Garrett's Gone…

Leitchfield, Kentucky, the seat of Grayson County, might be getting a meat processing facility — but a controversy has emerged as large details remain hidden to a project that, if built, would have massive effects upon the entire region. The facility has stated they will slaughter around 2500 cows daily and distribute high protein snacks like beef jerky.

Location

If built, the Grayson County location for the new E&E Renewable Energy, LLC facility, doing business as Kentucky Snack Foods, is along Highway 54 near the Bel Cheese plant. The location is handy for several reasons, most notably because two grants (One from Bel and another from KSF) can be combined to help finance the $14 million dollar anaerobic digester to be built on the site, allowing animal remains to be lodged on-site to decompose.

Funding

It’s certainly expensive. The football field-sized digester, as previously mentioned, will run at around $14 million. In order to proceed with the project, 5% of that cost has to be secured; that funding was put up by an anonymous donor, meaning the city did not have to utilize a holding company to request the loan from a bank. (The City of Leitchfield could not have taken out the loan itself due to the unlikelihood that the loan would be paid off within a year; it would make it impossible to balance the city’s budget.) The City of Leitchfield has also applied for a state grant totaling $4.2 million to help finance the digester.

Some funding is believed to have been secured via the South Kentucky RECC — however, that funding was published when the processing facility anticipated a location to be in McCreary County. Leitchfield isn’t the South Kentucky RECC and, in all likelihood, the RECC will seek to recoup those funds so they may be used in other projects that benefit their region (though, legally, it is questionable about whether or not KSF will be obligated to return the funds).

Other infrastructure is, for the most part, already available on the site with almost the entirety of the expense being due to the anaerobic digester. This begs the question about how much of the project is being financed from investor funds and – more importantly – who will sign on the loan when the remainder of the $14 million is borrowed [should the investors not immediately pay the difference].

Investors

It has long been stated that this facility is being masterminded by four individuals, though only three names exist in print media: John Bulicek, Patrick Toth and Chuck Pharr. (Note: The following information is somewhat unverified, but it is a culmination of online and source data. If any of this information is in error, please contact me to make corrections.) Reports exist stating investors are all around, coming from Texas (though I’d argue this is incorrect), New York and even Canada.

Chuck Pharr is a principal at VCP&A, a design-build engineering company located in Arkansas. His role in this is simple: His company will be designing the Leitchfield facility. VCP&A have designed processing facilities for the likes of Tyson, Hudson, Michigan Turkey and have previously worked in Kentucky with their design of the Hudson plant in Robards, KY (south of Henderson).

Pat Toth has worked for several investment companies around Calgary, Alberta, Canada. He’s currently the owner of Alliance Capital, though has worked with several high-profile individuals (such as Gary Van Nest and Peter de Auer) at Encap Corp and Cluster Asset Management. I’ll note here that Cluster, under de Auer, has had a run-in with the Canadian securities authority when they began working with companies in a region they weren’t familiar enough with. Unrelated, though notable: Toth is also a frequent member of several non-profit advisory boards and has an impressive philanthropic record, currently sitting on the Legacy Children’s Foundation.

I would argue that the “mastermind” of the operation is John Bulicek, a man who has worked with emerging market investments for quite some time. He’s currently the Head of North American Sales for the London-based company Trusted Sources, a company that recently published a paper entitled “Well-positioned to sully emerging-market meat demand” written by Elizabeth Johnson, the director of the company’s Brazilian research group. I imagine that Bulicek is utilizing data from this role to help direct his independent company, Bulicek & Company, which will have a stake in the Leitchfield plant. Of these three individuals, Bulicek is the most equipped with background data to reasonably be able to form an international business plan.

Market

The meat export market is, without a doubt, set to grow. The BRIC countries (Brazil, Russia, India and China) are gaining individual wealth, and as history has shown, a gain in wealth accompanies an increase in protein consumption (people eat steak when they can afford steak, basically). According to Trusted Source’s Elizabeth Johnson, previously mentioned, Brazil will be a major importer of international processed meat.

Unfortunately, some do not share this optimism. According to Jason Henderson with the Federal Reserve Bank of Kansas City, the BRIC countries will indeed import more meat — until domestic meat processing catches up to demand. (http://kansascityfed.com/Publicat/EconRev/PDF/11q1Henderson.pdf) In these countries, Henderson projects that domestic production will grow rapidly, quickly shrinking the international import market.

Argument

For the short term, a meat processing plant in Leitchfield, catering to export abroad, will gain traction and market. Unfortunately, it is unreasonable to believe that the plant will retain significant market share 10+ years into the future without additional countries gaining additional wealth and growing similar to how BRIC countries are currently. It would be imperative that, for this operation to survive, the international demand for processed meat must continue to grow.

As for the company, the current demand (and the demand for the immediate future) will provide a mechanism to pursue the industry. For the investors, a net gain exists in the market, though the market may not last for an extended duration.

Opinion

I have a hard time believing that this facility will exist for a generation as the market will require a certain amount of luck to maintain international sales. The hope would be that, as one foreign country decreases meat imports, another will be expanding individual wealth to begin their duration as a net meat importer (again, until domestic production grows).

That being said, if I was an investor, I would likely be on board. With significant financial help coming from federal, state and local government, investor expenditure will be quite low into a market that, currently, has significant and growing demand. Needless to say, there is money to be made in the short-term and net profit will almost certainly be achieved. And if the plant’s administration is exceptional, they’ll likely figure out a way to keep the plant open (though doubtful with more than 300 workers) into the more-distant future. But I do have my doubts given that I can’t identify any investor mentioned above that has experience with physical sales or marketing; their experience is in obtaining international market information, not running a production facility.

I’m not an investor, though. And while there are certainly benefits to providing jobs to Grayson County citizens here and now, the net effect for the City of Leitchfield may be too great. With published documents outlining an uncertain future for such a large enterprise, the City of Leitchfield may have bills a decade from now, continuing to finance advances in water treatment, education and other amenities in West Leitchfield that would no longer be necessary.

The proximity of the proposed plant to several neighborhoods will also lower nearby land and property values, similar in effect to Glasgow’s cheese facility. And if there is a smell (which there will be — anaerobic processes smell awful, and burning contaminated methane smells worse) then West Leitchfield will be the worst place in the city to live, sending more people outside the city and decreasing city tax revenue.

I think there is an opportunity for this plant to last a long time, but not a great one. I also admit the prospect of adding 400-700 jobs within the next two years is desirable and a welcomed prospect. But I don’t foresee opportunity for a net positive effect. I expect this plant will either stain the region, the city’s finances, or both, especially in a city with substantial income from tourists who will drive within 100 feet of the facility.

Should the City of Leitchfield and Kentucky Snack Foods secure funding and build this facility, I hope these fears are proven incorrect, but I sincerely believe this operation will bite the City of Leitchfield and harm all of Grayson County. Even if the plant exists well into the future, citizens of Grayson County will grow to hate it being there.