In winning the auction for Morningstar Foods, Saputo is doing more than just buying a dairy producer, its making a big bet on the future of Canadian agriculture.
The sector is among the most protectionist in the country, with a thicket of subsidies, tariffs and quotas that controls the supply of milk, eggs and poultry. In the last 10 years, $82 billion in government supports have gone towards propping up the industry, with almost $21 billion going to directly to milk producers, according to a Conference Board report released Monday.
The Ottawa-based think tank wants the sector to crack open, here and abroad, allowing producers to duke it out, unfettered by the entrenched management systems currently in place. If that happens, and the matter is now front and centre in trade negotiations with the European Union, companies like Saputo will be ready to pounce.
In interviews on Monday, Saputo CEO Lino Saputo Jr. explained that he had not yet seen the Conference Board's report. However, his company did not grow from a tiny mozzarella peddler in Montreal's Italian community to being one of the top three cheese and dairy companies in North America by waiting for doors to open for them.
The Morningstar deal is a door they kicked open most definitively, topping Minnetonka, Minnesota-based Michael Foods in the final round of the auction, with a US$1.45-billion bid. Morningstar was held by Dean Foods. It is the second major purchase in recent years for Saputo, having grabbed Fairmount Cheese Holdings of Deerfield, Illinois, for US$270.5-million last year. With Morningstar, Saputo now has 12,000 employees across five countries.
In the U.S., the Montreal family business is primarily known as a producer of cheddar, mozzarella and whey by-products. Morningstar extends Saputo's reach into cottage cheese and soft creams. It also provides the company with a much more diversified line up to move into Latin America, Australia and Europe. Lino Saputo has made clear that he sees the greatest growth opportunities outside of Canada.