It is a $150 million deal some industry observers are marking as a milestone for Western Canada’s hog industry.
Mirroring American style vertical integration, Maple Leaf Foods Inc. now owns a company involved in producing one million pigs per year.
Last week, Maple Leaf bought The Landmark Group Inc., the largest feed manufacturer and swine production network on the Prairies.
But the president and chief executive officer of Maple Leaf was careful to distinguish his company’s strategy from the “gate-to-plate” supply chains owned by United States competitors.
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“Bluntly, we’ve come to the conclusion that’s not appropriate for us here,” said Michael McCain. But he said significant acquisitions in the U.S. during the past six months forced his company to investigate closer ties with hog producers.
The Landmark Group calls its approach “vertical co-ordination.”
Most of its hog operations are privately owned by producers or investors, who follow a production program set out by Landmark’s swine management company Elite Swine Inc. But the operations retain a certain degree of autonomy, including where they market their hogs.
Maple Leaf wants to buy the hogs, said Elite Swine president Dickson Gould.
“But the end result is the producer can make a choice” on where to sell their hogs, said Gould.
That’s welcome news to Aaron Redekop, who owns and manages a production pyramid in the Elite Swine network with his four brothers and other investors. He said the new partnership will give his operation more continuity in pricing, while still having autonomy.
“We expect to have that autonomy and independence because that’s what’s made us strong in the first place,” said Redekop.
Maple Leaf and Landmark are calling the deal a merger. Landmark Feeds and Elite Swine will keep their names, management and employees.
Maple Leaf now owns the fourth or fifth largest feed company in North America, with its Shur-Gain feed division dominating Eastern Canada and Landmark Feeds a major player in western sales.
Bruce Campbell, head of The Landmark Group, said the company has been approached by several major players in the past few years. He said alliances with processors are necessary for survival in today’s industry.
“It’s going to be tough to be an independent producer,” said Campbell. “We feel … we had to move up the food chain. Primary production is fine, but the margins are a little too small.”
But he insisted poor commodity prices did not play a role in the decision to merge with Maple Leaf.
“No kidding, Landmark is a very financially strong company,” he said.
Low hog prices helped push Elite Swine’s competitor The Puratone Corp. into the arms of United Grain Growers for an injection of capital earlier this year.
John Koslowsky, head of Puratone, said his company was also approached by major processors, but chose to remain independent.
“Our shareholders feel this is a very strong company and want to continue ownership of it,” said Koslowsky. “Selling the company takes the entrepreneurial spirit out of you.”
He called the Maple Leaf-Landmark deal neutral for the industry.
Making the deal
- For more than 40 years, The Landmark Group has been selling feed to livestock and poultry farmers, mainly in eastern Manitoba.
- Landmark Feeds makes about 400,000 tonnes of feed per year for about one million laying hens and pullets, 11 million broiler chickens, 200,000 turkeys, 500,000 sows, one million feeder pigs, 20,000 dairy cows and 700,000 beef cattle.
- Elite Swine Inc. co-ordinates production of more than 500,000 sows producing more than one million market hogs a year.
- Landmark and its companies employ more than 300 people.
- In 1994, Landmark bought a feed plant in Strathmore, Alta. Since then, it bought plants in Claresholm and Medicine Hat, and started an Alberta hog production network.
- Maple Leaf Foods will buy all outstanding Landmark shares and assume all its debt. Total investment: about $150 million.
- Landmark shareholders receive up to 1.5 million Maple Leaf shares.
