A pulse crop processor from Eston, Sask., has attracted more investors than it can handle.
“We get a lot of requests for people to invest in this company outside of this area, but they don’t qualify,” said Doug Schneider, general manager of Canadian Select Grains Ltd.
That is because the company was formed through the “close friends and business associates” exemption of the Saskatchewan Securities Act, said Jim Babcock, investment manager with the Saskatchewan Agri-Food Equity Fund.
“It’s a method of making it less complicated to raise capital,” said Babcock, who also sits on the board of directors of Canadian Select Grains.
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“A prospectus is a big undertaking and it has a bunch of implications and it has to be approved by the securities commission.”
The five Eston area producers who created Canadian Select Grains in 1994 didn’t have to develop a prospectus. Instead, they agreed to a provision that all future investors would be close friends or business associates.
The exemption is designed to assist promoters who are trying to raise funds for community projects. Investors can’t be casual acquaintances, but must be people like curling buddies or longtime business associates. These investors put their trust in the relationship they have with the people involved in the venture, rather than relying on safeguards like a prospectus.
Six years after it was formed, the Eston company has attracted 153 such investors, primarily from the surrounding community.
“You have to have the backing of the community in order for something like this to fly,” said Schneider, who was hired as general manager in 1996.
That was about the time when the company began expanding its warehouse and bagging operation. Expansion kicked into high gear in 1998 with the purchase of a local cleaning plant and the installation of dehulling equipment from India.
Now the company cleans and bags chickpeas, anise, small red lentils and red peas on behalf of its shareholders.
It also processes desi chickpeas into a substance called chana dahl. These dehulled and split chickpeas are either sold as is to grocery stores or they are destined for further processing into a flour called besin, which is used to make breads for the Indian and Pakistani food markets.
Most of the product moves by truck in 25 to 1,350 kilogram bags. The majority of sales are to customers in centres with large ethnic communities such as Toronto, Vancouver and New York. However, some chickpeas are sent in container loads to overseas customers.
The company makes its money by charging producers to clean, sort and dehull their pulse crops. There is also a levy attached to each pound of crop handled.
“Eventually, hopefully the company can be self-sustaining just by the service it provides and we won’t have to take that margin any more,” said Schneider.
A little over 70 percent of the 11,469 outstanding shares are Class A belonging to producers who have committed product to the company. Class B shares are straight investments, which have paid a four percent dividend in each of the last three years.
Schneider said the total value of the outstanding shares approaches $2 million. No family can control more than 10 percent of the company.
The only other investor is the Agri-Food Equity Fund, which controls 424 shares worth $57,240. The agency originally bought 2,400 shares worth $324,000 in 1996. Most of those were purchased back by the company in 1999 through a combination of profits and money raised through share offerings.
The company has eight years to buy back the shares, but the more money it makes, the more those shares cost to repurchase. The company earned $276,000 in 1999 on revenues of $791,000, which prompted the buyback of the bulk of those equity fund shares.
Shareholders usually provide most of the product through pool contracts, but last year many pulse crops around Eston were hit by frost. Many of the owners ended up with feed quality crops.
“We had forward sales contracts that we had to honor, so we did have to purchase higher quality product from other areas of the province and even some from the States,” said Schneider.
Last fall’s poor quality crop will hamper results for the next few years.
“We will still show a profit this year, but next year we’ll be doing very well if we can show a profit.”
Adequate supply
Schneider is anticipating a more than adequate supply of product this year because Statistics Canada is predicting a sizable increase in Saskatchewan’s pulse crop acreage.
This will be another year of change for the company. Pencil marks have already been etched on the floor of the building where the dehulling equipment is housed to make room for the cleaning plant. It is being moved from downtown to the outskirts of Eston where all of the company’s other facilities are located. Another piece of equipment that sorts seed by size will be added to the ever-expanding operation at that time.
Eventually the company wants to add more payment options for its shareholders.
“In the last couple of years when cash flow has become so tight (producers) want to use these as cash crops,” said Schneider.
“We hope next year to be able to offer fixed-price contracts for fall delivery as well as spot pricing. We might have to affiliate with a larger company in order to be able to offer a fixed-price contract.”
Schneider said the board will also be exploring other joint ventures so the company can expand its pulse processing operations.
