By Christopher Walljasper
CHICAGO (Reuters) - Texas-based CRE8AD8 LLC bid for a federal government contract to quickly rescue food from struggling farmers and deliver it to U.S. food banks as fallout from the coronavirus pandemic has put millions of Americans out of work and driven many to seek help putting food on the table.
But after the U.S. Agriculture Department awarded CRE8AD8 one of the most lucrative slices of its new $1.2 billion aid package, the company turned to its Facebook (NASDAQ:FB) followers to find farmers and food banks and to hire people for every role needed to fulfill the $39.13 million contract by June 30.
That's because CRE8AD8 - pronounced "Create A Date" - is an event and wedding planner. It is hardly alone in its lack of experience among the more than 200 companies that won contracts from the U.S. Department of Agriculture to provide boxes of produce, meat and dairy for hungry Americans through its Farmers to Families Food Box (NYSE:BOX) program.
"We are in the initial phase of our planning around logistics," Gregorio Palomino, chief executive of CRE8AD8, said in an email on Thursday. The next steps included "hiring our workforce, defining the roles and tasks needed to hit our targets and our goals."
The company is looking to hire up to 125 people, including chefs, safety and regulatory specialists, project coordinators and fulfillment staff, he said.
Failure to deliver food in a timely manner could result in more Americans going hungry even though there is a surplus of many farm-fresh goods in the United States. With restaurants shuttered, hotels idled and cruise ships docked, farmers were left without distributors to buy their goods, forcing them to plow under lettuce, dump milk and leave onions rotting in fields.
In its rush to connect food with families, the USDA, which is working with food banks nationwide, included companies with little experience distributing food, few connections to farmers and little preexisting infrastructure. At the same time, distribution companies like U.S. Foods and Sysco Corporation (N:SYY) were denied awards all together, despite mentions by Secretary of Agriculture Sonny Perdue during the April 17 announcement of the program.
"Companies who were awarded bids without their own warehouse, staff and distribution ability are now soliciting companies that have those facilities and were denied bids for no apparent reason," Tom Stenzel, president and CEO of the United Fresh Produce Association, said in a letter to the USDA on Monday.
Some established food distributors, farmers themselves and food banks are now questioning if the contracts can be fulfilled in a timely manner.
The USDA defended its selection process. A department spokesperson said 550 proposals were evaluated on technical information, price, past performance of the offerer and capability to perform. "Participating food banks and other non-profits will start seeing deliveries by Friday, May 15," the spokesperson said.
CRE8AD8's Palomino said in the email that his company would produce three kinds of food boxes: produce, dairy and precooked frozen protein, to begin delivering by early June.
"This is the largest contract we have won to date," he said.
Some traditional distributors did receive contracts, including Borden Dairy, Gordon Food Service and Tyson Foods (N:TSN). But many in the industry wonder why more companies with existing infrastructure were not tapped to launch the program.
"I had already been in talks with potato companies, strawberry companies. I did not bid anything without contracting it," said Brent Erenwert, CEO of Houston-based Brothers Produce, which was left out of the process. "People expecting food on Friday aren't going to get it because of this."
Some companies also lack proper licensing required by the Perishable Agricultural Commodities Act, which ensures distributors meet contractual obligations and protects farmers from nonpayment.
"As a grower, I have no protection," said Shay Myers, CEO of Owyhee Produce in Parma, Idaho, which has lost 40-60% of its onion sales due to coronavirus-related shutdowns. "I would not sell to them."
Other bids will stretch company capacity. Borden Dairy received nearly $147 million. CEO Tony Sarsam said that is around 44 million gallons of milk, 11% of the company’s annual volume, to be delivered in just six weeks.
As many companies scramble, the burden to salvage the program has shifted to already-strained food banks across the country. Brian Greene, chief executive of the Houston Food Bank, said he wonders why the agency did not utilize existing channels to bring idle food to hungry Americans.
"Some of the vendors seem to not understand what the rules were," said Greene. "They did a lowball bid, but they didn't actually bid the requirements."