Maple Leaf trims the fat

Canada’s largest baker and food processor plans to raise prices to offset rising commodity costs as the company also embarks on the biggest efficiency drive in its history, a streamlining effort that will lead to plant closures and significant new investments.

Michael McCain

Michael McCain

TORONTO — Canada’s largest baker and food processor plans to raise prices to offset rising commodity costs as the company also embarks on the biggest efficiency drive in its history, a streamlining effort that will lead to plant closures and significant new investments.

“It is the largest cost reduction effort in the history of Maple Leaf, ever,” Maple Leaf Foods president and CEO Michael McCain said on a conference call with investors Wednesday.

“Its purpose is to significantly reduce costs and improve productivity to bring our plant structure on par with large U.S.-scale processors.”

Maple Leaf, which produces the Maple Leaf and Burns brands and also is Canada’s largest baker through its Canada Bread subsidiary, said Wednesday it aims to improve efficiency as the company emerges from a period of “adversity,” marked by the negative impact of a rising loonie, and a “tragic” tainted meat recall.

Like all food processors, Maple Leaf has been squeezed by rising commodity prices — everything from flour used to bake bread to sugar for pies and pastries and pork, beef and chicken for cold cuts and hot dogs.

As a result, it will raise prices on many of its products. But McCain could not say how much consumers would see prices rise on products in the grocery aisles.

“There are some natural price increases that we are compelled to pass on to consumers due to the inflation that exists in the food industry over the course of the past six months and you’re seeing that in all meat products and all bakery products,” McCain said.

The company has been dealing with inflating costs of raw materials including the impact of higher wheat costs on its bakery business and hog prices driving meat costs higher—a phenomenon that is putting pressure on food processors around the world, he added.

The company also faces rising energy, shipping and other costs as well as the impact of a rising loonie, which has opened the door to increased competition from U.S. produced foods exported to the Canadian market.

Maple Leaf did not say how many of its 23,000 employees in North America and abroad would be affected by the cost-cutting efforts.

In its restructuring announcement, Maple Leaf said it plans to spend $755 million on the major reorganization starting this year and running through 2013. The cost reduction efforts are expected to boost profit margins by 75 per cent over the next five years.

The company said it will open a new large-scale prepared meats plant, with construction expected to start in 2012. It currently has prepared meats factories across Canada, but some will be closed or sold in the streamlining. It has previously announced a similar strategy in its bakery business that will consolidate three Toronto-area bakeries into a massive plant in Hamilton.

It is also hiking prices of both its bakery and meat products and ending promotions implemented to boost sales in the wake of a massive product recall sparked by a Listeria outbreak at its Toronto plant that left 22 people dead in 2008.