Agriculture Cooperatives in the

Rural Business

and Cooperative

Development

Service

RBCDS Research

Report 137

U.S.-Citrus Industry
Abstract

Cooperatives in the U.S. Citrus Industry

James A. Jacobs

Agricultural Economist

U.S. Department of Agriculture

Rural 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 fresh

and processed citrus products. This report examines the development and position of cooperatives in the citrus industry, their functions and operating practices, and the impact of changes in production practices and industry structure

on cooperatives.

Cooperatives range from small, local fresh packinghouse associations to

large cooperative federations with comprehensive marketing and sales programs in both fresh and processed markets. Cooperatives are among the leading marketers in all producing areas, and are the dominant marketing organization in California and Arizona. Citrus cooperatives use the pooling method to

market and allocate returns. This cooperative practice of averaging price and

sharing risk is commonly used by some private citrus firms as well, reflecting

the inherent volatility of citrus production.

Keywords: Cooperative, grove, grower-member, fresh citrus, processed citrus,

frozen-concentrated orange juice, packinghouse, processor, marketing federation, sales agency, marketing agreement, pooling, grove care, freezes, box,

eliminations.

RBCDS Research Report 137

December 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 citrus

cooperative activities and operating practices.

The report is intended as a reference for cooperative managers and members, professional advisors, and anyone involved in professional activities or

research in the citrus industry.

In addition to published information, much of the report is based on interviews, phone conversations, annual reports, bylaws, marketing agreements,

and other documents voluntarily provided by those cooperatives participating in

the project. The author thanks all of those who supplied information for this

report.
Contents

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

CITRUS INDUSTRY OVERVIEW ....................................................................... 1

World Citrus Trade ......................................................................................... 2

Processed Citrus ...................................................................................... 2

Fresh Citrus.............................................................................................. 2

U.S. Citrus Production ................................................................................... 3

Effects of Freezes.. ................................................................................... 7

Market Channels: Fresh and Processed .................................................. 8

CITRUS COOPERATIVES AND OPERATING PRACTICES ............................. 9

Grower-First Handler Coordination ................................................................ 9

What is a Cooperative?............................................................................... .lO

Other Types of Ownership ...................................................................... 10

Organizational Structures ............................................................................ .ll

Governance and Ownership ........................................................................ 11

Marketing .................................................................................................... .12

Fresh Marketing.. .................................................................................... 12

Processing .............................................................................................. 12

Cooperatives in Citrus Markets ............................................................. .13

Marketing Agreements ........................................................................... 13

Typical Provisions .................................................................................. .13

Pooling.. ................................................................................................. .16

Nonmember Business and Account sales ............................................. 18

DEVELOPMENT OF CITRUS COOPERATIVES ............................................. 19

Origins of The Sunkist System ..................................................................... 20

Impacts of Sunkist Early History ............................................................ .22

Current Sunkist System Structure .......................................................... 24

COOPERATIVES IN MARKET CHANNELS ..................................................... 28

California/Arizona Fresh Citrus Markets ...................................................... 28

Florida Fresh Citrus ..................................................................................... 31

Fresh Texas Citrus ....................................................................................... 33

Cooperative Processing ............................................................................... 33

Rise of Citrus Processing Cooperatives ...................................................... 33

Florida Processing Cooperatives ........................................................... 34

California Processing Cooperatives ....................................................... 35

Texas Processing Cooperatives ............................................................ .36

Processed Citrus Markets ............................................................................ 37

Product Forms ........................................................................................ 38

Brands and Labels.. ............................................................................... .38

Bulk Product.. ......................................................................................... 40

THE ROLE OF COOPERATIVES ..................................................................... 40

The Citrus Grower........................................................................................ 40

Home for Their Product.. ....................................................................... .41

Ownership and Control ........................................................................... 41

Economies of Scale and Coordination ................................................... 41

ii
Contents

Comprehensive Marketing Organizations .............................................. 42

Reduced Risk ........................................................................................ .42

Grove Care and Harvesting Services ..................................................... 43

Adopting Freeze-Aversion Production Practices .................................... 43

Residual Market Outlet ........................................................................... 44

Supply Cooperatives ............................................................................. .44

Purchasing and Developing Groves ....................................................... 45

Citrus Market Channels .................................... ........................................... 45

Allegiance to Growers ............................................................................ 45

Ease of Entry/Exit ............................... .................................................... 45

Market Discipline .................................................................................... 47

Summary on Cooperatives ..................................................................... 47

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

Increasing Production Capacity ................................................................... 48

Impact on Cooperatives.. ....................................................................... .48

Shifting Production.. ....................................................................................

.49

Florida ..................................................................................................... 49

California.. .............................................................................................. .53

Texas ...................................................................................................... 54

Changing Industry Structure.. ...................................................................... 55

Facility Capacity and Specialization ...................................................... .55

On-Farm Packinghouse.......................................................................... 56

Marketing Federations.. ......................................................................... .56

Globalization of Citrus Trade.......................................................................

.57

FCOJ and Imports ................................................................................. .57

Exports .................................................................................................... 58

Labor ............................................................................................................ 58

Marketing Orders ......................................................................................... 59

EXAMPLES OF COOPERATIVE OPERATING PRACTICES .......................... 60

Fresh Packinghouses .................................................................................. 60

Haines City Citrus Growers Association.. .............................................. .60

Waverly Growers Cooperative.. .............................................................. 61

Lake Wales Citrus Growers Cooperative ............................................... 62

Corona-College Heights ......................................................................... 63

Sunny Cove Citrus Growers ................................................................... 64

Edinburg Citrus Association ................................................................... 65

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

.66

Golden Gem Growers, ............................................................................ 66

Ocean Spray Cranberries....................................................................... 68

Federated Fresh Marketing.. .......................................................................

.68

Seald-Sweet .......................................................................................... .68

Central California Orange Growers Cooperative .................................. .69

Federated Processing .................................................................................. 70

Citrus World.. .........................................................................................

.70

. . .

ill
Contents

Federated Fresh and Processing ................................................................ 72

Texas Citrus Exchange ........................................................................... 72

Sunkist Growers, Inc.................................................................................... 73

Summary of Cooperative Operations .......................................................... 76

Figures

Fig. 1 Total orange and grapefruit production by State. ...................................... 4

Fig. 2 Orange production by State. ..................................................................... 4

Fig. 3 Fresh orange production by State............................................................. 5

Fig. 4 Grapefruit production by State. ................................................................. 5

Fig. 5 Fresh grapefruit production by State......................................................... 6

Fig. 6 Percent of oranges sold fresh by State ..................................................... 6

Fig. 7 Percent of grapefruit sold fresh by State ................................................... 7

Fig. 8 Exchange mechanisms in citrus selling. ................................................... 9

Fig. 9 Market channels for citrus.......................................................................14

Fig. 10 Membership and contractual relationships among participants

in the Sunkist System ............................................................................ 26

Fig. 11 Trends in Florida’s citrus production ...................................................... 50

Fig. 12 Golden Gem Growers: member acreage .............................................. 52

Fig. 13 Trends in California/Arizona citrus production....................................... 54

Fig. 14 Location of Texas citrus production ....................................................... 55

Tables

Table 1 Major citrus producing countries share of orange

production consumed fresh ....................................................................3

Table 2 Pooling policy illustration ......................................................................17

Table 3 Illustration of citrus pool calculations and pooling plan.. ...................... .19

Table 4 California citrus marketers and packinghouses represented, 1993. .. ..2 8

Table 5 California/Arizona packinghouses and affiliations. .............................. .29

Table 6 Top 10 marketers of Florida citrus, 1991-92 ......................................... 32

Table 7 Florida fresh cooperatives and marketing affiliations. ......................... .32

Table 8 Florida citrus processing cooperatives.................................................34

Table 9 Selected citrus processors and volumes .............................................. 38

Table 10 Cooperative processors and juice product types. .............................. 39

Table 11 Selected labels of citrus processors .................................................. .39

Table 12 Seald-Sweet Growers, Inc., membership........................................... 69

Table 13 Citrus World, Inc., membership..........................................................71

iv
Cooperatives have long been a major influence in all citrus producing

areas of the U.S. From the harvest and handling of raw citrus for fresh and

processed uses to comprehensive marketing programs that are among the

largest citrus marketers, cooperatives are active in all stages of the market

channels for citrus. Highlights of cooperative activity in citrus include:

l Cooperatives are one of the primary ways growers gain

ownership 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 cooperative or grower-owned privates-members as an outlet for their eliminations.

l Cooperatives market the majority of citrus produced in California and

Arizona. The leader, by far, is Sunkist Growers, Inc., a cooperative with more

than 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 for

grower-members-grove care, harvesting, and hauling. This enables smaller

growers to achieve the economies of scale necessary for efficient citrus production.

l The citrus industry is becoming more global in scope and citrus production is projected to increase worldwide. Cooperatives are tied to domestic production, meaning their presence is directly linked to the continued viability of

U.S. citrus production.

V
Cooperatives in the U.S. Citrus Industry

James A. Jacobs, Agricultural Economist

USDA/Rural Business and Cooperative Development Service

For most of the past 20 years, citrus has been

the leading fruit crop, in terms of dollar value, produced in the United States. Domestic citrus production is concentrated in Florida, California/Arizona,

and Texas. California and Florida are the major producers.

Nearly 75 percent of the world’s citrus supply

is grown outside the U.S., but because production is

spread across so many countries, the U.S. is considered a major citrus producer.

Whether in fresh or processed forms, the vertical system moving citrus to market is an array of

interdependent markets, exchange mechanisms,

and organizational structures. One of the most significant and highly visible organizational structures

are cooperatives found at all levels of the citrus

industry.

In recent years, the citrus industry has witnessed substantial structural changes due to weather conditions, disease, imports, and concentration.

In addition to the general status and operations of

citrus cooperatives, this report will look at the

dynamic changes occurring in the industry and the

impact on cooperatives and their grower-members.

The information presented in this report was

gathered from three types of sources: 1) interviews

and phone conversations with cooperative management and members; association, Government, and

university staff members; and various industry

experts; 2) written information supplied by cooperatives such as annual reports, bylaws, and marketing agreements; and 3) trade publications, newspapers, books, and research reports.

This is the first comprehensive description of

citrus cooperatives of its kind because little has

been published on the subject. Much of the information had to be collected first hand.

While it was not feasible to contact all cooperatives, the author met and/or had phone discussions with at least one cooperative considered representative of each type of organizational structure

or functional area, such as packinghouse or processor. Some noncooperative firms were also contacted

to further frame the role of cooperatives in the

industry.

Use of phrases like “most cooperative packinghouses...” represent conclusions arrived at

through the synthesis of information from a variety

of sources. The author is solely responsible for all

data or statements not attributed to a source.

CITRUS INDUSTRY OVERVIEW

The term “citrus” represents a number of different products and product forms. Oranges, grapefruit, and lemons are the major citrus crops, with

lesser production in tangerines, limes, and an

increasing variety of specialties. Oranges account

for more than 80 percent of the world’s citrus supplies. Citrus is consumed as fresh fruit or in products that use citrus. Juice, by far, is the leading

processed form. Processing also generates a number of byproducts such as food additives, cattle

feed, and cosmetics.

The use of citrus depends on the type, variety,

and geographic region. For instance, most

California oranges are navels grown for fresh markets. Conversely, most Florida oranges are round or

“juice” oranges and grown especially for processing. In all areas, citrus of unacceptable quality for

the fresh market is usually diverted to processing.

Until the early 195Os, most citrus was consumed in fresh form. The advent of processing

technologies led to major changes in the use of citrus. Today, most citrus consumed in the U.S. is in

1
processed form, principally as frozen concentrated

orange juice (FCOJ) and single strength juices. The

development of processing technology prompted

much structural change worldwide within the citrus industry.

World Citrus Trade

While citrus is produced worldwide, only a

few countries provide all of the commercial export

supplies. During the 198Os, the United States,

Brazil, Spain, Italy, Japan, South Africa, Israel,

Egypt, and Morocco accounted for more than 70

percent of all commercial production. While the

U.S. and Brazil are by far the largest producing

countries, their presence in the world market is

primarily in processed citrus products.

Processed Citrus

More than 40 percent of world citrus output is

processed. Brazil and the U.S. account for more

than 90 percent of the supply. Citrus growers in the

two countries are concentrated in the states of Sao

Paulo and Florida, respectively. In most other countries that produce citrus juice, the processing sector

is essentially a residual outlet to the fresh market.

The international market for citrus juices has

grown substantially this past decade, fueling

Brazil’s growth in citrus production. During the

1980s Brazil surpassed the U.S. as the leading citrus

producing country. More than 80 percent of Brazil’s

production goes into processing and more than 90

percent of it is exported in bulk containers as frozen

concentrated orange juice (FCOJ).

The U.S. is the major destination of Brazilian

FCOJ, which is then reconstituted into retail frozen

concentrate or ready-to-serve juice. Brazil has made

little or no effort to establish an identity for its

juice. Most is reconstituted into a brand label of the

processing firm or a private label for retail food

chains.

At one time, the lesser quality Brazilian juice

had to be blended with U.S. domestically produced

oranges. As the Brazilian industry matured, so did

the quality of its juices. Much of the imported concentrate can now be reconstituted without blending

with domestic juices.

tion as processed products, the U.S. exports relatively little. With U.S. exports of processed citrus

generally accounting for less than 10 percent of

domestic supplies, its major role in world processed

citrus markets is as an importer.

Florida has almost 90 percent of domestic juice

orange supplies, so it is the most sensitive area to

juice imports. The periodic freezes, like those

Florida experienced in the 198Os, allowed Brazilian

production to expand as imports were needed to fill

gaps in supply. In recent seasons, imports accounted for almost 50 percent of U.S. FCOJ supplies.

FCOJ imports have mixed effects on the U.S.

citrus industry. Florida citrus producers lost market

share and price leadership to Brazilian imports.

Increased imports limited the ability of Florida

processors to exercise price leadership, and alternate sources allowed juice manufacturing to occur

outside of Florida. Florida is no longer the primary

supplier of orange juice to U.S. markets. An

increasing volume of juice is imported bulk and

reconstituted nearer the consuming areas.

The availability of alternate sources during

freeze years, however, also benefited the domestic

industry, including Florida producers. Without foreign supplies, orange juice prices would have risen

high enough to possibly force consumers out of the

market. Given the frequent freezes in Florida during the 198Os, the long-term effects could have been

quite serious if consumers had permanently

switched to other juices.

More importantly, imports allowed processing

plants to continue operating at efficient levels,

including several Florida processors that began

importing FCOJ. Without foreign supplies during

local crop shortfalls, many Florida processors

would have shut down and permanently lost market outlets for Florida citrus growers.

Fresh Citrus

The United States and Brazil, although by far

the major citrus producers, are less important in

fresh citrus markets than in the processed markets

they dominate. Together, they account for less than

40 percent of the world’s fresh oranges, with most

of their fresh production consumed domestically. In

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

2
producers are fresh-market oriented. Fresh exports

are less than 10 percent of world orange production. Brazil exports little fresh citrus, with the U.S.

only slightly higher, approaching 22 percent for

fresh oranges and 45 percent for fresh grapefruit.

Spain exports more than 50 percent of its fresh

oranges. Israel, South Africa, and Morocco rely

mostly on fresh exports because supplies greatly

exceed domestic demand. Italy is an exception. It

exports less than 10 percent of its fresh citrus.

When ranking the countries by fresh exports,

Spain, Israel, South Africa, and Morocco all rank

above the U.S. as a world market supplier of fresh

oranges. Since 1979, U.S. fresh orange exports

declined by more than 20 percent while overall

world trade in fresh oranges increased.

Although Florida supplies less than 20 percent

of U.S. fresh oranges, the freezes of the 1980s put

upward pressure on domestic citrus prices, and

limited both the ability or desire to move more

oranges to export markets.

U.S. fresh orange exports to Canada and

Europe declined, while others, particularly Spain,

gained market share. U.S. exports to the Far East

markets have grown slightly. Most come from

California because of its Pacific Rim location and

fresh-market orientation.

Fresh grapefruit exports, almost 30 percent of

world production, are a more significant market

outlet than oranges, of which less than 10 percent

are exported. Although grapefruit is less than 10

Table I- Major citrus producing country’s share of

orange 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 grapefruit

exports are an important market for U.S. producers.

Grapefruit is about 50 percent of U.S. fresh citrus

exports. It is one reason why grapefruit represents

almost one-third of U.S. citrus production.

The U.S. is by far the world’s dominant grapefruit supplier. It has almost 50 percent of the trade.

Fresh grapefruit trade has grown steadily during

the past decade, particularly in the Far East where

U.S. exports have increased more than 100 percent

since 1980. The U.S. share of the European market

is also much larger for grapefruit than oranges

because Europe’s main orange suppliers, Spain and

Morocco, produce little grapefruit.

U.S. Citrus Production

Oranges and grapefruit are the predominant

citrus crops, accounting for about 90 percent of U.S.

production, with lemons, tangerines, and specialties comprising the rest. Because the market structure and production units for the other 10 percent

are essentially the same as the minor citrus crops,

the balance of the report will focus on oranges and

grapefruit.

U.S. production is concentrated in Florida,

California/Arizona, and Texas. Florida, by far the

leading State, usually accounts for more than 70

percent of all U.S. citrus supplies (figure 1).

California/Arizona is second and Texas, the smallest. The majority of U.S. citrus-more than 75 percent of orange and 50 percent of grapefruit production-is processed.

Although oranges and grapefruit are sold as

fresh or processed in all States, each is identified

with specific products. In the U.S. citrus industry,

Florida means “processed,” California means

“fresh,” and Texas means “fresh grapefruit” (figures 2 through 7). While Florida is by far the leading orange producer, most of its production is

processed. In Florida, the leading fresh grapefruit

producer, more than half of its grapefruit production is processed. California is by far the leading

fresh-orange State. Texas has relatively little orange

production, but is a significant fresh-grapefruit producer.

Figures 6 and 7 show the relative importance

of fresh versus processed production by the per3
Figure i-Total Orange and Grapefruit Production by State, 1981-93

Million short tons

15

6

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

Texas

California/Arizona

Florida

l Major freeze years

Source: 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 tons

12

8

6

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

Texas

California/Arizona

Florida

l Major freeze years

Season begins previous November for California/Arizona, October for Florida and Texas.

4
Figure 3-- Fresh Orange Production by State, 1981-92

Thousand short tons

2500

2000

1500

1000

500

0

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

l Major freeze years

Season begins previous November for California/Arizona, October for Florida and Texas.

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

l Major freeze years

Season begins previous November for California/Arizona, October for Florida and Texas.

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

Thousand short tons

1500

600

300

0

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

l Major freeze years

Season begins previous November for California/Arizona, October for Florida and Texas.

. Texas

California/Arizona

Florida

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

Percent

100

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

Percent

100

60

40

20

0

1981 82 83 84 85 86 87 88 89 90 91

Source: USDA/National Agricultural Statistics Service.

centage of orange and grapefruit production sold

fresh from each State. Florida is heavily skewed

towards processing, California is mostly fresh, and

most Texas production goes the fresh route.

Plants, equipment, and even citrus varieties

are fairly specific to either fresh or processed uses,

so the relative position of each State in fresh or

processed markets remains the same regardless of

the fresh/processed price relationships.

Structurally, Florida lacks the capability to

shift the majority of production to fresh markets.

California is similarly hampered on the processing

side. In the short run, however, supply shocks and

the resulting price changes can cause citrus supplies to be shifted between fresh and processed

markets. In particular, freezes can have a profound

effect on the marketing mix of fresh and processed

citrus supplies.

Effects of Freezes

While weather-induced supply shocks are

common to much of production agriculture, citrus

is especially vulnerable to the devastating impacts

of freezes. U.S. citrus production only occurs in the

semi-tropical climates of Florida, southern and central California, the Arizona desert, and extreme

California/Arizona

Texas

Florida

southern Texas because citrus trees are sensitive to

cold weather. Still, even these areas have experienced freezes. Since 1990 alone, freeze-induced

shortfalls in supply have occurred in Florida,

California, and Texas.

Freezes have a dual impact on citrus production-damage to the crop still on the trees and

damage to or total loss of the trees themselves. The

immediate impact of a freeze depends on the

amount of fruit still on the trees and the level of

damage. Normally, citrus can be “stored” on the

tree for many weeks, allowing the marketing season to be spread out over a few months. However,

after a freeze, the fruit is usually harvested as soon

as possible. Fresh packinghouses and processing

plants normally run around the clock. Harvesting is

speeded up to salvage fruit before it rots from

freeze-damage.

Prices in fresh citrus markets generally climb

faster after freezes than processed markets because

freeze-damage fruit is often unacceptable for fresh

uses. Freeze-induced reductions in processing supplies are mitigated by fruit diverted from fresh

markets. Also, imports of juice-concentrates are

more readily available than fresh imports.

Where a freeze occurs directly determines the

7
relative impact on fresh and processed citrus prices.

Fresh markets would be most affected by a freeze in

California, while the processed markets would be

hurt most in Florida.

Freezes can also have a profound impact on

future citrus production to the extent that trees are

damaged or even killed. Even if the damaged trees

are replaced, there is a 3-to 5-year lag between

planting time and the bearing of saleable fruit.

Freezes have different effects on structure of

firms and their ability to survive in Florida,

California, and Texas. Texas freezes are the most

devastating and complete. While Texas independents could market Mexican or Florida fruit, cooperatives have few options in sourcing fruit in the

short run or diversifying acreage bases in the long

run. After tree-killing freezes, most independent

Texas shippers could shift to handling other commodities. But citrus cooperatives do not have this

option.

Although not as severe as in Texas, freezes

also constrain Florida and California cooperatives.

Formed to market the production of a specific set of

growers, cooperatives have less flexibility than

noncooperative citrus handlers in sourcing fruit.

While many cooperatives market nonmember fruit,

nonmember business is limited by law to no more

than 50 percent of the cooperative’s volume.

Market Channels: Fresh and Processed

Citrus market channels are defined along fresh

and processed product lines. Fresh citrus is essentially consumed in the same form as harvested, so

appearance and condition can be the most important marketing aspect. Most activity in preparing

citrus for the fresh market is in the sorting and

grading of citrus packed with like-quality fruit.

This occurs at the first stage of the market

channel. So there are few intermediary activities or

firms between the packing operation and the retail

or wholesale outlet. Most fresh citrus is shipped

directly from the packinghouse to the buyer’s store

or warehouse. As a perishable commodity, the functions and stages between the packinghouse and the

consumer are primarily dedicated to maintaining

product quality and delivering fruit in a timely

manner.

There is much less concern about the appearance of raw citrus used in processing. Most of the

less-than-acceptable-appearing fruit is diverted to

processing. Citrus intended for processing is commonly graded and valued based on internal quality

tests that determine the amount of juice the raw citrus will produce.

Processing transforms raw citrus into a variety

of products-primarily juice. Not only is the raw

citrus appearance transformed, but also the quality

of juice and juice products can be changed through

blending. By combining citrus juices with sweeteners or other juices, many different juice products

can be created. So the functions and stages of the

processed citrus market, particularly at the first

level, are involved primarily in transformation

activities. Most value is added in fresh marketing

during the grading and packing functions. On the

processing side, most value is added after the sorting and grading functions.

While many processed citrus products are

made into their final form at the first-handler level,

a significant exception is the bulk distribution of

concentrated juice to be reconstituted into the finished product elsewhere. Bulk shipments, along

with the ability to store processed citrus products

for long periods, allows firms to enter processed

citrus markets without being in citrus producing

areas. These “reconstituter” firms have gained an

increasing share of the citrus juice business. For the

purpose of this report, a “processor” is located in

the citrus producing areas and actively involved in

handling and processing raw citrus.

Although some market both, most citrus

industry firms market either fresh or processed

products because of differences in the technical and

facility requirements for each product. Processing

facilities require far greater investments and much

larger quantities of raw citrus to operate at efficient

levels than a fresh packinghouse.

Accordingly, processors are fewer in number

and generally larger than fresh marketers. For

example, while almost 90 percent of Florida citrus

goes to processing, there are more than four times

as many fresh marketing firms than processors.

8
CITRUS COOPERATIVES

AND OPERATING PRACTICES

Cooperatives of varying size and operations

market citrus from all producing areas of the U.S.

From the initial harvest and handling of raw citrus

to the comprehensive marketing programs that are

among the largest citrus marketers, cooperatives

are active in all stages of the market channels for

citrus. But, cooperatives are only one marketing

option available to citrus growers. This section will

look at how cooperatives operate and compare

them with other organizations and coordination

mechanisms in the citrus industry.

Grower-First Handler Coordination

In the first stage of the market channel, raw

citrus is harvested and delivered from the grove to

either fresh marketers or processors. Regardless of

product form or firm size, the coordination mechanisms are essentially the same. As a grower-owned

organization, the majority of cooperative activity is

in the grower-first-handler stage.

At the first-handler level, the marketing channels contain a range of coordination mechanisms

broadly classified by three categories (figure 8). At

one end is the open or “spot” market. Fruit is

priced at the time of harvest or delivery. The key

distinction about the spot market is that the fruit is

not committed to a buyer until harvest.

Fruit committed before harvest is usually done

under contract, the second category of exchange

mechanisms. While some contracts may specify a

given quantity of fruit to be delivered, the more

common type is the “production” contract where

buyers take delivery of all the fruit produced from

a given grove. Price may be specified in a “cash

buying” contract or determined after harvest in a

participation contract.

In participation contracts, both the buyer and

seller receive a predetermined percentage of the

fruit sales based on the net price received for the

fruit. This type of contract allows the sharing of

price risk between the buyer and seller in the oftenvolatile citrus markets.

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

Nonpriced Fruit

Cooperative Membersh

1

Participation Plan

Priced Fruit I

Cash/Spot Market

Member fruit Non-member fruit

-I

I I

1 Cooperative Processor or Packinghouse 1 I Private Processor or Packinghouse 1

I I I I

9
Participation contracts are similar to the pooling methods used by cooperatives in marketing

members’ fruit and distributing returns.

Participation plans are usually offered by private

firms, but some cooperatives use them to market

nonmember fruit under what are known as account

sales. Within the season, member and nonmember

fruit is treated the same. However, nonmembers

carry a greater long-term risk in that cooperative

membership means a guaranteed home for member

fruit. In years when member fruit is sufficient, nonmembers may be forced to the riskier cash market.

The third category of coordination is achieved

through ownership or vertical integration. This

combines two or more stages in a marketing channel within a single governance structure where

coordination is by administrative direction. The

degree of integration varies by commodity. The

extension of ownership is mainly forward from the

farm into the marketing channel toward the consumer.

Agriculture, in general, has little backward

integration with food marketing or processing

firms owning farming operations. Citrus is an

exception. Considerable integration exists in both

directions-backward with fresh marketers and

particularly processors owning citrus groves, and

forward with citrus producers having ownership in

one or more stages of fresh marketing or processing

channels. Cooperatives a common form of forward

integration.

What Is a Cooperative?

A cooperative is a distinct business organization common to agriculture, including citrus. In

forming an agricultural cooperative, a group of

farmers agree to collectively market their products

or provide some other needed service. This requires

relinquishing some control over their products to a

central organization.

The benefits of producers collectively marketing their products versus each doing it individually

are that they: (1) fulfill the need for, or replacement

of, a marketing service not available, (2) improve

grower’s bargaining position with buyer’s because

more production is controlled by a single seller, (3)

facilitate economies of scale in handling and processing, (4) provide for better servicing of large buyers

by pooling smaller quantities of product into larger

lots for more economical sourcing and shipment,

and (5) reduce price risk for the individual grower

by spreading it over a larger number of units.

Like corporations, cooperatives are privately

owned businesses and nearly all are incorporated.

Cooperatives perform many of the same functions

as any other business. Both citrus cooperatives and

investor-owned firms (IOFs) have comparable facilities and operations, and are subject to the same

competitive factors and industry regulations. In

marketing their fresh citrus or processed products,

both IOFs and cooperatives use comparable distribution channels, sales contracts, and marketing

strategies. Where cooperatives and IOFs differ is in

their internal operations and organizational framework.

Cooperatives are unique due to their ownerpatron relationship, and further differ from IOFs in

the manner and philosophy by which they operate.

Cooperatives return net income to producer-users

or “patrons” while other businesses return net

income to investors. This user-benefit principle of

cooperatives is followed in distributing returns to

members based on their use or patronage.

In a citrus cooperative, this means the proportion (prorata share) of fruit the member markets

through the cooperative. If members supply 10 percent of the cooperative’s business volume, they

receive 10 percent of the returns.

Two other principles distinguish cooperatives

from other businesses-the user-owner and usercontrol. By law, agricultural cooperative ownership

is 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 own

and use the cooperative.

Other Types of Ownership

The counterpart to cooperative ownership of

fresh marketing or processing facilities are IOFsindividual owners, partnerships, or corporations.

A number of citrus firms are owned by growers. Typically, they are larger commercial operations or family partnerships. Many own packinghouses and processing facilities.

10
From a cooperative standpoint, the distinction

of a grower-owned firm from other IOFs is important. A number of these farming operations can

legally become a member of a cooperative. Many

are in fresh marketing organizations such as

Sunkist Growers, Inc., Sherman Oaks, CA, or SealdSweet Growers, Inc., Vero Beach, FL.

Organizational Structures

Citrus cooperatives can be classified by three

organizational structures: centralized, federated, or

mixed. Essentially, they denote two different levels

of activity.

On the first level is the grower-cooperative

relationship where the members of a centralized

cooperative are the individual growers. Control

and volume flow directly from the members to the

cooperative, and services and patronage refunds

flow directly back to the members.

On the next level, two or more centralized

cooperatives are united in an organization called a

federation, or cooperative of cooperatives. Service

and patronage refunds flow from the federation to

the member cooperatives who then return them to

their grower-members. A mixed membership is

comprised of individual cooperatives and growers

as direct members.

All three types of cooperative membership

structures exist in the citrus industry. The most

common is the centralized organization, primarily

the cooperative packinghouse. These cooperatives

will form a federation for two purposes. In a federated fresh marketing agency, the output of a number of packinghouses is combined under a single

sales agent to enhance coordination and market

power. The second is the federated cooperative

processor which often handles eliminations from

the fresh packinghouse.

The mixed structure is created primarily under

two scenarios: 1) a large grower with its own fresh

packinghouse that becomes a direct member of a

federated fresh sales or processing agency along

with local cooperatives, and 2) the Sunkist arrangement where, in addition to membership through a

cooperative packinghouse, individual growers

became direct members when using a private packinghouse.

Governance and Ownership

Control of cooperative management and operations begins with the articles of incorporation and

bylaws. These documents determine the rules to

follow in managing ownership and distributing net

income. Because members determine the content of

the legal documents and elect the board of directors, they control ownership and net income distribution. Members may at times vote on cooperative

policies and major operating decisions, but most

policy decisions are delegated to the board.

Governance of the cooperative is primarily

through the elected board of directors, regardless of

the organizational structure. In a centralized cooperative, the board is elected directly by the members. In a federation, the member cooperatives and

grower-owned firms elect, or rather designate, the

directors. Membership in a citrus federation is

much smaller than in a centralized structure, so it is

practical for each federation member to have a

director on the board. A member may appoint

either a grower, or as more often the case, someone

from management to the federation board.

The Sunkist system is slightly different. The

Sunkist board of directors is elected at the district

exchange level (See section on the Sunkist system).

Acting as a form of districting, all local cooperatives and individual growers in Sunkist must be a

member of a district exchange. Each exchange

elects at least one director-a grower or a management representative-to the Sunkist board.

Deciding who may vote, how many votes each

person may cast, and other features of the voting

system represent the method of control. Most cooperatives are purely democratic institutions. Each

member has a vote-one-person, one-vote in most

cases-regardless of the investment in the cooperative. Some cooperatives have an unequal or “proportional” voting system based to some degree on

the relative volume marketed through the cooperative. However, the total amount of votes a member

can have is usually restricted by the use of volume

increments-l vote for each additional “X” units,

etc., with a limit on the total.

On the other hand, voting in an IOF is based

on the relative amount of equity or shares of common stock owned, usually with no voting limit.

11
Although both cooperatives and IOFs can have proportional voting, the number of votes in a cooperative is based on the proportion of usage, not equity.

Marketing

In forming a citrus marketing cooperative

growers agree to collectively market. Cooperatives

also affiliate with other cooperatives to jointly market fresh fruit and/or process fruit not suitable for

the fresh market. They are known as “eliminations”

from the packinghouse. The relationship between

the local cooperative and the federated cooperative

is essentially the same as that between the grower

and the local cooperative.

However, the agreement between a local and

federated cooperative may be for a more specific

purpose, and not as comprehensive as that between

the grower and the local cooperative. One agreement may only cover eliminations from a packinghouse, while another may merely be an agreement

to act as a sales agent for a per-box fee.

Fresh Marketing

The first stage of market channel for fresh citrus is the packinghouse (house). Fruit is harvested

and shipped to houses to be assembled, washed,

graded, and packaged for the fresh market.

Growers own most of the fresh packinghouse operations, either as a grower-owned IOF or as a cooperative. Most citrus cooperatives are in this first

stage of the fresh market and known as local packinghouses. Many are linked with other local houses

and grower-owned IOFs in a cooperative selling

exchange-one of the ways packinghouses market

their fresh fruit.

Packinghouses sell their fruit through three

mechanisms: in-house sales force, outside private

sales agency or broker, or as a member of a cooperative selling exchange. Also, a combination of these

mechanisms may be used, such as an in-house staff

for domestic sales and a private broker for export

markets.

Cooperatives integrate the farthest into the

market channel through the centralized packinghouse that employs its own full-line marketing program. Another example is the cooperative selling

exchange, representing the interests of a number of

citrus growers and packinghouses under a single

sales program. Although the smaller packinghouses

would seem the most likely users of a cooperative

selling exchange, some smaller cooperatives do

their own marketing and selling. Conversely, the

cooperative sales exchanges have some of the

biggest packinghouses in their respective States as

members.

In representing the interests of many growers

and packinghouses, the cooperative sales

exchanges have traditionally been the most widely

recognized cooperatives marketing fresh citrus in

their respective States. All of today’s citrus-producing States have federated sales exchanges. They are

discussed further in the section on cooperative marketing in specific States.

Processing

The plant is the first stage of the market channel for processed citrus products. Raw citrus is

assembled, sorted, and processed into a variety of

product forms. Raw citrus is delivered to the

processor via two routes: 1) varieties direct from

the grove intended for processing, and 2) fruit considered unsuitable for fresh markets (eliminations).

Most processing cooperative activity is where cooperative packinghouses-sometimes with growerowned houses-will form a cooperative for their

packinghouse eliminations.

For cooperatives in both fresh and processing,

such as Sunkist, processing is mostly a residual

operation to fresh marketing. While processing

cooperatives obtain fruit direct from member

groves, at times in substantial amounts, the intent

in forming the cooperative was for packinghouse

eliminations. Even in Florida, where most citrus is

processed, few cooperatives were originally formed

to process fruit directly from the grove.

There are no cooperative selling exchanges for

processed products-processors as members-like

those in fresh citrus marketing. Also, there is limited use of private sales organizations to market

processed products to the primary markets. Most

processors, including cooperatives, maintain a sales

staff for retail outlets such as chain stores and large

independents, and institutional outlets such as food

service. Particularly for branded products and pri12
vate labels, most arrangements are directly between

the retailer and the processor. Brokers may service

some markets, particularly secondary markets such

as schools and exports, but this is usually done in

coordination with the in-house sales staff.

Cooperatives in Citrus Markets

Figure 9 overviews the position of cooperatives in the market channels for citrus from grower

to consumer. As grower-owned organizations, most

cooperatives are directly involved in the first stage

of the system: handling of raw citrus for either

fresh or processing. The major exception to this is

the cooperative sales exchange where their members own the packinghouses and physically handle

the product.

Cooperative activity declines after the firsthandler stage. While larger cooperatives are active

in most stages of the marketing channels for citrus,

in general, noncooperative brokers, sales agents,

further processors, reconstituters, and

retailers/wholesalers perform more of the functions as product moves closer to the consumer.

Marketing Agreements

Although membership is voluntary, cooperatives generally use legal devices such as bylaws,

articles of incorporation, and membership agreements. The membership agreement or contract is

often referred to as the marketing agreement. These

are common tools with fruit and vegetable cooperatives, including those in citrus.

While IOFs use written contracts to buy fruit,

the marketing agreements used by cooperatives are

unique because the cooperatives are owned by and

operated for their member-patrons. Each growermember’s financial well-being depends in part on

the performance of other grower-members.

Marketing agreements ensure compliance of grower-members with their obligations to the cooperative, as well as its obligations to them.

Orderly marketing requires a degree of control

over the product by the selling agency, or in this

case, the management staff of the citrus cooperative. A marketing contract or agreement transfers

some decisionmaking from individual growers to

the cooperative. The mutual agreement requires the

member to market products with the cooperative,

and obligates the cooperative to obtain the best

possible price for those products.

There are two general types of marketing

agreements: 1) a contract specifying a purchase of

quantity X at price Y, called a purchase-and-sell

contract because it requires the cooperative to purchase product outright from the member; 2) an

agency contract specifying the cooperative to act as

sales agent for the member. Most marketing

agreements used by citrus cooperatives are of the

agency-contract type. Price is rarely determined

prior to delivery. Instead, the cooperative acts as

the member’s sales agent. In most cases, the

amount a member receives is determined after the

fruit is sold. Most agreements call this payment

method “pooling,” a distinct cooperative practice in

citrus marketing (see pooling section).

Typical Provisions

These provisions are typically found in the

marketing agreement between the citrus growers

and their cooperatives:

1. The percentage of products the member must

market through the cooperative. Cooperatives frequently require members via the membership

agreement to deliver all their production. This,

however, is the exception among citrus cooperatives. Most citrus marketing agreements allow

members to specify the amount of product they will

make available to the cooperative-either per-box,

or more commonly, all the production from the designated groves. Most citrus growers belong to only

one cooperative although they aren’t restricted

from joining others.

2. Description and location of citrus groves covered

by agreement.- Whether members are required to

deliver all their production or only that from specific groves, marketing agreements usually require

members to at least describe the location of the

groves and the varieties produced in each. Some

contracts also ask the grower to estimate the number of boxes per grove or the number of trees to

assist the cooperative in calculating the potential

volume.

13
Figure g-Cooperatives in Primary Market Channels for U.S. Citrus

FRESH PROCESSED

GROWER IMPORTS

r\

I \

\

\

\

\

Raw @it

\

\

1I

Grower-Owned Cooperative - ------ = Cooperative IOF/Grower-Owned

FRESH PACKINGHOUSE PROCESSOR

SALES and MARKETING

Branded or

private label

Bulk Bulk

concentrated concentrated

iuice ,

I

I

I

I

I

I

I

I

I

I

I

I

I

I

juice juice

1 I h

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.

14
3. Acknowledgement of grower-member’s requirement to deliver the fruit specified in the agreement

and the cooperative’s authority to market the fruit.

Generally, the cooperative is given the right to

pack, process, and market all the fruit pledged by

the member. With a fresh packing cooperative,

agreements often give it the right to determine

whether a member’s fruit will be marketed in fresh

or processed form as determined by the grade and

standards policies. As a practical matter, it is far

easier for the grower to allow the cooperative to

market the packinghouse eliminations.

4. The length of time the agreement is in force.

Most citrus marketing agreements are renewable

annual contracts unless terminated in writing by

either the member or the cooperative. Usually, the

agreement specifies a date by which either the

member or association can terminate their agreement for the coming season. Causes justifying termination are outlined in the marketing agreement

or the cooperative’s bylaws.

5. Authorizing capital retains to finance cooperative. The prime source of equity capital for most

citrus cooperatives is through deductions from

member payments. They are called per-unit retains

because the amount members provide in equity

capital is based on their patronage with the cooperative, usually on a per-box basis.

While different terminology describes the way

retains are accounted for-written notices of allocation, common stock, capital equity credits, and certificates-the intent is the same. Each member has a

separate account recording the amount of his/her

equity contributions.

For citrus cooperatives, the most common

method of patronage-based financing is through a

revolving fund plan. Ideally, as new volume-based

retains are accumulated, older money is revolved to

the members. For example, the cooperative may

declare that all money retained in a certain year,

usually the oldest, will be returned to members

who contributed in that year. There is no interest

earned on the per-unit retains. While a regular

revolvement is ideal, citrus production is prone to

severe supply shocks from freezes that can delay

scheduled revolvements.

Because the money used to revolve old equity

is from the volume-based retains of the current

year, reduced citrus production limits the cooperative’s ability to revolve old equity. Because of the

fiscal hardships caused by freezes over the last two

decades, some cooperatives have not revolved

funds for 20 years or more.

The amount of the retain is determined by the

board of directors. Per-unit retains are at-risk

funds. Although the members expect their retains

to be returned after a period of years, the cooperative usually has no obligation to return them. The

bylaws typically leave the decision on revolving up

to the board. If the revolvement period is expressly

stated in the contract or bylaws, however, this then

becomes a debt for the cooperative.

6. Penalties for noncompliance and description of

damages. A cooperative’s board of directors may

act against the grower for reasons usually outlined

in the bylaws or marketing agreement. The most

common breach of contract relates to the nondelivery of fruit by the member. Most agreements cite

liquidated damages as an appropriate remedy for

nondelivery. Actual damages are difficult or

impractical to calculate in this event, so the marketing agreement generally specifies a formula for

computing the liquidated damages.

For example, one cooperative assesses the

member 25 cents per box for all citrus not delivered

as required by the agreement. Other agreements are

less specific, saying the damage amount is to be

determined after a hearing with the board of directors.

Some marketing contract provisions allow for

nondelivery 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 agreements

where the grower is responsible for harvest and

delivery. An Act of God clause releases the grower

from liability in the event of freezes. The clause

makes the marketing agreement an acceptable risk

to both citrus growers and cooperatives in a federation.

15
7. Control of product quality and quantity. In addition to marketing decisions, most agreements give

citrus cooperatives considerable control over product quality and quantity. The marketing agreement

gives the cooperative the right to allocate fruit to

different uses based on quality, or reject it if not

meeting minimum standards. Where growers

arrange their own grove care and harvesting services, few provisions address specific production

practices to achieve a specific quality. Rather, quality is addressed when graded and sorted at delivery.

Cooperatives often extend control over product quality by providing grove care and management services to members. For the grower who uses

these services, a separate document may cover the

grove care arrangement. In some cases, cooperatives require members to use these grove care and

harvesting services. In most instances, members are

charged the actual costs for grove care and harvesting services instead of on a patronage or prorata

basis.

Both fresh packinghouses and processing

plants need considerable coordination of product

deliveries with facility operations, so most agreements also give the cooperative control over the

timing and amount of harvest and delivery.

Decisions regarding harvesting and hauling services are directly controlled by the cooperative. If

the grower is responsible for harvest and delivery,

the agreement will often state the time and place as

stipulated by the cooperative.

8. Method of Payment. A key provision in any

marketing agreement regards payment, yet the

wording of this provision is usually simple and

straightforward. In short, the cooperative agrees to

return to the members, after deducting appropriate

expenses, the proceeds from the sale of their fruit.

The citrus cooperative agreements seldom list a

specific price and instead use pooling, a practice

common to fruit and vegetable cooperatives.

Pooling

Although each citrus cooperative develops its

procedures for operating pools, many share the

same characteristics. Central to pooling is averaging costs and returns for a defined quantity of fruit

(pool contents). It is a delayed-payment plan. Exact

returns to members are not determined until after

all their fruit is sold. Once fruit has been received,

graded, and put into a specific pool, members’ fruit

is commingled and sold with others. All pool fruit

then is considered to be sold at the same time. No

distinction is made for the actual price received for

a specific unit of product.

A member’s participation in a pool is determined at delivery, when fruit is sorted and graded

into different pools. Members share in the proceeds

from the sale of the pool’s contents based on their

contributions. When all or most of the product has

been sold, the pool is closed.

The estimated value of any remaining inventories is combined with actual sales to reach a total

value for the pool. Operating and administrative

expenses are allocated to each pool and subtracted

from gross sales. The net proceeds are then divided

by total pool quantity to get an average price paid

for the pool’s contents. Any excess over previous

payments is then distributed to members on the

basis of their prorata contributions to the pool.

Although the average price is not known until

the pool closes, members are usually paid an initial

advance upon delivery. Interim payments also are

made as some of the product is sold out of the pool.

Once the pool closes, a final payment-or adjustment-is made. If the pool value is positive when

closed, the member receives a prorata share.

Conversely, a negative pool value calls for a repayment by the members based on the difference

between amount paid in the interim and the

amount actually owed at closing. The per-unit

retains are usually accounted for in the final adjustment to the pool.

Seasonal pools are common among citrus

cooperatives. The pool contains all fruit from a particular variety during a given growing season.

Nonseasonal pools divide a season’s production

into specific time periods, such as weeks or months.

Time-segmented pools are used only in fresh marketing. Pools are also segregated by grade, variety,

and usage. Each category constitutes a separate

pool. Fresh packinghouse cooperatives usually

have a fresh and processed pool for each variety.

Reflecting the characteristics affecting the way

16
a product is sold, the basis of payment usually differs between fresh and processed uses. Fruit in a

fresh pool for a given variety is largely rated on

exterior factors-size, color, texture, scars and

bruises, etc. Different fresh grades, and hence

pools, reflect these appearance factors.

The industry standard for fresh citrus sales is

the box, a legally defined term reflecting the average weight by variety in a given box. Returns from

the sales of a given variety are accumulated and

recorded by the cooperative on the basis of box

equivalents. In turn, the member’s participation is

based on number of boxes delivered to each fresh

pool.

Appearance means little for processed citrus

pools. The value of processed citrus is based on

internal quality, most commonly pounds of solids.

A load of delivered citrus is tested for the pounds

of solids. This is then used in a formula ultimately

reflecting the amount of juice the raw citrus will

produce. Total pounds of solids are calculated by

multiplying the test results by the boxes for each

grower’s fruit. Although returns may be converted

into box equivalencies, payments to growers are

ultimately based on the total pounds of solids they

have delivered.

The decision on which pool to participate in,

at least by variety, is first determined by what the

grower chooses to plant-fresh or processing varieties. Growers determine the pools in which they

plan to participate when they designate production

from particular groves for marketing through the

cooperative. However, once harvested, decisions on

pool participation are made by the cooperative.

When received by the cooperative, the fruit

may be allocated to premium or lesser grades based

on quality factors. For a fresh packinghouse, fruit

considered unsuitable for the fresh market is sent to

a processor, who, in turn has the ultimate decision

in grading and making pool allocations.

Generally, a pooling policy accompanies the

marketing agreement describing, in varying

degrees of specificity, the operations of the pool.

The bylaws and other guidelines will also address

pooling procedures. Wording in a typical pooling

policy is shown in table 2.

While the policy itself is relatively simple, the

accompanying general guidelines and the cooperative bylaws address the pool operations in greater

detail. Some cooperatives choose to put more detail

on 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 time

from the harvesting of the first box of a variety until the last

box of said variety is harvested.

Weight per box by variety shall be credited as follows:

Oranges, Temples, All Tangelos - 90 pounds

All Grapefruit - 85 pounds

There shall be a fresh fruit pool and a processing fruit pool

established for each variety. Pools will be based on the fresh

fruit care program and the processed fruit care program

(general guidelines) developed by management in

conjunction with the production committee of the board.

The following 1990-91 pools shall be established:

Oranges

Hamlin Orange Pool

Midseason Orange Pool

Navel Orange Pool

Grapefruit

Red and Pink Seedless

Grapefruit Pool

White Marsh Seedless

Grapefruit Pool

White Seeded Grapefruit Pool

In fresh pools, total receipts from all fresh fruit, by variety,

shall be combined with the total receipts from the processing

plant for eliminations of the same variety. These combined

total receipts shall be divided by the total boxes harvested of

said variety. Each grower shall receive the same price, less

individual grower’s picking and hauling expenses.

In the processing pools the total receipts from the

processing plant for all fruit, by variety, shall be divided by

the total boxes harvested of said variety. Each grower of said

variety shall receive the same price delivered in, less the

individual grower’s picking and hauling expenses.

In the case of a freeze, the board of directors may change

the pools in accordance with the cooperative’s bylaws.

17
fruit, calculation of payments, and expense allocation. Pooling is a marketing mechanism designed at

the discretion of the cooperative. While the specific

policy wording varies in complexity, basic operations of the pool are essentially the same.

Table 3 shows a citrus pool used by a fresh

packinghouse, the most widespread type of citrus

cooperative. The packinghouse is also a member of

a cooperative processor, another common occurrence. There are three pools in the example-fresh,

eliminations from the packinghouse, and fruit harvested for direct shipment to processing.

In this example, the cooperative harvests and

delivers members’ fruit going direct from the

grove to the processing facility. Payments by the

processor are received by the cooperative and

returned to the member in the same manner as

other pools. The processor-direct fruit is not

assessed a capital retain to illustrate that the financing of a cooperative’s assets is allocated to the

member fruit using those assets.

In this case, the capital retain is for the packinghouse operations, although the processor-direct

fruit could be assessed a retain to capitalize the

cooperative’s direct grove-to-processing operations.

For growers who harvest and deliver grove-direct

fruit, the pooling arrangement and the payments

would be between the grower and the processor.

Most citrus cooperatives calculate returns on a

per-box basis, and deduct pool operating expenses

and capital retains from the final payment. In table

3, operating expenses reflect that different pools

can have different operating costs. Fruit in particular pools may have different expected values due to

differences in the advance and interim payments.

Also, the operating expenses may or may not be

assessed in the same amounts, as is the capital

retain, although it is more commonly assessed in

the same amount per box.

For federated citrus cooperatives, pooling and

the methods used are similar to those between the

grower and the local cooperative. Whether a cooperative is a sales exchange or federated processor,

member packinghouses receive a share of the proceeds based on their prorata share of each pool. In

turn, the proceeds from the cooperative exchange

are returned by the packinghouse to its members

based on their prorata share of the cooperative

packinghouse’s contribution to either the sales

exchange’s fresh pools or the processor pools.

These pooling methods are repeated at the cooperative first-handler level, be it based on boxes packed

or pounds of solids. Specific pooling practices of

individual cooperatives are overviewed in Part II of

this report on cooperative operating practices.

Pooling practices of cooperatives are called

participation plans by IOF packinghouses and

processors. Under a participation plan, growers are

assured a home for their fruit, which is especially

beneficial should there be a freeze or large surpluses. Also, the grower does not have to be concerned

about the risk of day-to-day price fluctuations.

However, in participation plans, no retained earnings are returned to the grower. Growers have no

equity or ownership in the packinghouse or processing plant, so no per-unit retain is deducted for

capital financing. Also, the marketing decisions are

made by the firm’s management. Growers seldom

influence pricing policies as they would in a cooperative.

While participation plans are identified more

with IOFs, citrus cooperatives use them in marketing nonmember fruit, sometimes called account

sales.

Nonmember Business and Account sales

By legal definition, cooperatives are limited in

the amount of their nonmember business. As an

operating policy, most cooperatives would prefer to

market only member-grown fruit. But in certain

instances, nonmember business is a necessary strategy in the efficient operation of the cooperative.

Although the most immediate and simplest form of

marketing nonmember business is through cash

buying, the more common way is through participation plans called account sales.

Citrus cooperatives use account sales for both

short-and long-term scenarios. Account sales are

used long term to recruit new members, so their

use as a regular practice is justified. In the account

sale arrangement, nonmember fruit is pooled with

members, allowing prospective members to assess

the cooperative’s performance on a first-hand basis.

In the short term, account sales can be an important

18
Table 3- Illustration of citrus pool calculations and pooling plan.

Fruit Pools Deliveries (No. of boxes)

Average price

to the pool

Payments:

Advance payment

Interim payment

Deductions:

Operating expense

Capital retain

Adjustment:

Net final payment

Fresh

2,000

($/box)

$10.10

2.00

1 .oo

3.00

.lO

$4.00

Eliminations

1,000

$7.10

2.00

1 .oo

2.00

.lO

$2.00

Member Payments

Processor Direct

1,000

$7.00

2.00

1 .oo

1 .oo

$3.00

Total Boxes

4,000

Calculation Amount

Payment:

Advance 4,000 boxes X $2.00 = $8,000

Interim 4,000 boxes X l.OO= 4,000

Final-Fresh 2,000 boxes X 4.00 = 8,000

Final-Eliminations 1,000 boxes X 2.00 = 2,000

Final-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 established

by the processor. The packinghouse cooperative receives a gross payment from the processor. This is then paid to the grower-member on

their 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 and

at times necessary in the freeze-prone citrus indus- Florida were formed during this period. The first

try, there can be limits on the amount of nonmem- one in Texas began in the 193Os, about the time citber business a cooperative can transact. rus developed commercially in Texas.

DEVELOPMENT OF CITRUS

COOPERATIVES

Cooperatives have a long history in the citrus

industry. Cooperative fresh packinghouses were

formed in the 1880s by California citrus growers.

Florida growers followed a few years later. The rise

of these cooperatives coincided with the blossoming cooperative movement in agriculture that

Initially, cooperatives were formed to assemble raw citrus for more efficient shipments to the

fast-growing population centers in the eastern U.S.

As merchandising practices changed and the scope

of citrus markets grew, the local cooperative packinghouses were limited in their ability to provide

marketing services on a national level. Many found

it advantageous to form a marketing federation to

service a growing market more efficiently and effec19
tively. The first such organization is today’s largest

citrus marketing cooperative, Sunkist Growers, Inc.

With an organizational structure known as the

Sunkist system, it has long been the leading marketer of California and Arizona citrus. Due to its

long history and influence on other citrus producing areas, discussion on the origins of cooperative

activity in citrus begins with the story of Sunkist.

Origins of Sunkist System

Sunkist was originally known as the California

Fruit Exchange (The Exchange). Although formally

incorporated in 1905, it is rooted in the unstable

market conditions for California citrus arising in

the late 1800s. The completion of transcontinental

railway connections with eastern markets in the

late 1870s and 1880s allowed California’s citrus

industry to grow beyond the limitations of local

fruit consumption and become a major supplier of

fruit to the swelling population of the East coast.

During these early days, fruit was marketed

by buyers rather than growers. The buyer struck a

set price with the grower, and assumed all responsibility for picking, packing, shipping, and marketing the fruit. The system of dealer purchase initially

returned profits to both growers and dealers. Both

the supply of citrus and distribution of fruit

increased among eastern markets.

As they became more complex, business became

less profitable and more uncertain. Buyers lacked a

coordinated system for distributing fruit. Some areas

received too much fruit and others too little. This created such an unstable market that dealers could not

risk paying growers an acceptable price.

The increasing uncertainty in marketing

California citrus led shippers to turn to handling

fruit on commission. Some growers tried to circumvent these western shippers by consigning fruit

directly to merchants in eastern markets. This disorganized market frequently resulted in market

gluts, delays, and losses to growers. Maintaining

fruit quality was difficult. Fruit deteriorated in

transit because available refrigeration was inadequate and rail service unreliable. Prices already low

because of oversupply and uneven distribution

couldn’t absorb further reductions demanded by

buyers for poor quality fruit.

A series of disastrous seasons during the 1890s

became known as the “red ink” years. Growers

often netted less than packing, transportation, and

marketing expenses. The distribution system had

serious weaknesses: Shippers sent fruit with no

knowledge of how many carloads others were

sending to the same cities; markets were overlooked and price cutting forced competitors from

some areas; and producers couldn’t reach markets

in smaller cities to develop consumer demand, and

were usually serviced by jobbers and wholesalers

in larger cities with irregular supplies at relatively

higher costs. Under these conditions, growers

decided to create better distribution methods and

began organizing to improve marketing.

California citrus growers’ first attempt to jointly market fruit was in organizing the Orange

Growers Protective Union of Southern California in

1885. The union sent staff to eastern markets to

oversee distribution of member fruit, but did not

require stockholders to use its buying, selling, and

shipping services. The union lacked organization

and coordination, and after a few years ceased to

operate.

Three other organizations attempting to harmonize grower and packer interests were formed

about the same time, but also failed. Attempts to

merge grower and packer interests proved difficult,

so efforts were then directed toward building a

grower organization.

Grower-owned cooperatives first appeared in

California in the late 1880s. Records show the first

strictly cooperative association was the Pachappa

Orange Growers Association near Riverside. Fruit

was packed under contract until 1895, when the

association acquired a packinghouse to handle

member fruit.

Contracts drawn by this organization requested that growers deliver all fruit to be graded,

packed, and sold on a variety pool basis. Two

important aspects of cooperative citrus marketing,

pooling and centralized selling, were already present by the 1890s in California.

About the same time, two other new cooperative associations were formed: Claremont

California Fruit Growers Association and the

Redlands Orange Growers Association. Claremont

20
and Pachappa associations were among the first to

join today’s Sunkist organization. Redlands operated since 1893 as an independent local unit selling

its own fruit until joining Sunkist in 1929.

In 1893,60 orange growers met in Los Angeles

to organize a marketing cooperative based largely

on the principles adopted by the Claremont and

Pachappa associations. They proposed eight districts with local associations organized within each.

Each association was to pack its own fruit and

establish a purely local brand. Fruit picking was

prorated among grower-members so all would

have an equal chance for delivery. Sales orders for

fruit were likewise prorated among associations to

keep fruit moving proportionately.

The proposal established central district business offices open to all managers of associations in

the district for handling telegrams and correspondence. Also recommended was an executive committee consisting of one member from each district

to handle matters affecting the overall association.

During the summer of 1893, growers established

district and local associations, approved organization and marketing plans, and appointed the executive board of the Southern California Fruit

Exchange.

Although the exchange made a successful start

both in sales returns and reducing incidental costs,

the portion of California oranges marketed within

the organization dramatically declined from 89 percent in 1895 to 37 percent in 1896.

Various factors contributed to this decline.

Growers, inexperienced in business, hired equally

inexperienced managers for their associations and

exchanges. The executive board was not always

advised of shipments by exchanges, so competition

existed between exchange fruit in eastern markets.

Growers found the new organization was no

panacea for all marketing ills, so many turned to

selling fruit outside the cooperative.

Growers were also discouraged by the experiences of consignment sales and began to insist on

an f.o.b. market (price includes delivery and loading costs). However, when the exchange began

establishing a twice-monthly f.o.b. price for

oranges, fruit sold outside the exchange was uniformly quoted and sold slightly under exchange

prices. Consequently, fruit sold f.o.b. California was

often rejected in large volumes on arrival at terminal markets.

In 1895, a plan to strengthen the exchange

sales program was developed, primarily to address

the marketing problems in eastern markets. The

Southern California Fruit Exchange became incorporated. Agents were appointed to handle sales in

eastern markets. The exchange began to show

steady growth, both in quantity of shipments and

percent of total industry crop handled. This stability was threatened, but not overturned, by the failure of a new organization, the California Fruit

Agency.

After a large crop in 1902-03, competition

intensified between the exchange and independent

shippers. A proposal was made to join these previously antagonistic groups into a single sales agency

that would control 90 percent of the crop. This was

intended to eliminate cutthroat sales methods and

duplicate marketing efforts. In 1903, independent

shippers formed the California Fruit Agency, combining the Southern California Fruit Exchange and

California Citrus Union. This agency relieved some

immediate problems, but ultimately the two groups

did not work well together.

Disagreement between exchange and union

representatives would likely have led to a dissolution of the agency anyway, but another year of poor

returns was the ultimate factor. Large crops in

Florida and California made for lower prices in

1904. Added to these problems were the antagonism

and ill will of fruit brokers whose business was

greatly impaired by the formation of the agency.

Marketing conditions were so bad the exchange

was threatened with disruption. Many members dissatisfied with the agency arrangement felt their

directors had not consulted with the local associations. In not doing so, they violated the principle of

local democratic control, a basic tenet of exchange

philosophy. It is doubtful exchange members would

have become reconciled to the fruit agency even

under favorable market conditions. The agency

agreement was dissolved in 1904, and the exchange

operations returned to their original form.

In 1905, the exchange’s basic cooperative principles were reaffirmed with the formal incorpora21
tion of the California Fruit Growers Exchange. It

recognized the organization’s broadening role in

the marketing of California citrus. The corporate

name was changed to Sunkist Growers, Inc., in 1952

to more definitively associate the registered Sunkist

trademark with the organization.

Impacts of Sunkist’s Early History

A telling lesson from the early days of Sunkist

was the difficulty of combining a grower-oriented

organization with a group of independent brokers.

The California Fruit Agency would have been illegal under the Capper-Volstead Act-only agricultural producers allowed as members-enacted in

1922. The strain of divergent interests between brokers and citrus growers under a single organization

led to its demise. A policy of increasing grower

returns was at odds with the interests of the independent broker, particularly in the prevailing cashmarketing environment of the time.

Brokers were interested in buying fruit at the

cheapest price to boost their returns, resulting in

correspondingly lower returns for the grower.

Although a market structure of many independent

brokers competing with one another for a grower’s

fruit would be a healthy one, a single organization

of both parties to stabilize the market would not.

In successful cooperatives, member interests

and interests of the business operation are the

same. Sunkist, like many other marketing cooperatives-ocean Spray, Welch’s, and Sun-Maid-markets a single commodity for members who usually

grow only that commodity.

Also, these cooperatives represent large shares

of their respective markets-nearly 50 percent.

Having a larger share of a commodity’s production

increases the effectiveness of a cooperative. This

effectiveness is reflected in the increasing share of

growers as cooperative members.

However, Sunkist rose out of early unstable

times in the California industry and owes its initial

success to its specific focus. Citrus growers collectively marketed their fruit. Both the decisionmaking and accrued benefits were vested solely in the

grower-members.

The early success of the Sunkist system

spawned interest among citrus growers in both

California and Florida. The cooperative activity in

these States prior to Sunkist was confined mostly to

the picking and packing of fruit at the packinghouse.

Sunkist represented the needed transformation

of citrus cooperatives into active marketing agents

for their members. Its success validated the role of

cooperatives in marketing. With it came the interest

of others to become more active in marketing.

California In California, the Mutual Orange

Distributors was formed in 1906, the forerunner of

Pure Gold, Inc. Pure Gold was organized as a nonprofit agricultural cooperative with the same marketing focus as Sunkist. Pure Gold was much smaller than Sunkist and therefore structured a little

differently. With only a handful of packinghouses,

Pure Gold did not need district exchanges to coordinate sales and shipping. In effect, Pure Gold was

the combination of Sunkist’s central organization

and district exchanges.

By 1920, Sunkist and Pure Gold were marketing almost 73 percent of California/Arizona citrus.

Their share steadily increased thereafter to almost

95 percent in 1933. At this time, Sunkist’s share was

about 85 percent and Pure Gold’s share 10 percent.

Sunkist’s share declined to about 60 percent in

1991, and Pure Gold exited the industry completely

in 1989 when the Arlington Heights Citrus

Company, the last remaining component of Pure

Gold, affiliated with Sunkist.

The decline of Pure Gold is rooted in two

major factors in the history of the California/Arizona citrus industry: 1) the relative ease

that packinghouses could affiliate and disaffiliate

with Sunkist and Pure Gold, and 2) the subsequent

ability of marketing agents to enter the market in

competition with both cooperatives. Since their

formation, both Sunkist and Pure Gold operated as

“open membership” cooperatives. Any qualified

grower could join and take advantage of marketing

services. Qualified packinghouses could easily join

either organization. Either cooperative or licensed

private packinghouses would qualify. Membership

agreements were of indefinite duration and could

be terminated at the end of each year.

Subsequently, every packinghouse affiliated

with Sunkist or Pure Gold was a potential competi22
tor in that each could drop its affiliation and market

elsewhere. Often, a disaffiliating house would affiliate with the other cooperative. There was a fair

amount of movement between the two cooperatives, and neither experienced significant long-term

declines in volume until the 1970s.

However, the ultimate decline of Pure Gold

reflected not only the mobility of packinghouses

facilitated by the open-membership policies of the

citrus cooperatives, but also changing industry conditions.

The ease of exit and entry meant other marketing firms could enter the industry in two ways: 1)

Sunkist or Pure Gold member packinghouses striking out on their own in the marketing phase of the

business, or 2) a marketing firm could buy new

supplies without the cost of constructing a new

packinghouse by enticing a Sunkist or Pure Gold

member to affiliate with it. Both cooperatives

served as a major source of packinghouses for commercial citrus marketers.

As industry conditions changed with the segmentation of markets (exports, specialty varieties,

and rising foreign competition), opportunities

increased for firms that could meet specific niche

markets. Firms such as Sun World, MendelsonZeller, and Dole entered the Cal/Arizona citrus

industry largely by acquiring or affiliating with

Sunkist or Pure Gold houses.

As marketplace competition intensified, both

Sunkist and Pure Gold lost market share. By virtue

of its larger size and superior marketing and distribution systems, Sunkist maintained its dominance

with more than 60 percent of the production into

the 1990s. On the other hand, Pure Gold found the

scope of its activities gradually diminishing. It folded in 1989. The ability of member houses to easily

exit Pure Gold for “greener pastures” likely contributed to its decline.

Florida Sunkist’s rise in the early 1900s spawned

two reactions from the Florida citrus industry: 1)

competing in terms of addressing the presence of

Sunkist in the East, and 2) imitating Sunkist’s success and applying it to marketing Florida citrus.

Prior to the advent of California citrus in the

late 18OOs, Florida supplied most of the citrus consumed in the eastern U.S. More than 75 percent of

the population at that time lived east of the

Mississippi. This represented the bulk of Florida’s

out-of-state shipments.

As California interests led by Sunkist began

shipping to eastern U.S. markets, their presence did

not go unnoticed among Florida’s citrus growers

and shippers. Cooperative packinghouses were

already playing a role in Florida citrus at that time,

so Sunkist’s federated marketing system sparked

further interest among Florida cooperatives and

their members.

Prior to the 1909 Florida Orange Growers convention, a group of 46 growers and businessmen

traveled to California to study the California Fruit

Growers Exchange. The group recommended that

Florida citrus growers create a similar organization

to develop unified marketing procedures to maintain supplies and prices at beneficial levels for both

the consumer and the grower.

About 100 growers gathered on June 1,1909,

to form the Florida Citrus Exchange, the first organized effort for marketing fresh Florida citrus. In

1969, the exchange’s name was changed to SealdSweet Growers, Inc., to identify the organization

more closely with its leading brand name.

Like Sunkist, the local cooperative packinghouse was the primary component of Seald-Sweet’s

federated-type organizational structure. However,

unlike Sunkist, Seald-Sweet did not need to establish district exchanges as an intermediary with the

local packinghouses.

Florida growers did not face the same conditions as those in California. They were not as

removed from one another and had better roads

and communication lines to link them. Florida

packinghouses could contact the central exchange

more readily and coordinate shipments more easily

than their California counterparts.

In effect, the central Scald-Sweet organization

could fulfill both the marketing and information

dissemination functions of Sunkist Central and the

sales function of the district exchanges. Also, as

Sunkist grew to handle a much larger volume supplied by members spread over a larger area, it

necessitated continuing the decentralized system of

district exchanges.

23
Seald-Sweet, Florida’s first federated marketing cooperative, quickly established a reputation

for innovative marketing techniques. By 1912, it

began the first national advertising and merchandising program sponsored by any segment of

Florida’s citrus industry. By the 193Os, Seald-Sweet

created an international division for exports to

Europe, and in later years the Pacific Rim. Exports

grew to be a major portion of the cooperative’s

business. Nearly one-third of its cartons were

shipped to export markets by the 1980s.

Seald-Sweet became a major marketer of

Florida citrus, but never achieved Sunkist’s large

market share. Different historical conditions prompted each organization’s development. They were reinforced by Florida’s structural differences, which

worked against a broader representation of Florida

citrus by Seald-Sweet. In being much closer to the

eastern markets, there was less impetus to coordinate the long-distance rail shipments. Individual

shippers in Florida could more easily coordinate

shipments and market product themselves.

After the advent of citrus processing,

processed sales steadily grew to almost 90 percent

of citrus grower sales. With the fresh market

becoming basically a residual one to the processed,

poor fresh market conditions did not cause the

same concerns as in a similar situation in

California. Cooperative membership is generally

most popular in times of poor market conditions.

Given that, less reliance on fresh citrus markets

means less grower stress from a depressed fresh

market. This translated into less overall demand for

a broad, “Sunkist-type” system in Florida.

Even though Seald-Sweet and Sunkist became

competitors in the citrus markets, and the California

Fruit Growers Exchange was aware of the possibility when they met with the growers interested in

establishing a “Sunkist” in Florida, a spirit of cooperation has prevailed between them. At times, the

two buy and sell each other’s fruit-Sunkist sells

Florida grapefruit in Japan and Seald-Sweet sells

Cal/Arizona grapefruit in Western Europe.

Current Sunkist System Structure

Sunkist structure has changed little during the

intervening years-a marketer of citrus products in

a federation of both citrus growers and cooperative

packinghouses tied by contractual agreements. The

Sunkist system is a “pyramid” linked by contractual agreements between three distinct levels: the

packinghouse, the district exchange, and Sunkist

Growers, Inc.

The packinghouse is the basic unit of Sunkist’s

structure. Most grove care, harvesting, and packing

functions are coordinated by the individual packinghouse. The grower has the exclusive right to

decide what varieties and how much to plant.

Decisionmaking on fruit harvesting and hauling

usually passes to packinghouse management.

Sunkist growers can obtain the services of a

packinghouse either through membership in a local

cooperative packinghouse or by agreement with a

commercial packinghouse. At one time, commercial

packinghouses could be members of Sunkist. But,

Sunkist reorganized in response to a 1968 Supreme

Court ruling that said this did not comply with

Section I of the Capper-Volstead Act.

Commercial packinghouses could still be used

by growers, but legal ties were changed. They were

no longer allowed membership or legal interests in

Sunkist. Commercial packinghouses wishing to

remain with Sunkist had to sign an exclusive licensing agreement to pack only the fruit of Sunkist

members and comply with Sunkist standards and

regulations. Sunkist, in turn, agreed to market all

fruit from the commercial house just like cooperative houses. Known as licensed or agency packinghouses, their legal relationship with Sunkist

changed little. About one-half of those handling

Sunkist member fruit are licensed packinghouses.

In 1968, each Sunkist grower had to be a member of Sunkist Growers, Inc., constituting one of the

contractual agreements of the Sunkist system.

Before then, growers would only have to become a

member of a cooperative packinghouse to be considered a Sunkist member. Another set of contracts

link growers, packinghouses, and district

exchanges. All packinghouses, in either their membership (cooperative) or licensing (commercial)

agreement, are required to market their fruit

through a district exchange.

Growers become members of a district

exchange in two ways: membership in a local coop24
erative association that in turn is a member of a district exchange; or growers, who because they use a

licensed packinghouse, become direct members of

the district exchange. The cooperative packinghouse has a membership agreement with both a

district exchange and Sunkist Growers, Inc. District

exchanges, in turn, sign membership agreements

with Sunkist. The license for the commercial packinghouse is simultaneous with Sunkist Growers

and the district exchange.

District exchanges are organized as nonprofit

cooperatives controlled by boards elected by the

cooperative associations and direct grower-members of the exchange. District exchanges do not

physically handle the fruit. Instead, they are a mechanism for collecting and disseminating information

between Sunkist Central and the local packinghouses, and for coordinating sales orders and shipments.

Another district exchange function is in governance of the Sunkist system by acting as a form of

districting through which control of Sunkist

Growers is allocated. District exchanges elect the

directors to the Sunkist board. Each director represents a specific district exchange. Each district

exchange is entitled to one director on the Sunkist

board, with additional directors for specified percentage increases in their share of Sunkist’s volume.

Local association and direct grower-members of the

district exchanges elect the director(s) representing

the exchange on the Sunkist board.

Sunkist’s Contractual Relationships Figure 10 outlines

the structure of the four main levels of the Sunkist

system: the grower, packinghouse, district exchange,

and Sunkist Central. Here is a recap of the contractual relationships within the Sunkist system:

1) All growers are direct members of Sunkist

Growers, Inc., to ensure compliance with the

Capper-Volstead Act.

2) All growers must be affiliated with a district

exchange in either of two ways. One is through

membership in a local association, which in turn is

a member of the district exchange. The other is the

grower, who, by using a licensed packinghouse,

becomes a direct member of the district exchange.

3) The licensed packinghouse signs a simultaneous

licensing agreement with the district exchange and

Sunkist.

4) All district exchanges and local associations sign

membership agreements with Sunkist.

5) All agreements within the Sunkist system are for

1 year and renewed automatically unless terminated by either party.

Selling Relationships Within the Sunkist system, the

selling and decisionmaking relationships are different between fresh and processed product marketing. In processed products, Sunkist Growers owns

the processing facilities and makes all decisions on

processed product pricing and marketing. Under

either their membership or licensing agreements,

packinghouses must deliver all fruit for processing

to Sunkist, and Sunkist is obligated to market it all.

All processed pool costs are deducted from the

gross revenues, with the net proceeds returned to

members on their prorata share of deliveries to processing. With a single processed products pool,

ownership of facilities, and complete control over

marketing, Sunkist Central operates like a typical

centralized cooperative in marketing processed

products.

Where the Sunkist organization is more

unique among cooperatives is in the decentralized

aspects of its fresh citrus marketing operations.

Sunkist Central owns and operates relatively few

assets used to prepare fresh fruit for market in the

Sunkist system. Fresh fruit is shipped directly from

the packinghouse to the buyer. Neither the district

exchange nor Sunkist Central handles the physical

product. Costs of operating the packinghouse to

sort, grade, and pack fresh fruit to Sunkist’s standards is borne at the packinghouse level.

By its agreements with the local associations

and district exchanges, Sunkist Central has sole

responsibility for selling fresh fruit, maintaining

foreign buyers, receiving and distributing to

exchanges the receipts from fruit sales, establishing

grades, organizing advertising and promotion programs, and regulating the use of trademarks and

patents. Sunkist Central also determines the

25
Figure IO- Membership and Contractual Relationships Among Participants in the Sunkist System

Sunkist Growers, Inc.

I

District Exchange

I

I

.

I

I I

i

i

i

.

I

1

Cooperative Packing

House

I Grower -

Grower I

1111

-.-

membership agreement

packing contract

packinghouse license

method of transporting fresh citrus and the packing

materials to be used.

Proceeds from fresh fruit sales are returned by

Sunkist Central to the district exchanges after

deducting assessments for marketing, advertising,

and capital funds. These assessments are based on a

fixed per-carton amount determined at the beginning of each season. They cover costs of maintaining corporate headquarters and sales offices, marketing and advertising charges, and other operating

expenses. Unused funds are refunded to the district

exchanges at year’s end.

Expenses incurred by district exchanges are

deducted from funds distributed to the local packing units. The packing units-either cooperative or

licensed-distribute returns to growers according

to their prorata share of shipments to a particular

pool, after deducting packinghouse expenses allocated to the pool.

Local associations and district exchanges are

not permitted to solicit business from the trade or

correspond with any buyer to promote the sale of

their fresh fruit. Sunkist Central is the exclusive

selling agency and solely responsible for issuing all

price and other terms of trade quotations to buyers.

However, the most unique part of Sunkist’s decentralized structure is that the decision on what prices

are acceptable to members is not controlled by

Sunkist Central, but rather delegated to the packinghouse and district exchange levels of the system.

Sunkist Central’s bylaws state that each member-grower and local association delegate to its dis26
trict exchange “the right to determine to what markets it shall ship, where its fruit shall be sold, and

with the exception of auctions, what price it is willing to receive.” l

Moreover, local associations “reserve the right

from time to time to terminate this delegation and

to exercise said rights for such period as they may

deem proper or to redelegate said reserved rights to

said district exchanges.” Ultimately, the local association has the final say in determining what prices

are acceptable.

Here’s how Sunkist markets fresh fruit and

delegates the right to determine an acceptable price

works. Buyers place orders with one of the

Sunkist’s sales offices maintained around the U.S.

All orders are relayed to Sunkist Central, and then

to all district exchanges simultaneously If an order

does not specify a particular packinghouse, the

order is communicated to all houses and awarded

to the first to accept.

Some offers are neither house-specific nor

completely open, so the district exchange plays a

more active role in allocating sales opportunities in

an equitable manner among the various houses.

Typically, an order identifies fruit from a particular

packinghouse. The appropriate district exchange

relays the order to the specified house. The house

decides whether or not to fill the order or make a

counter offer. Packinghouse replies, as required, are

relayed to Sunkist Central’s sales office through the

district exchange. Both offers and counteroffers are

at prices set in a scale by Sunkist Central.

Key to pricing of Sunkist fruit is the scale listing f.o.b. prices buyers must pay for a particular

size and grade of each variety of fruit. Some differences can exist in prevailing prices for fruit from

various growing areas and for brands within an

area. Sunkist Central sets scale prices by analyzing

data on demand conditions, supplies of competing

fruits, and supplies of fruit available for shipment

from the packinghouses. Of prime importance is

the latter: packinghouse supplies of fresh fruit

based on floor counts.

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

Each packinghouse communicates to its

exchange the amount of fruit by variety and grade

that it will have available for shipment on the following day. This information is collected by the district exchanges and passed along to Sunkist

Central. Scale prices are adjusted to assure an

orderly flow of fruit at the best possible prices in a

competitive marketplace without accumulating

excessive inventories.

A single or several district exchanges in any

particular area may set their own scales based on

more localized supply or quality factors, although

all price quotations must be issued through Sunkist

Central. However, these are set prices to be communicated as such through the sales offices, and not

negotiated independently between the packinghouse and buyers. In any case, while the packinghouse has the right to determine if it will fill an

order, control over setting a price is precluded by

Sunkist’s Central complete authority over issuing

of price quotations and contact with buyers.

Another aspect of the decentralized nature of

Sunkist’s structure is the competition created

between packinghouses when Sunkist Central disseminates at the same time open-buying offers to

all district exchanges. Unlike a centralized or closely coordinated federated cooperative where orders

are filled at the discretion of central management,

Sunkist packinghouses vie with one another for

many of the orders placed with Sunkist.

With prices set by Sunkist Central and each

packinghouse responsible for its own costs, houses

in a sense compete with one another based on operating efficiencies. For a given sale, net returns and

hence the house’s willingness to take an offer may

depend on its packing costs. Also, the ability to be a

buyers’ designated house creates competition

among Sunkist houses to be acknowledged in the

trade for quality and consistent service.

Overall, competition between packinghouses benefits the Sunkist system by creating the incentive for

individual packinghouses to become more efficient.

This market-based competition would not occur in

a more centralized organization where decisions

are made by management fiat and all facility costs

are pooled and shared as a single expense.

27
COOPERATIVES IN MARKET CHANNELS

As a form of vertical integration, cooperatives

are one of the primary ways growers gain ownership and control in a marketing operation. From the

grower-first handler level, cooperatives have

extended their operations in varying degrees to

include more functions in the marketing channel.

California/Arizona Fresh Citrus Markets

More than 90 percent of California/Arizona

citrus is marketed as fresh fruit. Processing is mostly a residual market. Between the Sunkist organization and the few cooperatives not affiliated with

Sunkist, the cooperative share of

California/Arizona citrus represents the largest single area of cooperative activity in the U.S. citrus

industry. In 1992, cooperatives marketed more than

80 percent of California’s citrus. After the demise of

Pure Gold, some of its packinghouses joined

Sunkist. That left Sunkist as the sole federated

cooperative sales agency in California/Arizona. 2

As the dominant marketer of California and

Arizona citrus, Sunkist is the clear leader in pricing

and marketing. Competing marketers regard

Sunkist as the price leader, tend to follow its prices,

and seldom establish prices without first referencing Sunkist’s prices. 3

After a series of closures, acquisitions, and

changes in affiliations, the other major players affiliated with California packinghouses are Dole and

Sun World. Both are multi-product produce marketers. Packinghouses not affiliated with one of

these marketing agents are considered independent. They used either their own in-house sales

staff or the services of any of a number of brokers

2 Central California Orange Growers Cooperative

(CCOGC) is like a federation. It has four separately

owned packinghouses. CCOGC coordinates the collection and dissemination of marketing information

for its members, but is not a sales agency. Each

packinghouse member has a marketing and sales

program.

3 Mueller, W., Helmberger, P., Paterson, T., The

Sunkist Case, 1987.

operating in that market. The predominance of

cooperatives in Cal/Arizona citrus is evident (table

4).

As of 1993, Sunkist was by far the dominant

marketer of Cal/Arizona citrus with 60 of the 108

packinghouses in California and Arizona. Although

only half of its packinghouses are cooperatives, the

growers using the noncooperative houses are direct

members of Sunkist, and together, participate

equally in the cooperative marketing of citrus.

In addition to representing more than 55 percent of the packinghouses, Sunkist marketed more

than 65 percent of California/Arizona fresh citrus

in 1992. Sunkist, on a per-house basis, is above the

average in terms of volume. Although an average

volume for each house is a soft number because of

freezes and the ability of growers to easily change

house affiliations, packinghouses affiliated with

Sunkist (table 5) are among the larger houses in

California and Arizona.

Paramount Citrus Association, for example, is

a licensed packer, a recent addition to Sunkist, and

the single largest grower of Cal/Arizona citrus.

Another Sunkist member is Limonera, one of

California’s older citrus cooperatives and one of the

larger lemon houses in the industry.

Table 5 shows the distribution of cooperative

packinghouses among the sales agents. As expected, the large majority-30 of 35-are affiliated with

Sunkist. Most noncooperative packinghouses are

owned by the larger growers, such as Paramount

Citrus. These large growers can vertically integrate

Table 4- California citrus marketers and

packinghouses represented, 1993.

Sales Agent Number of cooperative

Packinghouses Packinghouses

Sunkist 60 30

Sun World 8 4

Dole 7 0

CCOGC 4 0

Independent 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

Sunkist

Sunkist

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

C

C

C

C

C

C

C

C

C

C

C

C

C

C

C

C

C

C

C

C

C

C

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

0

0

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=Tangerine

G=Grapefruit

L=Lemon

Continued

29
Table 5- California/Arizona packinghouses and their affiliations, 1993. (Continued)

Sales Agent Packinghouse Cooperative City Varieties

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

Paramount Citrus Assn

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)

Sales Agent Packinghouse Cooperative City Varieties

Sunworld

Sunworld

Sunworld

Sunworld

Sunworld

Sunworld

Sunworld

Sunworld

Corona College Hgts

Corona 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 and

the 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 by

virtue of the scale of their production. As packinghouse operators, these grove-owning operations

look to Sunkist for the same marketing benefits as

cooperatives representing smaller growers.

Four of the five non-Sunkist cooperative packinghouses are affiliated with Sun World. The largest

is Corona College Heights, Riverside, CA,

(“Corona”) which recently absorbed the Arlington

Heights Citrus Co. when it decided to leave

Sunkist. Corona had been with Sunkist until 1980

when it left to join Sun World. Exports are a major

emphasis of the marketing programs of Corona and

Sun World, accounting in some years for more than

60 percent of Corona’s volume.

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

therefore considered independent is the Sunny

Cove Citrus Association, Orange Cove, CA. Sunny

Cove was at one time a Sunkist member until it had

to foreclose. Eight Sunkist growers, who left to do

their own marketing, bought and renovated the

idle packinghouse to be operated as a cooperative.

Sunny Cove has used a combination of sales agents

and brokers for their marketing. As of 1991, Sunny

Cove had 52 members.

Florida Fresh Citrus

Florida’s fresh citrus volume is small compared with processing. Less than 10 percent is sold

fresh. Florida with more than 70 percent of U.S. citrus production still accounts for more than 4.0 percent of U.S. fresh sales. Cooperatives are present in

all phases of Florida fresh citrus along three organi31
zational types-individual packinghouse, centralized cooperative owning multiple packinghouses,

and federated central selling exchange.

In terms of numbers, the fresh packinghouse

represents the largest segment of cooperative activity in Florida citrus. Thirteen of the 19 citrus cooperatives market fresh fruit. The individual or local

cooperative packinghouse has a long history of

local growers forming and operating a packinghouse to market their fruit.

Cooperative packinghouses were active from

the late lSOOs, coinciding with the rise of a commercial citrus industry in Florida. Until the commercial

development of citrus processing in the late 194Os,

all Florida citrus was sold fresh. Many of the citrus

packinghouses were formed before then-Haines

City Citrus Growers Association in 1909, Waverly

Growers Cooperative in 1914, Lake Wales Citrus

Growers Association in 1914, Dundee Citrus

Growers Association in 1924, and Mt. Dora

Growers Cooperative in 1936.

By 1992,118 packinghouses were operating.

Sixty houses had more than 95 percent of the total

shipments. Although only 16 of the 118 packinghouses were cooperatives, all were among the top 60

houses shipping fresh Florida citrus. Although cooperatives often serve the smaller growers, their houses often rank as sizeable commercial operations.

Many of Florida’s smaller packinghouses are

in the gift-fruit or roadside stand business. They

tend to be fairly low-volume operations. The range

in house volumes can be considerable. In 1992,33

houses shipped more than 1 million boxes of citrus

while 14 houses sold less than 1,000 boxes.

Unlike California, where most of the cooperative packinghouses are affiliated with Sunkist,

Florida cooperatives are less identified with a single marketing organization. Table 6 lists the top 10

marketers of Florida citrus for 1991-92 and the

number of packinghouses they represent.

Of the 10 marketers listed, 5 are cooperatives.

Seald-Sweet and Florida Fresh are federated marketing agencies, and Ocean Spray Cranberries,

Dundee Citrus, and Haines City are centralized

packinghouse operations. Although Seald-Sweet

was the largest single marketer of fresh Florida citrus, its share of the top 10 sales was less than 27

percent, substantially less than Sunkist’s dominant

70 percent in California. Florida fresh packers tend

to be more independent and competitive than those

in California.

In addition to these cooperatives in table 6,

those in table 7 are the others active in fresh Florida

citrus and the types of marketing organizations, if

any, they are affiliated with.

At one time, all packinghouses in table 7 were

members of Seald-Sweet. As with Sunkist in

California, the mobility in marketing affiliations

has allowed the individual packinghouse to easily

move 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 1.0

DNE World Fruit Sales 8 14.5 1.8

Dole Citrus 4 6.2 1.5

Florida Fresh Citrus Sales 5 6.2 1.2

Ocean Spray Cranberries 3 3.6 1.2

A. Duda & Sons 2 2.5 1.25

Minton Sun 2 2.5 1.25

Lykes Pasco Packing 1 2.4 2.4

Dundee Citrus Growers 1 2.0 2.0

Haines 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 and

marketing affiliations, 1992.

Cooperative Marketer

Mt. Dora Growers Cooperative Seald-Sweet

Hunt Bothers Cooperative Seald-Sweet

Winter Haven Citrus Growers Assn Seald-Sweet

Winter Garden Citrus Growers Assn Seald-Sweet

Mims Citrus Growers Assn Seald-Sweet

Oslo Citrus Growers Assn Seald-Sweet

Waverly Growers Cooperative DNE World Fruit Sales

Golden Gem Growers, Inc. Independent

Lake Region Packing Association Independent

Lake Wales Citrus Growers Assn Independent

32
Fresh Texas Citrus

Texas citrus production is concentrated in a

four-county area along the Rio Grande Valley.

Although orange trees were present by the early

188Os, the commercial citrus industry did not develop until the 1920s. Aware of the California and

Florida cooperative citrus exchanges, Texas growers

formed the Rio Grande Valley Citrus Exchange

(Texsun). Exchange members were concentrated in

four south Texas counties, so there was no need for

a system of district exchanges like Sunkist. The

exchange performed all marketing intelligence and

selling functions.

Although starting out in fresh fruit packing,

this organization moved into the processing business in the 193Os, and exited fresh packing completely in 1951. After a series of freezes in 1949 and

1951, Texsun changed its form of organization from

cooperative to IOF.

In the mid-196Os, after the Texas industry

rebounded from the freezes of 1949 and 1951, four

cooperatives formed the Texas Citrus Exchange

(TCX) to operate similarly to the Florida and

California groups. At its peak in the mid-1970s,

TCX represented all Texas cooperatives and handled more than 40 percent of the State’s citrus production (fresh and processed). Largely because of

the disastrous freeze of 1983, TCX’s membership

fell to two cooperative packinghouses by 1988.

Edinburg Citrus Association, the oldest and largest,

is today the dominant member of TCX with more

than 80 percent of its member volume.

Fresh markets for Texas citrus have always

been characterized by a number of independent

handlers. Even though TCX members had more

than 30 percent of fresh citrus sales in the 197Os,

there were more than 20 different marketers or

shippers of Texas citrus. The severe freezes of the

1980s reduced the number of marketers of Texas citrus, cooperative or otherwise.

Cooperative Processing

The level of cooperative activity in citrus processing basically coincides with the changes in processing technologies and consumption patterns.

Before World War II, most citrus was consumed

fresh. Processing was mostly a residual outlet for

citrus not suitable for the fresh market. Processing

was limited to single-strength canned products.

Volumes were small relative to fresh markets.

For example, although most of Florida’s citrus

is now processed, in 1931 less than 10 percent of its

citrus-mostly grapefruit-was processed. By the

mid-1940s, the development of the procedure for

concentrating orange juice had revolutionized the

industry. The introduction of frozen concentrated

orange juice (FCOJ) started the steady shift from

fresh to processed products. In the mid 196Os, consumption of fresh and processed citrus (singlestrength equivalent) was about equal. Since then,

fresh consumption has remained fairly constant

while consumption of processed citrus products

increased. By 1992, almost 50 percent of Florida’s

grapefruit and more than 90 percent of its oranges

were processed.

With the advent of FCOJ came significant

changes in the structure of citrus markets. The processing of concentrated orange juice required

greater investments in plants and equipment compared with a fresh packing operation. Both the capital to build the facilities and the volumes of fruit to

operate them efficiently predicated a pooling of

resources greater than those needed to operate a

fresh packinghouse.

Therefore, instead of fresh packinghouses

adding a processing facility, most processors were

either an aggregation of fresh packinghouses or

food manufacturing firms with the financial

resources that allowed them to enter the processing

business. This is evident in two of the brand names

most identified with processed citrus productsMinute Maid and Tropicana-which are owned by

large beverage manufacturers, Coca-Cola, Inc., and

Joseph Seagrams Co.

With the rise of the processed citrus sector

came a change in the dominant players in citrus

marketing. The processor has become the most

powerful player in the vertical market channel.

Rise of Citrus Processing Cooperatives

The most common way for cooperatives to

enter citrus processing was by cooperative packinghouses joining to operate a common processing

facility. Processing provided an outlet of economic

33
value for the previously worthless packinghouse citrus (eliminations) not suitable for the fresh market.

For some cooperatives, packinghouses already

united for fresh marketing such as Sunkist and

TCX, processing was a natural extension of their

marketing operations. The cooperative processors

not arising from an existing fresh marketing organization either were new federations of cooperative

packinghouses or were formed by individual growers, primarily grower-owned packinghouses.

The level of cooperative processing in different

production regions largely reflects the relative

importance of processing and the existing structure

for fresh marketing. Within the California/Arizona

market, Sunkist’s share of the processing market is

even greater than its share of the fresh marketmore than 70 percent. Many nonsunkist packinghouses send fruit for processing through Sunkist on

a nonmember basis.

In Florida, the smaller share of processing by

cooperatives, less than 30 percent, reflects the

greater independence of marketing firms and the

variety of their arrangements. However, the cooperative share of Florida’s processing sector is somewhat smaller. Florida is so dominant in processing,

that its cooperatives process much larger volumes

than their counterparts in other States.

Florida Processing Cooperatives

In comparing the cooperative fresh marketing

activity in California and Florida, the development

of a cooperative marketing exchange in Florida was

based on Sunkist’s experience in California.

However, where Sunkist ventured further into the

processing sector to become the dominant player,

Seald-Sweet remained strictly a fresh marketing

cooperative. Although some Seald-Sweet members

joined with other packinghouses to form a processing cooperative, Florida’s cooperative processing

volume is spread among a number of organizations.

As in the fresh market, there is no dominant

processing cooperative. Unlike the relatively fragmented fresh market, however, Florida’s processing

markets are dominated by a few privately owned

firms. In 1992, the two largest processors, CocaCola and Seagrams, had more than 50 percent of

Florida’s processed citrus market. However, cooperatives represented at least 50 percent of the

remainder. Even though individually dwarfed by

the two giants, as with the fresh packinghouse,

cooperative processors tend to be above average in

size.

Most Florida processing cooperatives were

formed specifically for that purpose. At one time,

Florida had more than 50 processors. By 1992, there

were only 27, a trend consistent with the increasing

consolidation and concentration of ownership of

citrus processing facilities. Although the exact number of processing cooperatives that have exited the

industry are not known, their rate of attrition is

considered comparable to that of private firms.

Of the 27 processors, 5 are grower-owned

cooperatives (table 8). Of these, only Golden Gem

Growers originated as a fresh marketing operation.

When Golden Gem was formed in 1947, its fruit

was processed by another cooperative, B&W

Canning. By 1958, Golden Gem had grown to such

a size that B&W could no longer handle the fruit, so

Golden Gem constructed its own processing facility.

Subsequently, B&W sold its processing facility to a

private firm.

In the 196Os, Golden Gem began a cooperative

selling arrangement for processed products called

Citrus Central. Other members included Silver

Springs Citrus Cooperative, Bordo Citrus Products

(a cooperative), and Plymouth Citrus Products

Cooperative.

Citrus Central was a sales agent for the

processed products of it’s members, with the members doing all their processing and packaging. The

only jointly held asset for the marketing operation

was an office. Citrus Central was eventually disTable a- Florida citrus processing co-ops, 1993.

Cooperative Fresh Marketers

Citrus World, Inc. No

Golden Gem Growers, Inc. Yes

Ocean Spray Cranberries, Inc. Yes

Silver Springs Citrus Cooperative No

Winter Garden Citrus Products Cooperative No

Source: Florida Citrus Processors Association.

34
solved; Golden Gem and Silver Springs conducted

their own processed-product marketing; and Bordo

Citrus and Plymouth Citrus folded.

Related to the Citrus Central marketing

arrangement was ownership of a can manufacturing operation by its members. The canning cooperative supplied packaging materials to the members,

and although it long outlived the marketing operation, it was recently sold to a private firm.

All the other cooperatives in table 7 were new

processing ventures, although the members were

involved in some form of fresh marketing. Most

packinghouses were either cooperatives or privately owned by growers. They could legally join to

form a processing cooperative. The first was Citrus

World, Inc., Lake Wales. Today, it is the largest

cooperative citrus processor in the U.S.

Citrus World was formed in 1933 by cooperative packinghouses in central Florida as an outlet

for eliminations from their fresh packing lines. The

original organization was called Ridge Citrus

Canners and later the Lake Wales Cooperative

Cannery. As membership grew, its name was

changed to the Florida Citrus Canners Cooperative

in 1943 and Citrus World in 1969. As the share of

Florida’s citrus going to processing grew, Citrus

World received more fruit directly from growermembers of the packinghouses that was grown

specifically for processing. Today, Citrus World

processes the citrus from more than 50,000 acres

into a range of products. Orange juice in either single-strength or frozen concentrate are the predominant forms.

In 1948, Winter Garden Citrus Products

Cooperative was formed by two cooperative packinghouses and six citrus grove owners. One of the

fresh packinghouse members closed after the severe

freezes of the 1980s. Winter Garden began more as

a direct entrance by citrus grove owners into processing and less as an outlet for packinghouse eliminations like Citrus World.

Silver Springs Citrus Cooperative was started

in 1966 when a group of about 10 growers purchased an idled plant to be operated as a processing

cooperative. In 1992, three grower-members

remained. Some operated fresh packinghouses and

some were grove-owning direct members.

Ocean Spray Cranberries, Inc., is a relatively

recent and unique cooperative entry into citrus processing. Noted as a cranberry processor, Ocean

Spray expanded into a growing fruit juice market

by blending cranberry and other fruit juices, one of

which was grapefruit. In 1976, Ocean Spray added

grapefruit growers as members of the cooperative.

As the relationship grew with its grapefruit growing members, Ocean Spray extended citrus operations into the fresh grapefruit business. Today,

Ocean Spray is the leading processor of Florida

grapefruit and operates one of the largest fresh

grapefruit packinghouses.

Another cooperative, known as the Florida

Orange Marketers (FOM), operates in the processing industry. FOM does not own a processing facility, but instead supplies the Coca-Cola Company.

Coca-Cola owns multiple processing facilities and

requires tremendous volumes of citrus. To guarantee the necessary volumes, Coca-Cola uses a dedicated supplier arrangement with FOM to act as a

collector and “pooler” of fruit.

California Processing Cooperatives

Although the volume of California and

Arizona citrus going to processing has risen in

recent years, processing is still a secondary market

due to the relatively low volumes compared with

the fresh market. Evidence of the secondary market

stature for processing is that few oranges or grapefruit are grown for processing in California.

Conversely, most Florida citrus production is

intended for processing. Florida citrus is more suitable for processing, and comprises more than 80

percent of U.S. citrus production going to processing. Due to lower costs of production and proximity to major market areas, Florida quickly became

the center of citrus processing.

Correspondingly, the returns and volumes

needed to efficiently operate a processing facility

were much more difficult to bring together in

California than in Florida. So, the level of all processing activity, cooperative or private, has been

much lower in California than in Florida. Of the

eight processing facilities operated by the two

largest processing firms, only one is in California.

As with the fresh market, the story of coopera35
tive processing in California begins with Sunkist.

The first lemon processor was the Exchange ByProducts Company organized in 1915 in Corona,

CA. These facilities were owned by lemon packinghouses in the Sunkist organization.

As early as 1931, Sunkist affiliated with a

cooperative processing company, the Exchange

Orange Products Company. These plants were

gradually expanded. They eventually supplied 75

percent of the lemon oil and 45 percent of the

orange oil used in the U.S. However, the consumption of processed citrus did not take off until the

introduction of FCOJ after World War II. So the volume of citrus processed into oils was still low compared with fresh. Because growing costs were higher in California and Arizona, and its citrus did not

yield as high quality a product as in Florida or

Texas, frozen concentrate could not by marketed

nationally at competitive prices. While the production of concentrated citrus juices in Florida and

Texas increased in the 195Os, Sunkist had a hard

time marketing processed products.

Unable to market a frozen concentrate, Sunkist

shifted emphasis to supplying citrus concentrates

and other products as ingredients to food manufacturers. To ensure a more efficient use and coordination of the Exchange Orange Product and Exchange

By-Products plants, the two firms were merged into

Sunkist in 1958. Sunkist membership began to

spread with the northward expansion of production

in California. A processing plant was built in

Tipton to handle that production. Today, Sunkist

has two processing facilities, one at Tipton and

another in Ontario, where Exchange Orange

Products had a plant.

In recent years, Sunkist has looked to increase

its sales of processed products. Still mostly a residual usage for fruit not suited for the fresh market,

yearly processing volumes can vary, ultimately

depending on fresh market conditions. However,

Sunkist has begun to take a more active posture in

processed product marketing, including consumerpackaged products.

The change from mostly bulk product and private-label packing to more direct consumer marketing was precipitated by a couple of factors. New

processing technologies allowed Sunkist to greatly

improve the flavor of its juice products, especially

those using navel oranges, the most common variety in the Sunkist system.

Also, they began putting the “Sunkist” brand

name on single-strength and concentrated orange

and grapefruit juice products that benefited from

its name recognition. Although always an important source of income for its members, processed

product marketing is increasingly important to

Sunkist.

Because Sunkist is such a wide-ranging organization in California and Arizona citrus, at times

some of its members have operated their own processing facility. One such is the Paramount Citrus

Association, California’s largest citrus growing

operation and a recent addition to Sunkist.

Paramount has a plant in Visalia for both citrus and

noncitrus canned and frozen juices and blends. The

decentralized nature of Sunkist’s governance system allows members to arrange for their own processing arrangements, although most members

send their processed fruit through Sunkist.

Given Sunkist’s large membership, there has

been little other cooperative activity in processing.

The one significant cooperative processor is the

California Citrus Producers, Inc., (CCPI) Lindsay,

CA, formed by some members of Pure Gold. With

three packinghouses versus the 60-plus supplying

Sunkist, CCPI has a relatively small share of

California’s citrus processing volume. It is only in

bulk and private label packing.

Texas Processing Cooperatives

Citrus processing in Texas began as a singlestrength juice operation in the 1920s. Cooperative

processing had its roots in the Rio Grande Valley

Citrus Exchange (Texsun), a fresh marketing cooperative. In the 193Os, the exchange saw a need to

keep low- grade fruit from the markets so that better grades would bring higher prices. In 1935, the

exchange rented a small building in Weslaco and

installed juicing equipment. By 1937, it was the

largest grapefruit juicing plant in the world. The

Texsun label became nationally known.

Texas suffered a series of freezes in 1949 and

1951. Unable to obtain much fruit outside its membership, Texsun was forced to permanently close

36
its fresh fruit operations. It decided to change the

form of its organization from a cooperative to a corporation. This was done so the exchange, then

known as Texsun Corporation, could purchase fruit

from any sources, including Florida.

As of 1992, the Texsun label was owned by

Sundoor Brands, a subsidiary of Proctor & Gamble.

After series of severe freezes in the 198Os, Sundoor

Brands idled its facility. No longer a cooperative

tied to Texas citrus production, the Texsun brand

juices were packaged at facilities in other States

using Florida or imported supplies.

Since the change of Texsun’s operating status,

cooperative processing in Texas has been limited to

a single venture. Although Texsun exited the fresh

marketing business in 1951, four of its cooperative

packinghouse members survived. In 1968, they

formed another central selling exchange called the

Texas Citrus Exchange (TCX) to market fresh and

processed citrus. TCX had no processing facility

and contracted with Texsun Corporation for its processing. In 1971, TCX constructed a new processing

facility in Mission. Eventually, TCX became one of

the two largest processors of Texas citrus, comparable in volumes to Texsun.

Recent disastrous freezes that essentially

wiped out Texas citrus for a number of years

altered the operations of Texas citrus processors.

TCX is now the largest processor in Texas, even

though it, too, must rely on significant amounts of

nonmember business.

The effects of freezes, along with desire of

Texas growers to market as much citrus in the more

lucrative fresh markets, will continue to be a limiting factor in the construction of the costly processing facilities in the future. For the foreseeable

future, TCX will have more than enough capacity to

meet the needs of its members.

Processed Citrus Markets

Two types of firms market processed citrus

products: those in citrus-producing areas that

actively buy and process raw fruit and those that

purchase bulk citrus juices to be repackaged or

reconstituted into consumer products. All eight

processing cooperatives process raw fruit, as do the

firms selling the majority of the processed citrus

products. As a grower-oriented structure, cooperatives compete not only in selling processed citrus,

but also with processors for buying raw product in

their regions.

While cooperatives are active in processing citrus in all producing areas, none are dominant like

Sunkist in fresh markets. Other than Sunkist, the

other fresh citrus marketers are relatively free of

branded marketing and extensive advertising and

promotion. Conversely, the processed citrus sector,

particularly in the single-strength and frozen concentrated consumer packages, contains some of the

largest food and beverage manufacturing firms.

If measured in terms of volume, sales, market

share, net worth and asset ownership, and advertising, the processor is the most powerful participant

in citrus marketing. Some of these large food manufacturing firms dwarf the cooperatives in the industry.

While Sunkist processes most of California citrus, it has a relatively small market share because

of California’s minor role compared with Florida.

Moreover, the largest U.S. citrus processing cooperative, Citrus World, Inc., is still somewhat smaller

than the two largest processing firms, Seagrams

(Tropicana) and Coca-Cola Foods (Minute Maid).

These firms handle the majority of domestically

processed citrus. An estimated 25 other processors

(8 cooperatives) have the rest.

Table 9 shows the position of cooperatives

compared with other processing firms in terms of

volume and number of facilities. Product volumes

are the units of processed products sold by a

processor in either frozen or canned form.

Confidentiality and the lack of detailed data on

each processor require the use of a range of volumes published in the 1993 “Directory of Canning,

Freezing, and Preserving Industries.”

Private processors from Florida are used for

comparison because they dominate the processing

industry and because the two California processing

cooperatives already have more than 75 percent of

California/Arizona processing volume. For some

private processors, it is difficult to assess their

approximate positions in citrus processing because

they marketed a wide variety of juice products, and

were therefore not included. Chief among these

37
would be Dole and Juice Bowl Products. Even so,

the majority of domestically processed citrus is by

the processors in table 9.

For processors other than Coca-Cola or

Seagrams, cooperatives are among the larger operations in terms of the volume classifications presented. While 6 of the 25 Florida processors are not listTable 9- Selected citrus processors, factory

numbers, and volume ratings in the 1993 Directory

of Canning, Freezing, Preserving Industries.

Processor Frozen Canned/Glass Factories

“Big Two” I

Coca Cola AAAAZ

Tropicana AAAA

Cooperatives

Citrus World

Golden Gem

Sunkist AAAA

Ocean Spray AAA

Silver Springs AAA

Winter Garden AAA

Texas Citrus Exchange AAA

California Citrus Producers B

Florida Privates

Lykes-Pasco AAA

Erly Juice AA

Citrus Hill AA

Sun Pure AAA

Adams Packing AAA

Caulkins Indiantown AAA

Alcoma Packing AA

Orange-Co AA

Citrus Service, Inc. A

Indian River Foods A

Lakeland Citrus Exchange B

Holly Hill C

5

2

1 “Big Two” of Coca-Cola(Minute Maid) and Tropicana are

segmented because of their large share of the citrus processed in

the U.S.-more than 50 percent. Although other processors are

classified in the same ranking, Coca-Cola and Tropicana volumes

are significantly higher.

2 AAAA is the highest rating, AAA the next, and so forth,

with C being the lowest volume category. AAAA = volume of more

than 5 million cases canned, and more than 100 million pounds

frozen, C = less than 250,000 cases canned, less than 5 million

pounds frozen.

ed because of insufficient data, most are smaller

than those in table 9.

Product Forms

Citrus is processed into a variety of forms, primarily frozen concentrates, canned single strength,

and chilled single strength. The leading product

form, FCOJ, accounts for more than 60 percent of

Florida’s 1991-92 processed production. Chilled

orange 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 long

been declining in importance, now at only a 1.4

percent share.

Orange juice has by far the largest share of the

processed citrus market, more than four times that

of grapefruit juice products. In Florida, orange juice

accounted for more than 90 percent of processed

production.

While FCOJ is still the leading processed product, chilled orange juice has been increasing its

share of the market. The premiums introduced in

the mid-1980s have become increasingly popular.

Unlike the traditional chilled products reconstituted from concentrate, the premium product has been

processed little, save pasteurization.

Citrus is a relatively fragile product to process,

so the premiums achieve a higher level of quality

and taste than the concentrates. The increase in

chilled orange juice’s share of Florida’s processed

orange production, from 13 percent in 1986 to 28

percent in 1992, is due largely to the growth in premiums. Cooperatives are active in processing and

marketing of citrus in all product forms (table 10).

Brands and Labels

When marketing under their own labels, cooperatives are competing with the national brands,

medium-sized processors with regional or packer

brands, and the private labels. The Minute Maid

and Tropicana brands of orange juice are the top

two in market share. Another national brand,

Citrus Hill, was launched by Proctor & Gamble in

the early 1980s. Though backed by their considerable resources, Citrus Hill lagged far behind the

38
other two national brands. Dissatisfied with its performance, in late 1992 Proctor & Gamble closed its

Florida processing facilities and discontinued the

brand.

For the leading product categories, FCOJ or

chilled orange juice, no cooperative has what can be

termed a national brand.

While Sunkist recently launched retail packs of

chilled and frozen concentrated products for

domestic markets bearing its name, for now it

remains in relatively narrow distribution. In grapefruit juices, Ocean Spray has a nationally recognized brand, but lacks a frozen concentrated grapefruit juice. Ocean Spray is recognized more for its

blended juice products and “cocktails” than for the

common forms-concentrated, chilled, or canned

forms-of citrus.

Cooperative brands are more regional in

nature. They tend to be marketed only in certain

areas with limited distribution, and receive much

less advertising and promotion support than

national brands. In some cases, they receive no

advertising support, and are marketed more like a

private label.

Minute Maid and Tropicana branded products

are in many forms, while cooperative brands are

limited to specific forms. For example, while Citrus

World markets citrus in the same product forms as

the national brands, its Florida’s Natural and

Donald Duck labels are only in chilled juice and

FCOJ, respectively. TCX’s Big Tex and Texas Star

labels are the leading cooperative brands for Texas

citrus, but are not in the leading product formfrozen concentrate. Table 11 shows some of the better-known labels of processing cooperatives.

If not marketing under their own label, cooperatives market processed product in either of two

ways: processing and packaging for other firms

under a private labeling arrangement or bulk to be

further packaged and marketed by other manufacturers.

Private labels are products processed for a

specific customer in a package bearing the cusTable 1 l- Selected labels of citrus processors.

Cooperative Brands or Labels

Citrus World Donald Duck, Florida’s Natural,

Blue Bird

Golden Gem Golden Gem, Sunbright

Silver Springs Silver Springs, Lifeguard

Winter Garden Citrus Whole Sun, Sunshine State

Products

Texas Citrus Exchange Big Tex, Texas Star

Sunkist Exchange, Pure Gold

Source: 1993 Directory of Canning, Freezing, and Preserving

Industries and Florida Citrus Processors Association.

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

Product

Cooperative FCJ

Own

Label 1 Canned

Own

Label Chilled

Own

Label

Citrus World (FL)

Sunkist (CA)

Golden Gem (FL)

Silver Springs (FL)

Ocean Spray (FL)

Texas Citrus Exchange

Winter Garden (FL)

California Citrus

Producers

X X X X X X

X X X X X Xl2

X X

X X X

X X X X

X X X X X

X X

X

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.

39
tomer’s label. Usually these labels are owned by

retail grocers for sale in their stores. They are common in all food products. In orange juice, private

labels are especially important.

In 1991, less than 44 percent of FCOJ was sold

by the national brands, leaving 56 percent to the

regional and private labels, with the private labels

getting the majority. Private labels are successful

because the retailer owns the brand, sets the prices

on all products, and allocates the shelf space. In

addition to their private label(s), the largest grocery

chains usually carry only the two national brands

and one regional brand, if that.

Private labeling represents a significant part of

cooperative processing volume. In some cases

cooperatives such as CCPI package only under a

buyer’s private label. Although private labels typically bring smaller margins than branded ones, private labeling is attractive to cooperative processors

because the sales volume is obtained without the

advertising and promotion expenses needed to support a branded product. Given the costs of marketing and promoting a brand to compete with the

likes of Coca-Cola and Tropicana, private labeling

will continue to be an important outlet for cooperative processors.

Bulk Product

In addition to packaging products themselves,

citrus processors, including all cooperatives, sell

bulk product to be packaged by another firm. Much

of this is frozen concentrates to be repackaged for

retail sale. In Florida for 1992, about 50 percent of

bulk concentrate was reprocessed into FCOJ, 28

percent reconstituted into chilled products, and the

balance either exported (2.8 percent), reconstituted

into canned (2.5 percent), or not identified (11.3

percent). Texas and California processors also move

significant quantities of bulk-processed product.

Although the exact numbers are not known, they

are considered small compared with Florida.

The share of FCOJ sold in bulk has been

increasing, due mostly to the role of the reconstituting operations. Reconstituters buy bulk concentrate

to be repackaged for retail and institutional sales.

Often, these reconstituters are already in the beverage manufacturing business, such as dairies or fullline juice companies like Veryfine or Everfresh. The

scope of the reconstituter is seen in the more than

120 firms listed in the 1992-93 canners and freezers

directory as marketing a processed citrus product.

Reconstituters present an interesting situation

to the citrus processor as both a customer and competitor. On one hand, they are a customer of the

processor and in some cases the only one. On the

other hand, reconstituters package and market

products that compete in the market with similar

products from the processor. The more a processor

markets in retail packages, the more they compete

with the reconstituter in the retail markets.

While the percent of their volume sold bulk to

reconstitutors varies among processors, and hence

the reliance on them as a customer, the supply side

competition is more evenly felt in the form of

imported citrus concentrates. Most imported juice

is in bulk form to be reconstituted. Imports give the

reconstituter an alternative to using domestic

processors. Use of imports has increased to the

point where Florida processors are no longer the

primary suppliers of juice consumed in the U.S.

Imports have a major impact on domestic citrus,

particularly for cooperatives tied to processing

member production.

THE ROLE OF COOPERATIVES

Cooperatives have long had a significant role

in the production and marketing of citrus in the

U.S. At a minimum, cooperatives play a fundamental role in providing services to citrus growers and

coordinating the production, harvesting, and handling of their citrus. In addition, cooperatives have

a role in the operation and performance of citrus

markets by being a viable marketing alternative for

growers. The following sections will look at cooperatives from the perspective of the citrus grower,

and at the effects cooperatives have on the behavior

and performance of the marketplace.

The Citrus Grower

Citrus growers form or join cooperatives to

address a set of commonly felt needs and achieve a

set of desired benefits. Cooperatives play key roles

for their members.

40
Home for Their Product

All citrus cooperatives offer members a guaranteed home for their production. The nature of

cooperatives means the production of any member,

regardless of size, must be marketed in the same

manner. For the smaller citrus growers, who lack

the resources to operate their own packinghouse or

directly invest in a processing facility, cooperatives

are often the best way for them to gain access to

stable markets. Co-ops have a large percentage of

small grove owners as members because they provide a guaranteed home for members’ products.

For citrus in particular, flexibility in marketing

options is limited. The perennial nature of citrus

production means the grower is making an investment in a crop that does not provide an economic

return for 5 or more years. As a cooperative member, the grower also is fairly well assured of a home

for future production.

In theory, marketing agreements allow the

cooperative to revoke a grower’s membership. In

practice, however, this rarely occurs, and only in

cases of member noncompliance or behavior detrimental to the cooperative. In short, once committed, members have a home for their production

until they choose to cancel or change their marketing agreement.

Citrus is a perishable crop. Once harvested, it

must be immediately moved to the processor or

packinghouse. In big crop years, there can be more

fruit than available packing or processing capacity.

After a freeze, much fruit must be harvested at the

same time, further straining facility capacity that

could leave some fruit unsold. Membership means

not only that the cooperative must accept and market all the members’ fruit, but also the interests of

members come before those of nonmembers.

While contracts with IOFs can also secure a

home for their product, grower interests may be

subordinated to those of management or shareholders. Conversely, in addition to securing a home for

their product, cooperative members acquire ownership in the organization that handles and markets

their citrus. With ownership comes a measure of

control over the decisions and operations directly

having an impact on the economic viability of their

production.

Ownership and Control

Cooperative ownership is represented by equity investment, and control by voting rights.

Growers control the decisions affecting the handling and marketing of their production. Interests

of the member are paramount to all others.

Authority for establishing policies is vested in a

board of directors chosen from the membership.

IOF shareholders are interested in the highest

returns on their investments, which may or may

not correspond to maximum returns to citrus production. For a citrus grower contracting with an

IOF, the policies affecting the price received is

determined by policies aimed at maximizing shareholder equity, not the citrus grower. Some of these

policies may run counter to the interests of the citrus grower. In cooperatives, growers can ensure the

organization’s policies are aimed at achieving top

returns from members’ product.

Citrus cooperatives are democratically controlled-typically one-member, one-vote-regardless of the amount of equity they have in the cooperative. Even in cooperatives with proportional

voting, the number of votes a member can have is

limited. Stockholders control an IOF. The number

of votes are determined by the number of shares a

stockholder holds. There is no limit on the number

of shares a stockholder may own.

Economies of Scale and Coordination

Cooperatives seek to achieve economies of

scale that allow individual growers to own and

control their marketing facilities and operations. As

the fixed costs of the facility, equipment, and management are spread over an increasing number of

growers, the average cost of these services to each

grower decreases. Many growers cannot feasibly

operate their own packinghouse, let alone a more

costly processing facility.

Related to economies of scale is the role cooperatives play in coordinating the production, harvest, and delivery of member fruit. While sales

functions are common to most cooperatives, citrus

cooperatives are among the most active in agriculture in terms of services provided to coordinate

member activity.

Coordination is facilitated by the marketing

41
agreement. Individual citrus growers turn over

decisionmaking to cooperative management on

harvest, delivery, grading, and pooling. By coordinating the amount and timing of the harvest, citrus

cooperatives can more precisely schedule packing

and processing operations. Facilities can be operated at minimum cost. Coordinating production and

harvesting practices gives cooperative management

the flexibility to better match member fruit with

buyer needs.

Comprehensive Mar&e ting Organizations

In addition to pooling resources to achieve

economies of scale in marketing citrus, cooperatives

have another role to play. Cooperatives offer citrus

growers the unique ability to gain access and a

measure of control in a comprehensive marketing

organization without requiring significant new

investments. In addition to being a major domestic

and export marketer of fresh and/or processed

products, cooperatives such as Sunkist and Ocean

Spray bring the benefits of national brands, multiproduct marketing, and price leadership.

In Sunkist, citrus growers have created the

leading marketer of fresh citrus. Sunkist also is a

price leader-growers enhance their ability to move

from the traditional position of price taker to having

more say in the price received. Sunkist maintains

market share via a worldwide network of sales

offices supported by a full range of advertising and

promotion programs. Sunkist also makes significant

investments in research on production and handling

practices and developing new products.

The Sunkist name is so valuable that significant nonmember income is generated through

product-licensing royalties around the world. This

nonmember income helps defray operating costs.

In Ocean Spray, Florida citrus growers gain

access to a leading juice marketer. Ocean Spray

markets a variety of branded juice products, and

gives grapefruit growers a measure of price leadership and greater control over their returns. The cost

to individual growers of developing and maintaining a national brand would have been prohibitive.

The lesson of Proctor & Gamble exiting the citrus

industry after spending millions of dollars in developing and promoting a national brand speaks volumes to the difficulty of achieving a large market

share.

While other cooperatives are smaller than

Sunkist or Ocean Spray and lack a national brand,

they do have full-scale marketing programs and a

measure of market presence. Seald-Sweet, Florida’s

leading fresh marketer, is known to buyers around

the world. One third of its cartons are exported.

Seald-Sweet’s marketing expertise is evidenced by

the range of commodities handled-apples, lemons,

limes, Honduran melons, and Vidalia onions-that

generate significant nonmember income.

TCX, the leading marketer of fresh grapefruit

from Texas, has a name widely recognized by

wholesale and chain store buyers. TCX also is a

major marketer of juice products, particularly

grapefruit.

Access to these and other marketing cooperatives offers increased returns and a degree of

income stability. Branded retail products, or leading

names in the wholesale trade, often bring a price

premium. A diverse marketing mix and a degree of

price leadership can bring more income stability to

the member. These factors are part of the reduced

risk role cooperatives play for citrus growers.

Reduced Risk

Many growers produce only citrus and tie substantial income risk to the fortunes of a specific

crop enterprise. Citrus is prone to wide swings in

supply and price, so year-to-year income can widely vary. The extension of the citrus production operation into fresh packing or processing via cooperative membership can stabilize income. Profits from

the processing or packing operation are often higher when production is high and raw citrus prices

(and profits) are low. Thus, the total profit from

production and processing may be more stable than

the profits from only one activity.

Growers gain because risks are spread across

the entire cooperative membership. The most overt

reduction of risk comes from pooling. No single

grower has to bear the full brunt of day-to-day

price fluctuations.

With a seasonal pool, these fluctuations are

averaged over an entire season. With the impacts of

dual fresh and processed usages, imports, and

42
futures markets, there would be considerable risk

in determining the best day to market fruit at a

given price. Members avoid having to deal with the

daily machinations of citrus markets.

In cooperatives, members are compensated if

they have a production shortfall or their fruit does

not get harvested, most often because of freezes.

Most citrus cooperatives allow the board of directors to alter pooling plans to address freeze-related

problems. Under one freeze contingency, the member is paid on pre-freeze estimates of what would

have been produced, particularly in cooperatives

where the member relinquishes control over harvest. Although cooperatives try to balance the harvest among members, invariably some will have

less harvested and bear greater freeze-induced losses compared with others who had more fruit harvested. In the interest of equity, the returns to harvested fruit are pooled with the unharvested or

damaged fruit. Each member’s prorata share of the

returns is based on his or her pre-freeze estimates

of production.

Risk sharing can also have negative aspects.

There may be a tendency for adverse selection-the

most likely persons to participate in a cooperative

pool may be the poorest risks. A second problem is

called the moral hazard-averaging reduces the

incentive for individual growers to do their best.

Grove Care and Harvesting Services

Many citrus cooperatives provide services

beyond packing, processing, and marketing such as

grove care and harvesting. This is especially important for small growers who lack the resources to

provide their own services. This is why smaller

growers may constitute the bulk of the membership.

Some citrus cooperatives provide all the services needed to produce, harvest, deliver, and market citrus. This facilitates absentee ownership, a

phenomenon more common to citrus than other

agricultural industries. Tax laws for many years

have favored investments in citrus production.

Many grove owners were not owner-operators and

need grove care and harvesting services. The interaction of absentee owners with the cooperative can

be little more than “a check in the mail.”

Adopting Freeze-A version

Production Practices

No citrus producing state is completely free

from the damaging effects of freezes, so the continued improvement and adoption of freeze-aversion

production practices is needed for the long-term

survival of many growers. In providing grove care

and supply purchasing services, cooperatives are

well suited to assist growers in developing and

implementing the most effective freeze-aversion

practices.

Mitigating freeze damages begins with production practices. The first is with the type of citrus

tree to be planted. The scion and rootstock influence a citrus tree’s cold hardiness. Most cooperative

grove care services begin at the first stage of production-advice on varietal selection and planting

practices, and in some cases purchasing new trees.

Since the freezes of the 198Os, Florida cooperatives,

in particular, have encouraged members to use

new, cold-resistant citrus varieties.

Cooperatives also are encouraging freezeaversion practices in new or replanted groves.

Denser plantings have been found to reduce the

effects of freezes. So most new citrus acreage, particularly in Florida and Texas, is more densely

planted than was customary a decade or two ago.

Once planted, another major practice is the use

or nonuse of irrigation to minimize freeze damage.

Reduced irrigation at certain times of the year

induces dormancy and increases cold hardiness.

During a freeze, microsprinkler irrigation provides

cold protection by insulating the tree (ice remains at

32 degrees Fahrenheit). Microsprinklers are widely

used, particularly in central Florida. Growers

replanting freeze-damaged groves have taken

advantage of the newer practices that best minimize the effects of future freezes.

But the adoption of new technologies, varieties, and production practices, while designed to

minimize the effects of freezes, can never completely eliminate the damage caused by future freezes.

In the northern half of Florida’s citrus producing

area, the center of cooperative activity, freezes are

still accepted as inevitable.

The impacts of freezes are usually felt by all

members of a local cooperative, so the continued

43
use of risk-sharing mechanisms is an important

way to minimize the effects on any one grower.

Risk sharing and equitable treatment are fundamental to cooperative operating practices that

attract citrus growers. Continued use and refinement of freeze contingencies in cooperative pooling

plans are important services to members-particularly the smaller ones with limited resources-in

mitigating freeze losses.

Residual Market Outlet

Fresh packinghouse cooperatives provide a

residual processing outlet for member fruit considered unsuitable for the fresh market. All cooperative packinghouses sell and deliver member fruit to

the processor because it is impractical to return the

fruit to the member for marketing.

Citrus World was created by packinghouses

specifically as an outlet for their eliminations.

Although Citrus World now processes significant

amounts of fruit direct from the grove, its major

role is still to serve as the only outlet for eliminations from member packinghouses. Many of these

packinghouses will also arrange for harvesting and

hauling member fruit direct from the grove to

Citrus World.

Supply Cooperatives

Citrus cooperatives have also created or affiliated with other cooperative organizations for specific needs or services. The most common are those

formed to buy supplies and materials for both

members and the cooperative.

The major citrus supply cooperatives are the

Fruit Growers Supply Company, Sherman Oaks,

CA, and the Highlands Exchange Service

Cooperative (HESCO), Waverly, FL. Each is the

largest supplier of citrus production and processing

supplies in its respective State.

Formed in 1907 by the members of the

California Fruit Growers Exchange (now Sunkist

Growers, Inc.), Fruit Growers Supply Company

(FGS) is a cooperative supply corporation. Its members are the growers and local packinghouses shipping fruit through the Sunkist system. FGS is not a

division of Sunkist, but a separate entity owned by

Sunkist members and closely affiliated with

Sunkist. FGS and Sunkist share nearly the same

board of directors and board officers. Sunkist packinghouses are not required to join FGS, but must do

so to secure its services. Most Sunkist packinghouses are members of FGS. Sunkist has the large majority of California and Arizona’s citrus production, so

FGS is by far the single largest provider of production and packinghouse supplies.

FGS supplies members most of the materials

needed to grow, harvest, package, and deliver citrus. These supplies are provided to members at

cost. FGS also provides the technical support in the

design and use of different supplies.

Under the FGS membership agreement, the

packing unit agrees to purchase all containers

required in harvesting, storing, and packing its citrus. The purchase of all other items is voluntary.

As a source of raw material for its box and carton supplies, FGS owns sawmills, manufacturing

plants, and more than 350,000 acres of timber. This

makes FGS one of California’s leading timber companies. Its timber sales are the primary source of

nonmember business.

The Highlands Exchange Service Cooperative

(HESCO) was formed in 1972 from the merger of

Highland Crate Cooperative and the Exchange

Supply and Service Cooperative. HESCO is the

largest supply cooperative in Florida’s citrus industry.

Among the 49 members of HESCO are all 18 of

the Florida citrus cooperatives. Others are growerowned packinghouses or processors or grove

care/production operations. Although most

HESCO members are in direct competition with

one another in citrus marketing, they accept the

cooperative model for buying supplies at the best

possible cost.

Initially, HESCO was primarily a corrugated

box broker for its members. Since then, HESCO has

diversified to offer members a variety of products,

including materials for fresh packinghouses, can

cases, agricultural chemicals, production and harvesting equipment, and fuel and lubricants. HESCO

also operates a wholly owned subsidiary,

Highland-Exchange Petroleum Supply Company

(HEPSCO), which supplies fuel to HESCO members.

44
Purchasing and Developing Groves

Some cooperatives, in response to competition

and declining membership bases, implemented different mechanisms to assist growers. As a way of

retaining and/or increasing acreage, some cooperatives take an active role in the financing and development of citrus groves by existing or prospective

members. Some offer only real estate advisory services, while others purchase and develop new

groves to be sold to members or operated by the

cooperative until a member acquires them.

At times, a cooperative will form a wholly

owned subsidiary to provide real estate services for

members. If some growers can’t purchase the minimum acreage required to participate in a development, a cooperative joins the development as an

agent on behalf of its members. This allows smaller

growers to unite to meet the minimum acreage

requirements and purchase smaller, more economically feasible parcels.

Cooperatives are also active in rehabilitating

and replanting members’ freeze-damaged groves

by providing management services and assisting

with financing.

In some instances, this included seeking aid

available to growers from the Federal Government

in the event of tree-killing freezes. The cooperative

represents growers in sourcing the funds and

preparing the necessary paperwork. Some cooperatives also worked with Farm Credit Services to

obtained low-interest financing for grower-members’ grove rehabilitation.

Citrus Market Channels

Cooperatives also influence the performance

and behavior of citrus markets. Some roles are rooted in general theories of cooperative behavior.

Others are endemic to the citrus industry.

Allegiance to Growers

An advantage for cooperative members is that

the cooperative owes its allegiance to the grower. A

cooperative is dedicated solely to marketing the

crop of its members. Further, most citrus cooperatives deal exclusively in citrus. Their members benefit from this specialization.

By contrast, a number of private citrus firms

are considered beverage or juice “manufacturers,”

or fresh produce “marketers.” Some of these are

large, diversified food marketers such as CocaCola, Seagrams, Dole, and Sun World. Citrus is

only one of many commodities they process and

market, and they are often free to procure raw citrus from any domestic or foreign source. The net

result is they are not exclusively tied to the citrus

grower, as in the case of a cooperative. Their allegiance is to the shareholders who care little

whether the highest returns come from apple or

orange products.

While these firms may be concerned with the

fortunes of their citrus products, their first interest

is in selling produce or juice products. This continues throughout the market channel. Wholesalers

and retailers have a choice in the types and volumes of products they will market based on their

relative returns.

In a marketplace where most organizations are

concerned with returns to a set of products that

may or may not include citrus, the role of looking

out for a grower’s citrus is often left to cooperatives. In noncooperative arrangements, the grower

has no say in the decision on how much citrus, if

any, is in the firm’s marketing mix. In owning and

controlling their cooperative, growers directly allocate resources and marketing programs exclusively

committed to selling citrus.

Ease of Entry/Exit

Grower entry/exit affects cooperatives at two levels-citrus production and the cooperative operation.

Small or absentee citrus growers are attracted to

cooperatives because of their full line of services.

This means initial investments can be limited to the

land purchase. The machinery and equipment for

grove care and harvesting are provided by the

cooperative. Investors need not be actively

involved in citrus production.

Cooperatives make it easier for growers to

enter or exit citrus production. A barrier to entry

can also be a barrier to exit. Agricultural economic

theory holds that the more specific the assets are to

a farming enterprise, the more difficult it becomes

to exit.

Citrus production requires investments in

45
assets (specialized facilities and equipment) with

little value outside of citrus production. Therefore,

the best use of the assets is in citrus production. By

joining a cooperative, growers not only avoid having to make investments in personal facilities and

equipment, but also reduce the cost of exiting citrus

production.

The issue of entry/exit into or from cooperatives is also important. Members may exit to market elsewhere after their yearly marketing agreement ends. Also, growers only commit specific

acreage to cooperatives. Most growers have access

to multiple packinghouses within economical shipping distance. Most marketing agreements allow

growers to ship fruit to more than one agent,

including other cooperatives, although multiple

cooperative membership isn’t common.

Although member equity is typically not

rebated when leaving the cooperative, a key point

is that the equity is not lost. Old member equity is

revolved back at the same rate as that of existing

members. With revolving periods of 20 or more

years, many revolvement payments go to older

members or their estates. However, voting privileges are lost upon exit, so growers with large

amounts of equity have the proclivity to remain

with the cooperative to maintain a measure of control over the policies affecting their equity.

There are few barriers for the cooperative

packinghouse wishing to enter/exit a fresh marketing organization. Packinghouse agreements typically allow them to exit the federation in any year, just

like contracts they have with their growers.

Combined with the relatively low asset requirements of a federated marketing agency and low

investments required of members, entry/exit to or

from a fresh marketing federation is relatively easy.

Packinghouse Mobility In a federated marketing

structure such as Sunkist or Seald-Sweet, most

assets needed to harvest and pack fresh citrus are

provided by the member packinghouses. The federated cooperative itself requires few assets and only

limited investment from members.

In arrangements between cooperative packinghouses and private marketing agencies, the packinghouse also provides most of the assets needed to

prepare fresh fruit for the market. The net result is

that cooperative packinghouses can change marketing affiliations with little or no new investments.

The process of changing affiliations is called packinghouse mobility.

For Sunkist and the California/Arizona citrus

industry in general, there has been a high degree of

packinghouse mobility in addition to the declining

number of packinghouses and increased average

house size. From 1960 to 1980,53 packinghouses

operating independently or affiliated with other

marketers joined Sunkist. On the other hand, 44

packinghouses left Sunkist to join another organization. Nine went to Pure Gold, the other federated

marketing cooperative. Five later returned to

Sunkist.

Further evidence of low-entry barriers in the

Sunkist system is in it serving as a major source of

packinghouses for competitors. In 1980,24 of the 43

packinghouses affiliated with Sunkist’s competitors

either were acquired from Sunkist or voluntarily

disaffiliated. For example, 7 of Pure Gold’s 12 packinghouses were originally affiliated with Sunkist.

Today, there are still many examples of packinghouse mobility in California/Arizona citrus. For

example, Paramount Citrus Association was first a

Pure Gold member, then an independent marketer,

and recently joined Sunkist. Another ex-Pure Gold

member, Arlington Heights Citrus Company, joined

Sunkist for a few years, and now is affiliated with

Sun World after being acquired by Corona-College

Heights.

Florida packinghouses also can easily change

their affiliations. Many cooperative packinghouses

that were members of Seald-Sweet now market

independently (such as Golden Gem) or are affiliated with a private sales agency (such as Waverly).

However, there has not been the movement in

and out of Seald-Sweet on the order of Sunkist.

Somewhat smaller in size, Seald-Sweet also has a

smaller share of Florida’s fresh citrus market.

Market share is spread out among the many marketing firms or independent packinghouses. The

fresh market is a relatively small part of Florida’s

citrus production, so poor fresh market conditions

will not cause the same level of reaction as in

California/Arizona.

46
The structural characteristic of packinghouse

mobility makes for intense competition between

marketing organizations, and compels the cooperative federations to compete vigorously with rivals

to maintain their packinghouse members.

For Sunkist in particular, is the high degree of

mobility evidence of its efficiency or inefficiency?

Packinghouses leaving or joining Sunkist feel they

have gained from the move. Both could be right,

depending on the different circumstances each faces.

Entry is easy, so some packinghouses will

change affiliations based on short-run conditions,

particularly given the price volatility of citrus.

Overall, the ability to change packinghouses points

to cooperatives having a broader role in market discipline.

Market Discipline

The ability to change marketing affiliations

points to the broader role of cooperatives in

addressing either the failure of market conditions

or in keeping a market disciplined.

With cooperative membership being widely

available, citrus growers have a viable alternative

to poor marketing conditions arising from the

unfair trading practices of buyers. Indeed, many

fruit and vegetable cooperatives, including citrus,

were formed to improve the bargaining position of

growers facing high-handed and unfair buying tactics. In a cooperative, production is pooled under a

single seller. Buyers cannot play one grower against

another. Cooperatives provide a form of discipline

in the market by forcing firms to deal with growers

in a fair manner. This concept of keeping buyers

honest stems from the belief that cooperatives are a

competitive yardstick.

Citrus growers can use cooperatives as a yardstick to measure the performance of firms marketing their fruit. Cooperative membership provides

insight into what is reasonable for both its members

and others. Moreover, ease of entry/exit and the

ability to belong to more than one cooperative

allow growers to compare the performance of cooperatives. The performance of private firms is similarly kept diligent because growers can readily

compare packinghouse returns. This competition

for fruit favors the citrus grower.

Summary on Cooperative Roles

Cooperatives play a significant role for citrus

growers along two levels. At one level are the efficiencies and economies of scale achieved in pooling

the fruit of many individual growers in an organization.

Cooperatives are unique because growers

have direct control over their operations. In doing

so, they set policies that assure a home for their

production and spread risk across many growers.

Many cooperatives also provide the complete range

of production and marketing services, including

supplies. Growers can achieve significant cost savings by purchasing supplies and services from the

cooperative. Growers reduce costs through efficiencies gained in the close coordination of harvest and

delivery with facility and buyer needs. Gains from

efficiencies accrue to the cooperative member.

At another level, citrus cooperatives play an

important role in the marketing channel. They provide grower access to the resources and marketing

skills of a comprehensive marketing organization.

In some cases, these organizations are the leading

citrus marketer in their respective product lines,

and are often at the forefront in developing new

markets for citrus and citrus products.

As a result of direct ties to U.S. citrus growers,

cooperatives more than most marketers look out for

the fortunes of U.S. citrus production in the marketplace. Cooperatives also play a key role in disciplining market behavior. The ease of entry into a

cooperative, and the ability to compare returns

from both private firms and cooperatives, facilitates

their ability to discipline the market.

FUTURE ISSUES

Cooperatives face the same issues as any other

citrus marketing firm. Domestic citrus consumption-both fresh and processed-has plateaued

during the past decade. Periodic freezes and resulting price increases partially reduced demand.

Competition is also growing from an increasing

variety of other fresh fruits-kiwi, mangoes, etc.,

and varieties of juices and juice products-blends,

cocktails, etc.

For cooperatives, however, the issue goes

beyond the overall demand for citrus to the

47
demand for citrus produced by a specific set of

growers: their members.

Cooperatives are directly tied to domestic citrus production. The continued viability of domestic

citrus production is fundamental to the future of

citrus cooperatives. Like the rest of agriculture,

cooperatives and their members face general concerns over pesticide use and food safety, complying

with environmental regulations, water availability,

and land-use restrictions. Issues specific to citrus

cooperatives and the industry are along two levels:

1) those affecting the structure, location, and scope

of U.S. citrus production, and 2) those affecting the

continued profitability of U.S. citrus production.

increasing Production Capacity

Freezes hit all producing areas in the past

decade, including tree-killing freezes in Florida and

Texas. Florida alone had seven freezes during the

1980s. But the U.S. citrus industry has more than

recovered. Production capacity will increase

through the 1990s. Most growth occurred in Florida

due to greater than expected replanting, rehabilitation of freeze-damaged groves, and new acreage

being brought into production, particularly in

southern Florida.

Most of the new and replanted acreage adopted the freeze-aversion practice of higher density

plantings. As a result, the number of citrus trees in

Florida increased to a record 92 million in 1992,

almost double the level of 1986. A large portion of

Florida’s acreage is nonbearing. A recent USDA

survey showing only 56 percent of the surveyed

acreage had trees of bearing age.4 The Florida

Department of Citrus estimates an increase of 160

million boxes of oranges/grapefruit in 1990 to more

than 250 million boxes by 1995.

Total U.S. citrus production is expected to

increase from current levels by about 75 percent

into the next century, with virtually all of that

growth in Florida. Texas is rebounding from devastating freezes in 1983 and 1990, but production may

never return to pre-1983 levels. California produc4 USITC Publication #2615, Industry and Trade

Summary: Citrus Fruit, p. 1, March 1993.

tion, with the exception of the 1990-91 freeze-damaged crop, has been relatively stable. Other than

increased yields achieved through better production practices and denser replanting of old groves,

California’s production is expected to be fairly stable into the next century.

Worldwide, citrus production is expected to

increase due to freezes and higher prices in the

1980s that prompted expanded plantings in the U.S.

and encouraged new plantings throughout the

world. Worldwide growth in the 1990s is expected

to jump 50 percent from levels in the 1980s.

Impact on Cooperatives

Increasing production capacity has a mixed

impact for citrus cooperatives. Negative pressure

on price for citrus and citrus products would result

from increasing worldwide production, given current levels of demand. U.S. per-capita consumption

of citrus products declined in the past decade, partly because of the periodic freeze-induced price

increases.

However, while lower prices increase demand,

this demand is “inelastic,” as is the demand for

most agricultural products. Lower prices have a

greater effect on reducing grower returns than on

increasing consumer demand. Thus, the per unit

returns for growers will usually be much lower for

a large crop than for a small crop.

Market outlook for citrus products through the

year 2000 suggests low prices, so the emphasis will

increasingly turn to more aggressive marketing

programs and efficient cost-cutting measures. More

cost-efficient practices will become essential for

cooperatives in maintaining grower returns in the

face of downward pressure on price and increasing

competition from lower cost producers on the

world market.

Positive for cooperatives is the potential for

increased membership and volume from the

expanding production capacity.

Cooperatives are totally dependent on U.S. citrus

production, so greater domestic capacity increases

the acreage and volume available for cooperative

membership.

Also, the negative effect of lower prices will be

dampened by a general citrus industry condition:

48
cooperative membership increases in periods of

increased supplies and lower prices, and decreases

in corresponding periods of decreased supplies and

high prices. The projected increase in supplies limits the upside potential of speculating in the cash

market and increases members’ risk of not having a

home for their product. Periods of low prices raise

the value of shared price-risk through participation

plans and a guaranteed market, both of which are

cornerstones of cooperative marketing arrangements.

A caveat to the potential for increased cooperative volume is the changing scale and location of

domestic citrus production occurring along with

increasing production capacity. In some areas, production is shifting away from areas of traditional

cooperative membership. The scale of many new

grove operations is greater than the typical cooperative member-the small grower. The changing

scale and location of production have been especially important to Florida cooperatives, although

cooperatives in other areas are also experiencing

the impacts.

Shifting Production

Florida citrus production has gradually shifted

southward as citrus growers seek to escape freezeprone areas. In California, urban pressures caused a

long-term shift of citrus production to the central

valleys further north and desert areas in southeastern California and northeastern Arizona. Texas citrus production remains along the southernmost

edge of the State. With no room to move further

south, there have been changes in the size and type

of citrus operations.

The changing location and scale of production

have a direct impact on cooperative membership.

In particular, for the individual cooperative packinghouse or processor, shifts in the location of citrus groves can reduce their traditional bases of

membership. Even if the shifting grove is owned by

a member in the cooperative, it may be less cost

effective to provide the same range of services to

more distant groves.

With shifting production has come an increase

in the average size of operations, mirroring the general trend in agriculture towards fewer and larger

farms. The increasing scale of citrus production

reduces the share of acreage owned by the traditional cooperative member.

Many cooperative members own small groves

or are passive investors, attracted by the services

and economies of scale offered by the cooperative.

While the citrus industry still has substantial numbers of passive investors and small growers, more

citrus acreage is coming under control of the larger,

more self-contained farming operations. Expansion

into new production areas in Florida is led by the

larger operators.

Florida

Two phenomena are occurring in Florida. First,

exiting growers are selling their farms to others,

effectively increasing the average size of grove operations. Secondly, Florida’s citrus production is shifting southward (figure 11). Groves abandoned

because of susceptibility to freezes were replaced

with new acreage planted further south. Combined

with greater than expected rehabilitation of groves in

the central part of the State, by the 1993-94 season,

Florida will surpass prefreeze production levels.

Substitution of southern for northern acreage

represents trends in both the movement away from

the traditional area of cooperative membership and

the smaller groves of the traditional cooperative

member. A recent USDA survey indicated more

than 70 percent of them had less than 50 acres. But

the economics of production in southern Floridahigher land preparation costs-dictate larger holdings.5

U.S. Sugar, a recent entrant into citrus, owns

almost 20,000 acres of citrus groves in southern

Florida, with an additional 3,000 acres in retention

ponds alone. On the other hand, Waverly Growers,

located in the northern production area and one of

the State’s larger cooperative packinghouses, has

less than 6,000 acres of citrus groves averaging less

than 30 acres per member.

5 See “Economic Comparison of Southern and

Northern Citrus Production in Florida” from the

proceedings of the Florida State Horticultural

Society, 102.27-32. 1989.

49
Figure I I- Trends in Florida Citrus Acreage Into the 199Os, and Location of Cooperatives

Steady decline in acreage. u t-’

Center of production through

198Os, but little growth in acreage.

Much non-bearing acreage coming

into production and continued new

plantings into next century.

Black square denotes cooperative locations.

Based on tree survey by Florida Agricultural Statistics Service.

Environmental issues, particularly water availability and the Everglades, may slow or even limit

further southward movement of citrus acreage. In any

case, there are different economic costs of producing

citrus in northern Florida versus southern Florida.

The relationship of these costs, combined with weather considerations and risk, will continue to determine

the location of Florida citrus production.

It is common in Florida for many privately

owned packinghouses or processors to own extensive acreage, effectively shrinking the pool of

acreage available for cooperative membership.

Already facing declining member bases, cooperatives were forced to become more aggressive in

recruiting and/or retaining member acreage by

becoming a partner in the financing and development of new groves or in rehabilitating damaged

groves.

New Grove Development Through either outright

ownership or joint venture, many of Florida’s citrus

cooperatives own and operate citrus groves.

In 1983, Citrus World began the first of three

grove development projects, each organized as a

50
separate cooperative comprised of individual growers. Citrus World acquired the land, developed the

groves, and offered them for sale to its growers or

interested investors.

The first project, known as Cooperative

Producers, Inc., was in Hendry County and totaled

more than 3,600 acres spread throughout the membership of Citrus World. The Ranch One

Cooperative project was completed in 1988 with

more than 3,100 acres in Collier County. The third

project, C-3, will have more than 2,280 acres in Lee

County. More than 9,028 acres were sold to more

than 101 growers investing in these three projects.

Some of Citrus World’s members also

increased acreage by starting their own grove

development programs. Waverly Growers, for

instance, created partnerships with its growermembers for purchasing groves. One large grove

owned by a long-time member of Waverly was

offered for sale. The acreage was much larger than

what the typical Waverly member could purchase,

so it was unlikely any one member could purchase

a grove of this size. Moreover, Waverly felt a person

purchasing a grove of this size would not continue

with the cooperative.

To facilitate the purchase, a new entity was

created combining the interests of 14 Waverly members. By pooling member resources, Waverly

retained a significant part of its acreage base.

The examples of Citrus World and Waverly

show how cooperatives, at either the federated or

local level, can play a role in creating the economies

of scale necessary to develop groves. The ability of

cooperatives to assist members in developing new

groves will play a large role in maintaining membership bases, particularly as production shifts to

southern Florida.

Recruiting New Members Although cooperatives had

a role in developing new citrus groves in southern

Florida, most acreage is being developed by the

larger, more self-contained joint-ventures or farm

management groups. While these entities are not

the typical cooperative members (they provide

their own grove care, harvesting, and management

services), there is little fresh packing or processing

capacity in southern Florida.

Currently, most fruit is transported northward

to facilities in central Florida, creating an opportunity for cooperatives to develop relationships with

growers in southern Florida needing a marketing

outlet for their product. However, as facilities are

built in southern Florida, acreage available for

cooperative membership may shrink because facilities likely will be built by the larger operators who

are not typical cooperative members.

An example of an investor-owned-firm integrated development in southern Florida is Dole Citrus, a

division of the Dole Food Company. Dole Citrus, in a

joint venture with Hancock-Fidelity Citrus, Ltd., is

building a packinghouse in Hendry County The

Dole house, one of the largest in Florida, in its first

phase can produce more than 3 million cartons. A

second phase would double that capacity.

Dole’s entry in southern Florida underscores

the need of cooperatives facing a declining member

base to aggressively pursue new acreage. Florida

cooperatives need to recruit the large grove owner

by being more flexible in the range of services

offered. Some cooperatives offer contracts for specific packing and marketing services as a way to

tailor services to the larger grower who needs fewer

services.

Grove Rehabilitation and Replanting Freezes caused

growers to abandon many citrus groves in northern

Florida. But, in central Florida-traditional base of

cooperative membership-many damaged groves

were rehabilitated and/or replanted by citrus

growers.

Assisting growers in rehabilitating groves is

an important function for many citrus cooperatives.

Some worked with creditors for loan programs to

help growers finance the large up-front costs associated with replanting a citrus grove. Although

some cooperatives have successfully expanded

their service areas, rehabilitating or replanting of

freeze-damaged groves remains the chief way to

keep members.

Golden Gem Growers, Inc. A good example of how a

cooperative adjusted to a series of damaging

freezes and eroding member base is Golden Gem

Growers, Florida’s largest citrus cooperative.

51
Before the freezes of 1983 and 1985, most of

Golden Gem’s acreage was in northern Florida.

Figure 12 shows Golden Gem’s member acres

declined sharply from around 24,000 in 1983 to

2,400 acres after the 1985 freeze. Given the bleak

outlook, Golden Gem took these steps to maintain

operations while rebuilding its membership base:

1) Reduced costs and sought nonmember fruit

through account sales or participation plans to keep

facilities operating and cover fixed costs. Risky cash

buying was avoided. Other procurement options

served recruiting better because they were similar

to member arrangements.

2) Rebuilt member acreage by providing growermembers technical guidance and grove-care services to rehabilitate and replant freeze-damaged

groves.

3) Encouraged adoption of freeze-aversion production practices, such as denser plantings, use of more

cold-hardy varieties, and micro-jet sprinkler irrigation.

4) Offered a choice of marketing agreements,

including an accelerated payment option. This was

designed to meet the cash flow requirements of

members incurring heavy expenses in grove rehabilitation or purchasing young groves with light

crops and large front-end cash-flow requirements.

The accelerated payment option also helped recruit

new members, particularly those with newly developed groves.

5) Attracted new members with flexible marketing

agreements allowing them to select the services

they wanted from Golden Gem. This was especially

important in recruiting larger growers who provided their own grove care and hauling services.

Members could contract for either fresh or

processed fruit, or both.

Figure 12- Golden Gem Growers Member Acreage

Thousands

35

30

25

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

Source: Citrus industry magazine.

52
6) Expanded member recruitment on a statewide

basis.

7) Continued use of contingencies for freezes in

pooling policies where grower-members are paid

on pre-freeze production estimates. These actions

serve as both a risk-sharing mechanism to limit the

number of members exiting citrus production, and

as a recruiting tool for the more risk-averse grower.

Golden Gem increased membership both from

greater than expected replanting of member groves

and from significant numbers of new members

from areas outside their traditional member base.

Combined with the widespread adoption of freezeaversion production practices, the long-range

impact of the 1989 freeze was much less than from

earlier freezes.

Golden Gem acreage increased to an all-time

high of more than 31,000 acres in 1992. Moreover,

this acreage is spread across 27 counties-11 counties have more than 1,000 acres each. Most member

groves are now either south or west of Polk County.

Years ago, 90 percent were north of Polk County.

California

There has been a more gradual change in the

scale and location of citrus production in

California. Instead of freezes accelerating the southward movement of acreage like in Florida, the

steady urban sprawl and rising land prices over

several years made for a more gradual movement

of citrus acreage out of southern California into the

valleys of central California and the desert areas of

California and Arizona (figure 13). Production has

been established in central California and Arizona

for many years. Although it is still declining near

the urban areas of California, acreage has not been

“replaced” on the scale to which new acreage in

southern Florida replaced smaller groves abandoned in the north.

California has had fewer devastating freezes

than Florida, as verified by a recent USDA survey.

While only 56 percent of surveyed orange acres in

Florida had trees of bearing age, 96 percent of the

orange acres in California had trees bearing fruit.

California cooperatives not only had more stable

supplies, but members did not have to bear the loss

of income and expenses of rehabilitating and

replanting groves. Overall, although the scale and

location of citrus production in California have

changed during the past 50 years, these changes

have had less of an impact on cooperatives than in

Florida.

At Sunkist, the long-term shift in citrus production in California and Arizona had relatively little effect. As a marketing and sales agency, Sunkist

can provide essentially the same level of service

regardless of where the citrus production occurs.

Sunkist packinghouses are found in all production

areas of California and Arizona. Membership has

generally kept pace with shifts in production areas.

The Sunkist system of district exchanges facilitated the spread of production in California and

Arizona. The exchanges allowed sales to be coordinated between packinghouses spread over a wide

area, and served as communication links between

the growers and Sunkist Central at a time when

roads and communications were still relatively

primitive.

The role of Sunkist in developing and expanding the citrus industry in California and Arizona

also laid the foundation for competition from other

firms in the future. As Sunkist led the expansion in

citrus production by increasing the profitability to

not only citrus growers but also to all firms in the

citrus industry, new entrants were attracted into citrus marketing. The challenge to Sunkist’s membership base came from other firms enticing citrus

growers away, particularly the new grower.

Competitors offered financing assistance in purchasing and developing citrus groves. This led

Sunkist to take a more active role in citrus real

estate.

New Grove Development In response to declining

member acreage and increased competition from

other fruit marketing firms offering financing to citrus growers, Sunkist in 1988 created a subsidiary

called Sunkist Real Estate, Inc. It attracts investments to citrus production, mostly through loans

made to existing members or prospective members.

It is operated at no cost to Sunkist members. In

addition to real estate advisory services and shortterm bridge financing for members, Sunkist Real

53
Figure 1% Location of Packinghouses in California/Arizona, 1992, and Long-Term Trends

in Production

Citrus acreage has gradually shifted from the Los

Angeles area north ward into the Central Valley and

eastward into the desse/t country of southeastern

California and Arizona.

Estate bylaws allowed it to purchase and operate

existing groves for delivery of fruit through Sunkist.

The intention would be to ultimately sell these lands

to other members as a way to retain member

acreage. As a recruiting tool for new members, nonmembers may borrow money from Sunkist Real

Estate if they join Sunkist Growers. Although

bylaws permit it, Sunkist Real Estate does not

actively develop new groves, i.e., buying land and

planting trees to be sold at some future date.

Texas

Until the 198Os, Texas had significant numbers

of absentee owners. They were a staple of cooperative membership-some having more than 50 percent. The effects of freezes, combined with tax code

changes unfavorable to citrus investments, caused

many to exit citrus production in Texas. However,

some of the remaining growers purchased and

replanted many of the idled groves. After years of

no commercial production in 1990-91 and negligible

amounts in 1991-92, Texas re-entered citrus markets

in 1992-93. The 1.5 million boxes of grapefruit and

450,000 boxes of oranges were still less than onethird of prefreeze levels, but Texas production

rebounded better than expected and should continue to increase as replanted trees come into bearing.

The immediate future and continued viability

54
Figure 14- Texas Citrus Production Area

of citrus cooperatives in Texas depends on how

many members replant their freeze-devastated

acreage. More importantly for the long run, cooperatives need to attract new members and offer more

flexible services.

Because citrus production in Texas is already

hugging its southern border (figure 14), cooperatives may need to look at nonmember fruit business

from Mexico. Foreign growers may become members of U.S. cooperatives.

Changing Market Structure

Cooperatives often have been formed by

growers as a response to adverse or changing market conditions. They and their growers will continue to face a changing market structure and accompanying challenges and opportunities.

Facility Capacity and Specialization

The capacity for packing fresh citrus is dictated

not only by the number of packinghouses, but also

the volume of citrus that equipment can handle. The

trend toward increasing packinghouse capacity was

brought on by more efficient equipment and technology. Competitive pressures require continual

upgrading of packinghouse facilities to remain economically viable. Moreover, idled packinghouses

quickly become obsolete and are unlikely to reopen.

55
During the late 198Os, Florida cooperative

packinghouses were concerned about reduced

member volume and the prospects of significant

excess facility capacity Although some houses

closed, the post-freeze recovery and expansion of

citrus acreage in Florida eased concerns about

capacity. Moreover, forecasts for increasing production into the next century raise the issue of having

enough packinghouse or processing capacity. In

1992, Golden Gem Growers-one of the cooperatives hardest hit by the 1980 freezes-stopped

accepting deliveries of some varieties of fruit during the season. However, the outlook in terms of

adequate supplies to operate existing cooperative

facilities is positive.

As citrus varieties increase, so will the need

for more specialized facilities. In fresh packing,

each variety must be run separately through a

packing line, making it increasingly difficult for a

single packinghouse to handle all types of citrus.

Some varieties need unique types of handling and

packing equipment.

Also, growing export markets are requiring

more specific product characteristics and different

types of packaging. Increasing market segmentation is creating opportunities for packinghouses to

specialize their packing operations.

In Florida, Haines City Citrus Growers

Association (HCCGA) installed a packing line customized to handle tangerines. Ocean Spray packs

only fresh grapefruit, with most of it exported. In

California, a Sunkist-affiliated house has opened a

packing facility dedicated to specialty types of citrus such as Mandarin oranges and grapefruit-type

varieties such as pummelos. Separate packing lines

will be custom made for each type or variety.

Specific picking crews and custom-grading equipment will be used to achieve maximum operating

efficiency. Corona-College Heights normally packs

most of its white grapefruit for export to Japan.

For cooperative packinghouses, particularly those

with lower volumes, the need to update and specialize operations will increase as markets become

more specific and competition intensifies with

increasing supplies and declining prices.

On-Farm Packinghouses

Another structural issue for cooperatives

stems from the on-farm packinghouse-large citrus-growing operations that include a fresh packinghouse. Grower-owned packinghouses have long

been common to citrus. The growth in size will

challenge the grove owner(s) to finance and supply

their own packinghouses. This brings a mix of

impacts for cooperatives.

On one hand, not only do grower-owned

packinghouses compete with cooperatives in marketing fresh citrus, they also compete for growers

by providing grove care, harvesting, and packing

services.

However, these grower-owned packinghouses

are also a source of membership and volume for the

cooperative federations. As agricultural producers,

the grower-owned packinghouse can be a member

of a federated agricultural cooperative, and most

citrus marketing federations count some as members.

Marketing Federations

If the trend toward more individual grower

ownership of packinghouses continues, demand for

services from a cooperative will shift towards the

sales and marketing functions of a marketing federation. While grove care, harvesting, and packing

services will continue to be important cooperative

functions, the share of citrus production from members needing these services will decline with the

growth in self-contained grower-owned packinghouses. However, given that these packinghouses

can be members of a cooperative marketing federation, the share of potential production to be marketed in a cooperative structure will be much less

affected.

In each of the citrus-producing regions, marketing federations -principally Sunkist in

California, Seald-Sweet in Florida, and the Texas

Citrus Exchange-will continue to play a dual role

of providing marketing and sales services to individual growers and bringing a more orderly and

better coordinated system to citrus markets. The

coordinating and stabilizing attributes of cooperative marketing federations should become more

valuable as production capacity increases and mar56
kets become more prone to intense and inherently

destabilizing price competition. Federated cooperatives such as the Central California Orange

Growers were formed in response to the ruinous

price competition felt to exist between the members.

Marketing federations also help growers and

their cooperatives to address another structural

issue-increasing concentration of the food industry into the hands of fewer and larger processing,

marketing, and retailing firms. As there are large

numbers of citrus sellers compared to fewer and

often much larger buyers, power in the marketplace

can be skewed considerably towards the retailing

sector.

Under the Capper-Volstead Act, a group of

growers and/or grower-owned packinghouses

could immediately combine to increase their market share. Market share translates into market

power. Because marketing federations typically

require relatively little new investments-most

assets are owned by the members-, they offer considerable potential for citrus producers and packers

to achieve a measure of market power.

Globalization of Citrus Trade

One of the clear changes in the market structure for citrus is the increased globalization of citrus markets. Historically, the U.S. citrus industry

has been domestically oriented because of high

transportation costs, high perishability, and high

tariffs between countries.

Until recently, frozen juice consumption was

limited mainly to the U.S. and Canada, although

there was some trade in fresh and canned citrus. In

the early 198Os, changes began to take place in

world trade. Brazil substantially increased its citrus

plantings for export markets. Many developments

were joint-ventures in other countries by U.S. citrus

and beverage companies searching for foreign

sources and year-round supplies. Trade in fresh citrus also increased because of increased demand,

increased supplies, better transportation, and lowered trade barriers.

By the 199Os, the U.S. citrus industry had

changed substantially to one increasingly integrated with international markets.

The increased globalization of citrus trade has

both positive and negative impacts on different segments of the citrus industry. Overall, processors

have generally gained the most by having foreign

sources and lower prices, particularly in times of

domestic shortfalls. Also, steady growth in foreign

demand has benefitted growers and organizations

in fresh marketing channels.

The one segment hurt has been growers producing for processed markets and processors who

rely primarily on domestic supplies. As an organization of citrus growers, cooperative processors are

particularly susceptible to increased imports of citrus juices, particularly FCOJ.

FCOJ and Imports

By far the largest category of citrus imports

consisted of FCOJ-$293 million or 64 percent of

the $459 million in total citrus fruit imports in 1991.

However, FCOJ imports were 90 percent higher in

1990 due to the late-1989 deep freeze in Florida that

greatly reduced the 1990 orange juice crop.

Resulting higher prices allowed imports into the

U.S., primarily from Brazil, to overcome the cost

differentials created by the ad valorem tariff and

higher transportation costs. Conversely, in years of

higher Florida production citrus prices decline and

imports are at a relative disadvantage.

As marketers of domestic citrus, Florida cooperatives and their members are especially concerned about increases in FCOJ imports. While

increasing domestic production will lower prices

and reduce the need for imports, it also reduces

grower returns. Also, in times of reduced domestic

supplies, the price increases that growers would

enjoy are mitigated by the ready availability of

imports.

Of particular interest to Florida producers is

the North American Free Trade Agreement

(NAFTA), primarily the U.S.-Mexican component.

Florida producers fear eased trade restrictions will

allow Mexico to use its advantage of lower wage

rates and fewer regulations to boost exports of citrus products, primarily FCOJ, to the U.S. Lowering

tariffs on Mexican FCOJ would give Mexico a substantial advantage over Brazil, currently Florida’s

chief competitor.

57
The early effects of NAFTA will be minimal

because Florida citrus producers vigorously sought

and received exemptions to NAFTA. There is an

extended phaseout period of tariffs (15 years) on

Mexican FCOJ imports. While it may take many

years and significant capital investments for

Mexican supply and quality to approach that of

Florida, the Mexican production potential is there.

In 1991, the number of newly planted trees equaled

the number of bearing trees.

Another issue for citrus cooperatives is the

increasing role of reconstituting operations in marketing citrus juices. At one time, most FCOJ

imports were by Florida processors. Freezes and

resulting price rises, combined with the ability to

import FCOJ in large bulk tankers-like with oilspawned the development of large tank farms outside Florida to be nearer the consuming areas.

These importers either package the FCOJ into

retail-sized containers, or ship the FCOJ in bulk to

repackagers such as dairies or grocers.

While most cooperative processors ship FCOJ

in bulk, and reconstituters have become increasingly important markets, many importers come to rely

on Brazilian FCOJ and have located near ports of

entry to reduce transportation costs. Both foreign

and domestic supplies of FCOJ are projected to

increase, so the market for juices from concentrate

will be increasingly competitive for cooperative

processors that must rely on domestically produced

citrus.

Exports

While 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 $613

million while exports of citrus juice reached $231

million. Fresh grapefruit was the single most

important export, followed by fresh oranges.

Cooperatives are among the major exporters of

U.S. fresh citrus. Most exporters are located near

the producing areas of Florida and California. In

California and Arizona, Sunkist led expansion of

exports, particularly in the Pacific Rim of Asia. In

1991, exports to Japan accounted for 20 percent of

all Sunkist revenues, and Hong Kong and Taiwan

are steadily increasing their purchases.

Corona-College Heights, with Sun World as its

marketing agent, regularly exports more than half

its production. As the largest cooperative packinghouse outside the Sunkist system, Corona-College

Heights is California’s leading packinghouse

exporter of grapefruit.

In Florida, Seald-Sweet exports are one-third

of its volume. Most of it is grapefruit. A relatively

small percentage of Florida’s oranges are exported.

Florida fresh grapefruit is the single largest U.S. citrus export item in terms of value. More than half of

Florida’s grapefruit is exported, with Ocean Spray

the the leading cooperative exporter.

For cooperatives, expanding fresh grapefruit

export markets represents one of the more positive

impacts from the globalization of citrus trade.

Combined with the demand for specialties and

California/Arizona oranges, exports of fresh citrus

are clearly the most optimistic part of world trade

as viewed by the citrus growers and citrus cooperatives.

Labor

Labor is an increasingly important issue in the

citrus industry, in terms of both costs and availability in the face of increasing production. Even

though many mechanized and automation technologies have been adopted, some parts of the citrus industry remain labor intensive. Of the three

general segments of the industry-production, harvesting, and use (fresh packing and processing)-

harvesting is the most labor intensive.

Most fruit is picked by hand because mechanical harvesting systems are not yet cost effective or

efficient. Even so, the highest variable cost to citrus

growers was labor associated with the harvesting

and hauling of fruit-about 40 to 50 percent of the

variable cost.6/ Because labor costs for U.S citrus

growers are higher (sometimes substantially higher) than in most other citrus producing countries,

U.S. cooperatives and their grower-members are at

a competitive disadvantage to foreign producers.

6 USDA Farm Costs and Returns Survey, 1988-89

season.

58
Widespread mechanical harvesting would be

most applicable to fruit destined for processing.

Mechanical harvesting would be less suitable for

the delicate handling and selectivity required for

fresh market fruit. In either use, most advances in

harvesting efficiency have been in the technologies

and practices that increase the efficiency of hand

harvesting.

Labor availability and costs (wages, benefits,

and regulations) are expected to become increasingly critical to domestic citrus production. Through

the pooled resources of many growers, cooperatives

offer to growers of all sizes the ability to more efficiently source and employ labor.

Marketing Orders

Federal marketing orders cover fresh citrus

produced in California-Arizona, Florida, and Texas.

Each order is defined by area and variety, such as

California-Arizona navel oranges or Texas oranges

and grapefruit. All affected growers for a region

and commodity defined by the U.S. Secretary of

Agriculture vote on Federal marketing orders. Each

order is administered by a committee of growers

and handlers that recommends policies to the

Secretary of Agriculture, and oversees those

approved for the order.

Federal orders for citrus include provisions for

grades and standards, research and market development programs, and volume management and

marketflow. All Federal citrus orders have provisions for research and market development activities and/or grades and size standards. Some have a

form of volume regulation known as shipping holidays and prorate.

Prorates used for California-Arizona citrus are

among the more controversial aspects of citrus marketing orders. Prorates define the maximum volume of fruit that can leave the order area within a

week. This volume is then allocated on a prorata

basis among all packinghouses in the area. The primary purpose of prorate is to prevent excessive

supplies from building up at the wholesale and

retail markets. Fresh citrus is perishable and excessive supplies could lead to quality deterioration,

which can damage short-term prices and long-term

consumption behavior.

Sunkist is considered a strong supporter of

prorate, which fits well with its coordinated marketing system. Prorate opponents claim it unfairly

restricts their ability to market fruit. Some opponents filed lawsuits against the U.S. Department of

Agriculture (USDA) challenging prorate. The

department initiated enforcement actions against

those packinghouses violating the prorate provisions.

In May 1994, Secretary of Agriculture Mike

Espy terminated the Federal marketing orders for

California/Arizona navel and Valencia oranges, citing the division and turmoil existing in the

California/Arizona citrus industry. While marketing orders are still supported as an effective tool

benefiting both farmers and consumers, the USDA

felt it should remove itself while the industry sorts

out its differences.

In 1994, the effects of the prorate suspension

on cooperatives in California are still uncertain. To

ensure an adequate supply of citrus and to hedge

against weather-caused shortages, the citrus industry has overplanted. Thus, there is an oversupply in

most years. Proponents say prorate helps keep this

supply from causing fresh citrus prices to plummet

or soar. For the citrus industry, the threat of a freeze

or a glut of fruit in packinghouses can result in wild

price fluctuations. Prorate supporters claim this has

been avoided and prices have been remarkably consistent for many years.

There is still strong sentiment in the industry

for prorate and concern over the market conditions

in the absence of prorate. Evidence of strong support for the program is indicated by the 91 percent

of the growers who favored the marketing order in

the last referendum. Sunkist is a strong proponent

of the marketing order and prorate, which benefits

Sunkist’s price-scale system. However, given that

Sunkist represents the majority of

California/Arizona citrus growers and operates a

coordinated marketing system, it should fare better

than most in a more unstable, price-oriented marketplace.

Another issue related directly to marketing

cooperatives is their bloc voting on marketing

orders. Provisions in the Agricultural Marketing

Agreement Act of 1937 say that a cooperative can

59
cast a single vote on behalf of its grower-members.

The cooperative’s vote represents the majority view

of its members, but for the purposes of administering the marketing order, it counts as if all growers

voted in unison.

Controversy arises over bloc voting because

some feel it obscures the actual measure of grower

support. Opponents litigated against the USDA and

Sunkist on the validity of bloc voting. The right of

cooperatives to bloc vote was upheld November 22,

1993, in the Ninth Circuit Court of Appeals in San

Francisco.7/ This court, like others before it, noted

that it was the intent of Congress to encourage

growers to form cooperatives by providing them

limited antitrust immunity.

EXAMPLES OF COOPERATIVE

OPERATING PRACTICES

To better contrast the use of specific cooperative tools and structures and give insight into the

actual operations of citrus cooperatives, this section

will view the operations of selected cooperatives.

Cooperative examples were chosen in each type of

marketing activity and membership structure.

Fresh Packinghouses

Packinghouses are the most widespread type

of citrus cooperative. Their operations and structure are fairly similar. Although they tend to perform the fresh packing functions in the same manner, they differ in functions they perform.

Haines City Citrus Growers

The Haines City Citrus Growers Association

(HCCGA) was formed in 1909 by six citrus growers

as a nonprofit agricultural cooperative in the Ridge

area of central Florida. HCCGA is a fresh packing

cooperative and is one of the largest packinghouses

in Florida.

Structure-Haines City has a centralized struc7 Cecilia Packing Corporation v. United States

Department of Agriculture/Agricultural Marketing

Service, 10 E3d 616 (9th Cir. 1993)

ture supported by about 150 citrus growers. Most

are small grove owners, although some of its large

grove owners have more than 200 acres apiece.

A significant number of HCCGA members are

absentee owners (about 25 percent), a common trait

in Florida citrus. Membership is open to any

bonafide producer, defined in the bylaws as “any

person owning or leasing a bearing citrus grove of

five or more acres.”

Governance-Haines City bylaws call for a

board of directors of at least seven members elected

at the annual meeting. The number may be

increased from time to time-11 in 1991. Each member gets one vote, must purchase one share of common stock, and sign a membership agreement. The

pact remains in effect for 10 years unless the grower

notifies HCCGA in writing of the termination.

Members may commit specific acreage, although

most commit all their production to HCCGA.

However, to lure larger growers, HCCGA encourages them to just put in a few acres.

Financing-HCCGA uses a base capital plan

based on a IO-year production average. A capital

retain is deducted from the member’s patronage

dividends based on the average number of boxes.

Members are issued shares of Class B stock for each

box. The capital retains are periodically revolved at

the discretion of the board.

Operations-HCCGA is a considered a fullservice cooperative. It provides a complete range of

services for producing and marketing citrus.

Members may care for their own groves, but under

cooperative supervision. However, HCCGA does

all the harvesting. It also has a production division

that sells fertilizer and insecticides to members.

All member fruit is handled on a pooled

basis-a fresh and processed pool for each variety

on a seasonal basis. Haines City handles a variety

of citrus, from oranges and grapefruit to tangerines.

In the industry, it is known as an orange housemore than 50 percent of its fresh volume is oranges.

HCCGA is a member of Citrus World, Inc., for

processing. Haines City delivers both packinghouse

eliminations and fruit direct from the grove.

60
Ownership of Citrus World is allocated to members

of HCCGA. Processing returns are calculated on a

pounds-of -solids basis, and returns from fresh fruit

on a cartons-packed basis.

Haines City has a freeze-contingency plan for

sharing the effects of crop losses among members.

After a freeze, estimates are made of what would

have been delivered. Members are credited with

that amount. HCCGA decides when to harvest. But,

in fairness, growers with unharvested acres should

not be penalized while those with harvested acres

benefit for decisions made (timing of harvest) to

maximize the cooperative business operations.

In addition to member fruit, HCCGA will harvest, pack, and market nonmember fruit under participation plans, or account sales. Account sales

facilitate the addition of new members, provide

supplies in times of production shortfalls of members, and broaden the fruit marketing mix.

Marketing-HCCGA has an in-house sales

staff and markets fresh citrus under its own label.

Unlike many packinghouses, Haines City has never

been a member of Seald-Sweet. It is a member of

Citrus World for processing and marketing.

Waver/y Growers Cooperative

Waverly Growers was formed in 1914 by a

small group of citrus growers in the Ridge area of

central Florida. Waverly owns a single packinghouse and is consistently in the top quartile, by total

annual volume, of Florida’s packinghouses.

Oranges represent the large majority of packed fruit.

Structure-Waverly has a centralized cooperative structure supported by about 200 grower-members. Most are small grove owners who average less

than 30 acres. As is typical for the cooperatives in

Florida, absentee ownership is common-at one

time exceeding 50 percent. Membership is restricted

to any bonafide producer owning or leasing a bearing citrus grove.

Governance-Waverly has an ll-member

board of directors, elected by members at their

annual meeting. Each member has one vote. New

members must purchase one share of common

stock for $1. After signing an agreement, membership continues each year unless revoked by the

member in writing.

Financing-Waverly uses a base capital plan

based on a lo-year production average. Capital

retains are deducted from patronage dividends on a

per-box basis. Capital retains are periodically

revolved at the discretion of the board of directors.

Operations-Waverly is a full-service cooperative packinghouse, providing a full range of grove

care (planting, cultivating, spraying, etc.), harvesting, hauling, and marketing services. Members may

provide their own grove care or can have the cooperative provide some or all of those services. Grove

care is charged to members at cost. The cooperative

does all the harvesting, with the timing at the cooperatives’ discretion. Waverly obtains a variety of

production and packinghouse materials from

HESCO, a Florida supply cooperative.

All member fruit is placed in specialty or common pools on a seasonal basis. The specialty pool

includes oranges grown for fresh market, all grapefruit, and specialty varieties of citrus (tangerines and

tangelos). A fresh and processing pool is operated

for each, with returns to fresh calculated on a perbox basis and processed on a pounds-of-solids basis.

The common pool is for round, or juice

oranges-Hamlin, Midseason, Valencia. All returns

are based on pounds of solids. There are no separate pools for fresh and processing; all returns are

only pooled by variety. Although sold as both fresh

and processed, all payments to members for round

oranges are based on total pounds of solids delivered.

In the event of a freeze, Waverly has a second

pooling plan allowing for more flexibility in pooling regulations. Changes can be made to add pools

to address damaged or lower quality fruit.

Waverly will harvest and pack nonmember fruit

on a participation or account-sales basis. In some

cases, large growers provide their own grove care.

Marketing-For fresh market sales, Waverly

has a contract arrangement with DNE Sales, Fort

Pierce, FL. DNE markets fruit packed under a

61
variety of Waverly’s labels, including the Waverly

Famous brand, and DNE’s own labels. All of

Waverly’s packinghouse output must be marketed

by DNE. Waverly has been with DNE Sales for

more than 10 years on an annual-contract basis.

Costs are assessed to Waverly on a per-carton

basis.

For processing, Waverly is a member of Citrus

World, delivering both packinghouse eliminations

and fruit direct from the grove. Returns are based

on pounds of solids delivered. Ownership of Citrus

World is allocated to the grower-members of

Waverly based on the volume of their citrus sent to

Citrus World.

Lake Wales Citrus Growers

Lake Wales Citrus Growers Association was

formed in 1918, also in the Ridge area of central

Florida. The Lake Wales packinghouse is above

average in size. Recent volumes have been down

because of the severe freezes of the 1980s.

Structure-Lake Wales is a centralized cooperative with about 80 members. The average member

tends to be larger than other cooperative packinghouses in Florida, including Haines City and

Waverly. Two-thirds of the Lake Wales members

average more than 20 acres, although some have

100 acres or more. Contrary to most cooperative

packinghouses, Lake Wales has few absentee owners, primarily because it does not provide grove

care services.

Governance-Lake Wales bylaws call for a

board of at least three directors (11 in 1991) elected

by the stockholders at the annual meeting. In addition to grower-members, a director can be an officer

or manager of a corporation which owns stock in

the cooperative. Voting is unequal, based on the

number of shares of capital stock held by the member. Shares can only be issued to persons engaged

in citrus production handled by or through the

cooperative. Members sign an agreement that is in

force indefinitely unless cancelled in writing by the

member prior to a specific date. Members need not

commit their total acreage and instead may commit

specific acreage in the marketing agreement.

Finance-All equity is from retained earnings.

There is no base capital plan. Earnings are retained

on a per-box basis. The member must acquire capital stock on the basis of per-acre-of-citrus marketed

through the cooperative, with a minimum of two

shares per acre and a maximum of four. Dividends

are paid on capital stock at the discretion of the

board of directors.

Operations-Lake Wales provides no grove

care services, so it is compelled to treat each member’s fruit separately. Members either provide their

own grove care or contract for it, sometimes from

other grower-members of Lake Wales. Harvesting,

however, is controlled by the cooperative. Lake

Wales contracts for the loading and hauling, and

decides when to harvest.

Lake Wales has two types of member agreements. One is the traditional contract used by most

members-all eliminations from the fresh packing

operation are delivered to Citrus World for processing. The other allows members to contract with

other processors for eliminations, particularly new

members with existing processing contracts.

Lake Wales also markets fruit on a participation plan for nonmembers. It is treated the same as

member fruit when placed in pools. Nonmember

fruit is also sold by account sales where the returns

are based on the actual sales of their fruit instead of

an average pool price.

Lake Wales has a slightly different pooling

arrangement than either Haines City or Waverly. In

addition to seasonal pools by variety, Lake Wales

establishes pools for a specific time period for a

given variety. Also, members elect the pools in

which to participate (for fresh only). Members notify the cooperative which pool(s) they want to place

fruit in before the pool opens. All fresh pools base

returns on a fresh-box basis.

Although member fruit is commingled for

marketing and treated the same in determining an

average price, Lake Wales runs each member’s fruit

separately through the packinghouse. In doing so,

each member’s fruit is treated separately in terms

of prorated allocations to different pools. Where

some cooperatives allocate members’ fruit based on

samples at delivery, the Lake Wales members have

62
their prorata share determined by the amount of

fruit designated for a specific grade.

Marketing-Lake Wales operates its own sales

department for fresh fruit. A recent exception was

when a freeze sharply reduced the volume of Lake

Wales members. It was not feasible to operate their

packinghouse for the following season. So, Lake

Wales contracted with Waverly Growers to pack

and market members’ fruit. Lake Wales re-opened

its packinghouse the next season and resumed marketing.

For processing, Lake Wales is a member of

Citrus World. All member processing-grade fruit,

unless specified otherwise by the member, is delivered to Citrus World. Returns are based on pounds

of solids delivered.

Corona-College Heights

The cooperative roots of Corona-College

Heights Orange and Lemon Association (CCH),

Riverside, CA, go back to 1897. It was one of the

original Sunkist packinghouses, but left Sunkist in

1980 to market fruit through Sun World. It is one of

the few cooperative packinghouses in California

that is not a Sunkist member. CCH is the largest

multi-variety (oranges, grapefruit, lemons, specialties) cooperative packinghouse in the U.S. CCH

operates two packinghouses, one built in 1964 and

another recently acquired from Arlington Heights

Citrus Company, a nearby private packinghouse

and one-time Pure Gold member.

Structure-CCH has a centralized structure

and about 300 members. Many are small growers

(5-a&e minimum), which is encouraged but not

mandated. As in Florida, a number of them are

absentee members, particularly small-acreage holders. While the bulk of their acreage has traditionally

been in southern California, increasingly CCH

member acreage is further north, up to 250 miles

away. Due to urban pressures and rising land costs

in southern California, many citrus growers have

shifted or expanded production to the Central

Valley. The costs of transporting citrus to CCH

packinghouses is defrayed by the lower production

costs in central California.

Governance-Each member has one vote. The

board may include nonmembers and currently

includes the chief executive officer of Sun World.

Members elect directors at the annual meeting. The

board must approve signed grower membership

agreements. Membership is for an indefinite period

unless cancelled in writing by the member by a

specified date. There are no membership fees or

stock purchasing requirements. Members commit

specific acreage and may split their production

among more than one packinghouse.

Finance-CCH requires no membership fees

and issues no stock. All member equity in CCH is

generated through member participation by capital

retains on a per-box basis of fruit through the packinghouse. But no capital retain is deducted for fruit

moving directly from grove to processor. A revolving fund is used to return these funds to the member at the board’s discretion. CCH moved from an

B-year revolving period to a 5-year plan. As common with revolving funds, these are paid on a dollar-in, dollar-out scenario. No interest is paid on

retains.

Operations-CCH provides harvesting, hauling, packing, and marketing services; coordinates

and harvests all of its members’ fruit; owns all the

hauling and harvesting equipment; and provides

all harvest labor. CCH members arrange for their

own grove care, some of which is contracted by

numerous smaller members with larger members.

All member fruit is pooled by variety. Fresh

fruit is pooled by specific time periods. Processed

fruit is treated as a seasonal pool by variety. While

the cooperative harvests all the fresh fruit, members may decide when the harvest will occur to

determine in which pool to participate. CCH usually divides pools into 60-day periods by variety.

Deducted from the returns for all the fruit in the

60-day pool are the allocated packing costs, a perbox marketing charge, and a capital retain.

Harvest costs are included in packing costs. CCH

will make advance payments at delivery, and usually tries to make the final payout soon after the

pool closes. Returns are paid per-box-of-memberfruit delivered.

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Marketing-CCH uses Sun World, one of the

largest produce marketing firms, to market its fresh

citrus. More than half of it is bound for export,

principally to the Pacific Rim countries.

Grapefruit is the leading export product. Most

of some varieties, such as white grapefruit, is

exported. Increases in CCH volume during the

1980s and into the 1990s can be largely attributed to

export sales.

Sun World has a director on the CCH board

and bases its sales staff at CCH facilities. Sun World

also markets the citrus of other packinghouses,

including another cooperative, Irvine Valencia

Growers, Irvine, CA.

CCH handles its processed sales and markets

to many other processors. CCH typically does not

enter into a supply contract with a processor, and is

considered more of a spot market seller of citrus for

processing. Processing sales usually comprise less

than 10 percent of CCH revenue.

Sunny Cove Citrus Growers

Sunny Cove Citrus Growers, Orange Cove,

CA, was formed in 1974 as an agricultural cooperative by eight citrus growers who purchased an

idled packinghouse that at one time was affiliated

with Sunkist. The growers had been Sunkist members. Sunny Cove operates a single packinghouse in

central California. It is the only cooperative packinghouse in California or Arizona that markets citrus independently.

Structure-Sunny Cove, a centralized cooperative, has about 50 members. Most are local citrus

producers. Sunny Cove has few small grove owners

or absentee members.

Governance-Bylaws call for an eight-director

board. The number may be changed only by an

amendment to the bylaws approved by the general

membership. A director need not be a member of

the cooperative. Voting power of members is

unequal-ne vote per box of citrus marketed

through the cooperative. The cooperative has neither shares of stock nor membership fees.

Membership certificates issued to new members

constitute a l-year marketing agreement automatically renewed unless the member cancels by a specified date. Members commit specific acreage and

may ship noncontracted acreage to other packinghouses.

Finance-Bylaws allow the board to implement member financing through either capital

retains or facility acquisition loans. Capital retains

are assessed on a per-carton basis and revolved

back at board discretion. At one time, Sunny Cove

had a 7-year revolving period, but they no longer

retain capital from member payments. All member

retains in the revolving fund were refunded as of

1991.

The facility acquisition loan form of financing

was used in buying the packinghouse and related

facilities. Members were assessed on a per-box basis

for their share of the loan repayment, specifically for

the interest payments. Loan principal was repaid on

a per-carton basis when the fruit was packed. The

loan assessment increased Sunny Cove’s ability to

repay a larger net margin to members. Also, by

eliminating a capital retain, Sunny Cove became

more attractive to prospective members.

Operations-The cooperative only packs and

markets member citrus, although it also coordinates

harvest timing. Members provide their own grove

care, harvesting, and hauling services.

All member-fruit is pooled-seasonal

processed pools by variety and fresh in multiple

pools by time and variety. For example, fresh

navels have five pools divided across the total estimated volume.

The cooperative determines the size of each

pool by a given percentage of the total estimated

volume as determined by the board. The cooperative also determines the degree of grower participation in each pool by coordinating the harvest, with

each grower in the interest of equity allocated the

same percentage to be harvested. If each pool contains 20 percent of the total volume, 20 percent of

each grower’s total production would be harvested.

After the prescribed pool volume is reached, the

first pool closes and a second opens. Deducted

from total pool returns are packing costs and loan

assessments on a per-carton basis. Advances and

64
final pool payments are paid on a per-carton- delivered basis. Sunny Cove markets nonmember fruit

on a participation plan basis.

Marketing-For marketing fresh fruit in both

domestic and export markets, the cooperative uses

a private sales agent that has an exclusive contract

to only market Sunny Cove fruit. The agreement is

reviewed and renewed annually. Most sales are in

domestic markets.

Sunny Cove has a processing contract with

Ventura Coastal Corporation for all packinghouse

eliminations. Members do their own harvesting and

hauling and can make their own processing

arrangements for fruit not committed to Sunny

Cove.

Edinburg Citrus Association

This Texas cooperative was formed in 1932

without capital stock. Edinburg is the oldest and

largest cooperative packinghouse in Texas and the

only one left from several that formed in the 1930s

and 1940s. A few cooperatives formed in the late

1960s also have discontinued operations. Rio Bravo

Citrus Association is the only other cooperative

packinghouse operating in Texas.

Edinburg operated a single packinghouse until

it merged with another cooperative, Mission Citrus,

and assumed operations of its packinghouse. After

the freezes of the 198Os, only Edinburg’s packinghouse survived.

Structure-Edinburg is a centralized cooperative. Membership has been in flux after a series of

severe freezes. Membership declined from more

than 700 member-growers in the early 1970s when

many growers exited the industry Total memberacreage, however, did not decline at the same rate

because some members expanded acreage.

Membership is open to any citrus producer, including lessees and tenants of lands used for fruit production, and any lessor or landlord who receives as

rent all or part of fruit raised on the land.

Prior to the freezes of the 198Os, more than 50

percent of Edinburg’s citrus groves were owned by

absentee owners. The severity of the freezes and a

change in the tax treatment of investments in citrus

production prompted many absentee owners to exit

the citrus business. Accordingly, the percentage of

Edinburg’s absentee members, particularly those

not living in the area, declined significantly.

Governance-Bylaws require a 9-director

board. Members serve staggered terms. All directors must be members of the cooperative. All voting, including selection of directors, is conducted

on a one-member, one-vote basis.

Expiration date of the marketing agreement is

indefinite unless cancelled by the member in writing before July 31 for the coming crop year. An

annual $10 membership fee is charged. While members in the marketing agreement describe the specific type and location of their citrus groves,

Edinburg members must contract for the delivery

from all citrus acreage they own or control. Unlike

many of the citrus cooperatives in Florida or

California, Edinburg members cannot split acreage

among different packinghouses.

Financing-A revolving fund is used to generate needed capital by retaining funds from member

payments based on each ton or other unit of fruit

received. Members are credited on the association

books for amounts retained from them. The amount

of the retain is specified by the board either prior

to, during, or after the season closes. Retains may

differ for each variety, but all fruit of the same variety during a given season is subject to the same

retain. Retains are considered temporary. The board

determines the amount and timing of revolvement.

Bylaws require that the oldest unpaid retained

equities be revolved first.

Operations-Edinburg provides harvesting,

hauling, packing, and marketing services for members. The cooperative also coordinates the timing of

harvest and contracts for harvest labor. Each member is charged the actual cost of harvesting and

hauling fruit and arranges its own grove care.

Pools are seasonal by variety for both fresh

and processed, with different pools by size and

grade. Members’ accounts are credited with the

season’s average price for each grade times their

contributions to the pool. In coordinating the tim65
ing of the harvest and fruit packing, the cooperative

effectively determines in which pools the members

will participate. With the exception of harvesting

and hauling costs, all packing and marketing costs

are deducted on a per-ton basis. Members share

packing and selling costs uniformly on a per-ton

basis for all fruit of same variety and grade. The

only other deduction is for revolving fund retains.

Each member’s fruit is run separately through

the packinghouse. Each load is counted by variety,

grade, and size and pooled accordingly. Members

are credited with the actual amount of fruit packed.

The counter converts packed cartons to tons, which

determines member payments. If requested, growers may get an advance once their fruit is harvested. The final payment is made after all pool contents are sold and costs are allocated.

Edinburg closely coordinates harvesting with

marketing. After the fruit is sold by the sales staff,

the packinghouse staff is notified. The packinghouse radios the field crew. Groves that best match

the sales order are identified, with one caveat.

Harvesting is prorated among members to the

fullest extent possible to equitably spread the

effects of a freeze. Edinburg takes advantage of the

ability of citrus to “store” well on the tree to closely

coordinate harvest with marketing.

In the event of a freeze, Edinburg’s pooling

plan can be changed to address special problems.

Provisions can be made to compensate unharvested

growers after a freeze based on pre-freeze estimates. Edinburg normally would pack little nonmember citrus, but the severe freezes and reduced

volumes of the 1980s forced it to harvest and pack

fruit for another cooperative, South Texas Citrus

Association.

Marketing-For both fresh and processed

sales, Edinburg is a member of the Texas Citrus

Exchange (TCX), a federated fresh sales and processing cooperative. Edinburg packs fruit for both

domestic and export sales under its own and TCX

labels. The TCX staff is responsible for making sales

and coordinating shipments with the member packinghouses. Most processing deliveries are from

packinghouse eliminations.

Fresh grapefruit is the primary product, so

sales efforts are aimed at moving as much of it as

possible through that market. No oranges are

grown specifically for juice and only a limited

amount of grapefruit is grown for processing.

Edinburg receives its share of returns from TCX for

both fresh and processed sales based on tons of

product delivered. A capital retain is deducted

from Edinburg’s returns. The same per-ton amount

is deducted for fresh or processed fruit.

Fresh and Processing

Most centralized cooperatives market fresh citrus and only a few are in both fresh and processing.

Two of those are Golden Gem Growers and Ocean

Spray Cranberries.

Golden Gem Growers

Golden Gem Growers, Umatilla, FL, was

formed in 1947 as a cooperative fresh packinghouse

originally named Grand Island Fruit Company.

Within its first year, membership grew from 3 to

more than 100 growers. This organization evolved

into the Grand Island Citrus Cooperative and in

1958 was renamed Golden Gem. That same year,

Golden Gem constructed its own processing facility.

Today, Golden Gem is Florida’s largest vertically

integrated, grower-owned citrus cooperative. It

operates two packinghouses.

Structure-Golden Gem is a centralized organization. Its 550-plus members grow citrus on more

than 45,000 acres in 29 counties. It has more members than any cooperative in Florida. After declining from more than 700 members to less than 400

after the 1980 freezes, Golden Gem’s membership

rebounded in the 1990s.

Although the average comes out to more than

80 acres per member, the majority of members have

less than 80 acres. Holdings vary from 10 to 1,000

acres. Freezes, combined with tax law changes,

caused many absentee owners to exit citrus production. The number of absentee owners declined to

less than 20 percent. Adding new members shifted

the cooperative’s membership base further south.

Governance-Bylaws permit a board of 9 to 15

directors. Voting on directors and other cooperative

66
matters is on a one-member, one-vote basis. New

members must buy one $50 share of common stock.

The cooperative has two types of marketing

agreements, a grower-member and a delivery-member contract. The grower-member agreement authorizes the cooperative to harvest and haul all fruit

from groves specified in the marketing agreement.

The fruit must be marketed by Golden Gem in

either fresh or processed form. The indefinite agreement may be cancelled in writing by the member.

The delivery agreement is only for processed

fruit. The member harvests and hauls the fruit

while the cooperative accepts fruit delivered for

processing. The member specifies the number of

boxes to be delivered, with a 10 percent or less tolerance below the specified amount. The delivery

agreement is for either 1 or 2 years, depending on

the selected payment option. If the pool option paying 80 percent of total estimated return as an

advance at delivery is selected, the agreement must

be for two seasons. To receive the same advance in

the second year, the member must renew for a second two-season period (current and next season). If

not, the contract reverts to the other pooling option

with a normal payment schedule.

Financing-Golden Gem operates a revolving

fund to generate equity from members. The rate of

retains from member payments is made on a perbox basis as established by the board. In practice,

the amount of the retain is the same every year. It is

allocated to member accounts as capital equity

credits. Although authorized to levy a special

assessment for capital improvements, the board has

never done so. Revolving fund periods may vary

greatly. During the severe freezes of the 198Os,

Golden Gem had to delay revolvements for a number of years. Well aware of the vagaries of citrus

production, members fully understand why cooperatives need to suspend the revolvement of

retains, although members still expect to receive a

retain at some future time.

Operations-Golden Gem is a unique centralized cooperative because it owns and operates both

processing and packinghouse facilities. All members receive the same processing, packing, and marketing services from Golden Gem. Grove care, harvesting, and hauling are at the option of the grower.

Golden Gem has flexible service and marketing

provisions for members.

In one membership agreement, the grower

authorizes the cooperative to harvest and haul its

fruit. In the other, the member provides for harvesting and hauling. Prior to the freezes of the 198Os,

Golden Gem harvested most of its member fruit

with Golden Gem employees. As membership

spread around the State, it became impractical for

Golden Gem to have that many harvest employees

in so many different locations. Labor is now contracted to handle the expanding service areas.

All fruit is handled on a pooled basis, with a

seasonal pool by variety for processing and weekly

pools by variety, grade, and sizes for fresh citrus.

Returns to the weekly fresh pools are paid by grade

on the total boxes packed during the pool period.

Returns to processing pools are based on pounds of

solids delivered for the entire season.

For processed pools, members have two

options they can elect in the marketing agreement-an accelerated payment or a premium

return plan. In the accelerated pool, members

receive both pre- and post-harvest advances based

on member crop estimates. At closing, the pool

receives the standard return for processed products. The premium return option pays 4 percent

more than the standard pool return. Payments are

made in normal pool cycles. In forgoing the accelerated payment option, the member substitutes a

higher pool return for a more immediate cash payment. Both pools close simultaneously, and operate

in the same manner in terms of variety, grade, and

cost allocation.

The accelerated payment option meets the

cash-flow requirements of growers who incurred

heavy expenses in grove rehabilitation or purchased young groves with light crops and heavy

front-end cash-flow requirements. In choosing the

premium plan, Golden Gem members receive more

than the standard pool payment as an incentive to

forgo the accelerated plan. Since 1987, there has

been about a 50/50 split in grower selection

between the two options, reflecting the different

needs of members.

67
Golden Gem handles mostly oranges.

Specialties, grapefruit, and lemons comprise the

balance. In the event of a severe freeze, risk is

shared by Golden Gem members by pooling harvested and unharvested fruit. Growers with unharvested groves are compensated based on pre-freeze

production estimates.

With membership spread out across the State,

Golden Gem is considering geographically based

pools, uncommon to the citrus industry. However,

no centralized citrus cooperative is as large and

widely scattered as Golden Gem, so their circumstances may warrant more area-specific pools.

Freezes reduced member volume in the 198Os,

so Golden Gem had to buy nonmember fruit from

the cash market, account sales, and participation

plans. Although member and nonmember fruit is

pooled the same, nonmembers are charged an additional handling fee. By 1992, due to the combination of adding new members and the rehabilitating

of existing member groves, most of Golden Gem’s

volume came from members.

Marketing-Golden Gem is active in all market channels for both fresh and processed citrus

products. For fresh markets, an in-house sales staff

markets product under Golden Gem labels to

domestic and the increasingly important export

markets. Grapefruit exports, particularly, have been

a growing part of the fresh fruit business. Another

expanding area is the school fundraising program

for fresh fruit sales. Brokers may be used for some

specific products like gift fruit. At one time, Golden

Gem was a member of Seald-Sweet-the federated

sales exchange-for fresh fruit sales.

Golden Gem’s labels such as Golden Gem and

Sunbright are primarily used for frozen concentrated juice products. At one time, they were among

the leading labels for retail frozen concentrated

products. Golden Gem has not yet entered the

chilled “premium” citrus market.

The cooperative also is a leading processor

and packager of lemonade. In addition to house

labels, its sales staff markets processing and packaging services to private label buyers, which

include 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 concentrate is the second largest in Florida. Golden

Gem also packs noncitrus juices for private label

buyers.

Ocean Spray Cranberries

Ocean Spray at Vero Beach, FL, is a unique

and relatively recent cooperative venturing into the

citrus industry. Unlike most citrus cooperatives,

Ocean Spray began as a processing operation and

later entered fresh marketing. Originally, it only

marketed fresh cranberries and limited amounts of

processed product. Ocean Spray grew to a Fortune

500 company largely because of its entrance into

the bottled fruit juice business.

With that growth came diversification in juice

products. Grapefruit juice became a leading product line. To obtain the needed large volumes, Ocean

Spray in 1976 entered the grapefruit processing

business and added Florida grapefruit growers as

direct members. In 1986, they began operating a

packinghouse bearing the Ocean Spray name.

Ocean Spray, a centralized cooperative, has

separate divisions for grapefruit and cranberry producers. Because of the marked differences in the

production units and distance between production

areas, the Ocean Spray centralized structure is like

a federated structure.

Federated Fresh Marketing

Seald-Sweet Growers is the only federated

cooperative marketing only fresh citrus. Central

California Orange Growers Cooperative was

formed as a federation specifically to coordinate

fresh sales. It doesn’t actively market fresh fruit.

Each packinghouse organization markets its fruit

independently.

Sea/d-Sweet

Founded in 1909, Seald-Sweet was patterned

after California’s Sunkist. Florida orange growers

visited the California operation and Sunkist ultimately helped Seald-Sweet organize. To this day,

even though they often compete in fresh citrus, the

cooperatives have maintained good relations.

Seald-Sweet is a federated sales agency. Five of

its 15 packinghouse members are fresh packing

68
cooperatives (table 12). The others are private

grower-owned packinghouses, typically a single

large-grove owner or a partnership. The board has

14 directors, one from each full-member packinghouse. Seald-Sweet usually accepts new packinghouses under a trial period as “associate” members

so each party can test the relationship. Associate

members have all the privileges of regular members except voting. It takes a majority vote of the

Seald-Sweet board for associates to become full

members. The decision is based on their performance in meeting Seald-Sweet standards and the

overall fit with the system.

Seald-Sweet has a yearly contract with its

members that is automatically renewed unless

either party chooses to terminate it. The automatic

rollover of annual contracts is fairly standard for

citrus cooperatives.

Seald-Sweet differs slightly from Sunkist in

that sales decisions are not as decentralized. SealdSweet combines the functions performed by Sunkist

Central (soliciting the trade, setting scale prices,

and market intelligence) and the district exchanges

(sales, shipping). Activities are limited to marketing

and selling member products.

Marketing includes placement of orders with

member packinghouses, booking transportation

Table 12- Seald-Sweet membership.

Member Type

Hunt Brothers Cooperative Cooperative Packinghouse

Mt. 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 Packinghouse

Ben 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 merchandising products, handling claims, establishing

credit terms with customers, and providing miscellaneous support services, including data processing,

field inspection, and packinghouse inspection.

Buyers of Seald-Sweet citrus may specify fruit

from a particular member-packinghouse. Like

Sunkist, Seald-Sweet allows traditional relationships between packinghouses and buyers to continue with new members. Regardless of preference,

Seald-Sweet’s main function is to match buyers

with the fruit that best meets their needs.

Seald-Sweet allows members to maintain their

own labels in recognition of the “pride” the local

associations have developed for many years.

Although a single label may be preferred by SealdSweet, the marketing system is flexible enough to

accommodate different packinghouse brands and

the reputations they carry in the market.

Costs to members are assessed on a per-boxsold basis through Seald-Sweet, a typical practice in

the citrus industry. In fact, the per-box costs are one

standard a grower can use in analyzing marketing

options, particularly because the packinghouse also

accounts 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 of

fruit minus the costs assigned to that pool. This is

then divided over the number of boxes delivered to

the pool. Returns are then allocated to packinghouse members on a prorata basis and distributed

to grower-members in the same manner.

Seald-Sweet solely markets fresh citrus.

Member packinghouses market processed products

at their discretion. Most Florida citrus is used for

processed products-almost 90 percent for oranges

and 60 percent for grapefruit. Some Seald-Sweet

members also are members of Citrus World, the

largest processing cooperative in the U.S.

Central California Orange Growers Cooperative

Three packinghouses formed the Central

California Orange Growers Cooperative (CCOGC)

at Lindsay, CA, in 1983. Members were once part of

the Pure Gold federated marketing cooperative.

69
Unlike Pure Gold, each CCOGC packinghouse conducts its own marketing and sales programs.

The articles of incorporation are similar to

other citrus cooperatives. CCOGC, in practice,

however, has a fairly specific purpose-promoting

more orderly marketing of citrus by its members

and providing a more stable price system.

The cooperative marketing agreement

between CCOGC and its members is fairly specific.

The preamble acknowledges the goal of a more

orderly market. Wording is laced with references to

specific market conditions to be addressed: “speculation and waste; stabilizing the marketing of agricultural products; preventing the demoralizing of

markets resulting from dumping and predatory

practices; mitigating the recognized evils of a marketing system under which prices are set for the

entire industry by the weakest producer; and obtain

prices which are fair but not inflated beyond reasonable value...by reason of artificially created

scarcity.”

To create more orderly marketing conditions

for members, CCOGC maintains a system of price

scales for fresh fruit sales. Setting a price scale is

the cooperative’s only function.

Each packinghouse in the CCOGC is privately

owned. To be a cooperative, membership is comprised of the growers marketing through the packinghouses in the CCOGC system. Although growers sign a marketing agreement directly with the

cooperative as in a centralized structure, individual

packinghouses operate like a federated sales

agency. Costs and returns associated with the harvesting and packing are handled between the packinghouse and the growers. Even though they are

privately owned, each packinghouse operates its

own fruit pools. Moreover, each packinghouse is

responsible for selling its fruit. All money flows

directly to the packinghouse.

The relationship of the individual packinghouse to the cooperative is consummated by an

“agency agreement.” The grower designates the

packinghouse as agent and representative on the

marketing committee of the cooperative.

Accordingly, the board of directors consists of

agency representatives designated by the growermember. Each packinghouse has one director.

The marketing committee is the mechanism

under which individual packinghouses meet to

assess supply and demand conditions and determine available supplies. The committee establishes

a price scale that will maximize the flow of member

fruit at the best possible prices. The price scale sets

ceiling and floor prices between which the individual packinghouse can sell its fruit.

The marketing agreement requires members to

adhere to the price scales. Penalties are determined

by the board. Scales are set on a weekly or daily

basis for each grade. Scales are adjusted based on

supply and demand information provided by the

packinghouses to CCOGC management. Prices are

adjusted after discussions between the packinghouses as coordinated by the CCOGC manager.

Collecting information from packinghouses on

supplies and relating that to demand factors are

also major functions of the Sunkist system. Sunkist

also sets a price scale within which members can

market their fruit. Although much smaller than

Sunkist, because CCOGC production is specific to a

small geographic area, CCOGC can with some success coordinate the price scales with member fruit

relative to the overall volume. Its smaller size also

permits CCOGC to move faster in pricing and moving fruit to take advantage of short-run market conditions.

No money from fruit sales flows through

CCOGC. Operating funds come from per-carton

assessments. Retains are less than a penny per carton. Because CCOGC does no packing or marketing, facility and staff resources are limited to not

much more than a manager, office, and phone.

Excess retains are returned to grower-members on

their prorata share of fruit through the packinghouses in the CCOGC system.

Federated Processing

The leading example of a federated citrus processing cooperative is Citrus World.

Citrus World

This cooperative was formed in 1943 by fresh

packing cooperatives as an outlet for fruit culled

from packing lines. Citrus World is a leading

processor with major brands such as “Donald

70
Duck” and “Bluebird.” The cooperative has 12

members+ight cooperative packinghouses and

four grower-owned private firms (table 13).

Citrus World receives fruit from members via

culls or eliminations from the packinghouse, and

direct from grove to the plant. In both cases, title to

the fruit is passed from the grower to the cooperative packinghouse. It, in turn, sends the fruit to

Citrus World. Often, cooperatives operate “full service” packinghouses by providing all the grove

care, harvesting, and shipping for grower-members. In the membership agreement, growers give

the cooperative the right to market the member

fruit. This includes determining the quantity of

fruit to be delivered. However, the decision on

what citrus varieties to plant and hence what pools

in which to participate, is at the grower-member’s

discretion.

Citrus World operates pools by variety for the

entire season’s production of that variety. Pool contents are valued by pounds of solids per field box

delivered. This, in turn, is factored by a formula

estimating the gallons of product a field box will

produce. 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 1.11

gallons/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 forward pricing and rate of sales for these returns.

Members’ pool proceeds are estimated at the end of

the fiscal year and based on sales through the end of

the year plus the value of inventories. When the

inventory is liquidated and proceeds known, the estimated amount due members is adjusted. Members

receive a percentage of the net pool proceeds based

on their prorata share of the pool’s volume.

Per-unit retains are deducted from pool retains

to finance Citrus World operations. Retains are

revolved back to members in the form of Class B

common stock redemptions. Equity requirements,

as determined by the board of directors, are

retained from the amounts due to members and

credited to their equity accounts.

Net returns received by the packinghouses

from Citrus World are returned to their growermembers in two ways. For fruit culled from the

fresh packinghouse, the total receipts of the fresh

variety are combined with those from the processing plant for the same variety. These combined total

receipts are divided by the total boxes harvested of

that variety.

Each grower of that variety will receive the

same price, less the packing costs on a per-box basis

(and often picking and hauling costs). For fruit

delivered to the processed pool, total receipts from

the processing plant for a variety are divided by the

total boxes harvested of that variety. Each member

receives the same price, minus the individual grower’s picking and hauling expenses.

This method for calculating pool returns repWaverly 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

71
resents the operating practices of Citrus World’s

cooperative packinghouse members. Returns to the

private grower-owned packinghouses would be the

same as for a grower in a centralized cooperative.

The basis of Citrus World’s organizational structure

is the fresh packinghouse, be it cooperatively

owned by many small citrus growers or privately

owned by a few large growers. The cooperative

packinghouse is the grower’s representative in

Citrus World’s system. Small growers achieve a balance of power with the much larger growers operating their own packinghouse.

Federated Fresh and Processing

The only federated cooperative in the traditional sense-only cooperatives as membersinvolved in both fresh and processing is Texas

Citrus Exchange (TCX).

Texas Citrus Exchange

Four cooperative packinghouses formed this

cooperative in 1968 to be their centralized selling

exchange for both fresh and processed products.

Three of the cooperative packinghouses were

formed just prior to TCX through assistance from

Edinburg Citrus Association. Edinburg’s intent was

to develop a central marketing agency for all of

them.

TCX had to contract for processing with a private firm until it constructed a facility in 1971. TCX

is the counterpart of the federated selling

exchanges operating in Florida and California, but

unlike the exchanges in those states, all cooperative

packinghouses in Texas were TCX members.

Until the disastrous freeze of 1983, TCX at its

peak marketed more than 40 percent of Texas citrus

production. After the freeze, TCX lost members

when some cooperatives exited the industry. Rio

Tex Citrus Association closed its facility and Lake

Delta Citrus Association sold its packinghouse in

1986 to a private firm.

Another damaging freeze in the late 1980s further reduced TCX’s volume. Currently, it has only

two members, Edinburg and Rio Bravo. TCX was

forced into considerable nonmember business,

including shipments from Mexico, until local production rebounded. However, the amount of

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replanted acreage in Texas has exceeded expectations, and TCX expects its member volume to

steadily replace nonmember supplies.

Freezes have significantly altered TCX’s structure and its future structure is largely uncertain. So

TCX operations reviewed are from its prime years.

Structure-At one point, TCX had five member-packinghouses, all grower-owned cooperatives. Today, TCX has only two.

Governance-The board of directors is based on

the relative volume of its members. Each cooperative

member has at least one director. Members gain additional directors based on the incremental increases in

their proportional share of TCX’s volume. All members must market their citrus through TCX.

Financing-TCX members contribute working

capital based on a set amount per ton of fruit delivered. The amount is the same for both fresh and

processing deliveries. Funds are revolved back to

members, although recent freezes of the 1980s

greatly hampered the cooperative’s ability to do so.

TCX bylaws allow exiting members to retrieve their

share of net worth as approved by the board, either

the actual amount contributed or a lesser amount as

negotiated with the remaining members.

Operations-TCX provides all the marketing

services for members’ fresh and processed citrus

products, but offers no grove care, harvest, or hauling services.

Member fruit is handled on a pooled basisseasonal pools for both fresh and processed products. Returns to fresh pools are on a per-box-packed

basis, and processed on a pounds-of-solids-delivered basis.

TCX also markets nonmember fruit under cash

buying and participation plans. Recent freezes

forced TCX into significant nonmember business.

Marketing-TCX has an in-house sales staff

for both fresh and processed sales. Fresh grapefruit

is the king of Texas citrus because it has a recognized quality that will bring a per-box premium

the market.

in
TCX markets fresh grapefruit and fresh

oranges under its Texas Star and Big Tex brands.

TCX also markets in packages bearing the member

packinghouse brand and the TCX name. A specific

sales person is responsible for all the fruit from a

specific member. Orders are prorated out to members as fruit is sold. The fruit is shipped directly

from the member packinghouse to buyers. Fueled

by the rise in fresh grapefruit exports, TCX export

sales have steadily increased their percentage of

overall sales.

For processing, TCX directly handles and

ships product from its facility. In addition to retail

packs of single-strength canned or frozen concentrated citrus products under their Big Tex label,

TCX also packs for private label customers. Frozen

concentrates are also sold in a variety of bulk containers. As a way to more fully use its processing

facilities, TCX also packs citrus for other processors

such as Citrus World and packs noncitrus juices for

firms such as Tree Top Growers, Inc., an apple marketing cooperative at Selah, WA.

Sunkist Growers, Inc.

Structural Overview-Sunkist has a federated

structure, but also has elements of a centralized

structure. Therefore, it is classed as a “mixed” cooperative organization. Instead of marketing through

a local association, growers can use a licensed private packer and become direct members in Sunkist

via a district exchange. While fresh citrus marketing is in a decentralized federated structure,

Sunkist operates a single pool for processed products as if in a centralized structure.

The federation of growers and grower-controlled cooperatives within Sunkist dates from its

formal incorporation in 1893. In its earliest form,

the federation had a contractual relationship

between the grower and the respective packinghouse association, its district exchange, and Sunkist

Growers, Inc. (“Central”). Each level in the federated structure was tied to the next by contract and by

representation on the board of directors of the next

succeeding level.

Citrus growers may join Sunkist in two ways.

One is to apply simultaneously for membership in

a local cooperative and in Sunkist Growers. Local

cooperatives provide harvesting and packing services for members. All the costs of these services

and local packinghouse operation are shared by the

local members. These packinghouses, in turn, are

members of a district exchange. As Sunkist bylaws

describe them, “Each local association (packinghouse) shall market all of the fresh fruit subject to

its control through the district exchange with which

it is affiliated.” In turn, the district exchange must

market all fruit subject to its control through

Sunkist.

District exchanges do not physically handle

the product shipped directly from packinghouses

to wholesale customers. The district exchange is

delegated by the packinghouse(s) to set the final

price and coordinate shipments, destination, and

transportation. The exchange relies considerably on

market information obtained from Sunkist Central.

The exchange is forbidden by its agreement with

Sunkist Central to solicit any customers.

Some Sunkist members choose to use commercial packinghouses (licensed or agency houses) to

provide the same services otherwise provided by

local cooperatives. These growers are simultaneously direct members of a district exchange and

Sunkist Central. The licensed houses agree to pack

exclusively for Sunkist under a l-year agreement.

They are obligated to return to growers the net proceeds from marketing their fruit after deducting the

packing costs and reasonable charges. The accounting procedures must be compatible with the cooperative’s system.

Commercial packinghouses have no voting,

membership rights, or privileges in the Sunkist system. At one time, these licensed houses were treated the same as local packinghouses, as members of

Sunkist.

A U.S. Supreme Court review of the corporate

structure found that Sunkist did not comply with

Section 1 of the Capper-Volstead Act. In response,

Sunkist reorganized so each grower became a direct

member of Sunkist, and also of either a local association or district exchange. Growers could still use

commercial packinghouses, but under the licensing

agreement they had to return the net marketing

proceeds to growers.

A subsequent court judgement upheld the use

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of licensed packers because the Capper-Volstead

Act specifically allows growers and their associations to make the necessary contracts and effect the

purposes of the association.

Governance-All voting power in Sunkist lies

with the grower. Growers have the sole voting

power in and control of their local associations,

including the power to elect the board of directors.

The local associations and direct-grower members

elect the boards of their respective district

exchanges. The district exchanges elect members to

the Sunkist board.

In the election of directors, each district

exchange is entitled to as many votes as the number

of directors it is entitled to nominate, multiplied by

the number of directors to be elected. Each

exchange is entitled to nominate one director.

Additional directors may be nominated based on

the volume of all fruit marketed through Sunkist.

Each exchange may nominate one additional

director for each whole 4-percent increment of volume the exchange has in excess of the 2 percent

minimum for the first director. Any exchange having less than 2 percent of Sunkist’s total volume

shall, for the purposes of nominating directors,

combine its volume with other district exchanges to

allow the combined exchanges to at least nominate

one director in accordance with the formula contained in the bylaws.

The voting rights of Sunkist growers are

unequal-not “one-man, one-vote.” Other than in

electing directors, Sunkist growers’ voting rights

are exercised through their local association or district exchange on the basis of one vote for each

1,000 cartons of citrus marketed through Sunkist.

Both the local association and district exchange are

organized as individual nonprofit cooperative associations.

Sunkist has an open-membership policy. Any

qualified grower may join. Grower agreements are

indefinite, but may be terminated at the end of each

year. Combined with the lack of any initial capital

outlay, Sunkist’s membership is fairly mobile. There

is considerable movement of citrus growers in and

out of the Sunkist system. Moreover, members may

commit any portion of their production, allowing

some (few do) to market through different houses

to compare performance.

Operations-Packinghouses prepare the growers’ fruit for either the fresh or product markets.

Management normally decides when fruit will be

harvested and arranges for hauling. Sunkist operates fresh fruit pools separated by variety (navels,

etc.) and sometimes by time (early season, etc.).

Each local association and the district exchange

director representing direct growers (using licensed

packers) determines if fruit will be provided to a

specific pool. The decision on pool participation is

an extension of the final decisions on sales and

price at the district exchange level.

Sunkist Central assumes responsibility for selling fresh citrus, maintaining contracts with domestic and foreign buyers, receiving and distributing to

exchanges the receipts from fruit sales, establishing

grades, organizing advertising and promotional

programs, and regulating the use of trademarks

and patents. The costs associated with these activities are assigned to the fresh pools and calculated

on a per-box basis.

Marketing Agreements-For fresh marketing,

the agreements and pooling policies are issued

between the district exchanges and their packinghouse members, and between the packinghouse

and its grower-members. A grower using a licensed

packinghouse may have a marketing contract covering the method of payment with the licensed

packinghouse. However, the Sunkist marketing

agreement is between the district exchange and the

grower-member, not the licensed packinghouse.

Financing-For new Sunkist members, there

are no initial capital requirements. Instead, members pay into a capital account based on the volume

of citrus they marketed through Sunkist during a

representative period of years. The board determines the capital financing requirements annually.

Members’ share of this requirement is calculated

and then compared to their current capital contributions. Each member is either assessed for an

additional amount or receives a payout of the difference.

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An important element of the financing responsibilities within Sunkist’s structure lies in the

decentralized nature of its organization. All the

costs of harvesting, grading, and packing fruit for

the fresh market are borne by the local cooperative

or licensed packinghouses.

From fresh fruit returns, expenses are deducted in two assessments: per-carton for marketing

and per-carton for advertising. The only other

deduction is a capital retain. For processed products, as a single pool, all members share equally

(patronage based) in the costs of operating the processing pool. All proceeds from the sales of

processed products, less necessary operating and

marketing expenses, are returned to members

based on volume of fruit shipped to processing

facilities. Sunkist Central governs the collection and

assembling of products fruit and may prorate shipments if supply exceeds capacity of available facilities. Freight charges are handled equitably. No

member may be at a disadvantage because of location relative to Sunkist’s processing facilities.

Marketing-Sunkist is the most widely recognized brand of fresh citrus and one of few found in

fresh produce. Sunkist labels are found on fresh

oranges, grapefruit, lemons, and tangerines.

Sunkist’s system of field offices coordinates the

sales and distribution of fresh citrus around the

U.S. and Canada. Exports are an important part of

Sunkist’s fresh sales---one of every four cartons is

sold overseas. Subsidiaries in the Far East and

Europe help facilitate export marketing programs.

Sunkist Central acts as the clearinghouse for

sales and supply information and coordinates sales

information from the field office with information

on supplies from the district exchanges. Sunkist

Central advises the district exchanges on the buyer,

destination, and price for a given quantity and

grade. The district exchanges, in turn, determine

the sales in which they will participate. However,

not all sales are made in a formal iterative bidding

process (offer/counteroffer) between district

exchanges. Often, sales are facilitated by Sunkist

Central working closely with the district exchanges

to see that each will market its members’ volume at

the best possible prices. Moreover, Sunkist Central

respects the buyer’s request for product from a specific packinghouse or exchange.

For processed sales, Sunkist Central controls

all the marketing and decisionmaking as to price

and product destination. Returns are treated like

most processing pools-all expenses are first

deducted from total processed sales and then

returned to members based on pounds of solids

delivered.

Sunkist markets processed citrus in all product

forms-single strength canned, chilled single

strength, and frozen concentrates.

The majority of Sunkist’s processed products

sales has been in bulk or private labeling. In 1990,

however, Sunkist began marketing frozen concentrates and chilled juices under the Sunkist label in

limited distribution.

Before 1990, the Sunkist name was leased to

the Thomas J. Lipton Company. Sunkist received

royalties from Lipton for the sales of a variety of

products, including sodas, candies, and fruit rolls.

Sunkist has licensed its brand name in more

than 40 countries. In 1990, under a mutual agreement, Lipton returned the license for the Sunkist

name so the cooperative could use it for retail packs

of processed citrus products. Licensing not only

helped increase the awareness of the Sunkist name

worldwide, but the royalty income generated also

decreased the investment that members had to

make in the capital fund.

Sunkist System-The system of district

exchanges makes Sunkist unique in the citrus

industry. Although conditions prompting its formation have largely disappeared, they still exist today

for two reasons: 1) Historically, there has been a

certain amount of “inertia” in maintaining a successful marketing system. In a sense, the exchanges

competed with one another. This would impede

efforts to merge or eliminate some or all of them.

The communication link between Sunkist Central

and the packinghouse continues to be a benefit

even today. It precisely coordinates shipments by

their proximity to the groves; 2) The sheer size to

which Sunkist has grown, in both volume and location of member groves, necessitated some delegation of sales and shipping coordination to more

75
decentralized locations. The district exchanges were

already in a position to fulfill such a function and

allowed packers to maintain their influence within

Sunkist relative to the growers.

Summary of Cooperative Operations

A representative cross-section of organizational structures and activities was represented in the

overview of citrus cooperatives. Of those not

reviewed, most were fresh packinghouses with

operations similar to, or the same as, one or more of

the cooperatives presented. All federated cooperatives in both fresh and processing were studied.

In some areas, regardless of organizational

structure, there were many commonly used tools

and methods of operations. However, many cooperatives provided different types of services and

functions, and also differed in the way they performed a given function. These similarities and differences are summarized in the following:

1) All cooperative members signed a marketing or

membership agreement. Although of varying duration, all agreements allowed members to cancel

after each season.

2) Although most citrus cooperatives are governed

by “one-member, one vote” principle, some have

proportional voting, such as Sunkist, Lake Wales,

TCX, and Sunny Cove.

3) All citrus cooperatives generated equity from

members through either a revolving fund or base

capital plan-common financing methods for all

agricultural cooperatives. All capital retains were

based on member patronage, usually on a per-box

basis.

While the methods of member financing are

either a revolving fund or base capital, the relative

amounts and implementation of each vary by cooperative. The amount of retained earnings usually

reflects the financial health of the cooperative. For

Florida and Texas cooperatives buffeted by freezes

in the 198Os, capital retains were regularly deducted but revolving periods were delayed for many

years. 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 minimal fee. Cooperatives such as Haines City, Waverly,

and Golden Gem require the purchase of one share

of common (voting) stock, a practice common

among agricultural cooperatives. Edinburg charges

a $10 annual membership fee. As a minimal

amount of money, both per- member and in total,

membership fees are more a traditional practice

and not a practical source of member equity. Some,

like Sunny Cove or Corona College Heights, require

no new-member fee. 5) All cooperatives used some

form of pooling to calculate and allocate returns to

members. All cooperatives used a seasonal pool for

processed products. There were regional differences

for fresh sales. Most Florida cooperatives used seasonal pools for fresh sales, but in California, cooperatives used pools accounting for time, such as

monthly or weekly. Cooperative members in

California had more choice in deciding when to

harvest than those in Florida, translating into a

greater freedom in selecting pools in which to participate.

6) Returns to fresh sales are usually calculated on a

per-box-packed basis. However, there are exceptions. Waverly Growers uses pounds of solids for

juice oranges sold fresh. For processed product

returns, pounds of solids is the standard measurement of juice yielded from a given box of fruit.

7) Most cooperatives allow members to deliver less

than 100 percent of their citrus production. They

also may commit acreage to multiple packinghouses. The one exception was Edinburg Citrus.

8) Most cooperatives, particularly the packinghouse_Haines City, Waverly, Corona-College

Heights, and many of Sunkist’s packinghouse

members-provide grove care services for members. In most cases, grove care was one of a number

of service options for the member. In cooperative

packinghouses such as Edinburg, Lake Wales, and

Sunny Cove, all grove care services are provided by

members.

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9) All citrus cooperatives, except Central California

Orange Growers, provide all marketing and selling

services for their members via one or more of three

marketing mechanisms-in-house sales staff, private broker or sales agent, or as a member of a federated sales exchange.

All federations are large enough to employ an

in-house sales staff, although some of the centralized cooperatives--Golden Gem, Haines, and Lake

Wales-also have a sales staff. Some cooperatives

contract with private sales agents, such as CoronaCollege Heights (Sun World), Waverly (DNE Sales),

and Sunny Cove. Most cooperative packinghouses

are members of a federated cooperative for either

fresh or processed sales-29 cooperatives with

Sunkist, 12 with either Seald-Sweet and/or Citrus

World, and the 2 cooperative packinghouses in

Texas with TCX.

10) Federated citrus cooperatives consist of both

cooperative packinghouses and grower-owned private packinghouses such as Seald-Sweet or Citrus

World.

11) Sunkist Growers, Inc., is distinct because of its

size, market share, and decentralized structure of

district exchanges. Its basic structural unit, the

packinghouse, operates the same as other cooperative packinghouses in terms of operations and governance.

REFERENCES

California/Arizona Citrus Packinghouse Directory,

California

Citrus Mutual, Visalia, CA, 1993.

Citrograph, various issues, Western Agricultural

Publishing Co., Fresno, CA.

Citrus Fruit Industry Statistical Bulletin, various

issues, Information Resources Department, Sunkist

Growers, Inc., Sherman Oaks, CA.

Citrus Industry, various issues, Associated

Publications 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 Industry

Economic Assessment, Research Center Technical

Report No. 89-2, Texas A&M University Research

and Extension Center, Weslaco.

Directory of the Canning, Freezing, Preserving

Industries, 1993, Westminster, MD, Edward E.

Judge & Sons, Inc.

Florida Agricultural Statistics Service, Orlando,

Citrus Summary, various issues, 1978-1992.

Florida Department of Citrus, Economic Research

Department, University of Florida, Gainesville,

Florida Citrus Outlook, Working Paper Series, 1989.

Florida Department of Agriculture and U.S.

Department of Agriculture, Division of Fruit and

Vegetable Inspection, “Packinghouse Inspection

Reports,” 1978 to 1993.

Florida Grower & Rancher, various issues, FGR

Incorporated, Orlando, FL.

Ford, Stephen A., Ronald I? Muraro, and Gary F.

Fairchild, Economic Comparison of Southern and

77
U.S. Department of Agriculture

Rural Business and Cooperative Development Service

Ag Box 3255

Washington, D.C. 20250-3255

Rural Business and Cooperative Development Service (RBCDS) provides research,

management, and educational assistance to cooperatives to strengthen the economic

position of farmers and other rural residents. It works directly with cooperative leaders

and Federal and State agencies to improve organization, leadership, and operation of

cooperatives and to give guidance to further development.

The cooperative segment of RBCDS (1) helps farmers and other rural residents develop

cooperatives to obtain supplies and services at lower cost and to get better prices for

products they sell; (2) advises rural residents on developing existing resources through

cooperative action to enhance rural living; (3) helps cooperatives improve services and

operating efficiency; (4) informs members, directors, employees, and the public on how

cooperatives work and benefit their members and their communities; and (5)

encourages international cooperative programs.

RBCDS also publishes research and educational materials and issues farmer

Cooperatives magazine. The United States Department of Agriculture (USDA) prohibits

discrimination 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 bases

apply to all programs). Persons with disabilities who require alternative means for

communication of program information (braille, large print, audiotape, etc.) should

contact 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). USDA

is an equal employment opportunity employer.