This Hong Kong Company Upset Canada's Ginseng Industry

Canadian farmers feel meltdown effects from the other side of the world

Peter VanBerlo has $2 million worth of premium North American ginseng in 546 plastic-wrapped boxes, just waiting to be shipped to China. And waiting, and waiting.

His September harvest of the beige, gnarled roots—popular in China for their purported health benefits—is stalled because the biggest buyer, a company in Hong Kong, spectacularly melted down in January, leaving farmers like VanBerlo in limbo.

“It’s just stuck here,” says VanBerlo from below a black leather cowboy hat, at a storage facility behind his home in Ontario, Canada. “I don’t want it sitting here, the banks don’t like it sitting here. I’ve got to turn it into cash. And no one’s buying, because everyone is waiting to find out what happens with this big buyer.”

The “big buyer” is Hang Fat Ginseng, a Hong-Kong listed company founded by brothers Jeffrey and Matthew Yeung more than two decades ago. From its origins as a wholesaler of Chinese medicine products, Hang Fat grew to dominate the American ginseng trade, buying as much as 70 percent of Ontario’s crop in recent years.

Last year, the company suddenly stopped making payments, forcing some farmers to miss loan payments to banks. Other buyers also stopped purchasing the crop, waiting to see what happened to Hang Fat.

Farmer Peter VanBerlo shows off preserved ginseng inside his office in Simcoe, Ontario, about 150 km Southwest of Toronto.

Farmer Peter VanBerlo shows off preserved ginseng inside his office in Simcoe, Ontario, about 150 km Southwest of Toronto.

Photographer: Cole Burston/Bloomberg

Worse was to come. At 9.30 a.m. on Jan. 28 in Hong Kong, a rumor spread that someone was dumping Hang Fat’s stock. Panic set in and by 10:36 a.m., when trading was temporarily suspended, the shares had plunged 91 percent, wiping HK$7.1 billion off the company’s market worth. The stock is down 87 percent this year.

Within weeks, PricewaterhouseCoopers LLP started offloading shares equivalent to 25 percent of Hang Fat’s listed value on behalf of a creditor. Hang Fat remains solvent and the Yeungs are still directors, but any nominal change of control would give creditors the right to call in loans, plunging the company into further turmoil.

This was once a poster child for the new global economy—where North American family farms benefited from free-trade access to China’s burgeoning consumer market, brokered through one of the world’s financial centers. Instead it’s become a cautionary tale of over-reliance, corporate hubris and weak financial regulation.

In Ontario, the icy winters and sandy loam soil that ginseng thrives in have turned the province into the world’s largest producer of the root, ahead of China and South Korea. For the 150-odd growers here, ginseng is buried gold. It’s not unheard of for thieves to steal it from farms.

Farmers carefully guard information about their treasure. Unlike other major export commodities, there’s no marketing board or co-operative to set prices, oversee the trade, or mediate between growers and their customers. Buyers come to farms and negotiate prices directly.

Ginseng contributes C$630 million ($480 million) annually to the province, according to the Ontario Ginseng Growers Association, but even the group doesn’t know for certain the impact of the Hang Fat “situation,” as locals call it.

Last month, growers descended on Delhi, a town of 4,000 people in Norfolk County surrounded by fields of ginseng, the characteristic straw-covered mounds between poles holding black tarp that is unfurled in summer to protect the shade-loving plant. The farmers packed into a local event hall for the association’s annual meeting, where Chairman Carl Atkinson spoke of “situations out of our control,” “financial problems of a key player,” and “incredible instability.”

Farmers listen in during the Ontario Ginseng Growers Association's 2016 AGM in Delhi, Ontario.
Farmers listen in during the Ontario Ginseng Growers Association's 2016 AGM in Delhi, Ontario.
Photographer: Cole Burston/Bloomberg

But farmers were none the wiser about what would happen.

“There was nothing new,” said VanBerlo, who grows the root on 60 of his 1,500 acres, which also produce tobacco and sweet potatoes. “They didn’t know anything.”

VanBerlo, owner of a private plane and at least 20 pairs of exotic leather boots, hires 85 employees during the harvest season. Even with cash on hand, he’s negotiated loans with banks to cover the rest of the year in case he doesn't sell his ginseng—pronounced “jansen” by long-time growers here.

It’s hard to grow. The plant takes at least four years to reach maturity, needs a minimum 70 percent shade, and is prone to rot in the wet and shrivel in the heat.

In the ginseng shop off a rural road in Norfolk County, cellophane bags of the root sell for $300 each. It can be grated into food, pounded into powder for supplements, steeped in liquid to create a tonic, flavored with licorice for tea, or infused into creams, ointments, hair-care products, coffee mix, candy and even gum.

VanBerlo estimates that one-third of the ginseng farmers sold their entire crop last year to Hang Fat and haven’t received any money and another third are owed 50 percent. The rest, like him, have it sitting in storage unsold. He said about four in 10 local farmers rely entirely or mostly on the crop.

Farmer Peter VanBerlo's ginseng fields in Simcoe, Ontario, about 150 km Southwest of Toronto.

Farmer Peter VanBerlo's ginseng fields in Simcoe.

Photographer: Cole Burston/Bloomberg

The news from Hong Kong wasn’t encouraging. In February, Hang Fat issued a filing to the stock exchange saying Matthew and Jeffrey Yeung “were experiencing certain financial difficulty” and that 850 million shares, 4.25% of Hang Fat’s issued share capital, had been sold to satisfy creditors. The Yeungs had pledged almost a quarter of the company’s shares against loans “for personal use.”

Demands for payment flowed in. Bank lenders have frozen some of the company’s accounts and asked for “immediate payment” of HK$208.8 million and accrued interest, an exchange filing said. Citibank filed a court action for repayment of HK$26.1 million, a writ showed.

By now Hang Fat’s customers in China were also worried. Refund requests for products worth HK$188 million have been received by Hang Fat, claiming “deterioration of the ‘Hang Fat Brand,’” a March exchange filing said.

Before the troubles with Hang Fat, Canada’s ginseng industry was running at full speed. More and more acres were given over to the crop. Land prices soared. In 2013 alone, the latest year of government data, the average price of the root jumped 63 percent, generating C$253 million in farm receipts.

“People have invested a lot and paid some incredible land prices,” said veteran grower Paul Arthur of Cedar Hall Farms, counting himself lucky to have sold last year’s harvest at a loss. “I have seen this kind of thing happen before but not on this scale. It is very serious.”

Part of the success was due to the aggressive efforts of the Yeung brothers.

Born in central China’s Jiangxi Province, Matthew Yeung apprenticed in a Hong Kong traditional Chinese medicine shop in the early 1980s, according to Hang Fat’s prospectus. He started Hang Fat’s wholesale business in 1989 with his mother and his brother Jeffrey, opening a retail shop in 2009 among the shark-fin sellers and restaurants of Hong Kong’s “Dried Seafood Street.”

They dabbled in deer antler and shark fin but it was in ginseng that the brothers found their calling. As well as wholesaling the root, they sold branded products like ginseng wine and ginseng preserved apricots to wealthy Asian consumers.

Between 2011 and 2014, the year the firm listed, Hang Fat’s revenue almost tripled to HK$1.2 billion, while profit grew at annualized 67 percent. In 2015 the stellar rise came undone.

Caught in China’s stock-market rout last July, Hang Fat shares halved in five days after having quadrupled in the first half of the year. Exchange filings showed that China Construction Bank had a “security interest” of up to 9.3 percent of the company, meaning shares had been pledged to the bank in exchange for loans. A spokesman for the bank declined to comment on the case.

The Yeungs carried out a series of buybacks, but to no avail. Overwhelmed by personal debts leveraged against the stock price, and owing more than HK$1.6 billion to banks and farmers, the brothers’ control of the company was in jeopardy.

Harvested ginseng sits inside VanBerlo's warehouse.
Harvested ginseng sits inside VanBerlo's warehouse.
Photographer: Cole Burston/Bloomberg

In Hong Kong, controlling shareholders aren’t required to disclose whether they’ve pledged their stock for personal loans, a rule shareholder activist David Webb says should be reviewed.

“This can lead to a potential change of control,” Webb said. “Clearly that is happening in the case of Hang Fat.”

On Feb. 4, following a failed attempt to sell control of the company to another Hong Kong company, the Yeungs announced they were selling 1.23 billion of their own shares to a company run by China Huishan Dairy Holdings Co. Chairman Yang Kai in an off-market deal for HK$23.4 million. Yang sold almost all the shares a day later for HK$77.1 million, exchange filings show. A Huishan Dairy spokesman declined to comment on the transaction.

Two weeks later, Hang Fat said it planned to issue 40 billion new shares via a share subscription and placement for 1 HK cent a piece, to pay debts. If the plan receives shareholder and regulator approval, it will leave the Yeungs with less than 5 percent of the company.

A spokeswoman for Hang Fat said neither the company nor the Yeung brothers would comment. Phone calls and e-mails to two Hang Fat directors who resigned after the stock crash weren’t returned. Brokers who lent money to the brothers declined to comment.

“They should tell the farmers what’s going on,” said VanBerlo. “There’s no market reason for the price to go down, except for them to save themselves. It’s kind of sad that they’re doing this to farmers.”

If the company is stripped down to a shell like many other failed small caps and sold off to the highest bidder, the effects will reverberate on the other side of the world.

Farmers who can survive the loss of payment may have to store their crop, which can keep for years, until another buyer emerges. For VanBerlo, it’s one more challenge in the heartbreaking business of growing this expensive, but fragile crop.

“Ginseng wants to die the moment you put the seed in the ground,” he said. “We’re just kind of hoping it’ll survive this, too.”


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