After three straight seasons of orange prices below break-even, California navel orange growers are banning together to hopefully establish minimum floor prices that would give them enough profit margin to stay in business.
More than 200 citrus growers attended a late March meeting, sponsored by California Citrus Mutual in Exeter to announce the formation of California Citrus Growers Association, an 11-member panel of growers who would set floor prices for navel oranges. The association is being formed under the Capper-Volstead Act, an 82-year-old law enabling creation of agricultural marketing cooperatives.
Although the initial proposal is only to set floor prices for navels this upcoming season, eventually growers could use a similar mechanism to minimum prices for other citrus including lemons, Valencia oranges and grapefruit, said Joel Nelsen, president of CCM.
“This has never been tried before in our industry. It's a significant paradigm shift in that this tool will allow growers to help determine market price. The growers in our industry traditionally send their fruit on consignment to a handler/marketer and get what's left after everyone takes their charges. What's been left in the last three years has been zero or red, and that's unsatisfactory,” Nelsen said.
All the major players in the navel industry are hammering out details on operation of the association with a membership drive slated to begin in June and the price setting mechanism in place for the 2001-2002 season.
Nelsen said that at least 75 to 85 percent of California navel growers must participate in floor setting mechanism for it to be effective, and Nelsen is optimist that goal if achievable.
Sunkist with 55 percent of the crop is supportive. A group of independent growers, California Citrus Orange Growers Co-op, represents 25 percent of the navels and two major independent grower/packers, Sun Pacific and BeeSweet, also support it, according to Nelsen.
“Yes, I am very optimistic this will go,” said Nelsen. “We have a very large industry of 4,500 growers and we must learn to trust ourselves again. The marketing order fight in the early 1980s resulted in 20 years of mistrust. That must change.”
The need for change became painfully apparent this season when fruit quality and size was good, but almost five months into the season before growers began making a profit.
California Citrus Mutual has been spearheading the movement to form an association. However, once it's established it would be completely independent from CCM and would be run by an 11-member board elected by citrus growers.
Shawn Stevenson, a third generation Clovis, Calif., grower, said that producer financial troubles began after the December 1998 freeze.
“The fall of 1998 we probably saw one of the best years we had ever seen. Two months later, the killer freeze came along, and ever since then the marketing conditions we found ourselves in between 1998 and the 2000 seasons have been like night and day,” Stevenson said.
There are a handful of reasons for the ongoing poor returns, according to Stevenson.
One is retail consolidation, which has strengthened retail-buying power and weakened bargaining power among fragmented shippers.
Secondly citrus growers are now competing not only with offshore citrus producers but with other fresh market fruit, grapes and melons, Stevenson said.
Citrus also lost consumers confidence in 1998 when some shippers marketed frost-damaged fruit that didn't eat well.
The following year, many growers picked too early and again the consumer received mediocre eating fruit. This not only turned consumers away citrus, but retailers loathe to devote adequate shelf space to citrus, Stevenson said.
“We have to realize that you don't burn today's consumer and get away with it,” he said. He called the scenario a “classic example of if we weren't all so greedy, we could be filthy rich.
“I think a lot of times we attempt to achieve short term financial gain, and in return we step over even larger long-term financial gains,” Stevenson said.
Another problem is an inherent conflict of interests. Growers want to get the top price for the fruit, but sometimes handlers make just as much or more money by moving greater volumes of fruit at lower prices, Stevenson said.
Grower floor price
The floor price would be part of the agreement growers have historically signed with packinghouses. Nelsen said the pacts to handle next year's crop would include an agreement from the packinghouse not to sell less than the floor established by the association's grower board.
Nelsen said the association's board would set the floor price based on condition and quality of the crop and what they need to make a profit.
By setting a minimum floor price, growers could give their handlers guidelines to ensure that everyone makes a profit, Stevenson said.
In concept, the idea of a floor price is a good one, said Jim Mast, acting president and CEO of Sunkist Growers, Sherman Oaks, Calif.
“My feeling is that this is a great idea, if the industry could get together and function as one cohesive group. That would be super and we could accomplish many, many things. But talking about getting producers together and actually getting them together are two different things,” Mast said.
Sunkist already works on setting minimum floor prices to get its growers the best returns, said Mike Wooten, Sunkist's vice president of corporate relations.
Since the end of the federal marketing order, Sunkist has complained that independent packers have undercut those minimum prices, which forces Sunkist to lower its prices, undermining the entire market, Wooten said.
“We need to set a reasonable floor price and not undercut that and drive the price lower and lower,” Wooten said.
However, Sunkist's share of the market isn't enough to maintain minimums, Stevenson said.
“Sunkist has had a lot of years to get a critical mass together. As a loyal Sunkist grower, I would say that Sunkist would be an answer, but I don't see it happening for a number of reasons,” Stevenson said.
Many producers are too independent to promise to commit their fruit to one marketer, Stevenson said. However, if 80 percent or more of all growers committed to one floor price, regardless of who their handlers are, citrus growers would have a fighting chance, Stevenson believes.
Some growers at the March meeting expressed concerns that setting a minimum floor price could slow sales, especially during large crop years when lower prices could help move more volume.
However, Stevenson said that low f.o.b. prices don't necessarily correspond with high sales movements since retailers mark up prices significantly anyway. What's more important in guaranteeing high sales volumes is consistent quality and taste, Stevenson said.
Growers at the meeting also said it would be difficult to enforce a floor price, even among those who voluntarily sign up for the program.
However, as part of the agreement, packers would be fined $3.50 per box fine for packers who violate the floor price. The association would also randomly audit packinghouses to ensure that the floor price was adhered to.
There are many challenges to floor prices, said Jeff Dolan, field manager for DiMare Co., Newman, Calif.
A few years ago, California, Virginia and Florida fresh market tomato growers tried a minimum price. It worked well the initial year, but there were problems after that, Dolan said.
Since the industry didn't have 100 percent participation, some growers undercut the minimum floor price by selling more volume at lower prices, Dolan said.
The other problem was that those growers who participated in the minimum floor price program believed they could plant as much acreage as they wanted. This tipped the balance between supply and demand during certain times in the season, Dolan said.
Citrus would be different than tomatoes.
“With trees, it takes a few years to get into production, therefore, there's not as much incentive to pump up the volume and it would take a longer time to react to market conditions.
“Under the right circumstances, floor prices can accomplish a lot, but everyone has to be on the same page. You need to have virtually everyone on board,” Dolan said.