Big Enough to Fail

Photo: Joan McGuire
Freezer shelves in a Portland gorcery store nearly emptied of Flav-R-Pac frozen vegetables, a NORPAC Foods brand, in January.

The bankruptcy of NORPAC Foods shows the crisis that farm cooperatives face in the race to become national brands.

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Manufacturer NORPAC Foods was a fixture in the mid-Willamette Valley for more than a century. Its Flav-R-Pac brands brought the region’s produce to the rest of the country. Many of NORPAC Foods’ workers counted their tenure with the company in decades.

For them, NORPAC Foods was the only employer they had ever known and would ever need.

NORPAC Foods opened its first facility in 1924, canning and freezing fruits and vegetables. That site in Stayton still employed 485 people by the middle of 2019. They would be among the first affected when the company announced its bankruptcy in August.

Suzie Gibson and her four colleagues at the Willamette Workforce Partnership were among the first to receive a call.

Gibson and the partnership’s rapid-response team had to tell many long-tenured employees they were losing their jobs. They informed workers about their unemployment benefits and responsibilities, and saw the fear in their eyes.

As NORPAC Foods’ union truckers found out during a Jan. 14 bankruptcy hearing, when they were told that their jobs were not coming back, those fears were well-founded.

“No matter how you look at it, this is traumatic for them,” Gibson says. “Especially for guys who’ve never had another job and have been there for 30 years.”

NORPAC Foods was a self-described “farmer-owned cooperative.” It worked with more than 200 family farms in the Willamette Valley and sold nearly 30 varieties of fruits and vegetables.

Its bankruptcy reveals the fragile state of U.S. agriculture and agricultural cooperatives. But what occurred afterward is just as important to the narrative.

Ideally, agricultural cooperatives exist to help small farmers grow, store, ship, price and market their products. By pooling small farmers’ resources, they provide farmers aid they typically could not access on their own.

In 2009 there were 2,389 agricultural co-ops in the U.S., with nearly 2.25 million member farmers, according to the Department of Agriculture (USDA). By 2017 the total number of co-ops dwindled to 1,871, with roughly 1.9 million members.

In Oregon there were 32 cooperatives with a total of nearly 30,000 members in 2009. By 2018 that number had fallen to 24, with membership declining to 29,000.

NORPAC Foods was one of the largest farmer cooperatives in the region. About 4,900 people in the Salem area were employed by food manufacturers in September, according to the state employment department. NORPAC Foods accounted for nearly 20% of those food manufacturing jobs.

By September, court filings show the company had $5.1 million in monthly labor costs, and had lost $4 million within the previous month alone.

“We’re worried about the farmers who have not been paid,” Gibson says. “The farmers who were not paid for last year’s products may not be able to pack their products.”

Workers and small farmers throughout both Oregon and the U.S. rely on agricultural cooperatives like NORPAC Foods for their survival.

RELATED STORY: Retiring NORPAC CEO reflects on changing agriculture and food processing landscape

But NORPAC Foods isn’t every co-op. There are larger, smaller, national and regional cooperatives, and no one narrative fits them all. In fact, for small farmers and laborers, they remain the last, best defense against large-scale factory farming.

A food-business entrepreneur who thinks small-scale organic cooperatives will thrive is Chuck Eggert, co-founder of Pacific Foods. In 2017 Eggert sold his company to Campbell Soup in a deal worth $700 million.

He now heads Wild Rose Foods, which brings together small-scale organic food brands and partners with family-owned farms.

He has been a member of four agricultural cooperatives and served on the board of Frontier Spice Company, a retail co-op. He notes that agricultural cooperatives face a great deal of pressure to produce results for members.

“In most cases, the purpose of the co-op is to maximize the price that the farm is going to get,” Eggert says. “Sometimes that’s not in alignment with what the market will bear.”

As a result, cooperatives have been consolidating at an increasing rate. According to CoBank, the lender financing NORPAC Foods’ bankruptcy, there were once as many as 10,000 agricultural cooperatives in the U.S.

During the 1980s, co-op consolidation accelerated as the Farm Crisis crushed produce prices, farmland value and farm income. In the 2000s co-ops consolidated to scale up production and share marketing resources. Between 2007 and 2017, more than 70 co-ops consolidated each year.

“Co-ops are businesses,” says Bill Stevenson, director of cooperative development for the Rocky Mountain Farmers Union, which represents farmers, ranchers, and nearly 40 agricultural cooperatives in Colorado, New Mexico and Wyoming. “They aren’t in the nonprofit world: They’re in the for-profit world.”

Consolidation has been particularly punishing for some co-ops. CoBank notes that nearly one-third of the co-ops that consolidated between 2014 and 2017 either declared bankruptcy before doing so or simply dissolved.

Former NORPAC Foods CEO George Smith predicted some of the reasons for co-ops’ troubles during an exit interview with Oregon Business in 2017.

Smith noted that though NORPAC Foods served as a supplier for KFC, Applebee’s, Taco Bell, Kroger, Costco and other large companies, it was slow to embrace the growing organic-food market. As a result, organic products comprised just 10% of NORPAC Foods’ total production.

He also saw the rising cost and low availability of labor, which forced him to cut back on NORPAC Foods’ strawberry, broccoli, cauliflower, zucchini and yellow squash production.

That same year, NORPAC Foods closed a canning facility in Hermiston as the company shifted to frozen foods. At the time, the facility was Hermiston’s largest employer.

Finally, Smith saw generations of NORPAC Foods farmers getting older. According to the USDA, the average age of a U.S. farmer is 57.5. Thirty-four percent of all farmers are 65 or older.

Though 27% of all farmers have been at it 10 years or less, the average U.S. farmer has been on their farm for more than 21 years.

“A lot of it is their own fault because they told their kids how hard farm life is,” Eggert says. “A lot of these farms over the years have been long, hard work, but they say it enough times that most of their kids believe it.”

In the case of NORPAC Foods, the company’s troubles are exacerbated by large amounts of debt. CoBank now has more than $380 million in liens against NORPAC Foods’ Oregon facilities.

As a result, it is possible that some of the $165 million the company owes to creditors won’t be repaid.

While it owes some of that money to larger partners like Kroger, Walmart, SuperValu and SYSCO, it is also indebted to local farmers.

Those owed include Keudell Farms in Aumsville (more than $347,000), Schlechter Farms in Salem (more than $121,000) and Obersinner Farms in Silverton (featured on NORPAC Foods’ home page and owed more than $364,000).

Farmers contacted for this story either did not respond or declined comment. One did so through a representative, noting that he “doesn’t feel like he has anything to say that he would like to see in print.”

“Having a giant cooperative carries the same risk as investing in any business,” the Rocky Mountain Farmers Union’s Stevenson says. “Cooperatives are like corporations and protect their members from liability, but the capital that you have invested is completely at risk.”

NORPAC Foods’ situation has further deteriorated since September. Immediately after announcing its bankruptcy, the company reached a $155 million deal, selling all its assets to Oregon Potato Company. But in October Oregon Potato pulled out of that deal citing environmental conditions at two plants and regulatory concerns.

RELATED STORY: The Good Farmer

In November NORPAC Foods announced the closure of two other facilities in Salem and Brooks. That has brought the total number of layoffs in Oregon to more than 1,400.

“A lot of times, as these co-ops grow, it becomes hard for them to have purpose,” Eggert says. “Everybody thinks that growth is the ultimate thing, that if you aren’t growing, you’re doing something wrong, but I think you need to define what you do well.”

NORPAC Foods is not the first or last co-op to go bankrupt. But its fall is not where the agricultural co-operative story ends, either in Oregon or in the U.S.

When Gibson and her colleagues at Willamette Workforce Partnership first responded to the bankruptcy, they received an unexpected amount of help.

Before they even set up a job fair, they were contacted by the Oregon Department of Corrections, metals company ATI, Samaritan Health and engineered-wood products company RedBuilt. They also received inquiries from food companies, including Salem-based Truitt Brothers.

“We had a huge outpouring of businesses calling in and trying to hire these folks,” Gibson says. “That’s the great thing about unemployment being so low: We had 50 businesses reach out to us. We didn’t even have to pick up the phone.”

Oregon’s unemployment rate has hovered between 4% and 4.4% for the past three years, according to the state’s employment department. While the 4.1% unemployment rate in October still lagged behind the 3.6% national average, the same employment climate that made it difficult to find farm workers is making it easier to find jobs for food-manufacturing employees.

“The fear of ‘What’s out there for me and does anybody want me?’ was very prevalent,” Gibson says. “At the job fair, they kept coming up to me and saying, ‘My gosh, there is hope. People actually want me, I have three job offers.’”

Despite NORPAC Foods’ collapse, agricultural cooperatives are still strong sources of employment. In 2009 U.S. co-ops generated $170 billion in business volume, according to the USDA.

By 2017 their business volume grew to $197 billion, which is about $172 billion in 2009 dollars factoring inflation. Between 2009 and 2018, business volume at Oregon co-ops increased from roughly $3.6 billion to $3.7 billion.

The Tillamook dairy cooperative alone generated $827 million in revenue in 2017, up from $778 million a year earlier.

CoBank notes that, since 1952, annual growth of co-op business volume is roughly 4.3%. Between 2007 and 2013, volume increased 7.5% annually. Job numbers have increased at an even faster rate.

Co-ops added about 7,700 employees between 2005 and 2017. Full-time employees that were 61% of the co-op workforce in 1996 represent 74% in 2017. Today the average co-op employs more than 100 people, a 33% jump in 20 years.

“By working together, in general, [agricultural cooperatives] can achieve a number of things for their members, but all of them come down to the bottom line,” says Bob Kjelland, director of communications for the Rocky Mountain Farmers Union.

“We somehow either save money for the members or create more income for the members.”

NORPAC Foods, its facilities and its workers are still seen as assets. In mid-December, Oregon Potato owner Frank Tiegs won a bidding war against food manufacturer Simplot for a NORPAC Foods facility in Quincy, Washington.

The $107 million deal included the co-op’s inventory, intellectual property and other assets.

And at the end of December, Michigan-based cold-storage firm Linear Logistics reached a tentative deal to buy NORPAC Foods’ Stayton, Brooks and Salem facilities for $49 million. A bankruptcy court judge approved the sale on Jan. 14.

At the time Linear Logistics announced its purchase, Tiegs said he planned to lease the Salem facility temporarily, eventually buy the Brooks plant to consolidate operations, and sell off the Stayton plant’s assets to “gut the plant out” and tear it down.

Oregon Potato is leasing the Salem location from Linear and operating it for its newly formed company, PNW Vegco. That same company is also operating the Quincy facility.

In December Gibson noted that the facility had reopened and had rehired “a good portion” of its more than 500 employees already. But Vegco attorney Joseph VanLeuven told the judge at the Jan. 14 bankruptcy hearing that Vegco did not plan to bring back NORPAC Foods truckers.

Gibson says the fate of 80 full-time workers in Brooks and another 130 in Stayton remains unclear — as does that of the company’s seasonal employees.

NORPAC Foods’ member farmers, meanwhile, have another option for selling and packaging their goods. But the agricultural cooperative model in the Willamette Valley may need to change to prevent another bankruptcy like NORPAC Foods.

Eggert notes that the bigger a cooperative gets, the more risk and the more money become involved and the less sustainable it becomes, especially with distribution and marketing eating up roughly 60% of farm revenue.

He says there is still a big opportunity for vegetable processors in the Willamette Valley. But they may be smaller and may not have the luxury of relying on seasonal labor or letting equipment idle 10 months out of the year.

“I never understood how one of the most fertile valleys in the world can’t compete with vegetables,” Eggert says. “With the technology for farming, I don’t understand how we have to import vegetables. It could just be that the pressure to be a national brand becomes too much.”