F ' . . c -. , MRR ts '31 12:s.1 BLRVE TOROf-HO CT-91/1 THE COMPETITIOR TRIBURAL COMPETITION TRIBUNAL IR THE MArrER OF en application by TirB:lNAL DE LA CON~JRRENa P the Director of Investigation an~ R Reseerch for orders pursuant to section MAR 18 1991 M B P2 of the Competition Act, R.s.c. 1985, c I c.C-34, as amended; REGl>TRAR - REGISTRAJRE T l~-1-- AJm I• THE llAT'l£R OF the acquisition OTT A WA, ONT. by Hillsdown Holdings (Canada) Limited of 1 56\ of the common shares of Canada Peckers Inc. WEE B: THE DIRECTOR OP lllVESTIGATIOR AllD RESEARCH, Applicant, - and -HILLSDOWN HOLDillGS (CARADA) LIMITED, MAPLE LEAF MILLS LIMITED, CABADA PACKERS IBC. and ONTARIO RERDERil1G COMP.MY LIMITED, Respondents.
RESPO•SE I. S7NfEMIUfl: OF QMlUlfDS UPQJI J!lllJCH Tim AEPJ;,lCATIQB IS ~ffQSED The Respondents Hillsdown Holdings (Canada) Limited (•Hillsdown~), Maple Leaf Mills Limite6 {~MLM"), Canada Packers Inc. (•Canada Packers•) and Ontario Rendering Company Limited c•orenco•) oppose tbe Notice of Application (the •Application") of the Director of Investigation and Research (the "Oirector") on the following Qr<)Unds:
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- 2 -1. The relevant product and geographic markets as set out in the Statement of Grounds and Material Facts filed with the Application (the •statement•) are improperly defined for the purpose of analy%ing any cQmpetitive implications of the merger in issue.
2. ln those areas in respect of which the businesses carried on by Orerico and Rothsay (formerly the rendering division of MLM and now of Canada Packers) compete, the combined firm will continue to face vigorous and effective competition.
3. The acquisition by Hillsdown of 56\ of the common shares of Canada Packers (the MAcquisition~) has not resulted, nor is it likely to result, in a substantial lessening of competition in any relevant market in Canada. On the contrary, it will preserve the viability of Rothsay•s Quebec plant as described in paragraphs 12 and 13 hereof. Without that, the Couture Group c•coutureM) will be the only renderer in the Province of Quebec.
4. Furthermore~ the Acquisition has brought about, or will likely bring about, efficiency gains that will be greater than and that will offset any lessening of competition that has resulted, or is likely to result, from the Acquisition. Moreover, such efficiency gains will not likely be attained if the orders sought by the Director herein are granted.
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- 3 -s. Although the Respondents deny that the Acquisition has resulted in, or is likely to result in, a substantial lessening of competition, the divestiture reme~y sought by the Director would be ineffective were any such lessening of competition to occur.
6. In any event, the merger provisions of the CQmpetitiQD Act. and the relevant provisions of the competition Tribunal A~S infringe Sections 2, 7, 11 and 15 of the Charter of Bightl and are not saved by Section l thereof, and violate Sections 1 and 2 of the ~anadi§n_lill of Rights, and are ultr§ YiXeJi Parliament as contrary to Sections 96 to 101 of the CQn~titution Act, 1867.
II. ADMISSIO•S, DDIALS ARD MATERIAL PACTS uPQB DICtl THE USfORDQTS ULX 7. The Respondents admit the allegations in paragraphs 13 to 16, 18, 19, 21, 22, 29 and 30 of the Statement.
8. Except &$ otherwise ezpressly admitted, the Respondents deny each ana every other allegation in the Statement.
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- 4 -A. tbe Partiea · 9. The Respondents accept as substantially correct the description of the Acquisition and the parties as set out in para;raphs 2-10 o:f the Statement, ezcept that Canada Packers and MLM were amal;amated by Articles of Amalgamation dated December 31, 1990. under the name •canada Packers Inc.M Accordingly, MLM is no longer 1 subsidiary of Canada Paekers as alleged in paragraph 9 of the Statement. Rothsay is operated as a division of 1Canada Packers, and Orenco is operated as a wholly-owned subsidiary of Rine Five Investments Ltd., which is in turn a wholly-oW?led subsidiary of Canada Packers.
lo. Prior to llovember 30, 1990, Rothsay, the rendering division of (then) MLM, now of Canada Packers, operated rendering facilities in both Toronto and Moorefield, Ontario. However, with respect to its Toronto plant, a plan of ezpropriation had been registered by the Corporation of the City of Toronto on July 15, 1988, to the effect that this facility had to be closed by the end of 1990. Rothsay thus presently operates only the Moorefield plant in Ontario.
11. With respect to paragraph 4 of the Statement, Rothsay also operates a rendering facility in Cote Ste. Catherine,
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- 5 -Quebec under the trade name Laureneo. This facility principally services the Quebec market and is an effective competitor to Cou·ture, presently by far the largest renderer in Quebec. The~e is a distinct possibility that this facility would have to close without the Acq~isition, for the following reasons.
12. Prior to the Acquisition, Rothsay collected 50-60,000 lbs of raw material per week from Eastern Ontario (essentially east of Oshawa to the Quebec border). This material was sent to Rothsay•s Toronto plant. For its part, Orenco sent material collected in Eastern Ontario (approzimately 90,000 lbs) to its Burlington facility. The Acquisition has made it possible to rationalize these operations and to send the combined raw material of lS0,000 lbs to Rothsay•s Quebec plant.
13. Rothsay•s Quebec plant had been losing money because of low volumes. This additional throughput from Eastern Ontario could have a very signif.icant impact upon its long term viability. If Orenco is divestea, these shipments will cease in their entirety because it is not economical to ship only 50-60,000 lbs of raw materials from Eastern Ontario to Quebec. The loss of these shipments would represent a severe blow to Rothsay•s Quebec plant and could well force its closure.
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- 6 -This would leave Couture as the sole rendering operator in Quebec.
B. Qxerview Qf B1ndering Industry 14. The Respc:n1dents agree with paragraph 11 of the Statement, but further state that there are two aspects to the rendering busines$: the processing of raw material into finished products and the collection of raw materials from suppliers.
15. Renderers face vigorous and effective competition for finished products from both domestic and foreign suppliers and from suppliers of close substitutes. Consequently, Ontario renderers have no market power with re$pect to finished products, ~nd competition with respect to these products is, therefore, not an issue in this Application.
16. As for the processing of raw material, the Respondents egree with the allegation in paragraph 12 of the Statement that there are two distinct sources of supply to renderers: •captive• and •non-captive•. The Respondents further agree that the supply of captive material is not an issue in this Application.
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- 7 -17. As to non-captive raw materials, renderers obtain such supplies directl1· from customers using their own collection equipment and from independent licensed collecto~s. Both renderers and independent collectors remove animal waste material and grease from meat packing plants, abattoirs, slaughterhouses, butcher shops, grocery stores and restaurants, thereby providing an important service to these businesses.
18. The major source of non-captive raw materials in Southern Ontario i.s the Ontario meat processing industry. The demand for rendering services is, therefore, a funetion of the demand for the products produced by these meat processors. The Ontario meat processing industry tace~ vigorous competition from other Canaaian and u.s. processors and a deelining demand for its products. Therefore, it cannot pass on increases in input costs (•uch as the cost of rendering services) to its customers. Any attempt to :s>ass on such increases would result in a loss of customers to non-Ontario processors and a shift of processing to areas outside Ontario, Thia would lead to a decrease in the supply of raw materials available to Ontario renderers. These considerations impose a disciplinary constraint on the pricing that renderera operating in the Ontario market (as defined infi4, at para9raph 24) can charge for their services.
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- 8 -19. The prices which renderers pay to suppliers of raw materials are heavily inf lueneed by processing costs and the market prices for finished products. The market prices for finished products fluctuate frequently end significantly. In addition, each individual supplier is distinct in terms of the type, quality and quantity of raw materials that it supplies and the cost of collecting its materials. These factors will, in turn, influence the price which each supplier will receive from renderers for its raw materials. In certain cases, the cost of collecting and· processing raw materials e%ceeds the value which renderers can derive from these materials. In these instances, renderers will charge a collection fee to the suppliers involved.
20. Virtually all suppliers of ra~ material in Ontario operate by way of A4 ~ arrangements with rendering firms or indepennent collectors. There are virtually no long-term contracts between suppliers and renderers in the industry and suppliers frequently switch renderers based on price end service offerings.
21. The fixed costs of proeeasing raw materials ~re high and are increasing. The introduction of continuous processing (as opposed to batch processing) and the imposition of stricter environmental protection standards have substantially increased the amount and cost of equipment which renderers must install.
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- 9 -These high fixed processing costs represent an incentive to renderers to maximize throughput at their facilities through vigorous price competition.
22. In contrast to processing costs, collection costs are highly variable. Trucks and trailers can be readily acquired and aisposed of an~ drivers can be employed •s required. Accordingly, renderers and independent collectors can easily adjust their collection capacity to accommodate new sources of supply and customer switching.
C. Marls.et Definition (i) Relevant Geographic Mark~ 23. The Resporldents state that the Director has incorrectly aef ined the relevant geographic market in paragraph 24 of the Statement. An are~ bounded by a 200-mile radius represents the minimum colleetion area for a rendering facility. A renderer will travel more than 200 miles to collect material from certain accounts. In addition, a renderer can extend the 200-mile boundary for all types of materi•ls through the use of depots. Darling & Company (•Darling•) has established such a depot in Lambeth, Ontario. The Respondents further deny that the Canada-u.s. border represents a natural 9eog:raphic boundary. The nature and
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- 10 extent of U.S. competition is described in paragraphs 40-42 and 57-60 herein.
24. The relevant geographic market includes at least Southern Ontario, Borthern •e• York State and South-Eastern Michigan, all of whieh are within a 200-mile radius of the Rothsay and Orenco facilities. This ;eographic area is referred to throughout this Response as the Ontario market.
(ii) Belevnnt itodyct Marketa 25. With respect to paragraph 23 of the Statement, the Respondents state that diffeient types of raw materials are processed separately using specialized equipment.
26. There are four categories of non-captive raw materials: (i) red meat by-products (trim fat, trim bones and fresh paekinghouse/alaughterhouse material, as defined in paragraph ll of the Statement); (ii) deadstock; (iii) grease; and (iv) poultry by·-produets (offals end feathers).
27. Not every renderer in the Ontario market has the necessary equipment to process each of these four types of material. For e~ample, Orenco has never processed poultry by-products. On the other hand, poultry by-products account
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- 11 tor approzimately 50\ of the renderable material processed by Rothsay.
28. The Respondents state that each of the four categories of non-captive materials referred to in paragraph 23 herein constitutes a separate relevant product market. Because Rothsiy and Orenco do not compete with respect to poultry by-products, the Director has correctly concluded that competition in respect of these prooucts is not at issue in this Application.
29. The Respondents admit paragraph 17 of the Statement, except that blood can either be rendered with other red meat by-products or separately.
D. ~9mpgtiti2n Jn_Tbe Relevant Haraets
30. The non-captive Ontario rendering industry, as elsewhere throughou·t Horth America, is in decline. This decline is due, in part, to a continuing decrease in the availability of non-captive taw materials, particularly high quality :red meat by-products. Meat packers are integrating their processing operat.ions with rendering facilities tihich
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- 12 reduces the amount of non-captive by-products available from this source. Three of the four major pork packers in Ontario already utilize captive rendetinq facilities.
31. Further, there has been a shift of beef processing capacity from Ontario to Wester,n Canada. Moreover, Western Canadian beef proceesors are now shipping meat in boxed form rather than as whole carcasses which further limits the amount of trim bone and fat available in the Ontario market. Finally, consumers are eatln9 less red meat which also reduces the production and availability of waste materials.
32. The supply of deadstock and grease in the Ontario market is stable or in decline.
33. A decline is also foreseen in future demand for the finished products produced by the Ontario rendering industry, again in response to changing consumption patterns. The growing demand for lower cholesterol edible oils, such as canola and soya bean oil, is decreasing the demand for beef tallow. Moreover, animal meal is facing increasing competition from vegetable-based meal products.
34. While both the supply of high quality, non-captive raw materials to the rendering industry and the demand for the
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- 13 finished products which the ind·ustry produces are diminishing 1 the processing costs incurred by Ontario renderers are increasing, as alleged in p~raqraph 21 of this Response.
35. In the United States, the reduced supply of non-captive, high quality raw materials, the concomitant increase in processing costs and the inability of renderers to reoovet these higher costs because of declining f inishea product prices, b've already led to a significant rationalization of the non-captive rendering industry. The same conditions that have resulted in the contraction of the non.captive U.S. rendering industxy are now present in Ontario. The Acquisition is a direct reaction to these economic conditions •nd will facilitate the rationalization of the Ontario render:lng industry.
(ii) fartieisu•t&i in tbe Reley1nt M1rkets (a) Proc1s1u>r1 36. In the Ontario rendering industry, the measure of normal operating capacity is based on 2 eight hours shifts per day, 5 1/2 days of operation per week. Actual capacity may be higher or lower than the standard measure depending on the type
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- and quantity of raw materials processed. capacity can be expanded by adding a third shift.
37. The Respondents agree with the description of orenco set forth in paragraph 27 of the Statement. The Orenco facility has the e•pacity to render approximately 4,ooo,ooo lbs per week of non-ea.pti ve, red meat by-products and de ads tock material under normal operating conditions. It also has grease rendering facilities. Red meat by-products, deadstock and ;rease accounted for an estimated 61\; 23\; and 15\, respectively, of the approzimately 4.4 million lbs per week of material rendered by Orenco at the time of the Acquisition.
38. Rothsay•s Moorefield plant is presently operating 3 shifts per day, and has the capacity to render approximately 4,ooo,ooo lbs per week of non-captive red meat by-products and deadstock under these operating conditions. Both before and after the Acquisition, of the three types of material at issue, red meat by-products were the only raw material of any signif).cance ptocessed by kothsay at the Moorefield plant. Moreover, Rothsay has instituted a policy of steadily reducing its already minimal use of deadstock material. This policy was initiated prior to the Acquisition and has been maintained since then. In 19901 deadstock ~aterial accounted for approximately 1\ of the renderable material processed by Rothsay. Rothsay•s Moorefield facility did not render grease
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14 Normal operating
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- 15 prior to the Acquisition, nor does it do so now. 39. Prior to its expropriation .. Rothsay•s Toronto facility had the capacity to render approximately 3.5 million lbs per week of raw materials, which consisted primarily of red meat by-products together with some grease. The loss of the Toronto facility substantially reduced Rothsay'& overall capacity to render red meat by-products ~nd eliminated its grease rendering capacity. Accordingly, for reasons unrelated to the Acquisition, Rothsay has ceased to be a competitive factor with regard to the purchase of grease.
40. Darling is the larqest rendering firm in North America, with more than 40 plants throughout the United States. Darling ia capable of servicing the Ontario market from its Toronto, Buffalo and Detroit facilities. Darling's Toronto facility processes red meat by-products, aeadstock and grease, and has total available capacity to render approzimately 3.2 million pounds of ted meat by-products and deadstock per week .•
41. Darling's Detroit facility also renders red meat by-products, deadstock and ;rease. This plant has available excess capacity to render approximately 1.5 million pounds of
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- 16 material per week from Ontario. Darling recently suspended operations at its Buffalo facility because of insufficient supply. It is now processing ~enderable material from the Buffalo area at its Toronto facility and at various u.s. plants. Darling's Buffalo plant can render red meat by-produ-cts 1 deedstoek and grease and has the capacity to render appro%imately 3.6 million pounds of material per week from Ontario. Darling•s Buffalo plant can be brought back into production on sho:rt notice.
42. In all, Darling currently has the weekly capacity to process approzimetely 8.3 million pounds of renderable material from Ontario. This represents approximately 60\ of the relevant non-captive red meat by-products, deadstock and grease available in Ontario at the time of the Acquisition.
43. The Respondents admit that the description of Banner Packing Ltd. (•aa~ner•) set out in paragraph 30 of the Statement is subst•ntially correct. The Respondents further state that Benner collects red meat by-products from packing-houses, slaughtethouses, abattoirs, butcher shops ana grocery stores. Banner collects approximately 1.5 million pounds of raw material per week, which represents just under 15\ of non-captive red meat by-pfoduct supplies in the Ontario market at the time of the Acqusition. Banner can be expected to.
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- 17 continue to compete vigorously to maintain the current level of raw materials wh:ich it collects, notwithstanding the diminishing availability of such materials in the Ontario market, because Banner requires these raw materials to manufacture pet t:ood, which is its principal business.
44. The Respondents further admit the allegations in paragraph 31 of the Statement with respect to F.W. Fearman Company, ~imited (•Fearman•), which Canada Packers recently acquired. Fearman is not a significant competitor for non-captive renderable material in the Ontario market because, with the ezception of Fearman•s small joint venture blood drying operation, Fearman obtains its raw material supplies exclusively from its own hog slaughtering and meat processing operations.
45. With respect to paragraph 32 of the Statement, the Respondents state that since J.M,. Schneider ("'Schneider") closed down its integrated beef packing plant in 1989, it has become a much more aggressive competitor for non-capti~e red meat by-products in Ontario. Schneider has available capacity to render approximately 800,000 pounds of non-captive red meat by-products per week, which represents over 7\ of the total supply of non-captive red meat by-products available in the Ontario market at the time of the Acquisition.
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- 18 -46. With respect to paragraph 33 of the Statement, Couture currently renders approzimately 5\ of the renderable red meat by-products, 10\ of the grease and approzimately 10\ of the deadstock material available in the Ontario market.
47. Ray Bowering (•Bowering") is a licensed renderer with operations situated in Strathroy, Ontario. Bowering collects and renders approximately 25,000 lbs of deadstock per week.
48. Oxford Deadstock, an established collector of deadstock in Ontario, is currently constructing a rendering facility in Hickson, Ontario in partnership with Atwood Rendering Su~plies. This facility will have the capacity to render approzimately 880,000 lbs of material per week. This amount represents approzimately 60\ of the deadatock material in Ontario at the time of the Acquisition. The construction of this facility will increase the overall ezeess capacity in the Ontario market and~ in particular, will heighten competitiYe pressures on current deadstock renderers, inclucling Orenco.
(b) 1;01iectpr1 49. There are epprozimately 30 independent licensed collectors of rendering raw materials in the Province of Ontario including: B ~ n Deadstock Service Ltd., Ozford Deadstock, Paeoni Deadstock Removal, Machabee Animal Food Ltd.,
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- 19 -S.R.T. Trading Ine., Atwood Rendering Supplies and Edward Peconi and Son Ltd.
(iii) CQD)'PGit;Lon in the BtUIYIDt M1rketa 50. The Respcmdents deny that the Acquisition wi 11 enable the combined firm to ezercise increased market power in the Ontario rendering markets as alleqed in paragraph 40 of the Statement. The Respondents further deny the accuracy and relevance of the data set out in paragraph 35 of the Statement and, therefore, dispute the conclusions drawn by the Director from that data, as set out in p~raqraphs 36 to 39 of the Statement.
51. The installed plant capacity available in the Ontario market to process non-captive raw materials far exceeds the available supply of such Mjterials. This excess capacity is broaOly distributed among current and potential participants in the Ontario market •nd is likely to increase as the supply of non-captive raw materials Oeclinea, for the reasons outlined in paragraphs 30-31 of this Response.
52. The ezcess rendering capacity and ~eclining availability of non~captive raw materiale in the Ontario market together provide powerful incentives to market participants to compete vigorously for raw material supplies, and further
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- 20 ensure that the switching of rendering firms by raw material suppliers can be readily accommodated. These two factors also explain why the data set out in paragraph 35 of the Statement do not adequately ref leot the relative strengths possessed by participants in the Ontario market.
53. The Respondents further dispute the relevance and accuracy of the data set out in paragraph 35 of the Statement in that the Director has not distinguished among the three relevant product markets, as described in paragraph 25 herein. Although the Respondents deny that historical capacity utilization figures represent a relevant measure of relative market strength, the correct figures for capacity utilization of market participants at or about the date of the Acquisition, by rele~ant product type, are:
H2n-cagtjve Raw Mat§rial Volyme1 (•ooo lbs/week)
Red Meat Partici:eant Bx-frocluctli Oren co 2710 Rothsay 4020 (Moorefield and Toronto) Darling 1905 Banner 1350 Fearman 210 Schneider 500 Ray Bowering Couture 560
Qeagstock Greau 1030 675 100 295 160 115 25 175 120
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- 21 -54. Since the closure of its Toronto facility, Rothsay has sent moat of the raw materials that were proeesse4 at that plant to Orenco. These materials are being sent to the Orenco facility rather than to Rothsay'• Moorefield plant because Oreneo has substantial ezcese capacity. Orenco now render5 3.2 million lbs of red meat by-products, 0.28 million lbs of deadstook and approximately .825 million lbs of grease per week. Rothsay currently renders approximately 1.6 million lbs of non-captive red meat by-products and 0.18 million lbs of deadstock per week.
55. The Respondents repeat the allegations in paragraphs 38 ano 39 of this Response that Rothsay is not a signif ieant renderer of deadstoek material and that Rothsay has ceased to be a competitor for grease in the Ontario market for reasons unrelated to the Acquisition.
56. With respect to the processing of non-captive red meat by-prooucts, the Respondents •tate that subsequent to the Acquisition there will be four significant renderers of such material remainino in the Ontario market. in adc:li tion to the combined firm. Accordingly, the combined firm will continue to face vigorous and effective competition for the acquisition of red meat by-products. The Respondents repeat the allegation that the market share data set forth in paragraphs 35 to 39 of
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- 22 the Statement are irrelevant and specifically plead and rely upon section 94 of the Coometitign Aet·
(iv) Section 93 F1ctor1 (a) Foreign Competitign 57. The Respondents deny the allegation in paragraph 41 of the Statement with respect to the ineffectiveness of foreign competition. There are no significant tariff or non-tariff barriers preventin9 U.S.-based renderers, particularly the two Darling facilities loc~ted in Detroit and Buffalo, from competing for animal ·by-products produced in Ontario.
58. The only n.on-tariff barrier: face~ by U. s .• -based renderers is a prohibition against the importation of cJeadstock material into Canada. As already stated., the Acquisition will not have any material effect on competition with respect to deadstock material. The Respondents further deny that cross-border delays are a material consideration as alleged in paragraph 41 of the Statement. The only issue is inspection of material and this can be pre-arranged to avoid aelay.
59. The Respondents further deny that transportation costs represent a disadvantage to U.S. rendering facilities located
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- 23 close to the Ontario-u.s. bor6er. Virtually all of Darling•s present major aouroes of supply in Ontario are located within a 200 mile radius of either Darling's Buffalo or Detroit facilities. Moreover,, since the closure of its Buffalo plant, Darling has been shipping material from the Buffalo area to Toronto for rendering. Accordingly, the distance between Buffalo and Toronto is not a barrier to competition.
60. The Respondents have no knowledge with respect to the allegation that Ontario suppliers regard u.s. renderers to be less dependable. Darling hes the size, plant capacity, operational ability and ezperience to adequately service and effectively compet• for the business of raw material suppliers in the Ontario market.
(b) Accepta~le Su~stitutea 61. With respect to paragraph 42 of the Statement, the Respondents •tate that vertical integration by non-captive suppliers is the principal substitute for non-captive renaering services. Vertical integration into tendering is a viable alternative for large processors, an~ the threat of integration has a 4iseiplinary effect on the pricing behaviour of renderers, includinQ Rothsay and Orenco, who rely on
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- 24 -non-captive supply for a substantial portion of their raw materials.
(c) B.arrier1 ts> Entry 62. The Respondents deny the allegation in paragraph 44 of the Statement that comparatively high sunk costs are, in and of themselves, a significant birrier to entry into the rendering business in Ontario. Large scale •greenfield• investment in the rendering industry is unlikely, not because of high sunk costs, but because the industry .is in decline. The trend in the Ontario rendering industry is towards contraction, not ezpansion.
63. However, other forms of entry are still viable. Smaller, specialized facilities which handle only certain types of renaerable material, such as deadstock, blood or grease, face relatively low barriers to entry. Independent collectors, who have Oeveloped supply •rran;ements, are likely candidates for this type of entry. Both Oiford Deadstock and Ray Bowering have enterea the processing side of the rendering business in this manner.
64. With respect to paragraph 46 of the Statement, the Respondents admit that Ontario Ministry of Environment (•MOE")
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- 25 approval is required, but state that such approvals are granted in many cases. The risk of approval depends on a number of factors including the size, type and location of the facility in issue.
65. Meat processors with integrated rendering operations are elso potential entrants into the non-captive rendering business. Tb.is aource of potent.ial competition is becoming increasingly more significant as the decline in the Ontario beef slaughtering industry results in growing ezcess rendering capacity among vertically integrated beef processors.
66. Barriers to entry are very low into the business of collecting raw materials. The initial investment is minimal, a licence to operate is easily obtainable and environmental approval is not required.
(d) lff§Qtive Competit~on Remaining 67. The Respondents state that substantial, vigorous and effective competition will remain in all of the relevant markets subsequent to the Acqui8ition. With respect to red meat by-products, Darling, Banner, Schneider and Couture are and will remain vigorous competitors in the Ontario market. As for deaastock, a number of Ontario firms including Darling, Ray Bowering and Ozford DeaOstoek, as well as Couture in Quebec,
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- represent continuinq sources of competition. couture will continue to compete for grease.
68. As stated in para9raph 38 of this Response, Rothsay has not been a vigorous competitor for dea~stock. Accordingly, the Acquisition will not lead to the removal of a vigorous competitor in that market.
69. As stated in paragraph 39 of this Response, Rothsay ceased to be an effective competitor for grease supplies because of the closure of its Toronto facility. Accordingly, the Acquisition was not responsible for removing Rothsay as a competitor in this market.
(f) Chong~ end Xnnov1tion 70. The principal elements of change end innovation which are ef f eeting the Ontario rendering industry have been described in paregr•phs 30-35 of this Response. The competitive implications of these developments are at least threefold. Competition for non-captive raw materials between and among industry participants will increase as the supply of such materials declines. If industry participants are to
26 Darling and
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- 27 remain viable in the face of declining demand for finished products and increasing processing costs1 they must beeome more efficient. Finally, increasing efficiency in tbe rendering industry entails lowering the unit cost of production by maximizing plant utili&ation to ensure sufficient throughput to cover the high cost of sophisticeted en~ironmental proteetion machinery.
E. The Acquisition Will Yield Substantial Efficiencies that Could Bot Otherwi~e Be Attained 71. The combined ownership of Rothsay and Orenco will yield substantial efficiency gains which are directly attributable to the Acquisition, including:
(a) The elimination of duplicate collection routes will yield an estimated $440,000 a year in savings.
(b) Savings in the order of $250,00 per year will be obtained through reduced manufacturing costs.
(e) Closure of Orenco's head office ana termination of redundant e~ployees will yield savings of approzimately $1 1 200.000 annually.
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- 28 -72. The total cost savings from combining the Rothsay and Orenco operations are, therefore 1 estimated to be at least $1,900,000 annually. These cost savings will not be achieved if the orders sought by the Director are granted and the Rothsay and Orenco businesses are not permitted to be combined.
73. The Respondents state that these anticipated efficiencies will be greater than end will offset any lessening of competition that Ooes occur as a result of the Acquisition.
74. The Respondents deny that the Acquisition will result in a substantial lessening of competition in any relevant market, having regard to several factors, including:
(a) The Acquisition will bave little or no impact on competition with respect to the rendering of deadstock and grease. Rothsay was not a significant deadstock
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- 29 processor prior to the Acquisition and its capacity to render grease was eliminated by the closure of its Toronto facility. In any event, the combined firm will continue to face vigorous and effective competition in both these markets.
(b) The combined firm will continue to face vigorous and effective. competition with respect to the rendering of red meat by-products. Because of the ezeess capacity in the rendering industry and the ease with which euppliers cen switch between •na among rendering firms, historical market share data do not adequately reflect the ·relative mar~et strengths of the industry participants.
(c) Pricing behaviour by Ontario renderers is constrained by the need for market participants to maximize plant utili~ation and bY their inability to pass on price increases to meat processors without precipitating a decline in the avai labi li ty of raw mat.eri 1ls.
(d) Any lessening of competition that may occur as a result of the Acquisition will be more than offset by gains in e.fficiency which will occur as a result of the Acquisition.
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MAR lB •g1 13: 01 BLAVE TORO~lTO
- 30 -75. Divestiture of the Orenco assets will not remedy any potential lessening of competition in the Ontario market I
because in the event that divestiture is ordered, Rothsay will
cease to be an effective competitor for the purchase of non-captive raw meterial, and Orenco will have suostantially the same share of the non-captive raw material market as the combined firm would have pos$essed, had no divestiture order been made.
76. In the event of divestiture of the Orenco facility, virtually all of Rothsay•s weekly processing capacity will be needed to prooess Moorefield's current volume and captive waste material f ' rom Canada Packers. Rothsay would therefore have very limited capacity to process other non-captive red meat material available in the Ontario market, including the volume from its former Toronto plant that is now processed, for the most part, by Orenco. Moreover, because of the anticipated rapid growth of Canada Packers• supply of captive poultry by-products, an incteasin9 proportion of Rothsay•s red meat by-products processing capacity will need to be converted for use in rendering poultry by-products, further reducing Rothsay•s significance with respect to the processing of non-captive red meat by-products.
MAR 18 '91 13:02 BLAf<E TOROt'lTO
- 31 -77. Rothsay is unable to expand processing capacity at its Moorefield facility because of the need for MOE approval which is not likely to be forthcoming. Further, Rothsay is already operating at 3 shifts per day.
III. BgJ.IEF SOUGHT 78. The Respondents request that the Director's Application be dismissed.
IV. J!ROCEDIJRAL .llAmRS 79. The name and business address of the Respondents 1 counsel is: Blake, Cassels & Graydon Barristers and Solicitors aoz 25 Commerce Court west Toronto, Ontario MSL lA9 Counsel to the Respondents G.F. Leslie (416) 863-2672 J.J. Quinn (416) 863-2648 Neil Finkelstein (416) 863-3050 DATED at Toronto, this 18th Oay of March, 1991.
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MAR lB '91 13:02 BLAKE TORONTO
- 32 -BIJUCE~is~ G~fv'I.{ Barristers and Solicitors Box 25, Conunerce Court West Toronto, Ontario, M5L 1A9 Neil Finkelstein of Counsel to the Respondents TO: The Registrar The Competition Tribunal AND TO: Fraser & Beatty Barristers and Solicitors Box 100 l First C~nadian Place Toronto, Ontario M5X lB2 R.T. Hughes (416) 863-4446 P.J. Cavanagh {416) 863·. . 4459
Counsel to the Director of Investigation and Research 85800/1-32
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