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Alberta's snack-food success story turns south

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Wednesday, February 21, 2018 – Page B1

CALGARY -- Tom and Emmy Droog parlayed a small sunflower crop at their southern Alberta farm into the famous Spitz brand, built the wellknown snack business over more than two decades, and sold the company to PepsiCo Inc. in a private multimillion-dollar deal 10 years ago.

But the brand remained something Mr. Droog held dear, and he was shocked last week to learn that PepsiCo will soon close the 53employee Bow Island, Alta., facility he founded in favour of production in the United States.

He believes there are both business and political reasons behind the move. "Mr. Trump has something to do with it. They're all scared," Mr. Droog said of companies with North American operations, adding he believes the Trump administration is going to push for firms to shift more manufacturing and processing work to the United States. Mr. Droog is watching the Trump administration from afar and doesn't have confirmation of his beliefs.

The closing of the plant and resulting job losses are major blows to the 2,000-person town of Bow Island, located 320 kilometres southeast of Calgary and about 100 kilometres north of the border.

The town's mayor and the county reeve have expressed worries about the loss of long-term jobs, the number of households that will be hurt and the hit to the local tax base.

News of the closing that came out last Thursday also spurred a political debate about whether Alberta's recently increased corporate tax rates and carbon price are to blame, with the province's United Conservative Party Leader Jason Kenney tweeting: "I fear we'll see more stories like this as government policies make the price of doing business more expensive in our province."

Mr. Droog no longer has formal ties to Spitz, but he believes the impending plant closing is more about U.S. policies than anything any Canadian government is doing. PepsiCo's decision, he said, fits into a broader trend that includes Campbell Soup Co.'s announcement last month that it will close its Toronto-area factory and shift production to the U.S.

He said U.S. President Donald Trump is using his office to press firms to increase the number of U.S. jobs, and Congress is spurring that movement with the massive corporate tax break approved late last year. The forces at work, including NAFTA uncertainty, will give food processors and auto manufacturers reason to expand U.S. facilities while putting the chill on Canadian investments, he believes.

"They don't know what is coming in Ontario. Trump is not done yet. He wants to rebuild Detroit."

Mr. Droog thinks the closing also came about as a result of PepsiCo wanting to focus on a growing U.S. market, while reducing shipping costs. Mr. Droog noted that when PepsiCo took over Spitz in 2008, production stood at 5.4 million kilograms a year. He said PepsiCo had more than doubled that and wants to double production again.

Bow Island is far from major retail markets, and growing sunflowers in Alberta's climate isn't easy. Spitz sourced many of its seeds from Manitoba, where 90 per cent of Canada's crops are grown. North Dakota produces more than four times the weight of Manitoba's annual total.

Alberta Agriculture Minister Oneil Carlier said on Monday the Spitz brand is a provincial success story and it's "disappointing to hear of the planned closure." But Mr. Carlier said his NDP government has invested in value-added agriculture, and Alberta still has "one of the most competitive business tax regimes in Canada - no provincial sales tax, no provincial capital taxes and no payroll taxes."

PepsiCo Foods Canada spokeswoman Sheri Morgan said the decision to close the Bow Island plant "no earlier than mid-July" was a difficult one. She declined comment on the political discussion around the move.

"This was a business decision based on an extensive evaluation of the long-term viability of this site and its ability to meet our increasing volume requirements for the brand," Ms. Morgan said in an e-mail.

Spitz production will be outsourced to one of the U.S. Midwestern production sites controlled by the Netherland's Amsterdam Commodities NV, or Acomo, and their U.S. subsidiary, Red River Commodities Inc. Ms. Morgan said Bow Island is an older manufacturing facility that would require significant modernizations.

Starting with a crop of sunflowers they expected only to sell for birdseed, the Droogs had built their business into the wellknown Spitz snack brand over 25 years - making deals with farmers for the best quality raw product, pioneering flavour-roasting seeds, and being the first to offer resealable packages. The Droogs were making major inroads into the U.S. market when they sold their controlling interest in the company to PepsiCo's Frito-Lay family in 2008 for untold millions.

Mr. Droog, now 69 years old, remembers the day nearly a decade ago when PepsiCo picked him and his wife up in a company jet.

The deal with the American snack giant had been completed and they were travelling for a debriefing in the Dallas suburb where Frito-Lay is headquartered.

Mid-flight, the pilots noticed both passengers were weeping, assumed there was a medical emergency and offered to land.

But Mr. and Ms. Droog - both immigrants from the Netherlands who came to Canada nearly broke in the early 1970s, met in Ontario and then moved to southern Alberta to farm - explained they were simply overwhelmed.

"When you come with nothing, and they pick you up in a Learjet, that's an amazing feeling," Mr. Droog said.

Ms. Droog died of cancer in 2010 ("She could never enjoy the fruit of her labour," her husband said) and since then, Mr. Droog and Bow Island leaders had hoped that recent modernizations to the facility showed PepsiCo was planning to stay.

"They spent $2-million in the last two years to update, and I had said [to Spitz employees], 'Your jobs are pretty safe down there.' " But instead, Mr. Droog spent Tuesday afternoon visiting the Bow Island plant and shed some tears with the workers. In the end, "they do custom roasting in the United States, and it's a numbers game."

Associated Graphic

Spitz co-founder Tom Droog, seen at his home in Calgary on Monday, says he thought modernizations to the Bow Island Spitz plant were a sign PepsiCo was planning to stay in the community.


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