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Canada Packers Inc.

Canada Packers Inc.

30 St. Clair Avenue West
Toronto, Ontario M4V 3A2
(416) 766-4311

Public Company
1927 as Canada Packers Ltd.
Employees: 12,000
Sales: C$3.2 billion (US$2.68 billion)
Stock Index: Toronto Montreal

Canada Packers was formed in 1927 during a period of consolidation among Canadian meat packers. The decade was a hard one for Canadian meat packers, who were increasingly reliant on exports for expansion. Before the 20th century miners and settlers had provided an expanding market, but the domestic market leveled off with the centurys beginning. While worldwide demand soared, so did production, creating a volatile industry susceptible to both agricultural and manufacturing cycles.

Meat production had increased to meet wartime demand, but, in the aftermath of World War I, Canada was cut off from much of the European market by 1920, and the United States imposed a tariff on Canadian beef in 1921. By the mid-1920s Canada faced new competition for the vast American market from Argentina and Australia. Tariffs and cheaper competition have made reliance on the U.S. market impossible for Canadian agricultural producers ever since.

The Canadian domestic market could not absorb the surplus created by these pitfalls, and the number of meat processing-plants dropped from 86 to 76 between 1912 and 1927. For nearly the same period, the number of food producers also decreased, yet employment and value added by the manufacturer grew.

In 1927 the Harris Abattoir Company of Toronto acquired three smaller meat packers. Unlike its competitors, Harris had remained profitable during the 1920s through substantial cuts in personnel. With distribution branches throughout Canada, Harriss earnings easily overshadowed those of the companies it purchased. Gunns Ltd., a Toronto packer, transferred its stock to Harris in February when it found itself unable to attain credit. In June, Harris purchased the much smaller Canadian Packing Company Ltd., and in August Harris merged with William Davies Ltd., Canadas oldest meat packer. The new holding company was named Canada Packers Limited and in its first year it made a profit of more than $1 million.

The four companies remained separate operating units and continued to compete with each other, but by 1929 the Harris Abattoir offices in Toronto had become the central headquarters. The companies could not have survive the postcrash Depression separately. Meat prices were high relative to other commodities following the market collapse, and drought in the western provinces produced higher unemployment and lower consumer demand for meat. Already merging slowly, heavy losses in 1931 forced the closure of the William Davies Toronto plant and the formation of a single company at the beginning of 1932.

By 1933 operating expenses had been drastically cut. Only five of nine plants remained, the work force had been cut by 40%, and total expenses had been reduced by $7 million annually.

During the mid-1930s the company revived. The Ottawa Agreements allowed 280 million pounds of bacon a year to be exported to England, giving Canadian companies entry into a market previously filled by European companies. The agreement increased production at all plants at a crucial point in Canada Packers development.

Simultaneously, the companys by-product division, which had been selling scraps for fertilizer, began to sell a mixture of scraps as a feed concentrate for animal food, a new venture that proved extremely profitable. Thirty years later the fertilizer business would be sold entirely, but animal feed remains an active and relatively reliable division for the company under the name of Shur-Gain.

In 1936 the company began its first expansion since its formation. It built a meat-processing plant in Alberta and acquired a tannery in Ontario. During the period between world wars this growth continued as British bacon and American beef imports reduced livestock surpluses. In 1938 Canada Packers opened an additional packing house; renovations of other plants brought capital investment between 1935 and 1938 to more than $2.5 million.

During World War II Canada continued to be a major supplier of meat to Englandthe amount of bacon shipped overseas more than doubled during the course of the war. Demand increases brought about the first labor shortage in Canadas meatpacking history. Canada Packers work force more than doubled to over 11,000.

Increased postwar demand allowed continual expansion, but improvements in infrastructure and employment for returning soldiers were needed. In response to an anticipated recession, the company stepped up its diversification efforts. The companys work force was nearly as large then as it is now, but overall production constantly expanded in the succeeding decades.

The emphasis on war-time efficiency required the establishment of a research laboratory, leading Canada Packers into synthetic vitamins, gelatin, synthetic detergents, and dairy products by the end of the war. By 1946 the chemical applications of animal by-products being investigated by the research lab would warrant the status of a separate division.

Another war-time development was the creation of union representation. During 1943 and 1944 Canada Packers agreed to representation by the United Packing-house Workers of America, later the Canadian Food and Allied Workers Union. It did not take long for this bargaining unit to have a periodic impact on earnings. In 1947 a nationwide strike involving more than 16,000 meatpacking workers occurred. No longer a wartime necessity, food production was once again controlled by the manufacturers. Canada Packers and a competitor negotiated new contracts two months later.

From World War II on, Canada Packers sales have been greater than its two closest competitors combined. The anticipated recession never hit the company as population growth and prosperity increased demand for meat and all other food products. The research lab, which had so far worked only on chemical development, began to look for improved production methods. Automated killing operations finally replaced the outdated manual process, and the company kept pace with the industry by applying new technology to the mass production of poultry.

During the decades following the war Canada Packers made its first significant transition to meet new demand. In the 1950s the per capita consumption of poultry doubled and it continued to increase during each following decade. Through timely acquisition, investment, and the development of a new feather-cleaning company, the company began to increase its presence in the poultry industry. The company also entered oil production through acquisition in 1951.

Canada Packers postwar expansion was rapid and prominent. The 1955 purchase of two packers brought the company into a dispute with the Restrictive Trade Practices Commission. Canada Packers argued successfully that industrywide competition had increased and that the purchase would have no restraining effect.

Late in the 1950s the company reorganized its many businesses into separate divisions, including feed and fertilizer, consumer products, and canned and frozen vegetables. J. S. McLean, president since the companys formation and the man responsible for the companys postwar diversification, retired in 1954, and his son William succeeded him. By 1958 only 55% of sales were from meat.

Canada Packers kept capital investment steady through the 1960s to continue expansion and diversification. To meet perennially increasing poultry demand, the company built two plants, in New Brunswick and Quebec, expanded operations in Ontario and Manitoba, and acquired an Alberta plant. In 1963 only 36% of its assets were devoted to livestock products.

Although sales had increased more than 50% since 1951, the 1960s brought about the most dramatic changes for the food-processing industry to date. As international distribution became more common, production became more specialized. During this period North American beef came to spend more time in transit than any other meat, reflecting the specialized processses of raising cattle and producing meat. As Canadas largest processor, Canada Packers had much to contribute to this changing environment.

During the decade the company created the largest private food-research facility in Canada. Inventories as well as product composition were determined through data processing centers in Toronto, Montreal, Winnipeg, and Edmonton, and new meatpacking technology in areas like packaging and flavoring were implemented in a $10 million Toronto facility.

In addition to these technological advances, Canada Packers expanded internationally during the decade. The company purchased meatpackers in England, West Germany, and Australia and set up trading companies in London and Hamburg. Trading operations with the United States also grew, as did its interest in Southeast Asia. By 1969 exports exceeded $145 million, nearly 16.5% of company sales.

With the sale of the fertilizer sector, feed and fertilizer became the Shur-Gain division and investment in feed mills intensified. In 1966 the United Packing-house Workers of America led its first strike since 1947. Although the strike was national, it hit Canada Packers hardest. Another strike in 1969 also affected earnings.

Despite inflationary stress and an increasingly competitive climate in the meatpacking industry, the company continued to increase capital spending. Between 1970 and 1977 Canada Packers spent $137 million on expanded facilities. It also increased its overseas presence by purchasing two more Australian meat processors. Even though these subsidiaries did poorly for several years, they were expected to fill the growing Asian demand.

During the 1970s Canada Packers became a more diversified food processor and separated the management of its other food-production groups from meatpacking. The company granted division status to its fruit and vegetable segment in 1970 (York Farms brand), poultry in 1971, and edible oils and dairy in 1975.

The chemical division, created in the late 1960s, became more significant with the establishment of Harris Laboratories, which develops pharmaceuticals for human use, in 1975. The division also created MTC Pharmaceuticals for the veterinary-product industry in response to continual growth in demand for drugs related to foodlot production.

Overseas packers and lean margins continued to plague the company, but its diversification kept earnings at acceptable levels. Nonfood sales contributed 15% of the total; it was the only sector to show significant increases in the early 1970s. Animal feeds did grow steadily, helping to ease the earnings drain caused by meat.

Valentine N. Stock became president of Canada Packers in 1978. As the company entered the 1980s, earnings margins were still lower than expected, less than 1% for the third consecutive year. Sales value had increased, but sales volume remained the same. The increases in product value had benefits, but also added to higher-cost inventories. With relatively low long-term debt, at $34.7 million, the company planned to grow through acquisitions and to earn higher margins through packaged meats. Since consumers continued to demand convenience, meat processing was the only growth area in the companys core business. Stock also planned to increase non-food and international operations, despite disappointing results overseas.

1979 was a bad year for Canadian food processors due to increased costs for meat and a seven-week labor dispute that closed some facilities. Canada Packers competitor, McCain Feeds Ltd., of New Brunswick, increased its holding in Canada Packers to 10.3%, fueling takeover rumors. As a precaution, Canada Packers repurchased 3.5% of its shares, but takeover remained unlikely since the McLean family and their associates controlled 34% of the companys shares.

As expected, the company looked to international markets by acquiring Delmar Chemicals Ltd., a supplier to the pharmaceutical industry, for C$18.2 million. Delmar was coupled with the companys existing pharmaceutical division to increase nonfood exports.

The company remained close to its food core and Maple Leaf brand of meats nonetheless, and accepted a $4 million grant from the Ontario government to construct a canola (rapeseed oil) processing plant.

By 1981 profits had soared 50% over their 1979 level, up to a record $30 million. But the cyclical nature of the industry still affected the company as pork operations proved disappointing, carcass prices rose, and a reduction in consumer demand and greater competition among packers continued to erode earnings. Occasional plant closings continued to be the industry norm.

In 1983 the Canadian government began investigations of price fixing involving Canada Packers and four other meat packers. Some of the charges were dropped in 1984, and although the other four companies would eventually plead guilty, Canada Packers was completely exonerated and partially reimbursed for legal expenses in 1986.

Profits plunged to their 1979 level in 1983, even though sales continued to grow. Earnings were affected by the cost of plant closings and poor performances in fresh-meat operations, and foreign subsidiaries proved disappointing. The packing house division, in fact, suffered the worst loss in its history, but processed meat remained profitable. As a result, the company earmarked $50 million for structural improvements in these profitable areas and cut hundreds of jobs in fresh meat. Although its outlook was better, previous profit levels looked unreachable.

Another strike in 1984 involving 3,700 strikers at most of the companys 12 plants eventually cost the company $7.5 million. Although it lasted only five weeks, the strike kept the companys Maple Leaf brand from store shelves and strengthened competitors. As the countrys largest meat packer, the strike of the United Food Commercial Workers Union (UFCW) demonstrated the companys vulnerability to labor disputes. The strike caused a slight earnings decline for 1985.

Nonfood products showed a surprising decrease in profits for 1983, proving that the company could not venture far from its traditional core businessone with fiercely competitive margins but with proven cash flow. Although making up less than half of Canada Packers profit, meat products still account for two-third of its sales.

Despite setbacks, however, the mid-1980s were prosperous for the company. Increased cash flow allowed a four-year, $200 million revitalization spending plan. Poultry production was enlarged, reflecting the divisions profitability and continued long-term potential.

A reorganization, begun in 1984 and completed by 1985, was the largest and most expensive in the companys history. Unprofitable businesses, including an ice cream plant and five slaughterhouses, were sold, and other meat plants and oil refineries were purchased and upgraded. Earnings for the next four years climbed at record rates from $25 million to more than $38 million.

Canada Packers then entered a joint venture with Sea Farm of Norway and began fish farming in New Brunswick. A long-term investment, the company now has production facilities on both coasts of Canada and sees fish farming as its most promising growth industry.

Canada Packers circumvented another strike by reducing the scope of nationwide bargaining in 1986, a record year for earnings. By keeping negotiations on a provincial and single-plant level, the company quickly settled with the UFCW. As the meatpacker with the most employees, Canada Packers labor relations have a strong influence on the industry as a whole, making national strikes in the future less likely.

At the beginning of 1987 Valentine Stock died and James Hunter was appointed acting CEO. A. Roger Perretti, former vice president of finance, became CEO at the beginning of 1989. During Stocks tenure the company had seen a continued decline in beef demand and completed a ten-year consolidation. The company consistently reduced dependence on fresh meat and turned to areas with higher and more reliable margins, like fish farming, processed foods, salad oils, and pharmaceuticals. After Hunter came to power, the company planned further acquisitions outside the meat industry.

As the company entered the 1990s, earnings dropped to $25.2 million, the same level they were ten years earlier. There were several reasons for the decline, demonstrating the uncertainty of agricultural earnings. Strikes at two Ontario plants in 1987 affected profits and poultry inventories industrywide were excessive, surprisingly, since the year before demand had outstripped supply. Processed meats showed a slight increase from the previous years decline, but the company took losses in its processed foods sector due to lower margins. Since this was perceived as a long-term growth area, the company also absorbed heavier start-up costs for some of these products. Nonfood profits fell dramatically due to an agricultural subsidy dispute between the United States and the European Economic Community, eliminating large export markets for oil. A North American drought also lowered amounts of available feed.

Once again, the company responded by reorganizing and consolidating its consumer foods division by closing plants and updating existing equipment. The advent of free trade with the United States renewed the companys interest in its southern market. Its British, German, and Japanese subsidiaries also showed promise for long-term gains.

Canada Packers investment in long-term earnings potential has been its most dramatic change, since the meatpacking industry is historically vulnerable to short-term declines. Despite cyclical earnings, capital investment has continued to exceed $50 million annually through the 1980s. Company officials anticipate the most growth from international markets and the time-intensive process of salmon raising. Poultry will remain an area of emphasis, as consumer consumption patterns continue, as they have for the last forty years, move further away from red meat.

Canada Packers still suffers from lean margins. Reliant on its domestic market for cash flow, the company enjoys a market share of slightly less than half of all Canadian meatpackingan industry that totaled $8 billion in 1986. In addition, the company has reported a profit for every one of its more than 60 yearsa significant achievement given the rocky years at its beginning. Meatpacking remains an industry where profits come from cash flow and turnover rather than long-term holdings or growth. Although Canada Packers has always sought related industries to change this situation, subsidy and tariff disputes make expansion through export unreliable and unlikely.

Canada Packers first president said in 1963 that the companys narrow margin on sales is sufficient because base turnover is so rapid. On fresh meat we turn over our money approximately 14 times within a year. This remains true today, and although a diversified Canada Packers expects long-term declines in meat and growth in other areas, the company still relies on its domestic food operations. World wars facilitated the export of food products for the first half of this century and industry consolidation made mass production more profitable. It was these formative years, when the industry changed rapidly and frequently, that gave birth to Canada Packers, but the company succeeded during the second half of the century by continuing to develop new technological applications and by entering new food markets. Long-term investments in more stable food areas promise a steadier path in the future.

Principal Subsidiaries:

Federal Cold Storage and Ware-housing Company Limited; Hoffman Meats Inc.; Ontario Rendering Company Limited; René Poirier Ltée; P.E.I. Produce Company Limited; Couvoir Désy Ltée; Bazinet & Fils Inc.; Archibald Farms Limited; Canada Packers (USA) Inc.; Canada Packers (UK) Limited; Canada Packers GmbH (West Germany); Canada Packers (Japan) Inc. (more than 50%); Haverhill Meat Products Limited (United Kingdom); Palethorpes Limited (United Kingdom); Sea Farm Canada; Sea Farm Marketing Inc.; Prairie Margarine Inc.

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