In 2021, Merit Functional Foods made headlines with the grand unveiling of a state-of-the-art facility in Winnipeg, Canada, dedicated to producing high-purity pea and canola proteins. The facility, hailed as a breakthrough in the plant-based protein industry, promised to revolutionize the market with its advanced technology and superior product quality. However, by March 2023, the company found itself in dire straits, with receivers called in and the plant up for sale. Over a year later, the facility remains unsold, raising questions about what went wrong and why the situation remains unresolved.
The unraveling of Merit Functional Foods has been attributed to a confluence of factors. In a LinkedIn post from February 2023, co-CEO Ryan Bracken cited higher raw material costs, rising interest rates, and a drying up of risk appetite from lenders and investors as significant challenges. Additionally, the commissioning of their novel product took 12 times longer than anticipated, exacerbating the company’s financial woes.
However, a different narrative emerged from co-CEO Barry Tomiski in a recent letter to the Canada Border Services Agency (CBSA). Tomiski placed the blame squarely on a flood of cheap imports from China, alleging that Chinese companies have been dumping high protein content (HPC) pea protein on the Canadian market at prices subsidized by the Chinese government. This practice, he argued, made it impossible for domestic producers like Merit to compete. “We were constantly coming up against low-priced competition from China,” Tomiski stated. “The market had become hooked on these low-priced imports, making it essentially impossible for us to break in. Simply put, low Chinese pricing was the main reason our operation became non-viable and drove us out of the market.”
The term “dumping” refers to the practice of foreign producers selling their goods in a market for less than the price in their home markets, often with the help of government subsidies. This creates an uneven playing field, disadvantaging domestic producers. The Canadian International Trade Tribunal, which investigates such cases, has initiated a preliminary injury inquiry based on a complaint from pea protein giants Roquette and NutriPea. These companies argue that the influx of cheap Chinese HPC pea protein has caused significant material injury to the domestic industry, leading to job losses and reduced profitability.
Roquette and NutriPea’s complaint underscores the severity of the situation, noting that the average unit import values (AUVs) of Chinese HPC pea protein have consistently undercut domestic prices, leading to declines in sales, market share, production capacity, and employment. The complaint also highlights the ripple effect of similar anti-dumping measures in the US, which have diverted Chinese products to Canada, further saturating the market and intensifying competition.
The US government’s efforts to tackle alleged dumping of Chinese pea protein have provided a glimmer of hope for North American producers. In a preliminary determination, the US Department of Commerce found that Chinese pea protein was being sold at “less than fair value” and imposed preliminary duties ranging from 112% to 270% on dumped imports. This move aims to level the playing field and protect domestic industries from unfair competition.
The Canadian investigation, which began in April 2024, is still in its early stages. The CBSA is tasked with determining the existence of dumping and subsidizing, while the Canadian International Trade Tribunal will decide whether these practices have caused injury to the domestic industry. If both bodies confirm the allegations, the CBSA will then determine the appropriate duties to be imposed on Chinese imports.
The outcome of this investigation holds significant implications for the future of the Canadian pea protein industry. If successful, it could pave the way for a more balanced market, potentially making Merit’s facility an attractive investment once again. However, until then, the plant remains a symbol of the challenges faced by domestic producers in the face of global trade dynamics.