WEBVTT - Why Are There Sriracha Shortages? 0:00:01.840 --> 0:00:07.480 Welcome to brainstuff, a production of iHeartRadio, Hey brain Stuff, 0:00:07.520 --> 0:00:13.640 Lauren vogelbam here. Hot sauce is a fascinating phenomenon. Chili, 0:00:13.640 --> 0:00:17.400 peppers and other naturally spicy fruits evolved the capacity to 0:00:17.440 --> 0:00:22.480 produce those pungent compounds to prevent bacteria, fungi, and mammals 0:00:22.480 --> 0:00:26.400 from eating them and thus from destroying their precious species 0:00:26.440 --> 0:00:32.159 continuing seeds. That's right. Chemical spiciness, as far as scientists 0:00:32.200 --> 0:00:36.680 are aware, is a defense mechanism in mammals. It triggers 0:00:36.720 --> 0:00:40.400 the same nerves that sense actual physical burn level heat 0:00:40.800 --> 0:00:45.440 and thus warns most mammals to stay away. But many 0:00:45.520 --> 0:00:48.280 humans have decided that we enjoy that sense of danger 0:00:48.800 --> 0:00:52.080 a lot. The global market for these sauces is worth 0:00:52.159 --> 0:00:56.320 billions of dollars a year. Within that industry, there are, 0:00:56.400 --> 0:00:59.880 of course, some darlings, particular brands or styles that have 0:01:00.160 --> 0:01:06.320 captured our attention today. Let's talk about siracha. When I 0:01:06.360 --> 0:01:09.680 say siracha in the context of hot sauce, you probably 0:01:09.720 --> 0:01:14.080 think about the thick, bright, red, spicy, savory, tangy sweet 0:01:14.120 --> 0:01:16.760 sauce in a big squeeze bottle with a green cap 0:01:16.800 --> 0:01:19.360 and a rooster on the label that came into popularity 0:01:19.520 --> 0:01:22.760 in the early two thousands. This sauce is a product 0:01:22.800 --> 0:01:26.040 of the American brand Hoifang Foods, which got its start 0:01:26.080 --> 0:01:30.240 in nineteen eighty by a Chinese Vietnamese refugee, one David Tran. 0:01:31.520 --> 0:01:34.200 The name comes from a town in Thailand called Seracha 0:01:34.520 --> 0:01:37.880 on the northeast Gulf coast. There, starting back in the 0:01:37.959 --> 0:01:41.120 nineteen thirties, a local family began bottling the hot sauce 0:01:41.120 --> 0:01:44.240 that would become the brand Saracha Pinat. It was the 0:01:44.240 --> 0:01:48.120 first hot sauce labeled Siracha, and it's still available today. 0:01:49.000 --> 0:01:52.440 It's a bit thinner and more saucy than the aforementioned 0:01:52.560 --> 0:01:57.400 rooster sauce, but it's made up of the same things sugar, salt, vinegar, 0:01:57.760 --> 0:02:01.560 pickled garlic, and ripe bread chilies with the fruity spicy flavor, 0:02:02.440 --> 0:02:06.800 and this seems to have been trans inspiration. A. Tran 0:02:06.960 --> 0:02:09.720 was among the millions of refugees who fled when North 0:02:09.720 --> 0:02:12.960 and South Vietnam unified under a communist government in nineteen 0:02:13.000 --> 0:02:16.440 seventy six. He arrived in America on a Taiwanese freighter 0:02:16.520 --> 0:02:20.720 called the Hifong or Gathering Prosperity and named his company 0:02:20.800 --> 0:02:25.040 Hoifang Foods in honor of the vessel. Just a few 0:02:25.040 --> 0:02:29.320 decades later, his style of saracha was Bonapetite magazine's Ingredient 0:02:29.400 --> 0:02:32.840 of the Year for twenty ten. Fans lawed its flavors 0:02:32.840 --> 0:02:36.359 for improving everything from fu and spring rolls to eggs 0:02:36.360 --> 0:02:40.040 and bacon to tacos and pizza. There was a saracha 0:02:40.160 --> 0:02:44.400 festival in Los Angeles by twenty thirteen. Hoifang alone was 0:02:44.440 --> 0:02:47.600 selling some twenty million bottles a year by twenty sixteen, 0:02:48.040 --> 0:02:52.440 all without ever spending a cent on advertising. But today 0:02:52.600 --> 0:02:56.120 the brand is struggling to continue production, due in part 0:02:56.160 --> 0:02:59.560 to a multimillion dollar falling out with its pepper farmers. 0:03:00.440 --> 0:03:03.280 This is not a simple story about a tasty sauce, 0:03:03.680 --> 0:03:08.799 but a tale of saucy business drama. But let's back 0:03:08.880 --> 0:03:11.800 up a little. The story goes that when David Tran 0:03:11.919 --> 0:03:14.480 arrived in the US, he found the American hot sauce 0:03:14.480 --> 0:03:18.240 scene lacking in Southeast Asian pizaz so he set out 0:03:18.240 --> 0:03:20.640 to create his own a, starting in a five thousand 0:03:20.720 --> 0:03:24.160 square foot building in Boston's Chinatown and delivering his sauces 0:03:24.200 --> 0:03:26.399 to local restaurants out of the back of a Chevy van. 0:03:27.720 --> 0:03:31.520 Seven years later, as sales and profits boomed, Tran moved 0:03:31.560 --> 0:03:34.519 the production to a sixty eight thousand square foot facility 0:03:34.600 --> 0:03:37.880 outside of Los Angeles, California, and started developing his own 0:03:37.880 --> 0:03:42.120 equipment for producing the bottles and the sauce. He also 0:03:42.200 --> 0:03:45.920 partnered up with Underwood Ranches, a California family owned farm 0:03:46.120 --> 0:03:51.080 run by fourth generation farmer Craig Underwood. Tran needed perfectly 0:03:51.160 --> 0:03:54.680 ripe Plopenia peppers, and Underwood was glad to provide as 0:03:54.720 --> 0:03:57.840 many of them as possible. For a long time, the 0:03:57.840 --> 0:04:01.880 two companies prospered together. Hoifong moved down the street to 0:04:01.960 --> 0:04:04.600 a former Whammo toy factory with double the space in 0:04:04.680 --> 0:04:07.320 nineteen ninety six, and then again to a spot a 0:04:07.320 --> 0:04:10.080 bit further out in Erwindale in twenty ten with almost 0:04:10.080 --> 0:04:14.240 ten times the space. That facility can produce three thousand 0:04:14.240 --> 0:04:18.039 bottles of seracha in an hour. All of this required 0:04:18.200 --> 0:04:22.680 a lot of peppers, according to court paperwork, When Tran 0:04:22.800 --> 0:04:25.880 was getting ready to move to Erwindale, he approached Underwood 0:04:25.880 --> 0:04:29.480 with the deal, saying, essentially, I need more peppers and 0:04:29.520 --> 0:04:31.719 I'd like to buy them from you, So if you 0:04:31.760 --> 0:04:34.599 expand your acreage, I'll pay you by the acre grown 0:04:34.839 --> 0:04:38.559 instead of buy the weight produced. So don't worry about 0:04:38.600 --> 0:04:41.120 putting all your peppers in one basket. Even if you 0:04:41.160 --> 0:04:43.359 have a lousy crop one year, I'll pay you the 0:04:43.360 --> 0:04:48.040 same for it. Underwood took the deal, and over the 0:04:48.120 --> 0:04:50.560 next decade they went from making about a quarter of 0:04:50.600 --> 0:04:53.880 their revenue selling peppers to Hoifong to making about eighty 0:04:53.920 --> 0:04:58.400 percent of their revenue there. With trans encouragement, they bought 0:04:58.440 --> 0:05:01.640 and leased a bunch more Land pepper growing and developed 0:05:01.640 --> 0:05:04.520 a new mechanical harvester to help pick them more efficiently. 0:05:05.480 --> 0:05:09.240 Tran refused to raise the sauce's wholesale price and refused 0:05:09.279 --> 0:05:12.520 several lucrative offers to buy the company, intending to keep 0:05:12.520 --> 0:05:16.960 it in the family. The businesses even survived a bit 0:05:17.000 --> 0:05:20.600 of a sarahapanic in twenty thirteen, when residents of Irwindale 0:05:20.680 --> 0:05:24.120 complained about tear gas esque fumes and a court ordered 0:05:24.120 --> 0:05:28.160 production to shut down. Ten other cities offered to host 0:05:28.200 --> 0:05:32.200 the factory, but all of Hoifong's employees and peppers and 0:05:32.520 --> 0:05:35.120 Heart were local, so they worked out a way to 0:05:35.160 --> 0:05:39.760 stay by upgrading the filtration in their ventilation system, minor 0:05:39.839 --> 0:05:43.200 bumps aside. It seemed like a veritable hot sauce heaven. 0:05:44.120 --> 0:05:48.720 But in twenty sixteen, it all fell apart. Up through 0:05:48.880 --> 0:05:52.160 the first week of November that year, everything seemed normal. 0:05:52.839 --> 0:05:55.159 Underwood and Tran met to talk about their plan for 0:05:55.240 --> 0:06:00.160 the twenty seventeen season. Underwood outlined his preparations already underway, 0:06:00.480 --> 0:06:02.719 and Tran agreed to pay him millions of dollars in 0:06:02.760 --> 0:06:07.560 advance for a planned seventeen hundred acres of peppers. A 0:06:07.600 --> 0:06:12.240 week later, the floor fell out. According to those court documents, 0:06:12.400 --> 0:06:15.599 Tran suddenly insisted that Underwood sell him peppers by the 0:06:15.680 --> 0:06:18.880 ton instead of by the acre, and at five hundred 0:06:18.880 --> 0:06:22.479 bucks a ton, which I understand is a low ball. Further, 0:06:22.920 --> 0:06:25.640 Tran said that Underwood needed to sell to this new 0:06:25.680 --> 0:06:30.000 company had started specifically for sourcing peppers called Chili Coo, 0:06:30.480 --> 0:06:33.760 and that Chiliico didn't have the liquidity to send any 0:06:33.800 --> 0:06:36.520 advance payments, so Underwood was going to have to figure 0:06:36.560 --> 0:06:40.160 out funding on his own. Meanwhile, in the middle of 0:06:40.240 --> 0:06:43.520 all of this, Tran was secretly trying to hire Underwood 0:06:43.600 --> 0:06:47.880 Ranch's Coo out from under them. The manning question Jim 0:06:47.960 --> 0:06:52.280 Roberts has hands on experience running large scale harvesting operations, 0:06:52.520 --> 0:06:55.159 and Tran wanted him to come work for Chili Coo. 0:06:55.920 --> 0:06:59.839 No matter who they bought their peppers from. Roberts turned 0:06:59.839 --> 0:07:03.080 to down and Underwood turned down the proposed changes to 0:07:03.120 --> 0:07:06.760 their contract, thus bringing the partnership to a screeching halt. 0:07:07.960 --> 0:07:11.720 It was a financial disaster for Underwood. They had empty 0:07:11.760 --> 0:07:15.160 farmland they couldn't get out of their leases. This contract 0:07:15.240 --> 0:07:18.680 ending cut again eighty percent of their revenue. They had 0:07:18.720 --> 0:07:21.560 to lay off some forty employees, about half of their staff. 0:07:22.640 --> 0:07:26.040 Hoifong was fine for the moment. They contracted with other 0:07:26.080 --> 0:07:30.000 farms and showed them confidential video from Underwood of how 0:07:30.040 --> 0:07:34.200 their new mechanical harvester worked. This might have been the 0:07:34.320 --> 0:07:37.720 end of the drama, but it seems Hoifong was dissatisfied 0:07:37.720 --> 0:07:41.200 with the outcome of everything. They sued Underwood for one 0:07:41.240 --> 0:07:44.200 point five million dollars, an amount they claimed they had 0:07:44.200 --> 0:07:49.600 overpaid for twenty sixteen's pepper crop. Underwood countersued for breach 0:07:49.640 --> 0:07:54.320 of contract and intentional contract fraud. A couple years later, 0:07:54.600 --> 0:07:59.120 jury acknowledged both the overpayment and the damages. They said 0:07:59.200 --> 0:08:03.120 Hoifong owed Underwood thirteen million in actual damages and an 0:08:03.160 --> 0:08:06.800 extra ten million in punitive damages, but that Underwood had 0:08:06.800 --> 0:08:10.920 to refund them that one point five million. But the 0:08:11.040 --> 0:08:14.880 mess did not end there, because Hoifong appealed the decision. 0:08:16.120 --> 0:08:19.920 By then, this was twenty nineteen, Underwood had already spent 0:08:19.920 --> 0:08:21.920 a couple of years in the red, and they were 0:08:21.960 --> 0:08:24.320 looking at another couple of years in the appeals process 0:08:24.400 --> 0:08:29.040 before potentially seeing any settlement money. They wound up accepting 0:08:29.040 --> 0:08:32.679 what's called a litigation finance deal from an investment firm. 0:08:33.120 --> 0:08:37.080 A litigation finance or funding is basically an investment firm 0:08:37.160 --> 0:08:41.160 betting on the outcome of a court case. In this case, 0:08:41.360 --> 0:08:44.360 a firm floated Underwood four million bucks that they wouldn't 0:08:44.400 --> 0:08:46.679 have to pay back if they eventually lost the case, 0:08:47.080 --> 0:08:49.640 but that they'd have to pay back double if they won. 0:08:50.880 --> 0:08:54.720 The courts eventually decided to uphold the original decision and 0:08:54.800 --> 0:08:57.720 Hoifong had to pay Underwood out. In summer of twenty 0:08:57.760 --> 0:09:02.559 twenty one, this all came to be public knowledge basically 0:09:02.600 --> 0:09:05.480 because Leslie stalled that a segment on Sixty Minutes about 0:09:05.480 --> 0:09:08.440 it in twenty twenty two. A focusing on the litigation 0:09:08.559 --> 0:09:13.319 funding aspect. In a nutshell, litigation funding can be cool 0:09:13.360 --> 0:09:15.640 because it can help small businesses that can't afford to 0:09:15.640 --> 0:09:18.960 go through with court cases, but it's also a multi 0:09:18.960 --> 0:09:22.080 billion dollar business that has very little oversight, and some 0:09:22.240 --> 0:09:25.400 experts worry that it's predatory or even changing the way 0:09:25.400 --> 0:09:29.600 that the law works. Anyway, that segment brought what was 0:09:29.800 --> 0:09:34.000 otherwise a niche local agrobusiness story to light, and here 0:09:34.040 --> 0:09:37.640 we are. It seems like what happened is that Tran 0:09:37.880 --> 0:09:40.440 and or his family and their companies were kind of 0:09:40.480 --> 0:09:43.000 banking on being able to source cheaper peppers on the 0:09:43.040 --> 0:09:47.200 open market instead of contracting with one farm, and it 0:09:47.280 --> 0:09:50.600 might have worked except for a couple of factors. First, 0:09:50.960 --> 0:09:54.880 the weather has not been cooperating. Farming is an uncertain 0:09:55.000 --> 0:09:58.960 venture that depends partially on weather conditions, and conditions in 0:09:59.040 --> 0:10:02.760 southwest North Amyria have been weird these past few years 0:10:02.880 --> 0:10:07.000 due to climate change. Think of the droughts, fires, and 0:10:07.040 --> 0:10:10.880 flooding that you've seen on the news. Climatologists are calling 0:10:10.920 --> 0:10:14.040 this a mega drought, the driest twenty years in the 0:10:14.080 --> 0:10:18.000 last thousand years or more. Because of this, demand for 0:10:18.040 --> 0:10:22.800 peppers in general is outpacing supply, and so without dedicated 0:10:22.880 --> 0:10:25.680 growers working with him, Tran hasn't been able to source 0:10:25.800 --> 0:10:28.560 enough peppers to produce enough sauce to keep up with 0:10:28.600 --> 0:10:32.120 the demand for it. That's why there have been Hoifunk's 0:10:32.120 --> 0:10:36.320 Saratcha shortages on and off since twenty twenty. That and 0:10:36.559 --> 0:10:39.720 this is just conjecture, but maybe other local farmers are 0:10:39.720 --> 0:10:43.560 a little wary of contracting with them. The climate factor 0:10:43.559 --> 0:10:47.200 here is troubling and good reason among many others to 0:10:47.280 --> 0:10:50.240 pay attention to what environmental scientists are telling us about 0:10:50.280 --> 0:10:54.120 what we need to do to mitigate climate harm. But 0:10:54.600 --> 0:10:58.400 for now, for anyone looking for a more dependable saracha fix, 0:10:58.800 --> 0:11:01.800 there are, of course lots of other brands and hot 0:11:01.840 --> 0:11:06.439 sauce styles out there, including some now made by Underwood Ranches, 0:11:06.600 --> 0:11:09.840 which are available on their website with the tagline the 0:11:09.880 --> 0:11:17.400 peppers make the Sauce. Today's episode is based on the 0:11:17.480 --> 0:11:20.840 article why Sarracha is Everybody's Favorite hot Sauce on HowStuffWorks 0:11:20.840 --> 0:11:24.000 dot Com, written by Mark Mancini. Brain Stuff is production 0:11:24.040 --> 0:11:26.680 of iHeartRadio in partnership with how stuffworks dot Com, and 0:11:26.679 --> 0:11:29.520 its produced by Tyler Klang. For more podcasts, from my 0:11:29.600 --> 0:11:33.120 heart Radio, visit the iHeartRadio app, Apple podcasts, or wherever 0:11:33.160 --> 0:11:34.600 you listen to your favorite shows.