Montreal-based Saputo announced last Thursday it has construction underway on a new $240 million cut-and-wrap cheese plant in the Milwaukee suburb of Franklin, to be up and running at capacity by the third quarter of 2025 (all figures Cdn$).

When the new plant is ready, Saputo said it expects to transfer other packaging operations there. To that end, the company said it plans to close its plant at Big Stone City, S.D., about 200 km south of Fargo, in the third quarter of next fiscal year, and another Wisconsin plant at Green Bay in its 2025 Q3.

Also, another Saputo plant at Tulare, California previously slated to be shut down will now get $75 million in renovations to convert to string cheese packaging, to be up and running at capacity by Q3 of 2025.

After that, a Los Angeles-area string cheese packaging plant, at South Gate, will be closed and its work transferred to the converted Tulare site, about 300 km north.

Saputo said the investment at Tulare “will help support the company’s growth ambitions and sustain its leadership position in the string cheese product category.”

In all, Saputo said, while the new Franklin plant alone is expected to take on about 600 people, about 720 positions will be affected in the pending plant closures. Affected workers will be offered opportunities to relocate to other Saputo plants and, if no spots are available, the workers will get “severance and outplacement support.”

The projects announced last Thursday “aim to solidify our ability to meet current and future customer demand and further improve our cost structure,” said Saputo CEO Lino Saputo said in a release.

Improving its capacity to produce goods in its higher-margin value-added categories will “fuel our aspirations to further enhance our value proposition as a high-quality, low-cost processor” in the U.S., he said.

The plant consolidations and investments are expected to improve Saputo’s bottom line by up to $74 million per year ($55 million after taxes) by the end of its fiscal 2027, the company said.

Saputo’s U.S. dairy division makes, sells and distributes a “vast assortment” of cheeses, including mozzarella, American-style and specialty cheeses, among other products. In its fiscal 2022, ending last March 31, U.S. revenue made up 43 per cent of the company’s total.

During that fiscal year, the company said in its annual report, its U.S. dairy division was its “most challenged platform,” up against “substantial commodity volatility” as well as “labour, inflation and supply chain pressures.”

The company’s U.S. arm in fiscal 2022 booked gross revenue of $6.41 billion, up from $6.12 billion the previous year, but the U.S. arm’s EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $288 million for 2022, down from $567 million.

Saputo’s U.S. sector has since booked improved revenue and EBITDA in each of its first and second quarters for fiscal 2023, for combined EBITDA of $199 million on revenue of $4.1 billion, up from $163 million on $3.039 billion in the year-earlier first half. — Glacier FarmMedia Network

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Montreal-based Saputo announced Monday it has an all-cash deal in place to buy Wensleydale Dairy Products Ltd. for 23 million pounds (about C$39.7 million).

Pending U.K. regulatory approvals, the deal is expected to close in the second half of this month, after which Wensleydale, which has about 210 employees at two North Yorkshire plants, would join Saputo’s U.K. dairy division as part of its Europe sector.

Saputo said the Wensleydale product line, which is exported worldwide, “will complement and broaden the company’s existing range of British cheeses” such as Cathedral City and Davidstow cheddars.

The Wensleydale business sources its milk from 40 North Yorkshire-area farms and uses its own unique cheesemaking starter cultures, Saputo said.

Wensleydale “is home to an immense amount of passion, care, and tradition,” Saputo CEO Lino Saputo said in Monday’s release.

Wensleydale was awarded Protected Geographical Indication (PGI) status by the European Commission in late 2013 “to protect the authenticity of its Yorkshire Wensleydale cheese,” the British company noted.

European PGI status recognizes the “distinctive qualities” of the cheese as well as the geographical area in which the cheese is made, “in its rightful home of Wensleydale,” the company said last month.

Last month, the company noted it would also seek status for Yorkshire Wensleydale cheese under the recently introduced U.K. geographical indication (GI) schemes to “help shoppers differentiate it over other Wensleydale cheeses, made in other counties.”

“Our creamy, crumbly iconic Yorkshire Wensleydale cheese is extremely important to us and something we are proud to protect. It is important for us and our loyal customers that it is handcrafted here in its rightful home of Wensleydale,” Sandra Bell, the British company’s marketing manager, said in a release at the time.

“The GI schemes and logos are essential to differentiating unique British brands on-shelf, ensuring we continue to protect the authentic heritage and provenance of handcrafted Yorkshire Wensleydale cheese.” — Glacier FarmMedia Network

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Montreal-based Saputo said Thursday it will close the former Riverside Cheese and Butter plant at Trenton, Ont. this September and its Baxter dairy plant at Saint John, N.B. in January next year.

Production at both sites “will be integrated into other Saputo facilities across Canada.”

Announcing the move in its third-quarter results, Saputo said the decision is “aimed at improving its operational efficiency and right-sizing both its manufacturing footprint and sales force in Canada” and is part of its “continual analysis of its overall activities.”

The decision affects about 280 employees in all, some of whom Saputo said would be offered transfers to other plants in its Canadian dairy division, while others will get severance and “outplacement support.”

The Trenton plant came to Saputo when the company bought Trenton-based Italian specialty cheesemaker Riverside Cheese and Butter for $7 million in 1998.

The Saint John operation was absorbed into Saputo in 2001 when the company bought Dairyworld Foods, which had bought local firm Baxter Dairies in 1998. The Baxter brand in Saint John dates back to 1924.

Saputo on Thursday booked net earnings of $197.8 million on $3.891 billion in revenues for the quarter ending Dec. 31, down from $342 million on $3.577 billion in the year-earlier period.

Of its Canadian business, the company said a “competitive Canadian landscape continues to exercise downward pressure on financial performance,” but “market conditions continue to show signs of easing,” offering “an improved outlook for capturing profitable sales volumes.”

Looking ahead, Saputo said Thursday it “will also continue to focus on increasing its operational efficiency” in its Canadian dairy arm through cost-cutting as well as “strategic investments to mitigate low growth and consistently high warehousing, logistics and transportation costs.” — Glacier FarmMedia Network

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Saputo Inc. announced Friday it has an agreement in place with Dairy Crest Group — the maker of Cathedral City cheese and Country Life butter among other major U.K. dairy brands — to buy up all its shares for £6.20 (C$10.63) each.

For Saputo, which markets its products in about 40 countries, the acquisition would be its first in the U.K. — and in Europe, for that matter — offering the Canadian company a platform for growth into those markets.

Dairy Crest’s board plans to unanimously recommend to shareholders that they vote in favour of the deal, Saputo said, noting it already has “irrevocable undertakings” from Dairy Crest’s shareholding board members for their votes.

Subject to shareholder and court approval and the usual closing conditions, Saputo said it expects to close the deal in the second calendar quarter of this year.

Based at Esher, southwest of London, Dairy Crest dates back to 1933 and the depression-era formation of Britain’s Milk Marketing Board, which spun off its milk processing business into a separate division under the Dairy Crest name in 1980.

The Dairy Crest division became a separate publicly traded company in 1996 and sold off its dairies business in 2015 to focus on making branded foods and value-added ingredients.

For its part, Saputo said this deal will allow it to “expand its international presence and enter the U.K. market by acquiring and investing in a well-established and successful industry player with a solid asset base and an experienced management team.”

“Dairy Crest is an attractive platform for Saputo and fits well within our growth strategy,” CEO Lino Saputo Jr. said in a Dairy Crest release.

“We believe that under Saputo ownership, Dairy Crest will be able to accelerate its long-term growth and business development potential and provide benefits to Dairy Crest’s employees and stakeholders.”

Dairy Crest chairman Stephen Alexander, in the same release, said the deal “should enable Dairy Crest to benefit from Saputo’s global expertise and strong financial position to fulfil and accelerate its growth ambitions.”

In its recent third-quarter update, Dairy Crest noted “significant uncertainty” around Britain’s impending “Brexit” from the European Union, adding that “the impact of a potentially disorderly exit is hard to predict.”

The British company noted its supply chain and customer base are primarily in the U.K., but added “we are taking steps to reduce our exposure, including accelerating the purchase of ingredients and packaging materials.”

Montreal-based, publicly-traded Saputo ranks among the world’s top 10 dairy processors and is the world’s largest cheesemaker. It’s also the top fluid milk and cream processor in Canada, Australia’s biggest dairy processor and Argentina’s second largest, and one of the top three cheese producers in the U.S.

Saputo, whose brands include Dairyland, Armstrong, Milk2Go/Lait’s Go and Neilson, among others, has been expanding largely through acquisitions in recent years.

Its most recently completed deals include U.S. cheesemaker F+A Dairy Products in November, Ontario cheese and yogurt maker Shepherd Gourmet in June and Australian dairy co-operative Murray Goulburn in April. — Glacier FarmMedia Network

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New quotas created by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) are similar to those meant to give U.S. dairy and poultry farmers new access to Canada under the new North American trade agreement known as USMCA.

The rules, which lay out who can receive quotas to import some agricultural products duty-free from countries that ratify the deal, vary between products, but in some categories nearly all the quotas are earmarked for Canadian processors. One quota covering “cheeses of all types” reserves 85 per cent for processors, leaving 15 per cent for distributors.

Saputo, one of Canada’s biggest processors, welcomed the move and said in a statement on Tuesday that processors will get a “significant portion” of the quotas.

“I am delighted with the allocation. I think that the government is allowing the dairy industry to control our own destiny,” Saputo CEO Lino Saputo Jr. told Reuters. “This is what we were hoping for.”

It is not the first time Canada has taken the unusual step of giving local producers special rights to import, easing the pain of new competition.

Karl Littler, spokesman for the Retail Council of Canada, said the allocation looks like a subsidy.

“We find that, obviously, to be less than ideal, given that people buy their cheese from us, not from the producers,” he said.

Saputo Jr. said the quota is not a subsidy, but dairy farmers, and not processors, should be compensated over recent trade deals.

In 2017, a last-minute dispute over how Canada would allocate cheese import quotas sent the country back into negotiations with the European Union over the Comprehensive Economic and Trade Agreement (CETA).

European cheesemakers were unhappy with a plan to give Canadian processors 60 per cent of the new quota. In a compromise, they received 50 per cent.

In the first full year with the new quotas in force, Canadian imports have been sluggish.

Saputo Jr., who said his company has used all of its CETA quota, noted that 60 per cent of the quota was set aside for small companies, something that was eliminated for CPTPP.

The way the CETA quota was fragmented between many companies has made it difficult to import profitably, Reuters reported in September.

In the notice, federal officials promised a “broad-based stakeholder engagement exercise” in the new year to review all of Canada’s import quotas, as new trade deals expand their use.

— Allison Martell is a reporter in Reuters’ Toronto bureau.

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The CEO of the lobby organization representing processors told Farmtario in early October that he “anxiously awaits the Canadian text to be published” containing the deal’s precise details. “Canada’s dairy processing industry is deeply disappointed in the government of Canada’s decision to make significant concessions to the United States” in order to reach agreement, said Dairy Processors of Canada (DPAC) CEO Mathieu Frigon.

Why it matters: Depending on which products represent each company’s line of business, the potential benefits or drawbacks of USMCA for processors will vary, but as a sector-wide representative, DPAC has been very clear: The organization stands in support of the country’s dairy farmers in strong opposition to the deal.

“Over the past year and a half, we have repeatedly heard our government state that it would stand up for the Canadian dairy sector,” Frigon said in an official DPAC message sent out following the inking of the draft deal on Oct. 1. “However, what was agreed to last night demonstrates very little support for our interests.”

There have been suggestions processors would benefit from the elimination of Class 7.

In a a statement made in June, 2018 by Saputo CEO Lino Saputo Jr., in reference to what were then ongoing NAFTA renegotiation talks, he said that “(Canadian dairy farmers) want their cake and they want to eat it too. Which doesn’t make sense. You can’t hold onto your milk supply-managed system and have a class of milk competing with world markets at the same time.”

By contrast, when contacted last week by Farmtario, a representative from Saputo’s communications department responded the company is “taking the time to review and understand the proposed changes and their full implications for Canada’s dairy industry.”

The representative added the company “(does) not have any comment at this time, and has not made any comments in the media about the USMCA.”

Some Canadian dairy processors, though, have felt confident enough about their assessment of the deal’s potential effects to make public statements. USMCA, states an official release from the Mississauga-based Gay Lea Foods farmer-owned co-op, “will have destabilizing and detrimental impacts on the Canadian dairy industry.”

The news release says that “since 2014, Gay Lea Foods has been investing heavily in our existing operations, made strategic acquisitions to grow our business, and committed over $300 million to new processing capacity and capabilities.” USMCA, the company suggests, throws the wisdom of at least some of those financial decisions into question: “Over the coming days and weeks, we will work with federal and provincial governments to assess the full impact and what would be required for the continued viability of our facilities, current expansion projects, and our future as a dairy co-operative.”

DPAC, which counts both Saputo and Gay Lea Foods as members, has been equally clear about its stance.

“It is clear that dairy processors will be very negatively impacted by this new agreement,” Frigon told Farmtario. Adding in the effects of commitments made in previously-negotiated trade agreements covering the European Union (CETA) and the Pacific rim, the DPAC CEO explained, “we have estimated the losses (to domestic processors) to be more than $2 billion over the course of implementation, all of which will decrease production and greatly affect the dairy processing industry’s ability to see return on investment.”

In the interview, Frigon called on the federal government to create a compensation strategy for Canada’s dairy processors. And he called for that strategy to differ significantly from the one rolled out after CETA granted over three per cent access into the country’s dairy market.

“Significant further losses (over and above the estimated $2 billion due to lost market access) will result from Canada’s agreeing to suddenly change its domestic dairy policies as a part of the USMCA,” the DPAC CEO said. “The Canadian government must not repeat the mistake it made with CETA, where it provided compensation — in the form of Tariff Rate Quota allocations — to those who already saw CETA as a great opportunity.”

This time around, he argued, allocations should be limited only to those processors adversely affected by the new deal.

“Allocating Tariff Rate Quota is the only way to allow the dairy processing industry to recoup part of the lost return on investment resulting from these trade agreements, encourage future investments in the Canadian dairy sector, and protect the Canadians it employs,” Frigon said.

A representative of Feihe, a new dairy processing plant being constructed in Kingston to produce infant formula for export to China, said not enough details were known at this point to comment.

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The Class 7 pricing agreement, struck in 2016 between Canadian dairy processors including Saputo and farmers, allowed processors to pay lower prices for domestic milk ingredients used to make cheese and yogurt, and to export the rest.

“They want their cake and they want to eat it too,” Saputo Jr. said in an interview, referring to farmers. “Which doesn’t make sense. You can’t hold onto your milk supply-managed system and have a class of milk competing with world markets at the same time.”

Saputo Jr.’s remarks came after U.S. Agriculture Secretary Sonny Perdue said on Friday he did not see how the countries could go forward in trade talks without an end to Class 7.

Dairy Farmers of Canada (DFC), the sector’s main lobby group, said the industry still speaks with one voice.

“Although (Saputo’s) comments took us by surprise, perhaps they are the product of confusion around the notion of flexibility suggested by the federal government,” said DFC CEO Jacques Lefebvre, referring to Prime Minister Justin Trudeau’s comments to a U.S. television network this month about talks on dairy.

Dairy Processors Association of Canada, of which Saputo is a member, said Class 7 was an effort to “modernize” the system, and its support has not changed.

“We view efforts to expand the dairy sector’s contributions to the Canadian economy as positive,” DPAC CEO Mathieu Frigon said in a statement.

Canada matches dairy production to domestic consumption, yielding less than 10 per cent of the market to imports through tariff-free quotas. Above those quotas, imported dairy faces high tariffs.

Class 7 was struck to create a domestic market for Canadian milk ingredients, after cheaper U.S. volumes that were not subject to high tariffs flooded into Canada. Those U.S. shipments dried up after Class 7 took effect, riling farmers and processors in Wisconsin and New York state.

Saputo Jr. said his company felt forced to support Class 7 through its association. He said he is speaking out now because scrapping Class 7 would be “logical,” and less damaging than surrendering additional tariff-free volumes to the United States, similar to what Canada did in trade deals with the European Union and Asia-Pacific nations.

“The system is broken,” Saputo Jr. said, adding that it would not surprise him to face a farmer backlash. “The problem is everyone is putting their heads in the sand and no one really wants to find solutions until they’re forced. We’re in a position today when we can control our own destiny.”

Saputo shares finished one cent lower in Toronto at $43.74.

— Rod Nickel is a Reuters correspondent covering the agriculture and mining sectors from Winnipeg.

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The “state-of-the-art” plant is expected to be built within the next three years and commissioned in fiscal 2021, the company said in its fiscal 2018 report last Thursday.

To that end, the company also said in its annual report it has made a deal to sell its current Vancouver-area dairy plant at Burnaby to an unnamed buyer for $218 million.

Saputo expects to close the Burnaby sale sometime in its 2019 fiscal year, and to lease that plant from the new owner until the Port Coquitlam facility is ready.

Saputo has owned the Burnaby plant since 2001, when it bought milk processor Dairyworld Foods from Agrifoods International Co-operative.

In its year-end outlook last Thursday, Montreal-based Saputo said it “will undertake capital projects aimed at increasing efficiencies and maximizing its manufacturing footprint in order to maintain its leadership position.”

The company, billed as Canada’s largest cheesemaker and leading fluid milk and cream processor, also said it will continue to focus on “reviewing overall activities to improve operational efficiency, in order to mitigate downward margin pressures, low growth and competitive market conditions.”

“Operational efficiency” led to the closure of three Saputo plants in Canada in 2016, in Sydney, N.S., Princeville, Que., and Ottawa.

It also announced late last year it will shut a U.S. cheese plant at Fond du Lac, Wisconsin and move that plant’s production to its site at Almena, Wisc., about 425 km northeast. That closure is expected in the first quarter of fiscal 2019.

The company — also billed as one of the world’s 10 biggest dairy firms — remains on the expansion track as well, having closed its $1.29 billion deal for Australian dairy co-operative Murray Goulburn in April, and a $340 million deal for Wisconsin goat cheese processor Montchevre in December.

It also announced last month it will buy Ontario processor Shepherd Gourmet Dairy to boost its presence in specialty cheeses and expand its yogurt offerings in Canada. That deal, worth $100 million, is expected to close later this month.

Saputo, whose Canadian brands include Dairyland, Armstrong, Neilson, Baxter and Milk2Go, among others, last Thursday booked net earnings of $852.5 million on $11.54 billion in revenues for its year ending March 31, up from $731 million on $11.16 billion in the 2017 fiscal year.

Fourth-quarter net earnings were down at $130 million, on $2.74 billion in revenues, compared to $165.2 million on $2.72 billion in the year-earlier period. — AGCanada.com Network

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Saputo is buying Shepherd Gourmet Dairy Inc. for $100 million. Shepherd Gourmet employs about 90 people.

Shepherd Gourmet was founded by Stewart Cardiff when he saw a niche in the processing of alternative cheeses and yogurts as immigrants demanded new products and Canadians showed they were interested in trying new dairy foods.

The company started processing sheep’s milk from his family’s Brussels area sheep farm, but eventually processed several types of milk. Cardiff left his career in agriculture banking to become a dairy entrepreneur. Processing started in a building in Tavistock, but eventually moved to a new processing plant built in St. Marys.

Canada had been importing sheep’s milk feta cheese from Greece and other Mediterranean countries, but there was no one meeting the demand on a national basis. Shepherd Gourmet stepped into the gap.

The company is still known for its feta cheese, but now, also ricotta. It is also one of the main producers of Skyr, an Icelandic-style yogurt.

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The deal, which Australia’s largest dairy processor says is key to its survival, was approved after Saputo agreed to sell a milk plant in Victoria state to address concerns from the Australian Competition and Consumer Commission.

“Saputo’s divestiture undertaking has remedied the ACCC’s competition concerns about the Koroit plant,” ACCC chairman Rod Sims said.

Farmers had expressed concerns about any short-term ACCC intervention in the transaction because they wanted certainty after “a bumpy ride with Murray Goulburn,” Sims added.

The Melbourne-based company has struggled since 2016 when plans to sell high-margin products such as infant formula in China led it to overpay for source milk, while sales also fell below expectations.

Saputo, Canada’s biggest cheesemaker, agreed to sell the Koroit dairy plant to ease concerns the deal would leave some Victorian farmers with little choice when selling their milk.

The deal is subject to the approval of shareholders. Murray Goulburn plans to hold a meeting on Thursday to vote on the deal.

— Reporting for Reuters by Aditya Soni in Bangalore.

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