Agribusiness  May 26, 2006

Organic farm digs in with Chapter 11 filing

WELLINGTON – Pinched by the sudden loss of business from its chief customer, organic farming specialist Grant Family Farms Inc. finds itself digging out of debt.

Traditionally one of the state’s largest organic growers, Grant Family Farms recently filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. According to the court records, the Wellington-area farm lost $1.04 million in 2005. The documents also list $4.3 million in assets and $5.2 million in liabilities.

Under Chapter 11, Grant Family Farm is allowed to continue in business while it crafts a reorganization plan. With the help of a Florida-based turnaround expert, the first stab at reorganization is already under way.

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Grant Family Farms has turned to a “much simplified crop plan,´ said Diedrich von Soosten, principal in Diedrich von Soosten & Co. of Palm Coast, Fla. Historically, the farm has relied on a variety of vegetable crops. But this year Grant Family Farms has committed the vast majority of its acreage to organic feed corn, which it expects to sell to the growing organic dairy industry.

This year, feed corn covers 1,250 acres at the farm, or about 72 percent of the total acreage. Other crops in various stages of production include onions, winter wheat and spinach.

The turn to organic corn lowers the potential value of the total crop, but it also takes a significant slice out of operating costs, von Soosten said.

“The best way to put it is, if we had continued with last year’s crop plan … we would have had a peak need of working capital at $1.8 million,” he explained. “With this revised crop plan, the peak need of working capital is about $550,000.”

Most of the cost savings will come from a reduction in seasonal labor. Previously, the vegetable harvest required Grant Family Farms to hire up to 350 workers during peak season. Under the new approach, which includes mechanized harvesting of the corn, the farm will hire only about 50 seasonal workers.

“What the farm is working to do is to develop … that balance of crops that will maximize its revenues and maintain its ability to utilize sustainable farming practices,” von Soosten said.

Under its previous crop plan, Grant Family Farms was profitable in 2003 and 2004, said Andy Grant, the company’s president. But last year the farm’s top customer – Grant declined to identify customer – drastically reduced the amount of greens and onions it had committed to purchase.

Then in February Grant learned that his line of credit would be less than he expected.

That’s when Grant decided he would have to restructure.

Crop plan simplified

The hiring of von Soosten, a nationally regarded consultant for farms, could be a large step in that direction. Von Soosten’s track record includes the successful turnaround of Bland Farms, the largest producer of the famed Vidalia sweet onions in Georgia. Under von Soosten’s guidance, the company went from losing $2 million in 2002 to netting the same amount just two years later.

If Grant Family Farms is going to achieve a similar about-face, it will have to improve its marketing practices, von Soosten said.

“The farm didn’t have the marketing capability to sell as organic everything they produced as organic,” he said.

Strategically, that means the farm needs to coordinate the timing of the crop harvest, and reduce the volume of perishable crops, to be more compatible with its marketing capabilities. And given the complexity of the previous crop plan, von Soosten said Grant Family Farms “didn’t have the capability to manage all of that.”

The simpler crop plan will assist in that marketing effort, he said.

While under protection from creditors, the farm will be operating on a cash budget. “It will be able to pay off its crop loan for the year, and at the end of the year it will begin to consider what its reorganization will look like vis-a-vis its creditors,” von Soosten said.

The company’s creditors, meanwhile, appear to be cooperating with Grant Family Farms.

Colorado Community Bank, which is owed $2 million, is the largest creditor. President Jerry Bryant declined to comment on the bankruptcy case, but the bank “has no intention of attempting to foreclose,” von Soosten said. “The bank wants to see the farm survive.”

Another major creditor is the U.S. Small Business Administration, which loaned about $1.5 million to the farm. Von Soosten said he has yet to hear from the SBA.

“For the most part I think the creditors of various classes …. have been very supportive and understanding,” von Soosten said. “That’s in part because we’ve made a concentrated effort to communicate with everyone and tell them what’s been going on.”

Because of the nature of farming, Grant Family Farms will not submit a formal reorganization proposal until the late fall of this year, after the harvest season. That’s when creditors will get the chance to support or reject the farm’s turnaround effort.

“Typically farming cases take at least one crop cycle, sometimes two, before you can file a meaningful plan of reorganization – one where we feel confident in the cash flow of the business,” von Soosten said.

Followers of the organic industry in Northern Colorado are apt to recall the financial difficulties of Piedmont Farms Inc., the organic farm on the same ground that went through the bankruptcy process in 1996 and 1997. Andy Grant, who was a manager for Piedmont, said the circumstances and ownership structures were much different.

“It would be unfair to tie the two events together,” he said.

As far as Grant’s concerned, the turnaround plan is in progress. Grant and his staff were busy picking spinach in the third week of May, which will soon be in produce cases at Safeway, Whole Foods and Wild Oats stores in the region.

“I’ve got my sleeves rolled up and ready to figure out how to make this work,” Grant said. “We really got caught off guard by that one customer, and we need to develop a broader plan for our future.”

WELLINGTON – Pinched by the sudden loss of business from its chief customer, organic farming specialist Grant Family Farms Inc. finds itself digging out of debt.

Traditionally one of the state’s largest organic growers, Grant Family Farms recently filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. According to the court records, the Wellington-area farm lost $1.04 million in 2005. The documents also list $4.3 million in assets and $5.2 million in liabilities.

Under Chapter 11, Grant Family Farm is allowed to continue in business while it crafts a reorganization plan. With the help of a Florida-based turnaround…

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