Skjerven was involved in Natural Valley Farms Inc. and is still listed as a member of its board of directors. Since September 2008, a court-appointed receiver has had all authority for the company. Skjerven has written this account of Natural Valley’s rise and fall as a cautionary tale for those who embark on future projects.
The road to hell is paved with good intentions. In the case of Natural Valley Farms Inc. of Wolseley, Sask., it was paved with the faith and cash of shareholders, creditors and employees. The destination was the same.
In June 2004, I was part of the post BSE scramble to build beef slaughter capacity. Setting up a company with money invested by family and friends, we did a feasibility study on what needed to be built and how it could be done. It was an exciting time with more than 200 different groups across Canada exploring the idea.
BSE caused border closures with the United States and other countries. That created an artificial bubble of surplus cattle and many thought that there was a gold mine for the taking.
We learned quickly, from our own work and a pre-feasibility study conducted for the Saskatchewan government, that however you sliced it, building one plant or 10, the provincial potential was for three small plants or one big one. Small looked like the way to go, with a 50,000 head annual single shift capacity.
More than 20 groups were considering plants on the Prairies, but not a single group that we spoke to was interested in teaming up to build what reality and economics dictated.
Then we met with Natural Valley Farms Inc. in January 2005. They told us exactly what we wanted to hear. They wanted partners. Their plan was our plan. We believed everything they said.
We got on the bandwagon, with our skills and professional abilities, our cash and enthusiasm, focusing all our efforts on their project. We did this on the spoken promise that our plant and our project would get complete support when the time was right.
Perhaps the first warning flag should have been that we couldn’t get an agreement about our ‘partnership’ in writing.
- or could we get on the agenda of a board meeting to discuss our project and explain how it would be a link in the Natural Valley value chain.
We were told to raise $1 million as the price of admission, plus our own time, money and investors. Natural Valley was rolling and needed to raise cash to keep the dream alive. That song didn’t change until the day I stood in a Regina courtroom in 2008 and the judge appointed a receiver.
Warning flags were waving back in spring 2005. Natural Valley said we would get a 15 percent commission on any shares we sold. So our company, YellowHead Natural Beef Ltd., began selling NVF shares as an investment in our project.
Then we were told that it couldn’t be done because of securities and investment laws. It was an obvious warning, but at the speed we were all going, those warnings were a blur.
So we bought in. We believed in the Natural Valley founders, believed in gate to plate, producer-owned natural beef and in third and fourth level processing. My family had been in the meat and custom kill business for a long time and there was money to be made. It sounded so good.
On the surface, it was. There was a market and we knew that. Cattle prices had tanked, BSE ruled and governments and the Canadian Food Inspection Agency didn’t have a clear plan for dealing with it.
They weren’t the only ones. Natural Valley didn’t either, and I should have known better.
I won’t say that Natural Valley’s lack of a formal written board/management plan was the single root cause of failure, but lack of planning and control created the estimated $42 million loss, plus collateral damage. It was a major element in the company’s demise.
When I was elected to the board in June 2007, Natural Valley Farms still had no written board policies or management action plan. There wasn’t a mission statement or a communications strategy.
Our lack of these basic management system elements proved deadly to our efforts at relationship building.
Most notable was our failure with the CFIA. Natural Valley used precious resources, time, money and people in challenging CFIA staff and regulations. The final result? CFIA removed the company’s operating licence in early 2009.
- atural Valley Farms died the day the decision makers chose to kill horses. It took months to implement and hundreds of thousands of dollars of cattle producer’s investment to make that change.
But horse slaughter never brought a single minute of profitability to the company.
The NVF system couldn’t pay producers until it was paid for the processed meat. That meant a wait for producers of many months, or as it turned out for most, never. We were in dire financial trouble in June 2005. The financial mess never got better.
We lost sight of the original scope of the project. We built a state of the art beef traceability system when no one required it yet. We started composting plant waste before regulation was in place to guide us.
We got into trucking, frozen food storage, off-shore Korean investment, a feedlot, waste water management, environmental monitoring and many other things.
- atural Valley failed, as did all parts of its value chain. And yes, hindsight can clearly define the causes of that failure.
We wanted to change a big industry. Why? Control. Producers and entrepreneurs are fiercely independent. That attitude can blind us to reality. In this day and age, many fail to recognize the financial and industrial infrastructure that binds us all into national and global systems.
We wanted more for our beef. We saw the price at the butcher’s counter but didn’t understand the costs involved to get it there. We didn’t stop and restructure when we saw it wasn’t working. We pled ignorance but didn’t listen to those who tried to teach us.
The final straw? The banks could wait no more. Our promises of profits never materialized.
Bottom Line? Natural Valley Farms failed because people can be led when others appeal to their dreams and desires.
The lesson? Blind belief and trust lead straight off the cliff’s edge every single time.