Power Problem Has Processors Feeling Crunch

By RICHARD T. ESTRADA BEE STAFF WRITER (Published: Sunday, February 11, 2001)

Rolling blackouts are a food processor's worst nightmare, a recipe for disaster that would imperil even California's most prominent fruit and vegetable packers.

"A 20-minute blackout can knock a cannery out of production for 24 to 48 hours," said Jeff Boese, president of the California League of Food Processors. "If you lose power while processing, the only alternative is to clean out all the equipment, dump all the food and then start over."

That means throwing out produce that's already been bought, sending employees home without a full day's pay and paying others to put the cannery back online.

It's a prospect few food processors worried about, until California was confronted with rolling blackouts earlier this year. While most Californians appear more upset by high energy prices than rolling blackouts, processors have good reason to fear both:

California processors typically spend about $160 million to process and pack 16 million to 18 million tons of fruits and vegetables each year. This year, that cost is expected to balloon to $355 million -- an increase of 122 percent.

If a cannery or frozen food company suffers a blackout, it can destroy every piece of produce that is being processed -- potentially costing millions of dollars.

"The business had never been faced with anything like this, not where our ability to pack has been put at risk," said Boese, whose organization represents food processors throughout the state. "The challenge for us is to make sure legislators and policymakers realize how critical it is that we have juice this summer."

Natural gas is used to generate steam and heat for evaporators and cookers, while electricity is required to run the motors, the peach pitters and other equipment on the processing lines.

Given the choice, Boese said, most processors would suffer through the higher prices in exchange for a guaranteed energy supply.

"If we have to sacrifice price to make sure we have reliable power, we'll do that," Boese said. "Paying higher prices isn't our preference, obviously, but the alternative would be disastrous."

An uninterrupted supply of electricity and natural gas isn't only a worry for California's food companies. It's also troubling for farmers, cannery workers and others who depend on those firms for their paychecks.

"The canneries provide about 40,000 full-time and seasonal jobs in the valley," Boese said. "Canneries also pay farmers for crops, money that farmers then spend elsewhere."

During the peak of the tomato harvest, for example, food processors pay valley tomato growers about $50 million each week.

Farmers then turn around and use that money to pay for equipment, seed, labor and land. Eventually, some of that cash comes back to the cannery when consumers buy their food.

It's an economic model that has become the foundation of the valley's economy. It's also one at risk because of high energy prices and an unpredictable supply.

"This is real and it threatens the survival of a lot of folks in the valley," Boese said. "You're going to see food processors going out of business because of energy."

Energy has been a priority issue for processors since last summer, when natural gas prices began to increase. This winter's volatile gas prices, and the likelihood of spiraling costs for electricity, has only heightened their concern.

"We compete in a global market for all of the commodities that we produce here," said Paul Fanelli, vice president of human resources for Patterson Frozen Foods. "The ability to pass on increased costs that are unique to California, whether energy, labor or regulatory, is very difficult."

Feeling the pinch

Patterson Frozen Foods, which employs about 650 workers much of the year, is among the processors already feeling the burden of higher energy prices.

"We are processing nine, 10 months a year," said Fanelli, noting that many canners condense their season into four or five months. "We're developing contingency plans because of the unreliability of energy supplies."

What worries processors is that California is in such dire straits in February, when demand for energy is typically low.

Canners such as Del Monte Foods and soon-to-arrive Signature Fruit (formerly Tri Valley Growers) in Modesto, ConAgra Grocery Products in Oakdale and Pacific Coast Producers in Lodi will require tremendous amounts of natural gas and electricity during the hot summer months.

They'll be competing with other manufacturers, as well as air conditioners across the state.

"We're normally flush with energy this time of year, but look around, we're struggling to find power," said Del Monte spokesman Bill Spain, whose company's fruit cannery in Modesto is scheduled to provide 2,500 jobs and a $26.7 million payroll in 2001.

The dilemma for processors is that California is the heart of the business. It grows 95 percent of the nation's processed tomatoes, and virtually all of the canned peaches, apricots and olives.

There are also tens of thousands of acres used to produce fruits and vegetables for the freezers, dryers and dehydrators.

"They are all susceptible to higher prices and an unreliable (energy) supply," Boese said. "There comes a point where it doesn't make economic sense to process the crops when costs get too high. Each company, each commodity, has its own price point."

If processors try to pass on too much of the cost, Boese fears, they will lose sales to imports.

"While we are the dominant U.S. producer for many products, other counties are also producing them," he said. "The Greeks, for example, already sell peaches at below our cost, and now we're about to take our costs higher.

"We're talking about the survival of an industry, one that's pretty important to California's health," Boese said. "This is a serious threat."

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-- Martin Thompson (mthom1927@aol.com), February 11, 2001