Is Crystal Sugar heading for labor impasse?

MOORHEAD, Minn. -- Is American Crystal Sugar Co. headed for a lockout with its 1,300 union employees on Aug. 1? Or will the last-minute brinksmanship end in an agreement?

It's too soon to say, but union officials say time is running short to replace the Moorhead-based co-op's seven-year labor contract.

Officials of the Bakery, Confectionery, Tobacco Workers and Grain Millers Union (BCTGM), warn that the farmer-owned cooperative may be headed toward its first labor impasse in 30 years. They officially accuse the processing company of not negotiating in good faith.

They say if an "equitable" deal isn't reached by the deadline on July 31, the company will lock them out.

Brian Ingulsrud, Crystal's vice president for administration and a company negotiator and designated spokesman for the talks, says the four days scheduled for negotiations this week "will give us the time to reach an agreement, and that is our goal."

Meanwhile, Ingulsrud acknowledges the company has a contingency plan for hiring replacement contract workers if a union contract can't be reached. On July 18, he wrote to notify union workers to remove personal items -- tools, clothing and photos -- from work spaces if a deal isn't struck by Aug. 1, and a contingency for contract workers goes into effect. On July 19, the company notified workers that non-union personnel would be on-site during the week to observe various positions.

The company's latest offer was a 1.25 percent annual pay increase over five years. At the same time, executive base salaries have gone up from 6 percent to 26 percent in the past two years. Executives' salaries account for only a third of their total compensation, which has bulked up by 40 percent to 125 percent as the beet crops and sugar prices have swelled.

Unruffled, Crystal officials maintain their first priority is to make a deal. They dispute any comparisons between executive and union contract compensation.

Cultural shifts

Crystal is unique as an agribusiness in the region. It deals with a relatively high-value crop, compared to cereal grains. The biggest difference is that the processing is owned by the farmers as a closed-membership cooperative. Shareholders have both the right and the obligation to produce beets for the cooperative.

Last year's crop is expected to return a record $1,500 per acre, on average, in gross income to the co-op's growers, because of record beet yields and high sugar prices, company officials say.

Although the company increasingly automates its systems, Crystal remains a major employer in its towns - Drayton and Hillsboro in North Dakota and Crookston, East Grand Forks and Moorhead in Minnesota.

Union workers earn between $30,000 and $50,000, without overtime, union officials say. At the lower end of the pay scale are pay loader operators and sugar warehouse workers. At the top end of the scale are more skilled welders, mechanics and boiler operators.

Crystal and its workers are often public allies.

In the past decade the union at times has stood shoulder-to-shoulder with the company when American Crystal has sought sugar-friendly provisions in multi-year federal farm bills, or when they've politically needed a demonstration of opposition to bilateral trade agreements with certain countries that export sugar into the United States. A new farm bill is due in 2012, but the sugar program is a zero-cost program - relying on sugar import quotas rather than crop subsidies to bolster domestic prices - so it doesn't appear in immediate political danger. Free trade agreements aren't currently a threat to the sugar program.

In 2004, when the current labor agreement with Crystal's union workers was reached, it followed three-year contracts passed in 1999 and then extended by two years in 2002. Back then, James Horvath was Crystal's president and chief executive officer. International trade policies and foreign competition then put U.S. sugar polices in peril. David Berg, then a vice president, was the chief negotiator for the labor contract. Berg, who had trained in various phases of the company, including management in the Moorhead factory, was seen as a reasonable negotiator.

"That one there, we went to 11:30 p.m. on a Saturday night, and neither of us was happy," says John Riskey, president and business agent for the BCTGM local that represents Drayton, East Grand Forks and Moorhead. He's also a negotiator for this contract.

In 2007, Berg became president and chief executive officer, and things have changed.

In 2011, the co-op's negotiation team is led for the first time by Joe Talley, Crystal's chief operating officer. Talley, an accountant, is accompanied by a team that includes Brian Ingulsrud, Crystal's vice president of administration, and Jim Dawson, a company lawyer from a Minneapolis firm.

Riskey says the group from Crystal has no connection with the employees at all. "It seems they don't understand and appreciate the hard work our people do, running the factory 24 hours a day, giving up their holidays," Riskey says, and likening it to the farming schedule and hazards.

On the union side there are 15 people -- one to three members from each of the factories or sites, as well as Riskey, and Steve Bertelli of Illinois, regional vice president of the International BCTGM. This week, the group will be joined by Mark Froemke of Grand Forks, a former Crystal employee who for six years has been on a leave to full-time for the AFL-CIO of Minnesota, an umbrella union with which the BCTGM affiliates.

On July 14, the two sides were joined by Jeanne Frank, a Twin Cities-based federal mediator.

A strange twist

Talks started May 6. The union offered 25 proposals on a four-page document, and explained them.

Crystal put out a 40-page proposal, with no explanation, that offered nothing on years, wages or benefits. Union officials say the company's proposal would allow the company to eliminate all jobs and fill them with contract workers without consulting the union.

Froemke says by comparison, the existing contract requires that if the company wanted to hire contract workers to do a specialized task -- such as replacing a diffuser -- they first must consult with the union.

"If we don't have the union people in the plant to do that, we typically approve it."

Similarly, the union doesn't dispute employee eliminations due to automation.

But Riskey says union negotiators were surprised and upset when co-op negotiators immediately posted both proposals -- the company's and the unions -- on the company's website, so everyone in the world could access it; something neither Froemke or Riskey have ever heard of before.

They perceived this as a not-so-subtle way of undermining the union's bargaining group, which is elected to negotiate and communicate proposals and counter-proposals back to the membership.

Ingulsrud says the company informed employees of the website by mailing letters to their homes.

"We wanted to make sure they had the details of what our proposals are," Ingulsrud says. He couldn't say exactly who in the company suggested it, the tactic to make the process "transparent" to employees. Ingulsrud acknowledges the web postings are not always current.

In early July, the union officials say they attempted to move the talks along.

They proposed a one-year contract, which among other things, called for a 5 percent pay increase. Benefits would stay the same. The company came back with a seven-year contract proposal with no specific wage changes, but with health insurance cutbacks.

The union countered with a three-year proposal, with 5 percent annual increases, but no health insurance changes. The company countered with a five-year proposal at 1.25 percent annual increases, keeping the 40-page initial proposal largely intact. Health insurance cutbacks would effectively cut a $30,000 single worker by 8 percent, if they have a $500 deductible, for example. A $50,000 family policy would have wages cut by 16.75 percent, if they had a $500 deductible.

"That's where it stands right now," Froemke says. The two sides have agreed on a few other things, mostly housekeeping matters.

Lockout prospects

There are three and a half days scheduled to negotiate this week, union officials say.

Crystal officials have told union negotiators they are unavailable to negotiate after Thursday. Talley is scheduled to go to a sugar conference in Vermont with Berg. Union officials say they're willing to work around the clock through the weekend to hammer out a deal. Workers would be willing to work with a contract extension, if the deadline isn't met. Froemke says.

Crystal says a lock-out may be needed to protect the shareholders and their customers. Froemke says this kind of thinking is "offensive," because the workforce has worked "extremely hard" to make Crystal a profitable company, and that implies the workers would undermine the company.

"If we don't have customers, we don't have a job," he says. "If we don't have growers, we don't have a job."

The union is not threatening a strike.

The company has told union negotiators it is making arrangements to bring in non-union contractors to run the plant if a lockout occurs. Strom Engineering of Minnetonka is a company the union says is working to hire replacements. Riskey says replacement workers are bound to be more expensive than regular union workers, and may not be as efficient or safe as regular workers.

Equitable gains

Union officials say the company is doing well financially, and seems to share that with top executives more than with workers.

They note that Berg's total compensation annual pay package went to $1.97 million in the company's fiscal year 2010 -- up 23 percent increase from $1.6 million in 2009, which was up 69 percent from $946,775 in 2008. Similarly, Talley's total compensation increased by 17.5 percent in 2010 and 22.5 percent the prior year. Inguslrud's increased 21 percent in 2010 and 45 percent in 2009.

Ingulsrud says the executive and worker compensation packages are different. "Executive pay is designed to go up and down with the profitability of the company," he says. "I don't think union employees would appreciate a wage system that worked that way," he says. "I think they want more of a reliable income. I don't think you'll see many union contracts where pay is reduced in years when the company is less profitable." Executives sign up for those kinds of fluctuations, Ingulsrud says.

Berg's base salary -- not the bonuses -- is at $554,077. That increased by 9 percent in 2010 and 26 percent in 2009. Chief Fiancial Officer Tom Astrup's increased by 6 percent and 8.5 percent in the same two years. Talley's base salary increased by 12 percent and 7 percent; Ingulsrud's by 6 percent and 8.5 percent.

Froemke contrasts those gains with a multi-year contract that had worker raises at 2 percent, annually.

"We're willing to work," Froemke says. "There is no need for a lock-out, and this union will do everything possible to make sure we get a fair contract that works for everybody."