Oregon Farmers Dissolve Depression-era Co-op

May 4, 2016 04:32 PM
 
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It's the end of an era for Eastern Oregon agriculture.

Pendleton Grain Growers, the longtime farmers' co-op that formed out of the Great Depression, is finished. Members voted overwhelmingly to dissolve PGG at a special meeting Monday night, authorizing the board of directors to sell off all property and assets.

That process could take several years before any leftover equity is returned to the co-op's 1,850 members. About 200 members attended Monday's meeting, and 186 cast their votes, about 95 percent, in favor of dissolution. At least 50 members were required for a quorum and two-thirds majority to pass the resolution.

PGG is continuing to work with United Grain Corporation, based in Vancouver, Washington, to sell off its upcountry elevators and McNary Terminal along the Columbia River. A deal could be done by June, in time for this year's winter wheat harvest. The business lines at PGG will remain open until further notice.

PGG was incorporated on March 31, 1930, and soon established itself as a local institution. For 86 years, PGG Country was the signature brand of hometown farms, offering grain, seed, agronomy, energy and irrigation services.

But recent years saw the co-op's finances plummet into the red ink. The co-op overstated its earnings by $1.8 million in 2010 and $5.7 million in 2011. In 2012 the U.S. Department of Agriculture suspended PGG's warehouse license for 44 days, citing audit discrepancies.

As PGG tried to restructure its business model — selling off retail stores and agronomy in the process — the co-op continued to hemorrhage money. While the co-op did net a profit of $434,681 in 2012, financial statements show PGG lost approximately $4.4 million in 2013 and $7.9 million in 2014. General Manager Rick Jacobson said they would need at least 8 million bushels from last year's harvest to maintain their investments, but came nowhere close to meeting that goal.

On the other hand, neighboring Morrow County Grain Growers earned a profit of $321,315 last year, with $207,584 in patronage and equity paid to members. Northwest Grain Growers, based in Walla Walla, also made $4.4 million for the year ending April 30, 2015.

At Monday's meeting, the PGG board recommended dissolving, which allows the co-op to put its profitable divisions up for sale. By selling off businesses like the grain division, energy and Precision Rain irrigation subsidiary, the board wants to ensure those services remain intact under new ownership. PGG currently has 67 employees, most of which Jacobson said would at least be offered the chance to keep their jobs.

"These are all profitable businesses," said Jacobson, who was hired at PGG in 2012. "We'll get those sold."

The first order of business, Jacobson said, is to close the deal with United Grain Corporation, an outfit owned by the Mitsui Group of Japan. United Grain has traditionally been one of the West Coast's top exporters, and is now expanding its reach to work directly with farmers.

Tony Flagg, vice president of business development, said he couldn't discuss terms of a deal with PGG, but is looking forward to establishing roots in the region.

"We want to do business with producers, not middlemen," Flagg said. "We think it's better for both."

Meanwhile, PGG members won't see any dividends returned to them for possibly three to six years. Some, like Eric Anderson, have doubts whether they'll see any money at all.

Anderson, who's been a member of the co-op for 40 years, described the mood at Monday's meeting as one of resignation. He said he and his wife have $36,000 worth of lost dividends from PGG, and they're far from the only ones. Missing those payments is especially difficult for seniors, Anderson said, who have counted on that income.

"These directors took it from their neighbors," Anderson said. "It's their neighbors' money."

As for seeing any equity returned, Anderson said it's a steep climb for a co-op that still has pension obligations, environmental liabilities and a $15 million loan from CoBank left to pay back.

"I resent that the board misleads members and the East Oregonian to believe there will be a significant amount of money," Anderson said. "I hope there will be significant recovery. But they've not given me much incentive (to believe)."

Jacobson said CoBank has not called on PGG's loan and has been supportive through the process. He understands some people are angry, but that "it serves no purpose to find a scapegoat." Jacobson also defended the board, saying they've been transparent reporting what they knew about the co-op's finances.

Jacobson said he has an idea of how much equity will be returned to members, but would not specify.

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