The economic ripples from 2010's late spring frost have turned into a financial tsunami for one of the Rogue Valley's major pear industry players.

PHOENIX — The economic ripples from 2010's late spring frost have turned into a financial tsunami for one of the Rogue Valley's major pear industry players.

Phoenix-based Associated Fruit laid off half of its year-round staff on Friday and indicated it would operate on a truncated scale during the coming season.

"We buy crop insurance every year, but this year it didn't make up for level of loss," said Associated Fruit President David Lowry. "We expected a normal year, and then we had a couple nights where it was extremely cold and the pears froze."

Lowry declined to say how many employees were laid off Friday, but said it was at least a dozen across all parts of the operation.

In another era, the 70-year-old company could have negotiated a disastrous year such as this one, when the crop was less than 50 percent of predicted tonnage, without resorting to layoffs and downsizing. But declining land values have shrunk the amount of dollars lenders are willing to forward growers.

"Basically we just ran out of land value collateral to satisfy (South Valley Bank & Trust's) requirements," Lowry said. "The irony of the Oregon land-use system designed to protect farming was that in overprotecting land, it becomes so devalued that you can't use it to raise money for collateral.

"An orchard on exclusive-farm-use land doesn't have much value under the Oregon land-use system. An acre of orchard land might be worth $10,000, while that same acre might be worth $100,000 closer to town. You can see the horrific impact it has on a company's financial position."

Lowry said Associated Fruit has a plan to wade through the tsunami's back flow.

A few years ago, Associated Fruit worked 1,900 acres around the valley, including leased land. Even before last year, however, Associated Fruit had reduced operations to 1,200 to 1,300 acres, Lowry said, in an effort to winnow out the less profitable blocks. At this point, 2011 acreage will be a fraction of past years for the town's largest seasonal employer.

"To put ourselves in a position to expand going forward, we have to scale back operations this year," Lowry said.

It's all dependent on whether its lenders — SVB&T along with Prudential Capital — agree to extend credit.

Lowry said the essence of the plan is to mothball some of the company's acreage, sell some of the acreage and retain the orchards known to produce the highest return.

"We've looked at the various options," Lowry said. "If we don't work something out this year, that will mean the end of the company and the valley will lose 1,000 acres of orchards — much of it prime acres."

Cutting the scope of operations doesn't reduce expenses dollar for dollar, with property taxes, irrigation and tree care costs remaining constant.

Lowry said it's been perhaps 30 years since a crop was so devastated. It wasn't so difficult to bounce back in those days.

"When I was growing up, some years we wouldn't have even 50 percent of crop," Lowry said. "But in those days economics were different. The cost of production and the price you got for the pears gave you a better margin, and that's no longer the case."

Higher minimum wages, fuel, heating oil, fertilizer and other elements have pushed growers to the limit.

"Pretty much everything across the board has gone up substantially, whereas the price of the product has not kept pace," Lowry said.

Associated Fruit once sold pears to Harry & David, but hasn't in recent years. Lowry said there were discussions to sell to its neighboring firm again, but the gourmet food and gift company's financial woes squelched the thought.

Lowry is heartened that Naumes Inc. overcame hard times a few years ago, but nothing is guaranteed.

"The downside to this is that Southern Oregon could lose its pear industry altogether," Lowry said. "You need a certain amount of critical mass, which between Naumes, Harry & David and ourselves provided.

"With just one player, it makes it a lot harder to justify the irrigation water we get and to deal with other issues. If you become less and less of an economic factor, you don't have as much sway in getting the things you need. A lot of our (irrigation) water comes over from the Klamath Basin. It would be bad if there was not enough justification to get the water we get. That's something that's already contested."

Greg Stiles is a reporter for the Mail Tribune. Reach him at 541-776-4463 or e-mail business@mailtribune.com.