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Sunday, March 1, 2009

Northern Beef Packers: Big hat. No cattle.

The story about Northern Beef Packers, which is building a processing plant at Aberdeen, gets as convoluted as Illinois Sen. (for the moment, at least) Roland Burris' accounts of his contacts with deposed Gov. Rod Blagojevich. Last week a seventh contractor filed a mechanic's lien on the plant. Total liens at this time amount to $7 million:

  • Scott Olson Digging of Huron for $2.1 million for dirt work.

  • McNeil Refrigeration of Omaha, Neb., for $1.75 million for materials, installation and labor.

  • Industrial Builders of Fargo, N.D., for $920,916 for a pre-engineered steel structure and other work.

  • Red Wilk Construction of Huron for $834,113 for concrete materials, steel and labor.

  • Arctic Industries of Papillion, Neb., for $658,352 for wall and ceiling panels and labor.

  • MNDAK Concrete/Concrete Inc. of Grand Forks, N.D., for $592,767 for work on a carcass cooler.

  • Fargo Tank and Steel of Fargo, N.D., for $149,975 for beams, structural steel and a condenser framing system.

The man heading up the project, Dennis Hellwig, told the South Dakota Farmers Union convention in Aberdeen last weekend that the issues with contractors are being resolved and the plant should open in late summer. The state Farmers Union was involved in a beef packing plant that was originally planned for Huron.

The beef business is a subject familiar to me. As a former farm and business section editor, I covered the closing of the old Chicago Stockyards and the building of regional packing houses. I have habitually tracked what is happening to the beef business ever since. And raising beef has been an important aspect of my family's history. But the beef industry rivals the financial segment of the U.S. business community for the number of scams and failures it endures.

The movement of packing companies from a central location into the regions marked a big change in the market for beef producers. At the old livestock yards, commission buyers would bid on the cattle farmers brought to market. As the packing houses became regional operations, the competition for the cattle decreased. Farmers would sell to the packing houses closest to them. While cattle are still sold through various kinds of auction operations, the marketing options have declined, and many cattle are fed on contract with specific companies. In fact, many of the cattle on feed are owned by the packers. The company JSB, SA, which purchased Swift in 2007 has a feed lot in Colorado that has up to 800,000 cattle on feed at a time.

Four huge packers process 83 percent of the U.S. beef. For independent producers, the market is very limited. The operation of a regional beef processor such as planned by Northern Beef Packers provides an optional, potentially more lucrative market for independent producers in the region. For the beef industry in general, such an operation would appear to slow down the consolidation and control of beef production by a few huge corporations. But going into competition against the giants is a daunting task.

As of now, the four corporations that process 83 percent of the beef are:

  • Tyson, processing 36,000 head a day

  • Cargill, processing 28,000 head a day

  • Swift, now owned by JBS SA, at 16,700 a day

  • National Beef Packers, at 13,000 a day

The big four almost became the big three. JBS SA is a huge Brazilian connglomerate. It entered the U.S. beef business scene with the purchase of the former Swift. Co. Last year it announced the intention of buying National Beef Packers. At the same time, it acquired the beef operations of Smithfield. However, shortly before the election of 2008, the Department of Justice filed a suit against the JBS acquisition of National Beef. It was joined in the suit by 17 states, including South Dakota. The grounds of the suit were that the acquisition would create a monopoly which would effectively control prices and the market place. A week ago, JBS announced that it could not come to terms with Naitonal Beef and withdrew its plans . In this background of concentration and control of the beef market, beef producers have encouraged the development of Northern Beef Packers.

But the history of how Northern Beef Packers was initiated is a troubled one.

Some years ago, South Dakota beef producers solicited money for establishing a beef packing plant in the state. After looking at the concentration of beef processing and the marketing obstacles for beef products, the producers decided to end their project and return the money to the investors. Prospects for a beef plant were raised again when South Dakota turkey producers, largely composed of leaders from the Hutterite colonies, formed Dakota Turkey Growers for the purpose of building a processing plant in South Dakota. They built the plant in Huron, but in the formative stages of developing the plant Ridgefield Farms, a Connecticut company, announced that it would build a beef processing plant to take advantage of the waste disposal and transportation opportunities available in Huron. Before deciding on Huron, the Turkey Growers listed Aberdeen as a possible site for the plant. There was opposition to the plant in Aberdeen based upon openly racist objections. Many residents protested that illegal aliens and minorities would make up the workforce. Although the Huron location was chosen because of the infrastructure advantages, the racial undercurrents in Aberdeen were a factor that would return to confront Northern Beef Packers.

The plans for Ridgefield Farms to build a plant next to the turkey processing plant in Huron collapsed. What happened has never been explained. Investors withdrew their support, some environmental issues came up, and many rumors were in circulation regarding Ridgefield's relationship with state government. Ridgefield Farms announced that it was moving its project to Flandreau.

The planning for the Ridgefield plant received $850,000 from the Flandreau development organization. It also received support from Farmers Union Industries, headquartered at Redwood Falls, Minn. Then for a period of six months, the management of Ridgefield Farms made no attempt to inform investors of the project of its progress. In fact, there was no contact with investors at all. In a meeting in August 2006, 75 investors voted to have Ridgefield Farms turn over all its assets to Farmers Union Industries. That fall, the Flandreau project was canceled, and Ridgefield farms ended all operations.

Ridgefield Farms South Dakota registered as a limited liability company with Philip Friend as its president and 12 South Dakota residents as its managers in April 2004. It was dissolved by administrative order of the Secretary of State for delinquency in its annual registration in November 2006.

The company has left a legacy of legal actions:
  • In June 2006, Prairieland Processors of Commerce City, Colorado, won a $2.2 million judgment against Ridgefield and its CEO Phil Friend for nonpayment for cattle the firm purchased.
  • Last year, Farmers Union Industries won a judgment against Ridgefield for more than $1 million in Minneapolis federal district court.
  • Last September Farmers Union Industries filed a $3 million suit against Ridgefield in Sioux Falls district federal court for money it and others are claiming for the aborted Flandreau project.
Dennis Hellwig says that he received a call from Phil Friend, the CEO of Ridgefield Farms, suggesting that he look into setting up a beef processing plant and take advantage of the South Dakota Certified Beef program for the promotion and marketing of beef products.

Hellwig owned land near the Aberdeen waste water treatment plant and started plans to construct a processing plant at that location. The project first had to deal with a zoning issue. An Aberdeen residential area is about a mile from the site, and a number of suburban homes are situated in the area. People objected to the traffic, noise, odor, and air problems, but the city and the county supported a zoning change in the interest of economic development. Officials worked hard to obtain a zoning change and then the passage of Tax Incremental Financing (TIF) bonds. A major point in favor of the rezoning was that the processing plant would be located in neighboring proximity to the waste water treatment plant, greatly simplifying the handling and treatment of waste water from the packing operation.

The first alarm received by city officials that plans for the plant were not comprehensive, specific, and on track came when some men approached the county commission seeking its support for a different waste water plan for Northern Beef Packers. Their plan was to hold the waste water in ponds and sell it to farmers for irrigation purposes. I was working in the court house and city hall the morning after the proposal was presented to the county commission, and local officials were outraged. Some who worked hard for the rezoning on the basis of efficient waste water treatment felt betrayed. Others thought the scheme was hare-brained and would never pass the many environmental hurdles it needed to surmount.

At the time, any such matters impacting the environment had to be approved by the legislature. Northern Beef Packers had enough influence to get legislators to introduce a bill repealing the legislative requirement on the environmental issue. However, as soon as the new waste water disposal plan hit the desks of state and federal environmental officials, it was dismissed.

The result was that the support of Northern Beef Packers from local officials turned to diffidence, doubt, and, in some cases, animosity. Further doubt was created when an arrangement with a beef promotion and marketing organization was terminated. The key element for a viable beef processor is to have a reliable means to sell, distribute, and service its products. Without such a marketing arrangement in place, a beef packer has no reason to operate.

During its planning and construction period, Northern Beef Packers has sent out chaotic announcements about staffing. It has announced project directors and plant executives in the past, but the persons disappear without comment or notice.

The organization met with some very vocal opposition from Aberdeen residents who challenged the rezoning for the plant, but the most strident opposition was about the kind of people it might bring to town for its workforce. A referendum on issuing it TIF bonds passed with a very comfortable margin, however.

The company was organized as Northern Beef Packers, Inc., in September 2005 as a business corporation with 100,000 shares authorized, but none issued. Dennis Hellwig was llsted as president and agent. No other officers or directors were listed.

The corporation was dissolved in January 2008. Papers had been filed for Northern Beef Processors Management LLC, a limited liability company in February 2007. In January 2008, an amendment was filed to change the name to Northern Beef Packers Management, LLC.

In April 2008 a limited partnership named Northern Beef Packers Limited Parnership was filed. It lists Northern Beef Packers LLC as the only partner.

Dennis Hellwig is the only officer and agent listed in any of the filings.

A problem that has persisted in the beef packing schemes involving Huron, Flandreau, and Aberdeen has been the lack of information about the people and organizations. When the Ridgefield Farms plan in Huron was terminated, some people associated with the project said that investors had looked into the Ridgefield Farms company at its home base in Ridgefield, Conn., were alarmed by what they found, and pulled their support. However, what actually happened was never explained or reported.

After the Flandreau collapse, Sen. Frank Kloucek asked the state to investigate the company and its operations. No response by the state has ever been made public.

In all three towns where beef plants have been proposed, the development organizations have promoted and contributed to the projects. In Aberdeen, the Aberdeen Development Corporation gave Northern Beef Packers its full endorsement and particularly lauded its marketing arrangement. Some local beef producers and officials, however, have wondered just what the basis for the endorsements were. The key elements for a successful regional beef processing business are not in place, and the company has the liens hanging over it.

The decline of traditional journalism is partly to blame for the lack of information on development projects. Journalists who look into the management history and financial state of developing companies are hated in the business community, but they are loved by investors, as they supply a flow of information about the condition of companies and markets. With the explanation that business news organizations provide that service to investors, local news organizations have eliminated local economic news as a constant area of coverage. Try an internet search on the companies mentioned above, and you will find only sporadic information.

Beef processors do not have a good track record in South Dakota. The question is whether Northern Beef Packers will break the trend and eventually start processing cattle and selling beef. There is no information about the financial status or the management acumen of the company--except for those seven mechanic's liens.

1 comment:

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