Former FarmGro executives are hinting that N.M. Paterson & Sons Inc. is the leading candidate to buy the defunct organic processing plant.
The rumoured buyer “is a company that already has investments in organics,” said Bruce Johnson, past chief executive officer of FarmGro Organic Foods Inc.
He was referring to Paterson, a grain company that is already part owner of Saskatchewan’s largest processor of organic grains, Growers International Organic Sales Inc., which operates three elevators in Wilcox and Wolseley, Sask.
Buying FarmGro would give Paterson North America’s largest fully dedicated organic flour mill and additional seed cleaning capacity.
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That makes organic farmer Dwayne Woolhouse nervous.
“I have a feeling the company that will buy it will have a monopoly on the organic industry in Saskatchewan,” said Woolhouse. He used to sit on FarmGro’s board of directors before the Regina organic mill and elevator was placed into receivership in late-December.
“We definitely saw our premiums improve on our cereal grains when FarmGro came into business and I think we’ll lose those premiums,” said Woolhouse.
A spokesperson for Paterson did not return calls.
FarmGro was a $12 million project that was heavily financed by the Saskatchewan government. The plant, which is still operating under receivership, can mill organic hard red spring wheat into flour and organic durum into semolina. It can also clean and ship a variety of other specialty grains.
The elevator is capable of milling 16,000 tonnes of wheat and durum and cleaning 18,000 tonnes of grains and seeds annually.
Most industry observers believe or at least hope the plant will continue to operate as an organic facility, but some fear it won’t.
“It could very easily end up being purchased by a company that doesn’t use it for organic products and that would be bad for the industry,” said Debbie Miller, administrator of the Saskatchewan Organic Directorate.
Even if it ends up in the hands of a company like Paterson and continues to operate as an organic operation, there could still be a dampening effect on prices due to a lack of competition, she said.
Another fallout from FarmGro’s demise is that it could create an environment where it’s hard to get support from financial institutions for future projects, said longtime organic businessman Neil Strayer, who manages Growers International.
He remembers what happened when an organic co-op in Girvin, Sask., “crashed and burned” in the late-1990s. Investor confidence was damaged for several years.
“This will have a similar effect on the investment community,” said Strayer.
Johnson also feels any failure in a small community like the organic industry will make investors nervous: “I think unquestionably it will have some chilling effect.”
But if the business is purchased as a going concern and goes on to thrive, that will relieve some of that frosty feeling, he said.
Strayer thinks the financial community should look at FarmGro’s receivership as an isolated incident, being careful not to write off the entire industry.
“The organic sector has never been healthier. It’s really the only bright light in the agri-food sector that I can see right now. Growth rates are phenomenal globally.”
He said his business has averaged a 30 percent annual growth rate over the last 20 years.
“We tripled our sales the year before last, alone.”
Strayer attributed the failure of FarmGro to an unrealistic business plan. He was invited to become involved in the organic mill in its infancy.
“It became quickly apparent that they were overbuilding,” said Strayer.
“There was a mandate there other than scaling the thing to an appropriate size. There was other interests driving this thing that had nothing to do with practicality or the right thing to do.”
Strayer said politics drove the venture from a “small grassroots project” into a multimillion-dollar “high profile political event.” When it was built, the plant had the capacity to absorb the province’s entire production of organic wheat and durum.
“It kind of became field of dreams – build it and they will come. And those of us on the inside knew they weren’t going to come.”
The provincial government and the 57 farmers who invested half a million dollars in the plant were repeatedly told it was not a feasible project, said Strayer.
“They were all told that this was way out of proportion, way out of scale, but they went ahead with it anyway.”
He said it’s a waste of taxpayer money.
Bob Balfour, FarmGro founder and former board chair, said the province’s 500,000 taxpayers are potentially on the hook for $5 million of the $8 million that government agencies invested in the company. That’s because $3 million was from an immigrant investor fund.
It works out to a potential loss of $10 per taxpayer if the company completely folds and no value can be realized from it.
“I put more in the church coffers every month than what each taxpayer has got in this,” said Balfour.
The Canadian Grain Commission said FarmGro is still licensed and secured. The agency will be monitoring the company.
While farmers who deliver grain to the company remain covered, the 57 organic growers who invested equity in FarmGro are not. Balfour said Class D investors like him won’t see a dime from the sale of the company.
But he isn’t giving up on his dream of owning the facility. Balfour and fellow investor Woolhouse hope to put together a coalition of organic farmers that will bid for FarmGro assets.
Time isn’t on their side, however, because both farmers feel the receiver already has a buyer in mind, one with more resources than the farmers can muster.
Ted Boyle, communications director for the province’s Crown Investments Corp., said the government wants the facility to continue operating, but hopes it will be purchased by a “larger entity” that has access to better markets.
He said the government will not shy away from future investments in organics, but doesn’t see any on the horizon.
“That mill has substantial capacity so it would be difficult to foresee a need for more capacity in the province in the near future.”
