NORPAC Foods Inc. is a cooperative and the “‘largest processor’ of frozen vegetables and fruits in the Pacific Northwest.” In August 2019, it filed for bankruptcy, with CoBank providing a $124 million credit facility.
This spring, two farms in Oregon filed suit against NORPAC for breach of contract. NORPAC allegedly did not pay for crops provided by the farmers in 2019. Even though NORPAC filed for bankruptcy, it had assured the farmers it would reimburse them for the crops, according to the suit: “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.”
The suit also alleges that NORPAC’s CEO sent a letter informing the farmer-members 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.”
NORPAC and its relations with its farmer-members is troubling enough, and from a non-legal perspective, it seems apparent that NORPAC should pay its farmer-members if it has readily available funds. But what about CoBank? Where does it fit in in this mess?
CoBank is the largest Farm Credit System (FCS) institution, and the only one authorized to extend loans to cooperatives. And cooperatives like NORPAC play an important role in American agriculture; CoBank should be authorized to lend to them. What’s troubling is that it has offered a credit facility to an institution, that institution has failed, and now farmers are caught in the middle, receiving no payment for the goods and services they have provided. That’s not right.
Farm Credit was established to help farmers, and right now it looks like it’s doing the exact opposite. But what are CoBank’s obligations here? If it doesn’t have a legal obligation to pay the farmers who rendered goods, then where did NORPAC’s CEO’s statement that it would compensate the farmers come from? Surely CoBank had the ability to audit NORPAC as one of its primary lenders. If that’s the case, then doesn’t CoBank share some of the blame for NORPAC’s bankruptcy and its subsequent nonpayment to its farmer-members?
There are many questions to sort through in this particular instance, but one thing that’s clear: this isn’t an isolated incident. In 2018, CoBank’s lack of oversight was one of the factors that contributed to an embezzlement scandal at another cooperative, the Ashby Farmers Cooperative Elevator.
Cooperatives are an integral part of American agriculture, and they need to thrive. But how many more of CoBank’s cooperative clients are at risk? The answer lies in the data, which CoBank doesn’t seem to dig into enough. If CoBank won’t, then the Farm Credit Administration (FCA) should. And if the FCA won’t, then it’s up to Congress to do what’s right.