California cling peach growers are facing uncertainty after Del Monte Foods cancelled long-term supply contracts during its bankruptcy proceedings. The cancelled agreements had a combined estimated value of US$555 million and included contracts signed earlier this year that were valid through 2044.
In August, Del Monte used federal bankruptcy provisions to reject its contracts with members of the California Canning Peach Association, which represents about 70 per cent of the state's cling peach production. The decision leaves several dozen growers without buyers for future crops. Establishing an orchard requires several thousand dollars per hectare, and repayments are typically spread over the orchard's 20-year lifespan.
"It's a very delicate situation," said Sutter County grower Ranjit Davit. "A lot of growers are affected."
© California Farm Bureau
Del Monte had contracted about 35 per cent of the state's cling peach crop, with Pacific Coast Producers contracting roughly 60 per cent and smaller processors taking the remainder. During the pandemic, demand for canned goods increased, and Del Monte expanded production and entered long-term supply commitments. Many growers planted new orchards on that basis, but demand later returned to pre-pandemic levels. In a court filing, the company said it was "locked into excessive volume commitment" and that assets would be more attractive to a buyer without the contracts.
San Joaquin County grower Richard Lial said losing his contract "could turn out to be devastating." He removed a productive almond orchard to plant 20 hectares of cling peaches, finalising his contract earlier this year. "Now, I'm sitting here without a contract." Peach trees take at least four years to reach full production, and growers estimate it may take close to a decade to repay orchard establishment costs.
Plantings quadrupled over the past three years, and the peach association had warned processors not to contract additional acreage based only on pandemic-driven demand. On 5 November, the association filed a US$555 million damages claim, although unsecured creditors generally have low priority in bankruptcy cases. "There really isn't any recourse," said law professor Linda Coco, noting that bankruptcy law takes precedence over contract law.
Del Monte also rejected contracts with pear growers in Oregon and Washington and with California freestone peach growers. California's cling peach acreage has declined from more than 25,000 hectares in 1969 to under 5,700 hectares, with processor numbers falling from 17 to five.
Growers are waiting for the 4 December auction of Del Monte's assets, including the Modesto cannery. Without a confirmed buyer, some growers have postponed pruning and have been unable to secure operating loans. "Growers are at a standstill," Davit said.
For more information:
California Farm Bureau
Tel: +1 916 561 5500
Email: [email protected]
www.agalert.com
