Last updated on 2013.07.20
Northern Beef Packers laid off 108 of its Aberdeen workers last April. The remaining 300 or so are now having trouble getting their paychecks:
Northern Beef Packers will delay paying its employees their wages this week because of financial difficulties.
Employees were told on Wednesday that their Friday paychecks would not be distributed, but it was hoped wages could be paid early next week.
Northern Beef issued the following statement by email:
"Due to ongoing delays with securing additional funding, Northern Beef Packers has notified its employees that payroll will be delayed this week. The company is making every effort to rectify the situation as quickly as possible" [Jeff Natalie-Lees, "Funding Woes Delay Beef Plant Employee Checks," Aberdeen American News, 2013.07.18].
Aberdeen Development Corporation veep Jim Barringer says he still has faith in Northern Beef Packers, but expects them to get their free-market rear in gear:
"I believe in the long run it will be up and running. They're going through difficult times right now, but there's no question it's one of the major, however potential, economic engines that we see here in Aberdeen."
At the moment, Northern Beef shouldn't expect the city to write a check to keep it going.
"In a free enterprise system, there's just so much government can do and I believe in free enterprise. But the company themselves is where the responsibility rests for getting this plant up and operational," Barringer said [Mark Roper, "Aberdeen Hopeful Northern Beef Packers Can Turn Its Money Woes Around," KSFY, 2013.07.18].
Free enterprise—ha! Northern Beef Packers exists solely because of Uncle Sam and the state of South Dakota's interference in the free market with its assistance in securing millions of dollars for NBP via the infamous EB-5 visa program:
A federal program called EB-5 has been the key component in keeping the Northern Beef Packers project moving forward, say two men who are involved in the Aberdeen beef plant.
Under the EB-5 program, residents of other countries provide capital or loans to American projects. In return, those investors receive an immigrant visa, or green card, that allows them to live permanently in the U.S....
Aberdeen attorney Rory King, who represents the Northern Beef Packers limited partnership, says EB-5 has “been the whole financing for the beef plant.”
There have been two phases, he said. In the initial phase, Dennis Hellwig and Bollen's company arranged about 70 investors, who paid $35 million total. Those investors received an equity interest, or share of ownership, in the plant.
Another group has provided about $45 million through EB-5. But, in the second phase, the $500,000 that each of those investors supplied is a loan. “They've invested in our lenders. And that's where the lender got the money to loan to us,” King said. “So basically that's where the money has come from to build the plant.
“We also have some state and federal commitments for financing, and we've got a bridge loan that's arranged to provide the working capital and so forth,” King said. “But that's what's built the plant — the EB-5 funds” [Jeff Bahr, "Green Cards Lure Beef Plant Investors," Aberdeen American News, 2012.07.02].
South Dakota state officials make a lot of trips to China to round up millions of dollars for risky business ventures that otherwise would never get off the ground. Yet even with apparently 160 foreign investors from China and elsewhere buying the tickets to America by handing their cash to Northern Beef Packers, the Aberdeen company still can't make payroll, let alone steady production. NBP has proven so shaky that some EB-5 investors even sued the state's EB-5 clearinghouse for (ahem) misrepresenting the viability of the project in its 2009 and 2010 investment pitches.
2009 and 2010... hmmm.... Political observers may wish to note that South Dakota's big reliance on EB-5 visa funds for business development got rolling under the administration of Governor M. Michael Rounds. If now-Senate candidate Rounds gets around to holding any town halls like his challenger Rick Weiland, perhaps someone can ask why his concerted meddling in the free market on behalf of certain well-connected entrepreneurs hasn't resulted in reliable paychecks for Aberdeen workers.
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"There are a bunch of sleazebags who will sell anything." —Joop Bollen, president, South Dakota Regional Center, Inc. (South Dakota's EB-5 visa clearinghouse), quoted in Dune Lawrence, "Coming to America Costs $500,000 With Job Plan Prone to Failures," Bloomberg, 2012.03.22].
On the supply side, NBP has advantages that would serve both regional cattle producers and the company well. It's problem is on the demand side. If the company had markets for its beef, it could have operating cash turnover that should cover its employees'wages. Early on, when the company was pre-operational, it had a marketing contract which it lost because of the numerous delays in getting the plant running. It claims to have new marketing and distribution arrangements, but it has shown no evidence of its beef sales.
The intervention you speak of takes taxpayer money at all levels. While the EB-5 program brings in money for new economic developments, it also takes federal money to administer. The SDRC is an official arm of the state's economic development office and the Aberdeen Development Corp. gets part of the budgets from the city and the county. There is a lot of windfoggery coming out of those offices in the Aberdeen Industrial Park, but real development is hard to find. Some university-based market research programs giggle a lot when those organizations are mentioned as engines of economic development.
But South Dakota has this great business climate. The workers at NBP can tell how great the climate is for workers. The real economic development comes from the food stamps provided to many employees who work at least two of those great jobs in the area in trying to survive.
Doesn't anyone run numbers BEFORE they start construction?
Sounds like the Solara fiasco
http://www.dailytech.com/500+Million+Wasted+on+Bankrupt+Solar+Panel+Company+White+House+was+Warned/article22735.htm
"According to The Washington Post, the emails contained warnings from government employees about the viability of Solyndra. Only days before the final approval, an email predicted that the project would run out of money in September 2011 -- which is exactly what happened."
Don't forget the $2,000,000 the company received from the Future Funds and the Daugaard administration.
http://leftinsd.blogspot.com/2013/07/daugaards-solyndra-times.html
how many millions of $ has rounds,Deaugard and other state money give aways pumped into northern beef???
Michael Black seems to be hanging a Solyndra anchor around the former governor Rounds neck.
Interesting
So I scroll down and see that the new blog voice 'Taking a Left Turn' said the same thing...only better and got the right Governor.
So on the same subject, does anyone know of Solyndra like investments from the Rounds administration?
For that matter, what Solyndra's can we claim? Troy would probably know.
David, I am curious. How are they failing on the demand side? U.S. beef consumption is declining, but can't they find growing markets elsewhere, or just position their beef as a better product?
NBP had a contract to supply beef to an established beef distributor (Angus Gold, I think) and it was canceled because of the delays. The big four, JBS USA, Tyson, Cargill, and National Beef Packers, control 90 percent of the market. Smaller packers have to have places to sell their beef. NBP does not seem to have an alliance with an established marketing organization or any effort of its own to crack the market. It was set up for tracking all its beef products from birth to packing house and to serve the growing specialty markets for grass fed beef and non-antibiotic fed beef, but it seems not to have any customers. For a time, it seemed to have an arrangement through some of its Korean investors to pack for export to that market. All these arrangements which it promoted in its business plan have been dropped from mention on its web site.
Producers in the northern part of the state are anxious to sell beef to NBP because they can increase their profits by decreasing shipping costs, but NBP isn't buying beef because it does not have the money because it has no sources of revenue to operate.
The original impetus for building NBP was to supply a product with more quality control and alternatives to what the big four can supply.
SD branded-beef program fails to meet expectations
http://www.kansascity.com/2013/07/21/4358000/sd-branded-beef-program-fails.html
"When then-Gov. Mike Rounds persuaded the 2005 Legislature to create the program, he envisioned a time when people across the nation and around the world would choose to pay more for steaks that carry a South Dakota seal of approval."
"But that hasn't happened, largely because South Dakota hasn't had a meatpacking plant operating at a large scale that would make processing economical, officials say. They hope the long-delayed Northern Beef Packers plant in Aberdeen will soon fill that void."
Mike Rounds is a miserable failure. Can't seem to get it off the ground unless he gets lucky. If he runs the country half as good as he did this state we are in trouble. And yet he will be our next senator.
The Blindman
Put together what David and Bill are saying, and you see a business model that should work. We have eager suppliers, solid differentiation of our product, and state support. MIke Rounds's idea of marketing beef as SD raised seems solid. The only problem here seems to be NBP can't get the money it needs to execute. Do the big packers have some stranglehold on capital that leaves us begging for EB-5 investors? Does no one with venture capital believe this model could compete against the Big Four? Or is someone else screwing this up?