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Thursday, July 22, 2010

In California, Bankruptcy of Giant Farming Co-op Holds a Lesson

Modesto Bee

The bankruptcy of Tri Valley Growers, a huge grower- owned cooperative, cast a pall over tomato and peach growers just as the 2000 canning season got rolling.

Ten years after its demise, the outlook is brighter in the sun-soaked fields near Westley where former Tri Valley member Bill Cox still grows tomatoes.

He sells his crop to two other food processors now, though the 2010 price might not be as high as the past three years. He sees continuing demand from fans of ketchup, pasta sauce and salsa.

But the collapse of Tri Valley, which cost the 500-plus grower- members about $145 million in equity, still is felt. Cox said his share of that was "a couple hundred thousand dollars," money that could have helped him diversify.

"We lost a bunch of money," he said. "We could have developed a couple hundred acres of orchards, or at least 100."

The bankruptcy of the 11,000-employee company, with plants up and down the valley, also contributed to the decline in the region's cannery work force. While primarily seasonal work, the mostly unionized jobs pay fairly good hourly wages compared with other valley occupations.

"There are nowhere near the employees there were back when they were going strong," said Wayne Zipser, who grew peaches for Tri Valley and now is

executive manager of the Stanislaus County Farm Bureau.

As for the growers, he said, "it hurt them. They were counting on those investments to grow the company. And it hurt the local economy."

A giant before the fall

Tri Valley, founded in 1932, grew to be the biggest player in the state's canning industry. At its peak in the 1980s, it ran 1.3 million tons of produce a year through 10 plants in California and one in New Jersey, selling under labels such as S&W and Libby.

Modesto was at the heart of it all, with one plant for tomatoes and two for peaches, apricots and other fruit.

The cooperative made a profit every year from 1988 to 1997, then lost $165 million over the next two years. It was bleeding yet more cash when it filed for bankruptcy July 10, 2000.

"It was a momentous event and a horrific event because growers lost millions and millions of dollars in equity," said Richard Sexton, an agricultural economist at the University of California at Davis.

He co-wrote a 2004 paper that cited several reasons for the collapse. They include overpayment for the raw crops, inefficient plants, a heavy debt load, poor financial oversight and weak brands in the tomato market.

Tri Valley stumbled through the 2000 harvest, then vanished as its assets were sold off to pay creditors. The Modesto presence has been reduced to one fruit plant, a Finch Road operation now owned by Seneca Foods Corp.

Processing has survived

The bankruptcy came as demand for canned fruit was slipping, another factor in the shrinkage of the industry.

Yet food processing has survived. At the peak of production last year, about 9,000 people worked at nine fruit and tomato plants in Stanislaus, Merced and San Joaquin counties.

"It puts money in people's pockets, whether to pay a bill or pay the mortgage," said Michael Tapia, who used to drove a forklift at a ConAgra Foods tomato warehouse in south Modesto.

He was seeking similar work this summer at the Del Monte Foods fruit cannery on Yosemite Boulevard. The job pays $16.94 to $18.37 an hour, not bad in a county where the jobless rate was 17.3 percent in May and many working people have taken pay cuts.

"It's tough out there right now for anybody," Tapia said. "People are losing homes. People are losing the things they have worked hard for in life."

Times were not so bad for the overall economy when Tri Valley faltered, so the impact was softened. The dairy, wine and nut industries were expanding, though not without some rough patches, and they employed mostly year-round workers.

Despite the troubles for tomato and peach growers, total gross income to Stanislaus County farmers nearly doubled from 2000 to 2009, to an estimated $2.31 billion.

On top of that, a housing boom brought plenty of work in construction and related fields, though it would come crashing down in the second half of the decade.

In 2000, it was tomatoes rather than the more lucrative fruit that dragged Tri Valley down. Today, the situation is reversed for the canning industry, with tomato demand stronger and fruit lagging.

One reason for that is the steady demand for paste, sauce and other tomato products. Industry representatives say consumers find them convenient, tasty and nutritious.

"The canning tomato market doesn't compete much with the fresh tomato market," Sexton said. "They go to different uses."

The Central Valley remains an ideal place to farm tomatoes thanks to its long stretches of sunny days. Mechanical harvesting has greatly reduced the need for field workers. Irrigation supplies are a long-term concern, especially on the West Side, but the easing of the drought this year has helped.

"I think it should be stable," Cox said of the processing tomato market. "I don't know about any international competition that's going to be accelerating."

Tough market for fruit

Not so for growers of peaches and other canning fruits. They contend with cheap imports and with the high cost of hand labor during the harvest.

Then there's the consumer, who can get fresh fruit from somewhere in the world all year.

The canned fruit industry has gone on the offensive, arguing that its process seals in flavor and nutrition. It also has offered new packaging, such as 4-ounce plastic cups, and new ingredient mixes, such as fruit packed in juice.

"It suffers from this notion of being not in fashion, but it's still a good product," said peach grower Paul Van Konynenburg of Modesto. "You put it in front of any 4-year-old and they will tell you how great it is. It's not your grandfather's heavy- syrup peaches."

Van Konynenburg was a Tri Valley member and served on its board of directors. He said the cooperative was done in by a number of factors that added up, including the conflicting needs of tomato growers, who have an annual crop, and fruit growers, who have long-lived trees.

Van Konynenburg now sells his peaches to Seneca, which he said has a good system for keeping the inventory moving.

Gary Darpinian, an Escalon-area grower who chairs the California Canning Peach Association, also praised Seneca.

"They've been a good addition to the peach industry," said Darpinian, who sells to Del Monte and was not a Tri Valley member. "The growers I know have been very pleased with their operation."

A spokesman at Seneca headquarters in Marion, N.Y., did not respond to a request for comment on how the old Tri Valley plant is faring.

Rethinking co-ops

Tri Valley's troubles got industry people thinking about the value of farming cooperatives. Growers have formed them to get fair prices for their crops, but they have to be wary of producing surpluses or pricing out the buyers of the finished products.

Darpinian said cooperatives need to have communication among the growers, board members and executives.

"Having good, accurate information about the financial condition of the company is very important," he said.

Sexton, in his 2004 post-mortem on Tri Valley, said the cooperative structure contributed to crop overpayments and "cumbersome" decision making, but the company also faced larger trends in the fruit and tomato markets.

Ten years after the Tri Valley debacle, the canning tomato industry is growing, although prices waver as processors try to match supply with demand.

The fruit industry is clearly struggling, but if it can stabilize, Modesto could be the hub of what remains. Seneca has started up the old Tri Valley plant for yet another season, and Del Monte has invested heavily in its own Modesto operation.

"It's a smaller total piece of the pie than it was in, say, 1964, but it's still a big piece," Van Konynenburg said.

He noted another advantage of supplying canned food to the world:

"Because those are outside dollars coming into our community, that is how our economy builds its wealth."