NatureFirst USA

Pacific Digs in to Guarantee Quality

By Shelly Strom
Portland Business Journal
September 23, 2005

Pacific Natural Foods is taking a rather direct approach to build its competitive edge.

The Tualatin-based food processor has gotten into the business of farming.

The privately held company has purchased since 2000 approximately 370
acres of agricultural land south of Portland in Aurora. A team of 10
Pacific Natural employees are farming the land to produce meat and
vegetables used in the company's fast-growing line of soups, stews, rices,
nondairy milks and other food products.

"We are taking a very nontraditional approach," said Chuck Eggert, founder
and chief strategist of the 17-year-old company. Pacific employs about 200
people and manufactures more than 50 different all-organic food items in
505,000 square feet of production facilities.

"Our whole thing is based on innovation and the notion that you are only
as good as the last thing that worked," Eggert said.

Pacific has experienced rapid growth for much of the past 10 years. The
company does not disclose revenue. But Eggert, majority shareholder, said
Pacific has been solidly profitable for 10 years and recent annual growth
has tracked around 20 percent.

That pace has driven the company to add 70 jobs in the last two years and
likely will mean another 20-some jobs in the coming two years.

By becoming a farmer, Pacific is assured of a steady supply of just the
type of organically grown ingredients upon which many of its recipes rely.

"In some cases, we have found it difficult to get ingredients that meet
our standards," Eggert said. The company is finding that some ingredients
are harder to procure from domestic producers. Increasingly, ingredients
are being produced in other countries.

"Some of it is about trying to show that organic farming can be done
successfully," he said.

Food that is certified organic by the U.S. Department of Agriculture must
be produced according to strict standards that don't allow use of
synthetic inputs standard in conventional farming, such as petroleum-based
herbicides and pesticides.

Although a growing number of producers in Oregon and nationwide have
received organic certification or are in the process of getting certified,
organically grown food is not easily sourced in the sort of mass
quantities required by some food processors.

Right now, Pacific grows a limited amount of crops.

The farm produces red peppers, heirloom tomatoes and butternut squash. A
herd of 150 head of organically raised cows provides more than enough beef
for Pacific's products.

The balance of the beef -- the only certified organic beef produced in the
state -- is sold at Portland-based grocery store chain New Seasons Market.

By next year, the company expects to have added another 300 head of beef.
Although Pacific produces just 15 percent of the ingredients it uses, the
arrangement, nonetheless, is unusual.

Plenty of agricultural producers are in the business of processing their
crops but few process those crops into the sort of ready-to-eat products
made by Pacific.

Even fewer large-scale, established processors get into the business of
owning farmland and growing their own ingredients.

"It's almost a back-to-the-future kind of thing," said Oregon Department
of Agriculture spokesman Bruce Pokarney. "Production was part of lots of
company-owned farms but that kind of went away in the 1990s, as companies
consolidated and looked for efficiencies."

Pacific's strategy could signal a shift.

"It shows a trend in preserving high-quality, high-value foods for the
discerning customer," said Northwest Food Processors Association President Dave Zepponi.

Pacific's broadening platform is only the latest twist in Eggert's venture in natural foods.

An early investor in natural grocery store chain Nature's Northwest, which
General Nutrition Cos. Inc. purchased in 1999, Eggert went on to become a
founder of New Seasons Markets the same year. New Seasons, which aims to
sell as many locally grown and produced groceries as possible, operates
six stores and is building additional stores in the metro area. The
company employs more than 900 people.

Eggert's business partner in the grocery chain, Brian Rohter, said
Pacific's strategy is an example of long-term thinking.

"Chuck is a visionary guy. He is thinking way ahead of the curve on this,"
said Rohter, a founder and CEO of New Seasons Market. "Because he runs a
private company, he is looking beyond the next set of quarterly earnings.

Supporting local agriculture and developing a regional food system is
critical to making sure we have an adequate food supply going forward."

The need for locally produced food, Rohter said, has become increasingly
distinct as the price of fuel has increased in the past year.

"If you look at the price of fuel and understand that it is going to get
factored into the cost of food you understand it is going to get very
expensive to import food from outside our area or our country," he said.
Although the farm is assisting Pacific in meeting growing demand for its
products, the venture is far from the most cost-effective way to procure ingredients.

"Almost everybody tells us we are crazy. Buying storage tanks and
processing equipment always will be a far better investment," Eggert said.

Ultimately, Eggert said he hopes that the endeavor will make a difference
beyond the company.

"We'd like to show this as a model for farming and have an impact on
Oregon agriculture that is positive," he said.



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