Government Assistance and Unintended Consequences: Scotsburn Dairy

Nova Scotia’s Scotsburn Cooperative Services Ltd. announced recently that they are in the process of selling their fluid milk operations to Montreal’s Saputo Inc. for $61 million and purchasing Quebec’s family-owned Ailments Lebel Foods Inc., which produces ice cream and other dairy products.

Narrowing the company’s focus seems like a reasonable strategy for any business that discovers their competitive advantage and seeks to expand upon it. However, considering the amount of provincial funds used this past August to support Scotsburn’s operations in Truro, Nova Scotia, their decision to relocate in another province is troubling.

In March, Saputo and Scotsburn will finalize the $61 million deal, after which Saputo will resume dairy operations as a major distributor of fluid milk to Atlantic Canadian processors. In addition to Saputo’s acquisition of Scotsburn’s distribution network, it will also obtain ownership of some of its capital assets in Nova Scotia and Newfoundland and Labrador.

The details of Scotsburn’s agreement to purchase Quebec’s Ailments Lebel Foods, announced on 22 January, remain confidential, although they will likely finalize them in March. Scotsburn’s acquisition is part of a broader strategy to penetrate Canada’s ice cream market and the deal between Saputo and Scotsburn demonstrate its confidence that it can emerge as an innovator in the dessert industry.

Overall, these developments are business as usual. This includes concerns about employment stability and the subsequent loss to communities dependent on Scotsburn for their livelihood. More important is that Scotsburn received $7.5 million in provincial funds in August 2013 to help support the expansion of its Truro operations. Some of the money came in the form of a forgivable loan, although the province earmarked $2 million for purchasing updated processing equipment.

Consequently, the decision to relocate represents a significant departure, since the province assisted Scotsburn to bolster its operations in Atlantic Canada and secure its presence in the region.

Nova Scotian’s should be questioning the province’s decision to allocate provincial funds to Scotsburn. The province provided nearly $10 million in government assistance to secure Scotsburn’s Truro operations and provided additional employment opportunities and it is hardly conceivable that relocating to Quebec will produce those results. In fact, the company’s current business strategy clearly does not require provincial assistance–it is always good to be in a position to sell. The fact that it received such large sums of assistance already is the cause for concern.

Notwithstanding these developments, Scotsburn is seizing an opportunity to narrow its operations and become more profitable. However, this decision is at odds with Nova Scotia’s government, which provided assistance solely for securing Scotsburn’s presence in the province. Government assistance should help the local economy by generating more economic growth, increasing the standard of living, and producing employment opportunities. Scotsburn’s departure from Nova Scotia shows that government assistance is not always the strongest alternative for retaining industry and bolstering economic activity. Indeed, it is possible for some actors to take advantage of these programs and without proper specifications, the likelihood is much greater.

Rachel Lowe is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute

One thought on “Government Assistance and Unintended Consequences: Scotsburn Dairy

  1. I read this article on the weekend and wanted to clarify that Scotsburn has no intention of relocating its business and plans to base its head office out of Nova Scotia. We have signed a letter of intent to purchase an ice cream company in Quebec and we have aggressive plans to grow our value-added ice cream and novelty business across North America but we have full intentions of maintaining our head office right here in Nova Scotia. Regards.

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