The National Farmers Union wants the federal Competition Bureau to investigate the proposed sale of Lakeside Packers in Brooks, Alta., to XL Foods.
Under the deal, Nilsson Bros., which owns XL, would control almost half the Canadian packing capacity, as well as hold a large share of western auction yards and cattle on feed. It would own processors in Moose Jaw, Calgary, Edmonton and Brooks.
Ownership across the beef sectors suppresses competition and consequently, the prices paid to farmers, said NFU research director Darrin Qualman.
Read Also
Extreme rain increases as planet warms
In this issue, we are going to wrap up our look at extreme rainfall by examining the different weather patterns that tend to be associated with these rainfall events.
“It is just a poster child for competition suppression,” he said.
A letter from the NFU containing two proposals on how the sale should be handled was sent to the Competition Bureau and the prime minister’s office earlier this month.
The first proposal suggests the government block the sale to XL Foods and ensure the ongoing operation of the plant at Brooks is maintained either by Tyson Foods or an interim operator until a sale can be arranged to a farmer-owned co-operative or to a buyer with food processing assets that does not own North American cattle processing facilities.
The second idea is to allow the sale but require XL to divest all its cattle production, finishing and marketing assets so the company does not control livestock through contracts or other arrangements.
Qualman said a farmer-owned co-op could survive under the right conditions and the Alberta government could be tapped for financial backing.
“The government puts lots of money into meat packing plants. The government is currently putting a lot into keeping producers and independent feeders afloat,” he said, referring to a recent $157 million bailout for red meat producers.
“If the government is spending tens of millions in keeping everything going, that might be well placed in helping farmers gain a toehold in the slaughter system,” he said.
The NFU is also concerned about captive supply where a packer owns or controls its slaughter-ready cattle. XL would be able to provide more than 20 percent of its cattle needs from its own facilities.
“On both sides of the border people are grappling with the issue of packer concentration and the effect it has on pushing prices down,” Qualman said.
Agricultural economist Kurt Klein of the University of Lethbridge said no comprehensive studies have been done on competition and consolidation within the Canadian packing industry.
“There is an element of uncompetitiveness,” he said but added that a Canadian owned company may keep the live cattle here for processing rather than export.
“The industry is really struggling and they have to be fairly competitive to keep the cattle at home,” Klein said.
The hog and cattle industries are both under duress and since livestock is a relatively mobile sector, businesses can move to a more competitive region. It has happened before in North America, where once solid industries left a region seeking lower cost feed or more competitive prices.
“If a packing plant shut down, it would stimulate that kind of movement,” he said.
Massive consolidation is underway in the U.S. as JBS-Smithfield is working to acquire National Beef Packing, Smithfield Beef Group and Five Rivers Ranch Cattle Feeding, which has an estimated annual capacity of two million head.
If that acquisition happens, three companies would control about 80 percent of the U.S. supply of slaughter cattle. This deal is under review by the U.S. government.
Under the Canadian deal, XL and Cargill Foods would control the federally processed kill.
Lakeside’s owner, Tyson Foods, announced in late June its intention to sell the packing, feedyard and fertilizer assets of Lakeside Farm Industries Ltd and its subsidiary Lakeside Packers to Canadian owned XL Foods Inc.
The $107 million transaction includes $57 million that will be paid at closing. The remaining $50 million, plus interest, will be paid over a five-year period.
Lakeside employs 2,300 people and has the capacity to slaughter and process 4,700 cattle per day.
