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Sunland Chapter 7: Could there be 'trickle down' effect?

Trickle-down theory is something that took the nation by storm back in the days of Ronald Reagan. The concept behind it was that if you lower tax rates for investors -- usually the wealthy -- it frees up more money to stimulate production, and spur growth that benefits everyone.

Economists are split on the wisdom of the theory. But if there is one economic forum in which trickle-down concepts may have some validity, it may be in the bankruptcy arena. Take for example the case of Sunland Inc.

The company that had been considered the nation's largest producer of organic peanut butter filed for Chapter 7 bankruptcy early last month, and now there are a lot of peanut farmers in West Texas and New Mexico who are beginning to feel the pinch. Some observers wonder if some of those farm operators might not suffer something of a domino effect.

The Sunland bankruptcy comes on the heels of a nationwide salmonella outbreak in 2012 that was traced back to the New Mexico firm. According to its filing, the company looks to go through liquidation in a bid to deal with debt estimated at between $50 million and $100 million. The company estimates it has assets of between $10 million and $50 million.

When Sunland shut its doors in November, it reportedly left a lot of growers hanging. Some had not gotten paid for their entire 2012 crop and now they're faced with not being paid for any of the 2013 crop, either. By some estimates, the trickle-down effect has left farmers out millions of dollars; money that would have been earmarked to pay lenders, bills and living expenses.

In one man's case, it cost savings that he had planned to give to his grandchildren. He also says he'll be out money he had invested in Sunland.

Whether all this could mean bankruptcy for some farmers isn't clear, but it seems possible. Meanwhile, state officials in New Mexico say they are limited in what they can do to help. One state lawmaker says he's hoping another peanut processor will buy up the Sunland operation and get it going again. But he acknowledges it won't happen quickly.

Source: SantaFeNewMexican.com, "Sunland bankruptcy leaves New Mexico farmers scrambling," Christina Calloway, The Clovis News Journal, Nov. 3, 2013

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