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Federal Decision Ignores Regional Need For Beef Plant

Manitoba cattle producers need the facts about the recent reallocation of federal funds under the federal Slaughter Improvement Program. They have a right to know what was done and said and draw their own conclusions.

MCEC was pleased when the federal government joined the chorus of support for the proposed CFIA-inspected slaughter facility with a promise of $10-million funding in 2009.

At the time, the federal government set five conditions: that the plan demonstrate how risks to the operation will be managed or reduced; demonstrate how marketing will be done; provide greater certainty in financial projections; bring margins in line with industry standards (even though it was a niche model); and develop a plan for strong management and labour.

NEW MANAGEMENT

Early in 2010, MCEC determined new management was needed to move the project forward. Experience and connections were needed for a niche concept favoured by MCEC and the management team had run successful operations in North and South America.

They had just come to the end of a three-year non-compete covenant on the successful plant they had sold in Uruguay. The team knows how to operate a mid-size plant profitably in this competitive industry. They reviewed the business plan and addressed the remaining conditions including demonstrating how niche markets – such as kosher beef – can deliver higher margins on smaller volumes.

The project also secured financing and enthusiastic support from a major bank for up to $18.2 million. The bank’s term sheet stipulated that the loan would be executed as soon as the government did the same. We garnered local and international interest, improving this project at every turn.

We moved ahead on the assumption that the federal funding would be more secure, not less, with the stronger plan, stronger management and bank financing on the table. We kept Ottawa informed, sent everything they asked for even when they weren’t clear and we continued to fund the project alone to ensure we met the deadline set by Ottawa – all expenses had to be incurred by March 2012.

REASONS

The federal government officials provided three written reasons on July 13, 2011 for withdrawing the funding.

First, they stated the business plan was “not viable.”

We strongly disagree with that assessment because the plan is based on broad real-world experience proven by this management team. The plan also attracted support from many industry observers. The federal government provided no numbers or detailed rationale for their conclusion.

Second, they said the bank’s terms weren’t definitive enough because the term sheet remained subject to change and final documentation. One of those final documents was the federal loan itself. So far the bank remains committed for up to $18.2 million alongside MCEC’s $7.5 million equity commitment.

Third, they declared that the business plan didn’t call for the plant to repay the money within 10 years. The first plan from the new management team projected full debt repayment in just five years, which the consultants hired by the government rejected as “too optimistic.”

It was stretched to 10 years at their request. Financial scenarios were drawn up to show how the plant could achieve it and where the numbers would fall apart. They then used one of the worst-case scenarios (projected at their request) to say the money would not be repaid.

The federal government is saying that the civil servants at the Slaughter Improvement Program reviewed the business plan 10 times. We did send them a lot of data, so there were updates – all of which strengthened the plan. We certainly didn’t send them 10 different plans and we have no sense of why 10 reviews would be needed. The bank put its commitment on paper after one review.

ON TARGET

We worked in good faith with Ottawa to the end. The management team explained, clarified, and responded to every request, and readied the site for construction on time and on budget with construction scheduled to be underway by the end of this summer.

In the final analysis, it would seem they were looking for something different, perhaps a commodity beef plant? We are not sure.

They were not clear during the process in our view and the reallocation of the funds was shocking.

We were disappointed that the government and its consultants simply wouldn’t accept the niche business model which we believe stands the best chance for success. They acknowledged a difference of opinion between their “expert” consultants and our management team, but repeatedly refused to meet with management to clarify these essential matters.

We continue to trust that the real experts are those who can do it in the real world.

Regardless of how MCEC and the management team were treated, it is cattle producers who are our focus. With no federally inspected beef slaughter capacity in Manitoba, producers are dependent on shipping outside the province. Given the oligopoly in beef slaughter, we also remain largely trapped in a commodity model. The federal government has failed to assist in protecting against another crisis like BSE in 2003 and failed to participate in growth in the Manitoba beef industry.

We stand by the management team and their business plan. Many in the private sector have encouraged us to carry on, and we are grateful for their support. We also remain hopeful that the federal government will find an opportunity in the future to assist this vital project. We can’t let up now.

Barry Todd, deputy minister of Manitoba Agriculture, Food and

Rural Initiatives, is chair of the Manitoba Cattle Enhancement

Council. Other directors are Gaylene Dutchyshen, Albert

Todosichuk, Charles Gall, and David Wiens.

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