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NOVEMBER 5, 2012 • ALBERTAFARMEXPRESS.CA
EDITOR Will Verboven Phone: 403-697-4703 Email: will.verboven@fbcpublishing.com
Reporters Alexis Kienlen, Edmonton (780) 668-3121 akienlen@fbcpublishing.com
Shawna Gibson Email: shawna@fbcpublishing.com
Is JBS the white knight that can save XL?
Director of Sales & Circulation
Smart operators } JBS didn’t get to be the world’s
Sheri Monk, Pincher Creek (403) 627-9108 sheri.monk@fbcpublishing.com
PRODUCTION director
largest by paying too much for labour or cattle
Lynda Tityk Email: lynda.tityk@fbcpublishing.com
CIRCULATION manager Heather Anderson Email: heather@fbcpublishing.com
By will verboven
Alberta Farmer | Editor
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here seemed to be a collective sigh of relief from the western Canadian cattle and beef industry when it was announced that JBS would be taking over management of the XL Foods Lakeside beef plant in Brooks. The reality is that there was a very good possibility that the plant was not going to reopen unless a white knight came to the rescue. The financial hit the Nilsson brothers were going to have to take along with the ongoing acrimony between them and the CFIA would have made the operation difficult to start up again. It’s been estimated that the losses, including recalls, lawsuits, hedges, contracts etc. will be around $100 million. JBS wisely separated itself from any outstanding or future liabilities incurred by XL Foods before agreeing to manage the plant. The arrival of JBS to rescue the plant is no surprise. Company representatives at cattle industry events over the past year have indicated that they were actively looking for a way to expand their operations into Canada. For the giant global JBS organization, Canada was one of the last significant beef-producing countries where they did not have a serious presence. One suspects that JBS might already have had exploratory talks with XL prior to the E. coli debacle. Clearly that event would have expedited any interest JBS had in acquiring XL. It seems to have the best deal — figure out if the plant can make money and if it does, buy it. If not, walk away. But if the industry is now relieved that JBS
has arrived to save the day, that morningafter feeling may not be so pleasant once the company figures out what it needs to do to get the plant back on its feet. If there is one observation that the industry agrees upon it is that JBS knows how to operate big beef plants — its global success surely proves that. It has become known for acquiring processing plants that are in financial or operating difficulty and turning them around into viable operations. The question that should arise for those who have a stake in the Brooks plant, from feedlot operators to plant workers, is how does it turn losers into winners? I expect the formula is pretty simple.
Worldwide expertise
First the positive side of the formula — JBS’s expertise in massive production will see its experience used to streamline efficiencies in the plant like never before. Next, its global marketing presence bodes well for increasing Canadian beef exports to new markets. JBS is easily equal to, or even better at Cargill in competing for markets anywhere, and has the deep pockets to wage market share battles with anyone. In addition, its sheer corporate global size and expertise should garner it some respect from the prickly CFIA. That should help in re-establishing realistic plant food safety programs and inspection protocols. There is of course the other side of the coin in achieving plant viability and profitability — cost reduction. There would be a number of ways to do that and a longtime operator like JBS would know all the angles. If one agrees that JBS knows how to operate a big, low-cost beef plant, it would surely know how to buy cattle at the lowest price.
I expect that after the initial honeymoon period is over, feedlot operators are going to be faced with newly inspired JBS cattle buyers who will do what they have to, to acquire cattle at the lowest price. The reality is that meat plants anywhere are not usually successful because they have an overly generous livestock-buying policy. It was discouraging to see the belligerence of the plant union boss in almost cheering the demise of the Nilsson’s management of the plant. Union officials may yet come to regret the loss of those good times if the other shoe drops in making the plant viable. It doesn’t take a genius to figure out that the other way to plant profitability is to radically reduce labour costs. One expects JBS operating expertise will see efficiencies implemented to reduce labour, and that probably will not mean reducing the line speed by half. In fact the production realities of JBS management may well come home to haunt the plant workers and their union. For instance, meat processing and labour costs are considerably higher in Canada than they are in the U.S. The possibility is that JBS after some learning experience may just decide to eliminate most meat fabrication jobs at Brooks and ship carcasses to their underutilized American plants where labour costs are significantly lower. Considering the attitude and history of the union at the Brooks plant, one can see labour relations turning sour sooner or later. One doesn’t like to rain on the parade of industry relief, but there is a reality with the Brooks plant. If JBS can’t make it successful, it’s not going to buy it. If that happens the plant’s life may be over. It’s changed hands four times now and there may be no more white knights left to save it again.
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Beef industry report almost tells the whole story By will verboven
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n agricultural think-tank called the Canadian Agri-Food Policy Institute (CAPI) has released a study on the direction of the cattle industry and its future ramifications. The future it seems doesn’t look all that promising, since the study brings to light some of the inherent weakness and challenges of the present industry. The study, which was partially financed by the Alberta Meat and Livestock Agency, is not the first study about the realities of the cattle and beef industry in Canada, but it is more up front and direct than most past efforts. The problem it has — as do most such studies — is will it be taken seriously and acted upon, or will it be filed away in that place were so many other well-meaning studies end up? The study, in a tactful way, hints at the need for different leadership in the cattle industry to face the marketing reality and to take some dramatic steps. That no doubt ruffled some feathers within the ranks of many existing cattle producer and beef industry groups. Those folks figure they already are the leadership. The report tries to dodge that reaction by suggesting various initiatives need champions to carry them out. It’s not clear where those champions are to come from, nor who will pay for their time and effort, never mind the lack of power such champions would have outside the existing
industry and government leadership establishment. One suspects that the authors were treading carefully on the issue of industry leadership that got us to where we are now, and who should lead us to marketing salvation. One hesitates to suggest a followup study, but it would seem pertinent in this case to suggest who and what kind of leadership it will take to redirect the cattle and beef industry. Such a study would need a critical review of the present leadership structure, along with robust, honest and courageous recommendations to establish the effective leadership needed to carry out the study initiatives. That won’t be easy considering the political nature of the industry. The primary production, feeding, processing, and the retail marketing sectors of the industry have been mutually antagonistic since the beginnings of the business. That’s evolved into a baffling political structure based on self-interest. Some years ago a report noted that in Alberta there were 26 organizations, committees, agencies, advisory councils, roundtables and myriad other ad hoc groups of every stripe all claiming to represent cattle producers and the beef industry. That doesn’t help industry unity and many are sensitive to any threat to their turf or leadership. That’s the biggest hurdle, so a study that would give the industry a clear road map as to how to resolve industry disunity is the real first step. If that can be done the rest will be easy.