No. 2 Rice Co-Op to Take New Members

Competition between the state’s two largest rice-marketing cooperatives intensified Thursday as second-ranking Farmers’ Rice Cooperative--buoyed by higher returns on its crop than those of market-leading Rice Growers Assn. of California--opened its doors to new members.

Farmers’ Rice, which now has 950 members--up from about 800 a year earlier--invited growers to sign up at its headquarters in West Sacramento but warned: “Based on current levels of inquiry, it is clear that Farmers’ Rice Cooperative will have far more applications for membership for the 1986 crop than we will be in a position to honor.”

In addition, Farmers’ Rice said it is terminating arrangements with Rice Growers for shipping rice to Puerto Rico, saying that it expects to save $2 million by leasing its own vessels in a currently depressed maritime industry. The savings will more than offset a $1-million lease cancellation fee and the cooperative’s share of this year’s cost of operating the ship.

Rice Growers itself is seeking to end its long-term lease with operators of the ship, citing extraordinarily high operating costs.

Just a few weeks ago, Rice Growers’ 1,600 grower-members learned that many of them owed the cooperative money this year because net income fell as much as $15 million below advance payments made to growers last fall.

$45,000 Average Loss

The cooperative annually advances funds to its members to cover production costs. When the crop is sold, the cooperative not only recovers the advance but normally mails out substantial checks representing its profit to be shared among the members.

This time, however, instead of a hefty check in the mail, most Rice Grower members received bills. One estimate put the average loss per member at $45,000.

Rice Growers--long the state’s dominant rice cooperative--has found itself on the defensive for more than a year, since Farmers’ Rice, which once worked closely with it, recruited a new management team headed by President Ralph S. Newman Jr. Newman learned the rice business in Texas, part of the southern rice-growing belt that supplies most of the long-grain rice favored by U.S. consumers.

But because California growing conditions are more conducive to short- and medium-grain rice, Newman decided to develop a stronger domestic market for those varieties even though they are favored in most export markets, where lower-priced foreign rice has cut sharply into U.S. sales.

As a result of that strategy, Farmers’ Rice reported that a record 80% of its crop was sold domestically this year.

In contrast, Rice Growers decided to try to take domestic market share away from growers in the South by offering a $2 premium per 100-pound sack to grower-members willing to produce long-grain varieties.

That incentive attracted more than twice the amount of long-grain rice that the cooperative had expected. The oversupply of long-grain rice coupled with the premium paid to attract it sharply reduced Rice Growers’ net income.

In effect, its producers of medium- and short-grain rice wound up subsidizing the minority of growers who chose to plant long-grain varieties.

But Rice Growers’ troubles appear to be more extensive than lower-than-anticipated returns to its members. They include:

- A loss of up to $6 million from last year’s attempt to buy rival Pacific International Rice Mills Inc., which a federal judge blocked on antitrust grounds earlier this year.

- A dwindling domestic market share, currently about 45%, down from 50%.

- A sharp drop in sales to Puerto Rico, where a four-month labor strike resulted in a gain on the part of rival Farmers’ Rice, whose share of that market increased to 40% from about 25%; Rice Growers’ 40% share dropped to about 25%.

- A loss of members to rival cooperatives and independents.

Former Executive Vice President James Errecarte resigned earlier this year, and this fall, Rice Growers hired as chief executive Michael L. Cook, a former vice president of Farmland Industries Inc. of Kansas City, Mo.

Rice Growers spokesman Jack Kenward said the cooperative declines comment on actions by its rival’s management.