Broken CoBank-Backed Promises Likely to Leave NORPAC Farmers With Fraction of Payments Owed

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When NORPAC Foods filed for bankruptcy in August 2019, NORPAC’s CEO assured its farmer-members that financing from Farm Credit lender CoBank meant that they would receive payment for produce delivered that fall. Now, a year and several legal filings later, it’s clear that those farmers whose crops were sold as NORPAC assets will likely only receive a fraction of what they are owed.

Last week, the Capital Press reported that the settlement agreement that NORPAC – now known as North Pacific Canners & Packers – would present to the bankruptcy judge would provide $4.5 million towards farmers’ claims if enough farmer-members sign on. That amounts to a fraction of the estimated $16- $18 million in bankruptcy claims from the cooperative’s farmer-members.

How did farmers end up with so little despite promises of CoBank-backed payments?

When NORPAC Foods Inc. a cooperative and the “ ‘largest processor’ of frozen vegetables and fruits in the Pacific Northwest” filed for bankruptcy, CoBank, the largest Farm Credit System (FCS) institution, provided a $124 million credit facility to fund NORPAC’s operations through bankruptcy proceedings. As the Woodburn Independent explains, this was not a new relationship as CoBank “has collateral in ‘substantially all assets and property’ of the cooperative and its subsidiaries.”

According to a lawsuit filed by farmers against NORPAC for breach of contract, Farmer-members preparing to harvest and deliver their crops received a letter from NORPAC’s CEO informing them that “a financing commitment from CoBank” would allow the cooperative to access “resources to pay operating expenses such as payments to you for your 2019 crop.” As Capitol Press reported, “Farmer-members were convinced to supply NORPAC with crops last year with pledges that CoBank, a major creditor, would provide financing to compensate them for that produce.” 

Based on those promises, farmers delivered their crops for processing. In December, however, NORPAC informed them that they would not receive the promised compensation for crops. Lacking the promised payments, two farms in Oregon filed suit against NORPAC for breach of contract in Spring 2020. As an added layer of complexity, unsecured creditors filed a separate lawsuit against farmers hoping to “claw back” previous crop payments made to farmers to provide more money for disbursement to creditors.

For its part, CoBank seems to have washed its hands of the troubled co-op and walked away with its full claim to NORPAC bankruptcy payments. As the Statesman Journal reported, “CoBank, which financed the bankruptcy, had a secured claim for $125 million, and was the first to be paid.”  That’s all well and good for CoBank’s balance sheet, but why was the lender’s name part of promises from NORPAC’s CEO to farmers if crop payments weren’t forthcoming?

Clearly, farmers believed that they would be compensated for their corps or as an attorney for two of the farms suing NORPAC noted, “Without those promises, the growers would not have delivered.”

In addition to turning up troubling relations between NORPAC and its farmer-members, the ongoing legal dispute should raise questions about CoBank’s role in this mess. Farm Credit lenders like CoBank are explicitly tasked by Congress with helping farmers. In the NORPAC bankruptcy, CoBank seems to have done the opposite.

Unfortunately, this isn’t the first time that CoBank has been caught up in co-op troubles. In 2018, CoBank’s lack of oversight contributed to an embezzlement scandal at Ashby Farmers Cooperative Elevator.

Cooperatives like NORPAC and Ashby Farmers Cooperative help small farmers come together to access resources needed to compete with larger operations. These cooperatives need access to credit and Farm Credit, through CoBank, plays an important role in helping meet their credit needs. But CoBank, as a lender tasked with helping farmers, should pay more attention to promises made to farmers under its name and the financial health of the co-ops it lends to before those co-ops end up in bankruptcy and farmers are left without full payment for crops.

A bankruptcy like NORPAC’s that costs farmers crop payments and rural communities jobs should be a wakeup call that oversight of Farm Credit lenders like CoBank is long overdue. The Farm Credit Administration must take its responsibility for Farm Credit oversight seriously. And if the FCA is unwilling to fulfill its mission, Congress must take action. Americas’ farmers and ranchers are struggling and Farm Credit, a government sponsored enterprise, should be part of the solution rather than adding to farmers’ problems.