XL Foods Says Lakeside Acquisition Going Smoothly

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We were lucky to have gotten into the deal before the economic crisis began.

XL Foods bought the Lakeside beef packing plant from Tyson Foods last spring. To find out how the transition has been going, Alberta Farmer put some questionns to Brian and Lee Nilsson, the owners of XL Foods.

Alberta Farmer

In the ownership transition to XL Foods, have there been any surprises?

Nilsson Brothers

Not any more than we expected and have been impressed with the potential of the plant in regards to capacity. We had done our due diligence before the actual purchase so we knew about the operation but it is always a bit of a challenge once you get into the actual production and operation. There was a different operation mentality there than what we were used to, but otherwise it has been a fairly smooth transition.

Since you made the original offer to buy the plant, much has changed in the economy, with credit and with lending institutions. Has that had an effect on the final purchase?

We were lucky to have gotten into the deal before the economic crisis began. We were also in a very strong financial position before the offer so we have been able to weather that storm.

What kind of production levels are in the plant right now and what is the staff situation?

When we took over the plant it was running in the low 3,300s, its now running in the high three (thousand) and its capable of running in the low fours so there is some upside potential. Our staffing numbers have improved marginally, the combination of the the foreign worker program and the downturn in the economy has taken labour issues off the table.

Lakeside is a union plant – have you had any concerns with that situation considering the organizing history of the plant?

So far its been great. XL has a 10-year relationship with the UFCW with our Moose Jaw and Calgary plants. When we took over those plants the existing grievances were dealt with and have remained extremely low ever since. With the increased volume the workers at the Brooks operation are getting more hours than before so that eases the situation. The current contract is up at the end of the year and at this point, we don’t have any major concerns.

What has happened with the senior staff that came along with the plant?

Most have stayed on with the exception the American citizens who worked for Tyson and returned to the U. S. We brought in the senior manager of our U. S. operation so he now manages both operations. We kept the majority of the managers and that has provided good continuity.

What are your plans with the other assets like the feedlot?

We are running the feedlot and keeping it relatively full as it needs to be there to supply a certain level of cattle quality to the plant that is not always readily available.

The plant was a big exporter, how are you looking at the marketing end of the operation?

We are exporting about the same amount. The main change would be that XL has always had a strong focus on the Canadian market and as such will continue to do so. One of the major changes is that we have moved cow production to Calgary and temporarily closed the Moose Jaw facility until the supply returns. Brooks will be processing virtually all fed cattle. Marketing is managed by what each plant produces.

There is a concern that with the Brooks acquisition you might be closing one of your other plants, is anything being considered there?

We had to close the Moose Jaw plant for the summer because of poor cull cow supply. We did that with recall notice up front so that when supply returns in the fall we can reopen that plant. Our preference is to process cattle in all three plants.

What has been your relationship with feedlots now that you have bought the Brooks operation?

For the most part we were already dealing with them and were very familiar with each other so its not as if we had to introduce ourselves. The difference is that we are now buying a much greater percentage of cattle that they market.

What is your relationship now with Tyson are they competing with you for Canadian cattle?

They are certainly trying to buy cattle, but the cattle numbers have been tight and that has created more of a “Made in Canada” market. But that is not for lack of intention as they are constantly circling around and if they could buy cattle they would. We have been paying a premium to keep cattle in Canada and not see them exported, thus allowing us to increase plant production. The Pasco plant is probably more of a competitor now than when Tyson owned Brooks. Before they (Pasco) didn’t want to make any waves with their sister plant, now we are all competitors – we were very aware that this would happen all along.

Would you then say that there is more competition now with only two plants with Tyson Pasco providing much stronger competition?

No question – the fact is the border is open and cattle can go anywhere if the price is right, and because they aren’t is obviously because we are competing for those cattle at a higher than export level and therefore they are not leaving the country.

How is COOL affecting your marketing into the U.S.?

In its current form it doesn’t affect the grinding and processing side so it doesn’t affect us that much because most of what we export to the U. S. which is trim or product for further processing like cow cuts. Most people don’t realize that because Canada can’t sell to Korea, Canadian cattle may carry some discount in the U. S. because they have to be segregated and the Canadian product must remain in the U. S. The perceived COOL discount is actually as much of a Korean discount, as anything as being able to ship meat to that market does add value to the carcass. In the big scheme of things COOL has not had much impact. U. S. plants have to decide whether COOL segregation is less costly than running their plants with fewer cattle.

Has the acquisition of the plant changed the way you market beef?

The biggest difference has been that now we are able to deal much larger volumes with customers which in turn allows us to be a more substantial supplier particularly with fed cattle. Now we can look at customers on an even larger scale.

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