While Manitoba’s hog industry celebrated some rare good news last week, the beef sector was reeling from yet another setback in the bid to re-establish federally inspected beef slaughter capacity here.
Citing unspecified problems with the Keystone Processors Ltd. business plan, the federal government has withdrawn $10 million in financing it promised the beef-processing company in 2009 under the Slaughter Improvement Program (SIP).
Officials announced last week that money would instead go to an expansion at the Hylife Foods Ltd. hog-processing facility in Neepawa. The former Springhill Farms facility now owned by Hytek Ltd. will use the money for upgrades to the wet area, expansion of the cooler and cutting areas, and new equipment.
“Manitoba’s pork producers have faced a number of challenges over the last few years, but Minister (Gerry) Ritz and his government have not wavered in their support,” said Manitoba Pork chair Kyle Kynoch. “Likewise, HyLife has continued to demonstrate its commitment to Neepawa and to building the best plant it can for the long term.”
Meanwhile, the Manitoba Cattle Enhancement Council, the major shareholder in the Keystone Processors project is vowing to press ahead despite the loss in federal backing.
“I’d call it a delay but I’m certainly seeing a good possibility our project will go ahead,” said David Wiens, an MCEC director.
“I’m not sure why or how this thing came off the rails,” said Wiens, a southeastern Manitoba dairy farmer and chair of Dairy Farmers of Mani toba. “It comes as a great surprise and disappointment.”
The MCEC was formed by the provincial government in the wake of the BSE crisis five years ago. It is financed through a $2-per-head voluntary checkoff on cattle sold in the province, which is then matched by the provincial government. MCEC teamed up with the producer-owned Natural Prairie Beef Inc. in 2008 to create Keystone Processors Ltd.
MCEC purchased a mothballed hog slaughter plant in St. Boniface on behalf of Keystone with plans to recommission it and seek federal certification so products could be exported outside of the province.
Until last week, Wiens said the project appeared to be on target for a March 2012 launch. The plant had ceased operating and preliminary work to begin construction was underway. “Things were falling into place quite nicely,” he said.
Wiens said project managers complied with all of the numerous requests from federal officials for changes to its business plan, including lining up $18.2 million in private-sector lender support. They hired the Astana Group, a management team with international experience and an established track record in refurbishing slaughter plants and turning them into profitable operations. Market research had identified a market niche for a plant of 250-to 300-head capacity in the specialty meat export business, specifically with halal and kosher products.
“We certainly felt we had met all the requirements,” he said.
Wiens said the project’s business plan was deemed viable by a national bank that agreed to provide financing. That lender has since indicated it will continue to support the project, provided alternative financing can be found to replace the federal withdrawal, he said.
Wiens said the number of producers withdrawing their checkoff funds has also declined in recent months, which indicates to him producers are onside. As of this year, nearly 80 per cent of producers were opting to leave their funds invested in MCEC, which is up from 63 per cent last year.
However, Manitoba Beef Producers called on the province last week to end the $2 voluntary checkoff producers pay into the MCEC.
“MCEC has collected millions of dollars from Manitoba’s beef producers,” said MBP president Major Jay Fox. “To date those funds have not expanded Manitoba’s slaughter facilities and have not benefited Manitoba’s beef producers. We are disappointed that this effort to expand beef processing in Manitoba has not been successful and it is unfortunate that federal funds are moving outside of the beef industry. However, it is time to stop throwing good money after bad and end this tax on farmers.”
The MCEC 2010 financial statements show it collected about $1.32 million in producer levies that year, $415,000 of which was returned by producer request. The province contributed $903,000. It has $6.2 million in total assets.
Stan Struthers, Manitoba’s minister of agriculture, food and rural initiatives, said while he applauds the federal support for HyLife, he objects to how that support came about.
“Don’t do it at the expense of another important agricultural sector in Manitoba,” Struthers said, noting there had been no indication that the SIP program officials had outstanding concerns with the Keystone business plan.
“In one fell swoop the Conservative government has not only put this project in peril, these events could block further progress towards increasing slaughter capacity,” Struthers said. “I think they simply have a majority government and they are going to do what they want.”
Ritz said it is Struthers who is playing politics.
“It’s unfortunate that Minister Struthers is already engaging in election rhetoric at the cost of providing the facts to his producers and processors,” he said in an emailed statement.
“Since the conditional approval of funding for Keystone in October 2009, our department has conducted 10 separate reviews of its application,” Ritz said.
“We had expressed numerous concerns surrounding the application …, and it was made clear that a strong, viable business plan was necessary in order to ensure an investment of federal taxpayers’ dollars.
“After numerous deadline extensions spanning nearly two years, AAFC notified both the MCEC and Minister Struthers that its business plan had not met the appropriate criteria to ensure the responsible use of a taxpayers’ dollars,” Ritz said.
Federal officials associated with the SIP program said they could not be specific about how Keystone’s business plan failed to meet the program criteria saying it was “personal business information.”
Wiens said although the ongoing delays are frustrating, he still believes developing federally inspected beef-processing capacity can provide tangible benefits to Manitoba cattle producers through savings of up to $100 per animal reduced transportation costs, providing a local outlet for beef cattle if the border closes and through the benefits that accrue from being shareholders.
One of Keystone’s founders and its former president Kelly Penner said he’s no longer up to date on the company’s internal workings so can’t comment on the state of its business plan. But he believes the need for this project has never been greater.
“I’d like to see the border close tomorrow and wake everybody up,” Penner said. [email protected]
“Itcomesasa greatsurpriseand disappointment.”
– DAVID WI ENS