Co-op closure leaves growers in the lurch

OLIVER – On July 3, Osoyoos cherry grower Ranjit Dhillon delivered the last of his cherries to the BC Tree Fruits Co-op in Oliver.

“We were really optimistic; it was our best year yet,” Dhillon says. “We did not suffer any winter damage; we had a full crop. We shipped 108,800 lbs of cherries total.”

Three weeks later, on July 26, the co-op told Dhillon and other growers it was shutting down, leaving the fate of his fruit as well as compensation in doubt.

Cherries are perishable and although Dhillon knows that his fruit was processed, packed and sold, he doesn’t know if he’ll get paid the $220,119 court documents indicate is owing to him.

Costs to manage the crop, including fuel, sprays, pruning and picking have cost him around $50,000.

“I have a packout slip from the co-op, but I have not been paid and I really don’t know if I will ever be paid,” he says, noting he feels “hopeless.”

The co-op has told growers that CIBC, the largest of the co-op’s 11 secured creditors, will be paid first, then other creditors and finally the

co-op’s member growers.

Court filings indicate growers were owed

$4.8 million as of August 13.

“That doesn’t seem right,” says Dhillon. “The growers who grew the fruit, they should be paid first. The banks are already rich.”

Dhillon’s story is just one of many that are the result of the closure of the largest tree fruit packinghouse in the province.

The shuttering didn’t surprise anyone involved in the industry, but it is a story of many parts and no one solution.

It’s hard to say which came first — lower prices and returns for members leading to a lower quality of fruit, or lower quality fruit leading to poor returns. The average pool return for growers has been dropping steadily since 2018, with figures between 2019 to 2023 ranging from a high of 20.97 cents a pound to a low of 13.23 cents a pound. With an average cost of production across the industry of around 35 cents a pound, those returns are hardly enough to sustain growers.

With less money coming in and the cost of inputs going up, some growers cut back on sprays and thinning routines and that in turn led to a cycle of poorer quality fruit.

While co-op rules allow for poor quality fruit to be turned away, it seldom happened. The co-op effectively became the buyer of last resort for growers.

Heat events over the last several years have also impacted apple quality.

Apple trees do not thrive at temperatures above 35° C. Sunburn damage to fruit increases, apples fail to colour up and the fruit is more susceptible to decay in long-term storage.

Heat stress causes photosynthesis to shut down, leading to reduced yields of smaller, poor quality fruit. While apples do better than other tree fruits in the severe cold, they were also impacted by the extreme cold events in December 2022 and January 2024.

Even the best growers can’t escape Mother Nature. Blocks that used to produce 60 bins an acre are now only yielding 40, adding to the hard math growers are facing.

Ambrosia apples have been a success story for the BC industry, and acreage has grown rapidly in the last 10 years, helped by successful replant programs and the expiry in 2017 of the 20-year patent that limited production.

A marketing plan to increase domestic consumption and expand foreign markets for the variety was recommended by the province’s three-year-old tree fruit stabilization initiative, but none has materialized.

Poor returns led a number of the co-op’s top growers to transfer their business to the dozens of independent packinghouses that were cropping up. The past four years have seen co-op membership drop from 400 growers representing about 55% of the industry and 40% of the volume to just 176 voting members.

The departure of those growers eroded the average return to all members, as less top-quality fruit was being sold at a higher price and less fruit overall to cover operating costs.

Some member growers have also practiced high-grading, taking high-quality fruit, either from their first pick or bins from a more productive part of their orchard, and selling it directly to markets in the Lower Mainland. While limited independent sales were allowed in growers’ contracts, the

co-op wasn’t strict about enforcement.

Poor quality is a losing proposition for any business, and particularly one dealing in perishable products.

A small apple with a blemish must still be run through the line, scanned by the optical sorter and graded, but the system will handle a larger volume to fill a three-pound bag than if top-quality fruit was being processed.

While growers were charged a penalty for cull fruit, it fell short of the overhead costs incurred by less productive equipment, not to mention the cost of disposing of poor-quality fruit.

The cash flow issues were set to intensify this year, as poor weather eliminated the peaches and nectarines that generate early-season revenue. A significant drop in the cherry crop put a further damper on cash flows.

But the final nail in the co-op’s coffin came when a number of growers withheld estimates for the volume of apples they expected to deliver. Without reliable estimates of what the co-op could expect to market, it made the only reasonable decision based on the information it had and opted to shut down.

Ironically, the co-op’s failure came down to a lack of co-operation.

A north-south split, highlighted by opposition to the co-op’s decision to consolidate packing operations in Oliver, is the most obvious.

Many growers in the North Okanagan, where the majority of apple acreage lies, objected to the move despite the business case that exists for it.

Cultural and religious divisions among Indo-Canadian growers have also eroded the co-operative spirit, animating discussions at board meetings. A provincially funded governance study in 2020 concluded, “The board and membership is factionalized, often driven by personal agendas rather than business decisions.”

The divisions played out openly in two special general meetings members forced in November 2022 and February 2024. While the meetings failed to unseat the elected board, they eroded confidence in a business that has seen its revenues drop from $165 million in 2008 to less than $56 million today.

The path forward for growers is unclear.

The province says a majority of co-op members have found alternative packing houses for this fall’s harvest. But finding enough storage space – particularly controlled atmosphere storage – to replace the large facilities the co-op operated will be difficult. Packers are currently contracting with packinghouses across the border in Washington for the space they need.

While the province has pledged to protect critical infrastructure, it has stopped short of saying it will buy assets on behalf of growers. Much depends on how the court-ordered restructuring process plays out.

The co-op’s demise is a major blow to the industry, but corporate bail-outs are a thing of the past. The replant program the government launched as part of a historic investment in food security last year is of little use if growers have nowhere to sell their crop.

But if there’s any good news in the co-op’s demise, it’s that the industry as a whole is far from dead.

Many growers continue to operate successful businesses and grow top-quality fruit. Just like a fruitful tree, the co-op’s demise may be the pruning the industry needs.

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