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October 6, 1997
(Forest Resources and Agrifoods)


Agreement concluded by government and IPL for divestiture of Newfoundland Farm Products corporation

Premier Brian Tobin and Beaton Tulk, on behalf of Kevin Aylward, Minister of Forest Resources and Agrifoods, today announced that government and the Board of Directors for Newfoundland Farm Products Corporation (NFPC) concluded an agreement with Integrated Poultry Limited (IPL) for the divestiture of the NFPC plant in St. John's and the restructuring of the broiler chicken industry in the province.

"Given the investment and commitment to the poultry industry shown by the producers who comprise IPL, this is a logical and desirable outcome," said Premier Tobin. "Government should not be in the poultry business, especially when skilled, experienced and capable individuals and groups exist in the private sector."

"I am confident that they will move this industry forward," added Mr. Tulk. "They will build on the success achieved by NFPC in recent years in the production of such well recognized local poultry products marketed under the trade names of: Country Ribbon, Pinehill and Cabot Farm lines."

The terms of the agreement will enable IPL to restructure and modernize the poultry industry. This restructuring and integration is essential for IPL to realize the efficiencies necessary to be financially viable in the long-term. Government concurred with IPL that this transition must be accomplished quickly in order for IPL to move ahead; therefore, government is prepared to provide one time transitional assistance.

"We are confident that the agreement we are announcing today represents the best opportunity for the chicken industry to continue on a long-term sustainable basis," stated Mr. Harry Andrews, President of IPL.

Mr. Norval Blair, President of NFPC said: "Today's announcement is a positive step towards maintaining a sound chicken industry as part of the agricultural sector in this province."

Premier Tobin also acknowledged the contribution of the workers at the St. John's plant and their union, the Newfoundland Association of Public Employees, to this agreement. As well, he expressed appreciation to the members of the Board of Directors of NFPC in reaching this agreement with IPL.

"For the past 25 years, successive governments have stated their intention to privatize NFPC," Premier Tobin observed. "Today this has been accomplished."

Contact:

Anna Buffinga, Communications, (709) 729-3750

_________________________________

Background
Divestiture Agreement
between
Integrated Poultry Limited
Newfoundland Farm Products corporation
and
Government of Newfoundland and Labrador

The Government of Newfoundland and Labrador initiated the divestiture process for Newfoundland Farm Products Corporation (NFPC) and subsequently entered into negotiations with Integrated Poultry Limited (IPL) for the divestiture of NFPC's St. John's plant with three primary objectives in mind. All three objectives have been achieved. They are:

- to find a solution to the future of NFPC operations which would, to the maximum extent possible, protect the jobs involved in the chicken industry.

- to secure and sustain the integral role of the chicken industry in the overall livestock sector of the agriculture industry in the province.

- to eliminate ongoing government financial participation in the chicken production and processing industry.

Agreement Specifics

Over the past four years, government's support to the chicken industry by way of price support and assistance to NFPC has averaged $7.9 million a year. In 1996/97 our exposure was $10.2 million. It is recognized by all parties to the agreement that a major restructuring of the industry is required for it to achieve long-term viability without ongoing government financial assistance. IPL's restructuring plan is unique to the chicken industry in Canada and based on models more associated with the industry in the United States. This restructuring requires a significant capital outlay by IPL and it will take time before its full economic benefits are realized. Consequently, Government realizes the need for some transitional support and partial risk guarantee in order to allow IPL the opportunity to make this industry work. This support is contingent on IPL fully implementing their plan.

Government is willing to take this action to give the private sector every opportunity to maintain the jobs and keep the dollars and economic spin-offs generated associated with the industry within the province.

The highlights of the agreement for the parties are:

Integrated Poultry Limited

IPL to carry out their planned capital investment of $17.2 million, including construction of a $9.9 million primary production facility and a $3.3 million feed complex as well as a $4.0 million renovation to the existing NFPC plant in St. John's.

IPL must first draw down their cash equity of $3.7 million before accessing provincial funding.

IPL assumes responsibility for payment on existing processing equipment leases/loans, valued at $0.6 million

IPL to pay government for the value of inventory on hand, estimated at $1.5 million.

IPL shareholders to put up personal guarantees collectively totalling $1.0 million.

IPL to make priority payments to the $10.0 million loan guaranteed by the Province.

IPL responsible for all operating losses at NFPC since June 17, 1997 estimated at $1.4 million.

Newfoundland Farm Products Corporation

Government of Newfoundland and Labrador

Government to provide one-time transitional support to IPL as follows:

$4.5 million to help defray operating losses, to be paid out over one year.

up to $4.0 million for capital infrastructure with payments based on progress of work.

Government to provide a $10.0 million capital loan guarantee to the Bank of Nova Scotia.

Government to lease NFPC's land and buildings in St. John's to IPL for $1.00.

NFPC to transfer all unencumbered equipment in the St. John's plant to IPL for $1.00.

Government has retained the option to appoint representation to the Board of Directors of IPL.

______________________________

Background

Newfoundland Farm Products Corporation

 

Overview of the Chicken Industry

Newfoundland Farm Products Corporation (NFPC) was established in 1963 as a provincial Crown corporation, with a mandate to slaughter and process locally-grown broiler chickens and hogs. Since early 1993, NFPC has slaughtered and processed only chicken.

Newfoundland Farm Products Corporation (NFPC) currently operates a federally-inspected chicken abattoir complex in St. John's, with facilities for primary and further processing. Their Corner Brook facility was closed earlier this year. Product is marketed under the Country Ribbon, Cabot Farms and Pinehill brands in addition to private labelling.

The producing sector of the broiler chicken industry consists of twenty farms (10 on the west coast and 10 on the east coast) producing about 14 m kilograms of live chicken annually.

The supporting elements of this industry are a hatchery at Whitbourne and feed mill in Stephenville owned by Maple Leaf Foods and a feed mill in St. John's owned by Masterfeeds.

The feed requirements of the chicken industry represent approximately 45 per cent of the total feed requirements in the province. Feed and chick costs represent approximately 55 per cent and 20 per cent respectively of the current cost of production for primary producers.

Current direct employment in the industry is estimated at 400 jobs.

Government financial support to the chicken industry has been in two parts:

1. Price support paid to farmers through NFPC, which averaged $2.4 million per year for the four year period 1993/94-1996/97;

2. Operating losses at NFPC, which averaged $5.5 million per year from 1993/94 to 1996/97 and peaked at $7.9 million in 1996/97.

Divestiture Process

The level of support required to fund Newfoundland Farm Products Corporation (NFPC) has been a matter of growing concern for government. This concern, and the realization that government should not be the owner and operator of a chicken processing business competing in the private sector, led to a public call for proposals to privatize NFPC in 1994. While the prospectus was sent out to 14 enquirers, only two responses were received. Only one proposal warranted further consideration. Government began negotiations with a consortium of the local chicken producers, now formally known as Integrated Poultry Limited (IPL).

IPL proposed a complete integration of the industry from hatchery operations to the final processed product, including a one plant processing operation on the east coast.

Events which necessitated the integration of the Newfoundland broiler chicken industry were: government's announcement in the 1996 Budget to exit itself from its involvement in both the processing and financial support for the industry; the emergence of trade agreements which are changing the business climate and the importance of being competitive; and the termination of the federal Feed Freight Assistance Program and its impact on feed costs of 7.5 cents per kilogram.

Government, in the 1997 Budget, reconfirmed its decision that it is divesting itself of the chicken processing business. The Budget stated: "Government will dispose of its interest in Newfoundland Farm Products Corporation. The new Board of Directors has been instructed to proceed as soon as possible with the sale of the Corporation. The taxpayers' subsidy to the Corporation, as well as those of the province's chicken producers, will be phased out."

Government can no longer justify spending the taxpayers money on support to the chicken industry in the province. Government must focus its resources on core services which are essential to the health, safety, security and general well-being of the people of the province.

In late 1996, government appointed the new Board of Directors for NFPC, with majority private sector representation, and asked them to assess the IPL proposal and the future of the Corner Brook facility. They concluded that, in order to have a viable chicken processing industry in this province, operations had to be consolidated in one location. Therefore they had no alternative but to recommend closure of the Corner Brook facility. The Board also recommended that it be authorized to conclude negotiations with IPL on the sale of the St. John's plant of NFPC.

Government accepted the Board's recommendation reluctantly, and gave the Board of Directors authority to close the Corner Brook plant. The Board was then instructed to direct their efforts to try to conclude an agreement for the sale of the St. John's plant to IPL. The Corner Brook plant closed in early May and the Board and IPL expedited their negotiations on the St. John's plant.

On June 16, 1997, government and the Board of Directors of NFPC announced they have reached an agreement with IPL for the sale of the St. John's plant of NFPC. IPL took over the operation of NFPC for an initial interim period. IPL had requested this interim period to allow them time to finalize the capital financing requirements for their proposal.

IPL has now finalized its financial requirements and the final agreement for the sale of the St. John's plant has been finalized.

With regard to the Corner Brook plant, government is committed to finding an alternative use for this facility. The land, building and equipment in Corner Brook is not part of the agreement with IPL.

The Corner Brook employees have expressed an interest in utilizing the facility. Government has agreed to give the employees time to develop a proposal before considering any other action.

1997 10 06 4:35 p.m.

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