FRIDAY, MARCH 27, 2020| THEGLOBEANDMAILO REPORTONBUSINESS| B5
Cheese makerSaputo Inc.is eye-
ing takeover opportunities amid
the current market carnage as it
works through a “massive shift”
in demand away from restau-
rants and other food service cus-
tomers to retailers such as super-
markets.
Montreal-based Saputo, Cana-
da’s biggest milk processor, said
Thursday it has a strong balance
sheet and the capacity to add up
to $2-billion of debt, if needed, to
push through the economic cri-
sis caused by the novel coronavi-
rus pandemic.
The company plans to put its
capital to work if its rivals falter
and need to sell.
“Coming into this crisis, some
of our competitors were already
on very thin ice. Perhaps this
might just take them over the
edge,” chief executive officer Li-
no Saputo Jr. said on a confer-
ence call to discuss the current
situation.
“There will be, coming out of
this, increased opportunity for
M&A [mergers and acquisitions].
I think the great fortune we have
is that we can pick and choose
the ones we think will fit our
strategy for development the
best.”
Saputo would be most inter-
ested in takeover targets in the
United States, Mr. Saputo said.
He said companies that are heav-
ily focused on serving industrial
and restaurant customers “have
got to be suffering” and could be
forced to sell.
The global food industry has
been upended in recent weeks
by COVID-19, the disease caused
by the coronavirus.
As governments in Canada
and elsewhere tighten restric-
tions on social gatherings and
mandate the closing of restau-
rant dining rooms, demand pat-
terns have changed as people
load up on groceries to cook at
home.
For Saputo, the result has
been a “massive shift” in produc-tion away from serving industri-
al clients, such as salad dressing
manufacturers and meal service
customers, toward grocers and
other similar retailers. Saputo
factories serving retailers are
“running hard,” in some cases at
more than full capacity, the com-
pany said.
The shifting demand, though,
is leaving Saputo with excess in-
ventory that it might need to
write down. The company is try-
ing to figure out how to repur-
pose its dairy products so they
don’t go to waste, Mr. Saputo
said. That could mean trying toconvince supermarkets to accept
new product packaging or for-
mats, or giving what can’t be
sold to food banks instead of
dumping it, he said.
“This is going to cost us mon-
ey,” Mr. Saputo said. “But that is
secondary in our thought pro-
cess. We can afford to do the
right thing.”
Saputo’s operations are con-
sidered a critical service by gov-
ernments across the world and
its plants in Canada, the United
States and other countries con-
tinue to run, except for those fa-
cilities focused on specific prod-ucts that aren’t selling. The com-
pany said it continues to gener-
ate positive cash flow.
Canadians are buying a lot of
liquid milk at home at the mo-
ment, with the volume augment-
ed by the lack of cross-border
shopping into the United States,
Saputo chief operating officer
Kai Bockmann said.
Americans, meanwhile, are
stocking up on string cheese and
other value-added products, he
said.
“People seem to be craving
comfort foods so we’re seeing a
lot of strong sales of ricotta,” Mr.
Bockmann said. “It looks like a
lot of people are making a lot of
lasagnas at home.”
Much of the demand trends
could be related to “pantry load-
ing” as people stock up to spend
more time indoors in recent
weeks, and it’s too soon to tell
which changes will become
more permanent, Mr. Bockmann
said. “It’s a rapidly changing en-
vironment.”
A cross-Canada survey by An-
gus Reid taken March 13 to 15
found 41 per cent of Canadians
declared they had made special
food provisions as a result of the
COVID-19 outbreak. Of Cana-
dians who bought provisions, 30
per cent purchased dry and
canned goods, followed by fro-
zen foods and 24 per cent bought
“other non-food items like sani-
tary products, tissues, toilet pa-
per.”
Saputo, with 16,800 employ-
ees, is one of the top 10 dairy
processors in the world and
ranks among the top three
cheese producers in the United
States. It is also a major player in
Australia and Argentina. Its
products are sold in several
countries under brands such as
Neilson, Nutrilait and Arm-
strong.Sa·ut ̈eðestake ̈ver ̈·· ̈rtunities
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NICOLAS VAN PRAET
Canadian cheese maker Saputo, some products of which are seen above, has seen a ‘massive shift’ in
production away from serving industrial clients toward grocers and similar retailers as the coronavirus
pandemic upends market demand.CHRISTINNEMUSCHI/THEGLOBEANDMAILInvestor advocate FAIR Canada is
asking the financial services in-
dustry to suspend redemption
fees on mutual funds that charge
investors early withdrawal fees
during the coronavirus pandem-
ic.
On Monday, the industry
group called on all Canadian
banks, insurance companies,
mutual fund dealers and invest-
ment companies to offer relief
on withdrawal penalties to all re-
tail investors suffering financial
hardship related to the COVID-19
crisis.
Mutual funds that include fees
known as deferred sales charges
(DSCs) penalize investors when
they pull money out of a mutual
fund before a set date. Regulators
are in the process of banning the
controversial funds, which pay
advisers an upfront commission
that is often higher than com-
missions for other types of mu-
tual funds.
“It’s now time for the financial
services industry to take a long-
term enlightened view and act in
the best interests of their cli-
ents,” Ellen Roseman, co-chair of
FAIR Canada, said in a statement.
“In these unprecedentedly tur-
bulent times, the DSC mutual
fund or segregated fund (the
equivalent insurance industry
product) are particularly harm-
ful to investors who must access
their cash.”
Last December, Canadian Se-
curities Administrators, an um-
brella group for all provincial se-
curities regulators, announced
most provincial and territorial
regulators were moving ahead to
ban the sale of DSC funds.
Ontario’sgovernment did not
support the ban and said it was
going to place certain restrictions
on the sale of the investments in
the province.
Over the past week, about a
million Canadians have filed for
employment insurance benefits,
while Ottawa expects another
four million applications to be
filed under a new relief fund that
will pay $2,000 a month to work-
ers who have lost income be-
cause of the COVID-19 pandemic.
“The financial services indus-
try must step up and support
Canadian retail investors at this
critical time,” Ms. Roseman said.
One of the biggest conse-
quences of the DSC option for in-
vestors occurs when they have to
redeem their money earlier than
expected owing to unforeseen
circumstances. One of Ontario’s
rules – which isn’t expected to be
implemented until later this year- would allow an exception for
investors during financial hard-
ship circumstances, such as in-
voluntary loss of full-time em-
ployment, permanent disability
or critical illness.
But for those investors cur-
rently invested in DSC funds, pe-
nalties are still being charged if
they cash out of their invest-
ments early, regardless of their fi-
nancial situation.
DSC funds force clients to pay
as much as 6 per cent to cash out
their mutual funds, a fee that
tends to decline by 1 per cent
each year, falling to zero after the
fund is held for five to seven
years.
“The many well recognized
objections to DSC mutual funds
and DSC segregated funds, in-
cluding conflicts of interest and
excessive hidden fees are even
more egregious at a time when
many Canadians need urgent ac-
cess to their money,” FAIR said.
The Investment Funds Insti-
tute of Canada, an industry
group for Canada’s asset manag-
ers, didn’t have an immediate
comment as it is discussing the
proposal with its members.
John DeGoey, portfolio man-
ager with Wellington-Altus Pri-
vate Wealth Inc., a long time ad-
vocate for the ban of DSC funds,
says as an alternative to cashing
out, clients could consider using
their emergency funds or access
to credit before dipping into their
investments – or if necessary, in-
vestors could take only 10 per
cent out of their DSC funds – the
allotted amount allowed before
incurring a penalty.nvest ̈radv ̈cate
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CLAREO’HARA
WEALTHMANAGEMENTREPORTER
Mutual funds that
include fees known as
deferred sales charges
(DSCs) penalize
investors when they pull
money out of a mutual
fund before a set date.
Regulators are in the
process of banning the
controversial funds,
which pay advisers an
upfront commission.I
n little more than a week, Ottawa has
launched two emergency income relief pro-
grams totalling $15-billion, scrapped them
and then introduced a $40-billion replace-
ment that upends decades of employment in-
surance rules.
That speed of action is a testament to the fast-
moving nature of the coronavirus-driven eco-
nomic crisis, which has already pushed one mil-
lion Canadians to apply for Employment Insur-
ance (EI) benefits. And this is just the start.
The federalgovernment projects that four
million workers will apply for the new Canada
Emergency Response Benefit (CERB), which
will pay $2,000 a month for four months to indi-
viduals who have lost income because of the
novel coronavirus.
Unlike EI, those workers will not have to
prove they qualify under a stringent set of rules.
The self-employed will qualify, including busi-
ness owners. Even workers who haven’t lost
their job can collect – if they are no longer being
paid and are laid off, that will be enough to allow
them to receive CERB payments.
“It’s universal employment insurance,” says
Lindsay Tedds, scientific director of fiscal and
economic policy at the University of Calgary’s
School of Public Policy.
The CERB differs from the decades-old EI sys-
tem in at least one other notable way: It is not
tied to the recipient’s previous employment in-
come. All recipients are paid $2,000 a month.
That flat benefit means the CERB dispropor-
tionately helps recipients at the lower end of the
income scale – the kind of worker most likely to
have been caught up in the initial rounds of lay-
offs in the hospitality and retail sectors, says Da-
vid Macdonald, senior economist at the Cana-
dian Centre for Policy Alternatives. He esti-
mates that four out of five workers will be better
off under the CERB than under EI.
The CERB would replace 82 per cent of the
lost income of a minimum-wage employee in
Ontario working a 40-hour week. EI benefits
would replace just 55 per cent of employment
income. But as income rises, the CERB becomes
relatively less attractive. The maximum pay-ment under the CERB is $500 a week, but EI
weekly payments top out at $572 – a 14-per-cent
gap. Once a worker’s annual income exceeds
$47,272, he or she would be better off under EI
than the new program. However, Mr. Macdo-
nald points out that EI recipients may have to
wait significantly longer for their payments
than recipients of CERB benefits. Ottawa intro-
duced the new program, in part, because of
enormous backlogs in recent EI applications.
One major change in the CERB program from
its one-week-old predecessor, and from EI, is
that workers who are furloughed – employed
but not paid – are eligible to receive payments.
Finance Minister Bill Morneau is referring to
those payments as “wage subsidies.” He’s been
using that label as thegovernment has come
under mounting pressure to increase the 10-
per-cent wage subsidy program it announced
last week – subsidies that are paid to employers.
“The way that we have decided to move for-
ward on this is we are providing a wage subsidy
that’s going to go directly to employees,” Mr.
Morneau said in the Senate on Wednesday, re-
sponding to questions from Conservative Sen-
ator Don Plett.
Business groups have repeatedly contrasted
Canada’s 10-per-cent subsidy with much higher
emergency subsidies in other countries, partic-
ularly Denmark’s 75-per-cent program. When
questioned on Wednesday about that gap, Mr.
Morneau disputed the suggestion that Den-
mark’s program is more advantageous, saying
that Canada’s support for small- and medium-
sized businesses is “superior.”
For the moment, the funds to be paid to
workers under the CERB, forecast at $40-billion,
are 10 times greater than the $3.9-billion to be
paid to employers as wage subsidies.
Ms. Tedds said the eligibility of unpaid, but
not terminated, workers to receive CERB pay-
ments will help preserve employer-employee
attachments. But she warned of inadvertent in-
centives that Ottawa may create with large sub-
sidies paid directly to workers: Companies may
be nudged toward furloughing their more ex-
pensive staff, knowing they can recall them
once lockdowns have been eased.Tax and Spend is a new series that examines the
intricacies and oddities of taxation and government
spending.Finance Minister Bill Morneau responds to a question on Ottawa’s COVID-19 financial measures in the
House of Commons in Ottawa on Wednesday.ADRIANWYLD/THECANADIANPRESSOttawa’snewemergencybenefitupends
traditionalemploymentinsurancerules
PATRICK BRETHOURTAXANDSPEND