Sunday, December 22, 2013

Slaughterhouse EB-Five

     We're at the point now where people from the administration of former Governor (2003-2011) and current Republican candidate for the U.S. Senate Michael Rounds, if not Mr. Rounds himself, should be answering some questions about the Northern Beef Plant fiasco in Aberdeen.  We know that the U.S. Attorney and the FBI are looking into the mangled finances of the venture, paid for as it was by foreign investors who got legal entry into the United States by forking over at least $500 thousand apiece toward the enterprise.  That was done under the auspices of the U.S. State Department's EB-5 visa program.  The net result so far is the bankruptcy of the $159 million plant, the suicide of one of the state officials who was active in its development from the ground up, and the "improper transfer" (according to South Dakota Attorney General Marty Jackley) of over $500 thousand of South Dakota grant money to that very official after he left the governor's office for private life.
     Queries from the conventional media and the blogosphere remain unanswered, and new ones keep popping up.  The $159 million question right now is, how on earth did the idea for this plant even get off the ground?  In an impressively comprehensive post this morning by Cory Heidelberger, who runs The Madville Times (go to http://madvilletimes.com/2013/12/experts-northern-beef-packers-not-viable-failure-part-of-the-plan/ for the full story), the bottom line is that the plant's prospects were dismal from the get-go.  At the time, based on my own involvement in the cattle business (I fed and brokered cattle in South Dakota and the rest of the central and northern Plains for a decade from around 1990-2000) I thought the plant would have its trouble because it was intended for slaughtering and processing South Dakota Certified Beef, a program put into place by the Rounds administration that I believed from hands-on experience wouldn't provide enough cattle for the 1500 head/day Northern Beef Plant.  In 2006, I even devoted much of a column in the Rapid City Journal (http://rapidcityjournal.com/tsitrian-rounds-needs-more-specifics/article_0cb07eb0-bb1a-59f5-8726-25dad78f8089.html) to the difficulties of finding SDCB at grocery stores, along with the reluctance of producers to go along with the program because of its cumbersome paperwork requirements.  A spokeswoman from the South Dakota Stockgrowers Association told me in frustration that nobody from the governor's SDCB office even called them for some advice and involvement. 
     How right I turned out to be, but based on the analyses that are in the Madville Times, the plant's troubles  were based on industry-wide issues, not South Dakota-specific ones.  Economists and cattle producers themselves had seen that the nationwide reduction of the U.S. beef cattle herd, which is at its lowest since the early 1950s, has put the squeeze on the meatpacking industry for several years now, slowing and shutting down plants throughout the country.  I believe the question that Rounds and his people should answer is why on earth they thought a brand new start-up of this size would stand much of a chance bucking that national trend.  Surely at some point in the planning phase, somebody involved with the Northern Beef venture and its dependence on millions of dollars in grants and other assistance from the State of South Dakota would have gotten the idea that its chances for success were virtually non-existant.  The most compelling question of all is, if they'd known about the high-risk nature of the deal, why did they go ahead with it anyway?
    Current Governor Dennis Daugaard recently said of the plant that it is still a potentially viable asset to the state and that he hasn't abandoned hope for some success coming out of it.  I actually share that view, given that the cattle cycle is likely to turn upward as ranchers gradually rebuild their herds in the face of currently record high prices.  But it will take years.  Meanwhile the Northern Beef Plant languishes, bought for pennies on the dollar at a bankruptcy auction by a large creditor.  What needs to be sorted out now is whether this thing was a self-delusionally driven decision made by a governor whose single-minded commitment to a South Dakota-branded beef industry kept him from dealing with the reality of the business, or just a plain old fashioned ripoff by some people who knew that they could get Rounds to okay just about anything that meshed with his fatally flawed vision. 
    
    

6 comments:

  1. "Slaughterhouse EB-5" -- you may have just written the title for the book on this scandal. Do we need to get permission from Vonnegut's estate?

    That's a remarkable 2006 column, John! http://rapidcityjournal.com/tsitrian-rounds-needs-more-specifics/article_0cb07eb0-bb1a-59f5-8726-25dad78f8089.html

    ReplyDelete
  2. Thanks, Cory, on many fronts. I figured the SDCB program was doomed when I met with any number of cow-calf people around here who were blowing it off because of the paperwork and documentation involved. That was in '05-'06, so none of this is much of a surprise to me. My more hopeful than optimistic projection that the plant might have a post-bankruptcy chance is based on turning it into a commodity--not a specialty--beef processor with a mass market. Given what I'm learning through your excellent legwork, I'd still say chances aren't real good right now.

    ReplyDelete
  3. My 80-year-old mother in Aberdeen is not an economist or a cattle producer. She's been saying all along that there is no way the beef plant can find enough cattle to keep it going.

    ReplyDelete
  4. Welcome, Dan. Your mom and her native common sense were dead on. No doubt the questions and, more pointedly, the suspicions that have surfaced of late are raised because so much money and effort were expended by people who were ignoring the appallingly obvious. My own level of interest is still in the questioning phase, but I can certainly understand those who've gone into suspicion-mode.

    ReplyDelete
  5. Some years ago when state government had a bureau devoted to value-added ventures and South Dakota Certified Beef was being floated as one of the schemes to bring money and status to the state, a restaurant in Aberdeen had SDCB on the menu for a premium price. Twice, I tried an SDCB strip steak. And those were two of the three times I have sent a steak back. Like you, I am familiar with the beef business, and I assumed that SDCB would be something like the promotional brand Angus Certified Beef in which USDA Premium and high Choice cuts are selected for the brand certification. How those strip steaks were certified was such a mystery to me that I inquired of the waitress, who carried messages from the grill chef, which in effect was that the young man operating the grill only had experience flipping hamburgers and did not really understand the grades and cuts of meat, Somebody had told him that if anyone orders some SDCB, he was to select the steak from a certain box in the cooler. That was as much as he knew about certification. At that point it was clear that SDCB was not an actual program.

    As for why no one raised the question of the real viability of the plant, most people were aware of the secrets and failures to situate in Huron, were aware of the fraud in Flandreau, and assumed that the plant would falter again, and so more or less left its promoters to their own devices. A sign of that was the difficultly of selling the TIF bonds, which for some reason have never been mentioned in the bankruptcy proceedings. The local economic development agency kept sending out announcements that the plant was eminently viable and would be a huge asset to Aberdeen and South Dakota. But people who actually track economic development ignore this agency because its record of actual economic development involves mostly wind and fog. Nevertheless, rather than consult available statistics and information from credible sources, the press always goes to this agency to get an opiniion on the outlook for any economic venture.

    Things looked better when NBP became associated with a branding program called Angus Gold, which was an extension of Angus Certified Beef, but the brand dumped NBP when it faltered and floundered and could not produced any beef. That was the last anyone heard that NBP had a viable marketing arrangement.

    The EB-5 scheme was shuttled off the NSU campus into the offices of the Aberdeen Development Corp., and again people who know the full story behind it know that they are politically and economically at risk if they give a frank accounting. The International Business Institute at NSU was not looked upon as a credible research and teaching program by professors at NSU or its sister institutions. NBP got as far as it did because the actual goings on were ignored by the people who assumed it was a folly that would fail. And the press never asked people who had the real information.

    ReplyDelete
  6. Thanks for adding so much depth to the background of this fiasco, Mr. Newquist. I believe these comments merit wider distribution than they'll get here and hope you can find another outlet for them. That Governor Rounds kept touting SDCB even as I could find none for sale here in the Rapid City/northern Black Hills region was the red flag that made me so dubious about its prospects back in '06 when I wrote the piece referenced above. I recall visiting with the meat processors I used in Piedmont at the time and that they told me SDCB was so expensive that they didn't think there was much of a market for it. A processor in Belle Fourche later announced that it was available there. I think that's the only outlet it ever found in this area, though I'm eminently correctable on that point. I have no idea how the Belle Fourche venture went, but it's clear that SDCB had nothing close to a mass- or even niche-market following around here, the second largest population center in South Dakota. I'm guessing it went pretty much the same way around the rest of the state and the surrounding region. At this point in the story it's clear to me that a flimsy to non-existent marketing scheme was able to attract a sizable amount of risk capital into a venture that had neither a track record nor prospects. The EB-5 system either has some very lax disclosure requirements or depends on foreign speculators who are willing to fork over sizable sums of cash to even the riskiest of ventures in exchange for legal entry into the United States. If a prospectus for NBP has ever been developed, I'd sure like to take a gander at it. Thanks for commenting.

    ReplyDelete