Foster Farms to scoop up dairy

Foster Farms Dairy plans to buy Humboldt Creamery, a move that would make the Modesto company a major player in the organic milk business.

Foster Farms placed the winning bid this week for the main assets of the 80-year-old north coast business, which has filed for bankruptcy.

The arrangement going into the proceedings was that Foster Farms would buy the business for $20.5 million. It was not known whether this was the amount approved by the U.S. Bankruptcy Court in Santa Rosa.

Foster Farms representatives could not be reached Wednesday. The company has indicated that it won't comment until the bid is final.

The sale could be completed Aug. 25, according to an update on Humboldt Creamery's Web site.

The purchase would continue the expansion of Foster Farms, the largest privately owned dairy producer in the state.

The Modesto-based dairy operation changed its brand name to Crystal after its 2007 purchase of Crystal Cream and Butter Co. of Sacramento. The name was changed to try to capitalize on Crystal's "tremendous name recognition" in Sacramento and the Bay Area, the company said.

The purchase of Crystal, founded in 1901, boosted Foster Farms' milk production from about 2.5 million gallons a week to 3 million. It added hundreds of retail customer outlets.

Humboldt Creamery and Foster Farms have similar products, including milk, butter, cheese, yogurt, ice cream and powdered milk. Dairies throughout the region supply milk for organic and conventional products.

Foster Farms Dairy was founded in 1941 by Max and Verda Foster of Modesto, two years after they started the poultry company that bears the family name. The two businesses are separate.

The poultry side of the family-owned business also has been in an expansion mode.

In June, Foster Farms announced it was buying two brands of frozen Mexican food, Fernando's and El Extremo from Con-Agra Foods as well as a plant in Compton, in Los Angeles County, where they are made.

The Livingston-based poultry operation also acquired a chicken processing plant in Farmerville, La., from the struggling Pilgrim's Pride Inc. Foster Farms and the state of Louisiana each paid $40 million for the plant, which otherwise would have closed. It employs about 1,300 people and buys chickens from about 300 farmers.

The bid for Humboldt Creamery is the latest example of Foster Farms strengthening its position by adding operations during the recession.

Humboldt Creamery's bankruptcy process began in April, after former Chief Executive Officer Rich Ghilarducci abruptly resigned and alerted the company to inconsistencies in its finances.

The FBI is investigating allegations of fraud by Ghilarducci, who creamery officials have said massaged the company's records to make it look profitable when it was losing money. Ghilarducci's attorney has denied any wrongdoing by his client.

The creamery is 75 percent owned by a cooperative of about 40 dairy farms, with the Dairy Farmers of America owning the remaining 25 percent.

The turmoil has caused unease among Humboldt County dairy farmers.

Dairyman John Vevoda said he feels comfortable with the Foster Farms bid, as it comes with a professional team with experience marketing dairy products.

Co-op member Jim Regli said he felt excited and nervous as the bidding drew near.

"You always try to be optimistic," he said. "I think the general feeling out there is people are glad it's going to be over and that there will be a new beginning."

The creamery's interim chief executive, Len Mayer, said the sale would give the business new life.

"The result there would be that most of the employees would retain their jobs, most of the farmers would continue to supply milk, and the truck drivers and the granges and the other suppliers would have a customer here to sell to," he said.

Bee staff writer John Holland contributed to this report.