Proposed legislation divides industry hit hard by recession

By MITCH LIES

Capital Press

As grass seed accumulates in barns, and growers and dealers struggle to pay bills, discontent in the Oregon grass seed industry is bubbling to the surface.

Overproduction and unenforceable contracts that farmers say leave dealers with too much power are tearing apart an industry long dependent on good grower-dealer relations.

Growers are headed to the Oregon Legislature, proposing legislation aimed at putting teeth into Oregon grass seed contract law and ending practices growers say have left them at the mercy of the seed dealers.

Dealings between seed growers and dealers have changed over time.

It's not unusual today for growers to plant seed before getting a contract, said St. Paul, Ore., grower Gary Vachter.

"It used to be when a guy delivered seed stock, you had a contract under your bag. Then it became, 'Well, I'll get it to you later,'" Vachter said. "We've done it to ourselves."

The draft legislation would require seed companies pay growers for proprietary seed grown under contract by May 1 of the year after harvest.

It stipulates that when the contract price is in dispute, the director of the Oregon Department of Agriculture will determine the price.

The bill would require seed companies to take responsibility for seed after it is cleaned, bagged and tested.

And it would require dealers be bonded.

Mark Simmons, executive director of the Oregon Grass Seed Bargaining Association, said the bill would level the playing field for growers in their negotiations with dealers.

"All we want is to have fair farming practices and good business ethics," Vachter said.

Grass seed contracts are inherently complex. In most cases, they are drafted for crops that will be harvested several years out. Depending on whether prices rise or fall, either a grower or a dealer stands to lose if a hard-and-fast contract price is put in place for the three- to five-year life of a stand.

Many contracts stipulate the price paid to growers will be determined by mutual agreement between dealer and grower. Some cede total control to a seed dealer.

The Oregon Department of Agriculture deems those contracts unenforceable, Salem attorney John Albert said.

"These contracts are styled more as service contracts, not as a sale of goods," Albert said.

"They're just a marketing agreement that says a grower will put seed in the ground and sooner or later a dealer will pay for it," Simmons said.

Jim Cramer, administrator of the Oregon Department of Agriculture's commodity inspection division, said that every year he fields multiple unenforceable complaints from the seed industry.

"We had several complaints this past year that weren't enforceable under the current 'slow-pay, no-pay' law because the contract that the grower signed had a clause stating the price was to be determined by the dealer," Cramer said.

Growers and a few dealers who are backing the legislation believe it will take legislative changes to ensure contracts are enforceable.

Most dealers, however, say better contracts can solve the problems. While dealers believe some changes in Oregon seed law are warranted, they say the proposed legislation is not the solution.

"At the end of the day, if a farmer doesn't like the way I do business, don't grow for me," said Steve Tubbs, president of Turf Merchants, Inc., in Tangent, Ore. "But don't legislate us out of business."

The bonding requirement, a hard-and-fast payment date and other provisions of the legislation ultimately will harm growers, he said.

"It's going to restrict the number of (seed companies) to the point where these farmers aren't going to be able to get contracts from anybody," Tubbs said. "I'm going to be reticent about what I contract for, who I contract with, and whether I even grow it in Oregon."

Dealers say the requirement that they be bonded and other restrictions penalize them while offering no protection against shady growers.

"There are no penalties in this bill for growers who don't abide by agreements," said Matt Herb, research director at OreGro Seeds in Albany, Ore.

He said he had no recourse a few months back when a grower backed out of a contract, plowed up a field of grass seed and planted it to winter wheat.

The move was understandable: Grass seed prices at the time were in the tank, and wheat prices were strong. But it left Herb, who needed seed from the field to fill orders the following season, in the lurch.

"They can always plow out their fields (if they don't like a contract)," Herb said.

Oregon's world-famous grass seed industry runs smoothly when prices are high and growers and dealers are making money, sources said. When the housing market fell off two years ago and consumers cut back on golf rounds, problems surfaced.

Growers say the problems surfaced when dealers realized they had more seed under contract than they could sell.

"So they said, 'We're just not going to pay you,'" said Ron Quiring, a grower in Rickreall, Ore. "They shifted the risk to the growers, saying, 'I can't sell it, so you're going to have to sit on it.'"

Growers say their operating loans are financing the dealers.

"We're providing a service for the seed dealers," grower Bruce McKee said. "We're planting it, spraying it, fertilizing it, rouging it and harvesting it, and all we're asking for is to get paid at the end of the day."

The market downturn also provides the best opportunity to propose legislation to fix issues that have plagued the industry, Simmons said.

"It would be a difficult time to introduce something like this when the market was booming," Simmons said.

Simmons, a former Republican lawmaker from Eastern Oregon who last year took over as head of the growers' bargaining association, knows that passing legislation without full industry support is difficult in a Legislature that likes consensus.

"These growers really need this," he said. "And I'm not smart enough to walk away from a fight."

What makes an enforceable contract?

An enforceable grass seed contract needs to specify how much a grower will get paid for seed and when that payment will occur, said Salem lawyer John Albert, legal counsel for the Oregon Grass Seed Bargaining Association.

Contracts also need to define a grower's obligation to deliver a specific variety, quality and quantity, and a company's obligation to receive it.

"Price and time of payment are the two most important functions for growers," Albert said. "From experience and from what I'm told, the common hang-up is a lack of price."

The Oregon Department of Agriculture takes the position that there is no contract if it stipulates that price will be determined by the seed dealer or by mutual agreement between grower and dealer, Albert said.

"In modern commercial law dealing with sale of goods, there is nothing unenforceable about an open-priced contract," Albert said. But ODA takes the position that contracts between seed growers and dealers are service contracts and not governed by the sales-of-goods law.

Enforceable contracts can stipulate a dealer will pay the price set by the Oregon Grass Seed Bargaining Association or pay the market price.

"I've seen (enforceable) contracts that state not less than 50 cents and not more than 60 cents," Albert said.

"The more indefinite the formulation, the more problematic enforcement becomes," he said.

A good contract will address who is responsible for storage costs, insurance and risk of loss in between the time the crop is harvested and when the company takes control, Albert said.

--Mitch Lies

Meeting scheduled

The Oregon Grass Seed Bargaining Association is holding a meeting to discuss its pending legislation Feb. 25 at the Linn County Expo Center, 3700 Knox Butte Road East, Albany, Ore.

The meeting is designed to answer industry questions regarding the legislation, said Mark Simmons, executive director of OGSBA.

The meeting is open to the public. It begins at 9 a.m.