December 5, 2010 in City, Idaho

Bluegrass farmers go to court

Corporate giant Scotts refusing to pay on growers’ contracts
By The Spokesman-Review
Jesse Tinsley photo

Grass farmer Al Anderburg climbs down from one of his combines Nov. 30 on his farm near Rockford, Wash. He is one of many farmers who have signed contracts with The Scotts Co., the giant grass seed marketer, to sell their seed for more than market value, contracts signed before the downturn in the housing market. Scotts is looking for ways out of those contracts while farmers like Anderburg may end up with the short end of the stick.
(Full-size photo)

Price shift

In light of record wheat prices, inducing farmers to forgo planting grain required top-dollar contracts for grass – around $1.30 per pound of cleaned seed. Today’s market price is below 65 cents per pound.

The Scotts Co., one of the world’s largest lawn-care companies best known for its Miracle-Gro fertilizer, has reneged on contracts worth millions of dollars to Eastern Washington and Idaho farmers.

The action has erupted into a tangle of lawsuits and counterclaims and put more than 100 Kentucky bluegrass farmers in a financial pinch as bank loans and other bills come due. The farmers accuse Ohio-based Scotts of corporate bully tactics, including the threat of protracted litigation that could drag on for months or even years to wear down poorer-financed farmers.

Scotts accuses the farmers and two regional seed processing companies of refusing to submit to field and financial audits in breach of the contracts.

Growers and seed processing companies Dye Seed Ranch Inc. and Seeds Inc. say nonsense.

“Scotts has cooked up a bunch of notions that are designed to use the federal courts to delay payments and starve the growers out,” said attorney Stephen Phillabaum.

The problems took root several years ago when Scotts attempted to corner a large piece of the bluegrass market, gambling that the booming housing market and golf course developments would drive the demand for Kentucky bluegrass, said attorney Tim Esser, who represents Seeds Inc.

The company worked with Dye and Seeds to reach the farmers, enabling Scotts to secure multiyear contracts to supply its seed while at the same time locking out potential competitors from an area that harvests about half of the world’s Kentucky bluegrass seed.

By all accounts the contracts were generous. The agreements were signed at a time when many crops were selling at all-time highs. Wheat, for instance, cleared $10 a bushel. So inducing area farmers to forgo planting grain for four years required top-dollar contracts for grass. In many cases that was $1.30 per pound of cleaned seed ready for shipment and sale. Today’s market price for grass seed is below 65 cents per pound.

Scotts has alleged that some farmers stuffed their yields this year – meaning that they purchased grass seed cheap from another source or grew it in a field that wasn’t under contract and then claimed they grew it for Scotts in order to collect the higher price.

Farmers say their good yields were the result of a great year for growing grass, with cool, wet weather spurring good seed production.

Scotts, which is publicly traded on the New York Stock Exchange, told analysts last month that its corporate strategy includes $50 million worth of supply chain cost savings. Farmers believe the company hopes to achieve $18 million of that by voiding its grass seed contracts with Inland Northwest farmers.

Several bluegrass growers point to a Sept. 21 meeting at the Ramada Inn Spokane Airport with Scotts representatives, including Pete Supron, the company’s senior vice president of global purchasing.

Supron told the growers that Scotts wasn’t going to make the contract payments.

At one point, according to a sworn affidavit by farmer Herb Millhorn, the Scotts executive said: “Contract, contract, contract. I’m tired of hearing about you farmers (and your) contracts; the market price is way below your contract price. What are you willing to do to help Scotts?”

Another grower at the meeting, Al Anderberg, said he was dumbstruck by the comments.

“It was unbelievable,” Anderberg said. “This man says something like that and then the Scotts people leave the room. I think they expected us to give in or make an offer. That wasn’t going to happen.”

Supron also broached the subject of protracted litigation as a consequence of not shrinking the contract price.

“He talked about how Scotts had spent $6 million to contest a $600,000 dispute,” Anderberg said.

Phillabaum, who is representing a seed processing company, called the example a threat.

“That was meant to pressure the growers, to threaten them with accepting less money than their contracts called for,” he said, “or Scotts would just outspend them – just grind them into the ground.”

Attorneys representing Scotts declined to comment for this story. An interview request with company spokespersons went unanswered.

According to its financial reports, Scotts had sales of $3.1 billion for fiscal year 2010, which ended in September.

The company’s profit reached a record $230.7 million.

After the September meeting between Scotts and the growers failed to yield a new contract, the sides turned to the courts.

Scotts struck first, filing two federal lawsuits alleging that Dye Seed Ranch Inc. and Seeds Inc. were refusing to allow Scotts to perform audits as called for in the contracts.

In response, the growers filed an $18.5 million collection against Scotts in Whitman County Superior Court. Where the litigation will unfold has not been determined.

“To say that Dye and Seeds refused to allow an audit? That’s pure fantasy,” Phillabaum said. “I represent Dye, and we’ve never refused an audit. In fact, Scotts’ guys have been going to Dye continuously and routinely doing audits. What they’re doing is manufacturing a case to slow down a requirement that they make payments.”

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