No simple solution on processing plant

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Published: December 13,2004

Oakland — Only four months after Richard Hall opened the $43.5-million cattle processing facility in Oakland, amid problems of cost overruns and machinery malfunctions, concerns continue about Mississippi Beef Processors (MBP), LLC.

On November 17, Hall shut down operations at the 154,000-square-foot plant, which opened in August, initially saying that faulty equipment needed to be repaired in its rendering plant and that its 400 workers would be called back to work by the end of November.

However, Hall had called a meeting November 3 with state officials, asking for another $5.25 million for operating capital for cattle purchases. He blamed equipment problems on the contractor and consultants. State officials declined to assist. Now the plant will remain closed until 2005.

“There are two things that must happen at this time before the company can resume processing beef,” said Hall. “First, we must complete the repairs to the rendering plant and be sure that the rendering plant will work reliably day-in and day-out so that we do not have to truck inedible waste materials off-site for disposal elsewhere. Second, the company needs additional capital to purchase cattle when it starts up again and to pay bills that accumulated before the company was forced to halt operations.”

Patrick Sullivan, spokesperson for Mississippi Agriculture Commissioner Lester Spell, said “there never was any intention for the state to participate in financing the operating capital for the project.”

The beef processing plant is an economic development project that gave pause to professionals in the field.

“When I heard about the project, I thought it was very unusual because I’d never seen the state stick its neck out quite so much before,” said Robert Ingram, executive director of the Greenwood-Carroll-Leflore Economic Development Foundation.

Early warning signs?

Last fall, the project slowed because of cost overruns, but received a last-minute $550,000 U.S. Department of Agriculture rural development grant to cover unexpected costs required to expand the gas line for the Oakland/Yalobusha Natural Gas District to help power the plant.

“I don’t think anybody involved believes that the project is without risk,” said USDA state director Nick Walters.

The beef processing plant was supported from inception by House Speaker Billy McCoy (D-Rienzi), who had said that, after the state provided financial assistance to recruit Nissan to Mississippi, the “small guys” deserved a break.

“After Steve Holland got to be chairman of agriculture, and that committee got so active, the House got very interested in developing the natural resources of Mississippi,” said McCoy. “Especially in the last few years here, with NAFTA … tearing us asunder with so many of our jobs, we began to look more at using natural resources that would not be affected by these international treaties. We have been convinced that if Mississippi is to grow and prosper as it should, we have to use those things that God gives us to optimum advantage. The cattle business was one place we knew that would be value-added to the farmer if we had a processing plant here. That’s how it got started.”

Holland (D-Plantersville), has said that “everything that’s been done on the meat plant has been above board.”

McCoy, then chairman of the Ways and Means Committee, had allegedly threatened to cut funding from state agencies that did not support the project. He is said to have pressured Mississippi State University (MSU) Extension Service to present a favorable report. When the new study was published, business leaders in Tylertown were reportedly upset because MSU had given them a discouraging report when they were considering building a similar operation near dairy stocks in Walthall County.

“In all my years in the Legislature, I’ve been involved in a lot of sizable endeavors by the state, and I authored the bill for Nissan,” McCoy responded. “I listen long and hard before I get involved, and if I believe in them, I put forth an effort. But I’ve not tried to pressure anybody to go beyond what they believe on this or any other project.”

Hall, 44, owner of Hall Farms Transportation Company, which transports livestock and refrigerated goods, and a member of a family that has been involved in the meat industry for 40 years, was tapped to spearhead the project. (The family-owned Pioneer Beef in Grenada shut down in 1998 because of antiquated equipment.) He proposed building a state-of-the-art plant that would process 1,000 head of cattle per day.

The 150-acre site in Oakland, located approximately 75 miles southeast of Memphis in Yalobusha County and part of the Appalachian Regional Commission and the Delta Regional Commission, seemed ideally suited for spurring economic development.

“All the way around … it seemed to be a wonderful opportunity,” said McCoy.

Brandon-based Community Bank loaned Hall $35 million, only after receiving a 100% guarantee from the state. Hall refused to say how much money, if any, he personally invested. When asked if he regretted not asking Hall to invest his own money in the project, McCoy said, “I won’t start second-guessing anybody or anything.”

“We could second-guess ourselves on Nissan, Howard Industries or Northrop Grumman,” he said. “The cattle processing plant is a bit different because it is terribly expensive to put one of those in, especially because of the zero tolerance of bacteria by the USDA, which it should be. We were not surprised that we’d have to offer extra incentives to get it started. The problem is, there’s some malfunction in the equipment and I don’t know whose fault that is.”

Pointing fingers

The original estimate for constructing the privately-owned plant was $32 million, funded in part by a $5-million grant from the Mississippi Land Water and Timber Resource Board. The cost quickly escalated to nearly $40 million, including $3.5 million to The Facility Group, a Georgia-based consulting firm, to help with the construction process.

“The construction management firm that reviewed the design of the entire operation and the contractor responsible for designing the rendering process and installing the rendering equipment did not fulfill their responsibilities to Mississippi Beef Processors or to the State of Mississippi,” said Hall. “Clearly, you can see that an incomplete process of this magnitude would cause any company, let alone a start-up company, an almost impossible atmosphere to operate efficiently or profitably.”

The Facility Group, hired in June 2003 after 20% of the project construction was complete, issued a statement December 2 that pointed to “MBP’s decision to procure a used rendering plant from ANCO-Eaglin” as a major mistake. Under a purchase order with the Greensboro, N.C.-based ANCO-Eaglin, MBP negotiated on a “turnkey” basis, which “has proved to be a source of major difficulty in the start-up and operation of the plant.”

ANCO-Eaglin was established in 1902 as the Allbright Nell Company, which has built the Armour plant in Chicago and other high-profile projects. Rick Eaglin purchased the ANCO division in August 1993, which has plants worldwide.

“We’re not new at this,” said Eaglin. “The equipment that ANCO supplied is operational and will work. The problem is that they don’t have skilled people to make it work. One example of many is that on numerous occasions, operators have failed to properly clean out the line, and material left inside the line hardens like cement. So when the next shift would come in to use it, the operator would damage the equipment. And the cycle repeated itself until the equipment wouldn’t work.

“I told Richard Hall from day one that there’s not a plant I know of that does not have someone with at least five to 10 years of experience operating that plant. He wouldn’t listen.”

Eaglin suggested to Hall on numerous occasions to order spare parts for the plant.

“At the time they started up the plant, there wasn’t a single dollar’s worth of spare parts purchased to run that plant,” he said. “If you want failure, that’s the quickest way. You wouldn’t drive down the road without a spare tire, would you?”

Eaglin said the project manager for The Facility Group was not a licensed engineer. “To my knowledge, he had no experience whatsoever with rendering and here he was, telling us how he wants things done,” he said. “I feel very saddened for the State of Mississippi for this whole situation.”

Eaglin said the company recently filed a lawsuit against MBP for the contract balance of $170,000 that was due September 19, saying Hall is using ANCO-Eaglin “as a scapegoat for what now appears to be a poor business plan.” The contract was for $1.7 million to install equipment in the rendering plant.

What’s next?

Yalobusha County residents, who have endured an unemployment rate of around 9%, are hopeful that the plant will reopen. Jackie Charles of Water Valley wrote a letter to Mississippi Development Authority executive director Leland Speed, pleading the agency to “give Richard Hall the support he needs to fulfill the commitment he made to his staff and crews.”

“I hope it works out for everyone involved, but I doubt the state will take that kind of risk again, where the entrepreneur is not putting up a significant amount of his own money,” said Ingram.

“I regret very much, and everybody does, that they’ve had this setback with the new plant up there,” said McCoy. “I guess a fellow can start pointing fingers. I don’t intend to do that.

It needs to start running. I know that probably the owner, as well as the Land, Water and Timber (Resources) Board, are looking for (the) Ways and Means (Committee) to get the bugs worked out and get it going again. I would trust what they decide.”

When the Mississippi Business Journal contacted Hall’s office after he issued the December 2 statement, his assistant said Hall would “not take any more questions.”

Contact MBJ contributing writer Lynne W. Jeter at lwjeter@yahoo.com.

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