Impropriety is fatal to farm board

By Jordan Rau

April 9, 2008 12 AM PT

Times Staff Writer

GONZALES, CALIF. — Melanie Horwath phoned the California Tomato Board with what she assumed was a simple request. She needed promotional materials that her family’s tomato packing company could display at a Salinas Valley agricultural event called Taste of the Valley.

Do you have posters or recipes? she asked.

We don’t have that.

What kind of promotion do you guys do?

We don’t do that kind of promotion.

That’s odd, Horwath thought. Her company paid thousands of dollars a month in mandatory dues to finance the board’s research and marketing efforts: its legal purpose. She started digging into the board’s business to find out how it was spending her money.

More than a decade later, the tomato commission has shut down after her findings prompted a state audit.

The commission misspent members’ dues on lavish conferences in Arizona and Mexico, where its families traveled free, according to the audit. It bought perks for directors and employees -- thousand-dollar dinners, a $653 Hummer stretch limousine ride, $190 bottles of wine -- and made other questionable expenditures.

The audit also detailed how the commission abetted a group of Horwath’s competitors intent on setting the prices and rules for California’s $505-million tomato market.

“They ran it like it was . . . their own little fiefdom,” said Brian C. Leighton, the attorney for Horwath’s company, Gonzales Packing Co.

The attorney general’s office is investigating. Meanwhile, audits of other marketing programs within the Department of Food and Agriculture have also revealed conflicts of interest, sloppy accounting, possible Internal Revenue Service violations and activities beyond the authority the state granted them.

These 54 obscure programs, which collect a combined $200 million a year from farmers and shippers of crops and livestock, can have great sway over the price, availability, variety and quality of produce, meat and nuts that Californians buy.

The first boards were created in 1937 to help farmers survive the Great Depression by controlling the supply and price of their crops. Alfalfa seeds, almonds, beef, cling peaches, dried plums, figs, garlic, sea urchins, sheep and wine grapes are some of the food industries with marketing boards or commissions that are established by lawmakers but financed and run by the industries.

Today the organizations focus on research, public education, economic studies and generic promotion of their product through campaigns such as the “Got Milk?” advertisements. Nineteen entities also have federal or state “marketing orders” that restrict the amount, size or appearance of what can be sold.

The agriculture department did not audit any of the marketing programs before 2006. Its first examinations have yielded troubling details.

An audit of the Kiwi Fruit Commission established that a former manager used the commission’s credit card to pay off her husband’s car lease and to buy plane tickets for him to accompany her on business trips. She reimbursed most of the $19,000 in expenditures but charged $3,400 to the commission as payment to her husband for compiling a kiwi cookbook and coordinating a kiwi conference. State auditors couldn’t find evidence that the husband’s earnings were reported to the IRS.

Another department audit found that the California Milk Processor Board paid its executive director $291,361 in his first seven months on the job -- including a $50,000 signing bonus, free health insurance and $73,478 in reimbursed expenses -- without a finalized contract.

A third audit found that the staff and resources of the Forest Products Commission were also misused and that the agency at times exceeded its legal authority.

“California and the Legislature need a wake-up call that these programs are either corrupt or easily corruptible,” said Leighton, who also represents growers and packagers in lawsuits against programs for cherries, cut flowers and raisins. Agriculture department spokesman Steve Lyle said in a statement that the agency has hired more auditors and plans to improve its supervision.

“Generally, the department is committed to doing full fiscal compliance audits of all state commissions,” the statement said.

The tomato commission’s most controversial actions date to 1995, when lawmakers agreed to transform it from a board, which can only make recommendations to the department, into a commission, which can act without approval from state agriculture officials.

The next year, a number of major tomato processing companies formed a private cooperative called the California Fresh Tomato Growers Exchange. It was created to set minimum prices for their tomatoes, according to a copy of its operational policy.

The exchange’s members held conference calls about market conditions and shared information about buyers in hopes of competing more effectively against tomato producers from abroad and getting higher prices from big buyers, such as grocery chains.

The exchange was supposed to be separate from the commission, whose task was to look out for the state’s 114 growers and the 18 handlers who package and ship the picked fruit. Separation of the commission and exchange was essential because the commission was not authorized to set prices, but private cooperatives are.

But the state audit noted that many of the same people who ran the commission also ran the exchange. Representatives of 12 tomato producers who sat on the commission board in 2005 also belonged to the exchange. They included the DiMare Co., Ace Tomato Co., Pacific Triple E Produce Corp., Oceanside Produce Inc. and Live Oak Farms, according to minutes of both groups.

The commission’s executive director, Ed Beckman, earned more than $100,000 a year from the commission and $30,000 from the exchange for managing that entity.

The exchange operated out of the commission’s office and used its attorneys and accountants. The exchange’s expenditures were recorded in the commission’s accounting books, and the exchange used the commission’s bank account. When the exchange sued several growers for selling tomatoes without following food and worker safety laws, the commission paid $10,169 of its legal fees.

As a government-sanctioned entity, the commission was authorized to require all California tomato growers and handlers to report the number and size of the tomatoes they shipped each day. Such sensitive sales information was supposed to be kept confidential, but the state audit concluded that the exchange “appeared to have access to the information of all assessment payers.”

Horwath said exchange members received other advantages from the commission that were not available to everyone.

The commission periodically arranged for tomato buyers from Mexico, Canada and Japan to visit California and tour tomato producers’ facilities in hopes that the buyers would purchase fruit from California. But Horwath’s husband, Tim, said the couple often were not told about the opportunity to meet potential new customers.

“We were looking at these marketing programs and realized somebody’s getting the benefit, and it certainly isn’t us,” said Tim Horwath, who oversees the family company’s sales and packaging facility.

The Horwaths were not the only tomato processors who concluded that the commission was undermining their businesses.

Tim McCarthy, chief executive of Central California Tomato Growers Cooperative in Merced, said he learned that the commission was dispatching consultants to visit some of his customers, collecting information about McCarthy’s sales and sometimes suggesting that the customer buy fruit from one of McCarthy’s competitors.

In a 55-page response to the state audit, the commission denied that any tomato producers received preferential treatment or proprietary information and insisted that its spending was appropriate.

The commission said it had always operated independently from the exchange and blamed the agriculture department for a “virtual absence of any meaningful guidance” because state officials were aware of its activities but never protested them.

Ron Oneto, a farmer outside Sacramento who was the commission’s chairman, said in a telephone interview that the department “signed off” on the commission’s budget and financial reports every year.

Other former directors of the commission and exchange did not respond to inquiries from The Times. Beckman referred questions to his attorney, who declined to comment, citing a pending lawsuit by Horwath against the commission and the department.

In the suit, the Horwaths are demanding a refund of $202,438 in assessments they paid from 2001 to 2005; that year, they began withholding them.

McCarthy and two other tomato producers eventually joined the Horwaths in withholding their dues, and California’s splintered tomato industry voted to end the commission’s operation as of Feb. 29 of this year.

Oneto called its demise a loss to the industry. “We won’t have any researchers finding new treatments for diseases that keep popping up or finding new varieties of tomatoes,” he said.

The exchange has also shut down. But eight of its members have formed a new cooperative: California Tomato Farmers, in Fresno. The executive director is Ed Beckman.

The new group’s website says its members produce most of the fresh tomatoes grown in California, “more than enough to fill the needs of every retail and food service outlet in North America during our growing season.”

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Audit findings

Employees and directors of the misspent thousands of dollars in this decade, according to a state audit. Among the expenses questioned by auditors:

$479,186 for six annual conferences in California, Arizona and Mexico

$44,817 for chartered aircraft

$19,375 for unused vacation time the commission’s executive director, Ed Beckman, claimed over three years

$2,105 for board of directors dinner

$2,100 for limousines

$1,779 for dinner with potential tomato purchasers

$1,687 for staff and family dinner

Airline tickets (cost not specified) to fly Beckman’s daughter and three of her friends to a commission conference