Farmers Reeling From Cooperative’s Collapse

Economic shock waves from the sudden collapse of Tri Valley Growers, canner of half the nation’s peaches and a tenth of the country’s tomato crop, continue to reverberate across California’s Central Valley.

The giant cooperative’s recent announcement that it had filed for Chapter 11 bankruptcy and was closing tomato plants in Los Banos and Thornton have dimmed the job prospects of more than 2,000 full-time employees and the 9,500 seasonal workers hired during peak harvest times. Layoffs seem certain at the co-op’s San Ramon headquarters and six other plants.

Equally precarious are the positions of the co-op’s 500 growers, who have received only part of what they are owed for last year’s crop and have learned they will be able to sell only a fraction of what is on their trees and in their fields, and then only at greatly reduced prices.

“We were kept in the dark,” said Ron Martella, a Hughson peach grower, “[We were] given nothing but optimistic news.” Martella and others could also lose their retirement savings, which are tied up in the equity of the grower-owned co-op.

Between the lost wages, lost sales and massive amount of money owed to more than 1,000 suppliers and other creditors, Tri Valley and government officials estimate the bankruptcy could take a $1.9-million bite out of the Central Valley economy.

“There is a dark cloud hanging over the community,” said Reagan Wilson, chief executive of Stanislaus County. “Even if you aren’t affected directly, you have friends, family and neighbors that are. This is a big problem.”

Most growers say they were caught by surprise when the co-op filed for Chapter 11 bankruptcy to force its can supplier to continue deliveries.

Used to economic disasters brought on by oversupply or weather, and assured by Tri Valley management, most growers figured the co-op could gain financing and eventually bail itself out from the $250 million in losses racked up during the last three fiscal years.

Tri Valley Chief Executive Jeff Shaw said growers knew about the losses and were warned that the co-op would be cutting back significantly on production. However, he said he had “no indication” that the company would need to file for bankruptcy until its can supplier demanded collateral from the lender to keep delivering its products.

“The company had every indication we were moving forward on a positive basis, until we received that communication,” Shaw said.

Can maker Crown Cork & Seal, based in Philadelphia, and other secured creditors are owed more than $388 million. Also awaiting payment of about $100 million are 1,000 other creditors such as food ingredient suppliers, truckers and box makers, according to court filings.

Crown, which is owed $74 million, already has idled its Modesto can-making plant, laying off most of its 97 workers, at least temporarily.

Tri Valley’s immediate future will become clearer Friday when a federal bankruptcy judge in Oakland decides whether to approve the company’s interim $270-million loan from Bank of America. Meanwhile, it has hired an investment banking firm to look for a buyer.

Tri Valley officials hold out hope that they can reorganize and sell off the cooperative as a going concern, rather than strip it down and sell off the pieces, but growers are understandably skeptical. Many don’t even believe they will get paid for what they’re starting to pick right now.

Tri Valley’s red ink is bleeding not from its peaches and fruit cocktail business, but from its tomato processing unit. Last year’s record 12.2-million-ton California crop exceeded what canneries could process, and more efficient operators began moving in on Tri Valley’s business.

An extra 700,000 tons of tomato processing capacity was added to the market last year, as much as Tri Valley’s entire annual production, said John Welty of the California Tomato Growers Assn.

Much of the capacity is in newer, more efficient plants that are closer to tomato fields and that make just one product, such as tomato paste for ketchup and pasta sauces, and produce it more cheaply. With a tomato glut pushing the price of tomato paste down 30%, only the most efficient operators can survive.

“Those are very tough businesses to run and these are very tough times in agriculture,” said Dan Sumner, professor of agriculture and resource economics at UC Davis. “This is exactly the kind of year where the weak don’t make it.”

The northern San Joaquin Valley cooperative’s problems are long-standing, growers say, dating to previous management, especially actions taken by former Chief Executive Joe Famalette, who left the company in 1998 after a vote of no confidence by Tri Valley’s board.

Growers say that Famalette and Tri Valley auditors Deloitte & Touche misled them about the company’s financial condition and convinced them to sink $100 million of equity into stock certificates that would never have reached the value promised.

They filed suit in 1998 seeking compensation for lost funds, but a resolution could be a couple of years away, said Modesto attorney Roger Schrimp, who filed the suit on behalf of growers.

Tri Valley’s problems have caused some industry observers to question the ability of cooperatives to manage their affairs as effectively as businesses owned by outside investors, rather than growers.

However, for every struggling co-op there is a struggling private company, Sumner noted, pointing to ConAgra’s Hunt-Wesson tomato plant in Davis, which closed its doors last year.

The real problem, industry observers say, is the farming industry’s inability to regulate itself. Recurring oversupplies periodically force growers into dire straits like this one.

The California Canning Peach Assn. has proposed a program that would compensate growers that eliminate trees, which would trim the huge oversupply that has begun hitting the market and allow Tri Valley to pack more from those who want to remain in the business.

Although a few growers may be able to sell a fraction of their crop to other canneries, most processors have already contracted for their needs. Growers such as Chuck Cox, who farms 900 acres in Westley, are weighing whether the expense of picking the plump red fruit is worth the pittance they’ll be paid for it.

“I’m sitting here with 300,000-some-odd dollars tied up in this field praying that there’s somewhere to go with it. I can’t see how things could get any worse.”