Maple Leaf protected supply chain with acquisition

Tuesday, November 6, 2012

by DAVE PINK

The recent acquisition of a financially troubled hog production company in Manitoba by Maple Leaf Foods was probably nothing more than a necessary step to safeguard the meat packer’s supply chain, and not a reversal of the company’s long-standing policy against vertical integration, industry analysts say.

And don’t expect to see a similar move in Ontario, they add.

Maple Leaf Foods announced on Nov. 1 that it had acquired the Puratone Corporation — one of the largest swine production facilities in Western Canada — for $42 million. Puratone had recently sought creditor protection after severe losses this year due largely to the U.S. drought and the soaring price of livestock feed.

“I don’t think Maple Leaf had any choice,” said Ken McEwen, an agricultural economist and the interim director at the University of Guelph Ridgetown campus. “Maple Leaf has invested heavily in Manitoba. That’s where its slaughtering facilities are. Strategically, this is a good move for Maple Leaf. They had to secure the supplies they need.”

He added, “Puratone is a well-run company, with significant experience in the pig industry. Their expertise is well known, so at the very least Maple Leaf has acquired that expertise along with security of supply.”

Puratone operates about 50 barns in Manitoba, in close proximity to Maple Leaf’s large pork production facility in Brandon. Now, Maple Leaf will own about 30 per cent of the hogs needed at the Brandon plant, or about 1.2 million hogs annually.

Kevin Grier, a senior market analyst with the George Morris Centre, an agricultural policy think tank in Guelph, said there’s no reason to believe that Toronto-based Maple Leaf is backing away from the strategy it embarked on in 2006, when it divested itself of its hog production operations in Ontario and renounced any future attempts at vertical integration.

“I don’t read too much into this,” he said. “I see it as a reaction to a particularly negative supply situation that may have forced their hand.

“It does reverse their long-term strategy on vertical integration. They were at one time the largest hog producer in Canada, and I imagine there was some heated debate over this at Maple Leaf. But there was the risk of losing their source of supply.”

Amy Cronin, Ontario Pork board chair and a critic of vertical integration in the pork industry, said the Manitoba development is unlikely to affect hog production in Ontario. Unlike Manitoba, Ontario’s hog production is mostly in the hands of smaller family-operated farms.

“I know Minister Ritz (federal Agriculture Minister Gerry Ritz) put it out there that vertical integration should be the direction we move in, but I don’t think it’s a one-size-fits-all solution, she said. “We operate in a different way in this province. Maple Leaf tried it before in this province, and it didn’t work.”

There is currently only one vertically integrated pork production operation in Ontario — Conestoga Meat Packers in Baden, near Kitchener. It’s a co-operative owned by about 150 hog farmers which employs about 300 people and processes close to 14,000 hogs each week. It takes pride in being more flexible and innovative than its much larger competitors.

“It works for us,” said Frank Wood, Conestoga’s procurement manager. “But ours is a land-based producer system, a different system than theirs.

“It looks as if they had to do this to protect their supply.” BF