Ontario's hog industry unfazed by Quality Meats' collapse

Saturday, January 31, 2015

Strong demand from other processors in Ontario, Quebec and the United States has helped Ontario hog farmers weather the bankruptcy of Toronto-based Quality Meats, even though some faced losses as a result

by JIM ALGIE

The 2014 collapse of one of Ontario's largest hog processing firms failed to dampen an industry riding strong demand into 2015.

Quality Meats went out of business last spring owing millions for animals processed but never paid for during the company's final weeks of operations. Even so, Ontario's hog industry appeared by year end to have moved on.

"This came as a big shock to every one of us who was affected," said Barrie-area farrow-to-finish operator Arno Schober, who was among dozens of producers burned by the Quality collapse. "All of us as individuals will have to absorb the loss," Schober said in an interview from his 130-sow Simcoe County farm. "If there's a silver lining, it's that we had a good year for prices."

In bankruptcy proceedings since then, secured creditors, their lawyers and accountants have fared better than unsecured hog farmers. Producers who sold to Quality through Ontario Pork marketing services did see partial repayment from the farmer-run agency, itself an unsecured creditor with an unpaid $1 million claim. Marketing division manager Patrick O'Neil estimates compensation from pork board funds for eligible producers at about 60 cents on the dollar.

The fallout also leaves Sofina Foods as Ontario's dominant pork processor.

When Toronto-based Quality Meats went bankrupt, a smaller related company, Great Lakes Specialty Meats, followed into receivership. The two firms together represented as much as 40 per cent of Ontario's processing capacity.

"It could have been a lot worse," O'Neil said of the Quality Meats collapse. "You don't want to be cheerleading necessarily; but . . . it's incredible how well the industry has adapted," he said, referring to strong demand from remaining processors in Ontario, Quebec and the United States.

Hog industry economist Ken McEwan says that Quebec packers have picked up a lot of the slack. "Ontario is in a relatively good position from a North American perspective," McEwan says. Administrator of the University of Guelph's Ridgetown College, he's also a veteran observer of Ontario's hog industry. "Extremely strong hog prices" and "strong packer demand, both domestically and internationally," means that "hogs continue to move," he says. "I think that if the table was switched the other way, so that there was an excess supply of hogs, it would not have been good."

Because of Ontario's current capacity pinch, O'Neil warns of backlogs, particularly at holidays. Both he and Schober, an Ontario Pork director, argue there is now a shortage of packing space. "We were over capacity before the closing (of Quality) and we're certainly under capacity now," O'Neil says.

Some restored capacity could come from the recent purchase by Sofina of the Great Lakes plant, although the company has said little publicly about its plans. Court documents filed on the website of receiver Price Waterhouse Coopers indicate a purchase price of $4.7 million for the 78,000 square foot plant on 12 acres of land. Calls to Sofina for this story in early January were not returned.

A privately-owned firm headed by CEO Michael Latifi, Sofina acquired the former Fearman's plant in Burlington in 2012 with slaughter volume of between 32,000 and 35,000 hogs weekly. The company processes and markets a variety of meat products under brand names Lilydale, Cuddy and Fletcher's Vienna from plants in British Columbia, Alberta, Saskatchewan and Washington State. BP

Quality Meats squeezed by high prices and short supplies
Sofina Foods' purchase in September of a Great Lakes Specialty Meats plant in Mitchell, Ont., appears to allow substantial reimbursement of secured creditors in the company's receivership.
Approval by the Superior Court of Justice in November of the $4.7 million sale to Sofina led as well to an order for substantial repayment of major Great Lakes creditors, notably Farm Credit Canada (FCC) and the Royal Bank of Canada. It also led to formal discharge of Price Waterhouse Coopers as Great Lakes' receivers.

On Nov. 25, Justice M. A. Garson accepted the receivers' report and approved distributions. They include payments to FCC of $5.6 million on an outstanding three-year-old mortgage and to Royal Bank of Canada of $1.06 million on outstanding equipment lease agreements. Receivership costs and professional fees in the case exceed $1 million.

Meanwhile, in continuing bankruptcy proceedings involving Great Lakes' parent company, Quality Meats and the related Toronto Abattoirs Ltd., receivers at A. Farber and Company seek to complete asset liquidations and payouts to secured creditors. On Nov. 5, Justice L.A. Pattillo ordered the distribution of $2.1 million to Quality Meats Holdings Ltd. against an outstanding debt of more than $13 million and to Royal Bank of $680,000 for equipment loans.

Quality Meats' president David Schwartz headed both companies. Schwartz has not commented publicly on the collapse of the businesses beyond sworn affidavits in Superior Court files.

Veteran hog industry economist Ken McEwan says Quality Meats likely got squeezed by high prices and short supplies prevailing in 2014. "Hogs were short and there was excess capacity," McEwan says. "We were in that time period where packer margins were getting squeezed and that's a large part of the impetus as to why Quality Meats went into receivership."

The high cost of pigs and the lack of a corresponding price increase in the retail price of pork led to Quality's troubles, McEwan believes. "Packer margins are quite variable; sometimes they can be quite lucrative and other times they can be negative. On average, you try to come out ahead," he says. BP