added emphasis ours
Three Case Studies
The H.J. Heinz Company built its first factory located outside the US in Leamington Ontario in 1909. It became their second largest factory. They closed the plant in Feb. 2014 and sold it to an investor’s group (Investor group to acquire Ontario Heinz plant) in May 2014. This followed Warren Buffet’s acquisition of Heintz, taking it private through his company Berkshire Hathaway. Such privatizations are generally followed by pruning or consolidating marginal and unprofitable operations. As Global News notes in Buffett keeps word, Heinz strikes ‘fair’ deal with Ont. ketchup workers:
A soaring loonie in recent years has made plants across the country ripe for cutbacks or closures by multinational firms who can easily shift production to cheaper regions. More than 30,000 factory jobs were lost in Ontario alone in 2013.
We would note that during the plant’s 104 year history, the Canadian dollar has been as high or higher on several occasions and the plant was not shut down then. The key issue is the second point – there are many regions in the US where labour, taxes, energy and regulatory costs are lower than in Ontario. Further to this, Blackburn News reports in Heinz Plant In Leamington Closing that:
The letter says the decision is not a reflection of the commitment of employees or quality of product, but primarily based on excess capacity in its North American manufacturing system. Leamington Mayor John Paterson says consolidation and efficiency are the reasons he’s been given from Heinz for the closure.
The second case is that of the 89-year old Kellogg Co. plant in London Ontario. The company announced its closure in Dec. 2013 as noted in Canadian Business (The province is partly to blame for Kellogg’s plant closure in London, Ont.: Mike Moffatt). The article points out several reasons for the plant closure:
On the surface it would appear that at least some of the lost London production went to Belleville, Ont., thanks to a $9.7-million interest-free loan in 2008 from the province and $4.5 million in additional provincial funding in 2011 … from higher wage employees in London to lower wage employees in Belleville …
With the U.S. population gradually moving south and west, Ontario lacks a geographic advantage when it comes to mass consumer manufacturing. … Ontario’s transport-cost competitive advantage over areas such as the U.S. southeast and Asia diminishes, making those areas more attractive due to their lower labour costs.
It would appear that in the Kellogg case, economics favoured moving production from an old London facility to a new Belleville plant. London may be marginally closer to markets in the south and west but both have good rail and road links to the US. That leaves labour costs as the other Belleville advantage. The Winsor Star summarized the reasons (Kellogg, Heinz plant closures part of a trend) for the closure of Kellogg and other agribusinesses as:
the fallout of corporate consolidation, changing consumer tastes, labour costs and government regulations that have conspired to create a $6.5 billion trade deficit in the Canadian food processing industry.
“When the Heinz owners, for example, see a plant operating at 30 per cent of capacity, it’s an easy decision to absorb that production elsewhere, shutter a plant and save millions of dollars,” said Boecker. “There’s a great deal of global competition in every marketplace and anytime there are dollars to be saved, those are relatively easy decisions.” Economies of scale also play a role in production decisions, he said.
integration of the North American economy left Canada with little more than branch plant status and a decline in capital investment made some Canadian plants less competitive.
The final case is the closure of the Unilever Brampton plant
Fix, Build or Burn