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Agriculture Cooperatives in theRural Businessand CooperativeDevelopmentService

RBCDS ResearchReport 137

U.S.-Citrus Industry

Abstract

Cooperatives in the U.S. Citrus Industry

James A. JacobsAgricultural EconomistU.S. Department of AgricultureRural Business and Cooperative Development Service

Citrus is one of the leading fruit crops produced in the United States.Cooperatives play an important role in the handling and marketing of both freshand processed citrus products. This report examines the development and posi-tion of cooperatives in the citrus industry, their functions and operating prac-tices, and the impact of changes in production practices and industry structureon cooperatives.

Cooperatives range from small, local fresh packinghouse associations tolarge cooperative federations with comprehensive marketing and sales pro-grams in both fresh and processed markets. Cooperatives are among the lead-ing marketers in all producing areas, and are the dominant marketing organiza-tion in California and Arizona. Citrus cooperatives use the pooling method tomarket and allocate returns. This cooperative practice of averaging price andsharing risk is commonly used by some private citrus firms as well, reflectingthe inherent volatility of citrus production.

Keywords: Cooperative, grove, grower-member, fresh citrus, processed citrus,frozen-concentrated orange juice, packinghouse, processor, marketing federa-tion, sales agency, marketing agreement, pooling, grove care, freezes, box,eliminations.

RBCDS Research Report 137December 1994

Preface

This report describes the position and functions of cooperatives in the U.S.citrus industry. It is the first known detailed examination of its kind on citruscooperative activities and operating practices.

The report is intended as a reference for cooperative managers and mem-bers, professional advisors, and anyone involved in professional activities orresearch in the citrus industry.

In addition to published information, much of the report is based on inter-views, phone conversations, annual reports, bylaws, marketing agreements,and other documents voluntarily provided by those cooperatives participating inthe project. The author thanks all of those who supplied information for thisreport.

Contents

COOPERATIVES IN THE U.S. CITRUS INDUSTRY ......................................... 1CITRUS INDUSTRY OVERVIEW ....................................................................... 1

World Citrus Trade ......................................................................................... 2Processed Citrus ...................................................................................... 2Fresh Citrus.. ............................................................................................ 2

U.S. Citrus Production ................................................................................... 3Effects of Freezes.. ................................................................................... 7Market Channels: Fresh and Processed .................................................. 8

CITRUS COOPERATIVES AND OPERATING PRACTICES ............................. 9Grower-First Handler Coordination ................................................................ 9What is a Cooperative?. .............................................................................. .lO

Other Types of Ownership ...................................................................... 10Organizational Structures ............................................................................ . l lGovernance and Ownership ........................................................................ 11Marketing .................................................................................................... .12

Fresh Marketing.. .................................................................................... 12Processing .............................................................................................. 12Cooperatives in Citrus Markets ............................................................. .13Marketing Agreements ........................................................................... 13Typical Provisions .................................................................................. .13Pooling.. ................................................................................................. .16Nonmember Business and Account sales ............................................. 18

DEVELOPMENT OF CITRUS COOPERATIVES ............................................. 19Origins of The Sunkist System ..................................................................... 20

Impacts of Sunkist Early History ............................................................ .22Current Sunkist System Structure .......................................................... 24

COOPERATIVES IN MARKET CHANNELS ..................................................... 28California/Arizona Fresh Citrus Markets ...................................................... 28Florida Fresh Citrus ..................................................................................... 31Fresh Texas Citrus ....................................................................................... 33Cooperative Processing ............................................................................... 33Rise of Citrus Processing Cooperatives ...................................................... 33

Florida Processing Cooperatives ........................................................... 34California Processing Cooperatives ....................................................... 35Texas Processing Cooperatives ............................................................ .36

Processed Citrus Markets ............................................................................ 37Product Forms ........................................................................................ 38Brands and Labels.. ............................................................................... .38Bulk Product.. ......................................................................................... 40

THE ROLE OF COOPERATIVES ..................................................................... 40The Citrus Grower........................................................................................ 40

Home for Their Product.. ....................................................................... .41Ownership and Control ........................................................................... 41Economies of Scale and Coordination ................................................... 41

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Contents

Comprehensive Marketing Organizations .............................................. 42Reduced Risk ........................................................................................ 42.Grove Care and Harvesting Services ..................................................... 43Adopting Freeze-Aversion Production Practices .................................... 43Residual Market Outlet ........................................................................... 44Supply Cooperatives ............................................................................. .44Purchasing and Developing Groves ....................................................... 45

Citrus Market Channels .................................... 45...........................................Allegiance to Growers ............................................................................ 45Ease of Entry/Exit ............................... 45....................................................Market Discipline .................................................................................... 47Summary on Cooperatives ..................................................................... 47

FUTURE ISSUES.. ............................................................................................ 47

Increasing Production Capacity 48...................................................................Impact on Cooperatives.. ....................................................................... .48

Shifting Production.. .................................................................................... .49Florida ..................................................................................................... 49California.. .............................................................................................. .53Texas ...................................................................................................... 54

Changing Industry Structure.. ...................................................................... 55Facility Capacity and Specialization ...................................................... .55On-Farm Packinghouse.......................................................................... 56Marketing Federations.. ......................................................................... .56

Globalization of Citrus Trade.. ..................................................................... .57FCOJ and Imports ................................................................................. .57Exports .................................................................................................... 58

Labor ............................................................................................................ 58Marketing Orders ......................................................................................... 59

EXAMPLES OF COOPERATIVE OPERATING PRACTICES .......................... 60Fresh Packinghouses .................................................................................. 60

Haines City Citrus Growers Association.. .............................................. .60Waverly Growers Cooperative.. .............................................................. 61Lake Wales Citrus Growers Cooperative ............................................... 62Corona-College Heights ......................................................................... 63Sunny Cove Citrus Growers ................................................................... 64Edinburg Citrus Association ................................................................... 65

Fresh and Processing.. ................................................................................66

Golden Gem Growers, ............................................................................ 66Ocean Spray Cranberries ....................................................................... 68

Federated Fresh Marketing.. ....................................................................... .68Seald-Sweet .......................................................................................... .68Central California Orange Growers Cooperative .................................. .69

Federated Processing .................................................................................. 70Citrus World.. ..........................................................................................70

. . .ill

Contents

Federated Fresh and Processing ................................................................ 72Texas Citrus Exchange ........................................................................... 72

Sunkist Growers, Inc.................................................................................... 73Summary of Cooperative Operations .......................................................... 76

FiguresFig. 1 Total orange and grapefruit production by State. ...................................... 4Fig. 2 Orange production by State. .....................................................................4Fig. 3 Fresh orange production by State ............................................................. 5Fig. 4 Grapefruit production by State. ................................................................. 5Fig. 5 Fresh grapefruit production by State ......................................................... 6Fig. 6 Percent of oranges sold fresh by State ..................................................... 6Fig. 7 Percent of grapefruit sold fresh by State ................................................... 7Fig. 8 Exchange mechanisms in citrus selling. ................................................... 9Fig. 9 Market channels for citrus .......................................................................14Fig. 10 Membership and contractual relationships among participants

in the Sunkist System ............................................................................ 26Fig. 11 Trends in Florida’s citrus production ...................................................... 50Fig. 12 Golden Gem Growers: member acreage .............................................. 52Fig. 13 Trends in California/Arizona citrus production ....................................... 54Fig. 14 Location of Texas citrus production ....................................................... 55

TablesTable 1 Major citrus producing countries share of orange

production consumed fresh ....................................................................3Table 2 Pooling policy illustration ......................................................................17Table 3 Illustration of citrus pool calculations and pooling plan.. ...................... .19Table 4 California citrus marketers and packinghouses represented, 1993. .. ..2 8Table 5 California/Arizona packinghouses and affiliations. .............................. .29Table 6 Top 10 marketers of Florida citrus, 1991-92 ......................................... 32Table 7 Florida fresh cooperatives and marketing affiliations. ......................... .32Table 8 Florida citrus processing cooperatives.................................................34Table 9 Selected citrus processors and volumes .............................................. 38Table 10 Cooperative processors and juice product types. .............................. 39Table 11 Selected labels of citrus processors .................................................. .39Table 12 Seald-Sweet Growers, Inc., membership ........................................... 69Table 13 Citrus World, Inc., membership ..........................................................71

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Cooperatives have long been a major influence in all citrus producingareas of the U.S. From the harvest and handling of raw citrus for fresh andprocessed uses to comprehensive marketing programs that are among thelargest citrus marketers, cooperatives are active in all stages of the marketchannels for citrus. Highlights of cooperative activity in citrus include:

l Cooperatives are one of the primary ways growers gainownership and control in a fresh packing, processing, or marketing operation.

l The majority of citrus cooperatives are fresh packinghouses.l Cooperative federations-cooperatives as members-are in both fresh

and processed citrus.l There are eight cooperatives with processing operations. The largest is

Citrus World, Inc., a federated cooperative with packinghouse-either coopera-tive or grower-owned privates-members as an outlet for their eliminations.

l Cooperatives market the majority of citrus produced in California andArizona. The leader, by far, is Sunkist Growers, Inc., a cooperative with morethan 5,500 grower-members.

l The largest marketer of fresh Florida citrus is Seald-Sweet Growers,Inc., a cooperative representing 15 packinghouses.

l Most cooperative packinghouses provide a full range of services forgrower-members-grove care, harvesting, and hauling. This enables smallergrowers to achieve the economies of scale necessary for efficient citrus produc-tion.

l The citrus industry is becoming more global in scope and citrus produc-tion is projected to increase worldwide. Cooperatives are tied to domestic pro-duction, meaning their presence is directly linked to the continued viability ofU.S. citrus production.

V

Cooperatives in the U.S. Citrus IndustryJames A. Jacobs, Agricultural EconomistUSDA/Rural Business and Cooperative Development Service

For most of the past 20 years, citrus has beenthe leading fruit crop, in terms of dollar value, pro-duced in the United States. Domestic citrus produc-tion is concentrated in Florida, California/Arizona,and Texas. California and Florida are the major pro-ducers.

Nearly 75 percent of the world’s citrus supplyis grown outside the U.S., but because production isspread across so many countries, the U.S. is consid-ered a major citrus producer.

Whether in fresh or processed forms, the verti-cal system moving citrus to market is an array ofinterdependent markets, exchange mechanisms,and organizational structures. One of the most sig-nificant and highly visible organizational structuresare cooperatives found at all levels of the citrusindustry.

In recent years, the citrus industry has wit-nessed substantial structural changes due to weath-er conditions, disease, imports, and concentration.In addition to the general status and operations ofcitrus cooperatives, this report will look at thedynamic changes occurring in the industry and theimpact on cooperatives and their grower-members.

The information presented in this report wasgathered from three types of sources: 1) interviewsand phone conversations with cooperative manage-ment and members; association, Government, anduniversity staff members; and various industryexperts; 2) written information supplied by cooper-atives such as annual reports, bylaws, and market-ing agreements; and 3) trade publications, newspa-pers, books, and research reports.

This is the first comprehensive description ofcitrus cooperatives of its kind because little hasbeen published on the subject. Much of the infor-mation had to be collected first hand.

While it was not feasible to contact all cooper-atives, the author met and/or had phone discus-sions with at least one cooperative considered rep-resentative of each type of organizational structureor functional area, such as packinghouse or proces-sor. Some noncooperative firms were also contactedto further frame the role of cooperatives in theindustry.

Use of phrases like “most cooperative pack-inghouses...” represent conclusions arrived atthrough the synthesis of information from a varietyof sources. The author is solely responsible for alldata or statements not attributed to a source.

CITRUS INDUSTRY OVERVIEWThe term “citrus” represents a number of dif-

ferent products and product forms. Oranges, grape-fruit, and lemons are the major citrus crops, withlesser production in tangerines, limes, and anincreasing variety of specialties. Oranges accountfor more than 80 percent of the world’s citrus sup-plies. Citrus is consumed as fresh fruit or in prod-ucts that use citrus. Juice, by far, is the leadingprocessed form. Processing also generates a num-ber of byproducts such as food additives, cattlefeed, and cosmetics.

The use of citrus depends on the type, variety,and geographic region. For instance, mostCalifornia oranges are navels grown for fresh mar-kets. Conversely, most Florida oranges are round or“juice” oranges and grown especially for process-ing. In all areas, citrus of unacceptable quality forthe fresh market is usually diverted to processing.

Until the early 195Os, most citrus was con-sumed in fresh form. The advent of processingtechnologies led to major changes in the use of cit-rus. Today, most citrus consumed in the U.S. is in

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processed form, principally as frozen concentratedorange juice (FCOJ) and single strength juices. Thedevelopment of processing technology promptedmuch structural change worldwide within the cit-rus industry.

World Citrus TradeWhile citrus is produced worldwide, only a

few countries provide all of the commercial exportsupplies. During the 198Os, the United States,Brazil, Spain, Italy, Japan, South Africa, Israel,Egypt, and Morocco accounted for more than 70percent of all commercial production. While theU.S. and Brazil are by far the largest producingcountries, their presence in the world market isprimarily in processed citrus products.

Processed CitrusMore than 40 percent of world citrus output is

processed. Brazil and the U.S. account for morethan 90 percent of the supply. Citrus growers in thetwo countries are concentrated in the states of SaoPaulo and Florida, respectively. In most other coun-tries that produce citrus juice, the processing sectoris essentially a residual outlet to the fresh market.

The international market for citrus juices hasgrown substantially this past decade, fuelingBrazil’s growth in citrus production. During the1980s Brazil surpassed the U.S. as the leading citrusproducing country. More than 80 percent of Brazil’sproduction goes into processing and more than 90percent of it is exported in bulk containers as frozenconcentrated orange juice (FCOJ).

The U.S. is the major destination of BrazilianFCOJ, which is then reconstituted into retail frozenconcentrate or ready-to-serve juice. Brazil has madelittle or no effort to establish an identity for itsjuice. Most is reconstituted into a brand label of theprocessing firm or a private label for retail foodchains.

At one time, the lesser quality Brazilian juicehad to be blended with U.S. domestically producedoranges. As the Brazilian industry matured, so didthe quality of its juices. Much of the imported con-centrate can now be reconstituted without blendingwith domestic juices.

tion as processed products, the U.S. exports rela-tively little. With U.S. exports of processed citrusgenerally accounting for less than 10 percent ofdomestic supplies, its major role in world processedcitrus markets is as an importer.

Florida has almost 90 percent of domestic juiceorange supplies, so it is the most sensitive area tojuice imports. The periodic freezes, like thoseFlorida experienced in the 198Os, allowed Brazilianproduction to expand as imports were needed to fillgaps in supply. In recent seasons, imports account-ed for almost 50 percent of U.S. FCOJ supplies.

FCOJ imports have mixed effects on the U.S.citrus industry. Florida citrus producers lost marketshare and price leadership to Brazilian imports.Increased imports limited the ability of Floridaprocessors to exercise price leadership, and alter-nate sources allowed juice manufacturing to occuroutside of Florida. Florida is no longer the primarysupplier of orange juice to U.S. markets. Anincreasing volume of juice is imported bulk andreconstituted nearer the consuming areas.

The availability of alternate sources duringfreeze years, however, also benefited the domesticindustry, including Florida producers. Without for-eign supplies, orange juice prices would have risenhigh enough to possibly force consumers out of themarket. Given the frequent freezes in Florida dur-ing the 198Os, the long-term effects could have beenquite serious if consumers had permanentlyswitched to other juices.

More importantly, imports allowed processingplants to continue operating at efficient levels,including several Florida processors that beganimporting FCOJ. Without foreign supplies duringlocal crop shortfalls, many Florida processorswould have shut down and permanently lost mar-ket outlets for Florida citrus growers.

Fresh CitrusThe United States and Brazil, although by far

the major citrus producers, are less important infresh citrus markets than in the processed marketsthey dominate. Together, they account for less than40 percent of the world’s fresh oranges, with mostof their fresh production consumed domestically. In

While Brazil exports most of its citrus produc- sharp contrast (table 1), all the other major citrus

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producers are fresh-market oriented. Fresh exportsare less than 10 percent of world orange produc-tion. Brazil exports little fresh citrus, with the U.S.only slightly higher, approaching 22 percent forfresh oranges and 45 percent for fresh grapefruit.Spain exports more than 50 percent of its freshoranges. Israel, South Africa, and Morocco relymostly on fresh exports because supplies greatlyexceed domestic demand. Italy is an exception. Itexports less than 10 percent of its fresh citrus.

When ranking the countries by fresh exports,Spain, Israel, South Africa, and Morocco all rankabove the U.S. as a world market supplier of freshoranges. Since 1979, U.S. fresh orange exportsdeclined by more than 20 percent while overallworld trade in fresh oranges increased.

Although Florida supplies less than 20 percentof U.S. fresh oranges, the freezes of the 1980s putupward pressure on domestic citrus prices, andlimited both the ability or desire to move moreoranges to export markets.

U.S. fresh orange exports to Canada andEurope declined, while others, particularly Spain,gained market share. U.S. exports to the Far Eastmarkets have grown slightly. Most come fromCalifornia because of its Pacific Rim location andfresh-market orientation.

Fresh grapefruit exports, almost 30 percent ofworld production, are a more significant marketoutlet than oranges, of which less than 10 percentare exported. Although grapefruit is less than 10

Table I- Major citrus producing country’s share oforange production used for fresh consumption.

Country Percent Fresh

Brazil 16

U.S. 19

Spain 93

Italy 79

Israel 76

Morocco 92

South Africa 77

Greece 80

Source: “The Citrus Industry,” Ward 8 Kilmer.

percent of world citrus production, fresh grapefruitexports are an important market for U.S. producers.Grapefruit is about 50 percent of U.S. fresh citrusexports. It is one reason why grapefruit representsalmost one-third of U.S. citrus production.

The U.S. is by far the world’s dominant grape-fruit supplier. It has almost 50 percent of the trade.Fresh grapefruit trade has grown steadily duringthe past decade, particularly in the Far East whereU.S. exports have increased more than 100 percentsince 1980. The U.S. share of the European marketis also much larger for grapefruit than orangesbecause Europe’s main orange suppliers, Spain andMorocco, produce little grapefruit.

U.S. Citrus ProductionOranges and grapefruit are the predominant

citrus crops, accounting for about 90 percent of U.S.production, with lemons, tangerines, and special-ties comprising the rest. Because the market struc-ture and production units for the other 10 percentare essentially the same as the minor citrus crops,the balance of the report will focus on oranges andgrapefruit.

U.S. production is concentrated in Florida,California/Arizona, and Texas. Florida, by far theleading State, usually accounts for more than 70percent of all U.S. citrus supplies (figure 1).California/Arizona is second and Texas, the small-est. The majority of U.S. citrus-more than 75 per-cent of orange and 50 percent of grapefruit produc-tion-is processed.

Although oranges and grapefruit are sold asfresh or processed in all States, each is identifiedwith specific products. In the U.S. citrus industry,Florida means “processed,” California means“fresh,” and Texas means “fresh grapefruit” (fig-ures 2 through 7). While Florida is by far the lead-ing orange producer, most of its production isprocessed. In Florida, the leading fresh grapefruitproducer, more than half of its grapefruit produc-tion is processed. California is by far the leadingfresh-orange State. Texas has relatively little orangeproduction, but is a significant fresh-grapefruit pro-ducer.

Figures 6 and 7 show the relative importanceof fresh versus processed production by the per-

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Figure i-Total Orange and Grapefruit Production by State, 1981-93

Million short tons15

6

1981 82 83 84* 85 86 87 88 89 90* 91' 92 93

Texas

California/Arizona

Florida

l Major freeze yearsSource: Fruit and Tree Nuts Situation and Outlook, Economic Research Service, U.S. Department of Agriculture.

Figure 2- Orange Production by State, 1981-93

Million short tons12

8

6

1981 82 83 84* 85 86 87 88 89 90' 91* 92 93

Texas

California/Arizona

Florida

l Major freeze yearsSeason begins previous November for California/Arizona, October for Florida and Texas.

4

Figure 3-- Fresh Orange Production by State, 1981-92

Thousand short tons2500

2000

1500

1000

500

01981 82 83 84* 85 86 87 88 89 90* 91' 92


Texas

California/Arizona

Florida

Figure 4- Grapefruit Production by State, 1981-93

Thousand short tons

2500 .P.~_~.~_~_~.~.. . . . . . . . . . . . . . .::..::......c..............C.~...~.......

1981 82 83 84* 85 86 87 88 89 90. 91' 92 93

Texas

California/Arizon

Florida

18


5

Figure 5-- Fresh Grapefruit Production by State, 1981-92

Thousand short tons1500

600

300

01981 82 83 84+ 85 86 87 88 89 90* 91* 92


. Texas

California/Arizona

Florida

Figure 6- Percent of Orange Production Sold Fresh by State, 1981-91

Percent100

80

60

40

20

0

SOUK

m California/Arizona

Texas

m Florida

1981 82 83 84 85 86 87 88 89 90 91

:e: USDA/National Agricultural Statistics Service.

Figure 7- Percent of Grapefruit Production Sold Fresh by State, 1981-91

Percent100

60

40

20

01981 82 83 84 85 86 87 88 89 90 91

Source: USDA/National Agricultural Statistics Service.

centage of orange and grapefruit production soldfresh from each State. Florida is heavily skewedtowards processing, California is mostly fresh, andmost Texas production goes the fresh route.

Plants, equipment, and even citrus varietiesare fairly specific to either fresh or processed uses,so the relative position of each State in fresh orprocessed markets remains the same regardless ofthe fresh/processed price relationships.

Structurally, Florida lacks the capability toshift the majority of production to fresh markets.California is similarly hampered on the processingside. In the short run, however, supply shocks andthe resulting price changes can cause citrus sup-plies to be shifted between fresh and processedmarkets. In particular, freezes can have a profoundeffect on the marketing mix of fresh and processedcitrus supplies.

Effects of FreezesWhile weather-induced supply shocks are

common to much of production agriculture, citrusis especially vulnerable to the devastating impactsof freezes. U.S. citrus production only occurs in thesemi-tropical climates of Florida, southern and cen-tral California, the Arizona desert, and extreme

California/Arizona

Texas

Florida

southern Texas because citrus trees are sensitive tocold weather. Still, even these areas have experi-enced freezes. Since 1990 alone, freeze-inducedshortfalls in supply have occurred in Florida,California, and Texas.

Freezes have a dual impact on citrus produc-tion-damage to the crop still on the trees anddamage to or total loss of the trees themselves. Theimmediate impact of a freeze depends on theamount of fruit still on the trees and the level ofdamage. Normally, citrus can be “stored” on thetree for many weeks, allowing the marketing sea-son to be spread out over a few months. However,after a freeze, the fruit is usually harvested as soonas possible. Fresh packinghouses and processingplants normally run around the clock. Harvesting isspeeded up to salvage fruit before it rots fromfreeze-damage.

Prices in fresh citrus markets generally climbfaster after freezes than processed markets becausefreeze-damage fruit is often unacceptable for freshuses. Freeze-induced reductions in processing sup-plies are mitigated by fruit diverted from freshmarkets. Also, imports of juice-concentrates aremore readily available than fresh imports.

Where a freeze occurs directly determines the

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relative impact on fresh and processed citrus prices.Fresh markets would be most affected by a freeze inCalifornia, while the processed markets would behurt most in Florida.

Freezes can also have a profound impact onfuture citrus production to the extent that trees aredamaged or even killed. Even if the damaged treesare replaced, there is a 3-to 5-year lag betweenplanting time and the bearing of saleable fruit.

Freezes have different effects on structure offirms and their ability to survive in Florida,California, and Texas. Texas freezes are the mostdevastating and complete. While Texas indepen-dents could market Mexican or Florida fruit, coop-eratives have few options in sourcing fruit in theshort run or diversifying acreage bases in the longrun. After tree-killing freezes, most independentTexas shippers could shift to handling other com-modities. But citrus cooperatives do not have thisoption.

Although not as severe as in Texas, freezesalso constrain Florida and California cooperatives.Formed to market the production of a specific set ofgrowers, cooperatives have less flexibility thannoncooperative citrus handlers in sourcing fruit.While many cooperatives market nonmember fruit,nonmember business is limited by law to no morethan 50 percent of the cooperative’s volume.

Market Channels: Fresh and ProcessedCitrus market channels are defined along fresh

and processed product lines. Fresh citrus is essen-tially consumed in the same form as harvested, soappearance and condition can be the most impor-tant marketing aspect. Most activity in preparingcitrus for the fresh market is in the sorting andgrading of citrus packed with like-quality fruit.

This occurs at the first stage of the marketchannel. So there are few intermediary activities orfirms between the packing operation and the retailor wholesale outlet. Most fresh citrus is shippeddirectly from the packinghouse to the buyer’s storeor warehouse. As a perishable commodity, the func-tions and stages between the packinghouse and theconsumer are primarily dedicated to maintainingproduct quality and delivering fruit in a timelymanner.

There is much less concern about the appear-ance of raw citrus used in processing. Most of theless-than-acceptable-appearing fruit is diverted toprocessing. Citrus intended for processing is com-monly graded and valued based on internal qualitytests that determine the amount of juice the raw cit-rus will produce.

Processing transforms raw citrus into a varietyof products-primarily juice. Not only is the rawcitrus appearance transformed, but also the qualityof juice and juice products can be changed throughblending. By combining citrus juices with sweeten-ers or other juices, many different juice productscan be created. So the functions and stages of theprocessed citrus market, particularly at the firstlevel, are involved primarily in transformationactivities. Most value is added in fresh marketingduring the grading and packing functions. On theprocessing side, most value is added after the sort-ing and grading functions.

While many processed citrus products aremade into their final form at the first-handler level,a significant exception is the bulk distribution ofconcentrated juice to be reconstituted into the fin-ished product elsewhere. Bulk shipments, alongwith the ability to store processed citrus productsfor long periods, allows firms to enter processedcitrus markets without being in citrus producingareas. These “reconstituter” firms have gained anincreasing share of the citrus juice business. For thepurpose of this report, a “processor” is located inthe citrus producing areas and actively involved inhandling and processing raw citrus.

Although some market both, most citrusindustry firms market either fresh or processedproducts because of differences in the technical andfacility requirements for each product. Processingfacilities require far greater investments and muchlarger quantities of raw citrus to operate at efficientlevels than a fresh packinghouse.

Accordingly, processors are fewer in numberand generally larger than fresh marketers. Forexample, while almost 90 percent of Florida citrusgoes to processing, there are more than four timesas many fresh marketing firms than processors.

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CITRUS COOPERATIVESAND OPERATING PRACTICES

Cooperatives of varying size and operationsmarket citrus from all producing areas of the U.S.From the initial harvest and handling of raw citrusto the comprehensive marketing programs that areamong the largest citrus marketers, cooperativesare active in all stages of the market channels forcitrus. But, cooperatives are only one marketingoption available to citrus growers. This section willlook at how cooperatives operate and comparethem with other organizations and coordinationmechanisms in the citrus industry.

Grower-First Handler CoordinationIn the first stage of the market channel, raw

citrus is harvested and delivered from the grove toeither fresh marketers or processors. Regardless ofproduct form or firm size, the coordination mecha-nisms are essentially the same. As a grower-ownedorganization, the majority of cooperative activity isin the grower-first-handler stage.

At the first-handler level, the marketing chan-nels contain a range of coordination mechanismsbroadly classified by three categories (figure 8). Atone end is the open or “spot” market. Fruit ispriced at the time of harvest or delivery. The keydistinction about the spot market is that the fruit isnot committed to a buyer until harvest.

Fruit committed before harvest is usually doneunder contract, the second category of exchangemechanisms. While some contracts may specify agiven quantity of fruit to be delivered, the morecommon type is the “production” contract wherebuyers take delivery of all the fruit produced froma given grove. Price may be specified in a “cashbuying” contract or determined after harvest in aparticipation contract.

In participation contracts, both the buyer andseller receive a predetermined percentage of thefruit sales based on the net price received for thefruit. This type of contract allows the sharing ofprice risk between the buyer and seller in the often-volatile citrus markets.

Figure 8- Exchange Mechanisms Between Citrus Producers and Packinghouses or Processors

Nonpriced Fruit

Cooperative Membersh1

Participation Plan

Priced Fruit I

Cash/Spot Market

Member fruit Non-member fruit I I

- I1 Cooperative Processor or Packinghouse 1 I Private Processor or Packinghouse 1I I I I

9

Participation contracts are similar to the pool-ing methods used by cooperatives in marketingmembers’ fruit and distributing returns.Participation plans are usually offered by privatefirms, but some cooperatives use them to marketnonmember fruit under what are known as accountsales. Within the season, member and nonmemberfruit is treated the same. However, nonmemberscarry a greater long-term risk in that cooperativemembership means a guaranteed home for memberfruit. In years when member fruit is sufficient, non-members may be forced to the riskier cash market.The third category of coordination is achievedthrough ownership or vertical integration. Thiscombines two or more stages in a marketing chan-nel within a single governance structure wherecoordination is by administrative direction. Thedegree of integration varies by commodity. Theextension of ownership is mainly forward from thefarm into the marketing channel toward the con-sumer.

Agriculture, in general, has little backwardintegration with food marketing or processingfirms owning farming operations. Citrus is anexception. Considerable integration exists in bothdirections-backward with fresh marketers andparticularly processors owning citrus groves, andforward with citrus producers having ownership inone or more stages of fresh marketing or processingchannels. Cooperatives a common form of forwardintegration.

What Is a Cooperative?A cooperative is a distinct business organiza-

tion common to agriculture, including citrus. Informing an agricultural cooperative, a group offarmers agree to collectively market their productsor provide some other needed service. This requiresrelinquishing some control over their products to acentral organization.

The benefits of producers collectively market-ing their products versus each doing it individuallyare that they: (1) fulfill the need for, or replacementof, a marketing service not available, (2) improvegrower’s bargaining position with buyer’s becausemore production is controlled by a single seller, (3)facilitate economies of scale in handling and process-

ing, (4) provide for better servicing of large buyersby pooling smaller quantities of product into largerlots for more economical sourcing and shipment,and (5) reduce price risk for the individual growerby spreading it over a larger number of units.

Like corporations, cooperatives are privatelyowned businesses and nearly all are incorporated.Cooperatives perform many of the same functionsas any other business. Both citrus cooperatives andinvestor-owned firms (IOFs) have comparable facil-ities and operations, and are subject to the samecompetitive factors and industry regulations. Inmarketing their fresh citrus or processed products,both IOFs and cooperatives use comparable distrib-ution channels, sales contracts, and marketingstrategies. Where cooperatives and IOFs differ is intheir internal operations and organizational frame-work.

Cooperatives are unique due to their owner-patron relationship, and further differ from IOFs inthe manner and philosophy by which they operate.Cooperatives return net income to producer-usersor “patrons” while other businesses return netincome to investors. This user-benefit principle ofcooperatives is followed in distributing returns tomembers based on their use or patronage.

In a citrus cooperative, this means the propor-tion (prorata share) of fruit the member marketsthrough the cooperative. If members supply 10 per-cent of the cooperative’s business volume, theyreceive 10 percent of the returns.

Two other principles distinguish cooperativesfrom other businesses-the user-owner and user-control. By law, agricultural cooperative ownershipis limited to entities defined as farming operations.Those who use the cooperative own and finance it.Control, therefore, is in the hands of those who ownand use the cooperative.

Other Types of OwnershipThe counterpart to cooperative ownership of

fresh marketing or processing facilities are IOFs-individual owners, partnerships, or corporations.

A number of citrus firms are owned by grow-ers. Typically, they are larger commercial opera-tions or family partnerships. Many own packing-houses and processing facilities.

10

From a cooperative standpoint, the distinctionof a grower-owned firm from other IOFs is impor-tant. A number of these farming operations canlegally become a member of a cooperative. Manyare in fresh marketing organizations such asSunkist Growers, Inc., Sherman Oaks, CA, or Seald-Sweet Growers, Inc., Vero Beach, FL.

Organizational StructuresCitrus cooperatives can be classified by three

organizational structures: centralized, federated, ormixed. Essentially, they denote two different levelsof activity.

On the first level is the grower-cooperativerelationship where the members of a centralizedcooperative are the individual growers. Controland volume flow directly from the members to thecooperative, and services and patronage refundsflow directly back to the members.

On the next level, two or more centralizedcooperatives are united in an organization called afederation, or cooperative of cooperatives. Serviceand patronage refunds flow from the federation tothe member cooperatives who then return them totheir grower-members. A mixed membership iscomprised of individual cooperatives and growersas direct members.

All three types of cooperative membershipstructures exist in the citrus industry. The mostcommon is the centralized organization, primarilythe cooperative packinghouse. These cooperativeswill form a federation for two purposes. In a feder-ated fresh marketing agency, the output of a num-ber of packinghouses is combined under a singlesales agent to enhance coordination and marketpower. The second is the federated cooperativeprocessor which often handles eliminations fromthe fresh packinghouse.

The mixed structure is created primarily undertwo scenarios: 1) a large grower with its own freshpackinghouse that becomes a direct member of afederated fresh sales or processing agency alongwith local cooperatives, and 2) the Sunkist arrange-ment where, in addition to membership through acooperative packinghouse, individual growersbecame direct members when using a private pack-inghouse.

Governance and OwnershipControl of cooperative management and oper-

ations begins with the articles of incorporation andbylaws. These documents determine the rules tofollow in managing ownership and distributing netincome. Because members determine the content ofthe legal documents and elect the board of direc-tors, they control ownership and net income distri-bution. Members may at times vote on cooperativepolicies and major operating decisions, but mostpolicy decisions are delegated to the board.

Governance of the cooperative is primarilythrough the elected board of directors, regardless ofthe organizational structure. In a centralized coop-erative, the board is elected directly by the mem-bers. In a federation, the member cooperatives andgrower-owned firms elect, or rather designate, thedirectors. Membership in a citrus federation ismuch smaller than in a centralized structure, so it ispractical for each federation member to have adirector on the board. A member may appointeither a grower, or as more often the case, someonefrom management to the federation board.

The Sunkist system is slightly different. TheSunkist board of directors is elected at the districtexchange level (See section on the Sunkist system).Acting as a form of districting, all local coopera-tives and individual growers in Sunkist must be amember of a district exchange. Each exchangeelects at least one director-a grower or a manage-ment representative-to the Sunkist board.

Deciding who may vote, how many votes eachperson may cast, and other features of the votingsystem represent the method of control. Most coop-eratives are purely democratic institutions. Eachmember has a vote-one-person, one-vote in mostcases-regardless of the investment in the coopera-tive. Some cooperatives have an unequal or “pro-portional” voting system based to some degree onthe relative volume marketed through the coopera-tive. However, the total amount of votes a membercan have is usually restricted by the use of volumeincrements-l vote for each additional “X” units,etc., with a limit on the total.

On the other hand, voting in an IOF is basedon the relative amount of equity or shares of com-mon stock owned, usually with no voting limit.

11

Although both cooperatives and IOFs can have pro-portional voting, the number of votes in a coopera-tive is based on the proportion of usage, not equity.

MarketingIn forming a citrus marketing cooperative

growers agree to collectively market. Cooperativesalso affiliate with other cooperatives to jointly mar-ket fresh fruit and/or process fruit not suitable forthe fresh market. They are known as “eliminations”from the packinghouse. The relationship betweenthe local cooperative and the federated cooperativeis essentially the same as that between the growerand the local cooperative.

However, the agreement between a local andfederated cooperative may be for a more specificpurpose, and not as comprehensive as that betweenthe grower and the local cooperative. One agree-ment may only cover eliminations from a packing-house, while another may merely be an agreementto act as a sales agent for a per-box fee.

Fresh MarketingThe first stage of market channel for fresh cit-

rus is the packinghouse (house). Fruit is harvestedand shipped to houses to be assembled, washed,graded, and packaged for the fresh market.Growers own most of the fresh packinghouse oper-ations, either as a grower-owned IOF or as a coop-erative. Most citrus cooperatives are in this firststage of the fresh market and known as local pack-inghouses. Many are linked with other local housesand grower-owned IOFs in a cooperative sellingexchange-one of the ways packinghouses markettheir fresh fruit.

Packinghouses sell their fruit through threemechanisms: in-house sales force, outside privatesales agency or broker, or as a member of a cooper-ative selling exchange. Also, a combination of thesemechanisms may be used, such as an in-house stafffor domestic sales and a private broker for exportmarkets.

Cooperatives integrate the farthest into themarket channel through the centralized packing-house that employs its own full-line marketing pro-gram. Another example is the cooperative sellingexchange, representing the interests of a number of

citrus growers and packinghouses under a singlesales program. Although the smaller packinghouseswould seem the most likely users of a cooperativeselling exchange, some smaller cooperatives dotheir own marketing and selling. Conversely, thecooperative sales exchanges have some of thebiggest packinghouses in their respective States asmembers.

In representing the interests of many growersand packinghouses, the cooperative salesexchanges have traditionally been the most widelyrecognized cooperatives marketing fresh citrus intheir respective States. All of today’s citrus-produc-ing States have federated sales exchanges. They arediscussed further in the section on cooperative mar-keting in specific States.

ProcessingThe plant is the first stage of the market chan-

nel for processed citrus products. Raw citrus isassembled, sorted, and processed into a variety ofproduct forms. Raw citrus is delivered to theprocessor via two routes: 1) varieties direct fromthe grove intended for processing, and 2) fruit con-sidered unsuitable for fresh markets (eliminations).Most processing cooperative activity is where coop-erative packinghouses-sometimes with grower-owned houses-will form a cooperative for theirpackinghouse eliminations.

For cooperatives in both fresh and processing,such as Sunkist, processing is mostly a residualoperation to fresh marketing. While processingcooperatives obtain fruit direct from membergroves, at times in substantial amounts, the intentin forming the cooperative was for packinghouseeliminations. Even in Florida, where most citrus isprocessed, few cooperatives were originally formedto process fruit directly from the grove.

There are no cooperative selling exchanges forprocessed products-processors as members-likethose in fresh citrus marketing. Also, there is limit-ed use of private sales organizations to marketprocessed products to the primary markets. Mostprocessors, including cooperatives, maintain a salesstaff for retail outlets such as chain stores and largeindependents, and institutional outlets such as foodservice. Particularly for branded products and pri-

12

vate labels, most arrangements are directly betweenthe retailer and the processor. Brokers may servicesome markets, particularly secondary markets suchas schools and exports, but this is usually done incoordination with the in-house sales staff.

Cooperatives in Citrus MarketsFigure 9 overviews the position of coopera-

tives in the market channels for citrus from growerto consumer. As grower-owned organizations, mostcooperatives are directly involved in the first stageof the system: handling of raw citrus for eitherfresh or processing. The major exception to this isthe cooperative sales exchange where their mem-bers own the packinghouses and physically handlethe product.

Cooperative activity declines after the first-handler stage. While larger cooperatives are activein most stages of the marketing channels for citrus,in general, noncooperative brokers, sales agents,further processors, reconstituters, andretailers/wholesalers perform more of the func-tions as product moves closer to the consumer.

Marketing AgreementsAlthough membership is voluntary, coopera-

tives generally use legal devices such as bylaws,articles of incorporation, and membership agree-ments. The membership agreement or contract isoften referred to as the marketing agreement. Theseare common tools with fruit and vegetable coopera-tives, including those in citrus.

While IOFs use written contracts to buy fruit,the marketing agreements used by cooperatives areunique because the cooperatives are owned by andoperated for their member-patrons. Each grower-member’s financial well-being depends in part onthe performance of other grower-members.Marketing agreements ensure compliance of grow-er-members with their obligations to the coopera-tive, as well as its obligations to them.

Orderly marketing requires a degree of controlover the product by the selling agency, or in thiscase, the management staff of the citrus coopera-tive. A marketing contract or agreement transferssome decisionmaking from individual growers tothe cooperative. The mutual agreement requires the

member to market products with the cooperative,and obligates the cooperative to obtain the bestpossible price for those products.

There are two general types of marketingagreements: 1) a contract specifying a purchase ofquantity X at price Y, called a purchase-and-sellcontract because it requires the cooperative to pur-chase product outright from the member; 2) anagency contract specifying the cooperative to act assales agent for the member. Most marketingagreements used by citrus cooperatives are of theagency-contract type. Price is rarely determinedprior to delivery. Instead, the cooperative acts asthe member’s sales agent. In most cases, theamount a member receives is determined after thefruit is sold. Most agreements call this paymentmethod “pooling,” a distinct cooperative practice incitrus marketing (see pooling section).

Typical ProvisionsThese provisions are typically found in the

marketing agreement between the citrus growersand their cooperatives:

1. The percentage of products the member mustmarket through the cooperative. Cooperatives fre-quently require members via the membershipagreement to deliver all their production. This,however, is the exception among citrus coopera-tives. Most citrus marketing agreements allowmembers to specify the amount of product they willmake available to the cooperative-either per-box,or more commonly, all the production from the des-ignated groves. Most citrus growers belong to onlyone cooperative although they aren’t restrictedfrom joining others.

2. Description and location of citrus groves coveredby agreement.- Whether members are required todeliver all their production or only that from specif-ic groves, marketing agreements usually requiremembers to at least describe the location of thegroves and the varieties produced in each. Somecontracts also ask the grower to estimate the num-ber of boxes per grove or the number of trees toassist the cooperative in calculating the potentialvolume.

13

Figure g-Cooperatives in Primary Market Channels for U.S. Citrus

FRESH PROCESSED

GROWER IMPORTSr\I \

\ \\

\Raw @it

\\

1IGrower-Owned Cooperative - - - - - - - = Cooperative IOF/Grower-Owned

FRESH PACKINGHOUSE PROCESSOR

SALES and MARKETING

Branded orprivate label

Bulk Bulkconcentrated concentrated

iuice,IIIIIIIIIIIIII

juice juice

1 Ih

I RECONSTITUTER/REPACKAGER

private label

- Product Movement

- - - - Membership or Sales Arrangement

j

PROCESSED MARKETS:(primarily juice)

1 Only cooperative and grower-owned packinghouses can be members of a cooperative federation.

Some federations market both fresh and processed product.

* Some packinghouses use only one type of sales arrangement, while others might use multiple

arrangements, such as in-house for domestic sales and a broker for exports.

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3. Acknowledgement of grower-member’s require-ment to deliver the fruit specified in the agreementand the cooperative’s authority to market the fruit.Generally, the cooperative is given the right topack, process, and market all the fruit pledged bythe member. With a fresh packing cooperative,agreements often give it the right to determinewhether a member’s fruit will be marketed in freshor processed form as determined by the grade andstandards policies. As a practical matter, it is fareasier for the grower to allow the cooperative tomarket the packinghouse eliminations.

4. The length of time the agreement is in force.Most citrus marketing agreements are renewableannual contracts unless terminated in writing byeither the member or the cooperative. Usually, theagreement specifies a date by which either themember or association can terminate their agree-ment for the coming season. Causes justifying ter-mination are outlined in the marketing agreementor the cooperative’s bylaws.

5. Authorizing capital retains to finance coopera-tive. The prime source of equity capital for mostcitrus cooperatives is through deductions frommember payments. They are called per-unit retainsbecause the amount members provide in equitycapital is based on their patronage with the cooper-ative, usually on a per-box basis.

While different terminology describes the wayretains are accounted for-written notices of alloca-tion, common stock, capital equity credits, and cer-tificates-the intent is the same. Each member has aseparate account recording the amount of his/herequity contributions.

For citrus cooperatives, the most commonmethod of patronage-based financing is through arevolving fund plan. Ideally, as new volume-basedretains are accumulated, older money is revolved tothe members. For example, the cooperative maydeclare that all money retained in a certain year,usually the oldest, will be returned to memberswho contributed in that year. There is no interestearned on the per-unit retains. While a regularrevolvement is ideal, citrus production is prone to

severe supply shocks from freezes that can delayscheduled revolvements.

Because the money used to revolve old equityis from the volume-based retains of the currentyear, reduced citrus production limits the coopera-tive’s ability to revolve old equity. Because of thefiscal hardships caused by freezes over the last twodecades, some cooperatives have not revolvedfunds for 20 years or more.

The amount of the retain is determined by theboard of directors. Per-unit retains are at-riskfunds. Although the members expect their retainsto be returned after a period of years, the coopera-tive usually has no obligation to return them. Thebylaws typically leave the decision on revolving upto the board. If the revolvement period is expresslystated in the contract or bylaws, however, this thenbecomes a debt for the cooperative.

6. Penalties for noncompliance and description ofdamages. A cooperative’s board of directors mayact against the grower for reasons usually outlinedin the bylaws or marketing agreement. The mostcommon breach of contract relates to the nondeliv-ery of fruit by the member. Most agreements citeliquidated damages as an appropriate remedy fornondelivery. Actual damages are difficult orimpractical to calculate in this event, so the market-ing agreement generally specifies a formula forcomputing the liquidated damages.

For example, one cooperative assesses themember 25 cents per box for all citrus not deliveredas required by the agreement. Other agreements areless specific, saying the damage amount is to bedetermined after a hearing with the board of direc-tors.

Some marketing contract provisions allow fornondelivery for reasons beyond a grower’s control,such as Government rules and regulations, wars,fires, labor disputes, and Acts of God. In practice,these provisions are mostly found in agreementswhere the grower is responsible for harvest anddelivery. An Act of God clause releases the growerfrom liability in the event of freezes. The clausemakes the marketing agreement an acceptable riskto both citrus growers and cooperatives in a federa-tion.

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7. Control of product quality and quantity. In addi-tion to marketing decisions, most agreements givecitrus cooperatives considerable control over prod-uct quality and quantity. The marketing agreementgives the cooperative the right to allocate fruit todifferent uses based on quality, or reject it if notmeeting minimum standards. Where growersarrange their own grove care and harvesting ser-vices, few provisions address specific productionpractices to achieve a specific quality. Rather, quali-ty is addressed when graded and sorted at delivery.

Cooperatives often extend control over prod-uct quality by providing grove care and manage-ment services to members. For the grower who usesthese services, a separate document may cover thegrove care arrangement. In some cases, coopera-tives require members to use these grove care andharvesting services. In most instances, members arecharged the actual costs for grove care and harvest-ing services instead of on a patronage or proratabasis.

Both fresh packinghouses and processingplants need considerable coordination of productdeliveries with facility operations, so most agree-ments also give the cooperative control over thetiming and amount of harvest and delivery.Decisions regarding harvesting and hauling ser-vices are directly controlled by the cooperative. Ifthe grower is responsible for harvest and delivery,the agreement will often state the time and place asstipulated by the cooperative.

8. Method of Payment. A key provision in anymarketing agreement regards payment, yet thewording of this provision is usually simple andstraightforward. In short, the cooperative agrees toreturn to the members, after deducting appropriateexpenses, the proceeds from the sale of their fruit.The citrus cooperative agreements seldom list aspecific price and instead use pooling, a practicecommon to fruit and vegetable cooperatives.

PoolingAlthough each citrus cooperative develops its

procedures for operating pools, many share thesame characteristics. Central to pooling is averag-ing costs and returns for a defined quantity of fruit

(pool contents). It is a delayed-payment plan. Exactreturns to members are not determined until afterall their fruit is sold. Once fruit has been received,graded, and put into a specific pool, members’ fruitis commingled and sold with others. All pool fruitthen is considered to be sold at the same time. Nodistinction is made for the actual price received fora specific unit of product.

A member’s participation in a pool is deter-mined at delivery, when fruit is sorted and gradedinto different pools. Members share in the proceedsfrom the sale of the pool’s contents based on theircontributions. When all or most of the product hasbeen sold, the pool is closed.

The estimated value of any remaining invento-ries is combined with actual sales to reach a totalvalue for the pool. Operating and administrativeexpenses are allocated to each pool and subtractedfrom gross sales. The net proceeds are then dividedby total pool quantity to get an average price paidfor the pool’s contents. Any excess over previouspayments is then distributed to members on thebasis of their prorata contributions to the pool.

Although the average price is not known untilthe pool closes, members are usually paid an initialadvance upon delivery. Interim payments also aremade as some of the product is sold out of the pool.Once the pool closes, a final payment-or adjust-ment-is made. If the pool value is positive whenclosed, the member receives a prorata share.Conversely, a negative pool value calls for a repay-ment by the members based on the differencebetween amount paid in the interim and theamount actually owed at closing. The per-unitretains are usually accounted for in the final adjust-ment to the pool.

Seasonal pools are common among citruscooperatives. The pool contains all fruit from a par-ticular variety during a given growing season.Nonseasonal pools divide a season’s productioninto specific time periods, such as weeks or months.Time-segmented pools are used only in fresh mar-keting. Pools are also segregated by grade, variety,and usage. Each category constitutes a separatepool. Fresh packinghouse cooperatives usuallyhave a fresh and processed pool for each variety.

Reflecting the characteristics affecting the way

16

a product is sold, the basis of payment usually dif-fers between fresh and processed uses. Fruit in afresh pool for a given variety is largely rated onexterior factors-size, color, texture, scars andbruises, etc. Different fresh grades, and hencepools, reflect these appearance factors.

The industry standard for fresh citrus sales isthe box, a legally defined term reflecting the aver-age weight by variety in a given box. Returns fromthe sales of a given variety are accumulated andrecorded by the cooperative on the basis of boxequivalents. In turn, the member’s participation isbased on number of boxes delivered to each freshpool.

Appearance means little for processed citruspools. The value of processed citrus is based oninternal quality, most commonly pounds of solids.A load of delivered citrus is tested for the poundsof solids. This is then used in a formula ultimatelyreflecting the amount of juice the raw citrus willproduce. Total pounds of solids are calculated bymultiplying the test results by the boxes for eachgrower’s fruit. Although returns may be convertedinto box equivalencies, payments to growers areultimately based on the total pounds of solids theyhave delivered.

The decision on which pool to participate in,at least by variety, is first determined by what thegrower chooses to plant-fresh or processing vari-eties. Growers determine the pools in which theyplan to participate when they designate productionfrom particular groves for marketing through thecooperative. However, once harvested, decisions onpool participation are made by the cooperative.

When received by the cooperative, the fruitmay be allocated to premium or lesser grades basedon quality factors. For a fresh packinghouse, fruitconsidered unsuitable for the fresh market is sent toa processor, who, in turn has the ultimate decisionin grading and making pool allocations.

Generally, a pooling policy accompanies themarketing agreement describing, in varyingdegrees of specificity, the operations of the pool.The bylaws and other guidelines will also addresspooling procedures. Wording in a typical poolingpolicy is shown in table 2.

While the policy itself is relatively simple, the

accompanying general guidelines and the coopera-tive bylaws address the pool operations in greaterdetail. Some cooperatives choose to put more detailon procedures to be used-grading and testing

Table 2- Pooling Policy illustration.

COOPERATIVE PACKINGHOUSE

Pooling Policy: 1990-91 Season

All fruit shall be pooled by variety, by bloom (early or late),by weight, and on a “seasonal” basis.

The term “seasonal pool” shall mean the period of timefrom the harvesting of the first box of a variety until the lastbox of said variety is harvested.

Weight per box by variety shall be credited as follows:

Oranges, Temples, All Tangelos - 90 poundsAll Grapefruit - 85 pounds

There shall be a fresh fruit pool and a processing fruit poolestablished for each variety. Pools will be based on the freshfruit care program and the processed fruit care program(general guidelines) developed by management inconjunction with the production committee of the board.

The following 1990-91 pools shall be established:

OrangesHamlin Orange Pool

Midseason Orange Pool

Navel Orange Pool

GrapefruitRed and Pink SeedlessGrapefruit PoolWhite Marsh SeedlessGrapefruit PoolWhite Seeded Grapefruit Pool

In fresh pools, total receipts from all fresh fruit, by variety,shall be combined with the total receipts from the processingplant for eliminations of the same variety. These combinedtotal receipts shall be divided by the total boxes harvested ofsaid variety. Each grower shall receive the same price, lessindividual grower’s picking and hauling expenses.

In the processing pools the total receipts from theprocessing plant for all fruit, by variety, shall be divided bythe total boxes harvested of said variety. Each grower of saidvariety shall receive the same price delivered in, less theindividual grower’s picking and hauling expenses.

In the case of a freeze, the board of directors may changethe pools in accordance with the cooperative’s bylaws.

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fruit, calculation of payments, and expense alloca-tion. Pooling is a marketing mechanism designed atthe discretion of the cooperative. While the specificpolicy wording varies in complexity, basic opera-tions of the pool are essentially the same.

Table 3 shows a citrus pool used by a freshpackinghouse, the most widespread type of citruscooperative. The packinghouse is also a member ofa cooperative processor, another common occur-rence. There are three pools in the example-fresh,eliminations from the packinghouse, and fruit har-vested for direct shipment to processing.

In this example, the cooperative harvests anddelivers members’ fruit going direct from thegrove to the processing facility. Payments by theprocessor are received by the cooperative andreturned to the member in the same manner asother pools. The processor-direct fruit is notassessed a capital retain to illustrate that the financ-ing of a cooperative’s assets is allocated to themember fruit using those assets.

In this case, the capital retain is for the pack-inghouse operations, although the processor-directfruit could be assessed a retain to capitalize thecooperative’s direct grove-to-processing operations.For growers who harvest and deliver grove-directfruit, the pooling arrangement and the paymentswould be between the grower and the processor.

Most citrus cooperatives calculate returns on aper-box basis, and deduct pool operating expensesand capital retains from the final payment. In table3, operating expenses reflect that different poolscan have different operating costs. Fruit in particu-lar pools may have different expected values due todifferences in the advance and interim payments.Also, the operating expenses may or may not beassessed in the same amounts, as is the capitalretain, although it is more commonly assessed inthe same amount per box.

For federated citrus cooperatives, pooling andthe methods used are similar to those between thegrower and the local cooperative. Whether a coop-erative is a sales exchange or federated processor,member packinghouses receive a share of the pro-ceeds based on their prorata share of each pool. Inturn, the proceeds from the cooperative exchangeare returned by the packinghouse to its members

based on their prorata share of the cooperativepackinghouse’s contribution to either the salesexchange’s fresh pools or the processor pools.These pooling methods are repeated at the coopera-tive first-handler level, be it based on boxes packedor pounds of solids. Specific pooling practices ofindividual cooperatives are overviewed in Part II ofthis report on cooperative operating practices.

Pooling practices of cooperatives are calledparticipation plans by IOF packinghouses andprocessors. Under a participation plan, growers areassured a home for their fruit, which is especiallybeneficial should there be a freeze or large surplus-es. Also, the grower does not have to be concernedabout the risk of day-to-day price fluctuations.However, in participation plans, no retained earn-ings are returned to the grower. Growers have noequity or ownership in the packinghouse or pro-cessing plant, so no per-unit retain is deducted forcapital financing. Also, the marketing decisions aremade by the firm’s management. Growers seldominfluence pricing policies as they would in a coop-erative.

While participation plans are identified morewith IOFs, citrus cooperatives use them in market-ing nonmember fruit, sometimes called accountsales.

Nonmember Business and Account salesBy legal definition, cooperatives are limited in

the amount of their nonmember business. As anoperating policy, most cooperatives would prefer tomarket only member-grown fruit. But in certaininstances, nonmember business is a necessary strat-egy in the efficient operation of the cooperative.Although the most immediate and simplest form ofmarketing nonmember business is through cashbuying, the more common way is through partici-pation plans called account sales.

Citrus cooperatives use account sales for bothshort-and long-term scenarios. Account sales areused long term to recruit new members, so theiruse as a regular practice is justified. In the accountsale arrangement, nonmember fruit is pooled withmembers, allowing prospective members to assessthe cooperative’s performance on a first-hand basis.In the short term, account sales can be an important

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Table 3- Illustration of citrus pool calculations and pooling plan.

Fruit Pools Deliveries (No. of boxes)

Average priceto the pool

Payments:Advance paymentInterim payment

Deductions:Operating expenseCapital retain

Adjustment:Net final payment

Fresh

2,000

($/box)$10.10

2.001 .oo

3.00.lO

$4.00

Eliminations

1,000

$7.10

2.001 .oo

2.00.lO

$2.00

Member Payments

Processor Direct

1,000

$7.00

2.001 .oo

1 .oo

$3.00

Total Boxes

4,000

Calculation Amount

Payment:Advance 4,000 boxes X $2.00 = $8,000Interim 4,000 boxes X l.OO= 4,000Final-Fresh 2,000 boxes X 4.00 = 8,000Final-Eliminations 1,000 boxes X 2.00 = 2,000Final-Process Direct 1,000 boxes X 3.00 = 3,000

Total $25,000

Average price received: $25,000/4,000 boxes = $6.25 box

Returns to processed product pools--eliminations and direct-are first determined by the returns to different processing grades as establishedby the processor. The packinghouse cooperative receives a gross payment from the processor. This is then paid to the grower-member ontheir prorata share of each pool.

stopgap supply in the event of a freeze. However, spanned a period from the 1880s into the 1930s.while significant volumes of nonmember fruit are Many cooperative packinghouses in California andat times necessary in the freeze-prone citrus indus- Florida were formed during this period. The firsttry, there can be limits on the amount of nonmem- one in Texas began in the 193Os, about the time cit-ber business a cooperative can transact. rus developed commercially in Texas.

DEVELOPMENT OF CITRUSCOOPERATIVES

Cooperatives have a long history in the citrusindustry. Cooperative fresh packinghouses wereformed in the 1880s by California citrus growers.Florida growers followed a few years later. The riseof these cooperatives coincided with the blossom-ing cooperative movement in agriculture that

Initially, cooperatives were formed to assem-ble raw citrus for more efficient shipments to thefast-growing population centers in the eastern U.S.As merchandising practices changed and the scopeof citrus markets grew, the local cooperative pack-inghouses were limited in their ability to providemarketing services on a national level. Many foundit advantageous to form a marketing federation toservice a growing market more efficiently and effec-

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tively. The first such organization is today’s largestcitrus marketing cooperative, Sunkist Growers, Inc.With an organizational structure known as theSunkist system, it has long been the leading mar-keter of California and Arizona citrus. Due to itslong history and influence on other citrus produc-ing areas, discussion on the origins of cooperativeactivity in citrus begins with the story of Sunkist.

Origins of Sunkist SystemSunkist was originally known as the California

Fruit Exchange (The Exchange). Although formallyincorporated in 1905, it is rooted in the unstablemarket conditions for California citrus arising inthe late 1800s. The completion of transcontinentalrailway connections with eastern markets in thelate 1870s and 1880s allowed California’s citrusindustry to grow beyond the limitations of localfruit consumption and become a major supplier offruit to the swelling population of the East coast.

During these early days, fruit was marketedby buyers rather than growers. The buyer struck aset price with the grower, and assumed all respon-sibility for picking, packing, shipping, and market-ing the fruit. The system of dealer purchase initiallyreturned profits to both growers and dealers. Boththe supply of citrus and distribution of fruitincreased among eastern markets.

As they became more complex, business becameless profitable and more uncertain. Buyers lacked acoordinated system for distributing fruit. Some areasreceived too much fruit and others too little. This cre-ated such an unstable market that dealers could notrisk paying growers an acceptable price.

The increasing uncertainty in marketingCalifornia citrus led shippers to turn to handlingfruit on commission. Some growers tried to circum-vent these western shippers by consigning fruitdirectly to merchants in eastern markets. This dis-organized market frequently resulted in marketgluts, delays, and losses to growers. Maintainingfruit quality was difficult. Fruit deteriorated intransit because available refrigeration was inade-quate and rail service unreliable. Prices already lowbecause of oversupply and uneven distributioncouldn’t absorb further reductions demanded bybuyers for poor quality fruit.

A series of disastrous seasons during the 1890sbecame known as the “red ink” years. Growersoften netted less than packing, transportation, andmarketing expenses. The distribution system hadserious weaknesses: Shippers sent fruit with noknowledge of how many carloads others weresending to the same cities; markets were over-looked and price cutting forced competitors fromsome areas; and producers couldn’t reach marketsin smaller cities to develop consumer demand, andwere usually serviced by jobbers and wholesalersin larger cities with irregular supplies at relativelyhigher costs. Under these conditions, growersdecided to create better distribution methods andbegan organizing to improve marketing.

California citrus growers’ first attempt to joint-ly market fruit was in organizing the OrangeGrowers Protective Union of Southern California in1885. The union sent staff to eastern markets tooversee distribution of member fruit, but did notrequire stockholders to use its buying, selling, andshipping services. The union lacked organizationand coordination, and after a few years ceased tooperate.

Three other organizations attempting to har-monize grower and packer interests were formedabout the same time, but also failed. Attempts tomerge grower and packer interests proved difficult,so efforts were then directed toward building agrower organization.

Grower-owned cooperatives first appeared inCalifornia in the late 1880s. Records show the firststrictly cooperative association was the PachappaOrange Growers Association near Riverside. Fruitwas packed under contract until 1895, when theassociation acquired a packinghouse to handlemember fruit.

Contracts drawn by this organization request-ed that growers deliver all fruit to be graded,packed, and sold on a variety pool basis. Twoimportant aspects of cooperative citrus marketing,pooling and centralized selling, were already pre-sent by the 1890s in California.

About the same time, two other new coopera-tive associations were formed: ClaremontCalifornia Fruit Growers Association and theRedlands Orange Growers Association. Claremont

20

and Pachappa associations were among the first tojoin today’s Sunkist organization. Redlands operat-ed since 1893 as an independent local unit sellingits own fruit until joining Sunkist in 1929.

In 1893,60 orange growers met in Los Angelesto organize a marketing cooperative based largelyon the principles adopted by the Claremont andPachappa associations. They proposed eight dis-tricts with local associations organized within each.Each association was to pack its own fruit andestablish a purely local brand. Fruit picking wasprorated among grower-members so all wouldhave an equal chance for delivery. Sales orders forfruit were likewise prorated among associations tokeep fruit moving proportionately.

The proposal established central district busi-ness offices open to all managers of associations inthe district for handling telegrams and correspon-dence. Also recommended was an executive com-mittee consisting of one member from each districtto handle matters affecting the overall association.During the summer of 1893, growers establisheddistrict and local associations, approved organiza-tion and marketing plans, and appointed the execu-tive board of the Southern California FruitExchange.

Although the exchange made a successful startboth in sales returns and reducing incidental costs,the portion of California oranges marketed withinthe organization dramatically declined from 89 per-cent in 1895 to 37 percent in 1896.

Various factors contributed to this decline.Growers, inexperienced in business, hired equallyinexperienced managers for their associations andexchanges. The executive board was not alwaysadvised of shipments by exchanges, so competitionexisted between exchange fruit in eastern markets.Growers found the new organization was nopanacea for all marketing ills, so many turned toselling fruit outside the cooperative.

Growers were also discouraged by the experi-ences of consignment sales and began to insist onan f.o.b. market (price includes delivery and load-ing costs). However, when the exchange beganestablishing a twice-monthly f.o.b. price fororanges, fruit sold outside the exchange was uni-formly quoted and sold slightly under exchange

prices. Consequently, fruit sold f.o.b. California wasoften rejected in large volumes on arrival at termi-nal markets.

In 1895, a plan to strengthen the exchangesales program was developed, primarily to addressthe marketing problems in eastern markets. TheSouthern California Fruit Exchange became incor-porated. Agents were appointed to handle sales ineastern markets. The exchange began to showsteady growth, both in quantity of shipments andpercent of total industry crop handled. This stabili-ty was threatened, but not overturned, by the fail-ure of a new organization, the California FruitAgency.

After a large crop in 1902-03, competitionintensified between the exchange and independentshippers. A proposal was made to join these previ-ously antagonistic groups into a single sales agencythat would control 90 percent of the crop. This wasintended to eliminate cutthroat sales methods andduplicate marketing efforts. In 1903, independentshippers formed the California Fruit Agency, com-bining the Southern California Fruit Exchange andCalifornia Citrus Union. This agency relieved someimmediate problems, but ultimately the two groupsdid not work well together.

Disagreement between exchange and unionrepresentatives would likely have led to a dissolu-tion of the agency anyway, but another year of poorreturns was the ultimate factor. Large crops inFlorida and California made for lower prices in1904. Added to these problems were the antagonismand ill will of fruit brokers whose business wasgreatly impaired by the formation of the agency.

Marketing conditions were so bad the exchangewas threatened with disruption. Many members dis-satisfied with the agency arrangement felt theirdirectors had not consulted with the local associa-tions. In not doing so, they violated the principle oflocal democratic control, a basic tenet of exchangephilosophy. It is doubtful exchange members wouldhave become reconciled to the fruit agency evenunder favorable market conditions. The agencyagreement was dissolved in 1904, and the exchangeoperations returned to their original form.

In 1905, the exchange’s basic cooperative prin-ciples were reaffirmed with the formal incorpora-

21

tion of the California Fruit Growers Exchange. Itrecognized the organization’s broadening role inthe marketing of California citrus. The corporatename was changed to Sunkist Growers, Inc., in 1952to more definitively associate the registered Sunkisttrademark with the organization.

Impacts of Sunkist’s Early HistoryA telling lesson from the early days of Sunkist

was the difficulty of combining a grower-orientedorganization with a group of independent brokers.The California Fruit Agency would have been ille-gal under the Capper-Volstead Act-only agricul-tural producers allowed as members-enacted in1922. The strain of divergent interests between bro-kers and citrus growers under a single organizationled to its demise. A policy of increasing growerreturns was at odds with the interests of the inde-pendent broker, particularly in the prevailing cash-marketing environment of the time.

Brokers were interested in buying fruit at thecheapest price to boost their returns, resulting incorrespondingly lower returns for the grower.Although a market structure of many independentbrokers competing with one another for a grower’sfruit would be a healthy one, a single organizationof both parties to stabilize the market would not.

In successful cooperatives, member interestsand interests of the business operation are thesame. Sunkist, like many other marketing coopera-tives-ocean Spray, Welch’s, and Sun-Maid-mar-kets a single commodity for members who usuallygrow only that commodity.

Also, these cooperatives represent large sharesof their respective markets-nearly 50 percent.Having a larger share of a commodity’s productionincreases the effectiveness of a cooperative. Thiseffectiveness is reflected in the increasing share ofgrowers as cooperative members.

However, Sunkist rose out of early unstabletimes in the California industry and owes its initialsuccess to its specific focus. Citrus growers collec-tively marketed their fruit. Both the decisionmak-ing and accrued benefits were vested solely in thegrower-members.

The early success of the Sunkist systemspawned interest among citrus growers in both

California and Florida. The cooperative activity inthese States prior to Sunkist was confined mostly tothe picking and packing of fruit at the packinghouse.

Sunkist represented the needed transformationof citrus cooperatives into active marketing agentsfor their members. Its success validated the role ofcooperatives in marketing. With it came the interestof others to become more active in marketing.

California In California, the Mutual OrangeDistributors was formed in 1906, the forerunner ofPure Gold, Inc. Pure Gold was organized as a non-profit agricultural cooperative with the same mar-keting focus as Sunkist. Pure Gold was much small-er than Sunkist and therefore structured a littledifferently. With only a handful of packinghouses,Pure Gold did not need district exchanges to coor-dinate sales and shipping. In effect, Pure Gold wasthe combination of Sunkist’s central organizationand district exchanges.

By 1920, Sunkist and Pure Gold were market-ing almost 73 percent of California/Arizona citrus.Their share steadily increased thereafter to almost95 percent in 1933. At this time, Sunkist’s share wasabout 85 percent and Pure Gold’s share 10 percent.Sunkist’s share declined to about 60 percent in1991, and Pure Gold exited the industry completelyin 1989 when the Arlington Heights CitrusCompany, the last remaining component of PureGold, affiliated with Sunkist.

The decline of Pure Gold is rooted in twomajor factors in the history of the Cali-fornia/Arizona citrus industry: 1) the relative easethat packinghouses could affiliate and disaffiliatewith Sunkist and Pure Gold, and 2) the subsequentability of marketing agents to enter the market incompetition with both cooperatives. Since theirformation, both Sunkist and Pure Gold operated as“open membership” cooperatives. Any qualifiedgrower could join and take advantage of marketingservices. Qualified packinghouses could easily joineither organization. Either cooperative or licensedprivate packinghouses would qualify. Membershipagreements were of indefinite duration and couldbe terminated at the end of each year.

Subsequently, every packinghouse affiliatedwith Sunkist or Pure Gold was a potential competi-

22

tor in that each could drop its affiliation and marketelsewhere. Often, a disaffiliating house would affili-ate with the other cooperative. There was a fairamount of movement between the two coopera-tives, and neither experienced significant long-termdeclines in volume until the 1970s.

However, the ultimate decline of Pure Goldreflected not only the mobility of packinghousesfacilitated by the open-membership policies of thecitrus cooperatives, but also changing industry con-ditions.

The ease of exit and entry meant other market-ing firms could enter the industry in two ways: 1)Sunkist or Pure Gold member packinghouses strik-ing out on their own in the marketing phase of thebusiness, or 2) a marketing firm could buy newsupplies without the cost of constructing a newpackinghouse by enticing a Sunkist or Pure Goldmember to affiliate with it. Both cooperativesserved as a major source of packinghouses for com-mercial citrus marketers.

As industry conditions changed with the seg-mentation of markets (exports, specialty varieties,and rising foreign competition), opportunitiesincreased for firms that could meet specific nichemarkets. Firms such as Sun World, Mendelson-Zeller, and Dole entered the Cal/Arizona citrusindustry largely by acquiring or affiliating withSunkist or Pure Gold houses.

As marketplace competition intensified, bothSunkist and Pure Gold lost market share. By virtueof its larger size and superior marketing and distri-bution systems, Sunkist maintained its dominancewith more than 60 percent of the production intothe 1990s. On the other hand, Pure Gold found thescope of its activities gradually diminishing. It fold-ed in 1989. The ability of member houses to easilyexit Pure Gold for “greener pastures” likely con-tributed to its decline.

Florida Sunkist’s rise in the early 1900s spawnedtwo reactions from the Florida citrus industry: 1)competing in terms of addressing the presence ofSunkist in the East, and 2) imitating Sunkist’s suc-cess and applying it to marketing Florida citrus.

Prior to the advent of California citrus in thelate 18OOs, Florida supplied most of the citrus con-

sumed in the eastern U.S. More than 75 percent ofthe population at that time lived east of theMississippi. This represented the bulk of Florida’sout-of-state shipments.

As California interests led by Sunkist beganshipping to eastern U.S. markets, their presence didnot go unnoticed among Florida’s citrus growersand shippers. Cooperative packinghouses werealready playing a role in Florida citrus at that time,so Sunkist’s federated marketing system sparkedfurther interest among Florida cooperatives andtheir members.

Prior to the 1909 Florida Orange Growers con-vention, a group of 46 growers and businessmentraveled to California to study the California FruitGrowers Exchange. The group recommended thatFlorida citrus growers create a similar organizationto develop unified marketing procedures to main-tain supplies and prices at beneficial levels for boththe consumer and the grower.

About 100 growers gathered on June 1,1909,to form the Florida Citrus Exchange, the first orga-nized effort for marketing fresh Florida citrus. In1969, the exchange’s name was changed to Seald-Sweet Growers, Inc., to identify the organizationmore closely with its leading brand name.

Like Sunkist, the local cooperative packing-house was the primary component of Seald-Sweet’sfederated-type organizational structure. However,unlike Sunkist, Seald-Sweet did not need to estab-lish district exchanges as an intermediary with thelocal packinghouses.

Florida growers did not face the same condi-tions as those in California. They were not asremoved from one another and had better roadsand communication lines to link them. Floridapackinghouses could contact the central exchangemore readily and coordinate shipments more easilythan their California counterparts.

In effect, the central Scald-Sweet organizationcould fulfill both the marketing and informationdissemination functions of Sunkist Central and thesales function of the district exchanges. Also, asSunkist grew to handle a much larger volume sup-plied by members spread over a larger area, itnecessitated continuing the decentralized system ofdistrict exchanges.

23

Seald-Sweet, Florida’s first federated market-ing cooperative, quickly established a reputationfor innovative marketing techniques. By 1912, itbegan the first national advertising and merchan-dising program sponsored by any segment ofFlorida’s citrus industry. By the 193Os, Seald-Sweetcreated an international division for exports toEurope, and in later years the Pacific Rim. Exportsgrew to be a major portion of the cooperative’sbusiness. Nearly one-third of its cartons wereshipped to export markets by the 1980s.

Seald-Sweet became a major marketer ofFlorida citrus, but never achieved Sunkist’s largemarket share. Different historical conditions prompt-ed each organization’s development. They were rein-forced by Florida’s structural differences, whichworked against a broader representation of Floridacitrus by Seald-Sweet. In being much closer to theeastern markets, there was less impetus to coordi-nate the long-distance rail shipments. Individualshippers in Florida could more easily coordinateshipments and market product themselves.

After the advent of citrus processing,processed sales steadily grew to almost 90 percentof citrus grower sales. With the fresh marketbecoming basically a residual one to the processed,poor fresh market conditions did not cause thesame concerns as in a similar situation inCalifornia. Cooperative membership is generallymost popular in times of poor market conditions.Given that, less reliance on fresh citrus marketsmeans less grower stress from a depressed freshmarket. This translated into less overall demand fora broad, “Sunkist-type” system in Florida.

Even though Seald-Sweet and Sunkist becamecompetitors in the citrus markets, and the CaliforniaFruit Growers Exchange was aware of the possibili-ty when they met with the growers interested inestablishing a “Sunkist” in Florida, a spirit of coop-eration has prevailed between them. At times, thetwo buy and sell each other’s fruit-Sunkist sellsFlorida grapefruit in Japan and Seald-Sweet sellsCal/Arizona grapefruit in Western Europe.

Current Sunkist System StructureSunkist structure has changed little during the

intervening years-a marketer of citrus products in

a federation of both citrus growers and cooperativepackinghouses tied by contractual agreements. TheSunkist system is a “pyramid” linked by contractu-al agreements between three distinct levels: thepackinghouse, the district exchange, and SunkistGrowers, Inc.

The packinghouse is the basic unit of Sunkist’sstructure. Most grove care, harvesting, and packingfunctions are coordinated by the individual pack-inghouse. The grower has the exclusive right todecide what varieties and how much to plant.Decisionmaking on fruit harvesting and haulingusually passes to packinghouse management.

Sunkist growers can obtain the services of apackinghouse either through membership in a localcooperative packinghouse or by agreement with acommercial packinghouse. At one time, commercialpackinghouses could be members of Sunkist. But,Sunkist reorganized in response to a 1968 SupremeCourt ruling that said this did not comply withSection I of the Capper-Volstead Act.

Commercial packinghouses could still be usedby growers, but legal ties were changed. They wereno longer allowed membership or legal interests inSunkist. Commercial packinghouses wishing toremain with Sunkist had to sign an exclusive licens-ing agreement to pack only the fruit of Sunkistmembers and comply with Sunkist standards andregulations. Sunkist, in turn, agreed to market allfruit from the commercial house just like coopera-tive houses. Known as licensed or agency packing-houses, their legal relationship with Sunkistchanged little. About one-half of those handlingSunkist member fruit are licensed packinghouses.

In 1968, each Sunkist grower had to be a mem-ber of Sunkist Growers, Inc., constituting one of thecontractual agreements of the Sunkist system.Before then, growers would only have to become amember of a cooperative packinghouse to be con-sidered a Sunkist member. Another set of contractslink growers, packinghouses, and districtexchanges. All packinghouses, in either their mem-bership (cooperative) or licensing (commercial)agreement, are required to market their fruitthrough a district exchange.

Growers become members of a districtexchange in two ways: membership in a local coop-

24

erative association that in turn is a member of a dis-trict exchange; or growers, who because they use alicensed packinghouse, become direct members ofthe district exchange. The cooperative packing-house has a membership agreement with both adistrict exchange and Sunkist Growers, Inc. Districtexchanges, in turn, sign membership agreementswith Sunkist. The license for the commercial pack-inghouse is simultaneous with Sunkist Growersand the district exchange.

District exchanges are organized as nonprofitcooperatives controlled by boards elected by thecooperative associations and direct grower-mem-bers of the exchange. District exchanges do notphysically handle the fruit. Instead, they are a mech-anism for collecting and disseminating informationbetween Sunkist Central and the local packinghous-es, and for coordinating sales orders and shipments.

Another district exchange function is in gover-nance of the Sunkist system by acting as a form ofdistricting through which control of SunkistGrowers is allocated. District exchanges elect thedirectors to the Sunkist board. Each director repre-sents a specific district exchange. Each districtexchange is entitled to one director on the Sunkistboard, with additional directors for specified per-centage increases in their share of Sunkist’s volume.Local association and direct grower-members of thedistrict exchanges elect the director(s) representingthe exchange on the Sunkist board.

Sunkist’s Contractual Relationships Figure 10 outlinesthe structure of the four main levels of the Sunkistsystem: the grower, packinghouse, district exchange,and Sunkist Central. Here is a recap of the contractu-al relationships within the Sunkist system:

1) All growers are direct members of SunkistGrowers, Inc., to ensure compliance with theCapper-Volstead Act.

2) All growers must be affiliated with a districtexchange in either of two ways. One is throughmembership in a local association, which in turn isa member of the district exchange. The other is thegrower, who, by using a licensed packinghouse,becomes a direct member of the district exchange.

3) The licensed packinghouse signs a simultaneouslicensing agreement with the district exchange andSunkist.

4) All district exchanges and local associations signmembership agreements with Sunkist.

5) All agreements within the Sunkist system are for1 year and renewed automatically unless terminat-ed by either party.

Selling Relationships Within the Sunkist system, theselling and decisionmaking relationships are differ-ent between fresh and processed product market-ing. In processed products, Sunkist Growers ownsthe processing facilities and makes all decisions onprocessed product pricing and marketing. Undereither their membership or licensing agreements,packinghouses must deliver all fruit for processingto Sunkist, and Sunkist is obligated to market it all.

All processed pool costs are deducted from thegross revenues, with the net proceeds returned tomembers on their prorata share of deliveries to pro-cessing. With a single processed products pool,ownership of facilities, and complete control overmarketing, Sunkist Central operates like a typicalcentralized cooperative in marketing processedproducts.

Where the Sunkist organization is moreunique among cooperatives is in the decentralizedaspects of its fresh citrus marketing operations.Sunkist Central owns and operates relatively fewassets used to prepare fresh fruit for market in theSunkist system. Fresh fruit is shipped directly fromthe packinghouse to the buyer. Neither the districtexchange nor Sunkist Central handles the physicalproduct. Costs of operating the packinghouse tosort, grade, and pack fresh fruit to Sunkist’s stan-dards is borne at the packinghouse level.

By its agreements with the local associationsand district exchanges, Sunkist Central has soleresponsibility for selling fresh fruit, maintainingforeign buyers, receiving and distributing toexchanges the receipts from fruit sales, establishinggrades, organizing advertising and promotion pro-grams, and regulating the use of trademarks andpatents. Sunkist Central also determines the

25

Figure IO- Membership and Contractual Relationships Among Participants in the Sunkist System

Sunkist Growers, Inc.

IDistrict Exchange

II.II I

iii.I 1

Cooperative PackingHouse

I Grower - Grower I

1111

-.-

membership agreementpacking contractpackinghouse license

method of transporting fresh citrus and the packingmaterials to be used.

Proceeds from fresh fruit sales are returned bySunkist Central to the district exchanges afterdeducting assessments for marketing, advertising,and capital funds. These assessments are based on afixed per-carton amount determined at the begin-ning of each season. They cover costs of maintain-ing corporate headquarters and sales offices, mar-keting and advertising charges, and other operatingexpenses. Unused funds are refunded to the districtexchanges at year’s end.

Expenses incurred by district exchanges arededucted from funds distributed to the local pack-ing units. The packing units-either cooperative orlicensed-distribute returns to growers according

to their prorata share of shipments to a particularpool, after deducting packinghouse expenses allo-cated to the pool.

Local associations and district exchanges arenot permitted to solicit business from the trade orcorrespond with any buyer to promote the sale oftheir fresh fruit. Sunkist Central is the exclusiveselling agency and solely responsible for issuing allprice and other terms of trade quotations to buyers.However, the most unique part of Sunkist’s decen-tralized structure is that the decision on what pricesare acceptable to members is not controlled bySunkist Central, but rather delegated to the pack-inghouse and district exchange levels of the system.

Sunkist Central’s bylaws state that each mem-ber-grower and local association delegate to its dis-

26

trict exchange “the right to determine to what mar-kets it shall ship, where its fruit shall be sold, andwith the exception of auctions, what price it is will-ing to receive.” l

Moreover, local associations “reserve the rightfrom time to time to terminate this delegation andto exercise said rights for such period as they maydeem proper or to redelegate said reserved rights tosaid district exchanges.” Ultimately, the local asso-ciation has the final say in determining what pricesare acceptable.

Here’s how Sunkist markets fresh fruit anddelegates the right to determine an acceptable priceworks. Buyers place orders with one of theSunkist’s sales offices maintained around the U.S.All orders are relayed to Sunkist Central, and thento all district exchanges simultaneously If an orderdoes not specify a particular packinghouse, theorder is communicated to all houses and awardedto the first to accept.

Some offers are neither house-specific norcompletely open, so the district exchange plays amore active role in allocating sales opportunities inan equitable manner among the various houses.Typically, an order identifies fruit from a particularpackinghouse. The appropriate district exchangerelays the order to the specified house. The housedecides whether or not to fill the order or make acounter offer. Packinghouse replies, as required, arerelayed to Sunkist Central’s sales office through thedistrict exchange. Both offers and counteroffers areat prices set in a scale by Sunkist Central.

Key to pricing of Sunkist fruit is the scale list-ing f.o.b. prices buyers must pay for a particularsize and grade of each variety of fruit. Some differ-ences can exist in prevailing prices for fruit fromvarious growing areas and for brands within anarea. Sunkist Central sets scale prices by analyzingdata on demand conditions, supplies of competingfruits, and supplies of fruit available for shipmentfrom the packinghouses. Of prime importance isthe latter: packinghouse supplies of fresh fruitbased on floor counts.

* Sunkist Growers, Inc., bylaws, Set 9.4(a)

Each packinghouse communicates to itsexchange the amount of fruit by variety and gradethat it will have available for shipment on the fol-lowing day. This information is collected by the dis-trict exchanges and passed along to SunkistCentral. Scale prices are adjusted to assure anorderly flow of fruit at the best possible prices in acompetitive marketplace without accumulatingexcessive inventories.

A single or several district exchanges in anyparticular area may set their own scales based onmore localized supply or quality factors, althoughall price quotations must be issued through SunkistCentral. However, these are set prices to be commu-nicated as such through the sales offices, and notnegotiated independently between the packing-house and buyers. In any case, while the packing-house has the right to determine if it will fill anorder, control over setting a price is precluded bySunkist’s Central complete authority over issuingof price quotations and contact with buyers.

Another aspect of the decentralized nature ofSunkist’s structure is the competition createdbetween packinghouses when Sunkist Central dis-seminates at the same time open-buying offers toall district exchanges. Unlike a centralized or close-ly coordinated federated cooperative where ordersare filled at the discretion of central management,Sunkist packinghouses vie with one another formany of the orders placed with Sunkist.

With prices set by Sunkist Central and eachpackinghouse responsible for its own costs, housesin a sense compete with one another based on oper-ating efficiencies. For a given sale, net returns andhence the house’s willingness to take an offer maydepend on its packing costs. Also, the ability to be abuyers’ designated house creates competitionamong Sunkist houses to be acknowledged in thetrade for quality and consistent service.Overall, competition between packinghouses bene-fits the Sunkist system by creating the incentive forindividual packinghouses to become more efficient.This market-based competition would not occur ina more centralized organization where decisionsare made by management fiat and all facility costsare pooled and shared as a single expense.

27

COOPERATIVES IN MARKET CHANNELSAs a form of vertical integration, cooperatives

are one of the primary ways growers gain owner-ship and control in a marketing operation. From thegrower-first handler level, cooperatives haveextended their operations in varying degrees toinclude more functions in the marketing channel.

California/Arizona Fresh Citrus MarketsMore than 90 percent of California/Arizona

citrus is marketed as fresh fruit. Processing is most-ly a residual market. Between the Sunkist organiza-tion and the few cooperatives not affiliated withSunkist, the cooperative share ofCalifornia/Arizona citrus represents the largest sin-gle area of cooperative activity in the U.S. citrusindustry. In 1992, cooperatives marketed more than80 percent of California’s citrus. After the demise ofPure Gold, some of its packinghouses joinedSunkist. That left Sunkist as the sole federatedcooperative sales agency in California/Arizona. 2

As the dominant marketer of California andArizona citrus, Sunkist is the clear leader in pricingand marketing. Competing marketers regardSunkist as the price leader, tend to follow its prices,and seldom establish prices without first referenc-ing Sunkist’s prices. 3

After a series of closures, acquisitions, andchanges in affiliations, the other major players affil-iated with California packinghouses are Dole andSun World. Both are multi-product produce mar-keters. Packinghouses not affiliated with one ofthese marketing agents are considered indepen-dent. They used either their own in-house salesstaff or the services of any of a number of brokers

2 Central California Orange Growers Cooperative(CCOGC) is like a federation. It has four separatelyowned packinghouses. CCOGC coordinates the col-lection and dissemination of marketing informationfor its members, but is not a sales agency. Eachpackinghouse member has a marketing and salesprogram.3 Mueller, W., Helmberger, P., Paterson, T., TheSunkist Case, 1987.

operating in that market. The predominance ofcooperatives in Cal/Arizona citrus is evident (table4).

As of 1993, Sunkist was by far the dominantmarketer of Cal/Arizona citrus with 60 of the 108packinghouses in California and Arizona. Althoughonly half of its packinghouses are cooperatives, thegrowers using the noncooperative houses are directmembers of Sunkist, and together, participateequally in the cooperative marketing of citrus.

In addition to representing more than 55 per-cent of the packinghouses, Sunkist marketed morethan 65 percent of California/Arizona fresh citrusin 1992. Sunkist, on a per-house basis, is above theaverage in terms of volume. Although an averagevolume for each house is a soft number because offreezes and the ability of growers to easily changehouse affiliations, packinghouses affiliated withSunkist (table 5) are among the larger houses inCalifornia and Arizona.

Paramount Citrus Association, for example, isa licensed packer, a recent addition to Sunkist, andthe single largest grower of Cal/Arizona citrus.Another Sunkist member is Limonera, one ofCalifornia’s older citrus cooperatives and one of thelarger lemon houses in the industry.

Table 5 shows the distribution of cooperativepackinghouses among the sales agents. As expect-ed, the large majority-30 of 35-are affiliated withSunkist. Most noncooperative packinghouses areowned by the larger growers, such as ParamountCitrus. These large growers can vertically integrate

Table 4- California citrus marketers andpackinghouses represented, 1993.

Sales AgentNumber of cooperative

Packinghouses Packinghouses

Sunkist 60 30Sun World 8 4

Dole 7 0CCOGC 4 0Independent 29 1

- -

Total 108 35

Source: California Citrus Mutual

28

Table 5- California/Arizona packinghouses and their affiliations, 1993.

Sales Agent Packinghouse Cooperative City Varieties

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

SunkistSunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Exeter Citrus Assn

Fillmore-Piru Assn

Grand View Heights

Ivanhoe Citrus Assn

Klink Citrus Assn

Limonera

Lindsay Fruit Assn

Magnolia Citrus Assn

Marlin Packing

Mesa Citrus Growers

Mission Citrus

Ojai-Tapo Citrus Assn

Orange Cove-Sanger

Orange Cove-Sanger

Orange Heights Orange Assn

Paloma Citrus Assn

Porterville Citrus Assn

Redlands Foothills Groves

Santa Paula Orange

Saticoy Lemon Assn

Sierra Citrus Assn

Sierra Vista Packing

Strathmore Cooperative Assn

Strathmore Packinghouse Co.

Sunland Packinghouse Co.

Tulare County Lemon Assn

Ventura Pacific

Villa Park Orchard

Yorba Orange Growers Assn

Yuma Mesa Fruit Growers

Baird-Neece Packing

Baker Bros

Blue Banner

Coachella Valley Citrus

Gillete Citrus Co

Golden State Packers

Golden Valley Citrus

H & R Citrus

Harding & Leggett, Inc.

Hillside Lemon Growers

Kaweah Citrus Assn

Kaweah Citrus Assn #2

Lawson Packing

L.V.W. Brown Estate

Mckinney Packing Assn

CCCCCCCCCCCCCCCCCCCCCC

Exeter

Fillmore

Terra Bella

Ivanhoe

Ivanhoe

Santa Paula

Lindsay

Porterville

Yuma, AZ

Mesa, AZ

Yuma, AZ

Somis

Sanger

Orange Cove

Corona

Visalia

Portewille

Redlands

Santa Paula

Santa Paula

Lindsay

Orosi

Strathmore

Strathmore

Porterville

Porterville

Montalvo

Orange

Anaheim

Yuma, AZ

Porterville

Woodlake

Riverside

Thermal

Dinuba

Woodlake

Strathmore

Orange Cove

Orange Cove

Lindsay

Lemon Cove

Orange Cove

Orosi

Riverside

Orange Cove

OT

OG

OTG

OTG

OTL

OTGL

OG

0

OTGL

OTGL

OGL

OG

OTL

0

OGT

00

OG

OG

L

0

0

0

0

OTG

L

L

OTG

0

OTGL

OT

0

OGT

OTGL

0

OT

0

OT

OLT

LT

0

OT

0

OTG

0

O=Orange

T=TangerineG=Grapefruit

L=Lemon

Continued

29

Table 5- California/Arizona packinghouses and their affiliations, 1993. (Continued)


Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Sunkist

Millwood Farms

National Orange co

Oxnard Lemon Co

Paramount Citrus Assn



Production Farm Mgmt

Royal Citrus

Royal Citrus La Vern Div

Stark Packing

Sun Pacific Shippers

Tempe Packers

Tri County Citrus Assn

Ventura County Fruit Growers

Visalia Citrus Packers

Orange Cove

Riverside

Oxnard

Oxnard

McFarland

Visalia

Glendale, Ai!

Riverside

Riverside

Strathmore

Exeter

Tempe, AZ

Orange Cove

Fillmore

Visalia

OT

OG

L

L

OT

OT

OTGL

OG

L

OTG

0

OTGL

OT

OG

OT

O=Orange

T=Tangerine

G=Grapefruit

L=Lemon

60 Houses

Independent

independent

independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Independent

Sunny Cove Citrus Assn

Cal Valley Citrus

Bee Sweet Citrus

Cecelia Packing

Ranch0 Del Sol

DiMare Company

Cinco Packing

Eco-Farm Citrus

Tom Wilson

Ecology Sound Farms

Mountain Grove Citrus

Premier Packing

Ranch0 Santa Madre

Sun & Citrus, Inc.

Sequoia Orange Co

J.C. Packing

Tri Citrus

Nash De Camp Co

Airdrome Orchards

J.B.J Ranch

Associated Citrus

Lemon Twist Ranch

Wileman Bros & Elliott

Kings River Packing

Natural Choice

Rainbow Valley Orchards

SunWest Fruit Co

Valley Cove Ranch

Pandol Bros

C Orange Cove

Lindsay

Fowler

Orange Cove

Yuma, AZ

lndio

Kingsburg

Orosi

Riverside

Glen Avon

Phoenix, AZ

Bakersfield

Valley Center

lndio

Exeter

Dinuba

Porterville

Porterville

San Jose

Corona

Yuma, AZ

Fallbrook

Cutler

Sanger

Thermal

Rainbow

Parlier

Springville

Orosi

OT

0

OGT

OT

OTGL

OTG

OT

OGTL

0

0

OTGL

OTG

OTG

OTG

OTGL

OTGL

OT

OL

OL

OG

OTGL

OGL

OT

OL

OTGL

OTGL

0

0

0 29 Houses

Continued

30

Table 5- California/Arizona packinghouses and their affiliations, 1993. (Continued)


Sunworld

Sunworld

Sunworld

Sunworld

Sunworld

Sunworld

Sunworld

Sunworld

Corona College HgtsCorona College Hgts

Irvine Valencia Growers

Orland Orange Growers Assn

Desert Valley Citrus

Empire Fruit Co

Johnston Farms

Sun World, Inc.

Riverside

Riverside

East Irvine

Orland

lndio

Queen Creek, AZ

Edison

Coachella

OTGL

OTGL

OG

0

L

OTG

0

OTG

O=Orange

T=Tangerine

G=Grapefruit

L=Lemon

8 Houses

Dole

Dole

Dole

Dole

Dole

Dole

Dole

Buenaventura Lemon

Earlibest Orange Assn

San Joaquin Citrus

Central Valley Citrus

E.T. Wall co.

Dole Citrus

Redlands Heights Citrus

Saticoy

Exeter

Clovis

Terra Bella

Riverside

Yuma, AZ

Mentone

L

OTG

OT

OT

OTG

OGL

OGT 7 Houses

CCOGC ’

CCOGC

CCOGC

CCOGC

Cal-Citrus Packing

Western Sierra Packers

Suntreat Growers

LoBue Brothers

Lindsay 0

Terra Bella OTL

Lindsay 0

Lindsay 0 4 Houses

107 Packinghouses

1 CCOGM = Central California Orange Growers Cooperative is a federated cooperative organization with the growers as direct members andthe packinghouses privately-owned. CCOGC’s primary function is to share information and coordinate shipments with their collective supplies.Source: California Citrus Mutual

into the packinghouse operation unilaterally byvirtue of the scale of their production. As packing-house operators, these grove-owning operationslook to Sunkist for the same marketing benefits ascooperatives representing smaller growers.

Four of the five non-Sunkist cooperative pack-inghouses are affiliated with Sun World. The largestis Corona College Heights, Riverside, CA,(“Corona”) which recently absorbed the ArlingtonHeights Citrus Co. when it decided to leaveSunkist. Corona had been with Sunkist until 1980when it left to join Sun World. Exports are a majoremphasis of the marketing programs of Corona andSun World, accounting in some years for more than60 percent of Corona’s volume.

The one cooperative packinghouse not affiliat-ed with any of the sales agents listed in table 5 and

therefore considered independent is the SunnyCove Citrus Association, Orange Cove, CA. SunnyCove was at one time a Sunkist member until it hadto foreclose. Eight Sunkist growers, who left to dotheir own marketing, bought and renovated theidle packinghouse to be operated as a cooperative.Sunny Cove has used a combination of sales agentsand brokers for their marketing. As of 1991, SunnyCove had 52 members.

Florida Fresh CitrusFlorida’s fresh citrus volume is small com-

pared with processing. Less than 10 percent is soldfresh. Florida with more than 70 percent of U.S. cit-rus production still accounts for more than 4.0 per-cent of U.S. fresh sales. Cooperatives are present inall phases of Florida fresh citrus along three organi-

31

zational types-individual packinghouse, central-ized cooperative owning multiple packinghouses,and federated central selling exchange.

In terms of numbers, the fresh packinghouserepresents the largest segment of cooperative activi-ty in Florida citrus. Thirteen of the 19 citrus cooper-atives market fresh fruit. The individual or localcooperative packinghouse has a long history oflocal growers forming and operating a packing-house to market their fruit.

Cooperative packinghouses were active fromthe late lSOOs, coinciding with the rise of a commer-cial citrus industry in Florida. Until the commercialdevelopment of citrus processing in the late 194Os,all Florida citrus was sold fresh. Many of the citruspackinghouses were formed before then-HainesCity Citrus Growers Association in 1909, WaverlyGrowers Cooperative in 1914, Lake Wales CitrusGrowers Association in 1914, Dundee CitrusGrowers Association in 1924, and Mt. DoraGrowers Cooperative in 1936.

By 1992,118 packinghouses were operating.Sixty houses had more than 95 percent of the totalshipments. Although only 16 of the 118 packing-houses were cooperatives, all were among the top 60houses shipping fresh Florida citrus. Although coop-eratives often serve the smaller growers, their hous-es often rank as sizeable commercial operations.

Many of Florida’s smaller packinghouses arein the gift-fruit or roadside stand business. Theytend to be fairly low-volume operations. The rangein house volumes can be considerable. In 1992,33houses shipped more than 1 million boxes of citruswhile 14 houses sold less than 1,000 boxes.

Unlike California, where most of the coopera-tive packinghouses are affiliated with Sunkist,Florida cooperatives are less identified with a sin-gle marketing organization. Table 6 lists the top 10marketers of Florida citrus for 1991-92 and thenumber of packinghouses they represent.

Of the 10 marketers listed, 5 are cooperatives.Seald-Sweet and Florida Fresh are federated mar-keting agencies, and Ocean Spray Cranberries,Dundee Citrus, and Haines City are centralizedpackinghouse operations. Although Seald-Sweetwas the largest single marketer of fresh Florida cit-rus, its share of the top 10 sales was less than 27

percent, substantially less than Sunkist’s dominant70 percent in California. Florida fresh packers tendto be more independent and competitive than thosein California.

In addition to these cooperatives in table 6,those in table 7 are the others active in fresh Floridacitrus and the types of marketing organizations, ifany, they are affiliated with.

At one time, all packinghouses in table 7 weremembers of Seald-Sweet. As with Sunkist inCalifornia, the mobility in marketing affiliationshas allowed the individual packinghouse to easilymove among marketing organizations.

Table 6- Top 10 marketers of Florida citrus, 1991-92.

Firm Number of Houses Volume’ Avg per House

Seald-Sweet Growers 15 15.0 1.0DNE World Fruit Sales 8 14.5 1.8Dole Citrus 4 6.2 1.5Florida Fresh Citrus Sales 5 6.2 1.2

Ocean Spray Cranberries 3 3.6 1.2A. Duda & Sons 2 2.5 1.25

Minton Sun 2 2.5 1.25Lykes Pasco Packing 1 2.4 2.4Dundee Citrus Growers 1 2.0 2.0Haines City Citrus Growers 1 2.0 2.0

Total 42 56.9 1.4

million boxes

1 Projected or actual, 1991-92. Source: The Packer

Table 7- Florida fresh citrus cooperatives andmarketing affiliations, 1992.

Cooperative Marketer

Mt. Dora Growers Cooperative Seald-SweetHunt Bothers Cooperative Seald-SweetWinter Haven Citrus Growers Assn Seald-SweetWinter Garden Citrus Growers Assn Seald-SweetMims Citrus Growers Assn Seald-SweetOslo Citrus Growers Assn Seald-SweetWaverly Growers Cooperative DNE World Fruit SalesGolden Gem Growers, Inc. IndependentLake Region Packing Association IndependentLake Wales Citrus Growers Assn Independent

32

Fresh Texas CitrusTexas citrus production is concentrated in a

four-county area along the Rio Grande Valley.Although orange trees were present by the early188Os, the commercial citrus industry did not devel-op until the 1920s. Aware of the California andFlorida cooperative citrus exchanges, Texas growersformed the Rio Grande Valley Citrus Exchange(Texsun). Exchange members were concentrated infour south Texas counties, so there was no need fora system of district exchanges like Sunkist. Theexchange performed all marketing intelligence andselling functions.

Although starting out in fresh fruit packing,this organization moved into the processing busi-ness in the 193Os, and exited fresh packing com-pletely in 1951. After a series of freezes in 1949 and1951, Texsun changed its form of organization fromcooperative to IOF.

In the mid-196Os, after the Texas industryrebounded from the freezes of 1949 and 1951, fourcooperatives formed the Texas Citrus Exchange(TCX) to operate similarly to the Florida andCalifornia groups. At its peak in the mid-1970s,TCX represented all Texas cooperatives and han-dled more than 40 percent of the State’s citrus pro-duction (fresh and processed). Largely because ofthe disastrous freeze of 1983, TCX’s membershipfell to two cooperative packinghouses by 1988.Edinburg Citrus Association, the oldest and largest,is today the dominant member of TCX with morethan 80 percent of its member volume.

Fresh markets for Texas citrus have alwaysbeen characterized by a number of independenthandlers. Even though TCX members had morethan 30 percent of fresh citrus sales in the 197Os,there were more than 20 different marketers orshippers of Texas citrus. The severe freezes of the1980s reduced the number of marketers of Texas cit-rus, cooperative or otherwise.

Cooperative ProcessingThe level of cooperative activity in citrus pro-

cessing basically coincides with the changes in pro-cessing technologies and consumption patterns.Before World War II, most citrus was consumedfresh. Processing was mostly a residual outlet for

citrus not suitable for the fresh market. Processingwas limited to single-strength canned products.Volumes were small relative to fresh markets.

For example, although most of Florida’s citrusis now processed, in 1931 less than 10 percent of itscitrus-mostly grapefruit-was processed. By themid-1940s, the development of the procedure forconcentrating orange juice had revolutionized theindustry. The introduction of frozen concentratedorange juice (FCOJ) started the steady shift fromfresh to processed products. In the mid 196Os, con-sumption of fresh and processed citrus (single-strength equivalent) was about equal. Since then,fresh consumption has remained fairly constantwhile consumption of processed citrus productsincreased. By 1992, almost 50 percent of Florida’sgrapefruit and more than 90 percent of its orangeswere processed.

With the advent of FCOJ came significantchanges in the structure of citrus markets. The pro-cessing of concentrated orange juice requiredgreater investments in plants and equipment com-pared with a fresh packing operation. Both the cap-ital to build the facilities and the volumes of fruit tooperate them efficiently predicated a pooling ofresources greater than those needed to operate afresh packinghouse.

Therefore, instead of fresh packinghousesadding a processing facility, most processors wereeither an aggregation of fresh packinghouses orfood manufacturing firms with the financialresources that allowed them to enter the processingbusiness. This is evident in two of the brand namesmost identified with processed citrus products-Minute Maid and Tropicana-which are owned bylarge beverage manufacturers, Coca-Cola, Inc., andJoseph Seagrams Co.

With the rise of the processed citrus sectorcame a change in the dominant players in citrusmarketing. The processor has become the mostpowerful player in the vertical market channel.

Rise of Citrus Processing CooperativesThe most common way for cooperatives to

enter citrus processing was by cooperative packing-houses joining to operate a common processingfacility. Processing provided an outlet of economic

33

value for the previously worthless packinghouse cit-rus (eliminations) not suitable for the fresh market.

For some cooperatives, packinghouses alreadyunited for fresh marketing such as Sunkist andTCX, processing was a natural extension of theirmarketing operations. The cooperative processorsnot arising from an existing fresh marketing organi-zation either were new federations of cooperativepackinghouses or were formed by individual grow-ers, primarily grower-owned packinghouses.

The level of cooperative processing in differentproduction regions largely reflects the relativeimportance of processing and the existing structurefor fresh marketing. Within the California/Arizonamarket, Sunkist’s share of the processing market iseven greater than its share of the fresh market-more than 70 percent. Many nonsunkist packing-houses send fruit for processing through Sunkist ona nonmember basis.

In Florida, the smaller share of processing bycooperatives, less than 30 percent, reflects thegreater independence of marketing firms and thevariety of their arrangements. However, the cooper-ative share of Florida’s processing sector is some-what smaller. Florida is so dominant in processing,that its cooperatives process much larger volumesthan their counterparts in other States.

Florida Processing CooperativesIn comparing the cooperative fresh marketing

activity in California and Florida, the developmentof a cooperative marketing exchange in Florida wasbased on Sunkist’s experience in California.However, where Sunkist ventured further into theprocessing sector to become the dominant player,Seald-Sweet remained strictly a fresh marketingcooperative. Although some Seald-Sweet membersjoined with other packinghouses to form a process-ing cooperative, Florida’s cooperative processingvolume is spread among a number of organiza-tions.

As in the fresh market, there is no dominantprocessing cooperative. Unlike the relatively frag-mented fresh market, however, Florida’s processingmarkets are dominated by a few privately ownedfirms. In 1992, the two largest processors, Coca-Cola and Seagrams, had more than 50 percent of

Florida’s processed citrus market. However, coop-eratives represented at least 50 percent of theremainder. Even though individually dwarfed bythe two giants, as with the fresh packinghouse,cooperative processors tend to be above average insize.

Most Florida processing cooperatives wereformed specifically for that purpose. At one time,Florida had more than 50 processors. By 1992, therewere only 27, a trend consistent with the increasingconsolidation and concentration of ownership ofcitrus processing facilities. Although the exact num-ber of processing cooperatives that have exited theindustry are not known, their rate of attrition isconsidered comparable to that of private firms.

Of the 27 processors, 5 are grower-ownedcooperatives (table 8). Of these, only Golden GemGrowers originated as a fresh marketing operation.When Golden Gem was formed in 1947, its fruitwas processed by another cooperative, B&WCanning. By 1958, Golden Gem had grown to sucha size that B&W could no longer handle the fruit, soGolden Gem constructed its own processing facility.Subsequently, B&W sold its processing facility to aprivate firm.

In the 196Os, Golden Gem began a cooperativeselling arrangement for processed products calledCitrus Central. Other members included SilverSprings Citrus Cooperative, Bordo Citrus Products(a cooperative), and Plymouth Citrus ProductsCooperative.

Citrus Central was a sales agent for theprocessed products of it’s members, with the mem-bers doing all their processing and packaging. Theonly jointly held asset for the marketing operationwas an office. Citrus Central was eventually dis-

Table a- Florida citrus processing co-ops, 1993.

Cooperative Fresh Marketers

Citrus World, Inc. NoGolden Gem Growers, Inc. YesOcean Spray Cranberries, Inc. YesSilver Springs Citrus Cooperative NoWinter Garden Citrus Products Cooperative No

Source: Florida Citrus Processors Association.

34

solved; Golden Gem and Silver Springs conductedtheir own processed-product marketing; and BordoCitrus and Plymouth Citrus folded.

Related to the Citrus Central marketingarrangement was ownership of a can manufactur-ing operation by its members. The canning cooper-ative supplied packaging materials to the members,and although it long outlived the marketing opera-tion, it was recently sold to a private firm.

All the other cooperatives in table 7 were newprocessing ventures, although the members wereinvolved in some form of fresh marketing. Mostpackinghouses were either cooperatives or private-ly owned by growers. They could legally join toform a processing cooperative. The first was CitrusWorld, Inc., Lake Wales. Today, it is the largestcooperative citrus processor in the U.S.

Citrus World was formed in 1933 by coopera-tive packinghouses in central Florida as an outletfor eliminations from their fresh packing lines. Theoriginal organization was called Ridge CitrusCanners and later the Lake Wales CooperativeCannery. As membership grew, its name waschanged to the Florida Citrus Canners Cooperativein 1943 and Citrus World in 1969. As the share ofFlorida’s citrus going to processing grew, CitrusWorld received more fruit directly from grower-members of the packinghouses that was grownspecifically for processing. Today, Citrus Worldprocesses the citrus from more than 50,000 acresinto a range of products. Orange juice in either sin-gle-strength or frozen concentrate are the predomi-nant forms.

In 1948, Winter Garden Citrus ProductsCooperative was formed by two cooperative pack-inghouses and six citrus grove owners. One of thefresh packinghouse members closed after the severefreezes of the 1980s. Winter Garden began more asa direct entrance by citrus grove owners into pro-cessing and less as an outlet for packinghouse elim-inations like Citrus World.

Silver Springs Citrus Cooperative was startedin 1966 when a group of about 10 growers pur-chased an idled plant to be operated as a processingcooperative. In 1992, three grower-membersremained. Some operated fresh packinghouses andsome were grove-owning direct members.

Ocean Spray Cranberries, Inc., is a relativelyrecent and unique cooperative entry into citrus pro-cessing. Noted as a cranberry processor, OceanSpray expanded into a growing fruit juice marketby blending cranberry and other fruit juices, one ofwhich was grapefruit. In 1976, Ocean Spray addedgrapefruit growers as members of the cooperative.As the relationship grew with its grapefruit grow-ing members, Ocean Spray extended citrus opera-tions into the fresh grapefruit business. Today,Ocean Spray is the leading processor of Floridagrapefruit and operates one of the largest freshgrapefruit packinghouses.

Another cooperative, known as the FloridaOrange Marketers (FOM), operates in the process-ing industry. FOM does not own a processing facili-ty, but instead supplies the Coca-Cola Company.Coca-Cola owns multiple processing facilities andrequires tremendous volumes of citrus. To guaran-tee the necessary volumes, Coca-Cola uses a dedi-cated supplier arrangement with FOM to act as acollector and “pooler” of fruit.

California Processing CooperativesAlthough the volume of California and

Arizona citrus going to processing has risen inrecent years, processing is still a secondary marketdue to the relatively low volumes compared withthe fresh market. Evidence of the secondary marketstature for processing is that few oranges or grape-fruit are grown for processing in California.

Conversely, most Florida citrus production isintended for processing. Florida citrus is more suit-able for processing, and comprises more than 80percent of U.S. citrus production going to process-ing. Due to lower costs of production and proximi-ty to major market areas, Florida quickly becamethe center of citrus processing.

Correspondingly, the returns and volumesneeded to efficiently operate a processing facilitywere much more difficult to bring together inCalifornia than in Florida. So, the level of all pro-cessing activity, cooperative or private, has beenmuch lower in California than in Florida. Of theeight processing facilities operated by the twolargest processing firms, only one is in California.

As with the fresh market, the story of coopera-

35

tive processing in California begins with Sunkist.The first lemon processor was the Exchange By-Products Company organized in 1915 in Corona,CA. These facilities were owned by lemon packing-houses in the Sunkist organization.

As early as 1931, Sunkist affiliated with acooperative processing company, the ExchangeOrange Products Company. These plants weregradually expanded. They eventually supplied 75percent of the lemon oil and 45 percent of theorange oil used in the U.S. However, the consump-tion of processed citrus did not take off until theintroduction of FCOJ after World War II. So the vol-ume of citrus processed into oils was still low com-pared with fresh. Because growing costs were high-er in California and Arizona, and its citrus did notyield as high quality a product as in Florida orTexas, frozen concentrate could not by marketednationally at competitive prices. While the produc-tion of concentrated citrus juices in Florida andTexas increased in the 195Os, Sunkist had a hardtime marketing processed products.

Unable to market a frozen concentrate, Sunkistshifted emphasis to supplying citrus concentratesand other products as ingredients to food manufac-turers. To ensure a more efficient use and coordina-tion of the Exchange Orange Product and ExchangeBy-Products plants, the two firms were merged intoSunkist in 1958. Sunkist membership began tospread with the northward expansion of productionin California. A processing plant was built inTipton to handle that production. Today, Sunkisthas two processing facilities, one at Tipton andanother in Ontario, where Exchange OrangeProducts had a plant.

In recent years, Sunkist has looked to increaseits sales of processed products. Still mostly a resid-ual usage for fruit not suited for the fresh market,yearly processing volumes can vary, ultimatelydepending on fresh market conditions. However,Sunkist has begun to take a more active posture inprocessed product marketing, including consumer-packaged products.

The change from mostly bulk product and pri-vate-label packing to more direct consumer market-ing was precipitated by a couple of factors. Newprocessing technologies allowed Sunkist to greatly

improve the flavor of its juice products, especiallythose using navel oranges, the most common vari-ety in the Sunkist system.

Also, they began putting the “Sunkist” brandname on single-strength and concentrated orangeand grapefruit juice products that benefited fromits name recognition. Although always an impor-tant source of income for its members, processedproduct marketing is increasingly important toSunkist.

Because Sunkist is such a wide-ranging orga-nization in California and Arizona citrus, at timessome of its members have operated their own pro-cessing facility. One such is the Paramount CitrusAssociation, California’s largest citrus growingoperation and a recent addition to Sunkist.Paramount has a plant in Visalia for both citrus andnoncitrus canned and frozen juices and blends. Thedecentralized nature of Sunkist’s governance sys-tem allows members to arrange for their own pro-cessing arrangements, although most memberssend their processed fruit through Sunkist.

Given Sunkist’s large membership, there hasbeen little other cooperative activity in processing.The one significant cooperative processor is theCalifornia Citrus Producers, Inc., (CCPI) Lindsay,CA, formed by some members of Pure Gold. Withthree packinghouses versus the 60-plus supplyingSunkist, CCPI has a relatively small share ofCalifornia’s citrus processing volume. It is only inbulk and private label packing.

Texas Processing CooperativesCitrus processing in Texas began as a single-

strength juice operation in the 1920s. Cooperativeprocessing had its roots in the Rio Grande ValleyCitrus Exchange (Texsun), a fresh marketing coop-erative. In the 193Os, the exchange saw a need tokeep low- grade fruit from the markets so that bet-ter grades would bring higher prices. In 1935, theexchange rented a small building in Weslaco andinstalled juicing equipment. By 1937, it was thelargest grapefruit juicing plant in the world. TheTexsun label became nationally known.

Texas suffered a series of freezes in 1949 and1951. Unable to obtain much fruit outside its mem-bership, Texsun was forced to permanently close

36

its fresh fruit operations. It decided to change theform of its organization from a cooperative to a cor-poration. This was done so the exchange, thenknown as Texsun Corporation, could purchase fruitfrom any sources, including Florida.

As of 1992, the Texsun label was owned bySundoor Brands, a subsidiary of Proctor & Gamble.After series of severe freezes in the 198Os, SundoorBrands idled its facility. No longer a cooperativetied to Texas citrus production, the Texsun brandjuices were packaged at facilities in other Statesusing Florida or imported supplies.

Since the change of Texsun’s operating status,cooperative processing in Texas has been limited toa single venture. Although Texsun exited the freshmarketing business in 1951, four of its cooperativepackinghouse members survived. In 1968, theyformed another central selling exchange called theTexas Citrus Exchange (TCX) to market fresh andprocessed citrus. TCX had no processing facilityand contracted with Texsun Corporation for its pro-cessing. In 1971, TCX constructed a new processingfacility in Mission. Eventually, TCX became one ofthe two largest processors of Texas citrus, compara-ble in volumes to Texsun.

Recent disastrous freezes that essentiallywiped out Texas citrus for a number of yearsaltered the operations of Texas citrus processors.TCX is now the largest processor in Texas, eventhough it, too, must rely on significant amounts ofnonmember business.

The effects of freezes, along with desire ofTexas growers to market as much citrus in the morelucrative fresh markets, will continue to be a limit-ing factor in the construction of the costly process-ing facilities in the future. For the foreseeablefuture, TCX will have more than enough capacity tomeet the needs of its members.

Processed Citrus MarketsTwo types of firms market processed citrus

products: those in citrus-producing areas thatactively buy and process raw fruit and those thatpurchase bulk citrus juices to be repackaged orreconstituted into consumer products. All eightprocessing cooperatives process raw fruit, as do thefirms selling the majority of the processed citrus

products. As a grower-oriented structure, coopera-tives compete not only in selling processed citrus,but also with processors for buying raw product intheir regions.

While cooperatives are active in processing cit-rus in all producing areas, none are dominant likeSunkist in fresh markets. Other than Sunkist, theother fresh citrus marketers are relatively free ofbranded marketing and extensive advertising andpromotion. Conversely, the processed citrus sector,particularly in the single-strength and frozen con-centrated consumer packages, contains some of thelargest food and beverage manufacturing firms.

If measured in terms of volume, sales, marketshare, net worth and asset ownership, and advertis-ing, the processor is the most powerful participantin citrus marketing. Some of these large food manu-facturing firms dwarf the cooperatives in the indus-try.

While Sunkist processes most of California cit-rus, it has a relatively small market share becauseof California’s minor role compared with Florida.Moreover, the largest U.S. citrus processing cooper-ative, Citrus World, Inc., is still somewhat smallerthan the two largest processing firms, Seagrams(Tropicana) and Coca-Cola Foods (Minute Maid).These firms handle the majority of domesticallyprocessed citrus. An estimated 25 other processors(8 cooperatives) have the rest.

Table 9 shows the position of cooperativescompared with other processing firms in terms ofvolume and number of facilities. Product volumesare the units of processed products sold by aprocessor in either frozen or canned form.Confidentiality and the lack of detailed data oneach processor require the use of a range of vol-umes published in the 1993 “Directory of Canning,Freezing, and Preserving Industries.”

Private processors from Florida are used forcomparison because they dominate the processingindustry and because the two California processingcooperatives already have more than 75 percent ofCalifornia/Arizona processing volume. For someprivate processors, it is difficult to assess theirapproximate positions in citrus processing becausethey marketed a wide variety of juice products, andwere therefore not included. Chief among these

37

would be Dole and Juice Bowl Products. Even so,the majority of domestically processed citrus is bythe processors in table 9.

For processors other than Coca-Cola orSeagrams, cooperatives are among the larger opera-tions in terms of the volume classifications present-ed. While 6 of the 25 Florida processors are not list-

Table 9- Selected citrus processors, factorynumbers, and volume ratings in the 1993 Directoryof Canning, Freezing, Preserving Industries.

Processor Frozen Canned/Glass Factories

“Big Two” ICoca Cola AAAAZTropicana AAAA

CooperativesCitrus WorldGolden GemSunkist AAAAOcean Spray AAASilver Springs AAAWinter Garden AAATexas Citrus Exchange AAACalifornia Citrus Producers B

Florida PrivatesLykes-Pasco AAAErly Juice AACitrus Hill AASun Pure AAAAdams Packing AAACaulkins Indiantown AAAAlcoma Packing AAOrange-Co AACitrus Service, Inc. AIndian River Foods ALakeland Citrus Exchange BHolly Hill C

52

1 “Big Two” of Coca-Cola(Minute Maid) and Tropicana aresegmented because of their large share of the citrus processed inthe U.S.-more than 50 percent. Although other processors areclassified in the same ranking, Coca-Cola and Tropicana volumesare significantly higher.2 AAAA is the highest rating, AAA the next, and so forth,with C being the lowest volume category. AAAA = volume of morethan 5 million cases canned, and more than 100 million poundsfrozen, C = less than 250,000 cases canned, less than 5 millionpounds frozen.

ed because of insufficient data, most are smallerthan those in table 9.

Product FormsCitrus is processed into a variety of forms, pri-

marily frozen concentrates, canned single strength,and chilled single strength. The leading productform, FCOJ, accounts for more than 60 percent ofFlorida’s 1991-92 processed production. Chilledorange juice (COJ) was the next with 28.7 percent,followed by frozen concentrated grapefruit juice(FCGJ) at 6 percent, and chilled grapefruit juice(CGJ) at 2.1 percent. Canned single-strength juices,once the only form of processed citrus, has longbeen declining in importance, now at only a 1.4percent share.

Orange juice has by far the largest share of theprocessed citrus market, more than four times thatof grapefruit juice products. In Florida, orange juiceaccounted for more than 90 percent of processedproduction.

While FCOJ is still the leading processed prod-uct, chilled orange juice has been increasing itsshare of the market. The premiums introduced inthe mid-1980s have become increasingly popular.Unlike the traditional chilled products reconstitut-ed from concentrate, the premium product has beenprocessed little, save pasteurization.

Citrus is a relatively fragile product to process,so the premiums achieve a higher level of qualityand taste than the concentrates. The increase inchilled orange juice’s share of Florida’s processedorange production, from 13 percent in 1986 to 28percent in 1992, is due largely to the growth in pre-miums. Cooperatives are active in processing andmarketing of citrus in all product forms (table 10).

Brands and LabelsWhen marketing under their own labels, coop-

eratives are competing with the national brands,medium-sized processors with regional or packerbrands, and the private labels. The Minute Maidand Tropicana brands of orange juice are the toptwo in market share. Another national brand,Citrus Hill, was launched by Proctor & Gamble inthe early 1980s. Though backed by their consider-able resources, Citrus Hill lagged far behind the

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other two national brands. Dissatisfied with its per-formance, in late 1992 Proctor & Gamble closed itsFlorida processing facilities and discontinued thebrand.

For the leading product categories, FCOJ orchilled orange juice, no cooperative has what can betermed a national brand.While Sunkist recently launched retail packs ofchilled and frozen concentrated products fordomestic markets bearing its name, for now itremains in relatively narrow distribution. In grape-fruit juices, Ocean Spray has a nationally recog-nized brand, but lacks a frozen concentrated grape-fruit juice. Ocean Spray is recognized more for itsblended juice products and “cocktails” than for thecommon forms-concentrated, chilled, or cannedforms-of citrus.

Cooperative brands are more regional innature. They tend to be marketed only in certainareas with limited distribution, and receive muchless advertising and promotion support thannational brands. In some cases, they receive noadvertising support, and are marketed more like aprivate label.

Minute Maid and Tropicana branded productsare in many forms, while cooperative brands arelimited to specific forms. For example, while CitrusWorld markets citrus in the same product forms asthe national brands, its Florida’s Natural and

Donald Duck labels are only in chilled juice andFCOJ, respectively. TCX’s Big Tex and Texas Starlabels are the leading cooperative brands for Texascitrus, but are not in the leading product form-frozen concentrate. Table 11 shows some of the bet-ter-known labels of processing cooperatives.

If not marketing under their own label, coop-eratives market processed product in either of twoways: processing and packaging for other firmsunder a private labeling arrangement or bulk to befurther packaged and marketed by other manufac-turers.

Private labels are products processed for aspecific customer in a package bearing the cus-

Table 1 l- Selected labels of citrus processors.

Cooperative Brands or Labels

Citrus World Donald Duck, Florida’s Natural,Blue Bird

Golden Gem Golden Gem, SunbrightSilver Springs Silver Springs, LifeguardWinter Garden Citrus Whole Sun, Sunshine State

ProductsTexas Citrus Exchange Big Tex, Texas StarSunkist Exchange, Pure Gold

Source: 1993 Directory of Canning, Freezing, and PreservingIndustries and Florida Citrus Processors Association.

Table 1 o- Cooperative processors and juice product types, 1992.

Product

Cooperative FCJOwn

Label 1 CannedOwnLabel Chilled

OwnLabel

Citrus World (FL)

Sunkist (CA)Golden Gem (FL)Silver Springs (FL)Ocean Spray (FL)Texas Citrus ExchangeWinter Garden (FL)California CitrusProducers

X X X X X XX X X X X Xl2X XX X XX X X XX X X X XX XX

1 “Own Label” means cooperative packages some product under a label owned and marketed by the cooperative.2 For export.Source: Florida Citrus Processors Association Membership Directory, and 1993 Directory of Canning, Freezing, and Preserving Industries.

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tomer’s label. Usually these labels are owned byretail grocers for sale in their stores. They are com-mon in all food products. In orange juice, privatelabels are especially important.

In 1991, less than 44 percent of FCOJ was soldby the national brands, leaving 56 percent to theregional and private labels, with the private labelsgetting the majority. Private labels are successfulbecause the retailer owns the brand, sets the priceson all products, and allocates the shelf space. Inaddition to their private label(s), the largest grocerychains usually carry only the two national brandsand one regional brand, if that.

Private labeling represents a significant part ofcooperative processing volume. In some casescooperatives such as CCPI package only under abuyer’s private label. Although private labels typi-cally bring smaller margins than branded ones, pri-vate labeling is attractive to cooperative processorsbecause the sales volume is obtained without theadvertising and promotion expenses needed to sup-port a branded product. Given the costs of market-ing and promoting a brand to compete with thelikes of Coca-Cola and Tropicana, private labelingwill continue to be an important outlet for coopera-tive processors.

Bulk ProductIn addition to packaging products themselves,

citrus processors, including all cooperatives, sellbulk product to be packaged by another firm. Muchof this is frozen concentrates to be repackaged forretail sale. In Florida for 1992, about 50 percent ofbulk concentrate was reprocessed into FCOJ, 28percent reconstituted into chilled products, and thebalance either exported (2.8 percent), reconstitutedinto canned (2.5 percent), or not identified (11.3percent). Texas and California processors also movesignificant quantities of bulk-processed product.Although the exact numbers are not known, theyare considered small compared with Florida.

The share of FCOJ sold in bulk has beenincreasing, due mostly to the role of the reconstitut-ing operations. Reconstituters buy bulk concentrateto be repackaged for retail and institutional sales.Often, these reconstituters are already in the bever-age manufacturing business, such as dairies or full-

line juice companies like Veryfine or Everfresh. Thescope of the reconstituter is seen in the more than120 firms listed in the 1992-93 canners and freezersdirectory as marketing a processed citrus product.

Reconstituters present an interesting situationto the citrus processor as both a customer and com-petitor. On one hand, they are a customer of theprocessor and in some cases the only one. On theother hand, reconstituters package and marketproducts that compete in the market with similarproducts from the processor. The more a processormarkets in retail packages, the more they competewith the reconstituter in the retail markets.

While the percent of their volume sold bulk toreconstitutors varies among processors, and hencethe reliance on them as a customer, the supply sidecompetition is more evenly felt in the form ofimported citrus concentrates. Most imported juiceis in bulk form to be reconstituted. Imports give thereconstituter an alternative to using domesticprocessors. Use of imports has increased to thepoint where Florida processors are no longer theprimary suppliers of juice consumed in the U.S.Imports have a major impact on domestic citrus,particularly for cooperatives tied to processingmember production.

THE ROLE OF COOPERATIVESCooperatives have long had a significant role

in the production and marketing of citrus in theU.S. At a minimum, cooperatives play a fundamen-tal role in providing services to citrus growers andcoordinating the production, harvesting, and han-dling of their citrus. In addition, cooperatives havea role in the operation and performance of citrusmarkets by being a viable marketing alternative forgrowers. The following sections will look at cooper-atives from the perspective of the citrus grower,and at the effects cooperatives have on the behaviorand performance of the marketplace.

The Citrus GrowerCitrus growers form or join cooperatives to

address a set of commonly felt needs and achieve aset of desired benefits. Cooperatives play key rolesfor their members.

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Home for Their ProductAll citrus cooperatives offer members a guar-

anteed home for their production. The nature ofcooperatives means the production of any member,regardless of size, must be marketed in the samemanner. For the smaller citrus growers, who lackthe resources to operate their own packinghouse ordirectly invest in a processing facility, cooperativesare often the best way for them to gain access tostable markets. Co-ops have a large percentage ofsmall grove owners as members because they pro-vide a guaranteed home for members’ products.

For citrus in particular, flexibility in marketingoptions is limited. The perennial nature of citrusproduction means the grower is making an invest-ment in a crop that does not provide an economicreturn for 5 or more years. As a cooperative mem-ber, the grower also is fairly well assured of a homefor future production.

In theory, marketing agreements allow thecooperative to revoke a grower’s membership. Inpractice, however, this rarely occurs, and only incases of member noncompliance or behavior detri-mental to the cooperative. In short, once commit-ted, members have a home for their productionuntil they choose to cancel or change their market-ing agreement.

Citrus is a perishable crop. Once harvested, itmust be immediately moved to the processor orpackinghouse. In big crop years, there can be morefruit than available packing or processing capacity.After a freeze, much fruit must be harvested at thesame time, further straining facility capacity thatcould leave some fruit unsold. Membership meansnot only that the cooperative must accept and mar-ket all the members’ fruit, but also the interests ofmembers come before those of nonmembers.

While contracts with IOFs can also secure ahome for their product, grower interests may besubordinated to those of management or sharehold-ers. Conversely, in addition to securing a home fortheir product, cooperative members acquire owner-ship in the organization that handles and marketstheir citrus. With ownership comes a measure ofcontrol over the decisions and operations directlyhaving an impact on the economic viability of theirproduction.

Ownership and ControlCooperative ownership is represented by equi-

ty investment, and control by voting rights.Growers control the decisions affecting the han-dling and marketing of their production. Interestsof the member are paramount to all others.Authority for establishing policies is vested in aboard of directors chosen from the membership.

IOF shareholders are interested in the highestreturns on their investments, which may or maynot correspond to maximum returns to citrus pro-duction. For a citrus grower contracting with anIOF, the policies affecting the price received isdetermined by policies aimed at maximizing share-holder equity, not the citrus grower. Some of thesepolicies may run counter to the interests of the cit-rus grower. In cooperatives, growers can ensure theorganization’s policies are aimed at achieving topreturns from members’ product.

Citrus cooperatives are democratically con-trolled-typically one-member, one-vote-regard-less of the amount of equity they have in the coop-erative. Even in cooperatives with proportionalvoting, the number of votes a member can have islimited. Stockholders control an IOF. The numberof votes are determined by the number of shares astockholder holds. There is no limit on the numberof shares a stockholder may own.

Economies of Scale and CoordinationCooperatives seek to achieve economies of

scale that allow individual growers to own andcontrol their marketing facilities and operations. Asthe fixed costs of the facility, equipment, and man-agement are spread over an increasing number ofgrowers, the average cost of these services to eachgrower decreases. Many growers cannot feasiblyoperate their own packinghouse, let alone a morecostly processing facility.

Related to economies of scale is the role coop-eratives play in coordinating the production, har-vest, and delivery of member fruit. While salesfunctions are common to most cooperatives, citruscooperatives are among the most active in agricul-ture in terms of services provided to coordinatemember activity.

Coordination is facilitated by the marketing

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agreement. Individual citrus growers turn overdecisionmaking to cooperative management onharvest, delivery, grading, and pooling. By coordi-nating the amount and timing of the harvest, citruscooperatives can more precisely schedule packingand processing operations. Facilities can be operat-ed at minimum cost. Coordinating production andharvesting practices gives cooperative managementthe flexibility to better match member fruit withbuyer needs.

Comprehensive Mar&e ting OrganizationsIn addition to pooling resources to achieve

economies of scale in marketing citrus, cooperativeshave another role to play. Cooperatives offer citrusgrowers the unique ability to gain access and ameasure of control in a comprehensive marketingorganization without requiring significant newinvestments. In addition to being a major domesticand export marketer of fresh and/or processedproducts, cooperatives such as Sunkist and OceanSpray bring the benefits of national brands, multi-product marketing, and price leadership.

In Sunkist, citrus growers have created theleading marketer of fresh citrus. Sunkist also is aprice leader-growers enhance their ability to movefrom the traditional position of price taker to havingmore say in the price received. Sunkist maintainsmarket share via a worldwide network of salesoffices supported by a full range of advertising andpromotion programs. Sunkist also makes significantinvestments in research on production and handlingpractices and developing new products.

The Sunkist name is so valuable that signifi-cant nonmember income is generated throughproduct-licensing royalties around the world. Thisnonmember income helps defray operating costs.

In Ocean Spray, Florida citrus growers gainaccess to a leading juice marketer. Ocean Spraymarkets a variety of branded juice products, andgives grapefruit growers a measure of price leader-ship and greater control over their returns. The costto individual growers of developing and maintain-ing a national brand would have been prohibitive.The lesson of Proctor & Gamble exiting the citrusindustry after spending millions of dollars in devel-oping and promoting a national brand speaks vol-

umes to the difficulty of achieving a large marketshare.

While other cooperatives are smaller thanSunkist or Ocean Spray and lack a national brand,they do have full-scale marketing programs and ameasure of market presence. Seald-Sweet, Florida’sleading fresh marketer, is known to buyers aroundthe world. One third of its cartons are exported.Seald-Sweet’s marketing expertise is evidenced bythe range of commodities handled-apples, lemons,limes, Honduran melons, and Vidalia onions-thatgenerate significant nonmember income.

TCX, the leading marketer of fresh grapefruitfrom Texas, has a name widely recognized bywholesale and chain store buyers. TCX also is amajor marketer of juice products, particularlygrapefruit.

Access to these and other marketing coopera-tives offers increased returns and a degree ofincome stability. Branded retail products, or leadingnames in the wholesale trade, often bring a pricepremium. A diverse marketing mix and a degree ofprice leadership can bring more income stability tothe member. These factors are part of the reducedrisk role cooperatives play for citrus growers.

Reduced RiskMany growers produce only citrus and tie sub-

stantial income risk to the fortunes of a specificcrop enterprise. Citrus is prone to wide swings insupply and price, so year-to-year income can wide-ly vary. The extension of the citrus production oper-ation into fresh packing or processing via coopera-tive membership can stabilize income. Profits fromthe processing or packing operation are often high-er when production is high and raw citrus prices(and profits) are low. Thus, the total profit fromproduction and processing may be more stable thanthe profits from only one activity.

Growers gain because risks are spread acrossthe entire cooperative membership. The most overtreduction of risk comes from pooling. No singlegrower has to bear the full brunt of day-to-dayprice fluctuations.

With a seasonal pool, these fluctuations areaveraged over an entire season. With the impacts ofdual fresh and processed usages, imports, and

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futures markets, there would be considerable riskin determining the best day to market fruit at agiven price. Members avoid having to deal with thedaily machinations of citrus markets.

In cooperatives, members are compensated ifthey have a production shortfall or their fruit doesnot get harvested, most often because of freezes.Most citrus cooperatives allow the board of direc-tors to alter pooling plans to address freeze-relatedproblems. Under one freeze contingency, the mem-ber is paid on pre-freeze estimates of what wouldhave been produced, particularly in cooperativeswhere the member relinquishes control over har-vest. Although cooperatives try to balance the har-vest among members, invariably some will haveless harvested and bear greater freeze-induced loss-es compared with others who had more fruit har-vested. In the interest of equity, the returns to har-vested fruit are pooled with the unharvested ordamaged fruit. Each member’s prorata share of thereturns is based on his or her pre-freeze estimatesof production.

Risk sharing can also have negative aspects.There may be a tendency for adverse selection-themost likely persons to participate in a cooperativepool may be the poorest risks. A second problem iscalled the moral hazard-averaging reduces theincentive for individual growers to do their best.

Grove Care and Harvesting ServicesMany citrus cooperatives provide services

beyond packing, processing, and marketing such asgrove care and harvesting. This is especially impor-tant for small growers who lack the resources toprovide their own services. This is why smallergrowers may constitute the bulk of the member-ship.

Some citrus cooperatives provide all the ser-vices needed to produce, harvest, deliver, and mar-ket citrus. This facilitates absentee ownership, aphenomenon more common to citrus than otheragricultural industries. Tax laws for many yearshave favored investments in citrus production.Many grove owners were not owner-operators andneed grove care and harvesting services. The inter-action of absentee owners with the cooperative canbe little more than “a check in the mail.”

Adopting Freeze-A versionProduction Practices

No citrus producing state is completely freefrom the damaging effects of freezes, so the contin-ued improvement and adoption of freeze-aversionproduction practices is needed for the long-termsurvival of many growers. In providing grove careand supply purchasing services, cooperatives arewell suited to assist growers in developing andimplementing the most effective freeze-aversionpractices.

Mitigating freeze damages begins with pro-duction practices. The first is with the type of citrustree to be planted. The scion and rootstock influ-ence a citrus tree’s cold hardiness. Most cooperativegrove care services begin at the first stage of pro-duction-advice on varietal selection and plantingpractices, and in some cases purchasing new trees.Since the freezes of the 198Os, Florida cooperatives,in particular, have encouraged members to usenew, cold-resistant citrus varieties.

Cooperatives also are encouraging freeze-aversion practices in new or replanted groves.Denser plantings have been found to reduce theeffects of freezes. So most new citrus acreage, par-ticularly in Florida and Texas, is more denselyplanted than was customary a decade or two ago.

Once planted, another major practice is the useor nonuse of irrigation to minimize freeze damage.Reduced irrigation at certain times of the yearinduces dormancy and increases cold hardiness.During a freeze, microsprinkler irrigation providescold protection by insulating the tree (ice remains at32 degrees Fahrenheit). Microsprinklers are widelyused, particularly in central Florida. Growersreplanting freeze-damaged groves have takenadvantage of the newer practices that best mini-mize the effects of future freezes.

But the adoption of new technologies, vari-eties, and production practices, while designed tominimize the effects of freezes, can never complete-ly eliminate the damage caused by future freezes.In the northern half of Florida’s citrus producingarea, the center of cooperative activity, freezes arestill accepted as inevitable.

The impacts of freezes are usually felt by allmembers of a local cooperative, so the continued

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use of risk-sharing mechanisms is an importantway to minimize the effects on any one grower.Risk sharing and equitable treatment are funda-mental to cooperative operating practices thatattract citrus growers. Continued use and refine-ment of freeze contingencies in cooperative poolingplans are important services to members-particu-larly the smaller ones with limited resources-inmitigating freeze losses.

Residual Market OutletFresh packinghouse cooperatives provide a

residual processing outlet for member fruit consid-ered unsuitable for the fresh market. All coopera-tive packinghouses sell and deliver member fruit tothe processor because it is impractical to return thefruit to the member for marketing.

Citrus World was created by packinghousesspecifically as an outlet for their eliminations.Although Citrus World now processes significantamounts of fruit direct from the grove, its majorrole is still to serve as the only outlet for elimina-tions from member packinghouses. Many of thesepackinghouses will also arrange for harvesting andhauling member fruit direct from the grove toCitrus World.

Supply CooperativesCitrus cooperatives have also created or affili-

ated with other cooperative organizations for spe-cific needs or services. The most common are thoseformed to buy supplies and materials for bothmembers and the cooperative.

The major citrus supply cooperatives are theFruit Growers Supply Company, Sherman Oaks,CA, and the Highlands Exchange ServiceCooperative (HESCO), Waverly, FL. Each is thelargest supplier of citrus production and processingsupplies in its respective State.

Formed in 1907 by the members of theCalifornia Fruit Growers Exchange (now SunkistGrowers, Inc.), Fruit Growers Supply Company(FGS) is a cooperative supply corporation. Its mem-bers are the growers and local packinghouses ship-ping fruit through the Sunkist system. FGS is not adivision of Sunkist, but a separate entity owned bySunkist members and closely affiliated with

Sunkist. FGS and Sunkist share nearly the sameboard of directors and board officers. Sunkist pack-inghouses are not required to join FGS, but must doso to secure its services. Most Sunkist packinghous-es are members of FGS. Sunkist has the large major-ity of California and Arizona’s citrus production, soFGS is by far the single largest provider of produc-tion and packinghouse supplies.

FGS supplies members most of the materialsneeded to grow, harvest, package, and deliver cit-rus. These supplies are provided to members atcost. FGS also provides the technical support in thedesign and use of different supplies.

Under the FGS membership agreement, thepacking unit agrees to purchase all containersrequired in harvesting, storing, and packing its cit-rus. The purchase of all other items is voluntary.

As a source of raw material for its box and car-ton supplies, FGS owns sawmills, manufacturingplants, and more than 350,000 acres of timber. Thismakes FGS one of California’s leading timber com-panies. Its timber sales are the primary source ofnonmember business.

The Highlands Exchange Service Cooperative(HESCO) was formed in 1972 from the merger ofHighland Crate Cooperative and the ExchangeSupply and Service Cooperative. HESCO is thelargest supply cooperative in Florida’s citrus indus-try.

Among the 49 members of HESCO are all 18 ofthe Florida citrus cooperatives. Others are grower-owned packinghouses or processors or grovecare/production operations. Although mostHESCO members are in direct competition withone another in citrus marketing, they accept thecooperative model for buying supplies at the bestpossible cost.

Initially, HESCO was primarily a corrugatedbox broker for its members. Since then, HESCO hasdiversified to offer members a variety of products,including materials for fresh packinghouses, cancases, agricultural chemicals, production and har-vesting equipment, and fuel and lubricants. HESCOalso operates a wholly owned subsidiary,Highland-Exchange Petroleum Supply Company(HEPSCO), which supplies fuel to HESCO mem-bers.

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Purchasing and Developing GrovesSome cooperatives, in response to competition

and declining membership bases, implemented dif-ferent mechanisms to assist growers. As a way ofretaining and/or increasing acreage, some coopera-tives take an active role in the financing and devel-opment of citrus groves by existing or prospectivemembers. Some offer only real estate advisory ser-vices, while others purchase and develop newgroves to be sold to members or operated by thecooperative until a member acquires them.

At times, a cooperative will form a whollyowned subsidiary to provide real estate services formembers. If some growers can’t purchase the mini-mum acreage required to participate in a develop-ment, a cooperative joins the development as anagent on behalf of its members. This allows smallergrowers to unite to meet the minimum acreagerequirements and purchase smaller, more economi-cally feasible parcels.

Cooperatives are also active in rehabilitatingand replanting members’ freeze-damaged grovesby providing management services and assistingwith financing.

In some instances, this included seeking aidavailable to growers from the Federal Governmentin the event of tree-killing freezes. The cooperativerepresents growers in sourcing the funds andpreparing the necessary paperwork. Some coopera-tives also worked with Farm Credit Services toobtained low-interest financing for grower-mem-bers’ grove rehabilitation.

Citrus Market ChannelsCooperatives also influence the performance

and behavior of citrus markets. Some roles are root-ed in general theories of cooperative behavior.Others are endemic to the citrus industry.

Allegiance to GrowersAn advantage for cooperative members is that

the cooperative owes its allegiance to the grower. Acooperative is dedicated solely to marketing thecrop of its members. Further, most citrus coopera-tives deal exclusively in citrus. Their members ben-efit from this specialization.

By contrast, a number of private citrus firms

are considered beverage or juice “manufacturers,”or fresh produce “marketers.” Some of these arelarge, diversified food marketers such as Coca-Cola, Seagrams, Dole, and Sun World. Citrus isonly one of many commodities they process andmarket, and they are often free to procure raw cit-rus from any domestic or foreign source. The netresult is they are not exclusively tied to the citrusgrower, as in the case of a cooperative. Their alle-giance is to the shareholders who care littlewhether the highest returns come from apple ororange products.

While these firms may be concerned with thefortunes of their citrus products, their first interestis in selling produce or juice products. This contin-ues throughout the market channel. Wholesalersand retailers have a choice in the types and vol-umes of products they will market based on theirrelative returns.

In a marketplace where most organizations areconcerned with returns to a set of products thatmay or may not include citrus, the role of lookingout for a grower’s citrus is often left to coopera-tives. In noncooperative arrangements, the growerhas no say in the decision on how much citrus, ifany, is in the firm’s marketing mix. In owning andcontrolling their cooperative, growers directly allo-cate resources and marketing programs exclusivelycommitted to selling citrus.

Ease of Entry/ExitGrower entry/exit affects cooperatives at two lev-

els-citrus production and the cooperative operation.Small or absentee citrus growers are attracted tocooperatives because of their full line of services.This means initial investments can be limited to theland purchase. The machinery and equipment forgrove care and harvesting are provided by thecooperative. Investors need not be activelyinvolved in citrus production.

Cooperatives make it easier for growers toenter or exit citrus production. A barrier to entrycan also be a barrier to exit. Agricultural economictheory holds that the more specific the assets are toa farming enterprise, the more difficult it becomesto exit.

Citrus production requires investments in

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assets (specialized facilities and equipment) withlittle value outside of citrus production. Therefore,the best use of the assets is in citrus production. Byjoining a cooperative, growers not only avoid hav-ing to make investments in personal facilities andequipment, but also reduce the cost of exiting citrusproduction.

The issue of entry/exit into or from coopera-tives is also important. Members may exit to mar-ket elsewhere after their yearly marketing agree-ment ends. Also, growers only commit specificacreage to cooperatives. Most growers have accessto multiple packinghouses within economical ship-ping distance. Most marketing agreements allowgrowers to ship fruit to more than one agent,including other cooperatives, although multiplecooperative membership isn’t common.

Although member equity is typically notrebated when leaving the cooperative, a key pointis that the equity is not lost. Old member equity isrevolved back at the same rate as that of existingmembers. With revolving periods of 20 or moreyears, many revolvement payments go to oldermembers or their estates. However, voting privi-leges are lost upon exit, so growers with largeamounts of equity have the proclivity to remainwith the cooperative to maintain a measure of con-trol over the policies affecting their equity.

There are few barriers for the cooperativepackinghouse wishing to enter/exit a fresh market-ing organization. Packinghouse agreements typical-ly allow them to exit the federation in any year, justlike contracts they have with their growers.Combined with the relatively low asset require-ments of a federated marketing agency and lowinvestments required of members, entry/exit to orfrom a fresh marketing federation is relatively easy.

Packinghouse Mobility In a federated marketingstructure such as Sunkist or Seald-Sweet, mostassets needed to harvest and pack fresh citrus areprovided by the member packinghouses. The feder-ated cooperative itself requires few assets and onlylimited investment from members.

In arrangements between cooperative packing-houses and private marketing agencies, the pack-inghouse also provides most of the assets needed to

prepare fresh fruit for the market. The net result isthat cooperative packinghouses can change market-ing affiliations with little or no new investments.The process of changing affiliations is called pack-inghouse mobility.

For Sunkist and the California/Arizona citrusindustry in general, there has been a high degree ofpackinghouse mobility in addition to the decliningnumber of packinghouses and increased averagehouse size. From 1960 to 1980,53 packinghousesoperating independently or affiliated with othermarketers joined Sunkist. On the other hand, 44packinghouses left Sunkist to join another organiza-tion. Nine went to Pure Gold, the other federatedmarketing cooperative. Five later returned toSunkist.

Further evidence of low-entry barriers in theSunkist system is in it serving as a major source ofpackinghouses for competitors. In 1980,24 of the 43packinghouses affiliated with Sunkist’s competitorseither were acquired from Sunkist or voluntarilydisaffiliated. For example, 7 of Pure Gold’s 12 pack-inghouses were originally affiliated with Sunkist.

Today, there are still many examples of pack-inghouse mobility in California/Arizona citrus. Forexample, Paramount Citrus Association was first aPure Gold member, then an independent marketer,and recently joined Sunkist. Another ex-Pure Goldmember, Arlington Heights Citrus Company, joinedSunkist for a few years, and now is affiliated withSun World after being acquired by Corona-CollegeHeights.

Florida packinghouses also can easily changetheir affiliations. Many cooperative packinghousesthat were members of Seald-Sweet now marketindependently (such as Golden Gem) or are affiliat-ed with a private sales agency (such as Waverly).

However, there has not been the movement inand out of Seald-Sweet on the order of Sunkist.Somewhat smaller in size, Seald-Sweet also has asmaller share of Florida’s fresh citrus market.Market share is spread out among the many mar-keting firms or independent packinghouses. Thefresh market is a relatively small part of Florida’scitrus production, so poor fresh market conditionswill not cause the same level of reaction as inCalifornia/Arizona.

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The structural characteristic of packinghousemobility makes for intense competition betweenmarketing organizations, and compels the coopera-tive federations to compete vigorously with rivalsto maintain their packinghouse members.

For Sunkist in particular, is the high degree ofmobility evidence of its efficiency or inefficiency?Packinghouses leaving or joining Sunkist feel theyhave gained from the move. Both could be right,depending on the different circumstances each faces.

Entry is easy, so some packinghouses willchange affiliations based on short-run conditions,particularly given the price volatility of citrus.Overall, the ability to change packinghouses pointsto cooperatives having a broader role in market dis-cipline.

Market DisciplineThe ability to change marketing affiliations

points to the broader role of cooperatives inaddressing either the failure of market conditionsor in keeping a market disciplined.

With cooperative membership being widelyavailable, citrus growers have a viable alternativeto poor marketing conditions arising from theunfair trading practices of buyers. Indeed, manyfruit and vegetable cooperatives, including citrus,were formed to improve the bargaining position ofgrowers facing high-handed and unfair buying tac-tics. In a cooperative, production is pooled under asingle seller. Buyers cannot play one grower againstanother. Cooperatives provide a form of disciplinein the market by forcing firms to deal with growersin a fair manner. This concept of keeping buyershonest stems from the belief that cooperatives are acompetitive yardstick.

Citrus growers can use cooperatives as a yard-stick to measure the performance of firms market-ing their fruit. Cooperative membership providesinsight into what is reasonable for both its membersand others. Moreover, ease of entry/exit and theability to belong to more than one cooperativeallow growers to compare the performance of coop-eratives. The performance of private firms is simi-larly kept diligent because growers can readilycompare packinghouse returns. This competitionfor fruit favors the citrus grower.

Summary on Cooperative RolesCooperatives play a significant role for citrus

growers along two levels. At one level are the effi-ciencies and economies of scale achieved in poolingthe fruit of many individual growers in an organi-zation.

Cooperatives are unique because growershave direct control over their operations. In doingso, they set policies that assure a home for theirproduction and spread risk across many growers.Many cooperatives also provide the complete rangeof production and marketing services, includingsupplies. Growers can achieve significant cost sav-ings by purchasing supplies and services from thecooperative. Growers reduce costs through efficien-cies gained in the close coordination of harvest anddelivery with facility and buyer needs. Gains fromefficiencies accrue to the cooperative member.

At another level, citrus cooperatives play animportant role in the marketing channel. They pro-vide grower access to the resources and marketingskills of a comprehensive marketing organization.In some cases, these organizations are the leadingcitrus marketer in their respective product lines,and are often at the forefront in developing newmarkets for citrus and citrus products.

As a result of direct ties to U.S. citrus growers,cooperatives more than most marketers look out forthe fortunes of U.S. citrus production in the market-place. Cooperatives also play a key role in disci-plining market behavior. The ease of entry into acooperative, and the ability to compare returnsfrom both private firms and cooperatives, facilitatestheir ability to discipline the market.

FUTURE ISSUESCooperatives face the same issues as any other

citrus marketing firm. Domestic citrus consump-tion-both fresh and processed-has plateauedduring the past decade. Periodic freezes and result-ing price increases partially reduced demand.Competition is also growing from an increasingvariety of other fresh fruits-kiwi, mangoes, etc.,and varieties of juices and juice products-blends,cocktails, etc.

For cooperatives, however, the issue goesbeyond the overall demand for citrus to the

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demand for citrus produced by a specific set ofgrowers: their members.

Cooperatives are directly tied to domestic cit-rus production. The continued viability of domesticcitrus production is fundamental to the future ofcitrus cooperatives. Like the rest of agriculture,cooperatives and their members face general con-cerns over pesticide use and food safety, complyingwith environmental regulations, water availability,and land-use restrictions. Issues specific to citruscooperatives and the industry are along two levels:1) those affecting the structure, location, and scopeof U.S. citrus production, and 2) those affecting thecontinued profitability of U.S. citrus production.

increasing Production CapacityFreezes hit all producing areas in the past

decade, including tree-killing freezes in Florida andTexas. Florida alone had seven freezes during the1980s. But the U.S. citrus industry has more thanrecovered. Production capacity will increasethrough the 1990s. Most growth occurred in Floridadue to greater than expected replanting, rehabilita-tion of freeze-damaged groves, and new acreagebeing brought into production, particularly insouthern Florida.

Most of the new and replanted acreage adopt-ed the freeze-aversion practice of higher densityplantings. As a result, the number of citrus trees inFlorida increased to a record 92 million in 1992,almost double the level of 1986. A large portion ofFlorida’s acreage is nonbearing. A recent USDAsurvey showing only 56 percent of the surveyedacreage had trees of bearing age.4 The FloridaDepartment of Citrus estimates an increase of 160million boxes of oranges/grapefruit in 1990 to morethan 250 million boxes by 1995.

Total U.S. citrus production is expected toincrease from current levels by about 75 percentinto the next century, with virtually all of thatgrowth in Florida. Texas is rebounding from devas-tating freezes in 1983 and 1990, but production maynever return to pre-1983 levels. California produc-

4 USITC Publication #2615, Industry and TradeSummary: Citrus Fruit, p. 1, March 1993.

tion, with the exception of the 1990-91 freeze-dam-aged crop, has been relatively stable. Other thanincreased yields achieved through better produc-tion practices and denser replanting of old groves,California’s production is expected to be fairly sta-ble into the next century.

Worldwide, citrus production is expected toincrease due to freezes and higher prices in the1980s that prompted expanded plantings in the U.S.and encouraged new plantings throughout theworld. Worldwide growth in the 1990s is expectedto jump 50 percent from levels in the 1980s.

Impact on CooperativesIncreasing production capacity has a mixed

impact for citrus cooperatives. Negative pressureon price for citrus and citrus products would resultfrom increasing worldwide production, given cur-rent levels of demand. U.S. per-capita consumptionof citrus products declined in the past decade, part-ly because of the periodic freeze-induced priceincreases.

However, while lower prices increase demand,this demand is “inelastic,” as is the demand formost agricultural products. Lower prices have agreater effect on reducing grower returns than onincreasing consumer demand. Thus, the per unitreturns for growers will usually be much lower fora large crop than for a small crop.

Market outlook for citrus products through theyear 2000 suggests low prices, so the emphasis willincreasingly turn to more aggressive marketingprograms and efficient cost-cutting measures. Morecost-efficient practices will become essential forcooperatives in maintaining grower returns in theface of downward pressure on price and increasingcompetition from lower cost producers on theworld market.

Positive for cooperatives is the potential forincreased membership and volume from theexpanding production capacity.Cooperatives are totally dependent on U.S. citrusproduction, so greater domestic capacity increasesthe acreage and volume available for cooperativemembership.

Also, the negative effect of lower prices will bedampened by a general citrus industry condition:

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cooperative membership increases in periods ofincreased supplies and lower prices, and decreasesin corresponding periods of decreased supplies andhigh prices. The projected increase in supplies lim-its the upside potential of speculating in the cashmarket and increases members’ risk of not having ahome for their product. Periods of low prices raisethe value of shared price-risk through participationplans and a guaranteed market, both of which arecornerstones of cooperative marketing arrange-ments.

A caveat to the potential for increased cooper-ative volume is the changing scale and location ofdomestic citrus production occurring along withincreasing production capacity. In some areas, pro-duction is shifting away from areas of traditionalcooperative membership. The scale of many newgrove operations is greater than the typical cooper-ative member-the small grower. The changingscale and location of production have been espe-cially important to Florida cooperatives, althoughcooperatives in other areas are also experiencingthe impacts.

Shifting ProductionFlorida citrus production has gradually shifted

southward as citrus growers seek to escape freeze-prone areas. In California, urban pressures caused along-term shift of citrus production to the centralvalleys further north and desert areas in southeast-ern California and northeastern Arizona. Texas cit-rus production remains along the southernmostedge of the State. With no room to move furthersouth, there have been changes in the size and typeof citrus operations.

The changing location and scale of productionhave a direct impact on cooperative membership.In particular, for the individual cooperative pack-inghouse or processor, shifts in the location of cit-rus groves can reduce their traditional bases ofmembership. Even if the shifting grove is owned bya member in the cooperative, it may be less costeffective to provide the same range of services tomore distant groves.

With shifting production has come an increasein the average size of operations, mirroring the gen-eral trend in agriculture towards fewer and larger

farms. The increasing scale of citrus productionreduces the share of acreage owned by the tradi-tional cooperative member.

Many cooperative members own small grovesor are passive investors, attracted by the servicesand economies of scale offered by the cooperative.While the citrus industry still has substantial num-bers of passive investors and small growers, morecitrus acreage is coming under control of the larger,more self-contained farming operations. Expansioninto new production areas in Florida is led by thelarger operators.

FloridaTwo phenomena are occurring in Florida. First,

exiting growers are selling their farms to others,effectively increasing the average size of grove oper-ations. Secondly, Florida’s citrus production is shift-ing southward (figure 11). Groves abandonedbecause of susceptibility to freezes were replacedwith new acreage planted further south. Combinedwith greater than expected rehabilitation of groves inthe central part of the State, by the 1993-94 season,Florida will surpass prefreeze production levels.

Substitution of southern for northern acreagerepresents trends in both the movement away fromthe traditional area of cooperative membership andthe smaller groves of the traditional cooperativemember. A recent USDA survey indicated morethan 70 percent of them had less than 50 acres. Butthe economics of production in southern Florida-higher land preparation costs-dictate larger hold-ings.5

U.S. Sugar, a recent entrant into citrus, ownsalmost 20,000 acres of citrus groves in southernFlorida, with an additional 3,000 acres in retentionponds alone. On the other hand, Waverly Growers,located in the northern production area and one ofthe State’s larger cooperative packinghouses, hasless than 6,000 acres of citrus groves averaging lessthan 30 acres per member.

5 See “Economic Comparison of Southern andNorthern Citrus Production in Florida” from theproceedings of the Florida State HorticulturalSociety, 102.27-32. 1989.

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Figure I I- Trends in Florida Citrus Acreage Into the 199Os, and Location of Cooperatives

Steady decline in acreage. u t-’

Center of production through198Os, but little growth in acreage.

Much non-bearing acreage cominginto production and continued newplantings into next century.

Black square denotes cooperative locations.Based on tree survey by Florida Agricultural Statistics Service.

Environmental issues, particularly water avail-ability and the Everglades, may slow or even limitfurther southward movement of citrus acreage. In anycase, there are different economic costs of producingcitrus in northern Florida versus southern Florida.The relationship of these costs, combined with weath-er considerations and risk, will continue to determinethe location of Florida citrus production.

It is common in Florida for many privatelyowned packinghouses or processors to own exten-sive acreage, effectively shrinking the pool ofacreage available for cooperative membership.

Already facing declining member bases, coopera-tives were forced to become more aggressive inrecruiting and/or retaining member acreage bybecoming a partner in the financing and develop-ment of new groves or in rehabilitating damagedgroves.

New Grove Development Through either outrightownership or joint venture, many of Florida’s citruscooperatives own and operate citrus groves.

In 1983, Citrus World began the first of threegrove development projects, each organized as a

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separate cooperative comprised of individual grow-ers. Citrus World acquired the land, developed thegroves, and offered them for sale to its growers orinterested investors.

The first project, known as CooperativeProducers, Inc., was in Hendry County and totaledmore than 3,600 acres spread throughout the mem-bership of Citrus World. The Ranch OneCooperative project was completed in 1988 withmore than 3,100 acres in Collier County. The thirdproject, C-3, will have more than 2,280 acres in LeeCounty. More than 9,028 acres were sold to morethan 101 growers investing in these three projects.

Some of Citrus World’s members alsoincreased acreage by starting their own grovedevelopment programs. Waverly Growers, forinstance, created partnerships with its grower-members for purchasing groves. One large groveowned by a long-time member of Waverly wasoffered for sale. The acreage was much larger thanwhat the typical Waverly member could purchase,so it was unlikely any one member could purchasea grove of this size. Moreover, Waverly felt a personpurchasing a grove of this size would not continuewith the cooperative.

To facilitate the purchase, a new entity wascreated combining the interests of 14 Waverly mem-bers. By pooling member resources, Waverlyretained a significant part of its acreage base.

The examples of Citrus World and Waverlyshow how cooperatives, at either the federated orlocal level, can play a role in creating the economiesof scale necessary to develop groves. The ability ofcooperatives to assist members in developing newgroves will play a large role in maintaining mem-bership bases, particularly as production shifts tosouthern Florida.

Recruiting New Members Although cooperatives hada role in developing new citrus groves in southernFlorida, most acreage is being developed by thelarger, more self-contained joint-ventures or farmmanagement groups. While these entities are notthe typical cooperative members (they providetheir own grove care, harvesting, and managementservices), there is little fresh packing or processingcapacity in southern Florida.

Currently, most fruit is transported northwardto facilities in central Florida, creating an opportu-nity for cooperatives to develop relationships withgrowers in southern Florida needing a marketingoutlet for their product. However, as facilities arebuilt in southern Florida, acreage available forcooperative membership may shrink because facili-ties likely will be built by the larger operators whoare not typical cooperative members.

An example of an investor-owned-firm integrat-ed development in southern Florida is Dole Citrus, adivision of the Dole Food Company. Dole Citrus, in ajoint venture with Hancock-Fidelity Citrus, Ltd., isbuilding a packinghouse in Hendry County TheDole house, one of the largest in Florida, in its firstphase can produce more than 3 million cartons. Asecond phase would double that capacity.

Dole’s entry in southern Florida underscoresthe need of cooperatives facing a declining memberbase to aggressively pursue new acreage. Floridacooperatives need to recruit the large grove ownerby being more flexible in the range of servicesoffered. Some cooperatives offer contracts for spe-cific packing and marketing services as a way totailor services to the larger grower who needs fewerservices.

Grove Rehabilitation and Replanting Freezes causedgrowers to abandon many citrus groves in northernFlorida. But, in central Florida-traditional base ofcooperative membership-many damaged groveswere rehabilitated and/or replanted by citrusgrowers.

Assisting growers in rehabilitating groves isan important function for many citrus cooperatives.Some worked with creditors for loan programs tohelp growers finance the large up-front costs asso-ciated with replanting a citrus grove. Althoughsome cooperatives have successfully expandedtheir service areas, rehabilitating or replanting offreeze-damaged groves remains the chief way tokeep members.

Golden Gem Growers, Inc. A good example of how acooperative adjusted to a series of damagingfreezes and eroding member base is Golden GemGrowers, Florida’s largest citrus cooperative.

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Before the freezes of 1983 and 1985, most ofGolden Gem’s acreage was in northern Florida.Figure 12 shows Golden Gem’s member acresdeclined sharply from around 24,000 in 1983 to2,400 acres after the 1985 freeze. Given the bleakoutlook, Golden Gem took these steps to maintainoperations while rebuilding its membership base:

1) Reduced costs and sought nonmember fruitthrough account sales or participation plans to keepfacilities operating and cover fixed costs. Risky cashbuying was avoided. Other procurement optionsserved recruiting better because they were similarto member arrangements.

2) Rebuilt member acreage by providing grower-members technical guidance and grove-care ser-vices to rehabilitate and replant freeze-damagedgroves.

3) Encouraged adoption of freeze-aversion produc-

tion practices, such as denser plantings, use of morecold-hardy varieties, and micro-jet sprinkler irriga-tion.

4) Offered a choice of marketing agreements,including an accelerated payment option. This wasdesigned to meet the cash flow requirements ofmembers incurring heavy expenses in grove reha-bilitation or purchasing young groves with lightcrops and large front-end cash-flow requirements.The accelerated payment option also helped recruitnew members, particularly those with newly devel-oped groves.

5) Attracted new members with flexible marketingagreements allowing them to select the servicesthey wanted from Golden Gem. This was especiallyimportant in recruiting larger growers who provid-ed their own grove care and hauling services.Members could contract for either fresh orprocessed fruit, or both.

Figure 12- Golden Gem Growers Member Acreage

Thousands35

30

25

1978 79 80 81 82 83 84 85 86 87 88 89 90 91 92

Source: Citrus industry magazine.

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6) Expanded member recruitment on a statewidebasis.

7) Continued use of contingencies for freezes inpooling policies where grower-members are paidon pre-freeze production estimates. These actionsserve as both a risk-sharing mechanism to limit thenumber of members exiting citrus production, andas a recruiting tool for the more risk-averse grower.

Golden Gem increased membership both fromgreater than expected replanting of member grovesand from significant numbers of new membersfrom areas outside their traditional member base.Combined with the widespread adoption of freeze-aversion production practices, the long-rangeimpact of the 1989 freeze was much less than fromearlier freezes.

Golden Gem acreage increased to an all-timehigh of more than 31,000 acres in 1992. Moreover,this acreage is spread across 27 counties-11 coun-ties have more than 1,000 acres each. Most membergroves are now either south or west of Polk County.Years ago, 90 percent were north of Polk County.

CaliforniaThere has been a more gradual change in the

scale and location of citrus production inCalifornia. Instead of freezes accelerating the south-ward movement of acreage like in Florida, thesteady urban sprawl and rising land prices overseveral years made for a more gradual movementof citrus acreage out of southern California into thevalleys of central California and the desert areas ofCalifornia and Arizona (figure 13). Production hasbeen established in central California and Arizonafor many years. Although it is still declining nearthe urban areas of California, acreage has not been“replaced” on the scale to which new acreage insouthern Florida replaced smaller groves aban-doned in the north.

California has had fewer devastating freezesthan Florida, as verified by a recent USDA survey.While only 56 percent of surveyed orange acres inFlorida had trees of bearing age, 96 percent of theorange acres in California had trees bearing fruit.California cooperatives not only had more stablesupplies, but members did not have to bear the loss

of income and expenses of rehabilitating andreplanting groves. Overall, although the scale andlocation of citrus production in California havechanged during the past 50 years, these changeshave had less of an impact on cooperatives than inFlorida.

At Sunkist, the long-term shift in citrus pro-duction in California and Arizona had relatively lit-tle effect. As a marketing and sales agency, Sunkistcan provide essentially the same level of serviceregardless of where the citrus production occurs.Sunkist packinghouses are found in all productionareas of California and Arizona. Membership hasgenerally kept pace with shifts in production areas.

The Sunkist system of district exchanges facili-tated the spread of production in California andArizona. The exchanges allowed sales to be coordi-nated between packinghouses spread over a widearea, and served as communication links betweenthe growers and Sunkist Central at a time whenroads and communications were still relativelyprimitive.

The role of Sunkist in developing and expand-ing the citrus industry in California and Arizonaalso laid the foundation for competition from otherfirms in the future. As Sunkist led the expansion incitrus production by increasing the profitability tonot only citrus growers but also to all firms in thecitrus industry, new entrants were attracted into cit-rus marketing. The challenge to Sunkist’s member-ship base came from other firms enticing citrusgrowers away, particularly the new grower.Competitors offered financing assistance in pur-chasing and developing citrus groves. This ledSunkist to take a more active role in citrus realestate.

New Grove Development In response to decliningmember acreage and increased competition fromother fruit marketing firms offering financing to cit-rus growers, Sunkist in 1988 created a subsidiarycalled Sunkist Real Estate, Inc. It attracts invest-ments to citrus production, mostly through loansmade to existing members or prospective members.It is operated at no cost to Sunkist members. Inaddition to real estate advisory services and short-term bridge financing for members, Sunkist Real

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Figure 1% Location of Packinghouses in California/Arizona, 1992, and Long-Term Trendsin Production

Citrus acreage has gradually shifted from the LosAngeles area north ward into the Central Valley andeastward into the desse/t country of southeasternCalifornia and Arizona.

Estate bylaws allowed it to purchase and operateexisting groves for delivery of fruit through Sunkist.The intention would be to ultimately sell these landsto other members as a way to retain memberacreage. As a recruiting tool for new members, non-members may borrow money from Sunkist RealEstate if they join Sunkist Growers. Althoughbylaws permit it, Sunkist Real Estate does notactively develop new groves, i.e., buying land andplanting trees to be sold at some future date.

TexasUntil the 198Os, Texas had significant numbers

of absentee owners. They were a staple of coopera-

tive membership-some having more than 50 per-cent. The effects of freezes, combined with tax codechanges unfavorable to citrus investments, causedmany to exit citrus production in Texas. However,some of the remaining growers purchased andreplanted many of the idled groves. After years ofno commercial production in 1990-91 and negligibleamounts in 1991-92, Texas re-entered citrus marketsin 1992-93. The 1.5 million boxes of grapefruit and450,000 boxes of oranges were still less than one-third of prefreeze levels, but Texas productionrebounded better than expected and should contin-ue to increase as replanted trees come into bearing.

The immediate future and continued viability

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Figure 14- Texas Citrus Production Area

of citrus cooperatives in Texas depends on howmany members replant their freeze-devastatedacreage. More importantly for the long run, cooper-atives need to attract new members and offer moreflexible services.

Because citrus production in Texas is alreadyhugging its southern border (figure 14), coopera-tives may need to look at nonmember fruit businessfrom Mexico. Foreign growers may become mem-bers of U.S. cooperatives.

Changing Market StructureCooperatives often have been formed by

growers as a response to adverse or changing mar-

ket conditions. They and their growers will contin-ue to face a changing market structure and accom-panying challenges and opportunities.

Facility Capacity and SpecializationThe capacity for packing fresh citrus is dictated

not only by the number of packinghouses, but alsothe volume of citrus that equipment can handle. Thetrend toward increasing packinghouse capacity wasbrought on by more efficient equipment and technol-ogy. Competitive pressures require continualupgrading of packinghouse facilities to remain eco-nomically viable. Moreover, idled packinghousesquickly become obsolete and are unlikely to reopen.

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During the late 198Os, Florida cooperativepackinghouses were concerned about reducedmember volume and the prospects of significantexcess facility capacity Although some housesclosed, the post-freeze recovery and expansion ofcitrus acreage in Florida eased concerns aboutcapacity. Moreover, forecasts for increasing produc-tion into the next century raise the issue of havingenough packinghouse or processing capacity. In1992, Golden Gem Growers-one of the coopera-tives hardest hit by the 1980 freezes-stoppedaccepting deliveries of some varieties of fruit dur-ing the season. However, the outlook in terms ofadequate supplies to operate existing cooperativefacilities is positive.

As citrus varieties increase, so will the needfor more specialized facilities. In fresh packing,each variety must be run separately through apacking line, making it increasingly difficult for asingle packinghouse to handle all types of citrus.Some varieties need unique types of handling andpacking equipment.

Also, growing export markets are requiringmore specific product characteristics and differenttypes of packaging. Increasing market segmenta-tion is creating opportunities for packinghouses tospecialize their packing operations.

In Florida, Haines City Citrus GrowersAssociation (HCCGA) installed a packing line cus-tomized to handle tangerines. Ocean Spray packsonly fresh grapefruit, with most of it exported. InCalifornia, a Sunkist-affiliated house has opened apacking facility dedicated to specialty types of cit-rus such as Mandarin oranges and grapefruit-typevarieties such as pummelos. Separate packing lineswill be custom made for each type or variety.Specific picking crews and custom-grading equip-ment will be used to achieve maximum operatingefficiency. Corona-College Heights normally packsmost of its white grapefruit for export to Japan.For cooperative packinghouses, particularly thosewith lower volumes, the need to update and spe-cialize operations will increase as markets becomemore specific and competition intensifies withincreasing supplies and declining prices.

On-Farm PackinghousesAnother structural issue for cooperatives

stems from the on-farm packinghouse-large cit-rus-growing operations that include a fresh pack-inghouse. Grower-owned packinghouses have longbeen common to citrus. The growth in size willchallenge the grove owner(s) to finance and supplytheir own packinghouses. This brings a mix ofimpacts for cooperatives.

On one hand, not only do grower-ownedpackinghouses compete with cooperatives in mar-keting fresh citrus, they also compete for growersby providing grove care, harvesting, and packingservices.

However, these grower-owned packinghousesare also a source of membership and volume for thecooperative federations. As agricultural producers,the grower-owned packinghouse can be a memberof a federated agricultural cooperative, and mostcitrus marketing federations count some as mem-bers.

Marketing FederationsIf the trend toward more individual grower

ownership of packinghouses continues, demand forservices from a cooperative will shift towards thesales and marketing functions of a marketing feder-ation. While grove care, harvesting, and packingservices will continue to be important cooperativefunctions, the share of citrus production from mem-bers needing these services will decline with thegrowth in self-contained grower-owned packing-houses. However, given that these packinghousescan be members of a cooperative marketing federa-tion, the share of potential production to be market-ed in a cooperative structure will be much lessaffected.

In each of the citrus-producing regions, mar-keting federations -principally Sunkist inCalifornia, Seald-Sweet in Florida, and the TexasCitrus Exchange-will continue to play a dual roleof providing marketing and sales services to indi-vidual growers and bringing a more orderly andbetter coordinated system to citrus markets. Thecoordinating and stabilizing attributes of coopera-tive marketing federations should become morevaluable as production capacity increases and mar-

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kets become more prone to intense and inherentlydestabilizing price competition. Federated cooper-atives such as the Central California OrangeGrowers were formed in response to the ruinousprice competition felt to exist between the mem-bers.

Marketing federations also help growers andtheir cooperatives to address another structuralissue-increasing concentration of the food indus-try into the hands of fewer and larger processing,marketing, and retailing firms. As there are largenumbers of citrus sellers compared to fewer andoften much larger buyers, power in the marketplacecan be skewed considerably towards the retailingsector.

Under the Capper-Volstead Act, a group ofgrowers and/or grower-owned packinghousescould immediately combine to increase their mar-ket share. Market share translates into marketpower. Because marketing federations typicallyrequire relatively little new investments-mostassets are owned by the members-, they offer con-siderable potential for citrus producers and packersto achieve a measure of market power.

Globalization of Citrus TradeOne of the clear changes in the market struc-

ture for citrus is the increased globalization of cit-rus markets. Historically, the U.S. citrus industryhas been domestically oriented because of hightransportation costs, high perishability, and hightariffs between countries.

Until recently, frozen juice consumption waslimited mainly to the U.S. and Canada, althoughthere was some trade in fresh and canned citrus. Inthe early 198Os, changes began to take place inworld trade. Brazil substantially increased its citrusplantings for export markets. Many developmentswere joint-ventures in other countries by U.S. citrusand beverage companies searching for foreignsources and year-round supplies. Trade in fresh cit-rus also increased because of increased demand,increased supplies, better transportation, and low-ered trade barriers.

By the 199Os, the U.S. citrus industry hadchanged substantially to one increasingly integrat-ed with international markets.

The increased globalization of citrus trade hasboth positive and negative impacts on different seg-ments of the citrus industry. Overall, processorshave generally gained the most by having foreignsources and lower prices, particularly in times ofdomestic shortfalls. Also, steady growth in foreigndemand has benefitted growers and organizationsin fresh marketing channels.

The one segment hurt has been growers pro-ducing for processed markets and processors whorely primarily on domestic supplies. As an organi-zation of citrus growers, cooperative processors areparticularly susceptible to increased imports of cit-rus juices, particularly FCOJ.

FCOJ and ImportsBy far the largest category of citrus imports

consisted of FCOJ-$293 million or 64 percent ofthe $459 million in total citrus fruit imports in 1991.However, FCOJ imports were 90 percent higher in1990 due to the late-1989 deep freeze in Florida thatgreatly reduced the 1990 orange juice crop.Resulting higher prices allowed imports into theU.S., primarily from Brazil, to overcome the costdifferentials created by the ad valorem tariff andhigher transportation costs. Conversely, in years ofhigher Florida production citrus prices decline andimports are at a relative disadvantage.

As marketers of domestic citrus, Florida coop-eratives and their members are especially con-cerned about increases in FCOJ imports. Whileincreasing domestic production will lower pricesand reduce the need for imports, it also reducesgrower returns. Also, in times of reduced domesticsupplies, the price increases that growers wouldenjoy are mitigated by the ready availability ofimports.

Of particular interest to Florida producers isthe North American Free Trade Agreement(NAFTA), primarily the U.S.-Mexican component.Florida producers fear eased trade restrictions willallow Mexico to use its advantage of lower wagerates and fewer regulations to boost exports of cit-rus products, primarily FCOJ, to the U.S. Loweringtariffs on Mexican FCOJ would give Mexico a sub-stantial advantage over Brazil, currently Florida’schief competitor.

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The early effects of NAFTA will be minimalbecause Florida citrus producers vigorously soughtand received exemptions to NAFTA. There is anextended phaseout period of tariffs (15 years) onMexican FCOJ imports. While it may take manyyears and significant capital investments forMexican supply and quality to approach that ofFlorida, the Mexican production potential is there.In 1991, the number of newly planted trees equaledthe number of bearing trees.

Another issue for citrus cooperatives is theincreasing role of reconstituting operations in mar-keting citrus juices. At one time, most FCOJimports were by Florida processors. Freezes andresulting price rises, combined with the ability toimport FCOJ in large bulk tankers-like with oil-spawned the development of large tank farms out-side Florida to be nearer the consuming areas.These importers either package the FCOJ intoretail-sized containers, or ship the FCOJ in bulk torepackagers such as dairies or grocers.

While most cooperative processors ship FCOJin bulk, and reconstituters have become increasing-ly important markets, many importers come to relyon Brazilian FCOJ and have located near ports ofentry to reduce transportation costs. Both foreignand domestic supplies of FCOJ are projected toincrease, so the market for juices from concentratewill be increasingly competitive for cooperativeprocessors that must rely on domestically producedcitrus.

ExportsWhile the large majority of U.S. citrus imports

is juice, the bulk of citrus exports are fresh product.In 1991, U.S. exports of fresh citrus topped $613million while exports of citrus juice reached $231million. Fresh grapefruit was the single mostimportant export, followed by fresh oranges.

Cooperatives are among the major exporters ofU.S. fresh citrus. Most exporters are located nearthe producing areas of Florida and California. InCalifornia and Arizona, Sunkist led expansion ofexports, particularly in the Pacific Rim of Asia. In1991, exports to Japan accounted for 20 percent ofall Sunkist revenues, and Hong Kong and Taiwanare steadily increasing their purchases.

Corona-College Heights, with Sun World as itsmarketing agent, regularly exports more than halfits production. As the largest cooperative packing-house outside the Sunkist system, Corona-CollegeHeights is California’s leading packinghouseexporter of grapefruit.

In Florida, Seald-Sweet exports are one-thirdof its volume. Most of it is grapefruit. A relativelysmall percentage of Florida’s oranges are exported.Florida fresh grapefruit is the single largest U.S. cit-rus export item in terms of value. More than half ofFlorida’s grapefruit is exported, with Ocean Spraythe the leading cooperative exporter.

For cooperatives, expanding fresh grapefruitexport markets represents one of the more positiveimpacts from the globalization of citrus trade.Combined with the demand for specialties andCalifornia/Arizona oranges, exports of fresh citrusare clearly the most optimistic part of world tradeas viewed by the citrus growers and citrus coopera-tives.

LaborLabor is an increasingly important issue in the

citrus industry, in terms of both costs and availabil-ity in the face of increasing production. Eventhough many mechanized and automation tech-nologies have been adopted, some parts of the cit-rus industry remain labor intensive. Of the threegeneral segments of the industry-production, har-vesting, and use (fresh packing and processing)-harvesting is the most labor intensive.

Most fruit is picked by hand because mechani-cal harvesting systems are not yet cost effective orefficient. Even so, the highest variable cost to citrusgrowers was labor associated with the harvestingand hauling of fruit-about 40 to 50 percent of thevariable cost.6/ Because labor costs for U.S citrusgrowers are higher (sometimes substantially high-er) than in most other citrus producing countries,U.S. cooperatives and their grower-members are ata competitive disadvantage to foreign producers.

6 USDA Farm Costs and Returns Survey, 1988-89season.

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Widespread mechanical harvesting would bemost applicable to fruit destined for processing.Mechanical harvesting would be less suitable forthe delicate handling and selectivity required forfresh market fruit. In either use, most advances inharvesting efficiency have been in the technologiesand practices that increase the efficiency of handharvesting.

Labor availability and costs (wages, benefits,and regulations) are expected to become increasing-ly critical to domestic citrus production. Throughthe pooled resources of many growers, cooperativesoffer to growers of all sizes the ability to more effi-ciently source and employ labor.

Marketing OrdersFederal marketing orders cover fresh citrus

produced in California-Arizona, Florida, and Texas.Each order is defined by area and variety, such asCalifornia-Arizona navel oranges or Texas orangesand grapefruit. All affected growers for a regionand commodity defined by the U.S. Secretary ofAgriculture vote on Federal marketing orders. Eachorder is administered by a committee of growersand handlers that recommends policies to theSecretary of Agriculture, and oversees thoseapproved for the order.

Federal orders for citrus include provisions forgrades and standards, research and market devel-opment programs, and volume management andmarketflow. All Federal citrus orders have provi-sions for research and market development activi-ties and/or grades and size standards. Some have aform of volume regulation known as shipping holi-days and prorate.

Prorates used for California-Arizona citrus areamong the more controversial aspects of citrus mar-keting orders. Prorates define the maximum vol-ume of fruit that can leave the order area within aweek. This volume is then allocated on a proratabasis among all packinghouses in the area. The pri-mary purpose of prorate is to prevent excessivesupplies from building up at the wholesale andretail markets. Fresh citrus is perishable and exces-sive supplies could lead to quality deterioration,which can damage short-term prices and long-termconsumption behavior.

Sunkist is considered a strong supporter ofprorate, which fits well with its coordinated mar-keting system. Prorate opponents claim it unfairlyrestricts their ability to market fruit. Some oppo-nents filed lawsuits against the U.S. Department ofAgriculture (USDA) challenging prorate. Thedepartment initiated enforcement actions againstthose packinghouses violating the prorate provi-sions.

In May 1994, Secretary of Agriculture MikeEspy terminated the Federal marketing orders forCalifornia/Arizona navel and Valencia oranges, cit-ing the division and turmoil existing in theCalifornia/Arizona citrus industry. While market-ing orders are still supported as an effective toolbenefiting both farmers and consumers, the USDAfelt it should remove itself while the industry sortsout its differences.

In 1994, the effects of the prorate suspensionon cooperatives in California are still uncertain. Toensure an adequate supply of citrus and to hedgeagainst weather-caused shortages, the citrus indus-try has overplanted. Thus, there is an oversupply inmost years. Proponents say prorate helps keep thissupply from causing fresh citrus prices to plummetor soar. For the citrus industry, the threat of a freezeor a glut of fruit in packinghouses can result in wildprice fluctuations. Prorate supporters claim this hasbeen avoided and prices have been remarkably con-sistent for many years.

There is still strong sentiment in the industryfor prorate and concern over the market conditionsin the absence of prorate. Evidence of strong sup-port for the program is indicated by the 91 percentof the growers who favored the marketing order inthe last referendum. Sunkist is a strong proponentof the marketing order and prorate, which benefitsSunkist’s price-scale system. However, given thatSunkist represents the majority ofCalifornia/Arizona citrus growers and operates acoordinated marketing system, it should fare betterthan most in a more unstable, price-oriented mar-ketplace.

Another issue related directly to marketingcooperatives is their bloc voting on marketingorders. Provisions in the Agricultural MarketingAgreement Act of 1937 say that a cooperative can

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cast a single vote on behalf of its grower-members.The cooperative’s vote represents the majority viewof its members, but for the purposes of administer-ing the marketing order, it counts as if all growersvoted in unison.

Controversy arises over bloc voting becausesome feel it obscures the actual measure of growersupport. Opponents litigated against the USDA andSunkist on the validity of bloc voting. The right ofcooperatives to bloc vote was upheld November 22,1993, in the Ninth Circuit Court of Appeals in SanFrancisco.7/ This court, like others before it, notedthat it was the intent of Congress to encouragegrowers to form cooperatives by providing themlimited antitrust immunity.

EXAMPLES OF COOPERATIVEOPERATING PRACTICES

To better contrast the use of specific coopera-tive tools and structures and give insight into theactual operations of citrus cooperatives, this sectionwill view the operations of selected cooperatives.Cooperative examples were chosen in each type ofmarketing activity and membership structure.

Fresh PackinghousesPackinghouses are the most widespread type

of citrus cooperative. Their operations and struc-ture are fairly similar. Although they tend to per-form the fresh packing functions in the same man-ner, they differ in functions they perform.

Haines City Citrus GrowersThe Haines City Citrus Growers Association

(HCCGA) was formed in 1909 by six citrus growersas a nonprofit agricultural cooperative in the Ridgearea of central Florida. HCCGA is a fresh packingcooperative and is one of the largest packinghousesin Florida.

Structure-Haines City has a centralized struc-

7 Cecilia Packing Corporation v. United StatesDepartment of Agriculture/Agricultural MarketingService, 10 E3d 616 (9th Cir. 1993)

ture supported by about 150 citrus growers. Mostare small grove owners, although some of its largegrove owners have more than 200 acres apiece.

A significant number of HCCGA members areabsentee owners (about 25 percent), a common traitin Florida citrus. Membership is open to anybonafide producer, defined in the bylaws as “anyperson owning or leasing a bearing citrus grove offive or more acres.”

Governance-Haines City bylaws call for aboard of directors of at least seven members electedat the annual meeting. The number may beincreased from time to time-11 in 1991. Each mem-ber gets one vote, must purchase one share of com-mon stock, and sign a membership agreement. Thepact remains in effect for 10 years unless the growernotifies HCCGA in writing of the termination.Members may commit specific acreage, althoughmost commit all their production to HCCGA.However, to lure larger growers, HCCGA encour-ages them to just put in a few acres.

Financing-HCCGA uses a base capital planbased on a IO-year production average. A capitalretain is deducted from the member’s patronagedividends based on the average number of boxes.Members are issued shares of Class B stock for eachbox. The capital retains are periodically revolved atthe discretion of the board.

Operations-HCCGA is a considered a full-service cooperative. It provides a complete range ofservices for producing and marketing citrus.Members may care for their own groves, but undercooperative supervision. However, HCCGA doesall the harvesting. It also has a production divisionthat sells fertilizer and insecticides to members.

All member fruit is handled on a pooledbasis-a fresh and processed pool for each varietyon a seasonal basis. Haines City handles a varietyof citrus, from oranges and grapefruit to tangerines.In the industry, it is known as an orange house-more than 50 percent of its fresh volume is oranges.

HCCGA is a member of Citrus World, Inc., forprocessing. Haines City delivers both packinghouseeliminations and fruit direct from the grove.

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Ownership of Citrus World is allocated to membersof HCCGA. Processing returns are calculated on apounds-of -solids basis, and returns from fresh fruiton a cartons-packed basis.

Haines City has a freeze-contingency plan forsharing the effects of crop losses among members.After a freeze, estimates are made of what wouldhave been delivered. Members are credited withthat amount. HCCGA decides when to harvest. But,in fairness, growers with unharvested acres shouldnot be penalized while those with harvested acresbenefit for decisions made (timing of harvest) tomaximize the cooperative business operations.

In addition to member fruit, HCCGA will har-vest, pack, and market nonmember fruit under par-ticipation plans, or account sales. Account salesfacilitate the addition of new members, providesupplies in times of production shortfalls of mem-bers, and broaden the fruit marketing mix.

Marketing-HCCGA has an in-house salesstaff and markets fresh citrus under its own label.Unlike many packinghouses, Haines City has neverbeen a member of Seald-Sweet. It is a member ofCitrus World for processing and marketing.

Waver/y Growers CooperativeWaverly Growers was formed in 1914 by a

small group of citrus growers in the Ridge area ofcentral Florida. Waverly owns a single packing-house and is consistently in the top quartile, by totalannual volume, of Florida’s packinghouses.Oranges represent the large majority of packed fruit.

Structure-Waverly has a centralized coopera-tive structure supported by about 200 grower-mem-bers. Most are small grove owners who average lessthan 30 acres. As is typical for the cooperatives inFlorida, absentee ownership is common-at onetime exceeding 50 percent. Membership is restrictedto any bonafide producer owning or leasing a bear-ing citrus grove.

Governance-Waverly has an ll-memberboard of directors, elected by members at theirannual meeting. Each member has one vote. Newmembers must purchase one share of common

stock for $1. After signing an agreement, member-ship continues each year unless revoked by themember in writing.

Financing-Waverly uses a base capital planbased on a lo-year production average. Capitalretains are deducted from patronage dividends on aper-box basis. Capital retains are periodicallyrevolved at the discretion of the board of directors.

Operations-Waverly is a full-service coopera-tive packinghouse, providing a full range of grovecare (planting, cultivating, spraying, etc.), harvest-ing, hauling, and marketing services. Members mayprovide their own grove care or can have the coop-erative provide some or all of those services. Grovecare is charged to members at cost. The cooperativedoes all the harvesting, with the timing at the coop-eratives’ discretion. Waverly obtains a variety ofproduction and packinghouse materials fromHESCO, a Florida supply cooperative.

All member fruit is placed in specialty or com-mon pools on a seasonal basis. The specialty poolincludes oranges grown for fresh market, all grape-fruit, and specialty varieties of citrus (tangerines andtangelos). A fresh and processing pool is operatedfor each, with returns to fresh calculated on a per-box basis and processed on a pounds-of-solids basis.

The common pool is for round, or juiceoranges-Hamlin, Midseason, Valencia. All returnsare based on pounds of solids. There are no sepa-rate pools for fresh and processing; all returns areonly pooled by variety. Although sold as both freshand processed, all payments to members for roundoranges are based on total pounds of solids deliv-ered.

In the event of a freeze, Waverly has a secondpooling plan allowing for more flexibility in pool-ing regulations. Changes can be made to add poolsto address damaged or lower quality fruit.

Waverly will harvest and pack nonmember fruiton a participation or account-sales basis. In somecases, large growers provide their own grove care.

Marketing-For fresh market sales, Waverlyhas a contract arrangement with DNE Sales, FortPierce, FL. DNE markets fruit packed under a

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variety of Waverly’s labels, including the WaverlyFamous brand, and DNE’s own labels. All ofWaverly’s packinghouse output must be marketedby DNE. Waverly has been with DNE Sales formore than 10 years on an annual-contract basis.Costs are assessed to Waverly on a per-cartonbasis.

For processing, Waverly is a member of CitrusWorld, delivering both packinghouse eliminationsand fruit direct from the grove. Returns are basedon pounds of solids delivered. Ownership of CitrusWorld is allocated to the grower-members ofWaverly based on the volume of their citrus sent toCitrus World.

Lake Wales Citrus GrowersLake Wales Citrus Growers Association was

formed in 1918, also in the Ridge area of centralFlorida. The Lake Wales packinghouse is aboveaverage in size. Recent volumes have been downbecause of the severe freezes of the 1980s.

Structure-Lake Wales is a centralized cooper-ative with about 80 members. The average membertends to be larger than other cooperative packing-houses in Florida, including Haines City andWaverly. Two-thirds of the Lake Wales membersaverage more than 20 acres, although some have100 acres or more. Contrary to most cooperativepackinghouses, Lake Wales has few absentee own-ers, primarily because it does not provide grovecare services.

Governance-Lake Wales bylaws call for aboard of at least three directors (11 in 1991) electedby the stockholders at the annual meeting. In addi-tion to grower-members, a director can be an officeror manager of a corporation which owns stock inthe cooperative. Voting is unequal, based on thenumber of shares of capital stock held by the mem-ber. Shares can only be issued to persons engagedin citrus production handled by or through thecooperative. Members sign an agreement that is inforce indefinitely unless cancelled in writing by themember prior to a specific date. Members need notcommit their total acreage and instead may commitspecific acreage in the marketing agreement.

Finance-All equity is from retained earnings.There is no base capital plan. Earnings are retainedon a per-box basis. The member must acquire capi-tal stock on the basis of per-acre-of-citrus marketedthrough the cooperative, with a minimum of twoshares per acre and a maximum of four. Dividendsare paid on capital stock at the discretion of theboard of directors.

Operations-Lake Wales provides no grovecare services, so it is compelled to treat each mem-ber’s fruit separately. Members either provide theirown grove care or contract for it, sometimes fromother grower-members of Lake Wales. Harvesting,however, is controlled by the cooperative. LakeWales contracts for the loading and hauling, anddecides when to harvest.

Lake Wales has two types of member agree-ments. One is the traditional contract used by mostmembers-all eliminations from the fresh packingoperation are delivered to Citrus World for process-ing. The other allows members to contract withother processors for eliminations, particularly newmembers with existing processing contracts.

Lake Wales also markets fruit on a participa-tion plan for nonmembers. It is treated the same asmember fruit when placed in pools. Nonmemberfruit is also sold by account sales where the returnsare based on the actual sales of their fruit instead ofan average pool price.

Lake Wales has a slightly different poolingarrangement than either Haines City or Waverly. Inaddition to seasonal pools by variety, Lake Walesestablishes pools for a specific time period for agiven variety. Also, members elect the pools inwhich to participate (for fresh only). Members noti-fy the cooperative which pool(s) they want to placefruit in before the pool opens. All fresh pools basereturns on a fresh-box basis.

Although member fruit is commingled formarketing and treated the same in determining anaverage price, Lake Wales runs each member’s fruitseparately through the packinghouse. In doing so,each member’s fruit is treated separately in termsof prorated allocations to different pools. Wheresome cooperatives allocate members’ fruit based onsamples at delivery, the Lake Wales members have

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their prorata share determined by the amount offruit designated for a specific grade.

Marketing-Lake Wales operates its own salesdepartment for fresh fruit. A recent exception waswhen a freeze sharply reduced the volume of LakeWales members. It was not feasible to operate theirpackinghouse for the following season. So, LakeWales contracted with Waverly Growers to packand market members’ fruit. Lake Wales re-openedits packinghouse the next season and resumed mar-keting.

For processing, Lake Wales is a member ofCitrus World. All member processing-grade fruit,unless specified otherwise by the member, is deliv-ered to Citrus World. Returns are based on poundsof solids delivered.

Corona-College HeightsThe cooperative roots of Corona-College

Heights Orange and Lemon Association (CCH),Riverside, CA, go back to 1897. It was one of theoriginal Sunkist packinghouses, but left Sunkist in1980 to market fruit through Sun World. It is one ofthe few cooperative packinghouses in Californiathat is not a Sunkist member. CCH is the largestmulti-variety (oranges, grapefruit, lemons, special-ties) cooperative packinghouse in the U.S. CCHoperates two packinghouses, one built in 1964 andanother recently acquired from Arlington HeightsCitrus Company, a nearby private packinghouseand one-time Pure Gold member.

Structure-CCH has a centralized structureand about 300 members. Many are small growers(5-a&e minimum), which is encouraged but notmandated. As in Florida, a number of them areabsentee members, particularly small-acreage hold-ers. While the bulk of their acreage has traditionallybeen in southern California, increasingly CCHmember acreage is further north, up to 250 milesaway. Due to urban pressures and rising land costsin southern California, many citrus growers haveshifted or expanded production to the CentralValley. The costs of transporting citrus to CCHpackinghouses is defrayed by the lower productioncosts in central California.

Governance-Each member has one vote. Theboard may include nonmembers and currentlyincludes the chief executive officer of Sun World.Members elect directors at the annual meeting. Theboard must approve signed grower membershipagreements. Membership is for an indefinite periodunless cancelled in writing by the member by aspecified date. There are no membership fees orstock purchasing requirements. Members commitspecific acreage and may split their productionamong more than one packinghouse.

Finance-CCH requires no membership feesand issues no stock. All member equity in CCH isgenerated through member participation by capitalretains on a per-box basis of fruit through the pack-inghouse. But no capital retain is deducted for fruitmoving directly from grove to processor. A revolv-ing fund is used to return these funds to the mem-ber at the board’s discretion. CCH moved from anB-year revolving period to a 5-year plan. As com-mon with revolving funds, these are paid on a dol-lar-in, dollar-out scenario. No interest is paid onretains.

Operations-CCH provides harvesting, haul-ing, packing, and marketing services; coordinatesand harvests all of its members’ fruit; owns all thehauling and harvesting equipment; and providesall harvest labor. CCH members arrange for theirown grove care, some of which is contracted bynumerous smaller members with larger members.

All member fruit is pooled by variety. Freshfruit is pooled by specific time periods. Processedfruit is treated as a seasonal pool by variety. Whilethe cooperative harvests all the fresh fruit, mem-bers may decide when the harvest will occur todetermine in which pool to participate. CCH usu-ally divides pools into 60-day periods by variety.Deducted from the returns for all the fruit in the60-day pool are the allocated packing costs, a per-box marketing charge, and a capital retain.Harvest costs are included in packing costs. CCHwill make advance payments at delivery, and usu-ally tries to make the final payout soon after thepool closes. Returns are paid per-box-of-member-fruit delivered.

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Marketing-CCH uses Sun World, one of thelargest produce marketing firms, to market its freshcitrus. More than half of it is bound for export,principally to the Pacific Rim countries.

Grapefruit is the leading export product. Mostof some varieties, such as white grapefruit, isexported. Increases in CCH volume during the1980s and into the 1990s can be largely attributed toexport sales.

Sun World has a director on the CCH boardand bases its sales staff at CCH facilities. Sun Worldalso markets the citrus of other packinghouses,including another cooperative, Irvine ValenciaGrowers, Irvine, CA.

CCH handles its processed sales and marketsto many other processors. CCH typically does notenter into a supply contract with a processor, and isconsidered more of a spot market seller of citrus forprocessing. Processing sales usually comprise lessthan 10 percent of CCH revenue.

Sunny Cove Citrus GrowersSunny Cove Citrus Growers, Orange Cove,

CA, was formed in 1974 as an agricultural coopera-tive by eight citrus growers who purchased anidled packinghouse that at one time was affiliatedwith Sunkist. The growers had been Sunkist mem-bers. Sunny Cove operates a single packinghouse incentral California. It is the only cooperative pack-inghouse in California or Arizona that markets cit-rus independently.

Structure-Sunny Cove, a centralized coopera-tive, has about 50 members. Most are local citrusproducers. Sunny Cove has few small grove ownersor absentee members.

Governance-Bylaws call for an eight-directorboard. The number may be changed only by anamendment to the bylaws approved by the generalmembership. A director need not be a member ofthe cooperative. Voting power of members isunequal-ne vote per box of citrus marketedthrough the cooperative. The cooperative has nei-ther shares of stock nor membership fees.Membership certificates issued to new membersconstitute a l-year marketing agreement automati-

cally renewed unless the member cancels by a spec-ified date. Members commit specific acreage andmay ship noncontracted acreage to other packing-houses.

Finance-Bylaws allow the board to imple-ment member financing through either capitalretains or facility acquisition loans. Capital retainsare assessed on a per-carton basis and revolvedback at board discretion. At one time, Sunny Covehad a 7-year revolving period, but they no longerretain capital from member payments. All memberretains in the revolving fund were refunded as of1991.

The facility acquisition loan form of financingwas used in buying the packinghouse and relatedfacilities. Members were assessed on a per-box basisfor their share of the loan repayment, specifically forthe interest payments. Loan principal was repaid ona per-carton basis when the fruit was packed. Theloan assessment increased Sunny Cove’s ability torepay a larger net margin to members. Also, byeliminating a capital retain, Sunny Cove becamemore attractive to prospective members.

Operations-The cooperative only packs andmarkets member citrus, although it also coordinatesharvest timing. Members provide their own grovecare, harvesting, and hauling services.

All member-fruit is pooled-seasonalprocessed pools by variety and fresh in multiplepools by time and variety. For example, freshnavels have five pools divided across the total esti-mated volume.

The cooperative determines the size of eachpool by a given percentage of the total estimatedvolume as determined by the board. The coopera-tive also determines the degree of grower participa-tion in each pool by coordinating the harvest, witheach grower in the interest of equity allocated thesame percentage to be harvested. If each pool con-tains 20 percent of the total volume, 20 percent ofeach grower’s total production would be harvested.After the prescribed pool volume is reached, thefirst pool closes and a second opens. Deductedfrom total pool returns are packing costs and loanassessments on a per-carton basis. Advances and

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final pool payments are paid on a per-carton- deliv-ered basis. Sunny Cove markets nonmember fruiton a participation plan basis.

Marketing-For marketing fresh fruit in bothdomestic and export markets, the cooperative usesa private sales agent that has an exclusive contractto only market Sunny Cove fruit. The agreement isreviewed and renewed annually. Most sales are indomestic markets.

Sunny Cove has a processing contract withVentura Coastal Corporation for all packinghouseeliminations. Members do their own harvesting andhauling and can make their own processingarrangements for fruit not committed to SunnyCove.

Edinburg Citrus AssociationThis Texas cooperative was formed in 1932

without capital stock. Edinburg is the oldest andlargest cooperative packinghouse in Texas and theonly one left from several that formed in the 1930sand 1940s. A few cooperatives formed in the late1960s also have discontinued operations. Rio BravoCitrus Association is the only other cooperativepackinghouse operating in Texas.

Edinburg operated a single packinghouse untilit merged with another cooperative, Mission Citrus,and assumed operations of its packinghouse. Afterthe freezes of the 198Os, only Edinburg’s packing-house survived.

Structure-Edinburg is a centralized coopera-tive. Membership has been in flux after a series ofsevere freezes. Membership declined from morethan 700 member-growers in the early 1970s whenmany growers exited the industry Total member-acreage, however, did not decline at the same ratebecause some members expanded acreage.Membership is open to any citrus producer, includ-ing lessees and tenants of lands used for fruit pro-duction, and any lessor or landlord who receives asrent all or part of fruit raised on the land.

Prior to the freezes of the 198Os, more than 50percent of Edinburg’s citrus groves were owned byabsentee owners. The severity of the freezes and achange in the tax treatment of investments in citrus

production prompted many absentee owners to exitthe citrus business. Accordingly, the percentage ofEdinburg’s absentee members, particularly thosenot living in the area, declined significantly.

Governance-Bylaws require a 9-directorboard. Members serve staggered terms. All direc-tors must be members of the cooperative. All vot-ing, including selection of directors, is conductedon a one-member, one-vote basis.

Expiration date of the marketing agreement isindefinite unless cancelled by the member in writ-ing before July 31 for the coming crop year. Anannual $10 membership fee is charged. While mem-bers in the marketing agreement describe the spe-cific type and location of their citrus groves,Edinburg members must contract for the deliveryfrom all citrus acreage they own or control. Unlikemany of the citrus cooperatives in Florida orCalifornia, Edinburg members cannot split acreageamong different packinghouses.

Financing-A revolving fund is used to gener-ate needed capital by retaining funds from memberpayments based on each ton or other unit of fruitreceived. Members are credited on the associationbooks for amounts retained from them. The amountof the retain is specified by the board either priorto, during, or after the season closes. Retains maydiffer for each variety, but all fruit of the same vari-ety during a given season is subject to the sameretain. Retains are considered temporary. The boarddetermines the amount and timing of revolvement.Bylaws require that the oldest unpaid retainedequities be revolved first.

Operations-Edinburg provides harvesting,hauling, packing, and marketing services for mem-bers. The cooperative also coordinates the timing ofharvest and contracts for harvest labor. Each mem-ber is charged the actual cost of harvesting andhauling fruit and arranges its own grove care.

Pools are seasonal by variety for both freshand processed, with different pools by size andgrade. Members’ accounts are credited with theseason’s average price for each grade times theircontributions to the pool. In coordinating the tim-

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ing of the harvest and fruit packing, the cooperativeeffectively determines in which pools the memberswill participate. With the exception of harvestingand hauling costs, all packing and marketing costsare deducted on a per-ton basis. Members sharepacking and selling costs uniformly on a per-tonbasis for all fruit of same variety and grade. Theonly other deduction is for revolving fund retains.

Each member’s fruit is run separately throughthe packinghouse. Each load is counted by variety,grade, and size and pooled accordingly. Membersare credited with the actual amount of fruit packed.The counter converts packed cartons to tons, whichdetermines member payments. If requested, grow-ers may get an advance once their fruit is harvest-ed. The final payment is made after all pool con-tents are sold and costs are allocated.

Edinburg closely coordinates harvesting withmarketing. After the fruit is sold by the sales staff,the packinghouse staff is notified. The packing-house radios the field crew. Groves that best matchthe sales order are identified, with one caveat.Harvesting is prorated among members to thefullest extent possible to equitably spread theeffects of a freeze. Edinburg takes advantage of theability of citrus to “store” well on the tree to closelycoordinate harvest with marketing.

In the event of a freeze, Edinburg’s poolingplan can be changed to address special problems.Provisions can be made to compensate unharvestedgrowers after a freeze based on pre-freeze esti-mates. Edinburg normally would pack little non-member citrus, but the severe freezes and reducedvolumes of the 1980s forced it to harvest and packfruit for another cooperative, South Texas CitrusAssociation.

Marketing-For both fresh and processedsales, Edinburg is a member of the Texas CitrusExchange (TCX), a federated fresh sales and pro-cessing cooperative. Edinburg packs fruit for bothdomestic and export sales under its own and TCXlabels. The TCX staff is responsible for making salesand coordinating shipments with the member pack-inghouses. Most processing deliveries are frompackinghouse eliminations.

Fresh grapefruit is the primary product, so

sales efforts are aimed at moving as much of it aspossible through that market. No oranges aregrown specifically for juice and only a limitedamount of grapefruit is grown for processing.Edinburg receives its share of returns from TCX forboth fresh and processed sales based on tons ofproduct delivered. A capital retain is deductedfrom Edinburg’s returns. The same per-ton amountis deducted for fresh or processed fruit.

Fresh and ProcessingMost centralized cooperatives market fresh cit-

rus and only a few are in both fresh and processing.Two of those are Golden Gem Growers and OceanSpray Cranberries.

Golden Gem GrowersGolden Gem Growers, Umatilla, FL, was

formed in 1947 as a cooperative fresh packinghouseoriginally named Grand Island Fruit Company.Within its first year, membership grew from 3 tomore than 100 growers. This organization evolvedinto the Grand Island Citrus Cooperative and in1958 was renamed Golden Gem. That same year,Golden Gem constructed its own processing facility.Today, Golden Gem is Florida’s largest verticallyintegrated, grower-owned citrus cooperative. Itoperates two packinghouses.

Structure-Golden Gem is a centralized orga-nization. Its 550-plus members grow citrus on morethan 45,000 acres in 29 counties. It has more mem-bers than any cooperative in Florida. After declin-ing from more than 700 members to less than 400after the 1980 freezes, Golden Gem’s membershiprebounded in the 1990s.

Although the average comes out to more than80 acres per member, the majority of members haveless than 80 acres. Holdings vary from 10 to 1,000acres. Freezes, combined with tax law changes,caused many absentee owners to exit citrus produc-tion. The number of absentee owners declined toless than 20 percent. Adding new members shiftedthe cooperative’s membership base further south.

Governance-Bylaws permit a board of 9 to 15directors. Voting on directors and other cooperative

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matters is on a one-member, one-vote basis. Newmembers must buy one $50 share of common stock.

The cooperative has two types of marketingagreements, a grower-member and a delivery-mem-ber contract. The grower-member agreement autho-rizes the cooperative to harvest and haul all fruitfrom groves specified in the marketing agreement.The fruit must be marketed by Golden Gem ineither fresh or processed form. The indefinite agree-ment may be cancelled in writing by the member.

The delivery agreement is only for processedfruit. The member harvests and hauls the fruitwhile the cooperative accepts fruit delivered forprocessing. The member specifies the number ofboxes to be delivered, with a 10 percent or less tol-erance below the specified amount. The deliveryagreement is for either 1 or 2 years, depending onthe selected payment option. If the pool option pay-ing 80 percent of total estimated return as anadvance at delivery is selected, the agreement mustbe for two seasons. To receive the same advance inthe second year, the member must renew for a sec-ond two-season period (current and next season). Ifnot, the contract reverts to the other pooling optionwith a normal payment schedule.

Financing-Golden Gem operates a revolvingfund to generate equity from members. The rate ofretains from member payments is made on a per-box basis as established by the board. In practice,the amount of the retain is the same every year. It isallocated to member accounts as capital equitycredits. Although authorized to levy a specialassessment for capital improvements, the board hasnever done so. Revolving fund periods may varygreatly. During the severe freezes of the 198Os,Golden Gem had to delay revolvements for a num-ber of years. Well aware of the vagaries of citrusproduction, members fully understand why coop-eratives need to suspend the revolvement ofretains, although members still expect to receive aretain at some future time.

Operations-Golden Gem is a unique central-ized cooperative because it owns and operates bothprocessing and packinghouse facilities. All mem-bers receive the same processing, packing, and mar-

keting services from Golden Gem. Grove care, har-vesting, and hauling are at the option of the grower.Golden Gem has flexible service and marketingprovisions for members.

In one membership agreement, the growerauthorizes the cooperative to harvest and haul itsfruit. In the other, the member provides for harvest-ing and hauling. Prior to the freezes of the 198Os,Golden Gem harvested most of its member fruitwith Golden Gem employees. As membershipspread around the State, it became impractical forGolden Gem to have that many harvest employeesin so many different locations. Labor is now con-tracted to handle the expanding service areas.

All fruit is handled on a pooled basis, with aseasonal pool by variety for processing and weeklypools by variety, grade, and sizes for fresh citrus.Returns to the weekly fresh pools are paid by gradeon the total boxes packed during the pool period.Returns to processing pools are based on pounds ofsolids delivered for the entire season.

For processed pools, members have twooptions they can elect in the marketing agree-ment-an accelerated payment or a premiumreturn plan. In the accelerated pool, membersreceive both pre- and post-harvest advances basedon member crop estimates. At closing, the poolreceives the standard return for processed prod-ucts. The premium return option pays 4 percentmore than the standard pool return. Payments aremade in normal pool cycles. In forgoing the acceler-ated payment option, the member substitutes ahigher pool return for a more immediate cash pay-ment. Both pools close simultaneously, and operatein the same manner in terms of variety, grade, andcost allocation.

The accelerated payment option meets thecash-flow requirements of growers who incurredheavy expenses in grove rehabilitation or pur-chased young groves with light crops and heavyfront-end cash-flow requirements. In choosing thepremium plan, Golden Gem members receive morethan the standard pool payment as an incentive toforgo the accelerated plan. Since 1987, there hasbeen about a 50/50 split in grower selectionbetween the two options, reflecting the differentneeds of members.

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Golden Gem handles mostly oranges.Specialties, grapefruit, and lemons comprise thebalance. In the event of a severe freeze, risk isshared by Golden Gem members by pooling har-vested and unharvested fruit. Growers with unhar-vested groves are compensated based on pre-freezeproduction estimates.

With membership spread out across the State,Golden Gem is considering geographically basedpools, uncommon to the citrus industry. However,no centralized citrus cooperative is as large andwidely scattered as Golden Gem, so their circum-stances may warrant more area-specific pools.

Freezes reduced member volume in the 198Os,so Golden Gem had to buy nonmember fruit fromthe cash market, account sales, and participationplans. Although member and nonmember fruit ispooled the same, nonmembers are charged an addi-tional handling fee. By 1992, due to the combina-tion of adding new members and the rehabilitatingof existing member groves, most of Golden Gem’svolume came from members.

Marketing-Golden Gem is active in all mar-ket channels for both fresh and processed citrusproducts. For fresh markets, an in-house sales staffmarkets product under Golden Gem labels todomestic and the increasingly important exportmarkets. Grapefruit exports, particularly, have beena growing part of the fresh fruit business. Anotherexpanding area is the school fundraising programfor fresh fruit sales. Brokers may be used for somespecific products like gift fruit. At one time, GoldenGem was a member of Seald-Sweet-the federatedsales exchange-for fresh fruit sales.

Golden Gem’s labels such as Golden Gem andSunbright are primarily used for frozen concentrat-ed juice products. At one time, they were amongthe leading labels for retail frozen concentratedproducts. Golden Gem has not yet entered thechilled “premium” citrus market.

The cooperative also is a leading processorand packager of lemonade. In addition to houselabels, its sales staff markets processing and pack-aging services to private label buyers, whichinclude some of the Nation’s leading retailers.Golden Gem is also a major marketer of bulk citrus

products. Its bulk tank farm used to store bulk con-centrate is the second largest in Florida. GoldenGem also packs noncitrus juices for private labelbuyers.

Ocean Spray CranberriesOcean Spray at Vero Beach, FL, is a unique

and relatively recent cooperative venturing into thecitrus industry. Unlike most citrus cooperatives,Ocean Spray began as a processing operation andlater entered fresh marketing. Originally, it onlymarketed fresh cranberries and limited amounts ofprocessed product. Ocean Spray grew to a Fortune500 company largely because of its entrance intothe bottled fruit juice business.

With that growth came diversification in juiceproducts. Grapefruit juice became a leading prod-uct line. To obtain the needed large volumes, OceanSpray in 1976 entered the grapefruit processingbusiness and added Florida grapefruit growers asdirect members. In 1986, they began operating apackinghouse bearing the Ocean Spray name.

Ocean Spray, a centralized cooperative, hasseparate divisions for grapefruit and cranberry pro-ducers. Because of the marked differences in theproduction units and distance between productionareas, the Ocean Spray centralized structure is likea federated structure.

Federated Fresh MarketingSeald-Sweet Growers is the only federated

cooperative marketing only fresh citrus. CentralCalifornia Orange Growers Cooperative wasformed as a federation specifically to coordinatefresh sales. It doesn’t actively market fresh fruit.Each packinghouse organization markets its fruitindependently.

Sea/d-SweetFounded in 1909, Seald-Sweet was patterned

after California’s Sunkist. Florida orange growersvisited the California operation and Sunkist ulti-mately helped Seald-Sweet organize. To this day,even though they often compete in fresh citrus, thecooperatives have maintained good relations.

Seald-Sweet is a federated sales agency. Five ofits 15 packinghouse members are fresh packing

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cooperatives (table 12). The others are privategrower-owned packinghouses, typically a singlelarge-grove owner or a partnership. The board has14 directors, one from each full-member packing-house. Seald-Sweet usually accepts new packing-houses under a trial period as “associate” membersso each party can test the relationship. Associatemembers have all the privileges of regular mem-bers except voting. It takes a majority vote of theSeald-Sweet board for associates to become fullmembers. The decision is based on their perfor-mance in meeting Seald-Sweet standards and theoverall fit with the system.

Seald-Sweet has a yearly contract with itsmembers that is automatically renewed unlesseither party chooses to terminate it. The automaticrollover of annual contracts is fairly standard forcitrus cooperatives.

Seald-Sweet differs slightly from Sunkist inthat sales decisions are not as decentralized. Seald-Sweet combines the functions performed by SunkistCentral (soliciting the trade, setting scale prices,and market intelligence) and the district exchanges(sales, shipping). Activities are limited to marketingand selling member products.

Marketing includes placement of orders withmember packinghouses, booking transportation

Table 12- Seald-Sweet membership.

Member Type

Hunt Brothers Cooperative Cooperative PackinghouseMt. Dora Growers Assn. II

Mims Citrus Growers Assn. II

Oslo Citrus Growers Assn. II

Winter Garden Citrus Growers Assn. ”Winter Haven Citrus Growers Assn. ”ABC Farms, Inc. Grower-Owned PackinghouseBen Hill Griffin, Inc. 44

Gracewood Fruit Company II

Indian Harbor Citrus, Inc. II

Indian River Exchange Packers, Inc. ”The Packers of Indian River II

Peace River Packing Company II

Sebring Packing Company, Inc. II

Hubert Graves Packing Company* 0,

‘Associate member,

from packinghouses to buyers, advertising and mer-chandising products, handling claims, establishingcredit terms with customers, and providing miscel-laneous support services, including data processing,field inspection, and packinghouse inspection.

Buyers of Seald-Sweet citrus may specify fruitfrom a particular member-packinghouse. LikeSunkist, Seald-Sweet allows traditional relation-ships between packinghouses and buyers to contin-ue with new members. Regardless of preference,Seald-Sweet’s main function is to match buyerswith the fruit that best meets their needs.

Seald-Sweet allows members to maintain theirown labels in recognition of the “pride” the localassociations have developed for many years.Although a single label may be preferred by Seald-Sweet, the marketing system is flexible enough toaccommodate different packinghouse brands andthe reputations they carry in the market.

Costs to members are assessed on a per-box-sold basis through Seald-Sweet, a typical practice inthe citrus industry. In fact, the per-box costs are onestandard a grower can use in analyzing marketingoptions, particularly because the packinghouse alsoaccounts for costs on a per-box basis.

Pool returns are allocated on a per-box basis,with the various pools separated by variety (navel,red grapefruit, etc.) and time (early, mid, or late).Each pool receives returns from the total sales offruit minus the costs assigned to that pool. This isthen divided over the number of boxes delivered tothe pool. Returns are then allocated to packing-house members on a prorata basis and distributedto grower-members in the same manner.

Seald-Sweet solely markets fresh citrus.Member packinghouses market processed productsat their discretion. Most Florida citrus is used forprocessed products-almost 90 percent for orangesand 60 percent for grapefruit. Some Seald-Sweetmembers also are members of Citrus World, thelargest processing cooperative in the U.S.

Central California Orange Growers CooperativeThree packinghouses formed the Central

California Orange Growers Cooperative (CCOGC)at Lindsay, CA, in 1983. Members were once part ofthe Pure Gold federated marketing cooperative.

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Unlike Pure Gold, each CCOGC packinghouse con-ducts its own marketing and sales programs.

The articles of incorporation are similar toother citrus cooperatives. CCOGC, in practice,however, has a fairly specific purpose-promotingmore orderly marketing of citrus by its membersand providing a more stable price system.

The cooperative marketing agreementbetween CCOGC and its members is fairly specific.The preamble acknowledges the goal of a moreorderly market. Wording is laced with references tospecific market conditions to be addressed: “specu-lation and waste; stabilizing the marketing of agri-cultural products; preventing the demoralizing ofmarkets resulting from dumping and predatorypractices; mitigating the recognized evils of a mar-keting system under which prices are set for theentire industry by the weakest producer; and obtainprices which are fair but not inflated beyond rea-sonable value...by reason of artificially createdscarcity.”

To create more orderly marketing conditionsfor members, CCOGC maintains a system of pricescales for fresh fruit sales. Setting a price scale isthe cooperative’s only function.

Each packinghouse in the CCOGC is privatelyowned. To be a cooperative, membership is com-prised of the growers marketing through the pack-inghouses in the CCOGC system. Although grow-ers sign a marketing agreement directly with thecooperative as in a centralized structure, individualpackinghouses operate like a federated salesagency. Costs and returns associated with the har-vesting and packing are handled between the pack-inghouse and the growers. Even though they areprivately owned, each packinghouse operates itsown fruit pools. Moreover, each packinghouse isresponsible for selling its fruit. All money flowsdirectly to the packinghouse.

The relationship of the individual packing-house to the cooperative is consummated by an“agency agreement.” The grower designates thepackinghouse as agent and representative on themarketing committee of the cooperative.Accordingly, the board of directors consists ofagency representatives designated by the grower-member. Each packinghouse has one director.

The marketing committee is the mechanismunder which individual packinghouses meet toassess supply and demand conditions and deter-mine available supplies. The committee establishesa price scale that will maximize the flow of memberfruit at the best possible prices. The price scale setsceiling and floor prices between which the individ-ual packinghouse can sell its fruit.

The marketing agreement requires members toadhere to the price scales. Penalties are determinedby the board. Scales are set on a weekly or dailybasis for each grade. Scales are adjusted based onsupply and demand information provided by thepackinghouses to CCOGC management. Prices areadjusted after discussions between the packing-houses as coordinated by the CCOGC manager.

Collecting information from packinghouses onsupplies and relating that to demand factors arealso major functions of the Sunkist system. Sunkistalso sets a price scale within which members canmarket their fruit. Although much smaller thanSunkist, because CCOGC production is specific to asmall geographic area, CCOGC can with some suc-cess coordinate the price scales with member fruitrelative to the overall volume. Its smaller size alsopermits CCOGC to move faster in pricing and mov-ing fruit to take advantage of short-run market con-ditions.

No money from fruit sales flows throughCCOGC. Operating funds come from per-cartonassessments. Retains are less than a penny per car-ton. Because CCOGC does no packing or market-ing, facility and staff resources are limited to notmuch more than a manager, office, and phone.Excess retains are returned to grower-members ontheir prorata share of fruit through the packing-houses in the CCOGC system.

Federated ProcessingThe leading example of a federated citrus pro-

cessing cooperative is Citrus World.

Citrus WorldThis cooperative was formed in 1943 by fresh

packing cooperatives as an outlet for fruit culledfrom packing lines. Citrus World is a leadingprocessor with major brands such as “Donald

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Duck” and “Bluebird.” The cooperative has 12members+ight cooperative packinghouses andfour grower-owned private firms (table 13).

Citrus World receives fruit from members viaculls or eliminations from the packinghouse, anddirect from grove to the plant. In both cases, title tothe fruit is passed from the grower to the coopera-tive packinghouse. It, in turn, sends the fruit toCitrus World. Often, cooperatives operate “full ser-vice” packinghouses by providing all the grovecare, harvesting, and shipping for grower-mem-bers. In the membership agreement, growers givethe cooperative the right to market the memberfruit. This includes determining the quantity offruit to be delivered. However, the decision onwhat citrus varieties to plant and hence what poolsin which to participate, is at the grower-member’sdiscretion.

Citrus World operates pools by variety for theentire season’s production of that variety. Pool con-tents are valued by pounds of solids per field boxdelivered. This, in turn, is factored by a formulaestimating the gallons of product a field box willproduce. The following is an example of estimated

Table 13- Citrus World membership, 1993.

Member Type

Dundee Citrus Growers Cooperative Packinghouse

Haines City Citrus Growers II

Hunt Brothers Cooperative II

Lake Placid Citrus Cooperative II

Lake Wales Citrus Growers ,I

Umatilla Citrus Growers I,

pool returns, with working assumptions of a 1.11gallons/box yield for oranges:

Valencia Murcotts

Premium Pool

$1.77/lb. slds !§1.68/lb. slds$9.9O/fld box $6.93/fld box

Upper Pool$1.58/lb. slds $1.49/lb. slds$6.43/fld box !WS/fld box

Lower Pool$1.39/lb. slds $1.23/lb. slds$5.39/fld box $5.11/fld box

Citrus World sales staff “guestimates” the for-ward pricing and rate of sales for these returns.Members’ pool proceeds are estimated at the end ofthe fiscal year and based on sales through the end ofthe year plus the value of inventories. When theinventory is liquidated and proceeds known, the esti-mated amount due members is adjusted. Membersreceive a percentage of the net pool proceeds basedon their prorata share of the pool’s volume.

Per-unit retains are deducted from pool retainsto finance Citrus World operations. Retains arerevolved back to members in the form of Class Bcommon stock redemptions. Equity requirements,as determined by the board of directors, areretained from the amounts due to members andcredited to their equity accounts.

Net returns received by the packinghousesfrom Citrus World are returned to their grower-members in two ways. For fruit culled from thefresh packinghouse, the total receipts of the freshvariety are combined with those from the process-ing plant for the same variety. These combined totalreceipts are divided by the total boxes harvested ofthat variety.

Each grower of that variety will receive thesame price, less the packing costs on a per-box basis(and often picking and hauling costs). For fruitdelivered to the processed pool, total receipts fromthe processing plant for a variety are divided by thetotal boxes harvested of that variety. Each memberreceives the same price, minus the individual grow-er’s picking and hauling expenses.

This method for calculating pool returns rep-

Waverly Growers Cooperative II

Winter Haven Citrus Growers II

Citrus Marketing Services, Inc. Grower Cooperative

Consolidated-Tomoka Land Co. Agricultural Producer

Ben Hill Griffin, Inc. Grower-owned packinghouse

Peace River Packing Company II

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resents the operating practices of Citrus World’scooperative packinghouse members. Returns to theprivate grower-owned packinghouses would be thesame as for a grower in a centralized cooperative.The basis of Citrus World’s organizational structureis the fresh packinghouse, be it cooperativelyowned by many small citrus growers or privatelyowned by a few large growers. The cooperativepackinghouse is the grower’s representative inCitrus World’s system. Small growers achieve a bal-ance of power with the much larger growers oper-ating their own packinghouse.

Federated Fresh and ProcessingThe only federated cooperative in the tradi-

tional sense-only cooperatives as members-involved in both fresh and processing is TexasCitrus Exchange (TCX).

Texas Citrus ExchangeFour cooperative packinghouses formed this

cooperative in 1968 to be their centralized sellingexchange for both fresh and processed products.Three of the cooperative packinghouses wereformed just prior to TCX through assistance fromEdinburg Citrus Association. Edinburg’s intent wasto develop a central marketing agency for all ofthem.

TCX had to contract for processing with a pri-vate firm until it constructed a facility in 1971. TCXis the counterpart of the federated sellingexchanges operating in Florida and California, butunlike the exchanges in those states, all cooperativepackinghouses in Texas were TCX members.

Until the disastrous freeze of 1983, TCX at itspeak marketed more than 40 percent of Texas citrusproduction. After the freeze, TCX lost memberswhen some cooperatives exited the industry. RioTex Citrus Association closed its facility and LakeDelta Citrus Association sold its packinghouse in1986 to a private firm.

Another damaging freeze in the late 1980s fur-ther reduced TCX’s volume. Currently, it has onlytwo members, Edinburg and Rio Bravo. TCX wasforced into considerable nonmember business,including shipments from Mexico, until local pro-duction rebounded. However, the amount of

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replanted acreage in Texas has exceeded expecta-tions, and TCX expects its member volume tosteadily replace nonmember supplies.

Freezes have significantly altered TCX’s struc-ture and its future structure is largely uncertain. SoTCX operations reviewed are from its prime years.

Structure-At one point, TCX had five mem-ber-packinghouses, all grower-owned coopera-tives. Today, TCX has only two.

Governance-The board of directors is based onthe relative volume of its members. Each cooperativemember has at least one director. Members gain addi-tional directors based on the incremental increases intheir proportional share of TCX’s volume. All mem-bers must market their citrus through TCX.

Financing-TCX members contribute workingcapital based on a set amount per ton of fruit deliv-ered. The amount is the same for both fresh andprocessing deliveries. Funds are revolved back tomembers, although recent freezes of the 1980sgreatly hampered the cooperative’s ability to do so.TCX bylaws allow exiting members to retrieve theirshare of net worth as approved by the board, eitherthe actual amount contributed or a lesser amount asnegotiated with the remaining members.

Operations-TCX provides all the marketingservices for members’ fresh and processed citrusproducts, but offers no grove care, harvest, or haul-ing services.

Member fruit is handled on a pooled basis-seasonal pools for both fresh and processed prod-ucts. Returns to fresh pools are on a per-box-packedbasis, and processed on a pounds-of-solids-deliv-ered basis.

TCX also markets nonmember fruit under cashbuying and participation plans. Recent freezesforced TCX into significant nonmember business.

Marketing-TCX has an in-house sales stafffor both fresh and processed sales. Fresh grapefruitis the king of Texas citrus because it has a recog-nized quality that will bring a per-box premiumthe market.

in

TCX markets fresh grapefruit and freshoranges under its Texas Star and Big Tex brands.TCX also markets in packages bearing the memberpackinghouse brand and the TCX name. A specificsales person is responsible for all the fruit from aspecific member. Orders are prorated out to mem-bers as fruit is sold. The fruit is shipped directlyfrom the member packinghouse to buyers. Fueledby the rise in fresh grapefruit exports, TCX exportsales have steadily increased their percentage ofoverall sales.

For processing, TCX directly handles andships product from its facility. In addition to retailpacks of single-strength canned or frozen concen-trated citrus products under their Big Tex label,TCX also packs for private label customers. Frozenconcentrates are also sold in a variety of bulk con-tainers. As a way to more fully use its processingfacilities, TCX also packs citrus for other processorssuch as Citrus World and packs noncitrus juices forfirms such as Tree Top Growers, Inc., an apple mar-keting cooperative at Selah, WA.

Sunkist Growers, Inc.Structural Overview-Sunkist has a federated

structure, but also has elements of a centralizedstructure. Therefore, it is classed as a “mixed” coop-erative organization. Instead of marketing througha local association, growers can use a licensed pri-vate packer and become direct members in Sunkistvia a district exchange. While fresh citrus market-ing is in a decentralized federated structure,Sunkist operates a single pool for processed prod-ucts as if in a centralized structure.

The federation of growers and grower-con-trolled cooperatives within Sunkist dates from itsformal incorporation in 1893. In its earliest form,the federation had a contractual relationshipbetween the grower and the respective packing-house association, its district exchange, and SunkistGrowers, Inc. (“Central”). Each level in the federat-ed structure was tied to the next by contract and byrepresentation on the board of directors of the nextsucceeding level.

Citrus growers may join Sunkist in two ways.One is to apply simultaneously for membership ina local cooperative and in Sunkist Growers. Local

cooperatives provide harvesting and packing ser-vices for members. All the costs of these servicesand local packinghouse operation are shared by thelocal members. These packinghouses, in turn, aremembers of a district exchange. As Sunkist bylawsdescribe them, “Each local association (packing-house) shall market all of the fresh fruit subject toits control through the district exchange with whichit is affiliated.” In turn, the district exchange mustmarket all fruit subject to its control throughSunkist.

District exchanges do not physically handlethe product shipped directly from packinghousesto wholesale customers. The district exchange isdelegated by the packinghouse(s) to set the finalprice and coordinate shipments, destination, andtransportation. The exchange relies considerably onmarket information obtained from Sunkist Central.The exchange is forbidden by its agreement withSunkist Central to solicit any customers.

Some Sunkist members choose to use commer-cial packinghouses (licensed or agency houses) toprovide the same services otherwise provided bylocal cooperatives. These growers are simultane-ously direct members of a district exchange andSunkist Central. The licensed houses agree to packexclusively for Sunkist under a l-year agreement.They are obligated to return to growers the net pro-ceeds from marketing their fruit after deducting thepacking costs and reasonable charges. The account-ing procedures must be compatible with the coop-erative’s system.

Commercial packinghouses have no voting,membership rights, or privileges in the Sunkist sys-tem. At one time, these licensed houses were treat-ed the same as local packinghouses, as members ofSunkist.

A U.S. Supreme Court review of the corporatestructure found that Sunkist did not comply withSection 1 of the Capper-Volstead Act. In response,Sunkist reorganized so each grower became a directmember of Sunkist, and also of either a local associ-ation or district exchange. Growers could still usecommercial packinghouses, but under the licensingagreement they had to return the net marketingproceeds to growers.

A subsequent court judgement upheld the use

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of licensed packers because the Capper-VolsteadAct specifically allows growers and their associa-tions to make the necessary contracts and effect thepurposes of the association.

Governance-All voting power in Sunkist lieswith the grower. Growers have the sole votingpower in and control of their local associations,including the power to elect the board of directors.The local associations and direct-grower memberselect the boards of their respective districtexchanges. The district exchanges elect members tothe Sunkist board.

In the election of directors, each districtexchange is entitled to as many votes as the numberof directors it is entitled to nominate, multiplied bythe number of directors to be elected. Eachexchange is entitled to nominate one director.Additional directors may be nominated based onthe volume of all fruit marketed through Sunkist.

Each exchange may nominate one additionaldirector for each whole 4-percent increment of vol-ume the exchange has in excess of the 2 percentminimum for the first director. Any exchange hav-ing less than 2 percent of Sunkist’s total volumeshall, for the purposes of nominating directors,combine its volume with other district exchanges toallow the combined exchanges to at least nominateone director in accordance with the formula con-tained in the bylaws.

The voting rights of Sunkist growers areunequal-not “one-man, one-vote.” Other than inelecting directors, Sunkist growers’ voting rightsare exercised through their local association or dis-trict exchange on the basis of one vote for each1,000 cartons of citrus marketed through Sunkist.Both the local association and district exchange areorganized as individual nonprofit cooperative asso-ciations.

Sunkist has an open-membership policy. Anyqualified grower may join. Grower agreements areindefinite, but may be terminated at the end of eachyear. Combined with the lack of any initial capitaloutlay, Sunkist’s membership is fairly mobile. Thereis considerable movement of citrus growers in andout of the Sunkist system. Moreover, members maycommit any portion of their production, allowing

some (few do) to market through different housesto compare performance.

Operations-Packinghouses prepare the grow-ers’ fruit for either the fresh or product markets.Management normally decides when fruit will beharvested and arranges for hauling. Sunkist oper-ates fresh fruit pools separated by variety (navels,etc.) and sometimes by time (early season, etc.).Each local association and the district exchangedirector representing direct growers (using licensedpackers) determines if fruit will be provided to aspecific pool. The decision on pool participation isan extension of the final decisions on sales andprice at the district exchange level.

Sunkist Central assumes responsibility for sell-ing fresh citrus, maintaining contracts with domes-tic and foreign buyers, receiving and distributing toexchanges the receipts from fruit sales, establishinggrades, organizing advertising and promotionalprograms, and regulating the use of trademarksand patents. The costs associated with these activi-ties are assigned to the fresh pools and calculatedon a per-box basis.

Marketing Agreements-For fresh marketing,the agreements and pooling policies are issuedbetween the district exchanges and their packing-house members, and between the packinghouseand its grower-members. A grower using a licensedpackinghouse may have a marketing contract cov-ering the method of payment with the licensedpackinghouse. However, the Sunkist marketingagreement is between the district exchange and thegrower-member, not the licensed packinghouse.

Financing-For new Sunkist members, thereare no initial capital requirements. Instead, mem-bers pay into a capital account based on the volumeof citrus they marketed through Sunkist during arepresentative period of years. The board deter-mines the capital financing requirements annually.Members’ share of this requirement is calculatedand then compared to their current capital contri-butions. Each member is either assessed for anadditional amount or receives a payout of the dif-ference.

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An important element of the financing respon-sibilities within Sunkist’s structure lies in thedecentralized nature of its organization. All thecosts of harvesting, grading, and packing fruit forthe fresh market are borne by the local cooperativeor licensed packinghouses.

From fresh fruit returns, expenses are deduct-ed in two assessments: per-carton for marketingand per-carton for advertising. The only otherdeduction is a capital retain. For processed prod-ucts, as a single pool, all members share equally(patronage based) in the costs of operating the pro-cessing pool. All proceeds from the sales ofprocessed products, less necessary operating andmarketing expenses, are returned to membersbased on volume of fruit shipped to processingfacilities. Sunkist Central governs the collection andassembling of products fruit and may prorate ship-ments if supply exceeds capacity of available facili-ties. Freight charges are handled equitably. Nomember may be at a disadvantage because of loca-tion relative to Sunkist’s processing facilities.

Marketing-Sunkist is the most widely recog-nized brand of fresh citrus and one of few found infresh produce. Sunkist labels are found on freshoranges, grapefruit, lemons, and tangerines.Sunkist’s system of field offices coordinates thesales and distribution of fresh citrus around theU.S. and Canada. Exports are an important part ofSunkist’s fresh sales---one of every four cartons issold overseas. Subsidiaries in the Far East andEurope help facilitate export marketing programs.

Sunkist Central acts as the clearinghouse forsales and supply information and coordinates salesinformation from the field office with informationon supplies from the district exchanges. SunkistCentral advises the district exchanges on the buyer,destination, and price for a given quantity andgrade. The district exchanges, in turn, determinethe sales in which they will participate. However,not all sales are made in a formal iterative biddingprocess (offer/counteroffer) between districtexchanges. Often, sales are facilitated by SunkistCentral working closely with the district exchangesto see that each will market its members’ volume atthe best possible prices. Moreover, Sunkist Central

respects the buyer’s request for product from a spe-cific packinghouse or exchange.

For processed sales, Sunkist Central controlsall the marketing and decisionmaking as to priceand product destination. Returns are treated likemost processing pools-all expenses are firstdeducted from total processed sales and thenreturned to members based on pounds of solidsdelivered.

Sunkist markets processed citrus in all productforms-single strength canned, chilled singlestrength, and frozen concentrates.

The majority of Sunkist’s processed productssales has been in bulk or private labeling. In 1990,however, Sunkist began marketing frozen concen-trates and chilled juices under the Sunkist label inlimited distribution.

Before 1990, the Sunkist name was leased tothe Thomas J. Lipton Company. Sunkist receivedroyalties from Lipton for the sales of a variety ofproducts, including sodas, candies, and fruit rolls.

Sunkist has licensed its brand name in morethan 40 countries. In 1990, under a mutual agree-ment, Lipton returned the license for the Sunkistname so the cooperative could use it for retail packsof processed citrus products. Licensing not onlyhelped increase the awareness of the Sunkist nameworldwide, but the royalty income generated alsodecreased the investment that members had tomake in the capital fund.

Sunkist System-The system of districtexchanges makes Sunkist unique in the citrusindustry. Although conditions prompting its forma-tion have largely disappeared, they still exist todayfor two reasons: 1) Historically, there has been acertain amount of “inertia” in maintaining a suc-cessful marketing system. In a sense, the exchangescompeted with one another. This would impedeefforts to merge or eliminate some or all of them.The communication link between Sunkist Centraland the packinghouse continues to be a benefiteven today. It precisely coordinates shipments bytheir proximity to the groves; 2) The sheer size towhich Sunkist has grown, in both volume and loca-tion of member groves, necessitated some delega-tion of sales and shipping coordination to more

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decentralized locations. The district exchanges werealready in a position to fulfill such a function andallowed packers to maintain their influence withinSunkist relative to the growers.

Summary of Cooperative OperationsA representative cross-section of organization-

al structures and activities was represented in theoverview of citrus cooperatives. Of those notreviewed, most were fresh packinghouses withoperations similar to, or the same as, one or more ofthe cooperatives presented. All federated coopera-tives in both fresh and processing were studied.

In some areas, regardless of organizationalstructure, there were many commonly used toolsand methods of operations. However, many coop-eratives provided different types of services andfunctions, and also differed in the way they per-formed a given function. These similarities and dif-ferences are summarized in the following:

1) All cooperative members signed a marketing ormembership agreement. Although of varying dura-tion, all agreements allowed members to cancelafter each season.

2) Although most citrus cooperatives are governedby “one-member, one vote” principle, some haveproportional voting, such as Sunkist, Lake Wales,TCX, and Sunny Cove.

3) All citrus cooperatives generated equity frommembers through either a revolving fund or basecapital plan-common financing methods for allagricultural cooperatives. All capital retains werebased on member patronage, usually on a per-boxbasis.

While the methods of member financing areeither a revolving fund or base capital, the relativeamounts and implementation of each vary by coop-erative. The amount of retained earnings usuallyreflects the financial health of the cooperative. ForFlorida and Texas cooperatives buffeted by freezesin the 198Os, capital retains were regularly deduct-ed but revolving periods were delayed for manyyears. Conversely, some California cooperatives,such as Corona-College Heights, shortened their

revolvement periods. Others, such as Sunny Cove,no longer needed to deduct capital retains.

4) Some cooperatives charge new members a mini-mal fee. Cooperatives such as Haines City, Waverly,and Golden Gem require the purchase of one shareof common (voting) stock, a practice commonamong agricultural cooperatives. Edinburg chargesa $10 annual membership fee. As a minimalamount of money, both per- member and in total,membership fees are more a traditional practiceand not a practical source of member equity. Some,like Sunny Cove or Corona College Heights, requireno new-member fee. 5) All cooperatives used someform of pooling to calculate and allocate returns tomembers. All cooperatives used a seasonal pool forprocessed products. There were regional differencesfor fresh sales. Most Florida cooperatives used sea-sonal pools for fresh sales, but in California, coop-eratives used pools accounting for time, such asmonthly or weekly. Cooperative members inCalifornia had more choice in deciding when toharvest than those in Florida, translating into agreater freedom in selecting pools in which to par-ticipate.

6) Returns to fresh sales are usually calculated on aper-box-packed basis. However, there are excep-tions. Waverly Growers uses pounds of solids forjuice oranges sold fresh. For processed productreturns, pounds of solids is the standard measure-ment of juice yielded from a given box of fruit.

7) Most cooperatives allow members to deliver lessthan 100 percent of their citrus production. Theyalso may commit acreage to multiple packinghous-es. The one exception was Edinburg Citrus.

8) Most cooperatives, particularly the packing-house_Haines City, Waverly, Corona-CollegeHeights, and many of Sunkist’s packinghousemembers-provide grove care services for mem-bers. In most cases, grove care was one of a numberof service options for the member. In cooperativepackinghouses such as Edinburg, Lake Wales, andSunny Cove, all grove care services are provided bymembers.

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9) All citrus cooperatives, except Central CaliforniaOrange Growers, provide all marketing and sellingservices for their members via one or more of threemarketing mechanisms-in-house sales staff, pri-vate broker or sales agent, or as a member of a fed-erated sales exchange.

All federations are large enough to employ anin-house sales staff, although some of the central-ized cooperatives--Golden Gem, Haines, and LakeWales-also have a sales staff. Some cooperativescontract with private sales agents, such as Corona-College Heights (Sun World), Waverly (DNE Sales),and Sunny Cove. Most cooperative packinghousesare members of a federated cooperative for eitherfresh or processed sales-29 cooperatives withSunkist, 12 with either Seald-Sweet and/or CitrusWorld, and the 2 cooperative packinghouses inTexas with TCX.

10) Federated citrus cooperatives consist of bothcooperative packinghouses and grower-owned pri-vate packinghouses such as Seald-Sweet or CitrusWorld.

11) Sunkist Growers, Inc., is distinct because of itssize, market share, and decentralized structure ofdistrict exchanges. Its basic structural unit, thepackinghouse, operates the same as other coopera-tive packinghouses in terms of operations and gov-ernance.

REFERENCES

California/Arizona Citrus Packinghouse Directory,California

Citrus Mutual, Visalia, CA, 1993.

Citrograph, various issues, Western AgriculturalPublishing Co., Fresno, CA.

Citrus Fruit Industry Statistical Bulletin, variousissues, Information Resources Department, SunkistGrowers, Inc., Sherman Oaks, CA.

Citrus Industry, various issues, AssociatedPublications Corp, Bartow, FL.

Cobia, David W., Cooperatives in Agriculture,Englewood Cliffs, NJ, Prentice Hall, 1989.

Connely, Chan. C., Daniel Fernandez, Robert E.Rouse, and Clyde R. Bogle, Texas Citrus IndustryEconomic Assessment, Research Center TechnicalReport No. 89-2, Texas A&M University Researchand Extension Center, Weslaco.

Directory of the Canning, Freezing, PreservingIndustries, 1993, Westminster, MD, Edward E.Judge & Sons, Inc.

Florida Agricultural Statistics Service, Orlando,Citrus Summary, various issues, 1978-1992.

Florida Department of Citrus, Economic ResearchDepartment, University of Florida, Gainesville,Florida Citrus Outlook, Working Paper Series, 1989.

Florida Department of Agriculture and U.S.Department of Agriculture, Division of Fruit andVegetable Inspection, “Packinghouse InspectionReports,” 1978 to 1993.

Florida Grower & Rancher, various issues, FGRIncorporated, Orlando, FL.

Ford, Stephen A., Ronald I? Muraro, and Gary F.Fairchild, Economic Comparison of Southern and

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U.S. Department of AgricultureRural Business and Cooperative Development Service

Ag Box 3255Washington, D.C. 20250-3255

Rural Business and Cooperative Development Service (RBCDS) provides research,management, and educational assistance to cooperatives to strengthen the economicposition of farmers and other rural residents. It works directly with cooperative leadersand Federal and State agencies to improve organization, leadership, and operation ofcooperatives and to give guidance to further development.

The cooperative segment of RBCDS (1) helps farmers and other rural residents developcooperatives to obtain supplies and services at lower cost and to get better prices forproducts they sell; (2) advises rural residents on developing existing resources throughcooperative action to enhance rural living; (3) helps cooperatives improve services andoperating efficiency; (4) informs members, directors, employees, and the public on howcooperatives work and benefit their members and their communities; and (5)encourages international cooperative programs.

RBCDS also publishes research and educational materials and issues farmerCooperatives magazine. The United States Department of Agriculture (USDA) prohibitsdiscrimination in its programs on the basis of race, color, national origin, sex, religion,age, disability, political beliefs and marital or familial status. (Not all prohibited basesapply to all programs). Persons with disabilities who require alternative means forcommunication of program information (braille, large print, audiotape, etc.) shouldcontact the USDA Office of Communications at (202) 720-7808 (TDD).

To file a complaint, write the Secretary of Agriculture, U.S. Department of Agriculture,Washington, D.C. 20250, or call (202) 720-7327 (voice) or (202) 720-1127 (TDD). USDAis an equal employment opportunity employer.

cooperatives in the u.s.-citrus industry · 2019. 11. 20. · abstract cooperatives in the u.s....

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