Merit Functional Foods closes

Home-grown high-tech producer of pea and canola protein in receivership


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Merit Functional Foods, a home-grown high-tech producer of pea and canola protein, has closed and is in receivership.

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Merit Functional Foods, a home-grown high-tech producer of pea and canola protein, has closed and is in receivership.

The locally owned operation was once heralded as having the potential, along with the much larger French-owned Roquette operation in Portage la Prairie, to kick off a growing development in plant-based protein processing for the province.

But the company was under cash flow pressure as early as a year ago and efforts were being made to stem the tide, including an injection of loans from partners including Vancouver-based Burcon Nutrascience Corp.

The 94,000-square-foot plant on Brookside Boulevard opened in February 2021, but the combination of its complex, novel technologies, the slowly developing market for plant-based proteins and recent global market disruptions meant the company did not have time to succeed.

In September, a formal process to seek interested parties to either invest in or buy the company was started. That process was encouraging enough for Merit’s lenders, Farm Credit Corp. (FCC) and Export Development Canada (EDC), to continue to extend Merit extra time to find buyers, but none materialized and earlier this week the court appointed PWC as receiver and the plant has been shut down.

The company has defaulted on a total of $95 million in loans to FCC and EDC.

Ryan Bracken, Merit’s CEO, told the Free Press, “We are working to find the right party interested in taking over the facility.”

In a lengthy post on LinkedIn, Bracken insisted that it was market conditions that conspired against the company rather than missteps or deficiencies in its operations or products.

The company was producing protein from pea and canola — the only plant in the world commercially producing canola protein — and there was such strong anticipation in its products that Merit formed a strategic partnership with Nestle, the international food company, a full year before the plant opened to help Nestle develop “nutritious and great-tasting plant-based meat and dairy alternatives with a favourable environmental footprint.”

But the extensive research and development costs, the complex and expensive production facilities — some say more than $300 million — and the disruptions in the global marketplace over the past two years meant Merit did not have time to launch.

Michael Mikulak, executive director of Food & Beverage Manitoba, said those who say this is an indication of the over-hyping of the plant-based protein market have got it wrong.

“People take for granted the complexities of the food industry,” he said. “There is a massive amount of investment that is required to get something like this off the ground. And the reality is they are competing against incumbent industries with 100 years of R&D that they’ve already paid off.”

Mikulak said Canada could be playing a larger role in the development of the strategically important food processing industry rather than continue to settle for increasing volumes of exported raw commodities.

“This is a marvel of a factory that could do incredible things that really couldn’t get the runway to be able to develop because of these other factors going on,” he said referring the pandemic, global inflation and supply chains disruptions caused by the Russian invasion of Ukraine.

Merit did receive financial support from the governments of Canada and Manitoba — about $2.5 million — as well as from Protein Industries Canada, the federally funded supercluster.

Bill Greuel, the CEO of Protein Industries Canada, called Merit’s closure unfortunate but said it isn’t reflective of the industry.

“The fundamentals that are underpinning the growth of the sector still remain very strong,” Greuel said.

Protein Industries Canada released a report stating Canada needs to grow its plant-based food, feed and ingredient sector to $25 billion by 2035 and industry experts project six to eight per cent compound annual growth in the plant-based food sector in the coming years, he said.

In his social media post, Bracken sited the doubling of commodity costs, cross-border issues during the pandemic and customers’ R&D operations basically shutting down with new product development at stand still. He noted these were conditions making the environment much tougher to succeed than when the company started out.

Merit’s larger industry peer, Roquette, opened several months before Merit did. One of its customers is the California company, Beyond Meat, which had been suffering significant value deterioration until a strong fourth quarter result last week helped its stock price bounce back about 20 per cent in one day.

In an email exchange, Dominique Baumann, managing director for Roquette Canada Ltd., said, “Roquette remains confident in the future of plant-based proteins and we remain committed to our Manitoba-based operations at the Portage pea protein plant.”

A full list of Merit’s creditors is not yet available, but the expectation is that commodity producers have been paid and will be able to find other crops to grow.

Daryl Domitruk, executive director of Manitoba Pulse and Soybean Growers, said, Merit had only contracted for about 10,000 acres of peas in Manitoba out of a total of 180,000 acres that are typically dedicated to peas.

“In the grand scheme it is more of a concern not so much about losing that commercial outlook for peas, but we were sort of hoping that Merit and Roquette were the start of something that would become a trend where we would have more and more value-added processing and it would support producers and all the other jobs. It is a setback that hopefully is temporary.”

Both Export Development Canada and Farm Credit Canada declined interview requests.

“Out of respect for court proceedings and customer privacy, we will allow the court-filed documents to speak for themselves,” Jill McAlister, a spokesperson for Farm Credit Canada, wrote in a statement. “We trust this matter will be handled through the legal process.”

Pitura Seeds contracted and processed grain on behalf of Merit Functional Foods. It learned of the receivership Wednesday afternoon, said president Tom Greaves.

“We, along with other growers that had contracts with Merit are waiting to hear from the receiver on next steps,” Greaves wrote in an email.

Gabrielle Piché

Gabrielle Piché

Gabby is a big fan of people, writing and learning. She graduated from Red River College’s Creative Communications program in the spring of 2020.

Martin Cash

Martin Cash

Martin Cash has been writing a column and business news at the Free Press since 1989. Over those years he’s written through a number of business cycles and the rise and fall (and rise) in fortunes of many local businesses.

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