A lot of finger pointing is going on following the demise of FarmGro Organic Foods Inc.
Most of those fingers are aimed at the Saskatchewan government and the former chief executive officer of the Regina organic mill and processing plant. It was placed into receivership last month.
Company founder and former FarmGro board member Bob Balfour said it was a “slap in the face” when the two provincial government agencies that had invested heavily in the project pulled the plug after a little more than two years in business.
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“We needed patient capital. We needed people that would be willing to restructure with us,” he said.
Crown Investments Corp. and the Saskatchewan Government Growth Fund, an immigrant investor fund, invested $8 million into the organic elevator project through equity, loans and loan guarantees.
But Balfour said that money didn’t come cheap. The province was charging the fledgling company up to 12 percent interest on some of its loans. He said the banks would charge half that rate on a similar loan.
The organic farmer is perplexed by what has transpired in the last few months. He said the provincial and federal governments are always pushing for value-added investment in the agriculture sector, especially projects promoting safe food and environmental benefits.
“Here we are. I mean we’re walking the walk and now the governments are closing us down.”
Crown Investments Corp. communications director Ted Boyle said the decision to call in the receiver wasn’t a reckless one.
“(FarmGro) has been going for nearly three years and there was really no sign that things were getting better under the current structure. At some point you have to make a decision whether to keep on putting money into the project.”
That decision was made in late December when the Saskatchewan Government Growth Fund elected to appoint a receiver to find a new buyer for the company. Boyle said the CIC had no choice but to follow suit and pointed out that some FarmGro investors agreed with the decision.
Addressing the accusation that the government was charging the company too much in interest, Boyle said the agencies only sought going commercial rates.
“If (FarmGro) could get loans at six or seven percent somewhere else, why didn’t they?”
Boyle agreed the organic mill had the necessary elements that provincial and federal governments look for in an agriculture venture, but that doesn’t mean it is untouchable.
“The project still has to work. It has to be a viable enterprise.”
Another complaint levied at the province comes from former FarmGro board member Dwayne Woolhouse. He said the government played a big role in hiring the company’s top executive, former Saskatchewan Wheat Pool vice-president Bruce Johnson.
“I don’t think he was the man for the job,” said Woolhouse.
He said Johnson knew nothing about the organic industry. On top of that he focused on the flour mill portion of the business, ignoring the seed cleaning potential.
“The specialty grains side of the plant was doing pretty well nothing,” said Woolhouse.
Balfour concurs. He said the company didn’t have brokers buying and selling bulk specialty grains from the plant, something history has proven that Saskatchewan does well.
“It shouldn’t have taken rocket science to get into that, but we didn’t.”
Johnson said the claims of the two former board members are unfounded. To say he was inexperienced ignores his time as the man in charge of Saskatchewan Wheat Pool’s grain group, which included overseeing the specialty crops and organics side of the business.
“Sask Wheat Pool was in organics long before FarmGro and we had a pretty good and growing organic program at Sask Pool. I mean, factually, they’re just wrong,” said Johnson.
He also said Woolhouse and Balfour had the notion that custom cleaning organic crops was going to be the salvation of the company.
“The margins on those things are very low compared to what you can earn from organic flour or organic semolina, so we made a deliberate choice where to focus our efforts,” said Johnson.
“I know of no other flour mill in Canada that is into handling whole grain special crops and custom cleaning for farmers. It just doesn’t make any sense.”
One issue on which the former CEO agrees with his critics is that the company had too much debt.
“From the day I started I knew that we had a serious financial problem.”
And Johnson agreed the provincial government was too hasty in forcing the company into receivership.
“Instead of looking at the problem, finding a way to write down some of the debt, recapitalize, and take a more patient approach, they elected to withdraw.”
