White knight saves plant, but he may be last one

There seemed to be a collective sigh of relief from the entire western Canadian cattle and beef industry

There seemed to be a collective sigh of relief from the entire western Canadian cattle and beef industry when it was announced that JBS would be taking over management of the XL Foods Lakeside plant in Brooks.

There was probably a very good possibility that the plant was not going to re-open 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.

The arrival of JBS to the rescue is no surprise. Spokesmen for the company speaking 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 in the world where they did not have a serious presence. One suspects that JBS might already have had exploratory talks with XL people prior to the recent E. coli debacle. Clearly, that event would have expedited any interest JBS had in acquiring XL.

But if the industry is now relieved that JBS has arrived to save the day, that morning-after 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 meat-processing industry agrees on it is that JBS knows how to operate big beef plants — their global success surely proves that. They have 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 in those that have a stake in the XL Brooks plant from feedlot operators to plant workers is — how do they turn losers into winners. I expect the formula is pretty simple.

First, the positive side of the formula — JBS expertise in massive production will see their experience used to streamline efficiencies in the XL plant like never before. Next, their global marketing presence bodes well for increasing Canadian beef exports to entirely new markets. They are easily equal to, or even more, to Cargill in competing for markets anywhere, and they have the deep financial pockets to wage market share battles with anyone.

In addition, their sheer corporate global size should garner them some respect from even the 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 the goal of plant viability and profitability — cost reduction. There would be a number of ways to do that and a long time operator like JBS would know all the angles. If one agrees that JBS would know how to operate a big beef plant, they would surely know how to buy cattle at the lowest price.

I expect that after the initial honeymoon period, feedlot operators are going to be faced with sharp and cunning JBS cattle buyers who have stared down the smartest cattle producers anywhere in the world. Successful meat plants anywhere are not usually so 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 Nilssons’ management of the plant. Union officials might yet come to regret the loss of those good times, if the other shoe hits the fan in making the plant viable.

It doesn’t take a genius to figure out that the other way to 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 in half. In fact, the production realities of XL might well come home to haunt the plant workers and their union.

Meat processing and labour costs are considerably higher in Canada than they are in the U.S. The possibility is that JBS after some analysis might just decide to eliminate further processing 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 XL plant, if JBS can’t make it successful, they are not going to buy the facility. If that happens, the plant’s life might be over, being it’s changed hands four times now, and the processing industry might have run out of white knights to save it again.

Will Verboven is editor of Alberta Farmer.

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