by SUSAN MANN
For the second time this year an Ontario dairy processor filed for creditor protection, and while both companies are still in business the situation highlights the tough market environment for small- to medium-sized dairies.
Agricultural economist Al Mussell, owner of the Guelph-based company Agri-Food Economic Systems, says it’s difficult for medium-sized dairy processors to operate because their customers “have gotten so much larger.”
Customers, such as Loblaw Companies Limited, Sobeys Inc. or Costco Wholesale Canada Ltd., “look for their suppliers to grow with them in size,” he notes.
This puts a lot of pressure on the medium-sized companies, he says.
Moreover, “we know they (large grocery retailers) are tough to deal with” and have previously issued letters to suppliers saying they couldn’t accept any price increases, he adds.
In addition, the major retailer customers “don’t want to have a large number of suppliers,” Mussell says. “They want to deal with a relatively small number (of suppliers).
To serve the major retailers effectively, processors need to be national in scope and have operations across the country, Mussell says. “If you’re a little guy, how do you effectively serve these really large retail chains?”
In August, privately held cheese manufacturer Silani Sweet Cheese Limited filed a notice of intention to make a proposal under the Bankruptcy and Insolvency Act. The Schomberg-based company has been in business since 1968 and has about 150 employees.
Chief executive officer Joe Lanzino couldn’t be reached for comment.
Silani continued to operate during the creditor protection process and is still in business, as is dairy processor Organic Meadow Co-operative and its two related companies that each filed notices under the same Act for creditor protection in April.
The Organic Meadow companies developed a proposal for unsecured creditors (including Dairy Farmers of Ontario (DFO), which was owed $850,000 for unpaid milk) that was accepted and approved by the court earlier this year. Organic Meadow is also restructuring its company.
According to documents posted on the website of Silani’s trustee, Grant Thornton Limited, the company owed $33.8 million to creditors, including $26 million to secured creditors Farm Credit Canada and TD Canada Trust, and $7 million to unsecured creditors. DFO was owed $610,000 and treated as a critical supplier throughout the process.
Graham Lloyd, DFO general counsel and communications director, says the marketing board made arrangements with Silani “that any outstanding amounts owing at the time of the filing for creditor protection will be satisfied.”
Lloyd says “we continue to supply them with milk.”
Silani’s financial troubles stemmed from several factors, including lower sales volumes, reduced margins, customer discounts, marketing costs, legacy costs from a manufacturing plant expansion, an Environment and Climate Change ministry requirement to install a water treatment plant and continued challenges to reducing the company’s fixed overhead costs to adjust to current sales volumes and profit margins, the documents say.
In 2014, the company lost a contract with a key customer that typically generated $10 million a year in sales, the documents say. The company’s unaudited financial information on the trustee’s website says Silani had sales of $34 million in 2014, compared to $44 million in 2013.
In 2014, the company’s operating loss was $315,115, while in 2013 Silani finished the year with operating income of $355,766.
Silani tried to improve its financial situation by pursuing a number of avenues, including reducing its workforce, renegotiating its obligations, hiring a qualified consultant to act as interim chief financial officer and developing a business plan outlining strategies to increase efficiencies, margins and market share.
Despite these restructuring efforts, the company’s debt load “has proven to be a burden” and that caused Silani to file for creditor protection, the documents say.
Silani’s assets were valued at about $13.8 million, including $5 to $7 million for its plant supply quota.
In October, the Ontario Superior Court of Justice, bankruptcy and insolvency section, approved Silani’s proposal after a majority of unsecured creditors accepted it at a meeting in September.
Both Mussell and University of Guelph Prof. Alfons Weersink of the food, agriculture and resource economics department say the dairy processing sector in Canada is strong. Major processors that are national in scope, such as Saputo, Agropur and Parmalat, are doing very well, they say.
Lloyd agrees that the sector is robust, saying “the industry continues to grow and processors continue to be successful. We’re confident that the industry is strong and vibrant with increased demand.”
Weersink says it’s challenging for smaller dairy processors to serve the big retail chains when those customers prefer to deal with “a couple of large processors to supply their milk and cheese.”
In addition, Mussell says retailers are looking to their suppliers to provide a number of different products and not just, for example, yogurt.
That puts pressure on companies “to have a complete line of products,” he notes.
Weersink says that two dairy processors filed for creditor protection this year “reflects the difficulty of being a smaller dairy processor and finding your niche in the market, particularly in the grocery/retail sector where the Loblaws and such would rather deal with somebody who can supply all their stores.” BF
Comments
As if by some cruel irony, the above story was published on December 17, 2015, the same day the National Post published an article about how Canada was going to import 4,000 tonnes of butter (over 8.8 million pounds or about 1/4 of a pound for every Canadian consumer) because the supply management system was, once again, and as always, unable to match supply with demand.
No wonder dairy processors are going broke if, thanks to the ineptitude of the supply management system, they are denied the chance to process any of the vast quantities of milk needed to produce the over 8.8 million pounds of butter to be imported, regardless of who the retailers of this butter eventually are.
With respect, Weersink and Mussell, when focusing on the pressures big retailers impose on smaller-sized milk processors, are ignoring the far-bigger obstacles faced by all milk processors:
(A) stagnant and/or declining retail demand resulting from supply management-imposed farm gate price gouging
(B) supply inadequacies resulting from supply management's inability to match supply with demand.
And yet, even though:
(1) we began 2015 with supply management's dysfunctional policies forcing the dumping of 800,000 litres of skim milk into lagoons
(2) we saw the bankruptcy of the Organic Meadows milk processing company during 2015 because the supply management system refused to allow its farmer shareholders to direct their milk to their own company
(3) we are ending 2015 by importing 8.8 million pounds of butter
supply management supporters still claim supply management is working, and working well.
My Christmas presents to the Canadian dairy industry are a lump of coal and a Pinocchio doll with a perpetually-growing nose.
Stephen Thompson, Clinton ON
As a dairy rep used to tell us,having the exact supply of milk at all times is not like opening and closing a faucet. Sometimes a little over and other times a little under.
We used our 1/4 lb of butter today in shortbread and then some...I believe a 1/4 lb a year can be looked upon as little.
Supply management has always boasted about being able to match supply with demand, and any time its inability to do so makes the CBC National News, as it did last night, the:
(1) image of supply management becomes increasingly-tarnished
(2) boasts of supply management supporters become increasingly-hollow
(3) "screwing" of processors and consumers becomes increasingly-obvious.
Even when the Dairy Farmers of Ontario (DFO) produced figures, in late 2010, showing that the retail price of milk in Ontario was almost 38% more than the retail price of milk in the US, supply management supporters continued to claim that supply management doesn't raise the price of food and still unashamedly continue to make that claim today.
Even when supply management's bone-headed ineptitude becomes a national disgrace and/or national laughingstock, as it did last night on CBC National News, the best supply management supporters can claim in defense of their lumbering and obviously-blind ox - "it's only a little", a feeble claim which, as noted by CBC news last night, ignores the fact that this sort of production inadequacy isn't supposed to happen under supply management.
The double-standard is, of course, that every time the supposedly-superior system of supply management stumbles, and it often does, the Canadian dairy Kremlin is forced to turn to the open market, and/or lagoons, to fix its blunders.
The question Canadian ag policy makers refuse to address is - "Since we are forced to rely on the open market to save our sorry hides every time supply management screws up, and it screws up a lot, why shouldn't we rely on the open market all the time?"
Stephen Thompson, Clinton ON
As reported by iPolitics, Land O’ Lakes, a major U.S. dairy cooperative, has imposed quotas on its members — much like the Canadian system. “Beginning January 1, (2016) the cooperative will implement a milk supply program that ‘allows us to better align member milk production with our operating capacity and provide access to the most profitable markets,’” the cooperative has stated. The cooperative simply has no place to put all the milk being produced. Other dairies are expected to follow suit; U.S. producers are now being forced to dump tens of millions of litres of milk. Part of the impetus for this is the collapse of the world market as Chinese demand dropped.
This news is sure to put some on this board into a tizzy needing medical attention .
I d have to say that with the Disaster in World prices now, our quota system does give stability to the industry. I know its not perfect , but it does keep things stable.
Only an anonymous farmer, or Ebeneezer Scrooge, would find favour with a system that, once again, as it has every year for four decades, "Scrooges" Canadian consumers when buying their family's Christmas turkey, unless, of course, they live in Sarnia or some other Canada/US border city and can, therefore, stock up on all their Christmas dairy and poultry products in the US and use the money they save, buying presents, in Canada, for their loved ones.
And yet, especially at Christmas, supply managed farmers still can't understand why supply management is not well-liked and will not be missed.
Stephen Thompson, Clinton ON
How much is saved when you have to add 40 cents to the beaver in order to equal/buy a green back ?
Not so sure the cross border shopping is going as great as you think . But then Scrooge never does admit any fault or wrongs .
Sighhhh !
Local fresh Turkey at $1.99/Ib,not even a Scrooge would past that up.
I find the same people that complain about Canadian food prices are the same people that fly to some exotic destination during our cold months.The ridiculous money exchange seems minor to them at that point and as always "it was such a great deal,"Places such as Florida or...Hawaii.
At 72 or 73 cents on the US dollar is never a great deal no matter how someone cuts it.
The above poster neatly and disengenuously omits any mention about:
(A) whether this "bargain" turkey is missing a leg and/or if it might otherwise be somehow less-than-perfect
(B) what grade and/or weight this "bargain turkey" might be
(C) what, if any, limitations such as "one-per-customer" might be affixed to the terms of sale of this "bargain" turkey.
(D) whether this store might be in Sarnia and has had to slash prices to try to move product before it goes bad because everyone in Sarnia went to buy their turkey in Port Huron last week because the regular prices in Port Huron were half of what regular prices were in Sarnia and to which they will return again next week.
(E) if this "local fresh turkey", even at $1.99 per pound, might be available, produced and packaged by the same Canadian farm, in the US for $.99 per pound.
As usual, and as always, the "grasping at straws" by supply management supporters and other agricultural protectionists knows no upper-limit.
Stephen Thompson, Clinton ON
Good golly there are a whole host of things that affect price differences across boarders like exchange on the dollar for one . Good grief get a freaking life before you drive yourself away from yourself !
The "bargain" $1.99/lb. turkey was just next to the "bargain" $4.99/lb lean ground beef down the isle from the "bargain" $3.99 lean ground pork.
At those prices Canadian consumers have to wonder when Supply Management is coming to our Beef and Pork industries.
The only relevant comparison is the price of turkey in the Sarnia Wal-mart Supercentre compared to the price of an identical turkey at the Port Huron Wal-mart Supercentre located in nearby Fort Gratiot.
Wal-mart in the US well-understands the desire Canadians have to go to the US to buy dairy and poultry products and, as a result, offers to send weekly flyers for its Fort Gratiot store to Canadian customers.
While anonymous posters on this site foam at the mouth about "point-in-time" specials appearing to show that Canadians are getting a bargain by buying dairy and poultry products in Canada, the very-existence of a US Wal-mart flyer being directed to Canadians who want to buy dairy and poultry products at the US Wal-mart store instead of at the nearby Sarnia store, speaks volumes about how out-of-touch supply management supporters really are about this matter.
Stephen Thompson, Clinton ON
This anonymous poster compares apples to oranges-no surprise.....
What this anonymous poster fails to understand is that beef costs the most to produce, low reproductive rates and feed conversion.
If beef was produced under SM, it would not retail at "$4.99", it would cost closer to $10.00
This anonymous poster cannot provide a link showing an apples to apples comparison of cuts of turkey compared to pork, where it is actually cheaper.
The only thing this poster can prove when it comes to turkey, is that he/she is one.
Raube Beuerman
I don't believe its "cuts of Turkey" at Christmas, its simply a "Turkey" and in case you didn't notice l did compare Turkey at 1.99 with ground pork at 3.99.However if you would prefer l used Pork Chops, bacon,ham or Pork loin, then the difference would be much greater.
Where is your link to Beef costing $10.00 under SM or is that something you saw in your crystal ball...the same crystal ball were you saw pork cheaper than turkey...maybe its a US -made crystal ball.
While driving to town this morning to buy over-priced milk, I heard an ad on a Michigan radio station for Ben's SuperCentre in Marlette and Brown City advertising "fresh, young turkeys" for $1.29 per pound which is, at a 71 cent dollar, $1.81 per pound $Canadian, or 9% cheaper than the "bargain" price of $1.99 in Canada, as cited by the above anonymous protectionist.
Stephen Thompson, Clinton ON
Only a real Canadian would complain about milk being over-priced after just coming back from Hawaii a short time ago.
I am going to venture a guess that you look the other way when approaching a Salvation Army kettle this time of year.
I'm 65 and have worked seven days a week for over 40 years. I've survived having a banker tell me in the early 1980s that I wasn't going to make it, I've survived a divorce, I've survived cancer, I've put two children through University and while I haven't done exceedingly-well, I can afford to do a few things a lot of other people can't and, thankfully, I am in good enough health, at least for now, to be able to do so.
Therefore, I can afford to pay the rip-off prices for milk imposed by supply management in Canada, but get back at the system whenever I can by buying as little as I can:
(1) I deliberately use Golden Gate soy-oil margarine instead of butter
(2) I buy eggs from Amish farmers whenever I can ($1.80 for a dozen brown eggs earlier this week).
(3) I drink my coffee black but use creamer when I'm not in Canada.
I pillory supply management on behalf of those great-many Canadians who not only couldn't afford to ever go to Hawaii, they have trouble even getting away overnight. They're the people being screwed by supply management, and they don't deserve it.
I am generous with charities and get incensed whenever I see supply managed organizations boast about giving to food banks because all they're doing is sanctimoniously trying to take credit for helping solve a problem (high food prices) they created.
And, most-importantly, a "real" Canadian signs his/her posting on this site.
Stephen Thompson, Clinton ON
In contrast to all the poison that dominates this site, I would like to wish everyone a happy holiday season and a healthy and prosperous new year!
Economic truth, especially when it comes to the evils of protectionism, whether it be supply management or ethanol, is never poison. However:
(A) anonymous denials of that truth in an attempt to preserve legislated priveleges for a few at the expense of the less-fortunate many, especially at Christmas.
(B) scurrilous and ad-hominem attacks on the messengers of that truth from behind the shield of anonymity.
are always poison and the epitome of cowardice.
It really is too bad that the farm community, always the first to decry selfishness, half-truths and double-standards everywhere else, are the staunchest defenders of all of these things when it suits our purpose to do so.
And, last but not least, while the above anonymous poster laments the supposed lack of goodwill towards others on this site, he/she, while using the convenient shield of Christmas, continues the poisonous-hypocrisy of anonymous postings by not having:
(1) the goodwill
(2) the generosity
(3) the courtesy
to offer his/her name.
Stephen Thompson, Clinton ON
In general I would say that the anonymous posts I've seen have been reasonable and polite. Not every single one but most. Some have presented some good ideas anonymously. I thin k it's important to consider the message instead of focusing on the messenger. Just my 2 cents
Yep and you is a farmer .
If some of us on here didn't know who the "poison" comment was directed at, we sure do now!
He/She hit the nail on the head for calling it as they see it.
The best deal here in Ontario is to win a turkey at a turkey bingo while supporting a service club . Then you let the in-laws give it to you for Christmas dinner . That's what is happening in this house this year . And it is a 15 Hayters young turkey !!
No need to bother with cross border Thompson anti SM drama .
To compound the Canadian dairy industry's greed-induced problems, World Trade Organization members agreed late last week, in Nairobi, Kenya, to eliminate most agricultural export subsidies within three years, according to a fact sheet from the Office of the U.S. Trade Representative (USTR).
According to the USTR, "This ensures an end to Canadian dairy and Indian sugar export subsidies while also preventing export-oriented countries like Brazil from taking advantage of such measures going forward."
The USTR also notes that the agreement requires developed countries to immediately eliminate export subsidies and gives developing countries three years to phase them out.
This, therefore, leads to the questions of the day:
(1) how much "powder" does the Canadian Dairy Commission (CDC) currently own?
(2) how much did they pay for it?
(3) what, if anything, is it now worth?
(4) could this bankrupt the CDC?
Stephen Thompson, Clinton ON
When did Canada start with export subsidies for dairy ? I thought your problem has been that under SM Canada does not export diary and thus does not allow imports or enough imports .
Not sure your facts are true if not made your by yourself .
WTO deems supply management a subsidy, which of course it is, and therefore any dairy or poultry will not be eligible to leave the country.
Raube Beuerman
Just because someone on here signed their name it should not be a liberty to print false claims.
Under the watchful eye of the WTO, Canada is allowed to export a small % of dairy produce and also to the same extent import that same small %.
Canadian dairy produce is exported to almost 40 Countries around the world,all within international trade agreements.
Pork & Beef gets subsidized not question about that and exports to the USA and beyond . Sighhhh
This obviously would have greater impacts on dairy and chicken than beef or pork.
http://agri007.blogspot.ca/2015/12/crucial-details-of-wto-export-subsidy...
Raube Beuerman
For now but that likely won't last long with the WTO COOL ruling .
An Independent Agri-food Policy Note by Kamai Karunagoda, Douglas Hedley and Al Mussell, dated June 2015 notes that the overall problem is "Canada's trade deficit in dairy products is growing. This is a function of restricted exports but increasing imports, especially of milk proteins and other non-fat milk solids".
The report notes that this trade deficit is about $700 million annually which is, of course $700 million worth of business denied to Canadian dairy processors because of the rigidity and greed of supply management.
The report also goes on to note "The growth in imports of products not subject to tariff has been especially strong: this will increase when the CETA agreement comes into force, and potentially further still under a TPP agreement."
As an indication of the scope of the increase, and the implications for the Canadian dairy industry, the report noted "In the first quarter of 2015, HS 3504 imports from the US are up 64% (in volume) versus first quarter 2014. Thus, imports from Canada's largest import supplier of milk proteins are increasing rapidly, and Canada has no WTO compliant mechanism at its disposal rules to control these imports."
The problem at hand, and one which isn't going to go away is that, as the report goes on to note "As a consequence, domestic non-fat milk solids are increasing in surplus as skim milk powder, and present a domestic disposal problem that is costly to producers (where is the closest lagoon?)
The report further notes "As part of Canada's commitment under the WTO Agreement on Agriculture, Canada agreed to limit subsidized exports of selected dairy products".
As I understand the report, the export limit faced by Canada is 3,500 tonnes for butter, 44,953 tonnes of skim milk powder, 9,076 tonnes of cheese and 30,282 tonnes of other milk products.
Therefore, the problem is, as pointed out by the report's authors, that Canada is in a dairy trade deficit that will only get worse because:
(A) our already restricted levels of exports have been made worse by last week's Nairobi agreement
(B) we have virtually-unstoppable imports of duty-free milk proteins which will make our piles of un-exportable skim milk powder even higher and more unsaleable.
Stephen Thompson, Clinton ON
The numbers about our dairy trade deficit don't come from the report mentioned above, but come from the Government of Canada's site www.dairyinfo.gc.ca
for 2014.
For 2014, our dairy product imports were $900.1 million and our exports were $280.9 million, for a dairy trade deficit of just over $619 million which, of course, makes a mockery of supply management's objective of meeting domestic demand and provides all the more reason to jettison supply management because of basic capability reasons, and the sooner, the better.
The problem is that imports and exports are not matched and, if anything, the gap is widening - many reports suggest our 2015 imports will be well-over $1 billion while our exports are capped by our existing WTO agreements and, depending on the Nairobi agreement implementation, may go to zero, for a dairy trade deficit in 2016 of anything up to over a billion dollars.
The unstoppable duty-free dairy product imports and the apparent stoppage of subsidized exports via the Nairobi agreement, would seem to present the Canadian dairy industry with a "double-whammy" or "perfect-storm" depending on one's choice of analogy.
Why isn't DFO telling dairy farmers about this pending billion-dollar gap?
Stephen Thompson, Clinton ON
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