Business

The chopping block

Maple Leaf takes on its workers in a bid to drive down costs

TOM FENNELL December 1 1997
Business

The chopping block

Maple Leaf takes on its workers in a bid to drive down costs

TOM FENNELL December 1 1997

The chopping block

Maple Leaf takes on its workers in a bid to drive down costs

TOM FENNELL

Business

Georgia Petrina’s white nylon coat stood out in a sea of drab green parkas. Across her back was a large drawing of a butcher’s knife, dripping in blood to symbolize the wage cuts she and her co-workers have vowed to resist. Last week, 2,300 employees of Toronto-based Maple Leaf Foods Inc. were on strike in four cities across the country, but the toughest battle was the one involving Petrina and 900 other workers at the firm’s flagship hog-processing plant in Burlington, Ont. Their nemesis: Maple Leaf chairman Wallace McCain, one of Canada’s wealthiest men, who says his company will not survive against U.S. competition unless the Burlington employees agree to wage cuts of as much as 40 per cent, to about $10 an hour from the current average of more than $16. The strikers, who say they would be financially ruined by the rollback, have little sympathy for their employer. “He just wants to get richer while we get poorer,” said Petrina.

The work stoppages are the most visible sign of a dramatic restructuring in Canada’s $5.8-billion hog-processing industry. In some ways, the pork business has never been stronger: demand for the meat is increasing around the world, and Canadian farmers exported a record three million hogs to the United States last year, a number that is expected to continue rising as consumption grows. The problem lies with Canada’s pork processors, whose share of the global market has declined steadily in the past five years. Analysts claim the industry is hobbled by antiquated technology, and wages and benefits that, on average, are 30 per cent higher than those paid by U.S. slaughterhouses.

Amid the uncertainty, Maple Leaf’s McCain is on a mission to make his company Canada’s pre-eminent meat processor. In October, 1996, Maple Leaf acquired the Western Canadian meat-packing business of Burns Foods Ltd. of Calgary for an undisclosed price. Now, the company has embarked on a $130-million bid for 107-year-old Schneider Corp. of Kitchener, Ont., currently the country’s fifth-largest pork processor. Maple Leaf has also proposed a $35-million investment in new technology at its Burlington plant and a $ 100-million hog-packing plant to be constructed somewhere in Western Canada. McCain’s strategy is simple: by forcing the industry to consolidate under his leadership, he hopes to increase Maple Leafs efficiency and profits.

A key element of that plan is to drive down the company’s labor costs. In pursuing that goal, McCain, 67, can draw on his 38 years of experience at the helm of Florenceville, N.B.-based McCain Foods Ltd., one of the largest fresh-and-frozen food processing firms in the world. Founded by Wallace McCain and his older brother, Harrison, in 1957, McCain Foods became famous for its hard-nosed dealings with suppliers and employees. Of the pair, Wallace was always known as the tougher. Former managers say he routinely fired sales staff who failed to live up to his high expectations. While Harrison played the role of benefactor in the community and often wrote large cheques for local causes, Wallace immersed himself in the details of the business, striving constantly for improved productivity and touring rival plants in the United States in search of new ways to save money. ■

Wallace McCain and his two sons, Michael and Scott, still own 34 per cent of McCain Foods, but in 1994 he walked away from day-to-day management of the firm following a dispute with his brother over the sons’ role in the business. Five months later, McCain spearheaded a $ 1.2-billion takeover of Maple Leaf. The 70-year-old company boasted an impressive stable of brand names, including Dempster’s, Homestead and Baker’s Choice bakery products, Country Style Donuts, Shopsy’s, Hygrade and La Belle Fermière meat products and its own lines of sausages, bacon, deli meats and seafood.

Although Maple Leaf had a solid reputation, McCain was determined to do better. As soon as the purchase closed, he and his sons set out to overhaul the company and boost its profits, in part by concentrating on higher quality items that could command steeper prices. To achieve its goal, Maple Leaf has invested heavily in new technology; earlier this month, for example, it announced a $4.5-million expansion of a Lethbridge, Alta., plant that will soon begin to produce battercoated french fries (“the hottest trend in North American food service”), and a $2-million addition to its poultry plant in Kentville, N.S.

Maple Leaf is not alone in its drive to capture a larger share of the world market for pork. Vancouver-based Fletcher’s Fine Foods Ltd. is currently spending $18.5 million to expand its line of cut products, including pork chops and loins, at its plant in Red Deer, Alta., while Yuan Yi Canada Ltd., whose parent firm is one of Taiwan’s largest meat processors, plans to build a $50-million plant in Lethbridge. Schneider, meanwhile, recently opened a new $50-million facility in Winnipeg. Fletcher’s vice-president of corporate affairs, Greg Whalley, says there is plenty of room for additional expansion. ‘We have every reason to be a world supplier of pork,” he said. “There should be more production than there is.”

While its rivals build new plants, the biggest challenge for Maple Leaf is to squeeze more money out of its meatprocessing division by reducing labor costs. And despite the strike, Maple Leaf president Michael McCain, 39, told Maclean’s the firm has no intention of backing down. “I’m not prepared to invest in new technology,” he said, “unless I know that when I’m done, I’ll have competitive labor costs.” He added that the company is determined to level the playing field with the Americans: “The day of the regional Canadian meat-packing plant has come and gone. We have to consolidate the industry to generate scale and plant utilization equal to the U.S.”

If the industry fails to respond to those pressures, McCain says it will follow the Canadian beef-packing industry into oblivion. Over the past decade, Canadian-run beefprocessors were all but wiped out by larger and more efficient U.S. packers, who built massive plants in Canada and now dominate the industry. Previously, Burns, Gainers and Canada Packers were all significant players. According to McCain, some U.S. pork packers have also crossed the border into Canada and now compete directly against Maple Leaf while paying U.S.-style wages. Ironically, the employees of one such hog plant, a Cargill Inc. operation in suburban Toronto, are members of the United Food and Commercial Workers, the same union that has closed Maple Leaf’s meat plants. The 986 workers there earn around $11.50 an hour, compared with the $16.58-an-hour average at the Maple Leaf plant in Burlington.

As part of the company’s attempt to reduce its operating o costs, McCain has agreed to pay a onetime bonus of between $10,000 and $20,800 to any worker at the Burlington plant who accepts the wage cut So far, there appears to be no takers. Many of the striking workers huddling near bonfires outside the factory gates last week questioned the company’s pay comparisons and insisted they were just as productive as their U.S. counterparts. They also complained bitterly about the company’s demand for wage rollbacks at a time when it is making money—last year, Maple Leaf earned $42 million on revenues of $3.2 billion. “We are in a fight for our lives,” said Lou Ferrusi, who works as a cutter in the plant ‘We’ll never accept a pay cut”

At Maple Leaf’s three other hog plants, pay rates are not the primary issue. In Hamilton and North Battleford, Sask., 475 workers who earn a minimum of $10.50 an hour have been offered increases of 85 cents an hour over three years. The company’s 850 employees in its Edmonton plant who now earn an average of $14.13 an hour, have been offered 84 cents over the same time period—although last week Maple Leaf repeated its threat to close the plant if the workers remain on strike. Kip Connolly, a senior official of the United Food and Commercial Workers Union in Burlington, adds that Maple Leaf is trying to reduce its pension contributions for some of the workers. “They’re slashing and burning the contract,” Connolly said.

Hoping to turn up the heat on McCain, the union will ask the Ontario Federation of Labor this week to help organize a nationwide boycott of Maple Leaf products. Connolly is also appealing to Ontario’s teachers, 126,000 of whom staged a 10-day strike last month to protest the Ontario government’s plans to cut education spending. The teachers in theory have significant clout their pension plan owns 41 per cent of Maple Leaf, making it the company’s largest shareholder (the McCains own 34 per cent). Connolly plans to ask the teachers to put pressure on Maple Leaf to settle, but he may be disappointed—the pension plan operates at arm’s length from the union and by definition favors higher corporate profits. With few allies, and an employer determined to slash expenses, the workers at Maple Leaf face a long, harsh winter. □