Tomato Law Saves Former Heinz Plant From Buffett ClosingGerrit De Vynck
Canada’s insistence that tomato juice be extracted from “sound, ripe, whole” tomatoes instead of paste -– a higher standard than in the U.S. -– has partially saved an H.J. Heinz Co. plant marked for closing by Warren Buffett’s private-equity partner.
A group of Ontario investors announced last week they plan to run the century-old plant and take over producing and distributing tomato juice for Heinz in the Canadian market. The move spared 250 of the 740 workers slated to lose their jobs in Leamington, Ontario, widely known as the tomato capital of Canada.
Under the Canadian Agricultural Products Act, tomato juice must be made from whole tomatoes and not from concentrated paste as it is at Heinz plants in the U.S.
“It would never work out if the law wasn’t there because then you could locate yourself anywhere,” said Pradeep Sood, a former chairman of the Ontario Chamber of Commerce and one of the investors who formed Highbury Canco Corp. to take over the Heinz plant.
While good for the workers in Leamington, the differing standards point to a failure by the U.S. and Canadian governments to deliver on repeated commitments to harmonize food regulations. The two countries announced in 2011 the Beyond the Border agreement, pledging to eliminate the inefficiencies of competing regulations and smooth cross-border travel, burdened by post-Sept. 11, 2001 security requirements.
“The whole point of trade and being a trading nation is that we drive our costs down for consumers in our country because of trade law,” said Sandra Pupatello, who was Ontario’s economic development and trade minister before stepping down in 2011 and joining PricewaterhouseCoopers LLP. Anything that gets in the way of that raises the cost of living, she said.
“On some minor basis you might consider that this regulatory environment would save a job, but I would suspect that as other emerging markets grow to be more of a dominant player in that multinational eye, the less relevant we become in that world,” Pupatello said by phone.
In this case, the regulations produced ripe conditions for an opportunistic investment group that includes the 31-year-old Leamington plant manager as well as providing a protectionist shield for some of the workers in a town whose greatest landmark is a water tower built and painted to look like a giant tomato on legs. Heinz had operated in the town since 1908 before announcing in November, five months after Buffett’s Berkshire Hathaway Inc. and 3G Capital took the ketchup-maker private, that they would close the plant along with two others in the U.S.
“The tomatoes are going to go to the plants that have the low production costs, when you get right down to it,” Buffett said in November at an event in Detroit. “It’s really a question of having an unprofitable plant and concentrating production in a more profitable plant.”
Highbury said in a Feb. 27 statement it plans to license Heinz products as a co-packer. The venture wants to finalize the agreement in the next few weeks to give tomato farmers time to prepare for the juice-making season, according to the statement.
Heinz is glad Highbury stepped in with the deal, said Michael Mullen, a spokesman for the Pittsburgh-based company. He declined to comment on whether Heinz could make juice from fresh tomatoes at another plant or how the regulation affected the company’s decision.
Rick Holley, who studies food spoilage as a professor at the University of Manitoba, said he suspects the tomato juice regulation is in place to give consumers a clear idea of what they’re buying. In Canada, juice can’t be made with additives like spices and salt that might find their way into tomato paste, he said in a phone call from Winnipeg, Manitoba.
The regulatory details differ between the U.S. and Canada when it comes to other beverages, Holley said. Drinks south of the border must list the percentage of juice they contain, while Canadian drinks don’t, he said.
“In the case of the tomato juice, the Canadian regulation is more stringent, in the U.S. the drink regulations are more stringent.”