Sriracha shortage: Meet Craig Underwood, the chili pepper farming millionaire

Sriracha shortage: Meet Craig Underwood, the chili pepper farming millionaire

In the 1980s, Craig Underwood was a fourth-generation California farmer, struggling with the region’s changing agricultural landscape, when he stepped up to meet a need in the marketplace: Red jalapeño peppers.

The call came from David Tran, a Cantonese refugee from Vietnam who had arrived in the Golden State a few years before. He had developed a sauce that he intended for fans of the Southeast Asian flavor profile, called sriracha, but he needed a supplier.

In 1988, a seed supplier told Underwood about Tran’s need for a pepper fix and he decided to write to Tran with a simple question: “Would you like me to grow some peppers?” 

Tran contracted the farmer to grow 50 acres, and the pair began a partnership that was “highly unusual in the processing business,” as Underwood described it in a 2013 documentary about the duo. As long as Tran was selling sauce, he said, “we have to be growing it for them.” 

Within a few years, Underwood had become Tran’s exclusive pepper supplier, expanding his farm by thousands of acres to grow in the process. The duo developed a personal rapport as well as a business arrangement that lasted almost 30 years. Then came a sudden fallout and a lawsuit that cost both men millions, plus a lot of anger and hurt feelings, Fortune’s Indrani Sen reported.  

Underwood’s farm, called Underwood Ranches and located in California’s Ventura County, grew to become one of the country’s leading jalapeño growers. During his partnership with Tran, Underwood rented and purchased land to grow from around 400 acres to some three thousand acres to grow enough peppers for Tran’s rocketing business, Huy Fong Foods, which made $131 million in sales in 2020. 

Tran and Underwood‘s years of success together

Tran and Underwood met each other’s families, watched their respective kids grow up, and even met to talk about the succession of their partnership. In 2013, when the city of Irwindale brought lawsuits against Tran’s factory claiming that the smell of the peppers was giving neighbors headaches, Underwood testified on his behalf at a city council meeting. 

The sauce business boomed. In 2012, Tran built a 650,000-square-foot factory less than two hours from Underwood’s headquarters in Ventura County. Huy Fong remained an independent company, turning down offers from large food corporations to buy or invest, and never spent a cent on advertising. The brand spread like a fire anyways, with other brands and fans creating merch like mugs, earrings, and apparel, all as a tribute to the sauce’s pop culture success.  

But it all ended in one soured conversation. The two men have different accounts of what exactly happened in November of 2016, but it was one afternoon’s discussion of prices that ruptured the pair’s relationship for good. 

The fallout and the aftermath

The schism cost both men millions. Tran’s Irwindale factory has operated sporadically and at a fraction of its capacity. Underwood, having purchased and leased thousands of acres of land to accommodate Huy Fong’s pepper needs, faced financial ruin. He took out loans and laid off 45 workers as he tried “to figure out what the hell’s going on,” Fortune’s Indrani Sen reported. 

Then came the lawsuits. In 2017, Huy Fong Foods sued to recover $1.4 million that he overpaid for the 2016 growing season, and Underwood countersued, alleging fraud. A jury ruled in Underwood’s favor and awarded him $13.3 million in compensatory damages and $10 million in punitive damages. The jury also ordered the farmer to reimburse Tran the $1.4 million overpayment. 

The burn of the fallout is still felt by sriracha fans worldwide. For Tran, the dissolved partnership prompted a sriracha shortage, leaving store shelves without the green-tipped bottles for more than three years, which led to fans and restaurants stockpiling bottles. 

For Underwood, the loss resulted in layoffs, loans and low sales which led him to believe that Tran was “really out to destroy” him. He’s since began his own sriracha brand, called Dragon Sriracha, which joins a growing list of Huy Fong competitors that offer alternative versions of the spicy, sweet sauce. 

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The post Sriracha shortage: Meet Craig Underwood, the chili pepper farming millionaire first appeared on Investorempires.com.