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Our Meat Products Group sales for the year declined 5%, while
operating earnings declined sharply to $30 million compared
to $94 million in 2007. This earnings decline was predominantly
due to the product recall, which is estimated to have cost us
$50 million to $60 million in direct and indirect costs in 2008.
The recall lowered sales, increased supply chain costs and
significantly reduced margins, but by year end we had made
significant progress in restoring our volumes, stabilized production
and achieved substantial recovery of the Maple Leaf brand. In
other areas of the meat business we had major successes. This
group met and in some cases surpassed its transformation goals
this year, completing the expansion of the Brandon, Manitoba pork
processing plant to two full shifts, consolidating production from
three other fresh pork plants and establishing Brandon as the
primary source of our fresh pork supply. We also consolidated
our ham-boning operations into a single mega-plant in Winnipeg.
These changes contributed materially to earnings in the second
half of the year and we expect benefits to grow as we complete
the transformation to focus growth in higher margin, value-added
meat and meals. Earnings from our fresh poultry business were
materially lower because of the increasing cost for live birds,
connected directly to higher corn costs, and the consequence
of a strike in one of our facilities. This team is actively pursuing
innovation and brand building to add new excitement to the
category and grow branded value-added sales.
In our Agribusiness Group, sales decreased 3% to $233 million,
while operating earnings increased $37 million, from a loss of
$7 million last year to positive earnings of $30 million in 2008.
Restructuring of our hog production operations, which included
changing to a vertically integrated production model and reducing
the number of hogs we produce was a very significant contributor
to this major improvement. We successfully reduced the number
of hogs we manage from over two million in late 2006 to
approximately 820,000 annually today, supplying roughly 20%
of our raw material requirements. We also reduced our production
costs by closing or selling operations in Ontario and Alberta,
and consolidating our hog production in Manitoba, closer to our
Brandon facility. Our rendering business performed very well in
2008 as the selling price of rendering products rose on the tide of
rising commodity prices. This business continues to provide a vital
service to our meat operations, by converting inedible by-products
into valuable raw materials. Our biodiesel business in Quebec,
which converts used tallow and greases into commercial biofuel,
also benefited from the spike in fuel prices earlier in the year.
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