Retailers' grip on prices blamed in burger bankruptcy

Sunday, February 26, 2012

by SUSAN MANN

A Canadian value-added meat manufacturer that received a $1 million grant from Ontario’s Rural Economic Development program about a year ago to establish a plant in St. Catharines is in receivership.

But the failure of New Food Classics, owned by private equity firm EdgeStone Capital Partners, isn’t expected to have any impact on farmers. The company has a head office in Burlington, production facilities in St. Catharines and Saskatoon, Saskatchewan and an office in Calgary.  It manufactured value-added meat, and meatless protein consumer products with frozen beef burgers as its main product line.

The company had an estimated 50 per cent of market share of the frozen burgers sold in grocery stores, it says on the EdgeStone website.

EdgeStone officials couldn’t be reached for comment.

Kevin Grier, senior market analyst with the George Morris Centre, says he can’t see the company’s failure having any impact on farmers. “They don’t buy directly from farmers.”

The ingredients for hamburgers are cull cows and fed cattle’s fat. “That’s booming and it’s not going to be impacted whatsoever by the loss of that particular company,” he says, noting the prices for beef grinds and trimmings have been skyrocketing.

The company obtained bankruptcy protection through the federal Companies and Creditors Arrangement Act in January. It attributed its financial losses to certain major customers refusing to authorize price increases for finished products after the market price of inputs, such as beef and energy, rose in 2010 and 2011. The court-appointed monitor tried to find a buyer for the company but the Bank of Montreal, the senior secured lender that is owed about $24.5 million, would have had additional losses if it went ahead with the best available offer. The bank terminated its funding and wouldn’t continue supporting the bankruptcy proceedings and sale process.

On Feb. 20, the president and CEO of New Food Classics, Brian Cram, and the entire board resigned. On Jan. 21, 150 workers in Saskatoon and more than 110 workers in St. Catharines were locked out.

In other news involving New Food Classics, there has been a voluntary recall monitored by the Canadian Food Inspection Agency of the company’s frozen beef burgers. They may be contaminated with E. coli bacteria. On Feb. 18 the CFIA issued an alert warning the public not to consume Country Morning Beef Burgers and no name Club Pack Beef Steakettes. The products were sold in chain stores in Ontario, Western Canada and the Northwest Territories. The warning was expanded on Feb. 22 to clarify where the product was distributed. One person has become ill after consuming the product.

Garfield Balsom, CFIA food safety and recall specialist based in Ottawa, says in a situation involving a company that has gone into receivership being involved in a product recall, there’s a process where whoever takes over the business during the receivership handles the recall. If that doesn’t work, the retailers initiate the recall.

In this case, the recall was initiated before New Food Classics went into receivership and the information “then went to the retailers and that’s already gone down through the system,” he says, noting the product was being removed by the retailers.

Balsom says they don’t keep track of how much product is recalled. Instead their main focus is to inform people to not consume the product. So far, there haven’t been any problems with the recall.

For more information on which products are affected, consumers can go to the CFIA website at: www.inspection.gc.ca. It’s up to consumers to decide if they want to return the product to the store they purchased it from for a refund or just discard it, he says. 

New Food Classics invested more than $5 million to retrofit the St. Catharines facility, a former chicken processor called Pinty’s Delicious Foods. The company moved its manufacturing facility to Ontario from Calgary to meet the growing demand for fully-cooked, ready-to-eat meat products, it says in an Ontario government press release of Nov. 5, 2010 announcing the grant.

The company was supposed to create up to 150 new jobs in the short term and 500 new jobs during the next five years after getting the government money. The grant was supposed to enable the company to increase product demand from local meat producers and processors.

In the Ontario government’s press release at the time, Brian Cram, New Food Classics president and CEO, said having provincial support to establish the business in Ontario “has been key in our continued success with the newly retrofitted facility in St. Catharines.”

Mark Cripps, press secretary to Ontario Agriculture Minister Ted McMeekin, says New Food Classics submitted an application and business plan to the Rural Economic Development program and were given a grant. “They met all the conditions of the grant and all the terms of the contract.”

Cripps says the government doesn’t plan to recover its grant money.

Even though the court-appointed monitor is working on the orderly shut down of the company that doesn’t necessarily mean there can’t be some kind of solution to the facility and hopefully to the workers’ jobs. “We’d certainly like to see that happen,” Cripps says, noting the ministry’s staff is available to help in any way it can.

Cripps says overall the Rural Economic Development program has been extremely successful and has created thousands of jobs. This is the first time that Cripps has seen a company receiving grant money through the program going bankrupt.

“I know the minister is disappointed for the families that are affected,” he says. BF