Monday, November 30, 2015

Tribunal considers integrated tomato processing

The tribunal is pondering what to do about an application to establish the first integrated tomato growing and processing business, a joint venture of Art Brouwer and his Eau Farms Ltd. and Highbury-Canco Corp.

The Ontario Processing Vegetable Growers Marketing Board has turned down an application from their joint venture, called Integrated Farming Ltd., to grow about eight tonnes of tomatoes next summer.

It sees the joint venture as a ploy to reduce the cost of tomatoes for Highbury-Canco.

But Highbury-Canco president Sam Diab testified Monday that the reason is to explore new marketing ventures that will increase sales, mainly by exploiting survey findings that consumers prefer made in Canada tomato products with the tomatoes coming direct from local farms to their store shelves.

He said this is separate from another Highbury-Canco goal of pursuing large-volume sales of tomato paste, both in Canada for export. As part of that goal, Highbury-Canco has been asking the marketing board and the Ontario Farm Products Marketing Commission to approve creation of a fourth pricing category for processing tomatoes at $12 to $15 per tonne below the prevailing contract prices.

But the board thinks the joint venture proposal is simply another Highbury-Casco attempt to get a lower price for tomatoes and it’s for that reason alone that it rejected the application for a licence to grow next summer.

The tomato paste proposal is still under discussion among the Ontario Farm Products Marketing Commission, Highbury-Canco and the marketing board. Their next meeting is Friday.

Under close questioning from two members of the panel for the Ontario Agriculture, Food and Rural Affairs Appeals Tribunal – Marthanne Robson and Arnold Strub - the marketing board’s general manager John Mumford said the board assumes that Highbury would use its share of profits from the joint venture company to lower its cost of procuring tomatoes.

Strub noted that Integrated Farming Limited could use its profits any way it chooses, and not just to lower tomato prices.

Robson learned from Mumford that the board has no objection to a joint processor-producer venture if it’s a sole owner, not a partnership. Thus Lakeview Vegetable Processing grows and processes carrots, but the profits are all stay with the sole owner.

DeBrouwer testified that the joint venture is “a deal made in heaven” and that he was immediately enthused when he was approached by Diab in January.

His benefits are reduced risks, lower costs for bulk-purchased inputs such as trucking, fertilizers and pesticides and a greater likelihood that he will be able to expand production.

Diab said Highbury benefits by learning much more about the details involved in growing tomatoes and by providing services such as currency hedging. He said it also gives Highbury a legitimate reason to advertise that its tomato products come directly from its fields to customers.

Mumford said under questioning by Strub that he believes many other vegetable processing companies are watching this venture closely, especially if they think it presents a way to lower crop input costs.

That could, he said, undermine the entire structure of orderly marketing for the processing-vegetable industry.

Highbury-Canco was formed in 2014 to take over the Heinz tomato ketchup facilities in Leamington. It was one of five plants Heinz closed and Mumford said it was a closure the board anticipated, yet was surprised by the timing.

Heinz helped Highbury establish itself, including provision of a letter of credit so it could qualify for a processor licence from the marketing board.

Highbury contracted with 10 growers, each with an equal share, for the 2015 crop.

When the board refused to licence Integrated Farming Limited to grow tomatoes this year, it was left with 2.5 million plants and so contracted with Bert DeBrouwer, an uncle of Art DeBrouwer, and three other extended-family members and companies to plant the seedlings.

Diab said he did not contract with Art DeBrouwer’s Eau Farms Ltd., the joint-venture partner in Integrated Farming Limited, because the board was suggesting that Highbury-Casco could contract for its needs with Eau Farms and didn’t need to establish Integrated Farming Ltd.

Diab said he objected to the board telling him with whom he should contract. DeBrouwer said he had hoped that he would get the contract, but didn’t know the reason for Highbury’s choice of his uncle, nor did he ask.

The tribunal is likely to issue a decision before the end of the year.