Tri Valley Growers files Chapter 11 bankruptcy

Tri Valley Growers files Chapter -11 bankruptcy

Dan Campbell,
Managing Editor

ri Valley Growers, for 68 years one of the nation's premiere fruit and vegetable cooperatives, filed for Chapter 11 Bankruptcy on July 10 after accumulating more than $200 million in debts during the past three years. Even though the co-op's financial status has been precarious for several years, the bankruptcy announcement sent shock-waves through California's agriculture industry and could have severe consequences for the co-op's 500 grower members, 11,000 seasonal and year-around employees, businesses that trade with the co-op, and farm dependent business throughout the state.

Tri Valley announced that it plans to idle two of its tomato-processing plants. That move would leave some 500,000 acres of processing tomatoes without a home. With the canned tomato industry in an over-supply situation, much of that crop may have to be disked under. Tri Valley will also process a reduced amount of its members' fruit crops this summer. It will accept only 70 percent of its members' pear crop, 85 percent of their peaches, 33 percent of their tomatoes and 85 percent of their grapes. Growers were also told that they would only receive 70 percent of the payment they had expected for their 1999 crops, and would receive only 60 to 70 percent of the market price for the reduced percentage of their 2000 crop processed by the co-op.

"This will definitely put some growers out of business. It's going to cost many low-income workers their jobs and set off a chain reaction that will hurt farm-related businesses throughout the state," said Robert Hansen, manager of the Suisan Valley Fruit Growers cooperative, a farm supply co-op with many members who ship their fruit to Tri Valley. The impact of so much fruit and tomatoes entering the market "without a home" could cause commodity prices to drop to "fire sale" levels, he warned. The state's cling peach growers association responded with a plan to pay members to pull out some orchards. Industry groups also launched an effort to urge USDA to ease the situation by buying more fruit and tomatoes. At press dead-line for this issue, USDA had just formed a special task force under Deputy Secretary Richard Rominger to study the situation.

Jeffrey P. Shaw, Tri Valley president and CEO, said the Chapter 11 filing "is our best path for the continuation of our company's operations and services." Unlike a Chapter 7 bankruptcy, which provides for the liquidation of a failing business, Chapter 11 is meant to provide protection from creditors to allow time for a business to reorganize its operations, including plans for paying creditors as much as possible. Shaw's letter to member-growers cited examples of other well-known corporations that have emerged successfully after a Chapter 11 filing, including Texaco, TWA, America West, Continental Airlines, Toys 'R' Us and 7-11 stores.

However, according to a report in the July 12 Modesto Bee newspaper, Shaw told growers at a private meeting that there is no hope of saving the co-op, which is instead gearing its efforts to process as much of this year's crop as possible and then seek a buyer for its operations. Indeed, the credit plan being worked out with the bankruptcy court reportedly stipulates that the company must be sold by this Feb. 1.

Tri Valley cans about half of the nation's peaches and apricots, and a significant share of the canned tomatoes, fruit cocktail, pears and other fruit and vegetable products. There is no way other processors can absorb so much tonnage this season, so an immediate cessation of Tri Valley operations would be "a catastrophe for California agriculture" and could even impact crop prices in other states, said Randall Torgerson, deputy administrator for USDA's Rural Business-Cooperative Service. Even the reduced operations being contemplated at press time will exact a heavy toll on the industry, he said.

As recently as May, press reports from California indicated that the struggling co-op was finally beginning to see some signs of improved operations. In late June, the co-op was still denying rumors of impending bankruptcy. But then the co-op's main supplier of canning material Crown, Cork and Seal declined to continue doing business with the co-op after it could not obtain a secured debt position equal to the co-op's banks. That action, in turn, caused the co-op's banking consortium to reduce a loan package for the 2000 canning season from $325 million to $270 million. The result "was like offering seven bags of feed to a hungry horse that requires 10 bags of feed to work efficiently," said Terry Barton, president of the California Pear Growers association.

These two actions came as a shock to co-op leaders, who, until that point, had been pleased with the progress being made to put their house back in order. "We had reduced our short-term debt by $60 million, cut inventory by $70 million and significantly improved our levels of service," Shaw said. But, he noted, "Clearly, the problems associated with the canned tomato market have hampered our progress." Barton, Hansen and other representatives of the pear industry traveled to Washington, D.C., in mid-July to seek USDA help in easing the crisis. They suggested that USDA purchase 120,000 tons of raw pears and 1 million cases of canned pears, and that it offer non-recourse loans to cover the $30 million shortfall their growers suffered on the 1999 crop. They also urged USDA to help secure a loan guarantee to cover the $55 million shortfall in credit TVG had been seeking.

On July 21, Vice President Al Gore announced that USDA would purchase 1.4 million cases (64 million pounds) of pears to help struggling farmers. Purchases are made on a low-bid process (call 202-720-4517 for details). The canned pears will be donated to domestic food assistance Programs, including the National School Lunch program, which provides meals to 27 million school children each day. "Many growers are deciding whether it makes sense to pick this year's crop given uncertainties in the marketplace," Gore said. "This purchase will reassure growers and make sure the pears are used to provide nutritious meals for schoolchildren and needy families rather than simply going to waste."

The Tri Valley situation has also left "an enormous surplus of tomatoes," according to John C. Welty, executive vice president of the California Tomato Growers Association (CTGA), a member-owned bargaining association. CTGA has requested that USDA agree to make an emergency purchase of $40 million to $50 million worth of surplus canned tomatoes under its Section 32 program. A purchase of this size would "effectively remove surplus tomatoes, provide a degree of relief to Tri Valley Growers and improve overall conditions in the industry," said Welty. California supplies 95 percent of the nation's processed tomatoes and 40 percent of the world's supply.

Shaw, who in March 1999 succeeded Joe Famalette and an interim manager, said the co-op's attempts to return to profitability have been stymied in large part by unfavorable, long-term contracts, an industry-wide oversupply of tomatoes, and processing plants running under capacity. Despite these challenges, he said the co-op had been making major progress in key areas this year prior to the cutback on its operating loan.

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