project.
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Doug Dodds, chief executive officer of Schneider, said the final ownership share will depend on how much of the addition is financed by his firm.
In an interview from Kitchener, Ont., Dodds declined to estimate what that share would be, but he confirmed that at the end of the process, Schneider will control Mitchell’s.
“We would be in a majority position,” he said.
Both Dodds and Mitchell’s chair LuAn Mitchell said Mitchell’s will continue to operate as an independent business.
“There will be no change,” said Dodds. “Mitchell’s will continue to operate as they do today with the same management structure, the same operating policies and the same autonomy as it has today.”
Mitchell said in a news release financial backing from Schneider will help her company expand its market share across Canada and in export markets. Mitchell’s 1998 sales were $300 million, while Schneider had 1998 sales of more than $900 million.
Mitchell’s had made it clear last fall it was looking for sources of money to finance an expansion.
Schneider is controlled by Smithfield Foods of Smithfield, Virginia, the largest vertically integrated producer and marketer of fresh pork and processed meats in the U.S.
Mitchell’s, Canada’s third-largest value-added pork processor, is majority-owned by the family of the late Fred Mitchell.
The deal tightens the hold of the two meat industry giants, Schneider and Maple Leaf Foods, over Canada’s pork industry.
Larry Martin, an agricultural economist at the University of Guelph’s George Morris Centre in Ontario, said it’s no surprise to see continuing concentration in the hog business.
“At the primary processing level, competition is dominated so much by costs and there are so many economies of scale, that one should never be surprised to see that there are so few players,” he said.
He noted there are many more players in the further processing industry, where competition is based less on price and more on brands and advertising.
Dodds said Schneider, which already operates two pork facilities in Winnipeg, has been looking for an opportunity to expand its Western Canadian operations given the change brought about in the prairie agricultural economy by the end of subsidized freight rates on grain.
Don Hrapchak, general manager of SPI Marketing Group, welcomed last week’s news, saying it should give hog farmers more security about the future.
“Any time you have a meat company expanding and spending $50 million and upwards means that the packer is committed to maintaining a very significant presence in the province,” he said. “As hog production increases, they will be ready and willing to purchase every hog grown in this province.”
(SPI has a hog supply agreement with Mitchell’s as well as an ownership stake of 18 percent, prior to the Schneider investment.)
Dodds agreed the changes should make producers feel more secure about the expanding production: “I think Saskatchewan pork producers can grow with confidence that we’ll be there to buy their pigs.”
The expansion will involve construction of a 140,000 square-foot stand-alone sausage and wiener processing and smokehouse plant adjacent to the company’s existing facility, creating 150 new jobs.
