A booming niche industry goes bust, quietly taking millions in public money with it

On the surface, at least, it was a tragic tale — a farmer at his wit's end, a business going down the tubes, and one desperate push to eke out some final cash before crashing out.

Over the course of a frantic weekend in March 2017, Casey Gavin said he and his father pulled 20,000 mink from their cages and slaughtered them at their farm in western Prince Edward Island. The pelts were worth up to $1 million to Asian fashion houses hungry for fur coats.

But in the rush, Gavin later claimed, those pelts had been ruined. His creditors were out of luck. Looking for a way to dispose of the rotting pelts, father and son said they put the lot through a meat grinder and flushed it all down pipes and into the Gulf of St. Lawrence.

"After exhausting all options to obtain financing to run the operation we came up empty-handed," Gavin, the owner of Silver Hill Fur Farm, wrote in a March 6, 2017, email to his financial adviser explaining why he had killed all that remained of his herd.

Silver Hill Fur went into receivership a week later. It joined dozens of other casualties in the mink farming industry, a sometimes controversial century-old agricultural sector once dominant in pockets of Atlantic Canada but which has been sapped by plunging global fur prices over the last six years.

Suspicious accountants later unravelled the bizarre Silver Hill Fur story, according to court records. They doubted the pelts had been destroyed, and figured they had instead been shipped to a freezer off-Island, apparently away from the prying eyes of creditors.

There was plenty of intrigue. But there was also an aspect to the receivership that was more straightforward, something in common with other failed mink operations. On its way down, Silver Hill Fur took with it large sums of public money — up to $8 million in government loans and bailout payments.

A CBC News analysis of bankruptcy and government records suggests that, since 2014, upwards of $100 million in provincial and federal money has been spent in Canada trying, often unsuccessfully, to keep individual mink farms afloat, or is tied up in loans by Crown agencies that will likely never be repaid.

Some of the cases are eyebrow-raising. One Nova Scotia mink farm is caught in insolvency proceedings for a second time, even after receiving millions of dollars in government aid. In another case, public money was used to pay a Toronto financial institution that lost millions to a bankrupt mink operation.

The bulk of the money spent on the industry appears to have come through Agristability, a program jointly funded by the provinces and Ottawa that amounts to a disaster relief subsidy for farmers who suffer large income declines.

But so long and steep has been the fall of the mink sector that the bailouts dwarf what the industry is now worth. Last year, farms across Canada sold just $44 million worth of pelts, down from $254 million at the peak of the boom in 2013, according to Statistics Canada.

"I always said Canada would be the only country in the world to survive, because of our Agristability," Peter Peters, a 50-year veteran of fur farming who lives in Howe Bay, P.E.I., said in a March interview. "But I was wrong. It didn't."

Mink farming in Canada dates back more than 100 years, at times facing bitterness from neighbours over pollution concerns and the smell of large-scale operations.

Each year, several million of the small animals are raised in cages in barns. They are killed using carbon monoxide, and their pelts sold through auction houses to overseas buyers, many of them in Asia.

The short fur is prized for its shine, and the animals are bred in a dizzying array of colours, like sapphire, palomino and mahogany. Pelts are turned into coats, hats and accessories, some destined for the catwalks of Milan, Italy, and New York.

The precise amount of public money that's been spent trying to rescue the mink industry after global prices took a nosedive in 2014 remains secret, however.

The federal Department of Agriculture refuses to release information on payments to the sector, even under access-to-information laws, citing among other things "international affairs" and "economic interests of certain government institutions."

Statistics Canada, however, notes that in Nova Scotia more than $85 million in federal and provincial payments, including Agristability, have flowed since 2014 to a statistical category dominated by the mink industry.

It makes the sector by far the largest recipient of agricultural aid in the province, which once boasted well over 100 fur farms and is the country's leading producer.

"Whether it was a good investment or not, history will tell us," Nova Scotia Agriculture Minister Keith Colwell acknowledged in a March interview.

In receiving Agristability, the mink industry is tapping into a program available to other agricultural sectors. It is meant to backstop farms hit by a year or two of financial hardship. Farmers are charged a fee to enrol, and receive payments through a formula that kicks in if their margins drop by 30 per cent or more.

The program is also not designed to "mask" market signals. Support erodes if bad seasons pile up, and payments to the mink industry have subsequently declined in the last couple of years.

Defenders point to boom times when mink pelts were Nova Scotia's largest agricultural export, meaning jobs for several thousand people, particularly in the province's Digby and Yarmouth counties where the development of "jet black" mink in the 1950s had drawn international attention.

In the heady days of 2012 and 2013, when Russian and Chinese appetite for pelts seemed insatiable, mink farming brought nearly $130 million of foreign money into the province in a single year.

"Certainly, the last few years the industry has taken money back from government," said Matt Moses, a mink farmer in Berwick, N.S. "But when the industry is profitable it very quickly can offer up tremendous benefit to some of the depressed rural communities of the province and create a nice inflow of export dollars."

Pelts eventually topped $100 apiece, far beyond the $45 or so needed to produce them. New farms popped up, while established operations expanded. Production in Europe and Asia, home to most of the world's fur supply, soared.

But then Russia was hit by a financial crisis and Chinese purchasing slowed. Prices spiralled downward, to as low as $20 a pelt. Making matters worse, many Nova Scotia farms were being pummeled by Aleutian disease, a contagious virus spread among mink that forced some operators to cull their entire herds.

To some observers the price crash was a predictable endpoint for an industry that has traditionally cycled through booms and busts.

"When I seen it was a $100 a skin, I thought this is not sustainable. After all, it's just a mink. They can produce them. It's not like a rare diamond," said Mark Downey, the chief executive of Fur Harvesters Auction Inc., a North Bay, Ont., company that specializes in fur from trapping.

"And the global production after that, when they hit $100, it just kept ramping it up and it got to the point where it was just too many mink on the market. They flooded the market, oversupplied the demand. And that's where we're at right now."

In Canada, overheated production was fuelled in part by financing from banks, fur marketing co-operatives, private auction houses and Crown agencies, including the Nova Scotia Farm Loan Board.

By 2013, the year before prices collapsed, the Nova Scotia mink industry had become one of the farm board's largest borrowers. Last year, the board was forced to write off nearly $3.8 million in loans. Farm Credit Canada, a federal Crown corporation, said late last year that a third of its $22 million in mink loans were "impaired."

The bust came as the industry had spent several years trying to fend off criticism from both neighbours and faraway foes.

In Nova Scotia, the sector had spent millions of dollars upgrading operations to meet new environmental standards introduced after community complaints about waste runoff polluting local waterways.

The industry increasingly markets itself as green. Mink feed is made of the leftovers from fish and animal processing. Fur, the industry notes, is both a biodegradable and a "long-wearing" piece of clothing that's often passed down between generations rather than discarded.

The industry has trumpeted its animal welfare codes of practice and certification processes. But it still faces a motivated campaign by animal-rights activists, and intruders have broken into Ontario farms and set mink free. Some major retailers, including U.S. department store giant Macy's, have said they will no longer sell fur.

The bad financial news has piled up. This fall, North American Fur Auction Inc. (NAFA), a Toronto-based fur seller that dates back to 1670 and the Hudson's Bay Company, went into creditor protection.

One of Nova Scotia's largest mink operations, a NAFA subsidiary once known at Victory Farms Inc., has been dragged in and finds itself in insolvency proceedings for the second time in little more than three years. Since 2015, it has received at least $4.4 million in Agristability money.

In another case, involving Rosedale Farms in Weymouth, N.S., Agristability paid out $1.8 million under rules that allow failed operations to still qualify for the program if they were hit by disaster before declaring bankruptcy.

Much of it went to the farm's largest secured creditor, a boutique lender based in Toronto, according to court records. Last year, the Nova Scotia Farm Loan Board wrote off nearly $1.4 million in Rosedale loans.

Aid for the industry has dwindled in recent years, and many of the farms that survived no longer qualify for Agristability payments.

Colwell, the agriculture minister, said the Agristability payments were beyond his authority, given the program had been negotiated with agricultural sectors across the country.

But he said he was confident the glut of pelts has ended, prices will once again rise, and that the industry has "got a great future in the province."

The focus in Nova Scotia is now on a much smaller number of farms — about 30 remain — producing "cream of the crop" pelts, he said. There is also a push to market more directly to overseas fashion houses.

"If we get this restructured properly, which we're working on now with the industry, I think we're going to have an industry that's going to be able to help Nova Scotia's economy grow again and put back in the economy," Colwell said.

Still, plenty of money has been sunk into the industry.

Perhaps nowhere has the public purse taken as large a hit as Silver Hill Fur Farm, the scene of what would become the strange story involving the claim that 20,000 ground up mink pelts had floated away in the sea.

The farm had managed to secure a $4.2-million P.E.I. government loan in March 2014 to build what was termed a "state-of-the-art facility." When prices soured, it tapped into at least $3.6 million in Agristability payments, according to financial records.

Following some legal wrangling, the mystery pelts were eventually "returned" to the receiver and subsequently sold at auction, according to court records. Equipment and two farm properties have also been sold off.

But the receivership process continues to drag on. So far, the P.E.I. government has not recouped any money it is owed.

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