Mushroom spawn king seeks China trade relief

For 41 years, Lou Caputo has been growing mushrooms in the Kennett Square area, where half of U.S. table mushrooms are produced in climate-controlled block sheds. Among the challenges that never go away: climate, bugs, labor supply — and what Caputo calls unfair competition from Asia.

"People are eating shiitake mushrooms that say 'Made in USA' that are only packaged here. They are spawned, frozen, and shipped in sawdust logs from China, and who here knows what's in them?"  Caputo told me.

Caputo is vertically integrated: He makes his own pressed-sawdust shiitake spawn logs from native red-oak sawdust and the threads the mushrooms use to reproduce. Each helmet-size log grows about two pounds of slender-stemmed, pungent, brown-capped shiitake mushrooms, retailing for about $10 a pound.

As recently as 2016, Caputo's spawn company, KSS Sales, shipped 85,000 logs a week to other growers at $3.90 each. In the last two years, cheap competition from China, he says, has cut his production to 20,000 a week, mostly for use in his own growing houses, Kennett Square Specialties. The revenue loss works out to more than $10 million a year. He's still growing and selling mushrooms: "Fulton Bank has really stood by me."

I asked Lori Harrison of Avondale-based American Mushroom Institute, an industry lobby, if rival growers were running any risk with imported logs. She sent me an AMI member report noting that China-made shiitake logs are regulated by the U.S. Department of Agriculture's import inspection service, which has authorized their use so long as the sawdust is sterilized. The imported logs should be labeled as made in China. But the department also says fresh mushrooms grown in the United States from Chinese spawn are domestic American produce — a logic Caputo challenges.

At least one other Kennett grower, Chris Alonzo, frustrated by Congress' failure to address the labor shortage, has taken steps to join the competition: He invested in a Chinese mushroom farm. (Alonzo says those mushrooms are for Asian consumption, not export to the U.S.)

Caputo appears to have no intention of compromising with foreign competition. Given the Chinese government's widely reported subsidies and control of industry, Caputo assumes he's competing not just with smart operators, but with the official machinery of the most populous nation on Earth, which hopes to drive him out of business so its preferred vendors can take over the market and boost prices at will. It's not just mushrooms, Caputo insisted: Other Chinese food products are finding their way to U.S. packers and being sold to customers who don't realize their ultimate origin.

This kind of thing has happened before, he added. In the 1980s, when mushrooms were a seasonal crop grown in winter, Caputo and his neighbor growers rallied against cheap imported canned mushrooms from Taiwan, China, and Macau. "Sen. John Heinz (R., Pa.) came to my farm on Cope Road," he said.

In the end, the Kennett-area growers, underpriced, shut their canneries, bought refrigeration systems, and set up year-round production. Caputo and others then moved on from common white "button" Agaricus mushrooms to grow higher-margin "exotics," such as shiitake and oyster mushrooms; Caputo said his staff "invented" sliced portabellas, a giant brown meat-like Agaricus — "and we built this company up."

By trial and error in his own shiitake sheds, Caputo said he built himself "a corner on the market" for domestic shiitake logs and prospered for a time. He said the first cheaper Chinese imports, after weeks at sea, arrived decayed. But the China suppliers learned and improved: Frozen logs, priced cheap, offered what he acknowledges are a "simpler" growing process, quickly ate the market.

"My fellow growers, who stood beside me against the 1980s and 1990s imports, are the same SOBs who are buying Chinese logs for economic purposes. They ran me out of that business," he complained.

Caputo said he has appealed to Penn State's mushroom program, to Gov. Wolf's office, to the U.S. Department of Commerce, looking for ways to restore competitive balance. He's paid lawyers to pore over state and federal laws and find the basis for legal challenge.

It's not all about Caputo's top-line sales, he insisted: "The worst is this misleading of the American public."

Caputo's operation, with several locations around Kennett, includes his kids and nephews: "I'm one man here trying to save the jobs of my 200 employees who have 200 families in Pennsylvania." Many of the workers came from Mexico. Caputo is upset he can't get immigrant labor permits for more: "With all the jobs out there, people are picking and choosing what work they want, and there isn't enough labor force to go around."

Imports, immigration — aren't those Washington problems? "I'm a Trump supporter, but I keep waiting for him to do something for me," Caputo concluded. "He has put some tariffs on Chinese mushrooms. But he has not yet tariffed the growing medium, the logs. I hope the next round helps me there."