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Alberta’s biggest player in lamb is out, but industry still promising

Posted on October 5, 2022 by Sunny South News

By Erika Mathieu
Sunny South News

In August, Alberta’s biggest player, the North American Lamb Company group, (NALCO) obtained protection, under the Company’s Creditors Arrangement Act. It was revealed the NALCO group owed nearly $53 million to a number of creditors.

In addition to the $24 million owed to Farm Credit Canada and $10 million to Fresh Canada Meats Ltd., the list of individuals and companies owed money by NALCO spans a whopping five pages. Creditors with addresses in Picture Butte are owed a combined $112,722, Lethbridge County creditors are owed $47,543, and over $350,000 is owed to businesses with addresses in Taber, as well as several others with Lethbridge addresses. One creditor with a Nobleford address is owed $58,961, and one in Coalhurst is owed over $7,600. NALCO’s former CEO, Gary Alexander, also alleged shareholder relations became strained, and described a “deadlocked and dysfunctional” governance by the board of directors, according to his signed affidavit.

As a result, NALCO will be selling off all real and intangible assets and land, with a targeted closing date of Dec. 23, 2022.

As an integrated supply chain business, NALCO, deals in all aspects of lamb production, including the raising, slaughtering, and sale of lamb products to retailers. In 2018, a merger between Canada Gold Beef Ltd., Sun Gold Specialty Meats Ltd., the Canada Gold Lamb Lot, Fresh Meats Canada Ltd., and the Canadian subsidiary of New Zealand’s Integrated Foods Ltd., took place and the NALCO group was formed.

The NALCO group operates various operations in Manitoba and Alberta. One of integrated operations under the NALCO group umbrella operates in Iron Springs, just a few minutes northeast of Picture Butte. The Iron Spring facility has a feedlot, and recently acquired a new breeding facility in 2020 valued at $5.9 million.

Seventy per cent of lambs produced in Alberta are processed by the NALCO group, so when the news broke of their insolvency, stakeholders and industry players were nervous of the impact on, and future of, the sheep industry.

Alexander also revealed in his signed affidavit, NALCO had not, at any point, been profitable, and has incurred substantial operating losses since it was established in 2018. NALCO’s financial statements show the company suffered a net loss of over $8.5 million in 2021, and a net loss of $9.3 million in 2020.

In May 2022, the NALCO group was forced to delay payment to certain “non-essential” creditors in an effort to conserve cash flow and to keep up to date on critical payments of wages to its nearly 160 employees across Alberta and Manitoba facilities, as well as maintain the ability to purchase livestock feed.

Almost immediately after the news of NALCO broke, livestock prices took a hit. Market reports provided by Picture Butte Auction Ltd. show substantial price decreases for lamb sold at live auction after NALCO obtained creditor protection. Seasonal production volume plays a role in price fluctuation at auction, as lamb production is typically seasonal. Brad deLeeuw, owner of Picture Butte Auction, said there is usually a “traditional drop in lamb prices as volume becomes available in the later summer, but this is definitely by far the worst it has been (for price) in several years.”

Executive Director of the Canadian Sheep Federation, Corlena Patterson, confirmed that NALCO’s liquidation of livestock has, “created a blip in the marketplace, recently impacting both lamb and mutton prices across the country as the result of unexpected over supply.”

Patterson added, “The news of NALCO’s restructuring and subsequent order to liquidate assets has definitely resonated through the industry,” but said it is also important to keep in mind, “although NALCO’s plant is one of the largest federally inspected lamb processing units in Canada, it does not process the majority of lamb in the country. It’s an important part of the ecosystem but not the only part.”

Patterson added despite stakeholder’s concerns about what the long-term impact will be on the industry, many people are waiting to see whether Canada Lamb Processors Ltd. (the large processing facility in Innisfail, where most of NALCO’s livestock end up), will continue processing lamb under a new banner. If this is the case, Patterson said processing operations in the west, “shouldn’t see much interruption.”

Patterson said she remembers expressions of apprehension when NALCO was established in 2018, as there was uncertainty with respect to how local producers would be impacted by NALCO’s vertically integrated operations. The NALCO group carried out breeding and raising, transporting and slaughtering, and providing lamb products to some of Canada’s largest grocery retailers including Save On Foods, Safeway, and Sobeys, to name a few.

“There was tremendous concern (…) that local producers would be shut out of supplying the plant with lamb. Since then, we’ve heard how those concerns came to fruition,” said Patterson.

“NALCO produced so much of their own lamb which made its way through that plant, many local producers had to find different outlets for their lambs. If Canada Lamb Processors Ltd (in Innisfail) sees a change in ownership interested in continuing to process lamb, there could be a tremendous mutual benefit for new owners and local producers. Of course, if it doesn’t continue as a lamb plant for western producers, (it) will be a real concern. As an organization, we are making every effort to support the former of these two scenarios and strategizing on how to support the latter if need be,” said Patterson.

“We hear that the dispersal of breeding stock at least in part is moving to other operations which suggests that the overall impact on the size of the national ewe flock will not have a lasting impact.”

“NALCO started on the premise of taking a very different approach to lamb production in Canada, both in terms of size and vertical integration through its own breeding units, feedlots and processing,” explained Patterson. Unlike smaller producers, which operate on a seasonal basis, NALCO pushed forward commercial-scale production year-round.

While the restructuring announcement has had an impact, there is a sense of optimism that a new buyer will take over assets and operations of the NALCO group and continue as an integral part of the Alberta lamb ecosystem meeting a higher-than-ever demand for lamb products. “I still think there is good potential in the lamb market,” deLeeuw told SSN.

Although it is not yet clear what the final terms of the sale will be, and who the buyer may be, experts agree the product has never been more in-demand and has a strong future for growth and profits, guided by the right operational ethos. Patterson said NALCO’s shortcomings aren’t indicative of a doomed industry.

“I would suggest their failure to be sustainable is at least partially (maybe wholly) a function of trying to turn the industry on its end,” Patterson said.

“Mainstream product remains stable and profitable. In fact, the industry saw strong prices, growing demand and uninterrupted processing throughout the pandemic. NALCO was in and out in under five years. The mainstream industry continues to flourish.”

Current documents maintained by NALCO’S court-approved monitor show facilities under the NALCO group including the Iron Springs facility continues to operate during the sales process, which is expected to be finalized by the end of 2022.

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