Organic milk processor owes millions

by SUSAN MANN

Organic Meadow Co-operative Inc. and its two related companies owe more than $20 million to a wide variety of creditors including one company that’s a competitor to the co-op’s dairy business.

On April 2, Organic Meadow Co-operative, Organic Meadow Inc. and Organic Meadow Ltd. obtained protection from creditors after each filing a notice of intention to make a proposal under the Bankruptcy and Insolvency Act so they could restructure their operations. MNP Ltd. has been appointed trustee.

Don Rees, CEO of Organic Meadow Co-operative, says there are three companies within the organization – the co-op, Organic Meadow Inc., the company that owns the dairy processing plant in Guelph, and Organic Meadow Ltd., which operates the plant.

Rees has blamed some of Organic Meadow’s financial troubles on the Dairy Farmers of Ontario milk allocation system that saw the company short of organic milk this winter to make cultured products, such as yogurt. The milk shortage occurred despite Organic Meadow’s 60 dairy farm members providing more than 70 per cent of the organic milk supply in Ontario.

In Ontario, as in the rest of Canada, milk produced on farms is pooled and sold to processors by provincial dairy marketing organizations. In Ontario, Dairy Farmers of Ontario markets both conventional and organic raw milk to processors. The marketing board supplies milk on demand for processors making products such as milk for end consumers as well as yogurt and ice cream and distributes the rest of the milk supply for products such as cheese, butter and condensed milk to industrial plants using a quota allocation system.

Ted Minten, vice chair of the Organic Meadow board, also noted in an earlier interview that the company faced difficulty when Dairy Farmers of Ontario required it to pay cash on demand for milk supplies as of April 1 rather than the previous payment terms that gave the company 22 days to pay for milk.

The co-op has 100 family farm members and makes a range of dairy products along with its egg, grain and frozen vegetable business. The products are available at retail stores across Canada.

Organic Meadow is continuing to manufacture dairy products during the restructuring. Eggs and grains have always been an important part of the co-op, Rees says. “We are managing that as we go along here and we’re hoping to come out of the (restructuring) process much stronger and fully intact.”

On the dairy side, Rees says Organic Meadow is in a very competitive dairy market. “We compete with very large, mutli-national dairy companies and we’re holding our own in the marketplace but it has been difficult for a very long time.”

Organic Meadow created and carved out the organic dairy market but now it faces competition from giant dairy companies “that really are just recently entering into the organic space,” he says.

Through Organic Meadow’s financial restructuring, the company’s intention is to “do the very best we can through the process for everybody,” he says. “But number one is to protect the rights of the farmers.”

In a previous interview, Graham Lloyd, Dairy Farmers general counsel and communications director, denied the marketing board is responsible for the company’s financial difficulties. He also noted Dairy Farmers is continuing to supply the co-op with milk throughout the restructuring process.

On the Organic Meadow Ltd. list of creditors owed $250 or more is about $3 million owed to Organic Meadow Inc. and $1.4 million owed to the Royal Bank of Canada. The lists didn’t specify which creditors were secured or unsecured.

On the list for Organic Meadow Inc. are: $3.2 million that company owes to Farm Credit Canada, $9.3 million owed to Avrio Ventures Limited of Calgary, Alberta and $2.4 million owed to Organic Meadow co-op.

Rees says “there are secured creditors and there are unsecured creditors. We don’t really comment on that. We can’t really get into the details.” He also declined to discuss the specific amounts owed on the creditor lists.

Rees also declined to provide specifics on how the restructuring process was going saying in an email Organic Meadow was working to reach an agreement with all of its creditors. “It would be inappropriate for us to speculate on what the details might include.”

There is also a separate four-page list of 37 farmers, including several Amish farmers, who provided member loans to Organic Meadow totaling $760,543.93. The loans are for varying amounts ranging from $100,000 provided by Tony and Frances McQuail of Lucknow to $2,001 from Amish farmer Martin Clean of Mount Forest.

McQuail says he loaned the money to Organic Meadow about 1.5 to two years ago. “It’s a membership organization and when they were looking to do some financing they approached the members” and a number of members stepped up to the plate to provide loans.

McQuail says he has supported and been a member of Organic Meadow since its inception 25 years ago and calls it an organization that is a “remarkable incubator for innovative marketing in organic market development.” The co-op developed both the production and marketing side of the organic dairy industry.

He adds he’d rather invest his money in an ethical, co-operative organization like Organic Meadow than a mutual fund or other things. But he admits he’s anxious about the company’s current situation.

Asked if Organic Meadow can successfully come out of creditor protection, McQuail says “Oh yes. But we shouldn’t be denied at least enough of a percentage of our members’ milk to keep our plant working. It’s tragic that it had come to this. We have the market but we are being denied access to our own farmers’ milk.”

His organic farm produces freezer beef and pork that he sells directly to customers. The beef is certified organic but the pork isn’t because some of the suppliers aren’t certified organic. The McQuails also have a small certified organic apple orchard and certified organic hay and pasture fields.

In addition to being on the list of membership loans, McQuail is also on the Organic Meadow Ltd. list with $833.33 owing to him. He says that’s the current outstanding interest on his loan.

Among the creditors are Dairy Farmers of Ontario, which is owed $850,000. Lloyd previously explained that is for unpaid milk deliveries made in March. But Dairy Farmers is also on the member loans list for $88,984.44 for what’s called the DFO share purchase advance.

Lloyd says he has contacted the trustee to clarify what that amount represents.  “We don’t know what that is. That document (listing the creditors and what they’re owed) is prepared by Organic Meadow.”

Dairy Farmers of Manitoba is also Organic Meadow Ltd. list with $13,639 owing to it.

Several dairy companies are on the Organic Meadow Ltd. creditor list including:

• Alliston Creamery Dairy of Alliston – $14,673.61.
• Cochrane’s Dairy Ltd. of Russell –  $43,796.68.
• Elite Dairy Ltd. of Toronto - $224,435.32.
• Fromages La Chaudiere Inc. of Lac-Megantic, Quebec - $183,696.63.
• Kawartha Dairy Limited of Bobcaygeon – $11,275.87.
• Notre Dame Creamery Ltd. of Notre Dame De Lourde, Manitoba - $316.
• Saputo Dairy Products Canada of Montreal, Quebec - $129,267.83.
• Shaw’s Ice Cream of St. Thomas - $5,747.43.

Some other creditors and the amounts they’re owed include: the University of Guelph ($1,015.50), Union Gas Bankruptcy Department of Brantford ($6,679.21), The Co-Operators of Guelph ($14,044.89), future share redemption ($65,303.28), employee vacation pay ($108,000), the Canadian Food Inspection Agency ($1,695.82), the Canada Organic Trade Association ($2,550), the City of Guelph ($16,619.61) and 407 ETR Express Toll Route ($1,233.34). BF