Understanding agribusiness enables AgriCap to better service industry

AgriCap Financial Corp. in Los Angeles was founded about six years ago by two finance veterans to provide financial services to agricultural enterprises -- a business sector that banks and other lending institutions often shy away from, according to Rick Jones, president of AgriCap.

"Many lenders consider agriculture too risky," he said. So why has AgriCap been successful in a field perceived as too risky by many competitors? "In a nutshell, we understand the industry well, so we are better at it," he said.

"Agriculture has its risks, which everybody understands," he acknowledged. Factors such as seasonality, weather and supply-and-demand shifts contribute to those risks.

But at AgriCap, "we do not penalize good performing at companies just because they are in an industry that has some risk to it."

The company does not finance every agricultural enterprise that comes along. "But we know the industry well enough," Mr. Jones said. "We have studied it. We understand how the industry works, what the costs are. We understand how PACA works. Because of that, we are able to appropriately structure financing and do deals that banks could, perhaps, do but just aren't interested in because they don't understand the business that well."

The founders and principals of AgriCap are Mr. Jones and Richard Kostkas, the company's chief executive officer. Mr. Jones has 20 years of experience with banks and finance companies such as GE Capital, the Bank of Boston, the Bank of America and GMAC Financial Services. Mr. Kostkas has a background in finance as well, "on the real estate side," said Mr. Jones. Mr. Kostkas is also a co-founder of the iTradeNetwork, a major produce procurement platform.

"Originally, we were looking at doing reverse factoring for transactions on the iTradeNetwork," he said. "Then, as we began raising capital and exploring the marketplace, we saw that there was a real need in the ag industry to provide direct financing to the companies involved in agriculture, the reason being that a lot of traditional lenders & are not really interested in lending to the industry. They perceive it as a very risky industry. So we saw this big opportunity to help the industry by providing working capital financing to companies trading produce."

The enterprise enjoyed "immediate success," he said, "so [we] started growing the company. After a few years, we found that in addition to business working capital, there was also this need for real estate financing, so we started doing real estate financing for ag enterprises -- farmland as well as packingsheds and coolers."

Occasionally, the company has also done crop financing secured by real estate, he said.

"The other thing we have done in the last couple of years is we have begun doing financing for importers of produce," he said. That is a business sector that is expanding as farmland in such growing areas as California and Florida has been increasingly converted to residential and commercial developments.

"There is a need for Latin America to continue to grow its production to feed the United States marketplace," he said. "So we are involved in doing trade financing for agricultural products," primarily produce, "that are being [exported] to the United States and usually being sold through distribution companies and retailers."

AgriCap's core competency, Mr. Jones said, is analyzing the working capital needs of agricultural enterprises and "building a plan to help those companies finance their operations," whether it is financing a cooler expansion, financing picking and packing operations, or providing year-round cash flow to a company "that has seasonal working capital spikes."

Sometimes, AgriCap is able to "put two clients together to help them jointly work on projects," he said. For example, "we might have a client in the Untied States who is an importer, who needs melons to supply a major retailer during the season." AgriCap may be able to link that importer with a client in Latin America who grows melons and help both companies by financing the transaction.

On occasions, an agribusiness enterprise might find that, through no fault of its own, it has lost its existing financing because its bank has been acquired by a larger bank that wants to divest its agricultural portfolio. Companies in that situation "find, when they go out and look for financing, there aren't a lot of companies out there that are interested in bringing in ag-dependent loans," Mr. Jones said.

In a number of instances, AgriCap has "stepped in" to refinance an existing bank loan "when for whatever reason the bank is no longer interested in lending to the company."

AgriCap has also financed some "turnaround situations" such as providing the new financing needed for a company reorganizing its business under bankruptcy.

"We are basically a multi-dimensional finance company," Mr. Jones said. "We specialize in the ag industry. We understand it. We love the business. We like the people that are in it."

Market Fresh launches new onion program

Market Fresh Produce, based in Lee's Summit, MO, has launched a new onion program with state-of-the-art packaging. The program includes suppliers from Vidalia, GA, California, Texas, Walla Walla, WA, and offshore product from Mexico and Peru.

Market Fresh started shipping product April 9. The program offers euro display-ready packaging in both bulk and mesh bags.

Market Fresh offers both foodservice and retailers contract pricing and says it remains committed to consumer-driven programs that maximize sales and consumption of fresh produce.

Chertoff vows crackdown on employers, leads off with raids on IFCO

The message is clear: Employers who "knowingly and recklessly employ illegal aliens" will be targeted by U.S. Immigration & Customs Enforcement and will be punished.

Homeland Security Secretary Michael Chertoff and Julie L. Myers, assistant secretary for ICE, announced Thursday, April 20 a "comprehensive immigration enforcement strategy for the nation's interior" that includes a crackdown on employers hiring illegal immigrants.

There is a concern to many agricultural employers who rely heavily on an immigrant work force but who have been precluded by law from questioning the documentation presented to them by work applicants. They are hopeful that the crackdown will target only those who have blatantly and willfully violated the law and not those who are doing their best to comply with policies and regulations that are replete with contradictions.

On the same day that the crackdown on employers was announced, the U.S. Department of Homeland Security also issued a release stating that agents had raided IFCO Systems facilities in 26 states, arresting seven managers and 1,187 "illegal alien employees," constituting about half the company's U.S. work force.

IFCO Systems North America Inc., headquartered in Houston, is the largest pallet services company in the United States and a major supplier of reusable plastic containers for the produce industry. There was immediate concern in the industry about what effect IFCO's sudden loss of half its work force might have on its ability to deliver pallets and RPCs to the places and at the times they are needed to transport produce to market.

IFCO Vice President Mike Hachtman said in an April 21 statement that all of the company's facilities "are in operation and we are working diligently to meet all of our customers' needs."

The Produce News made inquiries to several produce industry leaders as to whether any disruptions in pallet and RPC logistics had been noticed, and as of Wednesday, April 26, no disruptions had yet been noticed. However, some observed that if there was an effect, it would not be likely to show up immediately.

In its statement, IFCO said that it is the company's policy "to comply with all federal and state employment provisions" and that it takes the ICE allegations "very seriously." IFCO is "very disturbed by these allegations" and has "immediately begun a through investigation of the facts."

According to the statement, "the activities and attitudes outlined in the allegations are counter to everything we stand for at IFCO. We have the highest respect for our nation's employment and citizenship laws and are committed to complying with them."

IFCO contends that it offers all its employees "a level of compensation and benefits ... that many of our peers do not, [including ] competitive wages, workers' compensation insurance, affordable health insurance, 401k and various other benefits.

"We are cooperating fully with ICE and other authorities," the statement continued. "We are now working to understand the facts and we will implement any additional changes necessary to further improve our current procedures."

An IFCO spokesperson told The Produce News that the company has no comment at this time.

The Department of Homeland Security press release paints quite a different picture, however, stating that the seven current and former managers of IFCO who have been arrested "are charged with conspiring to transport, harbor, encourage and induce illegal aliens to reside in the United States for commercial and private financial gain." The charges carry a penalty of up to 10 years in prison and a fine of up to $250,000 "for each alien with respect to whom the violation takes place."

Two other IFCO employees were arrested on criminal charges relating to fraudulent documents, according to the DHS release. "In addition to the criminal arrests, ICE agents [on April 19] conducted 'consent' searches or executed criminal search warrants at more than 40 IFCO plants and related locations in 26 states that resulted in the apprehension of approximately 1,187 illegal alien IFCO employees."

The raids took place in Alabama, Arizona, Arkansas, California, Colorado, Florida, Georgia, Illinois, Indiana, Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New Jersey, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, South Carolina, Virginia and Utah.

"The arrests and search warrants are part of an ongoing criminal investigation of IFCO's Pallet Management Services division that began more than a year ago," the statement said.

A government affidavit alleges, among other things, that approximately 53.4 percent of the Social Security numbers contained on the IFCO Systems North America Inc. payroll of roughly 5,800 workers during 2005 were either invalid, did not match the true name registered with the Social Security Administration for that number, or belonged to children or deceased persons.

Secretary Chertoff made it clear that the department was making an example of IFCO that other employers should heed. "Employers and workers alike should be on notice that the status quo has changed," Mr. Chertoff said, in the department's news release. "These enforcement actions demonstrate that this department has no patience for employers who tolerate or perpetuate a shadow economy. We intend to find employers who knowingly or recklessly hire unauthorized workers and we will use every authority within our power to shut down businesses that exploit an illegal workforce to turn a profit."

Jasper Hempel, executive vice president of Western Growers Association, which represents a large number of produce growers in California and Arizona, told The Produce News, "Obviously, the laws are on the books that employers are not allowed to hire illegal undocumented workers. All we have ever said is give us a legal work force."

WGA advises its members to comply with all of the I-9 [Employment Eligibility Verification form] requirements and to make photocopies of the identification documents "proffered by the employees," Mr. Hempel said. "If on the face of the documents, you don't see any defects, we are precluded by law - by civil rights laws, discrimination laws - from making any inquiries beyond that. We can't inquire as to whether or not they are fraudulent. We have to take them at face value. So again, we keep imploring Congress and the president to give us a legal work force so we can avoid the kinds of things that happened at IFCO.

"It is frustrating for us as an industry that we are unable to get immigration reform, because there is no group of people who want immigration reform more than farmers," he said.

Barry Bedwell, president of the California Grape & Tree Fruit League in Fresno, CA, told The Produce News, "I know of no one in the grape and tree fruit industries that knowingly hires illegals. The fact is, we understand that much of our work force is undocumented. But that is much different than knowingly hiring, because all of our employers go through the very strict process of recognizing what documents need to be presented in order to work."

As to whether undocumented workers are exploited by agricultural employers, Mr. Bedwell said, "I have not seen evidence of that." Since employers require documentation before hiring and the employer has no way of knowing which documents might be forged, all workers are treated the same, he said. "Our wage laws are very clear."

The average wage for workers in the grape and tree fruit industry is around $9.50 an hour, well above state and national minimum wage requirements, Mr. Bedwell noted.

"Given that level, we can see that it attracts people who are making five to 10 times less in our neighbor country to the south, to the point where they will risk their lives coming here."

Joel Nelsen of California Citrus Mutual in Exeter, CA, told The Produce News that the stepped-up enforcement has come in response to political pressure, and he expressed hope that ICE would focus its enforcement "on those entities that are glaring in their abuse of the immigration system."

But Mr. Nelsen is not confident that the enforcement will be fair and balanced. "No, I think they've got some targets in mind," he said, "and they are going to prove to the conservative faction of the Republican party that they can enforce.

"Hopefully Congress will act sooner rather than later on a fair immigration bill that allows for the proper enforcement while simultaneously establishing a guest worker program" in which the undocumented workers presently in the country can participate, Mr. Nelsen said. "Congress has got to act on that very soon, because otherwise you are gong to have a one-sided approach to this problem."

Katzman now sourcing in Guatemala

GUATEMALA CITY -- Specialty products are new on the product list of S. Katzman Produce Inc. The Bronx firm's organic and specialties specialist, Eric Mitchnick, was recently in Guatemala to look for sources of such products.

Mr. Mitchnick joined Katzman in February after a stint with Earthbound Farm in San Juan Bautista, CA.

Katzman Produce recently acquired five units on Row D of the Hunts Point Terminal Market, which will be used to sell organic and specialty produce.

"We are looking for new items, grower contacts and building new relationships," Mr. Mitchnick said, adding that the late-March Agritrade show was very useful toward that end.

California cherry volume is expected to be similar to last year but about half of potential

In 2005, the California cherry crop, statewide, was about 3.5 million packages (18-pound equivalent) for all varieties, according to the 2005 Annual Report of the California Cherry Advisory Board. That was about half of a potential full crop, and it is just about the same as the total volume expected this year, according to the cherry board's manager, Jim Culbertson.

"We are hoping for something greater than that, but that remains to be seen," he said.

The crop will also run 10 days to two weeks late, due mainly to cool spring weather, with peak Bing production expected during the first two weeks of June. Bings accounted for two-thirds of the total California cherry crop in 2005.

Early cherry varieties -- primarily Brooks and Tulares -- from the southern districts are expected to be particularly light, due to a variety of weather factors ranging from low winter chill hours to springtime frost damage and from a protracted bloom period and sporadic sets to hail damage. The later Bings from the northern districts appear to have fared better, although growers conceded that as of mid- April it was still too early to know for sure.

Obviously, if rains were to continue into the harvest period, there would be further losses due to rain-induced splitting of mature fruit. Late-season hail could also cause some problems. But the historical risks of both rain and hail decrease with each week that goes by, so even though there was still rain falling as late as the weekend of April 23, growers were optimistic that the pattern of unusually wet spring weather would break shortly and better weather would ensue.

At a cherry board meeting held April 14, growers were "reasonably optimistic that despite all the weather, the crop is going to come through in fairly good shape," said Mr. Culbertson.

"I think the basic thing we can say right now is on the early varieties of cherries, prior to the arrival of Bings, most of those varieties are going to be fairly light," he said. For the Bings, "their big volume push looks to be at a minimum two weeks later than last year, and maybe more." That would put the best promotional opportunities during the first and second weeks in June, the time that the harvest is expected to be at its peak this year.

Although the California cherry industry has generally been able to provide supplies of Bing cherries for Memorial Day promotions, "we feel pretty confident at this point that & we are not going to be there with volume" this year, Mr. Culbertson said. "It will be later into June when the volume will hit."

In a written "Cherry Update" dated Friday, April 21, Maurice Cameron of Trinity Fruit Sales Co. in Fresno, CA, stated, "The sunny days in the last week have brought a lot of light to the cherry situation in the state. Overall we should have a nice crop of cherries, with heaviest production in the northern (Stockton/Lodi) districts. Many folks are estimating somewhere about a 3.5-million carton crop for the state, some higher, some lower -- this factoring only the set on the trees, without anticipating any crop loss due to weather events."

Brooks and Sequoias will start in Arvin about May 1 and in the Hanford-Fresno-Reedley are about May 8, he said. "The Tulares are quite behind the Brooks at this time, but due to the lighter crop, they may catch up somewhat. We expect to see some Tulares about May 16, and these will run for the entire month."

Mr. Cameron projected about 50 percent of a normal full crop from the southern districts -- similar to last year but with the harvest more spread out.

He expected Bings to start in the northern district around May 20 in a light way, with volume during the first two- and-a-half weeks in June. Most early Bing orchards have light sets and most later orchards have good sets, he said. Michael Collins of Chinchiolo Stemilt California LLC in Stockton, CA, said that industrywide estimates for the early-season cherry varieties range from 25 percent to 45 percent of a potential full crop. Bings, although late this year, could be in "normal supply" by the first of June and continuing through about June 17, he said.

The California Cherry Advisory Board's domestic retail programs this year are geared to encouraging retailers to promote during the peak volume period beginning the first of June. The board has merchandisers, which it shares with the California Pear Advisory board and in some instances with the California Tree Fruit Agreement in the Northeast, Northwest, Central states and Western states. Promotional programs are tailored to individual retailers and have involved such activities as traffic radio and in-store demonstrations, he said.

(For more on California cherries, see the May 1 issue of The Produce News.)