Call it the paradox of the organic food industry: Small companies that position themselves as alternatives to mainstream food brands become popular, grow quickly, add employees, and eventually get sold — often to Big Food companies. Now one company, Organically Grown Co., the largest organic produce distributor in the Pacific Northwest, is trying to avoid that fate by selling itself to what’s known as a purpose trust, which was set up to maximize the company’s sustainability mission.
The sale of the company, which was owned by its 230 employees and about 50 founding farmers, was concluded this week. Terms were not disclosed.
“The problem was the organic movement created a trade, and the trade attracted a lot of investment,” said Natalie Reitman-White, vice president of organizational vitality and trade advocacy at the company, who helped arrange the sale. But once a company sells out, either to a larger company or an investor, “there’s pressure to generate quarterly returns.” Organically Grown (or OGC) didn’t want to be under that pressure, because it believed more attention needed to be paid to its farmers, workers, and the company’s sustainability mission.
OGC moves more than 100 million pounds of produce a year, primarily in Oregon, Washington, Idaho, Montana, and Alaska, most of it in trucks fueled in part by biodiesel. It also delivers more than 600,000 pounds annually by three-wheeled cargo bicycles in Portland, Oregon. Ninety-six percent of its product line is organic. It recycles or composts 96 percent of its waste stream — only 4 percent ends up in landfills — and it’s striving for a carbon-neutral presence and to eliminate its use of fossil fuels, according to its 2017 sustainability report.
OGC was started as a cooperative in the late 1970s by a group of farmers who thought they could do better if instead of competing with one another they worked together to coordinate things like planting schedules and farmers’ markets. The group began in Eugene, Oregon, but quickly expanded so that California farmers could supply produce when the Oregon season shut down. Right now about 31 percent of its supply originates from hundreds of farms in the Pacific Northwest; much of the rest comes from other parts of the United States. Fifteen percent comes from Mexico, and OGC imports a small portion from Latin America as well.
In 2008, the company converted to an employee stock ownership plan (ESOP), giving ownership to all its workers in addition to the original farmers. The problem was that as its owners retired, the company had to buy them out, and with interest in the organic sector growing among venture capital investors, OGC’s valuation kept rising. “We didn’t see any end to it, so we had to come up with another structure,” Reitman-White said.
What OGC settled on was a Sustainable Food and Agriculture Perpetual Purpose Trust, which is designed to last forever. “Through this new structure, the pressure to maximize short-term quarterly profits and exit-value for shareholders is removed. Instead, OGC will maximize ‘purpose’ by creating long-term returns to mission-aligned evergreen investors and sharing the balance of profits with their stakeholders, including farmers, coworkers, customers, and community,” the company said in a statement. Although the purpose trust concept is novel in the United States, it has been used in Europe.
To conclude the sale, the company is taking on an undisclosed amount of debt from RSF Social Finance and selling non-voting preferred stock in a private placement with accredited investors. “The purpose trust provides a new model for the social enterprise sector, which is hungry for alternative ownership structures,” said Kate Danaher, senior director, integrated capital, at RSF Social Finance.
Reitman-White said the deal would allow the company to avoid the fate of so many other organic food companies, which are forced to sell, either by founders or investors seeking to cash out. This has happened repeatedly to successful organic companies — WhiteWave, Earthbound, Kashi, Honest Tea, and Annie’s Homegrown, to name a few — and has been a sore point for organic proponents, who bemoan the takeover of the industry by Big Food.
Under the new structure, the company could be sold again only if a sale was deemed to be the best way of preserving its mission, and even then, a Trust Protector Committee would have to approve. Members of this committee include employees, farmers, customers, and allies such as nonprofit advocates.