Henry Skjerven won’t let a bad investment experience stop him from trying again.
However, he will take some lessons from his involvement in Natural Valley Farms and says other farmers who consider investing in value-added processing should do the same.
“There should be a curriculum of course work for producers,” he said.
“Investment 101 would state that you’d have to understand what the whole process was.”
Skjerven was not a neophyte to the business world when he got involved in the post-BSE slaughter plant plan. He was among a group near Foam Lake, Sask., who wanted to establish a livestock slaughter plant to process the surplus of cattle created when the United States closed its border to Canadian cattle after BSE was discovered in Alberta.
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Instead, he bought into the Natural Valley idea proposed for Neudorf, Sask.
Producers and others invested their money, believing the plant would be successful.
But it was in financial difficulty from the start and closed earlier this year after the Canadian Food Inspection Agency pulled its operating licence.
Skjerven, who sat on the board of directors, takes some of the blame.
He said the company should have told people in 2005 that it was broke rather than accepting more investment money and putting people’s livelihoods at risk.
“Natural Valley bankrupted people,” Skjerven said.
At the same time, he said, investors must understand risk and decide their comfort level. Unsophisticated investors look for a big windfall, he added, and the Natural Valley plan promised it.
Reading a business plan and talking to the principals involved aren’t enough. Skjerven said producer-investors must be more hands-on and take an interest.
“So often three or four guys sit down, they have an idea and they form a company,” he said.
“Then they go out to raise money. You really have a group of salesmen then. They ask you to sign up. You give them your money, but all you take away is a plan often written by someone not involved in the original vision …. All of this is really a false front on a store that isn’t built yet. That’s what producers have to realize.”
Financial institutions that lend money to start-up businesses are usually secured shareholders and can sometimes get some of their money back if the business fails and the facility is sold. Producers aren’t so lucky.
When the Mainline Pulse processing plant at Chaplin, Sask., was auctioned off in pieces in 2004, just three years after opening, the proceeds weren’t even enough to compensate the two secured shareholders.
Clem Millar of Chaplin said that has left some local residents feeling burned. The rural municipality had invested in the project, which was in part a bid to save the former Saskatchewan Wheat Pool elevator in Chaplin.
“There are some bad feelings,” he said.
“I don’t think taxpayers are holding anybody up for ransom but if another opportunity comes along, they’d be hesitant (to invest).”
Millar said timing, poor markets and an overbuilt industry, especially in southwestern Saskatchewan, are to blame for Mainline’s demise.
Two years of poor pulse crop volumes hurt all the region’s plants, and start-ups were particularly vulnerable.
The Chaplin project itself was a bit ambitious, he added, suggesting the proponents should have started with a more realistic goal and a management team that had more experience in the pulse business.
“I think they just were in over their heads.”
He said residents can sometimes feel obligated to invest in local projects. They want to be supportive and if the project is successful, then they have played a role in that.
“If things had been a little bit different, they would’ve been heroes,” Millar said of the Chaplin investors.
Skjerven said successful businesses are a result of good management and good luck. Natural Valley Farms had neither.
“This was a spectacular failure.”
