Kellogg announces closure of London plant

Monday, December 9, 2013

by JIM ALGIE

Kellogg Company’s plans to close a long-standing cereal processing plant in southwestern Ontario comes on the heels of a similar announcement in November by H. J. Heinz Co. of Pittsburgh, Pa. about tomato processing in Leamington.

It has farmers and politicians puzzling over a growing trend as major food processors pull up stakes.

“We’ve lost quite a few processors already and here’s another one,” Grain Farmers of Ontario director Leo Guilbeault said in an interview from his Essex County farm. “It’s another blow to the agriculture industry in Ontario,” Guilbeault said.

Michigan-based Kellogg has operated the London plant since 1924. The company announced today it will close London operations in late 2014 among other “supply chain infrastructure changes.”

The company maintains a smaller, newer plant in Belleville, Ont. In response to an emailed query about how the London closing will affect grain procurement in Ontario, company spokeswoman Kris Charles issued an emailed statement.

“We are still making assessments but anticipate very little impact to local growers,” Charles’s statement said.

The London shutdown ends work for more than 500 employees, many of them members of the Bakery, Tobacco, Confection and Grain Millers Union. It’s part of a previously-announced, four-year “efficiency and effectiveness program,” identified in corporate statements as “Project K.”

The closing of a snack food plant in Australia and expanded cereal and snacks production in Thailand were part of the same announcement. Company moves respond to “a compelling business need to better align our assets with market place trends and customer requirements,” Kellogg President and CEO John Bryant said in a statement.

Traditionally, Kellogg has provided a premium market for corn growers near London. Despite company claims about grain procurement, Guilbeault predicts any Kellogg premiums and procurement will follow the company’s cereal processing activity.

“Traditionally they’ve always paid a bit of a premium for the quality of the corn and because they demanded certain varieties,” Guilbeault said. “But you can only draw raw product from a certain distance because after that the trucking costs kill you,” he said.

Ontario Progressive Conservative agriculture critic and Oxford riding MPP Ernie Hardeman, whose constituents include both Kellogg suppliers and workers, described today’s announcement as “a real shock” and an important signal to the province.

“One of the biggest challenges in the agriculture and food industry is that we need to build our processing sector,” Hardeman said in an interview from Queen’s Park.

“It’s a real concern when they decide that Ontario is not the right location,” Hardeman said of Kellogg’s decision. “It’s not because we’re not producing the grain so it must be because of the environment to operate as a business in Ontario.”

London-based, agricultural marketing professor David Sparling of Western University’s Ivey School of Business cited the age of London facilities and relatively high cost labour, particularly when compared with those in Thailand where Kellogg is expanding. In an emailed comment from Ireland, where he is teaching at the moment, Sparling said the London plant was last upgraded in 1984 and needed new investment.

“We need to take a long hard look at how we stack up in Ontario and act where we can,” Sparling said.

Adjustments in government policy on water and utility costs and other incentives may help convince companies “to continue investing in making their plants globally competitive,” Sparling said. “Otherwise we will keep reading announcements like this,” he said of the Kellogg plan. BF

Update Tues. Dec. 10, 2013 9:03 p.m.

In a statement issued Tuesday night, Ontario Premier Kathleen Wynne said she was disappointed by Kellogg’s decision to close the London plant and that the provincial government will “make sure this community receives the resources they need at this challenging time and will deploy specific programs, such as the Rapid Re-employment and Training Service, as required.”

Wynne also noted there have been several recent investments in food processing in the province.

“Since 2003, companies in the food processing sector have invested more than $7.6 billion in their businesses and now provide jobs for almost 96,000 people,” she stated. “In recent times we have seen significant investments from companies like Dr Oetker and Natra in London, Royal Canin in Puslinch, and Ferrero and Aryzta in Brantford. I am confident there will be more of these types of investments in the future.” BF