State recalls loans, dairy in doubt

PALMER — The Valley Dairy — otherwise known as Matanuska Creamery — a 5-year-old project to try and save Alaska’s dairy industry, appears on the verge of collapse.

“The Board of Agriculture at its last meeting had a hearing on Valley Dairy’s request for reconsideration of a previous decision,” Assistant State Attorney General Bob McFarlane said. “The hearing lasted about two hours and then the board voted not to change their decision. … They want me to repossess assets until those loans are paid.”

That drastic decision is based on the $850,000 in state loans the creamery can’t repay.

Why the creamery can’t repay those loans depends on who you ask. Karen Olson runs the dairy now and is a part owner. In an ethics complaint filed against the Division of Agriculture aimed at its director, Franci Havemeister, Olson alleges many things.

“During the time director Havemeister was Valley Dairy’s loan officer and was privy to Valley Dairy’s detailed proprietary information, director Havemeister’s relatives were preparing a loan application to start a small, on-farm milk processing plant at the Havemeister Dairy,” Olson writes in her complaint.

When that milk processing facility came online it took away a third of Matanuska Creamery’s milk supply.

Meanwhile, the creamery’s septic tank failed and it’s had to truck byproducts around the Mat-Su Borough to dispose of them, adding costs. It asked the Board of Agriculture and Conservation for a loan deferment, a period when it wouldn’t have to make payments. The agriculture board refused, instead opting for collection action.

Losing a third of the milk, though, was the fatal blow. Jake Libbey, who is Valley Dairy’s biggest shareholder, says in an affidavit accompanying Olson’s complaint that the position just made no sense.

“Anywhere else in the country it is laughable to have less than 5,000 cows and more than one processing facility,” Libbey wrote.

He wrote that the creamery believes, and an independent auditor confirms, that the operation will only become profitable if it can get more milk.

“There is nothing wrong with our business model, we just need more cows,” Libbey wrote.

The Havemeisters see it very differently.

Ty Havemeister, son of the farm’s owner, Bob Havemeister, said the farm got a $500,000 loan from the Division of Agriculture. But far from the rumor that it was an “unsecured” loan with no collateral, the Havemeisters put their farm on the line.

“We have 160 acres. It’s all paid for,” Ty Havemeister said. “Our farm is backing the whole loan. If we don’t make it a go we’re putting in a subdivision.”

That farm is a valuable chunk of real estate at the corner of Bogard Road and Trunk Road that would-be homeowners would snap up if it were sold as residential lots.

“We could have gotten a loan from anyone on the planet,” Ty Havemeister said.

As for his sister-in-law, Franci, she recused herself from all dealings with the Havemeister Dairy loan. And it’s not like Franci Havemeister could just put the kibosh on the plan to extend those loans, he said. The deal had to go through the Board of Agriculture and Conservation, which balked at the idea considering the creamery’s record of repayment.

“What do you want them to do?” Ty Havemeister asked in an interview Thursday.

Was Havemeister’s decision to pull its product from the creamery to blame for its failure?

“I don’t know who to blame for that,” Ty Havemeister said. “I feel bad for the folks down there at the creamery.”

But he said he takes issue with describing what his family did as a “decision.” The creamery, he said, owes his dad a half million dollars for more than four years of milk sales.

“We’ve been paid some,” he said. “Never in full.”

So there was no decision to make, he said. The costs had reached a point where either they tried to go it alone or sent their cows to the slaughterhouse.

“Matanuska Creamery was not going to have our milk this fall, one way or the other,” Ty Havemeister said.

So far, he said, his family’s creamery is doing well. It’s selling 75 percent of the farm’s milk. It’s available at Fred Meyer and Three Bears.

The plan, Ty Havemeister said, is to start simple with gallon jugs of milk, then add products as he can. He’d love to do cheese or ice cream, but needs to focus now on the milk and make that work.

“Our overhead is next to nothing compared to what they’re doing there at the creamery,” he said.

Meanwhile, McFarlane, the state attorney in charge of collecting on those loans, said he hasn’t decided how he will proceed.

“Unfortunately, the overall thing is very complicated because Valley Dairy they have relationships with other people, suppliers, milk producers and those sorts of things,” he said. “You have to be careful to the extent that you can not to hurt other people.”

The board has given him wide discretion in how to proceed. He said if he can accomplish the board’s goals without hurting the dairies and suppliers that’s what he wants to do.

“It’s really hard to say what I’m going to do first. I have millions of options. You can start slow, you can take a few things or you can just say, ‘well there’s no way to do this’ and just start collecting everything,” he said.

Meanwhile, folks who depend on the dairy’s products should expect to see them for a little while.

“I have no idea for how long,” McFarlane said.

One of the creamery’s main clients is the Mat-Su Borough School District. Schools spokeswoman Catherine Esary said she couldn’t speak to details with the creamery’s future so much in flux.

“Generally, however, the district would always have a back-up plan for any contractual arrangement. The creamery was awarded the district contract through the standard bid process. The district’s position has always been that we support buying local when we can,” Esary said.

Contact reporter Andrew Wellner at andrew.wellner@frontiersman.com or 352-2270.