December 8, 2017
CapitalPress.com
5
Lenders see consolidation of tree fruit companies
By DAN WHEAT
Capital Press
Capital Press File
Wheat is harvested in Eastern Idaho in late July. A rule allow-
ing the Idaho Wheat Commission to gain access to the contact
information of farmers will be proposed in the state Legislature.
Proposed rule would require
wheat buyers to give grower
info to Idaho commission
By SEAN ELLIS
Capital Press
BOISE — After being
delayed for two years, a
proposed rule change that
Idaho Wheat Commission
officials say will benefit
Idaho grain farmers will be
re-introduced during the
2018 legislative session.
IWC and Idaho Grain
Producers
Association
board members last week
agreed to move forward
with the proposed rule
change, which would re-
quire first purchasers of Ida-
ho wheat, such as elevators,
to submit the names and
contact information of all
growers to the commission.
The commission’s en-
abling legislation gives it
the authority to have that
information but it currently
lacks the mechanism to col-
lect it, so the IWC only has
a partial data base of Idaho
wheat growers, said IWC
Executive Director Blaine
Jacobson.
“The (IWC) has a stat-
utory responsibility to ed-
ucate Idaho wheat growers
and to conduct periodic
referendums of Idaho wheat
growers on how their check-
off dollars are being spent,”
Jacobson told Capital Press
in an email.
He said the Idaho Attor-
ney General’s Office “has
strongly encouraged us to
get this fix done so that we
can fulfill our statutory re-
sponsibilities.”
Other farm commissions
have the ability to collect
grower names and contact
information and “this rule
change will give us the
same tools that other com-
missions have,” said IWC
board member Bill Flory, a
North Idaho wheat farmer.
The IWC initially pro-
posed the rule change
during the 2016 legislative
session but pulled it when
it ran into opposition from
some elevators.
At the recommendation
of those elevators, the com-
mission held off on its plan
to re-submit the rule during
the 2017 session.
Jacobson said that after
two years and six negotiated
rule-making meetings, the
commission believes it has
answered the primary con-
cerns that some elevators
and lawmakers had about
the proposed rule change.
That includes whether
the grower information is
subject to Idaho’s public
records law. It is not.
Some elevators were
also concerned about how
the data base would be
used, so the IWC adopted a
policy on that.
“In a nutshell, the grow-
er names and addresses will
only be used for the Idaho
Grain magazine and to con-
duct the periodic referen-
dum,” Jacobson said.
Flory said the grower
list is held internally and
the commission performs
any mailings itself.
“It is not available to
any of our partners, public
or private, and that is abso-
lute,” he said.
Dennis Capson, a mer-
chandiser for Scoular Co.,
which specializes in mar-
keting grain, said his com-
pany balked at the original-
ly proposed rule because it
also sought bushel and dol-
lar amounts in addition to
grower names and contact
information.
The IWC dropped the
bushel and dollar request
and Scoular is now OK
with the currently proposed
rule.
“All they need is a name
and address,” he said. “To
me, that’s something they
should have so the wheat
commission can do its job
for the growers of Idaho.”
Thresher Artisan Wheat
was also opposed to the
proposed rule but CEO
Don Wille recently told
Capital Press, “I support
their decision and them go-
ing forward with it.”
KENNEWICK, Wash. —
Lenders are bullish on the
Washington tree fruit industry
for the long term but in the
short term they see consolida-
tion pain as the industry sorts
through too many apples and
cherries and too many packing
houses.
More consolidation of com-
panies is very likely within the
next six to 24 months because
new, expensive packing lines
are running too far below ca-
pacity, Michael Butler, CEO
of the Seattle investment bank
Cascadia Capital LLC, told
more than 1,000 growers at the
Washington State Tree Fruit
Association annual meeting in
Kennewick on Dec. 4.
Apple crops likely will ap-
proach 175 million boxes in
the next five years and cher-
ries 35 million, jeopardizing
profitability, Dennis Bigness,
Northwest Farm Credit Ser-
vices relationship manager,
told growers.
“How much can we prof-
itably market and get picked.
We might be constrained to
do it well, beyond 150 million
boxes (of apples),” Bigness
said.
This year’s record crop of
27 million, 20-pound boxes of
cherries was profitable on the
front end but wasn’t after the
Fourth of July, he said.
The hope in apples lies
with newer, managed variet-
ies, the upcoming new state
apple Cosmic Crisp and Hon-
eycrisp, but older strains of
Red Delicious, Gala and Fuji
won’t be reduced fast enough,
Bigness said.
Yet, Northwest Farm Cred-
it Services remains bullish on
the industry and the $1.5 bil-
lion it has invested in it will
grow to more than $2 billion
in the next few years, he said.
“The industry is at an in-
flection point. Very powerful
buyers like Kroger, Trader
Joe’s and Whole Foods dictate
to fruit companies what they
want and companies need to
consolidate to match the pow-
er,” Butler said.
Mid-size tree fruit compa-
nies of less than 1,500 acres of
orchard, running at or under 30
percent packing capacity and
who are not vertically integrat-
ed — meaning they don’t grow,
pack and sell their own fruit —
are most at risk, Butler said.
The better managed ones
better suited to generate the
most revenue and who have
the most capital to invest will
end up with assets of others,
he said. The industry will come
through the pain better posi-
tioned, he said.
In recent years, many com-
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Dan Wheat/Capital Press
Apples head into a Compac Spectrim defect sorter-sizer that takes up to 500 high-definition images of
a single piece of fruit as it passes through at a rate of 12 pieces per second at Chelan Fruit Coopera-
tive. A proliferation of new packing lines in recent years has left the industry with too many.
Dan Wheat/Capital Press
Michael Butler, a Seattle invest-
ment banker, at the Washington
State Tree Fruit Association
annual meeting in Kennewick,
Dec. 4. He says more industry
consolidation is coming.
panies have invested millions
of dollars in upgrades and new,
high-tech apple and cherry de-
fect sorting and sizing on pack-
ing lines. Many companies
have substantial debt, Butler
said.
They need more fruit to
service that debt if they are
running at 30 percent capacity
so six to seven of them have
approached Cascade Capital
looking to borrow so they can
replant into more high-density
orchard, he said.
Individual companies need
more fruit but collectively the
industry has too much fruit and
too many packing facilities,
Butler said, adding not all will
survive.
He said he knows of six
mid-size companies that are
vertically integrated, well man-
aged and only need more acre-
age and volume.
“They all have potential
but there’s not room for all of
them,” he said.
Right now those compa-
nies and others are looking to
borrow money to acquire more
acreage, but in six months those
that haven’t been able to do so
will start going away, he said.
Companies in a position to
buy will be able to acquire as-
sets at bargain prices, he said.
Already, Blue Road Cap-
ital, a private equity firm in
New York that specializes in
acquiring agricultural-focused
businesses, was involved in
Vanguard International’s pur-
chase last spring of 3,000-acre
Pride Packing in Wapato and is
looking for more acquisitions,
Butler said.
Foreman
Fruit
Co.,
Wenatchee, bought Earl Brown
& Sons, in Milton-Freewater,
Oregon’s largest grower and
packer of apples. Chelan Fresh
Marketing in Chelan, Wash.,
gained marketing agreements
with Borton Fruit in Yakima,
and Columbia Valley Fruit in
Union Gap.
All of that is part of the
consolidation and, for Chelan
Fresh, gaining more fruit for
bargaining power with retail-
ers, Butler said.
“You have to control 10 per-
cent of the sales market to be a
long-term competitor,” he said.
Chelan Fresh Marketing,
Stemilt Growers of Wenatchee,
Washington Fruit & Produce of
Yakima and Zirkle-Rainier, Se-
lah, are all in that top tier.
Investors looking to invest
in tree fruit companies need to
evaluate their investments on a
rolling average over time, not
year-to-year, Butler said. Fam-
ily and pension fund investors
make the best investors in tree
fruit because they have the
long-term view and are willing
to be minority, not controlling,
investors, he said.
In considering what compa-
ny to invest in, Butler said, his
top criteria is quality of man-
agement that is efficient, looks
ahead and is open to new tech-
nology. Secondly, he said, is
quality of assets of the packing
houses and orchards.
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