Farmers left in lurch on sale of Man. hog producer

Manitoba farmers owed at least $1 million for feed grain delivered to financially troubled hog producer Puratone Corp. are left holding an empty bag with the company’s pending sale to Maple Leaf Foods.

Earlier this month Toronto-based Maple Leaf, which operates a major hog-slaughtering plant at Brandon, Man., announced it was buying Puratone, one of Manitoba’s top hog producers, for $42 million.

Niverville-based Puratone’s liabilities total nearly $100 million, with $86 million owed to secured creditors such as Bank of Montreal ($40.877 million), Farm Credit Canada ($40.28 million) and Manitoba Agricultural Services Corp. ($5 million).

"It seems like it’s all in the hands of Maple Leaf right now," Arborg, Man. farmer Kyle Foster, who is owed around $33,000, told the Manitoba Co-operator.

He’s hoping Maple Leaf will pay farmers for the grain purchased to feed the hogs it will soon own, as a goodwill gesture.

That’s not going to happen.

"Maple Leaf is purchasing the assets of Puratone, which does not represent liabilities held by the company," Maple Leaf spokesman Dave Bauer said in an interview from Toronto Nov. 8. "The courts will supervise how those debts are settled so it’s best you follow up with Deloitte on that."

Bauer agreed that if it did pay the farmers, who are unsecured creditors, other creditors would demand the same treatment. Revenues from Puratone’s sales are less than half of what’s owed to secured creditors.

An official from Deloitte, the firm hired to supervise Puratone while it is in creditor protection, did not return calls or emails.

Farmers have a better chance of getting paid when companies go broke. Under section 81.2 of the Bankruptcy and Insolvency Act, farmers go to the top of the creditors’ list to get paid for products they’ve delivered within 15 days of the firm going bankrupt.

That doesn’t apply in this case, however, because Puratone sought creditor protection, found a buyer and never declared bankruptcy.

"For the life of me I don’t understand how somebody can knowingly buy grain, not pay for it, put it in an animal, not have to give it back and sell the animal and not worry about having to pay for it," Foster said.

"Pennies on dollar"

It’s a terrible situation, said Doug Chorney, president of the Keystone Agricultural Producers (KAP). In just four days he said he heard from farmers in the Arborg area who said Puratone owed them between $25,000 and $70,000 each. He estimated the total outstanding to farmers he’s heard from to be near $1 million.

"Maple Leaf has taken over this company for pennies on the dollar and appears to have been absolved of any responsibility to the farmers," he said.

Many farmers mistakenly believed they were protected by the Canadian Grain Commission’s (CGC) bonding system. Feed mills aren’t CGC-licensed elevators, though many take in as much grain as some elevators.

"Clearly the (CGC) current bonding system doesn’t work for everybody," Chorney told KAP’s general council meeting in Portage la Prairie Oct. 25. "We need to do something more that’s protecting more producers in a more comprehensive way."

The federal government is proposing an insurance program replace bonding. Chorney says expanding protection to feed mills should be studied before a new system is implemented.

Farmers aren’t the only ones Puratone owes money. Minneapolis-based Commodity Specialists Co. is out more than $480,000, according to the list of Puratone creditors.

Bunge, meanwhile, is owed $244,000, ADM is out almost $183,000, Winkler, Man. grain firm Delmar Commodities is owed $25,000 and Winnipeg grain handler Parrish and Heimbecker, $23,000.

Puratone, which began in 1973 as a feed supply company, expanded into hog production with over 40 farms provincewide and by 2006 was named one of Canada’s 50 Best Managed Companies, in the annual business awards program co-sponsored by Deloitte.

– Allan Dawson is a reporter for the Manitoba Co-operator at Miami, Man. A version of this article appeared in the Nov. 15, 2012 edition.

Related stories:
Hog producer Puratone enters creditor protection, Sept. 13, 2012
Man. grain growers hurt in Puratone fallout, Sept. 18. 2012
Maple Leaf Puratone offer sends message of stability to lenders, Nov. 5, 2012