Kennett Square mushroom grower’s $115 million expansion is a big bet for New York investor

Published Thursday, January 30, 2020
by Joe DiStefano, Philadelphia Inquirer

Owners of one of Chester County’s biggest mushroom growers have proposed the local industry’s biggest expansion in recent years, a potentially transforming development in an industry that has been struggling with expensive antitrust litigation, foreign competition, and a labor shortage.

South Mill Champs, one of North America’s largest growers, plans a $115 million complex, with nearly one million square feet of growing space, on a 134-acre hay farm in Elk Township, near the Maryland border.

Last week, the state approved a $1.5 million grant to extend a natural gas pipeline to the proposed mushroom farm site and a handful of nearby retail businesses. The move was applauded by State Sen. Andy Dinniman (D., West Chester) as aid for the area’s “rich agricultural heritage.”

The site, which will employ 500, is big enough to locate the full range of spawn, growing, processing, packaging, and trucking on one site, said MaryFrances McGarrity, senior vice president of the Chester County Economic Development Council, the agency that applied for the state grant on behalf of the company.

Pressed for space, growers have expanded out of state, said Gary Smith, the council’s president. For example, Kennett Square-based Phillips Mushrooms’ 2013 expansion to Warwick, Md. “There have been a lot of acquisitions and consolidations of small family farmers. We think this will be the most automated, highly efficient” growing operation in North America.

South Mill Champs was formed by Eos, the New York investment company that bought control of the Pia family’s South Mill mushroom houses in Kennett Square two years ago and combined it with British Columbia, Canada-based Champs mushroom farms.

The fully indoor facility will use the latest technology, resulting in a higher yield and a superior final product, said Lewis Macleod, CEO of South Mill Champs. “The timetable is a work in progress.”

South Mill Champs’ new plant would add nearly 3% to U.S. mushroom production capacity, potentially straining rivals’ profit margins and labor supply. This is a business where growers complain they can’t find locals to supplement their aging, largely Mexican-born workforce totaling several thousand veteran pickers, packers, drivers, and warehouse workers.

Won’t that add to the pressure on smaller farms? “Growers are entering 2020 with record sales volumes and solid demand for fresh mushrooms” recently, with volume topping 80 million pounds last June for the first time, says Lori Harrison of the American Mushroom Institute in Avondale, citing data from the Mushroom Council.

But by other measures, the mushroom industry is in need of a lift. The nation’s mushroom crop was worth $1.2 billion last year, about the same as in 2010, according to the U.S. Department of Agriculture’s yearly survey.

Nationally, mushroom sheds covered 65 million square feet in 1997, but just 36 million last year, according to the U.S. Census of Agriculture. Pennsylvania farms, mostly in Chester and neighboring Berks County, grew 49% of the nation’s crop last year, a proportion that has held roughly steady over the last decade.

In 2018, Pennsylvania had 53 farms growing common white and brown mushrooms (called agaricus), 47 of them in Chester County. That’s down from 70 statewide in 2010, according to the National Agricultural Statistics Service. The state was also home to 229 mostly smaller shiitake and other specialty mushroom farms, up from 220 in 2010.

Production space has been shifting from common agaricus mushrooms grown in compost beds in a six-week spawning, growing, and harvest cycle, toward more “exotic” shiitake, oyster, and other varieties that need specialized growing media but fetch higher prices.

Growers face familiar challenges. Many say they can’t find workers who can handle the relentless specialized labor — the Trump administration has tightened immigration enforcement, and pickers from Mexico’s Guanajuato and Mexico states who got their legal papers during the Reagan amnesty of the 1980s are reaching retirement age.

Some complain of foreign competition from farms in Canada and China. Local shiitake spawn providers, in particular, say they have been undercut by cheap imports, which were factors in last year’s bankruptcy of Oakshire Farms. Another grower, instead of expanding in Chester County, helped develop a mushroom farm for local consumption in China.

Many of the mushroom growers descend from industry pioneers who emigrated from Ascoli Piceno, Italy. South Mill’s founding owners, the Pia family, began a mushroom business in the early 1930s and later built a national distribution network.

This is not the industry’s first brush with outside investors. Seneca Foods, Clorox Co., Campbell Soup, and other national companies have bought and sold Pennsylvania mushroom farms over the years. But many of the largest farms have been under local control since the industry shifted from seasonal canning to fresh mushroom production after 1970.

South Mill Champs is making its move as some of the growers who dominated the industry in the early 2000s are settling expensive antitrust lawsuits. Twenty-one growers, including South Mill, Modern, Giorgi, and more than a dozen other Chester and Berks County growers, agreed to settle price-fixing claims by grocery store buyers against the former Eastern Mushroom Marketing Cooperative for a total of $46 million last year ($22.5 million went for plaintiff’s lawyers and other expenses). Insurance didn’t cover the settlement or expenses. Several of the growers have gone out of business since the claims were filed.

Grocers complained the cooperative tried to control production and drive up prices, and recruited wholesalers and other members beyond the growers’ groups that were allowed to form farm marketing cooperatives under U.S. law, said James Rodgers, head of the antitrust defense practice at Dilworth Paxson in Philadelphia, who represented one of the growers.

The cooperative, whose members in many cases were “barely breaking even,” was accused of buying surplus mushroom houses and reselling them with deed restrictions that would prevent new owners from staying in the business — at a time when there were few, if any, firms trying to get into the industry, Rodgers pointed out.

The cooperative was only four years old when government agencies began an investigation and brought and settled a civil antitrust case. That was followed promptly by the private antitrust suits. Those cases dragged on for 13 years.

Federal Judge Berle Schiller in Philadelphia inherited the case in 2018 and made good on a promise to settle the following year.

Even now, not all the litigation is over, Rodgers said: The Publix, Giant Eagle, and Winn-Dixie grocery chains are still suing groups of growers.

Similar civil antitrust cases are pending against dairy cooperatives and beef suppliers. As with the mushroom growers, farmers typically deny wrongdoing but settle to avoid the risks of a trial.

Three giant Midwest egg growers last year bet on a jury trial — and won: A Philadelphia jury last year dismissed a complaint seeking $1 billion in damages against Midwest egg giants Rose Acre Farms Inc., Ohio Fresh Eggs LLC, and R.W. Sauder Inc. by the Kroger and Giant Eagle chains.

After all that litigation, Rodgers said it’s unclear whether the mushroom settlements have had an impact on prices for consumers. Lawyers for the grocers did not return calls seeking comment.

 

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