Cover Story: Paragon Farms: A cross-border partnership that is beating the odds

Tuesday, December 2, 2008

Who would make a substantial investment in Ontario's troubled pork industry when so many producers were hanging on by their fingernails or getting out? This Ontario-Michigan group thinks it has the answers

by Don Stoneman

Paragon: "A model of excellence or perfection."
Source: Merriam Webster's Online Dictionary.

When Ontario pork producers first heard about the creation of Paragon Farms last winter, few likely bothered to look up Paragon in the dictionary.  Instead, they focused upon a paradox and more than a few shook their heads in amazement.

Who would make a substantial investment in Ontario's troubled pork industry when so many producers were hanging on by their fingernails or getting out? And why?

For, in January, this Canadian-U.S. partnership, made up of Ontario Management Group and Great Lakes Pork Inc, a Michigan entity, purchased 15,000 sows in eight barns, along with 2,000 acres of land – the wholly-owned swine-producing operations shed by packer Maple Leaf Foods as it retrenched into Western Canada.

While Paragon's general manager, Rob McDougall, talks about exceptional numbers in the pig barns and the highly-motivated people who work there, one of his associates in the new Paragon business, Harley Sietsema, cites his long-standing relationship with McDougall and other Ontario Management Group shareholders, such as John Alderman, as reasons for confidence in investing in the new arrangement. "We felt very confident in their ability to operate that business for themselves and on behalf of our investment in that area," says the Allendale, Mich., pork and turkey producer.

Sietsema did business previously with Cold Springs Farm, buying poults from the turkey integrator. He is a member of a turkey processor co-op which sold meat to Cold Springs for further processing when there was a meat shortage in Canada.

Sietsema, who is also immediate past president of the Michigan Pork Producers Association, says that the "hard working, honest" people associated with Cold Springs are "the kind of people you want as business partners. I've always been very impressed with the commitment these people had to the livestock and the poultry industry," Sietsema told Better Pork.

"I've known them to be first-class producers and first-class people. It's been my experience over the years that, if I can associate myself with these kind of people, I will be successful." (For a brief history of the evolution of Cold Springs Farm pork division, see 'Would Harvey Beatty recognize Paragon?' page 12).

Sietsema relates that the partnership which became Paragon Farms was built after many telephone conversations with Cold Springs and Maple Leaf people in Ontario, and considerable thought went into minimizing the tax implications of conducting business across an international border. He adds that, if Paragon hadn't purchased the former Maple Leaf system in Ontario, it's likely that the packer would have liquidated the business, regardless of its high productivity.

Across a system encompassing eight separate operations, the average farrowing rate was 88 per cent on 15,000 sows in the previous six months, McDougall said in mid-October. Sows average 24-25 pigs weaned per year and total born alive was 12.6 pigs per litter.

According to figures published most recently by the Ontario Ministry of Agriculture, Food and Rural Affairs, the provincial average is about 11.25 pigs born alive per litter and 23 pigs weaned per sow. Jaydee Smith, the ministry's swine production systems program lead, says that the Paragon Farms production numbers are impressive but achievable.

Partners active farmers
Working out of an office in the same building as Cold Springs Farm in Thamesford, Rob McDougall stresses that Paragon Farms is a small farm-based company, not a big multi-national. The partners "are all actively involved in farming."

Ontario Management Group shareholders in Paragon include McDougall, director of production Cameron Farrell, director of finance Steve Fife and shareholder John Alderman.

Across the border, the Great Lakes Pork shareholders include pork and turkey producer Sietsema and Ed Hansema, headquartered a few miles away in Coopersville, Mich., who milks 800 cows, cash crops 7,000-9,000 acres with this son Keith and raises some turkeys. Hansema is a full-fledged partner with Sietsema in High Lean Pork, a 10,000-sow Monsanto Genetics nucleus and multiplier.

"I hope we can be a positive addition to the Ontario pork industry," Sietsema says.

In addition to High Lean operations, Sietsema farrows another 4,000 commercial sows and is involved in five different turkey raising entities in western Michigan. For his part, McDougall says a key consideration for their U.S. partners is: "We wake up every morning and think about the pig business. All five of us are actively involved in farming and we think long-term."

Long-term agreements are in place to rent land to local farmers. There are two Paragon farms in Kincardine, one near Nanticoke, and the remainder is in the Thamesford-St. Marys-Stratford corridor.

Manure is spread on fields associated with the barns and on other farms near the barns. With high fertilizer prices, there is a heightened appreciation for the value of manure, McDougall says.

Paragon barns source feed from Nutreco  mills (formerly Shur-Gain) in Thamesford and St. Marys.

Paragon faces the same concerns as any other pork producer in Ontario, McDougall  says, citing the possible closing of the Maple Leaf plant in Burlington, the effects of country-of-origin labelling laws in the United States and, not least, the simple economics of the pork industry.

Of the Paragon pigs raised, 70 per cent are finished in Ontario. Starting five to six months ago, Paragon began moving some pigs to the United States for the three reasons stated above.

"Our intent is not to finish all the pigs in the United States," McDougall says. "We want to make this work, but it has to work. That's the world we are in. Prices are driven off the Chicago Board of Trade."

McDougall says that Paragon is involved in different benchmarking programs and knows where it stands in terms of production costs. "These are very trying times in hog production," he says. "But we believe we can compete in the North American market. We have very good production and we have incredible people."

The company has 65-70 employees.

McDougall says that he is committed to supporting the Ontario swine industry. He sits on the board of the Ontario Pork Industry Council and another partner, Cameron Farrell, is involved with the Ontario Swine Health Advisory Board.

Animal welfare an issue
In late September, the Ontario Farm Products Marketing Commission rendered its decision to remove some powers from Ontario Pork, the provincial marketing board. Paragon Farms was one of the producers which backed removal of some board powers. "We fully support their decision," McDougall says. "This has been an issue for a long time. We believe it can be a good thing for both big and small producers."

He adds: "We want to be able to work with our customers directly. That's how the rest of North America operates in our business, in Western Canada and in the United States."

So what other problems does McDougall see facing the Canadian pork industry?

He replies that there are tens of thousands of Canadian hogs which go to the United States every week, both from Western Canada and Ontario. "They need to get processed somewhere," and there is no economic incentive to build that capacity here.

Will animal welfare be an issue? McDougall says he thinks so. "We hope the decisions are science-based," he says. He says that Paragon barns are "a combination of both stalls and pens in the sow units. Both work." He concedes that the facilities could be converted if the law demanded it.

Paragon already has high standards for loading animals and proper  stocking rates. "We don't allow stock prods in our barns," and adds, "Abuse of an animal is grounds for dismissal."

Employees have great stockmanship skills. "We have to have an environment where all of our employees are engaged in their work," he notes. "We have some great employees and some great contract growers. I don't think we are doing anything unique. It's more about the execution, about doing little things every day."

McDougall, 44, began working at Cold Springs Farm in the early 1980s. He was hog supervisor for Cold Springs in 2000 and managing director of operations in Ontario for Elite Swine before Maple Leaf, Elite's owner, until the sale of the operation.

Paragon isn't involved in joint partnerships with farmers, as was Maple Leaf and Elite. Is it an example for other modern swine farms? McDougall says that the Paragon model is just one that might be successful in today's trying times.

"Commodity prices are a roller coaster," he says. Growing their own crops isn't necessarily the answer. "We don't have on-farm feed manufacturing," he points out.  "Growing crops is not our core business."

Where does Paragon fit into Canada's pork producing system?

According to Successful Farming magazine, in 2006 Maple Leaf produced pigs from 80,395 sows. In 2007, production was down to 44,000 sows as the integrated company withdrew from fresh meat markets. (The 15,000 Paragon sows were hived off from Maple Leaf.) Hytech in Manitoba claimed 60,000 sows and Big Sky Farms in Saskatchewan nearly 48,000 sows. Puratone had 40,000 sows and Stomp Pork Farm in Manitoba had shrunk to 15,000 sows from nearly 40,000.

Paragon's output per sow rivals now-defunct Premium Pork. When profiled in Better Pork in 2001, Premium Pork shipped more than 24 weaners per sow annually to American feeder barns per year from 28,000 commercial sows. (Including Genetiporc breeding stock, Premium produced weaners from 34,000 sows). At that time, the U.S. sow herd averaged 15.3 pigs to market per sow.

The comparison stops at the numbers per sow. Unlike Premium, which operated from big, spanking new Cadillac style facilities, Paragon works from a mixture of new and old facilities, and McDougall says this is a tribute to the hard work that is put in.

Employees and growers "are a key component of our structure (and) current performance." McDougall describes Paragon's management team as "a low key group and the  importance of our employees/growers and doing all the little thing every day are key for ourselves and our business." BP

Would Harvey Beatty recognize Paragon?

Paragon Farms is headquartered in a building housing Cold Springs Farm's offices in Thamesford, east of London. Cold Springs was founded in 1949 by Harvey Beatty, who farmed out of a wheelchair for most of his career. Cold Springs was an integrated turkey hatchery, grower and processor as well as a pork producer. In 1998, the Cold Springs' turkey processing plant became the first in Canada to receive approval from the Canadian Food Inspection Agency as a Hazard Analysis Critical Control Points (HACCP) plant.

The pork operation followed in 2000.

McDougall says now there is no audit process for HACCP. Paragon operates under CQA in all operations, as well as a U.S. program called PQA.

J. M. Schneiders had acquired a 49 per cent interest in Cold Springs while owned by Smithfield Foods. Then Maple Leaf Foods bought Schneiders from Smithfield in 2003, and the pork operations of Cold Springs and Elite were merged in 2005, with some Cold Springs employees such as McDougall taking over key positions.

What would the late Mr. Beatty think of this newest evolution of the farm he started? "I'm not sure he'd recognize it," McDougall says. BP