CEO bets on Maple Leaf future
Firm sets example of what it will take to be a world leader, Kevin Carmichael writes.
The Canadian business establishment doesn’t part with its cash easily.
Ask Mark Carney, the former Bank of Canada governor, who chided executives in 2012 for guarding a hoard of “dead money,” a barb that became shorthand for the post-crisis disconnect between surging corporate profits and sluggish business investment. The issue remains; Statistics Canada reported Nov. 30 that after-tax corporate profits increased four per cent in the third quarter to a record $325 billion, while business investment declined for the first time since 2016.
So word that a McCain was dropping almost $700 million to build a new chicken plant should have been big news. But it wasn’t, really. Maybe a decade or so of watching Silicon Valley spend billions of dollars on firms of which we have never heard has dulled our senses? A massive bet on something as prosaic as food, in a place as normal as London, Ont., just doesn’t make the heart go pitter-pat in the smartphone age.
Another explanation: We haven’t been reading our Gretzky.
This week featured a lot of puck watching, as politicians and unionists vowed to fight the decision of General Motors Co. to shut its plant in Oshawa, Ont. The decision was predictable, since North American consumers want light trucks and electric cars and Oshawa builds neither.
If we were focused on where the puck is going, we would have had our eyes on Maple Leaf Foods Inc., led by chief executive Michael McCain, which is setting up to take advantage of dramatic changes in the global food market. A recent report by Citibank concluded that demand for nutrition will increase by about 70 per cent over the next three decades, and that “business as usual” will result in ecological and human-health calamities.
Unlike auto making, Canada has a natural advantage in sustainable food production because we have lots of water to irrigate crops that are flourishing thanks to longer growing seasons. But without more investment, that advantage will be squandered. Maple Leaf is setting an example of what it will take to become a world leader in a brutally competitive business dominated by American and European companies.
“We are stewards of this business, both as managers and shareholders,” McCain, the scion of the billionaire family of frozen-french-fry makers from Florenceville, N.B., who has led Maple Leaf since 1999, told me during a telephone interview on Nov. 28.
“The supply chain we have today in our poultry business, which is endemic across the entire supply chain in Canada, I think, is sub-scale and inefficient,” he continued. “It’s 50 to 60 years old or more in some cases and does not deploy the latest technologies. We know that while it’s a profitable category for us today, it’s not long-term secure.”
They will like the sound of those words in Ottawa.
Stephen Poloz, the central bank governor since 2013, misjudged the strength of Canadian animal spirits early in his tenure, forcing occasional tweaks to his economic recovery story as business investment and exports remained surprisingly weak. It wasn’t until earlier this year that the Bank of Canada expressed confidence that businesses were taking over from households as the primary drivers of growth.
Anecdotal evidence like the Maple Leaf announcement will dull the sting of StatCan’s latest survey of the economy. The report suggests the animal spirits that the central bank spied were sent scurrying this summer, as negotiations over an updated North American trade agreement dragged on, and transportation bottlenecks caused oil prices to plummet. Economic growth slowed to an annual rate of two per cent in the third quarter from almost three per cent in the previous quarter, as the plunge in business investment sapped momentum generated from record levels of unemployment.
Over at the Finance Department, Bill Morneau, the minister, has spent much of the current fiscal year trying to convince people that he hadn’t made a terrible mistake by ignoring U.S. corporate tax cuts in his February budget. The International Monetary Fund, the Organization for Economic Co-operation and Development, and virtually every Canadian business lobby said too little was being done to correct a litany of competitiveness issues. Morneau finally responded earlier this month with a budget update that promises to forgo some $14 billion in revenue by reducing taxes on new capital purchases, pledges an impressive deregulation push, and allocates about $1 billion for measures aimed at greasing trade with Asia, Europe and Latin America.
McCain is a member the AgriFood Table, one of six expert committees that the Trudeau government assembled in 2017 to provide advice on how Canada could lead in each of their respective fields. The boss of Maple Leaf, the country’s fourth-biggest food processor by revenue last year, reckons Morneau’s refusal to be rushed might have resulted in some good policy.
The “overarching theme” of the food committee’s advice, “was the need in Canada to invest in productivity, scale, and competitiveness,” McCain said.
“The food industry around the world is a scale game. It’s brutally competitive,” he added. “I’m pleased to say that in the fall economic update, I think the Government of Canada, Mr. Morneau, did actually respond very effectively to those issues under tremendous pressure for some kind of tax response to what took place in the United States.”
Aggressively partisan Conservatives back in Carleton County, N.B. might dismiss McCain’s praise of Morneau’s update: The McCains are said to be Liberals, and the finance minister is married to Michael’s cousin. (Disclosure: Michael McCain and I grew up on the same patch of Western New Brunswick; he on a hill overlooking Florenceville and the Saint John River, me on a swampy farm on the outskirts of a neighbouring village.) To counter that sort of talk, the head of Maple Leaf need only point to his company’s share price, which has doubled since he took over almost 20 years ago. He knows something about business.
The specifications for Maple Leaf ’s planned London facility are the result of a world tour of state-of-the-art meat plants. It will churn out more chicken with relatively fewer people. It also will be outfitted to treat chickens humanely, minimize food-safety risks, and significantly reduce the current environmental impact of processing live animals. The latter set of considerations are at least as important to Maple Leaf ’s future as slimming the cost of production.
“I’ve been in the food business all my life,” McCain said. “When I hear activists around the world saying that the food industry is one of the most unproductive production systems on the planet and needs to be re-engineered, that’s hurtful,” he added. “I want to be part of the solution of climate change, not part of the problem. That’s why we’re committed to it.”
I want to be part of the solution of climate change, not part of the problem. That’s why we’re committed to it.