October 3, 2003

 

 

US-based Maple Leaf To Enlarge Its Pork Processing Operations

 

Pork producers have shown concern over the sale of Smithfield Food's Schneider pork processing facilities to Maple Leaf Foods Inc.

 

Key concerns would likely centre around packer concentration should the deal go through, and what that would mean for producers faced with fewer delivery choices. If this $515 million deal comes through, it would give Maple Leaf a 45 percent market share in Canada's prepared meats sector, and control over 20 Schneider pork plants in the U.S. and Canada.

 

Retrenchment seems likely as duplication of jobs on both sides means some will be made redundant. Financially however, the proposed deal spells stability in terms of earnings and profit margins, and reduced packing costs. Packing operations will be reduced to three main players: Olymel, Maple Leaf or the United States. This tightening of choices would put producers at a disadvantage.

 

However, some analysts have pointed to the success of Western Canada's beef packing sector, which has been a prime model example for the industry despite having only two players. 

 

The proposed Maple Leaf-Smithfield deal comes at a time when expansion in the hog industry appears to be tapering off. There has been little new construction in the U.S. for several years and there have been only brief periods of profits since 1998. Maple Leaf's statement that it wants to increase its stake in the business reflects the confidence much needed at a time when the Canadian industry is at a crossroads.