Campaigns to Boost Market Share : State’s Two Rice Co-ops Use Different Recipes

Larry Grell’s attention was drawn to three engineers at an Oakland construction site who were earnestly talking about, of all things, “this odd-sounding brand of rice.” Then, one of the three spelled the name for the others: H-I-N-O-D-E .

“They were talking about our rice!” exclaimed Grell, a Richvale farmer and chairman of the Rice Growers Assn. of California, which produces Hinode brand rice. “It was very gratifying.”

The engineers, as it happened, had watched a cooking lesson on television during a recent Sichuan food festival in San Francisco at which chefs brought in from China prepared feasts featuring RGA’s long-grain rice. It is a variation of the species favored in Sichuan Province but only recently raised successfully in California’s prolific rice bowl in the Sacramento and upper San Joaquin valleys.

Getting consumers to buy Hinode rice is very important at this point for RGA, which lost many of its member-growers to a rival cooperative last year because of mismanagement and sharply lower crop payments.

So the company is pleased that as a result of the San Francisco promotion--the industry’s first--Hinode is now carried by the major supermarket chains in Northern California. A new promotional effort, aimed at Southern California’s large Latino population, was launched during last month’s Cinco de Mayo celebration and continues on billboards dotting the Southland, proclaiming Hinode “un arroz a todo dar . . .” (roughly translated, a great rice).

“Most of the rice eaten in Los Angeles is long grain--and it comes from the South,” explained Michael L. Cook, RGA’s president and chief executive. Cook was recruited in September, 1985, to turn the co-op around.

“The South has always been the provider of long-grain rice,” he said. “So our challenge is to get Californians to ask for California rice.”

The quest for a greater share of the domestic market dominated by the Southern Rice Belt is shared by 67-year-old RGA and its younger rival across the Sacramento River, Farmers’ Rice Cooperative. In pursuit of that quest, the farmer-owned marketing firms are betting on somewhat different strategies.

More fundamental than the rivalry may be the question, Cook acknowledged, of whether California’s rice industry itself can survive without the hefty government subsidies that have helped carry it through the disastrous 1980s after years of successful--and non-subsidized--operation in the glory years of the 1970s, when the United States was still the world’s granary. Today, such former rice customers as Thailand and South Korea are major competitors.

“The crucial issue is whether we produce a product for which there is a sufficient demand,” Cook said. “But no matter what the government programs are, we want to set our own goals and control our own destiny.”

California’s rice crop was valued at about $240 million last year, ranking 16th among the state’s 250 commercial crops. It accounted for 21% of the nation’s rice crop, making it the nation’s second-largest producer after Arkansas’ 41% share. (The other major players are Texas, home of Uncle Ben brand long-grain rice, Mississippi and Louisiana.)

sh Subsidies Have Helped

Still, were it not for the heavy (but declining) government subsidies for rice farmers enacted in the Food Security Act of 1985, many more Californians would now be joining growers who earlier gave up on rice. “We’ve seen an exodus,” Cook said. “Those who remain really have their belts tight.”

So the question of both cooperatives’ marketing strategies assumes a greater significance at this point in the industry’s development. Should they fail, consumers could find themselves dependent on low-cost but heavily subsidized foreign-grown rice. Moreover, rice still ranks seventh among California’s exports, even after five years of decline, so it provides thousands of rural jobs.

For most of its 43 years, Farmers’ Rice labored in the shadow of the much larger Rice Growers Assn. In those days, it was generally content to let RGA call the marketing shots. But, apparently, complacency overcame RGA management in the 1970s.

That was an era of rapidly growing exports, and many farmers expanded aggressively. But RGA was slow to take advantage of the burgeoning new markets abroad, and when it did, the export tide had already turned against U.S. goods. RGA belatedly found itself deeply committed to fading foreign markets.

Even worse, in 1982 the company came to an impasse with South Korea, RGA’s biggest customer, over a major sale. The dispute froze deliveries from both RGA and then-docile Farmers’ Rice for 18 months.

In August, 1983, with tempers stretched thin, Farmers’ Rice brought in new management in the person of Ralph S. Newman Jr. Newman, who had guided the nation’s second-largest rice co-op, Houston-based American Rice, quickly broke with RGA. He cut his own deal with the Koreans, then began repositioning Farmers’ Rice to sell to the less volatile domestic market, which now accounts for more than 80% of its sales.

The Farmers’ Rice initiative forced an outraged RGA to come to terms with South Korea, too. But RGA’s fortunes continued to deteriorate at the same time that rice prices plunged due to global overproduction. The bottom came in the fall of 1985, when RGA’s stunned members received bills instead of the usual checks in final settlement for their rice. This contrasted with the relative success of Farmers’ Rice, whose members earned significantly more for their crops.

By then, RGA had just hired Cook from Farmland Industries, a big agricultural supply and food products company in Kansas City, Mo.

sh New Team’s Challenge

Cook’s new management team had to weather the billing brouhaha and a subsequent massive defection of members the next February, during the annual period when growers can change marketing affiliations. More than 300 RGA growers joined Farmers’ Rice, propelling the one-time junior partner for the first time into the No. 1 spot in California.

Cook responded by slashing overhead, improving communication with members, computerizing operations and extricating the firm from costly and time-consuming litigation. Under Grell’s leadership as chairman, the co-op also reorganized. The growers trimmed the number of directors to 15 from 25 and decided to elect them by district rather than “at large” in order to enhance accountability.

One sign that the worst may be behind RGA came last February, when there was no further loss of membership. But it is difficult to tell how well RGA is performing, compared to its rival, because federal rice subsidies set a payment floor for all farmers. This floor tends to minimize differences in crop prices achieved by the marketing strategies of each cooperative.

sh Surplus Diminishing

But the food act’s unique “marketing loan” program for rice (and cotton) is scheduled to be phased out between 1988 and 1991. Its goals were to clear out price-depressing surpluses while giving farmers time to adjust to current world trade conditions. So far, the surplus clearing is succeeding, with U.S. rice free to move at prevailing world prices while the government directly pays farmers a sum based on the difference between world prices and the so-called target prices set in the legislation.

No one knows, of course, what will happen to rice farmers when these target prices begin dropping next year. But for now, both Cook of RGA and Newman of Farmers’ Rice rejoice that the surplus rice from past crops has moved out of government warehouses.

“In effect, we’ve had a sale,” Newman said, “and now we’re going into a different area.”

If so, the two co-ops are proceeding by different routes. While RGA is emphasizing the fluffy, long-grain rice and selling it under its own brand, Hinode (Japanese for “rising sun”), Farmers’ Rice focuses on the more glutinous medium-grain and short-grain varieties for which California is known. And its prime target is not to reach consumers through its own branded products, but to service major industrial and institutional accounts and to provide rice for retailers’ own labels and for distributors specializing in ethnic markets.

Despite their different approaches, though, the two co-ops appear to have improved relations over the last year. “The difficult times have brought a feeling of maturity within the industry,” Cook said. “Growers can separate industry problems and also compete for markets.”

As for the larger question of whether California’s rice industry can survive, both Cook and Newman say they are “relatively optimistic”-- if foreign competitors are made to play by the same trade rules. They consider California growers to be the world’s most efficient--producing far more rice per acre than does the Southern Rice Belt--and at a far lower price than do foreign growers once subsidies are stripped away.

In addition, both co-ops are encouraged by signs that foreign countries are at last willing to begin negotiating lower farm subsidies on a global basis. For the first time, agricultural issues are on the agenda of the multilateral trade negotiations now getting under way in Geneva under the general agreement on tariffs and trade. Also for the first time, the 24 industrialized member nations of the Organization for Economic Cooperation and Development agreed unanimously last month to work to reduce farm subsidies in their countries. And on Saturday, President Reagan called for elimination of all such subsidies by the year 2000.

Even Japan, which bans imported rice, agreed to decrease its hefty subsidy to rice growers, which forces Japanese consumers to pay far more than they would have to pay for medium-grain rice even after it is shipped from California. (Japanese rice costs $2,000 a ton, U.S. rice $250 a ton, Newman said.)

“These are the kinds of things that create the need for a farm program,” Newman said of subsidies and trade barriers. “So change abroad will be needed. But if the world becomes more market-oriented rather than welfare-oriented, we’ll benefit. That will tend to reward performance and penalize inefficiency.

“If we get access just to Japan’s rice market, we won’t need a farm program.”

Meanwhile, lower rice prices are fueling modest growth in consumption at home, especially in industrial uses, where the blandness of the grain makes it an ingredient of choice in blending with other flavors. And consumers’ growing recognition of the dietary value of complex carbohydrates could make rice the successor to the pasta craze.

“The question facing individual farmers,” said Grell, RGA’s rice-growing chairman, “is, ‘Can I wait that long?’ ”

“In other words,” added Cook, “Can a Larry Grell survive?”