UPDATE 2-Canada: new manager won't alter tainted beef plant review

Thu Oct 18, 2012 5:26pm EDT

* JBS assumes management of XL Foods plant, holds buy option

* XL Foods-produced beef sickened 15 people

* JBS had meat recall in 2009 but touts safety record

* Plant shutdown holds back Canadian cattle from market

By Rod Nickel and Theopolis Waters

WINNIPEG, Manitoba/CHICAGO, Oct 18 (Reuters) - The Canadian government said on Thursday that management changes at an Alberta plant responsible for one of the country's biggest-ever meat recalls would not affect a nearly completed review of changes made to improve the plant's safety.

Canadian food inspectors are set to recommend this week when, or if, XL Foods' Lakeside beef processing plant in Brooks, Alberta, can reopen after E. coli contamination of its products sickened 15 people in Canada and prompted the recall of millions of pounds of beef.

The Canadian Food Inspection Agency, which pulled privately held XL Foods' operating license on Sept. 27, said "any change in management or ownership at XL will not affect our assessment."

JBS USA, a subsidiary of Brazil-based JBS SA , said late Wednesday it had signed a deal with XL Foods to manage the Brooks plant and had an option to purchase the Canadian and U.S. operations of XL Foods for $50 million in cash and $50 million in JBS SA shares.

The company, which would not assume XL Foods' debt or liabilities, said it would examine events carefully to work out what went wrong at the plant, which can process up to 4,500 head of cattle a day.

"We're going to have to sit down with XL and understand what has occurred in that facility to date and bring our expertise to assist in that situation," JBS spokesman Cameron Bruett said on Thursday.

"We have a very successful food safety track record and robust food safety program and we think that will be an asset to the facility."

Agriculture Minister Gerry Ritz, who has been under fire for the government's handling of the beef recall, also suggested nothing will change in the review timetable.

"Canadian consumers can be assured that the Canadian Food Inspection Agency will enforce the same rigorous food safety standards at Lakeside facility regardless of the management," Ritz said in an email statement.

US GOV'T AUDIT

Meanwhile, Canada's food safety system will come under scrutiny from the U.S. government, which found inconsistent application of meat safety rules in an audit three years ago.

The U.S. Agriculture Department said the audit was planned before XL's beef recall began a month ago.

USDA audits of food safety systems typically require four to six weeks for visits to plants, labs and government offices and are followed by months of report-writing.

In its last review, USDA said Canada failed to apply meat-safety rules consistently. As a result, Canada struck export approval for three out of 23 plants USDA had visited.

The situation indicated a "system weakness to maintain the country's standards in a broad and consistent fashion," said the audit. The Canadian Food Inspection Agency undertook significant steps, particularly to improve the training of inspectors, to improve its system, said USDA.

"If these actions are effectively implemented, the system weaknesses should be remedied," said the report.

As part of the 2009 audit, three plants were barred from exporting products to the United States and three others were threatened with delisting, out of 23 plants inspected. None of them were identified by name.

The 2009 audit was the last in a series of audits that ran from 2006-08 and was an "equivalence verification" audit to see if Canada's rules resulted in meat and poultry products equal to U.S. safety standards.

JBS HIT BY BEEF RECALL IN 2009

JBS has also produced beef contaminated with E. coli. The USDA's Food Safety and Inspection Service in 2009 recalled beef produced by JBS Swift. Twenty-three people in the United States were infected.

JBS responded by assembling a top-notch food safety team that still advises the company, said Steve Kay, editor of California-based Cattle Buyers Weekly.

"What they do will absolutely diffuse the whole issue and all the controversy surrounding the recall because their focus will be 150 percent on satisfying CFIA's requirements and enhancing the food safety systems currently in the plant and getting it back up and running by early next week if they can," Kay said.

JBS will decide whether to buy the XL operations within six months, Bruett said.

In Canada, JBS, the world's sixth-largest exporter of beef and veal, would go toe to toe with Cargill Ltd, which operates two big beef plants of its own.

"Canada has an excellent cattle herd," Bruett said. "Our strategy as a company is to have a global platform both in processing and in distribution."

The temporary shutdown of the XL plant has forced ranchers and feedlots to hold back cattle from the market or to export to U.S. slaughter plants.

Western Canadian feedlot operator Brad Wildeman said he would be sorry to see a Canadian cattle company disappear, but sees benefits from JBS's arrival.

"They have a lot of expertise at running plants and second, they're a world trader, so in the longer term our ability to build export markets is going to be important for us."

JBS is the third biggest beef producer in the United States, after Tyson Foods Inc and Cargill.

"This whole deal with picking up XL assets, which is eventually what they are going to do in six months, reveals JBS's opportunistic acquisition strategy and strengthens their hand in North America quite considerably," Kay said.

Bruett would not say when the company began discussions with XL Foods, which is privately owned by Nilsson Bros. JBS shares in Sao Paulo rose 3.8 percent in afternoon trading.

The union also cautiously welcomed the deal. "JBS is going to have to prove they can come in here and run the plant, and in order to do that they'll need to reach out to the workers who know best what's needed at the plant," said Doug O'Halloran, president United Food and Commercial Workers Union Local 401.

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