Citrus Co-op Turns Sour : Pure Gold Struggles to Recover From Big Exodus of Growers

Parking, at least, is no longer a problem at the Redlands headquarters of Pure Gold, in its heyday California’s second-largest citrus marketer after Sunkist Growers.

Even just a year ago, the 20-odd parking spaces were at a premium, but then the staff numbered 43. Today, the payroll is down to 14 employees. Finances got so tight that three months ago, the cooperative reluctantly let go the general manager who spearheaded the cost-cutting efforts over the previous 18 months.

The cutbacks were forced by the exodus over the last few years of hundreds of growers, the lifeblood of any cooperative. They defected largely out of fear that they would bear heavy costs from a disastrous juice-processing venture and a lawsuit brought by Pure Gold’s former president.

When the first wave of defectors took their oranges, grapefruit and lemons elsewhere, marketing costs for each of the remaining growers shot up, leading to more departures and yet higher costs. Moreover, membership worries again occupy the minds of Pure Gold officials: August is the month every year when co-op members indicate if they plan to pull out.

But Steven W. Sutter, the 31-year-old who on June 1 succeeded Noble Weisbrod as the co-op’s general manager, said the worst appears to be over. Sales this year are expected to total $30 million, the same as last year, ending a steady decline from $64 million just four years ago.

“I think we’ve got everything stabilized,” Sutter said. “We have done about all we can to cut overhead.”

That should make Pure Gold more attractive to growers, he reasoned. After all, a cooperative’s costs are covered by its member growers and packers through a levy, called the “retain,” on each 40-pound case of fruit. Everything else earned by selling the members’ crops goes back to them as earnings, called the “return.”

The retain, which reached a high of 45 cents a case, has now fallen to a maximum of 40 cents. By comparison, Sunkist’s 6,000 members--some of them former Pure Gold growers and packers--paid more than 55 cents a case this year. (The higher levy pays for an array of services, from industry lobbying to market development, no longer available at Pure Gold.)

Hard times are nothing new for Pure Gold. In the 1950s, the company--which traditionally has specialized in fresh-fruit marketing, the most lucrative area for growers--made a disastrous foray into juice-processing. But Pure Gold, organized in 1910 by Inland Empire growers dissatisfied with Sunkist, went on from that debacle to become the state’s No. 2 citrus marketing organization by the 1970s.

Many Members Quit

Another failed juice-processing venture is largely responsible for Pure Gold’s current problems. In 1983, Pure Gold helped launch Agrigold, an independently owned fruit-processing company in Anaheim. The cooperative had planned to send fruit that, for cosmetic and other reasons, couldn’t be sold at supermarkets, to Agrigold to make juice. The venture appeared to be profitable after its first nine months of operation, Pure Gold said in its 1984 annual report, but that assessment turned out overly optimistic. The cooperative ultimately suffered a loss of nearly $500,000 during the nine-month period.

Pure Gold’s president at the time, James W. Neu, hired Sutter, a certified public accountant, to set up a bookkeeping system to tighten the new venture’s cost controls. But Agrigold never recovered from its disastrous beginning, and Pure Gold, which had guaranteed the processor’s debts, was saddled with liabilities of about $7 million.

Those liabilities frightened many Pure Gold members, who withdrew and took their business to Sunkist and other companies. After peaking at 2,500 in 1980, membership is now down to 600.

But last January, an agreement between Pure Gold, the juice company and its lenders took care of the Agrigold problem. Agrigold’s real estate was sold to the Anaheim Community Development Agency, and another company, AgJuice Products, bought the equipment and “everything else that could be moved,” Sutter said.

Despite that outcome, a cloud of uncertainty has remained over the struggling co-op, partly the result of a lawsuit filed by Neu, a former Sunkist executive who headed Pure Gold for 10 years through mid-1985, when he retired with a heart disability.

In December, 1985, Neu and one of his partners in a citrus-growing operation, Sidney Jones of Upland, sued Pure Gold in San Bernardino Superior Court for $5 million in damages. They accused Pure Gold management of withholding information from them and other growers. The curious thing about the suit, Sutter noted, is that it targets a period, from the late 1970s to the early 1980s, when Neu was Pure Gold’s president.

“It’s a nuisance lawsuit,” Sutter said, “but it got a lot of headlines and we lost a lot of growers over it.” The defectors, he said, were worried about having to pay the $5 million Neu and Jones are seeking.

Attorneys for both sides declined to comment on the case, but speculation within the industry is that the lawsuit is close to settlement.

In any case, Sutter said Pure Gold’s balance sheet is looking healthier.

“We owe nothing to anyone but to our growers,” he said, “and we can double our volume, to about 6 million (40-pound) cases a year without adding a penny to our costs.” However, he said, “It’s going to take us another year to get our message across” to growers.

Major Packer Defects

The message? “We’re financially sound, we’re very experienced marketers, and we have a lower cost than our competitors,” Sutter said.

But as recently as last month, Pure Gold lost one of its last three major packing-house members, the Arizona Groves Growers Assn. of Yuma, which signed on with Sunkist. Sutter said he was able, however, to line up enough independent packers to handle Pure Gold’s early-ripening Arizona lemons, which he called essential to the success of the cooperative’s year-round citrus-exportation program.

Arizona Groves’ defection leaves Pure Gold with only Higham & Sons Packers of Orange Cove, serving the San Joaquin Valley, and Arlington Heights Citrus Co. in Riverside. Both are represented on Pure Gold’s shrunken four-member board of directors, and both said they intend to stick with the cooperative.

“Pure Gold is going to be fine,” predicted Arlington Heights manager Ged Tilden. “We’ve got its costs down pretty well to the bone. We’re interested in marketing fresh fruit only, and now we’re out of all the other things.”

Elmo Higham, who heads the Orange Cove packing house, added: “I think we’re going to get some growers back.”

The question remains whether Pure Gold can regain enough business to stay solvent--if not regain the 15% share of the Arizona-California citrus production that it once handled. After the giant Sherman Oaks-based Sunkist cooperative, which claims to handle more than 60% of the citrus grown in California and Arizona, the industry is highly fragmented with a number of independent packers. They include Sun World in Bakersfield, Dole in Ontario and Sun Pacific in Ventura County, all competing for the No. 2 position once enjoyed by Pure Gold, whose share has fallen to “less than 5%,” according to Sutter.

Ross Lewis, a Riverside citrus grower and Pure Gold member, said he intends to give the cooperative at least another year to shape up. “They’ve gone back to selling fruit, which is what they should be doing,” Lewis explained.