Manitoba farmers may see reduced opportunity to sell peas this year, as the fate of protein ingredient processor Merit Functional Foods remains undetermined until at least the end of the month.
“Then the question is, do I continue to grow peas or do I switch to another crop. That’s a decision that the growers have probably made by now,” said Daryl Domitruk, executive director of the Manitoba Pulse and Soybean Growers.
Why it matters: Merit Functional Foods, now experiencing financial woes, was heralded as a success story for Manitoba’s plant-protein sector.
Read Also
The joys of fishing from shore
Manitoba has many lake and river shorelines to drop a fishing line without the cost of a boat, making shore fishing more accessible, and anglers can still catch impressive fish.
Merit, which processed peas and canola into plant protein ingredients, was placed into receivership March 1. According to documents filed by receiver PricewaterhouseCoopers, it will continue to entertain offers on the company until the end of April and close the deal by the end of May.
Domitruk said that, to his knowledge, any farmers who had already contracted with the company for 2023 were released from their agreements but if they had already purchased seed, they could be in a bind.
Compared to larger processors like Roquette, Merit purchased “relatively less” peas, he added.
“It’s not a body blow to the industry by any means.”
It could result in a few farmers getting out of peas, however. It’s difficult to get a well-priced contract, especially compared to soybeans, Domitruk said. The bulk of pea production in Western Canada is export-based, and centred in Saskatchewan and Alberta.
However, farmers are used to rolling with the punches, Domitruk added.
Merit sale
According to the first report from the receiver, filed March 31 with Court of King’s Bench in Winnipeg, a “data room” has been set up and an information brochure circulated to prospective buyers.
PwC said it also “may continue to identify and initiate contact with other such parties.”
It said it will accept “qualified offers” for Merit’s assets until 4 p.m., central time, on April 21, and expects to determine the accepted offer by April 28.
A “definitive agreement” would then be reached no later than May 12, court approval granted by May 26, and a deal closed no later than May 31.
Burcon, which has a 31.6 per cent stake in Merit, has already announced it will bid on the assets.
In a separate release April 6, Burcon said it has since been in discussions with the receiver, “continues to conduct due diligence and is furthering its efforts to put forth a compelling bid.”
However, Burcon added that it expects other competing bids and “there is no assurance that Burcon’s bid will be accepted by the receiver.”
Merit’s secured creditors include Export Development Canada, which is owed $58.6 million plus interest, fees and other costs; Farm Credit Canada, owed $36.4 million plus similar costs, and CIBC, owed $5 million plus costs. Unsecured debts owed to trades and other creditors as of March 1 were estimated at $2.4 million.
The Canadian Grain Commission is running an audit to see if CGC-licensed Merit still has any “outstanding liabilities” owed to farmers who delivered crops to the plant, the receiver said.
However, it added in a report that, according to Merit’s records, no farmers are owed for any crops that the company has purchased and are in its possession.
In March, PwC laid off 77 Merit employees. Another 23 were kept on as “key” staff under agreements running mostly to the end of this month at the latest. Three former managers were retained on an independent contractor basis.
Three of the key staff have since quit, while others continue to maintain the plant, handle product sales and accounts receivable and help in the sale process, PwC said.
As of March 1, Merit had about $3.8 million worth of inventory, about $2.7 million of which has since been invoiced and awaits payment before delivery. About $231,000, about half of Merit’s other outstanding receivables, have also been collected.
Cash flow
Merit started construction in its plant in 2019 and opened the 94,000-square-foot facility in early 2021. It began accepting canola and yellow peas to process Puratein canola proteins, Peazac pea proteins and MeritPro protein blends using Burcon’s protein extraction technology.
In 2021, Merit projected it could eventually expand to take up to 100,000 tonnes of canola and peas per year.
EDC, FCC and CIBC were members of a consortium of lenders, also including Agriculture and Agri-Food Canada, who altogether provided Merit with $95 million in debt financing starting in 2020. AAFC’s contribution came in the form of a 10-year, interest-free $10-million loan from the department’s AgriInnovate program.
Merit in 2020 had also picked up $9.5 million in support from the Protein Industries Canada supercluster to back product development.
EDC and FCC filed Feb. 24 for a receivership order, saying Merit was “suffering significant cash flow shortages” during the first three quarters of 2022.
The two Crown-owned lenders said in their filing that they expected Merit to run out of operating cash by around March 3 or March 4, and it would then “no longer be able [to] operate its business as a going concern.”
