JBS to manage XL beef plant, with option to buy

(JBSsa.com)

Battered by weeks of recalls and contamination crackdowns at its Brooks, Alta. beef plant, XL Foods plans to let the world’s biggest meat packer take the reins on its behalf — possibly permanently.

JBS USA, the U.S./Australian arm of Brazilian meat packing giant JBS, has signed a “management services” agreement for the Brooks plant — a deal with an exclusive option to buy the plant, plus the Edmonton firm’s other Alberta and U.S. beef production assets, for US$100 million in cash and JBS shares.

“This action is another positive step to relicensing the XL Lakeside beef plant in Brooks, Alberta. We welcome the assistance of JBS and their resources,” XL’s co-CEO, Brian Nilsson, said in a release Wednesday evening.

“As the world’s largest producer of animal protein, we know full well the commitment it takes to manage world-class operations that produce safe and nutritious products for consumers around the world to enjoy,” JBS USA president Bill Rupp said Wednesday in a separate release.

“We believe our experienced team will prove an invaluable asset in the management of XL Lakeside and we look forward to exploring our options to purchase XL assets in the near future,” said Rupp, who came to JBS from Cargill Beef in 2010.

As for the specifics of the XL management deal, JBS, in its release, said only that JBS USA would manage XL Lakeside at Brooks “effective immediately.”

XL, however, said the management deal with JBS “contemplates” the Colorado-based U.S. subsidiary taking the wheel not only at Brooks, but at XL’s Calgary beef plant, which has been offline since May 2011.

The smaller Calgary plant had capacity to handle 1,000 head per day, compared to 4,000-4,500 at Brooks.

The deal allows XL, owned by Edmonton’s Nilsson Bros., to continue running its U.S. beef operations, which now amount to a beef packing plant at Omaha, Nebraska.

XL’s other U.S. beef plant, the Four Star Beef facility at Nampa in southwestern Idaho, was idled indefinitely in June 2011. The Omaha and Nampa plants have capacity for 1,200 and 1,000 head per day respectively.

JBS’ US$100 million option-to-buy agreement covers the Brooks, Calgary, Omaha and Nampa plants, as well as Lakeside Feedyards, XL’s 70,000-head capacity feedlot and 6,600 acres of “adjacent farmland” near Brooks. A JBS spokesman confirmed Thursday that no other XL assets or plants are included in that option.

JBS USA said the purchase price would be paid to XL half in cash, half in shares of the Brazilian parent firm.

Lakeside still closed

“Under no scenario will JBS USA assume any of XL Foods’ debt or liabilities,” the new manager added.

The Canadian Cattlemen’s Association on Wednesday hailed JBS’ move into management at the Lakeside plant, which before its shutdown processed 30 to 40 per cent of Canada’s cattle.

The announcement “establishes credible intentions for resumed operations at the plant following re-licensing,” the CCA said, and a restart in the near term would help clear the backlog of market-ready cattle in Western Canada.

CCA president Martin Unrau, a producer at MacGregor, Man., said JBS’ “sophisticated knowledge of modern beef harvesting management (and its) extensive worldwide beef marketing network” will be “valuable” assets for Canada’s beef sector.

A foreign takeover of XL’s beef assets in Alberta would require Canadian government approval as per the Investment Canada Act — but by itself, the management deal marks the first point of entry into the Canadian market for JBS USA’s Sao Paulo-based parent.

JBS became one of the biggest meat companies in the U.S. when it bought Swift in 2007, Smithfield Beef in 2008 and Pilgrim’s Pride in 2009, and also owns 12 U.S. feedlots.

JBS USA has welcomed a greater number of Prairie-fed cattle at its Hyrum, Utah plant since the Canadian Food Inspection Agency temporarily suspended XL’s federal operating license at Brooks on Sept. 27.

XL last weekend laid off most of the 2,200 workers at the Brooks plant, briefly recalling 800 to complete the processing of about 5,100 stored beef carcasses. Cuts from those carcasses remain in detention and the plant is closed to deliveries of slaughter cattle.

Having overseen this week’s processing work, CFIA said Wednesday it will now compile its review, including lab test results from the meat processed at XL. Before the beginning of next week, CFIA said it expects to “make a recommendation on next steps.”

The Lakeside plant’s suspension came during an ongoing and now-massive recall of processed beef goods as well as primal cuts, shipped from XL to processors and retailers in both Canada and the U.S., dating back to Sept. 4.

The recalls stemmed from detection of O157:H7, one of the more toxic varieties of E. coli bacteria, in some samples of beef from the plant.

As of Oct. 12, the Public Health Agency of Canada has documented 15 people across four provinces whose illnesses have been linked to products from XL and the ongoing food safety investigation.

According to media reports Wednesday, however, consumers have now filed claims seeking class-action status in five provinces, related to XL’s E. coli woes.

The CFIA and the federal minister in charge, Agriculture Minister Gerry Ritz, have also come under fire for their handling of XL’s case.

“Self-regulation doesn’t work. It’s that simple and we’ve seen its results,” NDP agriculture critic Malcolm Allen said Wednesday, announcing he will present a motion Thursday calling for Ritz’s resignation.

Related stories:
Handle Canada/U.S. meat trade with care: JBS VP, March 26, 2009
XL to permanently shut Moose Jaw beef plant, Aug. 15, 2010
XL to shut Calgary and Idaho beef plants, April 11, 2011
CFIA yanks license for XL’s Brooks beef plant, Sept. 28, 2012
Ranchers wait out beef recall, exports to U.S. grow, Oct. 11, 2012
Hang on, all things will pass’: XL chief Nilsson, Oct. 12, 2012
Cattle industry scrambles for additional capacity, Oct. 16, 2012
XL Lakeside’s stored beef carcasses cleared, Oct. 17, 2012

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