Pig producers owed millions as processor seeks creditor protection

Saturday, April 12, 2014

by SUSAN MANN and BETTER FARMING STAFF

The move by Toronto-based Quality Meat Packers Limited and Toronto Abattoirs Limited last week to seek court protection from creditors has left many hog farmers scrambling to determine how to recoup what are, in some cases, huge financial losses.

On April 3, Quality and Toronto Abattoirs filed notices of intention to make a proposal based on Section 50 of the Bankruptcy and Insolvency Act. In a statement on its website, trustee A. Farber & Partners Inc. says filing such a notice doesn’t mean companies that own the Toronto slaughter plant are bankrupt but are instead availing themselves “of a procedure whereby an insolvent person with creditor and court approval restructures its financial affairs.”

All liabilities of the two companies as of April 3 are frozen “by force of the Act and will be subject to the proposal,” the notices say.

On Thursday, Faber released the lists of creditors with claims greater than $250 for both Quality Meat Packers Limited and Toronto Abattoirs with a notice saying that the amounts listed are only estimates based on the companies’ books and records. Creditors will have an opportunity to file a “proof of claim” for the actual amounts they are owned once the trustee mails the companies’ proposal package, the notice says.

The 17-page Quality Meat Packers list of creditors shows that the hog processor owes about $40.5 million to various companies, farmers, government and other agencies. The Toronto Abattoirs Limited list is smaller, just three pages, and it owes $28.9 million.

Some of the larger amounts on the Toronto Abattoirs list are also on the Quality Meat Packers list, including $19.3 million owed to Quality Meat Packers Holdings Ltd.

An amount owed to the Toronto-Dominion Bank, another major creditor, is listed differently on the two lists - $8.6 million in the Toronto Abattoirs list and about $8.1 million in the Quality Meat Packers list.

A Farber spokesperson couldn’t be reached to clarify the total amount owed to the bank and holding company.

Other creditors of note on the Toronto Abattoirs list are Toronto Hydro, owed $793,000 and the Canada Revenue Agency, owed $95,000.

Some of the major creditors on the Quality Meat Packers list include:

•     $1 million — Ontario Pork’s marketing division
•     $31,094 — OP Producers
•     $205,774 —  hog producer James Reesor of Grimsby
•     more than $700,000 — Synergy Swine
•     $87,500 — Ontario Labour Ministry (unpaid fine)
•     $360,000 — Workplace Safety and Insurance Board

Neither one of the lists outline which people or companies are secured, unsecured or preferred creditors.

Patrick O’Neil, manager of the Ontario Pork marketing division, says normally Quality pays Ontario Pork, which in turn pays the producers who choose to use it as their agent. But Ontario Pork has not yet paid producers for animals shipped to Quality in Toronto from March 31 to April 3.

“We are actively representing our marketing members throughout this process,” he says.

O’Neil adds that Ontario Pork’s marketing division has a moderate accumulated surplus and “we are currently examining options to use that surplus to partially pay the (marketing) members.”  

He declined to say how much the surplus is. But when decisions are made “we will certainly be very public with whatever methodology and whatever we are able to do.”

Ontario Pork’s marketing division, hived off under deregulation in December 2010, needs to “operate on a financially self-sufficient basis,” he explains. “We are funded by a voluntary marketing fee.”

Amy Cronin, Ontario Pork board chair, says Ontario Pork is not a secured creditor. In addition, she didn’t think the commodity organization has insurance to cover the losses of its marketing member producers.

Quality’s move into creditor protection was totally unexpected, she says, noting Ontario Pork’s marketing division closely monitors whether companies pay producers. “Up until just recently, they (Quality) were current.”

Cronin’s family company has a contract with Quality but escaped relatively unscathed, and is only owed $897. “We did not ship the week that Quality did not pay,” Cronin says. “We had shipped the week before and we just didn’t have pigs ready to go.”

They didn’t need to ship hogs this week either, “and so we’re just looking at what our options might be. We haven’t made a decision on what we’re going to do because we don’t know yet what Quality is going to do.”
 
If the company does go bankrupt, Cronin says it would be a loss to the industry. “The processing sector is always important. But they have to have a viable business plan at the same time.”

Reesor couldn’t be reached for comment.

A person who answered the phone at Synergy Swine directed Better Farming to contact Ontario Pork. “Our position is we have no comment,” she said. She declined to give her name.

Clare Schlegel, a former Ontario Pork board chair, says the various partnerships he’s involved in means “our whole group is out about $406,000.” The group had some finishing space capacity so they are storing some hogs “and now we’re having to look around to see where we can go.” In the short term, Schlegel says they’re “looking to the United States; we’re looking for other possibilities in Ontario.”

As for what happens next for the Ontario pork industry, Schlegel says one possibility “would see Quality resurrected in some way. Another one would be that they would disappear. If they disappear then we have more hogs than shackle space. If they can get going they can save some of the specialty marketing programs that they had.”

Schlegel says he’d like to see Quality survive. “I know some people are feeling burnt and feel like they (Quality) have broken trust. I’ve known David Schwartz (Quality president and owner) for a long time and I think he’s a man of integrity caught in a very difficult situation.”

Ontario Premier and Agriculture Minister Kathleen Wynne says by email forwarded by her agriculture ministry spokesman Mark Cripps that she recognizes “this was a difficult business decision for Quality Meat Packers and I understand that the company is trying to stabilize its financial position.” Wynne adds “we have and will continue to work with Quality Meat Packers and the pork industry as the company makes future business decisions.”


Where will the pigs go?

While Quality’s plant in Toronto, which has been processing hogs for more than 50 years, didn’t accept hogs from farmers this week, its sister plant in Mitchell, Great Lakes Specialty Meats of Canada Inc., is running and accepting hogs, says Jim Gracie, vice president of corporate development.

Gracie declined to outline how the Mitchell plant fit into Quality’s corporate structure. “We’re a private company so we don’t really talk about our structure or our business dealings on a day-to-day basis with people.”

He also declined to say how many hogs Quality slaughters each week at its Toronto facility, and whether or not any work took place there this week.

Ken McEwan, director of the University of Guelph’s Ridgetown Campus and a production economist, says slaughter capacity estimates from last fall indicate Quality had a capacity of about 30,000 hogs a week in Toronto and about 6,500 hogs per week in Mitchell, while the province’s two other large players, the Burlington plant owned by Sofina Foods and Conestoga Meat Packers, had capacities of 43,500 and 16,000 to 17,000, respectively.

April 4 Agriculture and Agri-Food Canada slaughter numbers, he adds, indicate of the 91,000 Ontario hogs marketed, 77,000 were slaughtered in the province while 8,000 to 9,000 were processed in Quebec and a further 5,000 to 6,000 in the United States.

“Hogs have been scarce these days because the entire industry has downsized so Quebec packers have been very aggressive in the Ontario marketplace” and looking for hogs to slaughter there, he says. Quebec packers have been offering stronger prices to attract Ontario hogs, he adds.

Shipping hogs to Quebec has typically been an economically viable choice only for eastern Ontario farmers, those living east of Toronto, because of the transportation expenses involved. But it’s possible for hogs from major hog producing areas, such Perth County, to be shipped to Quebec “if there were the right economic incentives,” he says.

Some western Ontario farmers may not need to look that far afield. Arnold Drung, president of Conestoga Meat Packers of Breslau, says they’ve “been in a ramp up mode for a number of months” and are accepting new members. Conestoga Meat Packers is owned and supplied by a co-op of about 120 members.

Last fall, the plant, which is federally registered, was expanded and “we can do up to 30,000 hogs per week,” Drung says.

Normally people who aren’t members can’t have hogs slaughtered at Conestoga but “we do on occasion take non-members hogs. Our mode of operation is to essentially kill all member hogs,” he says.

Currently “we have been taking on some extra” hogs because Quality isn’t taking any at its facility but Drung says he couldn’t say how many. “We’re working through the situation.”

Drung adds, “we feel bad for everyone involved, especially the producers. We know it’s a difficult situation. We were as surprised as anybody else.”

He predicts the pork industry will be able to adjust if Quality’s efforts to restructure are unsuccessful. “We’ve had plants that are running below capacity. I think in time the hogs will be absorbed within the system.”

Officials with Sofina Foods of Hamilton couldn’t be reached for comment. BF