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A Good Leap Forward

BY AMY MILSHTEIN

Agriculture businesses ramp up to meet international demand as workforce and succession challenges loom.

0914 ag IMG 6735 1BY AMY MILSHTEIN | PHOTOS BY JASON KAPLAN*
*STEFFEN SYSTEMS PHOTO BY JESSE BROWN

Sitting on 2.5 acres in bucolic Donald, Oregon (population 979), the series of hangar-size structures that makes up GK Machine looks quiet. Inside is another story. Engineers, code writers and support staff toil away in no-frills cubicles, but the real action is on the shop floor. The factory buzzes with the 960 individual jobs currently in production. Fabricators and machinists wield high-tech tools to laser cut, bend and form steel to precise custom specifications.

These components end up as agriculture equipment like sprayers and harvesters, or machines for oil and mining fields ,or parts for locomotives. Some of it even ends up as art on GK’s walls. Most of their work is custom order; 80% is one-or two -offs. “It’s a lot of balls up in the air,” admits GK president Gary Grossen.

The son of a dairy farmer, Grossen turns his head to avoid eye contact and blushes easily. He doesn’t relish talking about his business with journalists but clearly loves his work. “I don’t sleep at night because I’m always thinking about the shop,” he admits. A recent family vacation was “torture. I had to leave two days early.”

 GK Machine represents a microcosm of the changes and challenges facing agriculture-based advanced manufacturing and food-processing sectors in the mid-Willamette Valley. GK remains tight-lipped about its more than 2,000 customers. But the family-owned operation is growing, mostly to meet international demand, especially in Asia.

At first glance the salt-of-the-earth, short-sleeve-shirt wearing types don’t seem like international players. But appearances can be deceiving. Look closely at GK Machine’s Gary Grossen. The 60-year-old built the company out of his father’s dairy barn in the 1970s and proudly proclaims that he “didn’t go to school for nothin’.” Yet GK is in the middle of a $10 million, 120,000-square-foot expansion. The business, with sales over $22 million as reported to the Capital Press in 2013, employs 135 people.

 0914 ag IMG 6766
GK Machine president Gary Grossen 

The local agriculture manufacturing and food processing boom spotlights the complexities and contradictions of the global marketplace. Longtime family-owned businesses struggle to find enough workers and maintain a hands-on approach, even as they expand and retool in response to the changing tastes and demands of domestic and international customers.

Just 20 miles down the road from GK sits another unlikely global player, Steffen Systems. At first glance, the two companies couldn’t look or sound less alike. Compared to the cacophony of GK, Steffen Systems seems almost like a library. With just 15 employees, Steffen makes hay-bale equipment: handlers, accumulators and the like. Several of these offerings lie in neat piles on the vast warehouse floor waiting to be assembled. These products make up the bread and butter of the operation.

Then you get to the money room, a hangar where a Model 3546 Bale Compression System is almost complete. A single employee, a cousin of the Steffen family, is dwarfed by the huge contraption he’s working on. When finished, this machine will compress 1,000-pound bales of hay or straw using 900 horsepower. With a Model 3546, a shipper can load an ocean container every 40 minutes with only three operators.

The Model 3546 costs $1.8 million. Orders are backlogged. “If you came to me with a check in hand today, delivery would be 12 to 18 months out,” says sales manager and brother-in-law Pat Twede. Lengthy wait times are guaranteed as Steffen Systems is one of only three companies in the world that manufacture the compressor.


0914 ag  MG 0022 1 
David Steffen, owner of Steffen Systems      

Back at the well-appointed office, avuncular company owner David Steffen, 49, is at ease hosting guests. Buyers for the Model 3546 visit from all over the world: Brazil, Italy and Australia, to name a few. That internationality is one of the problems that plagues Steffen. Keeping abreast of international standards and balancing them with ever-changing American rules eats up much of his time. “OSHA regulations are always changing, and what works here may not pass in Italy, for example,” he says.

Steffen has other worries: the price of steel, the threat of a rising minimum wage and the constant danger of a strike at the port. Yet he remains good humored, happily passing out Steffen Systems-branded candy and highly recommending the pie at the farm stand down the road.

It’s the world’s emergent middle class’s hunger for farmed meat and dairy, not pie, that fuels Steffen’s business. Only 20% of the food grown in the state ends up on Oregonians’ tables. The rest is sold out of state, with some 35% to 40% intended for the international market. Steffen’s company’s products are purchased by hay producers locally and around the world. Those growers have their eye on China and the Middle East.

0914 ag IMG 6579 
John Layton, next to a Uni-Vibe
electromagnetic conveyor

In 2009 China bought more than 74,000 tons of alfalfa, compared to none in 2006, the USDA reports. The reason is milk. Not a part of the traditional diet, milk consumption in China is rising dramatically: from 4.2 kg in 1990 to 28 kg in 2012, according to Alfalfa & Forage News. The Chinese government has simultaneously encouraged more modern and larger dairy production units, accompanied by a significant rise in dairy cow numbers, up from about 2 to 5 million in the early ’90s to 14 million today.

Other countries are also buyers of Oregon feed. With low water reserves, the United Arab Emirates and Saudi Arabia mandate that all animal feed be imported. Japan continues to be a big buyer of hay and alfalfa as well.

Not all of the state’s agriculture output is edible; timber, grass seed and landscape plantings figure as well. But creating efficiencies in food production is why Henningsen Cold Storage Co. recently built a 225,000-square-foot frozen food storage and distribution facility adjacent to NORPAC Foods, Inc., in Salem. The facility will help NORPAC consolidate their operations and save energy.

Built on NORPAC land but owned and operated by Henningsen, the warehouse promises to save the food-processing giant big money. “There are huge economies of scale associated with a customer centralizing products under one roof as opposed to having them spread out over many different facilities,” says Mike Henningsen, 51, chairman and president of Henningsen Cold Storage Co., in an email. “We often find that freight savings alone can justify the cost of new construction over the long run.”

Another cold storage facility, SnoTemp Cold Storage in Eugene, also expanded, adding 2.4 million cubic feet, banking on the region’s growing ag business.


0914 ag IMG 6627Along with meat, dairy and vegetables, mid-Willamette Valley businesses are turning to snack foods, a market predicted to reach almost $335 billion by 2015, according to Global Industry Analysis. Layton Systems, a 54-year-old fabricating company in Salem, is growing to meet that need. It engineers and produces food-processing equipment that ends up in China, India, Belgium, England, Guatemala and Mexico. Business is booming, with sales three times what they were in 2008.

It’s a complete pivot for company president John Layton. Yet another family business, the firm started as a supplier of asphalt pavers. Over the years, it expanded into mobile home movers, and while they still offer replacement parts for these businesses, Layton sees a clear path forward making food handling and processing equipment.

Layton acquired two different companies, A. B. McLauchlan and Welliver Metal Products, in 2007. If you’ve eaten a potato chip or french fry anywhere around the world, chances are the potatoes were sorted and sized on a Welliver machine. One device currently in the works will make Crunch Berries for Cap’n Crunch cereal.

As business booms for 59-year-old Layton, he is concerned with carefully growing his company, aiming to stay small and agile in a big market. So is Peter Truitt of Truitt Family Foods. A Valley fixture, Peter and his brother David have canned seasonal produce like pears, cherries, plums and, most importantly, green beans in Salem under the Truitt Brothers name since 1973.

0914 ag IMG 6907The green bean business is gone. In fact, the whole seasonal business is gone. Once a mighty force for the Truitt Brothers, today it costs too much for them to process and ship seasonal foodstuffs east of the Rockies from Salem.

In 2012 Truitt Brothers eliminated around 139 full-time jobs as it shuttered its green bean facility and moved to packing nonseasonal pumpkins and beans. The move meant losing some 200 seasonal jobs as well. Peter sold his share and is in the process of retooling the factory. “There is unfinished business here,” says the 68-year-old. “I’m committed to bringing the people, the skills and the brands together to tell a new narrative.”

That narrative is garbanzo bean paste. Today packaged hummus is a $600 million business and is expected to grow to $1 billion by 2016. Truitt will enter that market with Tru-Flavors Hummus, a shelf-stable, single-serve product for the grab-and-go market.

Garbanzo bean growing habits make it a better bet than green beans. “We can source beans as competitively as anyone,” Truitt says confidently. Presently, there are 12 bean manufacturers in the U.S., all but three sited east of the Rockies. Garbanzos, however, grow best in the hot, dry climates of Eastern Washington and Idaho. “And we have an advantage on the West Coast, where hummus is already popular.”

A local regional airline has already signed on to serve Tru-Flavors Hummus in its snack kit. Truitt expects the product to be a big hit in schools, health care facilities and unrefrigerated vending machines. He hopes for that brass ring: Costco.

Right now he has 20 longtime salaried employees working with him (“not a rookie in the bunch,” he boasts). While construction and retooling continue, his 55 hourly employees work the line co-packing baby food. Organic fruit and vegetable purees fill spouted pouches, which are boxed up, stored and eventually shipped out to Starbucks. These co-packing projects will stabilize Truitt until the company’s ready to process hummus full time.

0914 ag IMG 6973  0914 ag IMG 6969  GK Machine employees,
Eric Azorr (left) and Steve Thornton 

Green beans turn to hummus; asphalt gives way to food processing. Mid-Willamette Valley processors and manufacturers in the Valley are ramping up production, expanding physical capacity and introducing new products and efficiencies. But as family-owned businesses transform, retirement age owners and managers face decidedly local and traditional, concerns: staffing challenges and questions of succession in particular.

“I have a five-year plan to launch this company and attract a suitor — hopefully one that will make ownership available to company managers and leaders,” says Truitt. Filling some hourly positions has been “surprisingly difficult,” he admits.

Grossen at GK Machine commiserates. “I would take 75 more {employees} if I could find them,” he says. The ones he has are a loyal bunch. Some have been at GK 30 years; the average is 15 to 18 years. Kinfolk play an important role as well. At one time Grossen employed 16 relatives. Steffen Systems also shakes the family tree for employees. Mike Henningsen is the fourth generation at the company.

Local owners also worry about maintaining a hands-on approach to business operations. During the economic downturn, Layton personally took a financial hit to keep all of his employees on the payroll and insured. Steffen allows his workers to choose their hours. And Garmin’s VanArsdale (see sidebar) knows every employee by name, calling out to them as he passes them in the hall.

Like the others, Layton also worries about his eventual exit, as none of his children want to take over the family business. “I hope a group of employees buys me out,” he says. “It feels disingenuous to sell to an investor who just wants to flip it.”

So far the Valley’s ag-based companies have grown in ways that seem to reinforce rather than dilute the values of the community. It’s a trajectory that reflects the simultaneous trends driving the future of the industry and the region: tradition-driven, under-the radar business practices and sweeping global change. “Small companies that grow 5, 10, 15 jobs make a huge impact without being flashy,” concludes Layton. “We are the base that keeps things going.”


Can local be global?

The mid-Willamette base of family- owned agricultural businesses is expanding to meet burgeoning international demand. Some local food advocates question whether that trend will upend the state’s famed farm-to-table food trajectory and complicate efforts to nurture a resilient local food system. 

 “We are poised for a gold rush of exporting food, especially to Asia,” says Amanda Oborne, food and farms director for the Portland nonprofit Ecotrust. “But I think we need to be cautious. Some of that processing capacity needs to be saved for the midsize regional market.”

Booming exports are good news for business owners like Steffen and Grossen. But there are environmental costs.“This newly growing [Chinese] middle class wants protein, beef, pork, eggs,” says Oborne. “But it’s resource intensive to produce and probably untenable over time.” One hundred billion gallons of water are being exported annually in the form of alfalfa from California, BBC News Magazine reported last year. 

Oborne also points to the high rates of hunger and poverty in Oregon. “Regional food systems need to collaborate with big industry,” she says. “We have to bring the whole community along.” But it’s a tricky conversation, she admits. “Most of the processing capacity is privately owned and based on profitability.” 

Oborne wants large processors to reserve room in the production stream for small and midsize producers who may have a hard time meeting the minimum requirements big processors demand. 

Oregon grows enough both to eat locally and to export, says Joel Fischer, a senior policy analyst with the Oregon Business Association. The OBA is working on developing a “food cluster” initiative in Oregon, borrowing a page from the region’s other successful traded-sector clusters, such as software and athletic apparel. The focus is on increasing exports, as well as product and process innovation.


Hillsboro on the Willamette

Agriculture, food processing and manufacturing are the mainstay of the mid-Willamette economy. But high tech is making inroads. Consider Garmin AT. In the middle of a $14 million, 66,000- square-foot expansion, the company designs, certifies and manufactures navigation and communications equipment for general aviation customers. 

The components — slick, glass-fronted touchscreens designed to replace an older aircraft’s toggles, switches and gauges — are shipped to the company’s U.S. headquarters in Kansas City. There the components are integrated into systems and distributed to dealers.

Located at the airport, the original building housed UPS Aviation Technologies. Garmin bought it in 2003 and has since expanded three times. This latest expansion will also consolidate and boost capacity for a call center that was built in 2010 at a nearby location. Garmin is also diversifying its offerings to reach the helicopter market.

Garmin AT suffers some of the same trials as other Mid-Willamette manufacturers. “Hiring and retaining the best talent is always a challenge,” says general manager Steve VanArsdale. He admits that his HR department often grouses that their not-in-Portland location makes staffing harder, yet VanArsdale stands by his commitment to Salem. “We are not part of the Silicon Forest,” he insists. 

As the Salem area grows — a Portland State University study predicts the population will grow between 28% and 63% by 2030 — the region should look to Hillsboro as a development and diversification model, says Chad Freeman, president of Salem’s Strategic Economic Development Corporation (SEDCOR). “There’s a healthy tension there between tech, manufacturing and farming,” he says.

 

 

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