United StatesDepartment ofAgriculture

AgriculturalCooperativeService

ACS ResearchReportNumber 104

BargainingAssociationsin Grower-ProcessorMarkets for Fruitsand Vegetables

Bargaining Associationsin Grower-Processor Marketsfor Fruits and Vegetables

Julie lskow and Richard SextonDepartment of Agricultural EconomicsUniversity of California, Davis

Fruit and vegetable bargaining associations representing 36 commodities havean average market share of 60 percent and an average membership of 310growers. In addition to raw product price, the terms of trade most frequently bar-gained for are “time and method of payment” and “quality standards.” The buy-ing industries faced by growers appear to be quite concentrated.

Forty percent of the associations reported having less than five processorsin their market area, and 67 percent indicated that the four largest processorspurchase more than 75 percent of their association’s production.

Higher prices and more stable prices were the most frequently cited objec-tives of the participating associations. Lack of volume control and failure to getadequate membership were reported as the most common obstacles encoun-tered by associations in achieving their objectives. Limited alternatives areavailable if bargaining fails. The most frequently cited course of action was totake legal action to enforce “good faith bargaining” laws where applicable.

Key Words: Cooperatives, associations, bargaining, negotiation, processing,fruit, vegetables.

ACS Research Report 104March 1992

Price: $2.00 domestic, $2.50 foreign

Preface

This report presents the findings of a national survey of active fruit and veg-etable bargaining associations. Its purpose is to provide a current and indepthdescription of cooperative bargaining in grower-processor markets for fruits andvegetables.

More than 85 percent of all active fruit and vegetable bargaining associa-tions located in the United States participated in the study by filling out a writtenquestionnaire. Completion of the questionnaire was, in most cases, followed byextensive inperson interviews with survey respondents. In addition to identifyingthe scope of cooperative bargaining and the economic and structural character-istics of the bargaining environment, the survey and interview questions weredesigned to obtain information pertaining to association financing and decision-making, association objectives and benefits, and the actual negotiation process.

This study is an outcome of a cooperative research agreement betweenthe Agricultural Cooperative Service (ACS), U.S. Department of Agriculture, andthe Center for Cooperatives at the University of California, Davis. The authorsgratefully acknowledge the survey participants, without whom this study wouldnot have been possible. In addition to completing a written questionnaire, manyparticipants spent several hours of their time during inperson interviews provid-ing detailed information about their bargaining association, and sharing theirexperiences and viewpoints. Special thanks also go to Leon Garoyan of theCenter for Cooperatives at the University of California, Davis, for his help indesigning the survey instrument. Thanks also go to the University of Vermont,Burlington, where the senior author is now employed.

Contents

Highlights...

.......................................................................................................... III

Overview .......................................................................................................... .l

Surveyed Population.. ...................................................................................... .l

Questionnaire .................................................................................................... 2

Scope and Prevalence of Cooperative Bargaining.. ........................................ .2

Location of Active Associations .............................................................. 2

Commodities for Which the Associations Bargain.. ............................... .3

Dates Negotiations Began ...................................................................... 3

Terms of Trade Negotiated ..................................................................... 4

Membership ........................................................................................... .5

Value of Bargained Crop ......................................................................... 6

Methods of Financing and Decisionmaking ...................................................... 6

Revenue Sources ................................................................................... 6

Decisionmaking ....................................................................................... 7

Market Structure and the Bargaining Environment.. ........................................ .8

Percent of Production Bargained Through Associations.. ..................... .8

The Buying Industry.. ............................................................................. .9

Market Alternatives for Growers .......................................................... .l 0

Market Alternatives for Buyers ............................................................. . l l

Presence of Marketing Cooperatives.. ................................................. .12

Marketing Orders and Supply Management ......................................... 12

Procedures and Methods of the Negotiation Process ................................... .13

Dates of Negotiations and Quantity Decisions ..................................... 13

Price Negotiations.. .............................................................................. .13

Arbitration.. ........................................................................................... .14

Association Objectives/Services/Benefits ..................................................... .15

Association Objectives.. ....................................................................... .15

Obstacles Encountered ......................................................................... 16

Nonmember Benefits ........................................................................... .16

Services Provided to Members ............................................................. 17

Processor Benefits.. ............................................................................. .17

Summary and Perspective.. ........................................................................... .18

Literature Cited.. ............................................................................................. .19

ii

Highlights

Survey responses were obtained from fruit and vegetable bargaining associa-tions representing 36 commodity groups. These associations have an averagemembership of 310 growers and an average market share of 60 percent. Half ofthe participating associations began negotiating in the late 1960’s to mid-1970’s, with the average age of all 36 associations being 25 years.

In addition to bargaining for raw product price, the terms of trade reportedas most frequently negotiated include “time and method of payment” and “quali-ty standards.” Only 25 percent of associations reported negotiating for thequantity of raw product to be purchased by processor/handlers. In most cases,the total volume of raw product to be purchased is predetermined prior to pricenegotiations.

The survey results indicate that the buying industries growers face arequite concentrated. Forty percent of the associations reported having fewerthan five processors in their market area, and 67 percent indicated that the fourlargest processors purchase more that 75 percent of their association’s produc-tion.

Bargaining associations have limited alternatives if negotiations fail. Thecourse of action most frequently cited was to take legal action to enforce “goodfaith bargaining” laws where applicable. In some cases, the fresh market or out-of-area processors represented viable alternatives. More than half of the asso-ciations indicated there are no good alternative crops to be grown in place ofthe bargained commodity.

Although one-third of the associations have considered processing mem-ber production as an alternative to bargaining, only one association reportedactually having done so. However, almost half reported that some processors intheir market area grow some of their own raw product.

For 44 percent of the associations studied, processing cooperatives arepresent in their market area. These processing cooperatives handle an estimat-ed average of 42 percent of the commodity processed. In most cases wherebargaining associations exist in the presence of processing cooperatives, somegrowers belong to both.

Nearly 20 percent of the associations reported having a quality- or volume-controlling marketing order in place for the commodity for which they negotiate.Aside from the presence of a marketing order, only 2 of 36 associations haveattempted to manage production or control supply.

. . .111

Bargaining Associationsin Grower-Processor Marketsfor Fruits and Vegetables

Julie lskowRichard Sexton

OVERVIEW

Cooperative bargaining associations operate inmany fruit and vegetable markets in the UnitedStates. These associations are organizations ofgrowers that negotiate terms of trade with proces-sor-buyers of their raw product. A bargaining asso-ciation generally does not become involved withthe handling of raw product, nor does it have anymechanism to control producer supply.

A primary objective of bargaining associationsis to increase grower returns by counterv&ling themarket power of buyers. However, the structureand the nature of the market within which an asso-ciation exists may affect the extent to which it issuccessful in achieving this and other bargainingobjectives. The purpose of this report is to providea comprehensive and up-to-date description ofcooperative bargaining for fruits and vegetables.The focus of the study is on the economic and orga-nizational characteristics of these associations andthe market environment in which bargainingoccurs.

A small body of literature describing coopera-tive bargaining in agriculture already exists. Themost comprehensive discussion is included in astudy conducted by Helmberger and Hoos (1965).Other works focus on issues such as the goals andobjectives of bargaining associations (Ladd 1964,Roy 1970, Lang 1979, Bunge 1980), factors whichaffect the outcome of negotiations (Babb et al. 1969,Carpenter 1969, Bunge), and the legal aspects andhistory of cooperative bargaining (Lang, Bunge,Hoos 1982). Most of these studies, however, arequite dated and do not reflect today’s bargainingenvironment. Moreover, with the exception of afew case studies (Babb et al., Bunge), there is little

information on the procedures and methods of theactual negotiation process.

To obtain updated information and a compre-hensive description of cooperative bargaining, anational survey of bargaining associations was con-ducted. The survey included a written question-naire and personal interviews with managers andboard members of participating associations.Survey results are presented in this report. Section1 discusses the methodology used to identify thesurveyed population; section 2 describes the sur-vey instrument; and section 3 contains the finalsurvey results and draws some comparisons withpreviously conducted surveys by Lang, Biggs(1982), and Skinner (1984).

SURVEYED POPULATION

The first step in the survey process was to identifyassociations that would participate in the study.Since the focus of the survey is on grower-proces-sor markets for fruits and vegetables, an attemptwas made to locate all active fruit and vegetablebargaining associations in the United States. A listof active associations was compiled with inputfrom the Center for Cooperatives at the Universityof California, Davis and USDA’s AgriculturalCooperative Service, and from lists associated withpreviously conducted surveys of bargaining associ-ations. Managers of existing associations and otherpersons knowledgeable about the processing fruitand vegetable industries provided information aswell. In total, 29 active fruit and vegetable bargain-ing associations from across the United States par-ticipated in the survey.

The next step in the process involved makingtelephone contact with a manager or officer from

1

each of the 29 active associations. The telephoneconversation was to familiarize the potential partic-ipants with the objectives of the survey and requestthat they participate in the study by completing awritten questionnaire. Each association was alsoasked to forward copies of their bylaws, member-ship agreements, and association-processor (orgrower-processor) contracts.

All 29 associations agreed to participate in thestudy. If the questionnaire was not returned within1 month, a followup letter was mailed; after 2months a second followup letter and an additionalquestionnaire were sent out. In some cases, it wasnecessary to mail a third questionnaire and makeanother telephone contact.

The overall response rate resulting from thisprocess was 86 percent, with 25 of the 29 associa-tions returning a completed, usable questionnaire.Of the 25 responding associations, 6 are multiplecommodity associations (i.e., negotiate for morethan one commodity) and 19 are single commodityassociations. The individuals that completed thequestionnaire included association presidents, vicepresidents, directors, general managers, divisionmanagers, and assistant managers.

After obtaining preliminary results from thewritten questionnaires and reviewing the bylaws,membership agreements, and contracts receivedfrom the participating associations, personal inter-views were conducted with willing respondents.The majority of the interviews were conducted inperson at the bargaining cooperative’s location. Insome instances, where it was not feasible or at therequest of the respondent, personal interviewswere conducted over the telephone. In total, inter-views were conducted with 23 of the 25 associa-tions that returned the written questionnaire. Thepersonal interviews gave respondents an opportu-nity to clarify, refine, and expand upon their surveyresponses and allowed for the collection of addi-tional information.

QUESTIONNAIRE

Because the study included both single and multi-ple commodity associations, two survey instru-ments were designed. Though the two survey

instruments contained identical questions, the sur-vey designed for the multiple commodity associa-tion contained two parts. Part one included generalquestions appropriate for all crops in the multiplecommodity association, and part two includedcrop-specific questions to be answered for eachcommodity.

These survey instruments were designed toobtain information in five broad areas:

1. The scope and prevalence of cooperativebargaining in grower-processor markets for fruitsand vegetables;

2. Methods of financing and decisionmakingwithin the associations;

3. Economic conditions and structural charac-teristics of the bargaining environment;

4. Procedures and methods of the negotiationprocess; and

5. Association objectives and services/bene-fits provided.

Questions contained in the survey instrumentswere formulated using information from the exist-ing literature on cooperative bargaining(Helmberger and Hoos, Babb, Carpenter, Bunge,Hoes) and previously conducted surveys by Lang,Biggs, and Skinner.

SCOPE AND PREVALENCE OFCOOPERATIVE BARGAINING

Location of Active Associations

Active fruit and vegetable bargaining associationswere identified in nine States, and responses camefrom eight of the nine States in which these associa-tions were located. The largest number of associa-tions was in California and Washington, and theseStates were the most frequently represented in thesurvey with 10 and 8 responses, respectively. Table1 shows the complete distribution of responses byState.

2

Commodities for Which the AssociationsBargain

Overall, the 25 responding associations represent36 commodity groups, since 6 of the 25 associationsnegotiate for more than one crop. For the mostpart, the operations and negotiations for individualcrops in these multiple commodity associationstake place separately. Thus, for purposes of thisstudy, each of the 36 commodities or commoditygroups will represent and be referred to as a sepa-rate bargaining association.

Table 2 identifies the commodities for whichthe 36 responding associations bargain and indi-cates whether these commodities are annuals orperennials. This distinction will be continuedthroughout the reporting of the survey results.Note that because some associations negotiate forthe same type of commodity, the 36 associationsrepresent only 24 different commodities.

The number of different fruit and vegetablecrops negotiated through bargaining associationshas remained fairly stable over the past fewdecades. Skinner reports that in 1971 existing asso-ciations bargained for 25 different crops, and in1978 and 1982 associations negotiated for 26 and 25different crops, respectively. Associations partici-pating in Lang’s survey (in the mid-1970’s) bar-gained for 24 different fruit and vegetable com-modities.

Table l-location of active bargaining associa-tions

Stateassociations

Respondingassociations

Active

CaliforniaIdahoMaineMichiganNew YorkOhioOregonUtahWashington

1021101

111a

1021112

110

Dates Negotiations Began

The participating associations have been negotiat-ing raw product price for an average of 25 years.Assuming the number of years an association hasbeen negotiating raw product price defines its age,the oldest association participating in the surveybegan negotiating for price in 1922, and the mostrecently formed bargaining association began pricenegotiations in 1987.

The most frequently reported dates for begin-ning price negotiations are from the late 1960’s tothe mid-1970’s, during which 18 of the 36 associa-tions began bargaining for price. This fact is notsurprising, given that the Agricultural FairPractices Act (Federal legislation) was passed in1967. This act was passed in response to producercomplaints of discriminatory activities by proces-sors because of growers’ participation in, orattempts to organize, bargaining associations.Additionally, 9 of the 18 associations that beganprice negotiations during this period were inCalifornia, where State legislation concerningunfair practices (1961) and subsequently an amend-

Table 2-Commodities for which associations bar-gain

Annual crops Associations Perennial crops Associations

Carrots

Cauliflower

Chilipeppers

Corn

Cucumbers

GreenbeansPeasPotatoes

Tomatoes

Apples 1Apricots 1

Asparagus 2Avocados 1Cherries 1Hazelnuts 1Limes 1Olives 1

Peaches (cling) 1

Peaches (freestone) 1

Pears 2Plums 1

Prunes 1Raisins 1

Raspberries 1

Total 25 29 Total 19 17

3

ment involving bargaining in good faith (1974)were passed.

There is a notable difference in average asso-ciation age between the annual and perennial cropassociations. The average age of the annual cropassociations is 21 years, whereas the average agefor perennial crop associations is 29 years. Also, 11of the 12 most recently formed associations-those formed in 1974 or later-are annual cropassociations.

Terms of Trade Negotiated

In addition to negotiating raw product price fortheir growers, bargaining associations negotiate fornumerous non-price terms of trade that can affectgrowers’ income. Only one of the 36 associationsdid not negotiate for terms of trade other than rawproduct price. Of the 35 associations that did nego-tiate non-price terms of trade, 31 began doing sothe same year that price negotiations began, 3began negotiating non-price terms after they hadbeen negotiating price for several years, and 1 asso-ciation had been negotiating non-price terms for 2years prior to price negotiations.

Table 3 identifies the terms of trade for whichassociations negotiate. The most commonly negoti-ated non-price terms of trade are time and methodof payment and quality standards. These termswere reported as the most frequently negotiatednon-price terms of trade in the Lang survey as well.

In interviews with survey respondents, issuesconcerning how and when growers are paid wereof primary concern. A common complaint was thatgrowers would often end up “financing the proces-sors” with whom they negotiate by not receivingpayments for crops until well after delivery. Mostassociations also felt the need to specify minimumquality standards as part of negotiations. Otherterms of trade frequently bargained for includemethods of grading, duration of contracts, andresponsibilities and rights during production.

Only 25 percent of the associations negotiatefor the quantity of raw product to be purchased byprocessors. For many crops, quantities to beexchanged are decided upon between individualgrowers and their processors rather than through a

4

negotiation process involving the association. Inother cases, processors purchase all member pro-duction each year, or growers and processors haveterm contracts spanning several years. Thus, formost associations, quantity is not an issue for nego-tiation. The actual time at which the quantity to bepurchased by processors is decided upon will bediscussed in the section covering the negotiationprocess.

Of the 36 associations, 30 have negotiatedprice and non-price terms of trade every year sincethe first year they began bargaining. Only six expe-rienced periods during which negotiations did notoccur. Respondents mostly attributed these periodsto “adverse or poor economic conditions” andinadequate association membership. In two cases,the periods where negotiation did not occur werein the first few years of the association’s existence.

Table 3-Terns of trade for which associations bar-gain

Terms of TradeAnnual crop Perennial crop

All associations associations associations

PriceTime, method ofpayment

Quality standardsMethods of gradingDuration of contractProductionrights/responsibilities

Premiums, discountsTransportationWeighing proceduresOwnership and cost ofseed

Provision of containersSpraying and dustingRaw product handlingprocedures

Quantity of productDelivery/unloadingschedules

Harvesting timePlanting time

36 19 17

33 19 1429 16 1323 16 1722 11 11

21151514

1510

99

121212

11 8 39 3 6

8 5 35 4 13 3 0

125

12

070

Irrigation equipment used 1 1 0Other 5 5 0

Membership

With few exceptions, one of the most importantconcerns expressed by survey respondents in per-sonal interviews was their association’s inability toattract membership. Many felt their associationwould be a “stronger and more unified force to bereckoned with” in negotiations if their membershipcould be increased. Table 4a shows current mem-bership in active associations. The smallest associa-tion has 4 members and the largest has 2,140 mem-bers. It is interesting to note that the range ofmembership, average membership, and total mem-bership is greater for perennial crop associationsthan for annual crop associations.

Respondents were also asked to estimate, ifpossible, the potential number of members or thetotal number of growers in their market area. Ofthe 36 associations, 31 were able to provide thisnumber. Thus, the percentage of total potentialgrowers that are members of an association couldbe calculated for each of these associations. Thesecalculations are presented in table 4b. Though themembership numbers are larger in absolute termsfor perennial crop associations, when looking atassociation membership as a percentage of poten-tial membership the numbers are more comparable.Perennial crop associations have an average of 54.6percent of their total potential membership, where-as annual crop associations have an average of 67.8percent of their total potential membership.

These numbers are very close to those report-ed by Lang for the mid-1970’s, where bargainingassociations represented 47.9 percent of the grow-

Table 4a-Number of member-growersAll Annual crop Perennial crop

associations associations associations

Range ofmembership 4 - 4 - 1,275 82 - 2,140

50 -

7 1

Table 4b-Member-growers

25 -

visiting or making telephone contact with non-members, and holding informational meetings forboth member and nonmember growers.

Value of Bargained Crop

Respondents were asked to estimate the dollarvalue of the quantity sold through or negotiated bytheir association for 3 crop-years. This questionreceived the lowest response rate (69 percent) ofany question in the survey instrument. Even in thefollowup personal interviews, the informationcould not be obtained. In some cases where thisquestion was not answered, the respondent wasjust unwilling to spend the time necessary to pro-vide the information. In most cases, however, theinformation was unavailable. Lang suggests thatbecause bargaining associations very rarely taketitle to the crop for which they bargain, they oftendo not keep records of this type.

Tables 5a and 5b report, for those associationsresponding, the dollar value of bargained cropsand the average dollar value of bargained crops perassociation for 1986,1987, and 1988. Given that the

Table Sa-Dollar value of bargalned crops

All crops Annual crops Perennial crops

$ mil

1988 779.440 357 .566 421 .8741987 686.503 313 .798 370 .7051986 668 .880 332 .666 336 .214

Response Rate 6 7 % 5 3 % 8 2 %

Table Sb-Average dollar value of bargained cropsDer assoclatlon

cropsAll crops Annual crops Perenn

$ mil

1988 32 .477 35 .757 30 .1341987 28.521 31 .380 26 .4791986 27 .870 33 .267 24 .015

Response Rate 6 7 % 5 3 % 8 2 %

response rate from participating associations was67 percent (82 percent for perennial crop associa-tions and 53 percent for annual crop associations),it is clear that the numbers reported here are grossunderestimates of the actual dollar value of allcrops negotiated.

METHODS OF FINANCING ANDDECISIONMAKING

Revenue Sources

Bargaining associations typically receive revenuesfrom checkoffs, service charges to processors,annual dues, and membership fees. Many associa-tions receive revenue from more than one source(table 6).

A checkoff is an amount retained by the asso-ciation from, and in some specified proportion to,the sale of members’ crops. In most cases, proces-sors pay growers directly for their crop and theappropriate checkoff is sent directly to the associa-tion. The amount of the checkoff varies with associ-ation and is typically specified in the membershipagreement. For most associations, the bylaws statethat the checkoff amount is to be determined by the

Table 6-Methods of flnanclng used by bargalnlngassociations

Method of financing No. of associations

Checkoff:Flat fee per unitPercentage of value

Service charge to processors:Flat fee per unitPercentage of value

Annual dues:Per-acre basisPer-ton basis

Membership fees (one-time fee)

Other

Total responding 3 6

916

122

6

board of directors and not to exceed a specifiedmaximum.

Service charges to processors are paymentsmade by the processors to the bargaining associa-tion for services provided by the association. Thesecharges are intended to recognize that the associa-tion relieves the processor of the trouble, labor, anduncertainty of soliciting and obtaining separatecontracts with individual growers. These chargesare specified in the contracts between the processorand the association and are in proportion to theamount purchased by the processor.

Sixty-nine percent of all associations reporting(25 of 36) use checkoffs as a source of revenue.Eighteen of the 36 associations use only one sourceof financing and over half of these associations usecheckoffs. Of those associations having multiplerevenue sources, more than 60 percent stated thatcheckoffs are their largest revenue source. In a 1978survey conducted by Biggs, 94 percent of the par-ticipating fruit and vegetable bargaining associa-tions used checkoffs as a source of revenue.

Very few associations collect annual dues orcharge membership fees; however, many have pro-visions for both in their membership agreements.In personal interviews, several respondents indi-cated that these revenue sources may discouragenew membership and are no longer used.

Additional sources of revenue reported byassociations include income from such activities asthe publication of a magazine, the administrationof a State marketing order, and the selling of giftpacks.

Decisionmaking

Several questions were asked to determine thestructure of decisionmaking in the associations.Respondents were first asked how voting is con-ducted. Most associations (81 percent) give eachmember one vote. All other associations give mem-bers votes in proportion to the quantity they nego-tiate through the association.

Boards of directors for the associations rangefrom 4 to 80 persons. The average board for allassociations has 14 members. With respect to theissues to be negotiated with processors, 21 associa-

tions (58 percent) have their board make these deci-sions. However, for nine associations the negotia-tion issues are also decided by a specific negotia-tion or bargaining committee which, in most cases,includes some member-growers. Biggs reportedsimilar findings in his 1978 survey, with 65 percentof associations having negotiation issues decidedupon by boards.

Table 7a gives the breakdown of personsresponsible for deciding the issues to be negotiat-ed. One association reported that the chief negotia-tor is in on the decision of the issues to be negotiat-ed, and another association reported that the vicepresident of operations is involved as well. In per-sonal interviews, many respondents stated thatthough a specific group or individual is technicallyresponsible for these decisions, the ultimate deci-sions are often made by members.

Table 7b indicates the persons responsible forpresenting associations’ positions and carrying outnegotiations in the bargaining process. Nineteenrespondents (53 percent) reported that a committee

Table ‘la-Responslbillty for decldlng issues to benegotiated

Board of Directors 21

Membership 4

Negotiation Committee 18

Other 2

Table 7lrResponslblllty for negotlatlng

General Manager or Executive SecretaryWith a committee of grower-membersWithout a committee

Committees of grower-membersDivision HeadsBoard of DirectorsAssociation PresidentVice President, Operations

Total Responding 36

2112

974211

7

rather than a single individual is responsible forcarrying out negotiations. The single individualnegotiators included 9 general managers or execu-tive directors, 4 division heads, 1 president, and 1vice president of operations. No associationsreported using hired negotiators.

A large majority of associations reported thatthe general manager or executive secretary negoti-ates for their association. More than half of theseassociations indicated that a committee of grower-members accompanies the general manager duringnegotiations. In the Biggs survey, negotiations wereconducted by a producer committee in 59 percentof the associations, a manager in 20 percent, and aboard in 18 percent. Three percent of associationsused a hired negotiator.

Table 7c indicates who makes the final deci-sion to accept or reject terms of trade in negotia-

tions. The most frequent response was the board ofdirectors. Though the general manager is the mostlikely to represent the association in negotiations,that person is least likely to exercise control inaccepting final terms of trade. It is interesting tonote that only seven of the associations reportedthat the same group or individual both negotiatesand accepts/rejects final terms of trade. And foreight associations, grower-members make the finaldecision.

MARKET STRUCTURE AND THEBARGAINING ENVIRONMENT

Several questions in the survey instrument weredesigned to obtain information about the bargain-i n g e n v i r o n m e n t w i t h i n w h i c h a s s o c i a t i o n s o p e r -ate. The focus of these questions was on marketc o n t r o l a n d m a r k e t a l t e r n a t i v e s , i n b o t h t h e b u y i n gand selling industries.

Table 7c-Authority for final decision In negotla-tlons

Board of Directors 17

Bargaining Committee 9

General Manager 2

Grower-members 8

Total Responding 36

Table 8-Percent of total productlon negotlated byassoclatlons

Percent of total All Annual crop Perennial cropproduction associations associations associations

Less than 25 1 0 1

25-49 10 3 7

50 - 74 15 9 6

75-100 10 7 3

Total Responses 36 19 17

Percentage of Production Bargained ThroughAssociations

It is generally agreed that a key factor in a bargain-ing association’s effectiveness is its ability to con-trol a substantial portion of supply of the rawproduct (Helmberger and Hoes, Bunge, Cobia1989, Tomek and Robinson 1990). If an association“controls” more of the raw product or has a greatermarket share, then fewer alternative supplysources exist for processor-buyers.

To get an indication of associations’ marketshares, respondents were asked to estimate the per-centage of total production in their geographic areabargained through their association, where totalproduction is all member and nonmember produc-tion. Table 8 indicates the distribution of responses.

Over two-thirds of the associations (25 of 36)indicated that they had a market share greater than50 percent. The average percentage of productionor market share negotiated through all 36 associa-tions is 60.3 percent, although considerable varia-tion is apparent in the table. This result is very sim-ilar to the average percent of associationmembership to potential membership (table 4b) of61 percent.

i

I

8

The Buying Industry

Several questions were asked to determine theextent of market power or concentration in thebuying industry. The first of these was to get, inabsolute terms, the number of processors in anassociation’s market area. The response to thisquestion is summarized in table 9a. There is a cleardifference between numbers of processors in mar-ket areas for annual versus perennial crops. Annualcrop associations, in general, have a smaller num-ber of processors in their geographic market area.As Lang suggests, this indicates that growers ofannual crops have a smaller number of market out-lets or alternatives for their crop. Eight associa-tions, all representing annual crops, had only oneor two processors in their market area. With respectto conducting negotiations, however, annual cropassociations bargain with a larger percent of the

Table Sa-Number of processors In association’smarket areaNumber of All Annual cropprocessors associations associations

Perennial cropassociations

l - 4 14 12 2

5 - 1 5 15 5 10

More than 15 6 1 5

Total Restxndina 35 18 17

Table 9b-Percentage of area processors withwhom associations negotiatePercent All

associationsAnnual crop Perennial cropassociations associations

Less than 25 2 0 2

25 - 49 2 1 1 25 - 49 1 1 0

50 - 74 5 2 3 50 - 75 8 1 7

75 - 100 26 15 11

Total Responses 35 16 17 Total Responses 33 17 16

processors in their marketing area than do perenni-al crop associations (table 9b). In total, nearly 75percent of all responding associations negotiatedwith 75-100 percent of all processors in their mar-ket area.

One common measure of market structure orconcentration is a four-firm concentration ratio. Abuyer concentration ratio is defined as the percent-age of total industry purchases accounted for bythe four largest buyers. The survey asked partici-pants to estimate 1) the percent of their area’s totaloutput (member and nonmember production) pur-chased by the largest four processors, and 2) thepercent of their association’s (or members’) totaloutput purchased by the largest four processors.Tables 10a and lob provide these estimates.

For the associations responding, the average

Table lOa-Percentage of total area production pur-chased by the four largest processorsPercent All Annual crop Perennial crop

associatfons associations astiations

Less than 25 0 0 0

25-49 3 1 2

50 - 74 8 1 7

75-100 23 17 6

Total Responses 34 19 15

Table lob-Percentage of association productionpurchased by the four largest processorsPercent All Annual crop Perennial crop

associations associations associations

Less than 25 2 0 2

75 - 100 22 15 7

9

percent of their area’s total output purchased bythe largest four processors is 81.9 percent. For 68percent of the reporting associations (23 of 34), thelargest four firms purchase 75 percent or more ofthe area’s total production, and for 12 of these asso-ciations, the largest four buyers purchase 100 per-cent of total production. Lang obtained similarresults, with 70 percent of responding associationsreporting a concentration ratio of greater than 70percent. These numbers indicate that the buyingindustries for processing fruits and vegetables havebeen and continue to be quite concentrated.

With respect to the percentage of associationproduction purchased by the associations’ fourlargest processors (table lob), the numbers lookquite similar. That is, buyer concentration ratios forthe participating associations are fairly representa-tive of the concentration ratios for their industries.The concentration measures reported by associa-tions should be read and interpreted with caution,primarily because they are merely estimates givenby survey respondents. Moreover, these estimatesreflect concentration in recent years. For manyassociations, concentration ratios have varied overtime, gradually increasing in most cases. And final-ly, in many cases the market areas for individualgrowers are smaller than those for an association.Thus, an individual grower may face even fewer,and therefore more, concentrated buyers than thosefaced by the grower’s association.

Market Alternatives for Growers

The degree of buyer concentration in a grower-pro-cessor market provides some indication of alterna-tive markets available to sellers in negotiationswith processors. That is, the higher the concentra-tion ratio in an industry, the more difficult it maybe for growers to find alternative outlets for theircrop if they are unsatisfied with terms of tradenegotiated with processors.

To obtain information on alternatives associa-tions have in lieu of negotiating with processors,participants were asked to indicate which onesthey might use in the short-term and long-term ifprocessors refused to negotiate. Long-term refers to

10

a period greater than 1 year. Tables lla and llbpresent responses to these questions.

In both the short term and the long term, themost frequently cited alternative was “to take legal

Table IlaShort-term alternatlves If procsssorsrefuse to bargalnShort-runaitematives

All Annual crop Perennial cropassociations associations associations

Take legal action 21 10 11

Ship to fresh market 14 3 11

Other local processors 13 3 10

Out-of-area processors 8 1 7

Leave in field 6 0 6

Custom process 4 0 4

Other 13 10 3

Total Respondents 36 19 17

Table lib-Long-term alternatives If processorsrefuse to bargainLong-run All Annual crop Perennial cropalternatives associations associations assodatbns

Take legal action

Other local processors

Ship to fresh market

Discontinue or reduceproduction

Out-of-area processors

Custom process

Other

Total Respondents

17 10 7

13 3 10

11 2 9

10 7 3

7 1 6

6 0 6

8 6 2

36 19 17

action.” When questioned further about this alter-native in personal interviews, most respondentsreferred to a State law which requires “good faithbargaining.” That is, associations and processorsare required by law to bargain in good faith.California, Maine, Michigan, and Washington havesuch laws. Most respondents felt these laws werehelpful in gaining recognition or credibility fromprocessors. However, several questioned the law’susefulness. Questions were raised with respect toenforcement of such laws and the difficulty in actu-ally proving that a processor had not bargained ingood faith.

Relying on local processors and shipping tothe fresh market were other alternatives that mightbe used if processors refused to bargain, in both theshort- and long-term. Several commodities repre-sented such as potatoes, asparagus, apples, plums,and pears do have good fresh market alternatives.Some crops, however, require additional harvestingand packing procedures before they are acceptablefor the fresh market. For crops where the freshmarket is an alternative, some associations report-ed using the fresh market as a tool (or “weapon”)to enhance their bargaining position.

Leaving the crop in the field is an alternativecited only by perennial crop associations, since forannual crops, negotiations typically take placeprior to planting. Thus, annual associations wouldchoose the alternative of not planting, whichaccounts for several of the “other” responses intable lla. For commodities that are not perishable,storage is another option.

Long-term al terna tives cited by participatingassociations are quite similar to the short-termalternatives. The exception is that 10 of the associa-tions indicated that they would discontinue orreduce production. Others indicated they wouldplant alternative crops.

In answer to a similar question asked inLang’s survey, one of the most frequently citedshort-run alternatives was to custom-process, andthe most frequently cited long-run alternative wasto discontinue or reduce production. An explana-tion for the differences in these results relative tothe present survey is that good faith bargaininglaws in Michigan, Maine, and California had just

recently been enacted (1972,1973, and 1974, respec-tively) at the time Lang began conducting his sur-vey (1974). Therefore, legal action was not as obvi-ous an alternative as it is today.

When asked if there were additional com-modities (other than the crops for which their asso-ciations bargain) members could produce withoutdifficult transition, more than half responding indi-cated that there were no such alternative crops. Forthose that did indicate an alternative crop (11 annu-al crop associations, 5 perennial crop associations),8 mentioned some type of grain or seed crop.

A final question was whether the associationsprocessed any raw product themselves. One of the36 associations currently processes approximately15 percent of member production. Twelve of theother 35 associations had at one time consideredprocessing member production, and one is consid-ering it at present. The most common reasons givenfor not acquiring processing facilities were “startup costs are too high” or “it just isn’t feasible.” Forthose associations that had never considered pro-cessing member production, the most frequentlyreported reasons for not doing so were “it’s not ourbusiness or our function” and “we want to comple-ment packers, not compete.”

Market Alternatives for Buyers

Just as bargaining associations have options ormarket alternatives in negotiating with processors,processor-buyers have alternatives to bargaining aswell. Market alternatives available to processorsinclude 1) obtaining supplies from sources otherthan the association and 2) discontinuing process-ing of the raw product.

The most obvious alternative supply sourcefor processors is nonmember production. Thisexplains ongoing efforts by associations to increasetheir membership or, more importantly, increasethe volume of production negotiated through theirassociation. Another alternative supply source isproduction of their own raw product. Processorsthat can vertically integrate into production are lessdependent on the association for supplies.

Respondents were asked to indicate if anynoncooperative processors in their area produce

11

some raw product. Of those responding, 47 percent(16 of 34) said some processors in their market areado produce some of their raw product. Of the 16associations, 14 negotiate with at least one proces-sor that produces its own raw product. This sug-gests that although processors do vertically inte-grate, they still depend on the association for aportion of their raw product.

A third alternative processors have is to notpurchase raw product at all. With few exceptions,processors purchase and process more than onedifferent raw product. Thus, if terms of trade arenot favorable to processors, alternative crops canbe processed.

Presence of Marketing Cooperatives

Another element of market structure that can effectan association’s success is the presence of process-ing cooperatives in the association’s market area.Of the 36 associations responding, 16 indicated thatthere are processing cooperatives in their marketarea that handle the commodity for which theirassociation bargains. These processing cooperativeshandle an estimated average of 42 percent of thecommodity processed in the bargaining associa-tions’ market areas (15 of the 16 associationsreporting).

Of the 16 associations, 14 had associationmembers belonging to at least one of these process-ing cooperatives. The average percent of associa-tion membership belonging to these processingcooperatives is just over 25 percent. Only one asso-ciation said that it did not allow its members to joinprocessing cooperatives.

In general, associations agree that the pres-ence of the processing cooperatives in the industryhas both a positive and negative impact on bar-gaining. With respect to benefits, several associa-tions reported that the cooperatives share impor-tant market information with them, which is usefulin negotiations with processors. Two associationswere given processing cost information, somethingthat is usually considered proprietary. Another fre-quently cited benefit was industry promotion.Several associations felt healthy processed productand retail product demand was due in large part to

the processing cooperative, and others reportedthat processing cooperatives “helped to keep theindustry strong.”

The discussion about processing cooperativeswas, however, not without mention of some nega-tive effects on bargaining associations. Somerespondents complained of poor relationships andlack of communication with the processing cooper-atives in their area. Other respondents indicatedthat cooperatives are in direct competition for theirmembership. One respondent said the cooperativein his market area actually works against the asso-ciation.

Overall, there seems to be a “mutual respect”between bargaining associations and processingcooperatives. The consensus is that both types oforganizations have a place in the industry, andeach has something to offer.

Members might choose to join both a bargain-ing association and a processing cooperative forseveral reasons. Often the processing cooperativecan offer a grower a slightly higher raw productprice, but the grower’s payment is spread overtime. By being a member of a bargaining associa-tion and dealing directly with noncooperative pro-cessors, the grower usually gets paid at, or close to,time of delivery.

Processing cooperative members may alsorealize the benefits the association provides in theindustry with respect to the price discovery pro-cess, and for this reason might choose to supportthe association. Several respondents indicated thatthe bargaining association’s negotiated pricebecomes a benchmark for the price paid to mem-bers of the processing cooperative. Other reasonsfor dual membership include growers’ desires tospread risk or diversify. For those growers who aremembers of a closed-membership processing coop-erative, bargaining associations provide an outletfor additional crop.

Marketing Orders and Supply Management

A major concern expressed by associations is lackof control over production or supply. If certainmarket characteristics exist, some control over sup-ply can be attained. These characteristics include a

12

relatively small number of growers, geographicallyconcentrated production, and barriers to entry(e.g., the period before trees begin producing).

Another market characteristic that mayenhance supply control is the presence of a quality-or volume-controlling marketing order. Seven ofthe 36 responding associations reported that for thecommodity for which they currently bargain, thereexists either a State or Federal marketing ordercontrolling quality or volume of the commoditymarketed. The purpose of marketing orders is tofoster orderly marketing of commodities, but six ofthe seven associations stated that the orders alsocontribute to the effectiveness of their associationby restricting volume of product marketed.

Three of the 35 associations reported havingattempted to manage member supply. One associa-tion sought to establish a marketing order andanother association had a tree removal program.

PROCEDURES AND METHODS OF THENEGOTIATION PROCESS

A major focus of the survey was on the actualnegotiation process between the associations andthe processors with whom they bargain.Procedures and methods vary with each associa-tion and differ somewhat for annual and perennialcrop associations.

Dates of Negotiations and Quantity Decisions

The time of year negotiations occur depends ontype of commodity. Many associations indicatedthat a significant part of the process involves infor-mation gathering and, therefore, the negotiationprocess is continuous. However, most associationsdo have a fairly specific time period for bargainingwith processors.

In general, perennial crop associations negoti-ate with processors after a good estimate of cropquantity and quality can be obtained, typically justprior to harvest. Since planting decisions are madeprior to negotiations, total supply is fixed. In 14 ofthe 17 perennial crop associations, quantity isdetermined before negotiations begin, thus pricesare a function of a predetermined volume. For

perennial crops with alternative uses, however, theactual amount going to processing may be a func-tion of price.

In annual crop associations, negotiationsalmost always take place just prior to planting.Thus, if growers are unsatisfied with contract termsthey may opt to switch resources to production ofother crops. In some cases, price is negotiated onthe basis of projected supplies, and actual quantitydecisions are a function of price. However, 12 ofthe 19 annual crop associations indicated that fortheir crop, in most years, quantity is determinedprior to price negotiations. In these cases, eithergrowers and processors have term contracts inwhich quantity is predetermined, processorsalways purchase all member production, or quanti-ty decisions are based on processor need ratherthan price, and are determined prior to price nego-tiations. Thus, for more than 70 percent of the asso-ciations surveyed, quantity to be purchased by pro-cessors is determined prior to price negotiations,i.e., price is a function of quantity.

Price Negotiations

In general, the prenegotiation phase for most asso-ciations is quite similar. The individuals or commit-tees responsible for deciding which issues will benegotiated and those responsible for negotiatingwill go through an information-gathering phase.Information includes projections of production,consumption, and prices, as well as the supply anddemand conditions. Associations also use informa-tion on costs of production and harvesting. Annualcrop associations obtain this information for boththe negotiated commodity and for alternative cropsmembers could grow.

The two types of information most associa-tions would benefit from but are unable to obtainare wholesale prices for the processed product andprocessor costs. An attempt is almost always madeto secure data on the cost of processing. However,this information is proprietary and rarely released.Only 7 of the 36 associations are able to secureaccurate processor-cost information. One associa-tion obtains this information because the associa-tion itself processes a portion of member produc-

13

tion, and another has members involved in pro-cessing activities. The remainder secure processor-cost information from either a processor withwhom they have an “excellent” relationship orfrom a processing cooperative.

For most associations, the information-gather-ing stage typically includes meetings with individ-ual processors to learn about the economic condi-tions affecting their industry. Where feasible,meetings between bargaining committees andgrower-members are held at which potential pricesand terms of trade are discussed. Once the associa-tion or the appropriate committee determines a rec-ommended (asking) price and other terms of trade,negotiations begin.

In most cases, there is a formal negotiationprocess. Negotiations for 33 of the 36 respondingassociations involve a series of “rounds,” definedas a price offer and an acceptance/rejection (PAR)or a price offer and an acceptance/counter offer(PAC). Two-thirds of the associations that conductnegotiations formally have the PAC rounds, andfor the majority of the associations, the first offer ismade by the association (by convention).

Though most of the associations negotiatewith more than one processor, two-thirds indicatedthat they typically conduct negotiations and reachagreement with the ‘biggest processor” or industryleader and that other processors or “followers” goalong with the negotiated price. Thus, the mostcommon negotiation process is one on one with theindustry leader. The negotiated price holds for allother processors with whom the association bar-gains.

Other associations negotiate with several ofthe industry leaders and attempt to get consensuson price, often playing one processor off againstanother. Few associations negotiate with all proces-sors and attempt to reach a consensus. Some con-tracts, however, specify certain requirements foracceptance of a price. For example, one associa-tion’s contract indicates that it must get 35 percentof all processors in number and in tonnage (andthese must include two of the six largest packers)to agree to price terms before a price contract canbe ratified. Another association must have priceterms accepted by processors representing purchas-

es equal to at least 51 percent of the previous year’stonnage before its price contract can be ratified.

The number of “rounds” occurring beforeprice is agreed upon in a typical year varies foreach association. Responses ranged from 1 to 20rounds, with the majority of associations having 2to 5 rounds.

Arbitration

For most associations, rounds of price negotiationscontinue until an agreement is reached. For 13 ofthe 36 associations, however, if bargaining does notresult in an acceptable price by a specified time, astandard method of arbitration is employed (table12). The arbitration procedure is specified in con-tracts with processors. The exceptions are thosebargaining associations located in Maine andMichigan, where arbitration procedures are speci-fied by State law.

The time when arbitration “kicks in” varies byassociation. In some cases, arbitration becomeseffective if a price has not been decided upon with-in a “reasonable time. For some associations, arbi-tration begins on the first day of the marketingperiod for a crop. For other associations, it begins10 or 15 days after commencement of harvest. Twoassociations that use the PAR method enter intoarbitration after rejection of a second price offer.

For all associations with a specified arbitrationprocedure, the majority decision of a three-memberarbitration committee is binding on both processorand association. The arbitration committee is com-prised of one member selected by the association, asecond selected by the processor, and a third select-ed by the first two members. In most cases, thetype of arbitration procedure used is “final offer”

Table 1 P-Arbitration

Associations with standard Associations settlingarbitration procedure negotiations by arbitration

No 23 No 27Yes (10 final offer) 13 Yes 9

Total 36 Total 36

14

arbitration. That is, the final price decided upon bythe arbitration committee is either the final offermade by the association or the final offer made bythe processor. For those associations employing thePAR method of negotiation, the arbitration commit-tee decides upon a “reasonable price.”

Nine associations have, at one time or another,settled price negotiations by arbitration, and onlythree of the nine have settled price by arbitrationon more than one occasion. Two associationsreported that the processor’s final offer was theprice resulting from arbitration, and one of thesetwo associations reported losing “substantial mem-bership” because the arbitration decision favoredthe processors. Though almost two-thirds ofresponding associations do not have a specifiedmethod of arbitration, failure to reach price agree-ment is uncommon. Only 28 percent (10 of 35) hadever failed to agree on price with processors, andonly 11 percent had failed to agree more than twice(table 13).

ASSOCIATIONOBJECTIVES/SERVICES/BENEFITS

In addition to negotiating a raw product price fortheir grower-members, bargaining associationsengage in numerous other activities and provideservices to both growers and processors. Surveyrespondents seemed to agree that though the asso-ciation’s focus is often on attaining higher rawproduct prices, the association’s longer term goal isa fair, stable, and secure income for grower-mem-bers.

Table 13-Disagreements on price negotiationsNo. failures to reachprice agreement

No. of Associations

0 25

l - 2 6

5- 10 4

Total Responding 35

Association Objectives

Respondents were asked to rank the list of objec-tives in table 14 in order of importance to theirassociation. The objective ranked highest by thelargest number of associations was higher prices.

Price stability was the next most importantgoal identified by respondents. It was ranked by 24of 36 associations as one of the three most impor-tant objectives and ranked by 6 associations as themost important objective. Most respondents recog-nized that price stability is a longer term goal thanachieving high prices for growers, and that the twogoals are somewhat incompatible.

Six associations cited “improved relationswith processors” as an important “other” objective.And most associations agreed that promotingunderstanding and communication between grow-ers and processors was a primary objective.Increasing the uniformity of contracts betweengrowers and processors and ensuring and expand-ing market outlets were other important objectives.

After ranking the importance of their associa-tion’s objectives, respondents were asked to identi-fy objectives they felt their association had actuallyachieved (table 15). Eighty-nine percent of all asso-ciations indicated that their association hadachieved higher prices for their grower-members,and 86 percent felt that price stability was accom-plished as well. better or more market information

Table M-Rankings of association objectives

Objective Most 2nd most 3rdmost T o p 3important important important

Higher prices 14Stable prices 6Assured markets 5More uniform contracts 5Expanded markets 1Improved marketinformation 0

More favorable non-priceterms of trade 0

Third-party grading 0Other 4

Number of associations

9 311 75 22 25 8

1 6 7

2 5 70 2 21 1 6

262412

914

15

was not identified as one of the most importantassociation goals, but was looked at as a necessarytool in achieving other objectives. Thus, obtainingmarket information was an objective achieved bynearly 75 percent of all associations. More uniformcontracts and more favorable terms of trade werealso reported as commonly achieved objectives.

Table 15-objectives achieved by bargaining asso-clatlons .Objectives Number of assodations

Higher pricesStable pricesImproved market informationMore uniform contractsMore favorable non-price

terms of tradeAssured marketsExpanded marketsThird-party gradingOther

32312622

211615105

Total Respondents 36

Table 16-Obstacles encountered In achlevlng bar-galnlng objectlves

ObStacle

No.1 No. 2 No.3 Top 3Obstade Obstacle Obstada O b s t a d e

Lack of control overvolume of production 13

Failure to get adequatemembership 6

Handlers have too manysupply sources 4

Handlers encouragenonmembership 3

Lack of member support 2

Securing marketinformation 0

Refusal of handlersto bargain 0

Other 5

5 3

5 5 16

9 4

2 5 10

2 6 10

6 2 6

1 5

0 0

21

One association saw no obstacles to achieving itsbargaining objectives. The other 35 associationshad little difficulty identifying obstacles that hin-der their ability to obtain their goals. As indicatedin table 16, lack of control over volume of produc-tion was cited as the greatest obstacle by the largestnumber of associations. As mentioned previously,supply control by the association can be enhancedwith a large membership. However, the secondgreatest obstacle identified was failure to get anadequate number of member-growers. Mostrespondents agreed in personal interviews that the“free-rider” problem was pervasive. Associationshave difficulty attracting membership because non-members, for the most part, get the same benefitswithout incurring the cost of membership. Thisinability to increase membership not only con-tributes to the association’s lack of volume control,but it also maintains additional supply sources forprocessors.

Participants in Lang’s survey also cited lack ofvolume control as the primary obstacle they facedin trying to achieve their bargaining objectives.However, the second greatest obstacle was han-dlers encouraging nonmembership.

Only 29 percent of associations in the presentsurvey reported that handler encouragement ofnonmembership was one of their three greatestobstacles. It did, however, seem to be a commonconcern among respondents. Several associationsdescribed examples where processors actively dis-couraged growers from obtaining membership.

Nonmember Benefits17

6

As discussed above, one of the most difficult issuesfacing bargaining associations was the ability ofnonmembers to benefit or gain from the associa-tion’s efforts. As table 17 shows, all 36 respondentsindicated that nonmembers receive price increasesattained by association members through bargain-ing. Seventy-five percent reported that nonmem-bers receive the same non-price terms of tradereceived by member-growers.

5 Only four associations stated that nonmem-

16

bers get preferential treatment from handlers,though in personal interviews, most associationscited one or more examples of processors favoringnonmembers. For one association, processorsoffered members a higher price for their crop if themember chose to leave the association. Other asso-ciations indicated that nonmembers were some-times offered term contracts and more favorablenon-price terms of trade (e.g., advance payments)by processors.

Services Provided to Members

As mentioned previously, bargaining associationsoften provide services to grower-members in addi-tion to negotiating terms of trade. Many of these

services are provided to facilitate negotiations.However, many activities are provided as benefitsto members for joining the association.

Table 18 shows services provided to membersin the participating associations. The majority ofassociations publish newsletters or newspapers,provide legislative representation for growers, andcollect and provide information about the industry.Services not identified in the table include regula-tory representation, marketing board representa-tion, and performing registration work for gettingchemicals approved for use.

Some bargaining associations perform han-dling activities. Of the 36 responding associations,only 6 reported doing so. Five indicated the specif-ic types of activities they perform, which includeharvesting, trucking, and grading.

Table 17-Benefits to ttOftItIWttbeE?

All Annual crop Perennial cropBenefits associaticns associations associations

Price increasesnegotiated byassociation 36 19 17

Non-price termsnegotiatedby association 27 15 12

Processor Benefits

The majority of associations felt their role was notonly to improve the well-being of grower-mem-bers, but also to provide services to processors andincrease the strength and stability of their industry.Respondents were asked to give their opinion onhow their processors have benefited from theirassociation’s bargaining and presence in the indus-try (table 19).

Preferentialtreatment fromhandlers 4 3 1

Table 18-Member services in addition to bargaln-inaSeWiceS Associations

Newsletters, newspapers 33Legislative representation 32Collect and distribute information 26Field staff 17Funding of research 13Commodity programs 9Other 4

Total Responding 36

Table 19-Benefits to processorsAl Anllu8l crop PerWnial crop

Benefits associations asso&itiens associations

Increased price stabilityImproved informationImproved (less costly)price discovery process

Increased quality control-reduced product loss

Increased efficiency inhandling of raw product

Qualityhrariety more inline with market demand

Quantity of raw productmore in line with demand

Field ServicesOther

31 14 1732 16 16

25

16 13 3

16 10 . 6’

16 11 5

141212

11

975

14

557

17

The most frequently reported benefits includeincreased price stability, increased or improvedinformation, and an improved (less costly) pricediscovery process. Twelve associations reportedother processor benefits which include third-partygrading, support in “mutually dealing” with prob-lems facing the industry, fair and equal treatmentof all processors, assistance on regulatory/legisla-tive issues, assured supply, and protection fromabuses by large growers or groups of growers.

SUMMARY AND PERSPECTIVE

The trend in marketing agricultural products istoward fewer and larger processors and handlers.Farmers, too, are becoming fewer and larger, buttheir size and power in the marketplace remainsmall in comparison with processor/handlers.Cooperative bargaining represents a vehicle where-by farmers can potentially countervail these asym-metries in market power. The results of this surveyconfirm that bargaining continues to play animportant role in marketing fruits and vegetables.

Bargaining associations’ membership andmarket share have remained stable within the fruitand vegetable industries. Where annual crop bar-gaining associations operate, the survey resultsindicate that 68 percent of growers choose member-ship, with perennial crop associations averaging 55percent of potential members. The average marketshare for the associations surveyed was 80 percent,with two-thirds of the associations having at least a50-percent share. Bargaining associations tend tooperate in highly concentrated markets. Four orfewer processor/handlers operate in 40 percent ofthe markets surveyed, and the percentage of pro-duction handled by the four largest marketingfirms exceeds 75 percent in 23 of the 34 marketsstudied. Survey respondents agreed that a key toachieving bargaining success in these concentratedmarkets is attaining and maintaining a high pro-portion of farmers and production within the bar-gaining association.

Students of bargaining agree that anotherimportant determinant of success in the process isthe extent to which the participants have viablealternative options in the event negotiations stall.

In this regard, good-faith bargaining legislationenacted by several States in the 1970’s has appar-ently broadened al terna tives available to bargain-ing cooperatives. Legal action to enforce good faithbargaining was cited most frequently by respon-dents as an alternative to a bargaining breakdown.This result represents a sharp increase from priorsurveys in the number of respondents citing thisalternative.

The importance of good-faith bargaining leg-islation is highlighted by the apparent lack of othergood alternatives to bargaining for fruit and veg-etable growers. More than half of the surveyrespondents indicated that no good alternativecrops were available, and very few of the associa-tions indicated having the capability to integratevertically into the processing and marketing oftheir members’ production in the event of failure toreach agreement with processors. Nearly half of theassociations indicated, however, that some proces-sors in their market had integrated into raw prod-uct production.

The survey results indicated that the volumeof product to be produced is usually determinedindependently of the bargaining process, and thatvery few of the associations attempt to regulatetheir members’ production. The items to be negoti-ated, thus, generally relate to the amount of pay-ment, including base price, premiums and dis-counts, transportation costs, and the timing ofproduction and payment. All but one of the sur-veyed associations reported negotiating for termsof trade in addition to base price.

As to the negotiation process itself, manyassociations indicated that the process is essentiallyyear round due to the importance of maintaininggood and continuous information on market condi-tions. Despite their attempts to generate marketinformation, most associations indicated that theylack good information on wholesale prices for theirproducts and on handler costs.

Formal negotiations generally involve roundswhere either processor and the association alter-nate offers or the association makes repeated offersthat are either accepted or rejected by the proces-sor. In a number of cases, the associations reportedbargaining only with a leading processor and other

18

processors then accept those terms of trade.Binding arbitration was reported to be part of thebargaining process by 13 of the associations, but inpractice failures to reach agreement have beenuncommon.

Finally, as to the goals and objectives of bar-gaining, it was no surprise that most cited higherprices as a top goal. Nearly the same number, how-ever, also listed stability of prices as an importantobjective. Most respondents believed their associa-tion had been successful in achieving these andother goals. On the other hand few had trouble list-ing important impediments to success in the bar-gaining process. Failure to control an adequate vol-ume of production was the most cited problem.This problem is potentially addressable by increas-ing an association’s membership share, but inabili-ty to attract sufficient membership was the secondmost frequently cited obstacle to success in bar-gaining. This problem, in turn, would appear tostem primarily from an association’s inability toexclude nonmembers from receiving similar bene-fits. Every association surveyed indicated that non-members received price increases achieved throughthe negotiation process.

Managing supply and controlling nonmemberfree riders are problems that are not easily solved.They will continue to challenge bargaining associa-tions. Yet the record demonstrates that bargainingassociations have been and continue to be impor-tant institutions facilitating the marketing of manyfruits and vegetables. Despite the challenges theyface, there is every reason to believe they will con-tinue unabated in this role.

LITERATURE CITED

Babb, E. M., S. A. Belden, and P.A. Saathoff, 1969.“An Analysis of Cooperative Bargaining inthe Tomato Processing Industry,” Amer. J.Agr. Econ. 51: 13-25.

Biggs, Gilbert W., 1982. “Status of BargainingCooperatives, U.S. Department ofAgriculture, ACS Research Report No. 16,April.

Bunje, Ralph B., 1980. Cooperative FarmBargaining and Price Negotiations,Washington D.C.: U.S. Department ofAgriculture, ESCS Cooperative InformationReport No. 26, July.

Carpenter, Alvin G., 1969. Factors AffectingBargaining Power for Farmers, CaliforniaAgricultural Extension Service andGiannini Foundation of AgriculturalEconomics, University of California,Berkeley, July.

Cobia, David W., 1989. “Special Topics forMarketing Cooperatives. In Cooperativesin Agriculture, edited by David W. Cobia.Englewood Cliffs, New Jersey: PrenticeHall.

Frederick, Donald A., 1990. “AgriculturalBargaining Law: Policy in Flux. ArkansasLaw Review 43: 679-699.

Helmberger, Peter G., and Sidney Hoos, 1965.Cooperative Bargaining in Agriculture:Grower-Processor Markets for Fruits andVegetables, University of California,Division of Agricultural Sciences.

Hoos, Sidney S., 1982. Some Observations onFarmer Cooperatives, Department ofAgricultural and Resource Economics,University of California, Berkeley, March.

Ladd, George W., 1964. Agricultural BargainingPower, Ames, Iowa, Iowa State UniversityPress.

Lang, Mahlon G., 1979. Collective Bargaining inAgricultural Product Markets: Findings ofa Survey. Agricultural Experiment StationBulletin No. 241, Purdue University.

Roy, Ewe11 P., 1970. Collective Bargaining inAgriculture. Danville, Illinois: TheInterstate Publishers and Printers.

Skinner, Robert A., 1984. “Bargaining Co-opsRemain Stable.

19

U.S. Department of AgricultureAgricultural Cooperative Service

P.O. Box 96576Washington, D.C. 20090-6576

Agricultural Cooperative Service (ACS) provides research, management, andeducational assistance to cooperatives to strengthen the economic position offarmers and other rural residents. It works directly with cooperative leaders andFederal and State agencies to improve organization, leadership, and operationof cooperatives and to give guidance to further development.

The agency (1 ) helps farmers and other rural residents develop cooperatives toobtain supplies and services at lower cost and to get better prices for productsthey sell; (2) advises rural residents on developing existing resources throughcooperative action to enhance rural living; (3) helps cooperatives improveservices and operating efficiency; (4) informs members, directors, employees,and the public on how cooperatives work and benefit their members and theircommunities; and (5) encourages international cooperative programs.

ACS publishes research and educational materials and issues FarmerCooperatives magazine. All programs and activities are conducted on anondiscriminatory basis, without regard to race, creed, color, sex, age, maritalstatus, handicap, or national origin.