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Private investors seek approval to add competition to the market.

A consortium of local investors wants to offer Sault Ste. Marie consumers a selection of milk products after years of market domination by a single distributor.

Vic Fremlin in Trust has applied to the dairy inspection branch of the Ontario Ministry of Agriculture and Food for a license to operate Lock City Dairy. If granted a non-processor distributor licence, the dairy will compete with Beatrice Goods Inc. and the lure of cross-border shopping.

After three years, the consortium plans to build a plant to process milk in Sault Ste. Marie.

"We deserve a local dairy," says Sault Mayor Joe Fratesi.

The city of 80,000 lost its last milk processor in November 1991 when Beatrice Foods Inc. closed the plant it had operated for 19 years and put nine people out of work.

Since November 1991 the Sault's milk has been trucked from Sudbury by Beatrice, the only licensed distributor for the area.

Sault residents are concerned about the quality of milk which is transported 300 kilometres from the processor. On one occasion spoiled milk was recalled from store shelves, the result of a refrigeration failure during shipping.

A recent consumer survey conducted by Ernst & Young indicated that Sault Ste. Marie consumers want competition in the marketplace, a selection of product availability and a local processing plant. About 67 per cent of the survey respondents said they are willing to pay a premium of at least five cents per litre for locally produced milk.

Sault Ontario shoppers presently find better milk selection and prices on the U.S. side of the St. Mary's River. Milk is shipped to Sault Ste. Marie, Michigan by three, sometimes four, different Michigan dairies, and prices range from $1.79 to $2.29 U.S. for a one-gallon jug of 2% milk. In Sault Ontario, meanwhile, a four-litre bag of 2% milk, which equals 1.06 U.S. gallons, costs $3.29 Canadian.

Like gasoline, alcohol and tobacco, milk is a major commodity purchased by Canadians during same-day visits to the U.S. In border towns such as Sault Ste. Marie, Michigan, milk prices are often lower than in centres further south from the international border.

A Sault Ontario dairy would provide competition to the American brands. If approved, Lock City Dairy plans offer a full line of milk and by-products such as cream and ice cream.

The Sault Ste. Marie Chamber of Commerce plans to promote the local dairy as part of its "Partners in Excellence" program aimed at drawing shoppers back from the other side of the river.

According to the chamber president Ken Lajambe, a locally owned and operated dairy would be a badly needed sign of visible progress in the Sault's ailing economy.

"We want our milk by our people for our area," he says.

Beatrice was the Sault's only milk processor, but this was not a competitive advantage, according to Joe Peters, the former Sault Ste. Marie plant manager who is now with the Sudbury plant.

Peters says Beatrice watched its share of the Sault market drop eight per cent annually during its last three years of operation in the city.

The market declined by 45 per cent from 1983 to 1991, he says.

"If your income is reduced by 45 per cent, you're going to do something different. We just didn't see the volumes there and didn't see them coming back," Peters recalls. "Volume is everything in the beverage business. You've got to get volumes through the plants."

But Frank Sarlo, the solicitor for Vic Fremlin in Trust, is critical of Beatrice's business decision. He claims that Beatrice failed to conduct independent studies of prices and markets in the two Saults.

Sarlo was speaking at a recent hearing before the director of Ontario's dairy inspection branch.

The total annual Sault Ste. Marie, Ontario milk market is estimated to be 10 million litres annually, with three million of that going to U.S. retailers.

Sarlo predicts that a new Sault-based dairy can capture one million litres of the market after one year as a non-processor distributor and 2.1 million litres at the end of year three. The company would open a processing plant in the Sault and expand to 2.7 million litres in sales at the end of the first year of the plant's operation.

"By year four the dairy will be in production with a plant, and the plant will be profitable," Sarlo says.

CONSERVATIVE

Wayne Densing of John Madill chartered accountants prepared the volume projection for Vic Fremlin in Trust. He says he took "a conservative approach to projections, the first year being a break-even projection."

The estimates, however, do not include the sale of milk by-products, which would fetch extra revenue.

Vic Fremlin in Trust has a business plan that details product routing and delivery, transportation and depot facilities. The group has a salesman and experienced processing plant personnel who were formerly employed at Beatrice's Sault plant.

The group's investors say they have the full financial resources needed for the operation, and no government funding assistance is required.

At the hearing before the dairy inspection branch, Sarlo presented statements of support from area municipalities, federal and provincial politicians, 246 area retailers, consumers and farming-related businesses.

Sault Ste. Marie Mayor Joe Fratesi and MPP Tony Martin made personal presentations of support at the hearing.

Vic Fremlin is a third-generation dairy farmer with 145 head of cattle near Echo Bay, 20 minutes east of the Sault. He and other Algoma farmers have millions of dollars invested in farms, machinery and milk quotas purchased from the Ontario Milk Marketing Board.

When Beatrice closed the Sault plant, Algoma milk producers had to begin paying to maintain a tanker truck to ship their milk to Sudbury. There, Beatrice blends the milk of northeastern Ontario farmers.

Farmers count on the distributor to maximize fluid quota sales. The less milk Beatrice sells in Sault Ste. Marie, the less the payout to farmers like Fremlin.

"It's my livelihood in this market," Fremlin says, noting that his payout has dropped and transportation costs have risen since Beatrice left the Sault.

With a Sault-based dairy, Fremlin believes his payout of fluid quota sales could rise to 85 to 90 per cent of revenue from raw milk shipped.

In his bid for a private dairy, Fremlin received letters of support from 75 per cent of the members of the Algoma Milk Committee, which is comprised of milk producers. The committee wants to see additional distributors in the Sault market.

In 1959 Sault Ste. Marie had three dairies that served 150 farmers. Today only 33 farms remain, and the nearest processor is in Sudbury.

Fremlin in Trust is up against Ault Foods Limited for the new non-processor distributor license in the Sault. Ault is one of the biggest food and industrial milk processors in the country. It sells milk by-products under the familiar labels, Sealtest, Lactancia and Black Diamond.

Both Fremlin and Ault Foods consider the Sault market to be too small for two new licensees. Both firms have stated that they will not distribute in the Sault of the dairy inspection branch awards licenses to both applicants.

If Ault alone receives the licence, the company has no intention of processing milk in the Sault. Like Beatrice, Ault would ship milk from the Sudbury area.

Mike Holland, the plant manager for Ault Foods Ltd. in Copper Cliff is doubtful that a Sault-based processor could stay in business.

"The cost of running a dairy in the Sault would be enormous, considering the volume left in the city," he says.

Fewer than half of Northern Ontario's existing nine dairies are private and independently owned. Tom Farquhar is general manager of Farquhar's Dairy of Espanola, a 52-year-old family-owned business.

"I just hate to see a small independent business go down the tubes in Northern Ontario. We lose employment that is vital in small communities," Farquhar says.

He is hopeful that a new private dairy will succeed in the Sault. In the application for a non-processor distributor licence, Farquhar's agreed to process and package milk for Lock City Dairy.

"If the people of the Sault support them, I think they can be successful," he adds.

To Vic Fremlin, what is important is that local consumers and retailers support Lock City Dairy. The Sault's independently-owned grocers, Your Independent Grocer, and Loeb, have pledged to support the new dairy.

"They are local people. The money they earn in the area is money in their pockets," Fremlin says.
COPYRIGHT 1992 Laurentian Business Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Focus on Sault Ste. Marie; milk products industry
Author:Smith, Guy
Publication:Northern Ontario Business
Date:Apr 1, 1992
Words:1414
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