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Sown in China, grown on high seas, ‘Product of USA’ mushrooms are killing American farms

A Kennett Square specialty mushroom grower declares bankruptcy and lays off dozens of workers. Gary Schroeder of Oakshire Farms says a loophole in law has allowed Chinese makers of shiitake mushroom logs to flood the market, driving him out of business.

Oakshire Mushroom Farm President Gary Schroeder in one of his company's growing rooms in Kennett Square. The company recently filed for Chapter 11 bankruptcy after losing business to shiitake mushroom logs being imported from overseas.
Oakshire Mushroom Farm President Gary Schroeder in one of his company's growing rooms in Kennett Square. The company recently filed for Chapter 11 bankruptcy after losing business to shiitake mushroom logs being imported from overseas.Read moreTIM TAI / Staff Photographer

That “locally grown” produce for sale in your neighborhood grocery store?

It may have started its life up to 6,000 miles away.

And that irks Gary Schroeder, who has been growing and packing specialty mushrooms for nearly 40 years in the so-called Mushroom Capital of the World, Kennett Square. Schroeder’s Oakshire Mushroom Farms had annual sales of $37 million in 2017 and employed 65 people last year.

In early January, Schroeder’s farm was forced to slash the workforce to 16, and file for bankruptcy.

“We’ve got ourselves in crisis mode,” said Schroeder, who founded Oakshire in the mid-1980s and is now laboring under more than $10 million in debt, according to documents filed in court. “I’m fighting a battle to save this company every day.”

Schroeder, and several other mushroom producers in Southeastern Pennsylvania, say they have been clobbered by imports from both Canada and China.

“This is one of the reasons that the local shiitake market has suffered,” said Chris Alonzo, the third-generation owner of Pietro Farms based in Kennett Square. “That’s one of the things that has hurt Oakshire.”

To add insult to injury, the farmers say, mushrooms that originated in China are allowed to be labeled “Product of the USA” due to a regulatory quirk.

Schroeder’s business last year was dealt a couple of near-fatal blows. First, he lost his biggest customer, Costco. The warehouse market chain, he said, switched to packaged mushrooms from Canada because the stronger U.S. dollar made it cheaper. But Schroeder and other producers said it’s shiitake mushrooms that start their journey in China that hurt them the most.

Shiitakes are a specialty mushroom, and for years they have fetched a premium at food markets, retailing for about $10 a pound. They’re chewier and more flavorful than standard white button, or brown crimini and portabello mushrooms. Last year, there were about $45 million in wholesale shiitake sales industry wide.

Log, stock and barrel

Shroeder’s Oakshire Farm is also one of a handful of American companies that produce the logs on which shiitakes are grown.

The logs, made from compressed sawdust and grain, are inoculated with shiitake mushroom spawn — the fungi equivalent of seed. The spawn sends out the thread-like mycelium, which spreads through the logs and becomes the bulk of the mushroom organism. When the shiitake mycelium is shocked — when it senses it’s going to die — it sends out fruiting bodies that we recognize as mushrooms. Each log produces about 2.5 pounds of shiitakes.

Until mid-2018, Schroeder was manufacturing 1.5 million of them a year. No longer.

In the course of nine months last year, Schroeder said, Chinese log manufacturers swept in, deeply undercut the prices, and wiped out 85 percent of his log sales. “There was just no chance to adjust,” Schroeder said. “We didn’t see it coming.”

Mushroom growers operate on razor-thin margins, according to industry experts, so it makes economic sense for them to switch to a cheaper log as long as it produces a safe and high-quality product.

Lou Caputo, CEO of Kennett Square Specialty Mushrooms, said he also was hit hard. “They’ve managed to cripple me," Caputo said. "I was making 85,000 logs a week and selling them at $3.95 apiece. Now I’m down to making 25,000 and keeping them to grow strictly for myself.”

Logs in China are made of Chinese sawdust and grain, inoculated with Chinese spawn, and loaded onto container vessels for a six- to eight-week trans-Pacific voyage. When the logs arrive in the U.S. , they’re distributed across the country. Many of them end up in Kennett Square mushroom grow houses.

“In a week to 10 days, the mushrooms are picked and the logs get thrown away,” said Caputo, who called the mushrooms grown on Chinese logs “inferior.”

Product of USA

Because these mushrooms are harvested in the United States, they meet the USDA’s country-of-origin labeling requirement.

“They’re clearly not U.S. grown,” said Daniel J. Royse, professor emeritus at Penn State who specializes in mushrooms. “The regulations don’t make much sense to me. But the USDA says they’re OK because they’re classified as spawn. The logs actually are colonized substrate, they shouldn’t be allowed. The growers should get together to demand the USDA reevaluate the criteria."

Schroeder, whose log business once generated $5 million in sales a year, couldn’t agree more. But growers' concerns have fallen on deaf ears, he said.

“We believe the Chinese are skirting the law,” Schroeder said. “But the USDA and the U.S. Customs folks say it doesn’t rise to a level deserving their attention.”

Representatives for the U.S. Department of Agriculture and U.S. Customs could not be reached for comment last week due to the partial government shutdown.

Mushroom expert Luke Smithson, the president of the New Jersey Mycological Association, said the labeling falls into a gray area.

“I would say the shiitakes on Chinese logs are a product of a global economy,” said Smithson, who is a chef for a large caterer in New Hope. “It’s kind of like my Toyota. The parts were made overseas but assembled in Tennessee. I guess my car can be said to have been ‘made in America.’ But as a chef, I would find those shiitakes to be labeled deceptively if they’re claimed to be produced here.”

A spokeswoman for Chrissy Houlahan, who represents Pennsylvania’s Sixth Congressional District, including Kennett Square, didn’t have an official comment but said her office is looking into mushroom farmers' concerns.

How local is local?

Shiitakes aren’t the only produce with a tangled origin story, said Eric Stein, CEO of the Media-based Barisoft Consulting Group, which specializes in indoor farming.

“It’s become a trend in the industry. It’s not just mushrooms. You seed in one location and you ship it to another place to do maturing,” said Stein. “This is a whole new thing.”

Leafy greens are often germinated in warm regions such as Texas, Florida and Mexico, Stein said, and then sent north to be finished in regional vertical farms.

“It’s a little sleight of hand, a double trick," Stein said. Growers can bring out certain characteristics in the plants by controlling the light. But the bigger reward comes with the peripatetic product’s appeal to locavores — people who want to “eat local” because they believe it reduces the carbon footprint of their groceries and therefore has less of an impact on climate change.

“If you are finishing them within 400 miles of where they’re sold, you can claim they’re locally grown,” Stein said. "Under USDA guidelines you can say its local.”

Schroeder is scrambling to diversify and climb out of Chapter 11. He thinks he can pull it off. He’s still a leading producer of oyster mushroom spawn logs, and he grows several other exotic fungi: oyster, enoki, pompom and maitake.

But when he visits customers, he sees the logs that have traveled 6,000 miles. “They switched over to Chinese because they’re cheaper," he said. “It hurts.”

Still, there are some local mushroom growers who have promised to continuing buying his shiitake logs.

“They’re heroes in my eyes,” he said.