CONTENTS

Cooperative Business Profile.. ..................................................... .5

Sales of Fruits and Vegetables.. ........................................ .5

Fruit and Vegetable Cooperatives.. ................................... .6

Membership.. ................................................................... .9

Regional Profile .......................................................................... 11

Location of Cooperatives ............................................... .ll

Regional Sales Distribution.. .......................................... .15

Organizational Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Cooperative Marketing .............................................................. .2 1

Bargaining ............................................................................... .23

Marketing ................................................................................. 27

Cooperative Marketing Tools and Strategies .............................. .47

Marketing Agreements and Contracts.. ........................... .47

Pooling ........................................................................... 50

Marketing Orders and Cooperatives ....................................... .5 1

Working Arrangements With Other Firms ...................... .52

Other ‘Qpes of Cooperatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Future Issues for Fruit and Vegetable Cooperatives . . . . . . . . . . . . . . . . . . . . . 56

Cooperative Information Report 1, Section 13

Issued September 1978, revised November 1990
This is not a petroleum refinery nor a fertilizer plant. The towers

are evaporators at a tomato paste processing plant owned by

TrilValley Growers (Volta, Calif.). Farmers have moved increasingly into processing to preserve raw product markets and diversify

income opportunities by extending ownership to one or more of the

stages in the system bringing food from the farm to consumers.
Fruit and Vegetable

Cooperdives

Farmer cooperatives play a significant role in marketing

fruits and vegetables grown in the United States. In 1988, cooperatives held a market share of more than 20 percent of all fruit and

vegetable sales, a continuation of a steady rise in market share from

slightly more than 16 percent in 1985. For specific commodities,

cooperative market share may be much higher, with many cooperatives being the market leader. For example, most fresh citrus,

raisins, and cranberries are marketed by cooperatives.

The term “fruits and vegetables” actually represents a a

number of unique industries defined by different commodities and

product forms. While some cooperatives market a wide range of

fruits and vegetables, most market a specific set of commodities,

with many of the better known cooperatives identified with a single

commodity. Ocean Spray is synonymous with cranberries,

National Grape and its Welch’s brand with grape products, and

Sunkist with oranges.

Cooperatives can also be grouped as being either “fruit” or

“vegetable.” Few cooperatives market both. Almost all vegetables

are annual crops, and most fruits are perennials with up to 5-year

lags in production. While a farmer can rotate from year to year

among a variety of vegetables, fruit production is generally limited

to a specific piece of land for long periods of time, meaning fruit

production is not compatible with vegetables in terms of cultural
practices. Also, regions and parcels of land best suited for the production of fruit may not be the best location for the production of

vegetables. Therefore, most farmers, particularly the larger ones,

tend to produce either fruits or vegetables, and the cooperatives

they organize tend to market one or the other.

The size and scope of the marketing operations of fruit and

vegetable cooperatives are as varied as the types of commodities

they handle. Some own few assets, and simply act as a bargaining

agent for a group of grower-members in negotiating a price with

buyers. Others own and operate large processing facilities to prepare finished products for grocers’ shelves, and are large enough

to be ranked among the Fortune 500. In between are cooperatives

performing varied levels of marketing functions to bring a fruit

or vegetable product from field to consumer. These range from

simple sorting and assembly of a product for the next stage in the

marketing channel, to the complex array of handling, processing,

and distribution functions involved in marketing a branded consumer product.

While cooperatives perform a variety of market functions,

they are no different from what must performed by any other business. Cooperatives are not unique in the functions they perform,

but in the manner and philosophy in which they are performed.

A cooperative is a business organization owned and controlled by the grower-members who use it. The purpose of the

business is to improve members’ economic well-being by marketing products, obtaining supplies, and/or providing services that

individual growers could not obtain on their own. Cooperatives

are unique in that, unlike individual proprietorships, partnerships,

and investor-owned corporations that operate for the benefit of

their owners as investors, cooperatives operate for the mutual benefit of their owner-members as users of its services. This is the

user-owner principle, one of three principles that distinguish cooperatives from other businesses. The second is the user-control principle in which the cooperative is controlled by those who use it.

The third is the user-benefits principle in which the benefits generated by the cooperative are distributed to users on the basis of

their use.

Forming a cooperative represents an agreement among a

group of farmers to act collectively in marketing their products or

providing some other needed service. This requires relinquishing

some control over their products to a central organization. The

2
benefits of collectively marketing their products versus each doing

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

of, a marketing service not available, (2) improve growers’ bargaining position with buyers in that a greater portion of production

is controlled by a single seller, (3) facilitate economies of scale in

handling and processing grower-member products, (4) provide for

better servicing 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

that risk over a larger number of units.

Some incentives to form a cooperative are also unique to

fruit and vegetable production. First and foremost is the perishability of most fruit and vegetable crops, limiting both by time and

distance the market options available to individual growers. Once

a crop is harvested, growers must bring the crop to market immediately, and buyers may be tempted to take advantage of the situation by adopting a “take it or leave it” stance in offering a price.

Cooperative action on the part of growers is a way to discipline the

market and reduce the incidence of unfair trading practices, particularly in fruits and vegetables. As buyers take advantage of their

superior bargaining position, many growers feel compelled to form

cooperatives to provide their own market outlets. Growers formed

the first fruit and vegetable cooperatives in the latter half of the

19th century, citing the need to improve their bargaining position

as one of the main reasons for forming those cooperatives.

Fruit growers may have the incentive to form a cooperative

due to the perennial nature of fruit production. Fruit growers must

make a long-term investment in orchards that may not reach maturity for 5 years or more. In this case, growers need greater assurances of long-term market outlets than annual vegetable growers

who can rotate out of production more easily. Fruit growers have

frequently found cooperatives their best means of obtaining marketing services necessary for ensuring returns on the long-term

investments associated with fruit production. Also, the production

of many fruits is prone to periodic gluts because with perennial

production, reaction to supply comes much more slowly than with

an annual vegetable. Fruit growers have formed cooperatives

expressly for creating alternative uses for excess supply, such as

processing operations.

3
In this California scene around the turn of the century, Limoneira

Ranch hands load wooden crates of citrus bound for eastern markets

such as the New York auction market below.
Cooperative Business Profile

Sales of Fruits and Vegetables

Fruits and vegetables, after dairy and grain, are the third

largest commodity area for cooperatives in terms of net sales. In

1988, cooperatives had a net business volume for fruits and vegetables of $6.6 billion, up from $6.15 billion in 1987. Cooperative

sales have risen steadily since 1960 (fig. 1). Even in terms of real

dollars (adjusted for inflation), cooperative sales of fruits and vegetables have performed better than the overall rate of inflation since

1960. The nearly constant level of real sales from year to year

means cooperatives were able to expand fruit and vegetable sales

by at least the rate of inflation.

Consumption of fruits and vegetables has risen since 1960

as consumers have become more concerned about health and nutrition. Fruits and vegetables are viewed as healthful, and a portion

Figure l-Cooperative Sales of Fruit and Vegetables, Nominal

Versus Real, 1960-87

Billion dollars

6

Nominal Sales

3

Real Sales

2

1960 1965 1970 1975 1980 1985 1990

5
of cooperative sales performance can be attributed to this. While

cooperatives are present in the marketing of almost all fruit and

vegetable products, they are among the industry leaders for some.

Fresh citrus, fruit juices, raisins, and prunes are just a few of the

product areas cooperatives are not only prominent in, but also in

which they played an active role in stimulating and maintaining

demand. So while cooperatives have benefited from the increase

in demand for many fruit and vegetable products, they can also be

pointed to as having an active role in expanding demand for some

products.

Fruit and Vegetable Cooperatives

Cooperatives are classified by their dominant form of business or commodity handled. For a fruit and vegetable cooperative

to be identified as such, at least 50 percent of its business volume

must come from marketing fruits and vegetables. While there are

other types of cooperatives marketing fruits and vegetables, they

are relatively few in number.

In 1988, there were 306 cooperatives classified as fruit and

vegetable, down from 312 in 1987. From 1915-year of the first

national survey of farmers’cooperatives-to 1930, the number of

fruit and vegetable cooperatives rose steadily. Since 1930, there

has been a steady decline in the number of fruit and vegetable

cooperatives (fig. 2.1). Compared with all marketing cooperatives,

the change in fruit and vegetable numbers has followed fairly

closely the change in the number of other cooperatives, although

since 1960 the number of fruit and vegetable cooperatives has

declined at a somewhat faster rate (fig. 2.2). The number of fruit

and vegetable cooperatives declined by more than 55 percent from

1960 to 1988, while all other marketing cooperatives declined by

a little more than 40 percent for the same period. However, cooperative sales of fruits and vegetables increased by more than 550

percent while all other marketing cooperative sales increased 343

percent. The food industry in general is moving toward fewer and

larger organizations. Cooperatives are moving in the same direction, particularly for those in food manufacturing. Fruit and vegetable cooperatives are among the more active in manufacturing

and branded products. One reason is that while their numbers have

declined faster than their counterparts in other commodity areas
Figure 2.1-Number of Fruit and Vegetable Cooperatives, 191588

1600

1400

1200

1000

800

600

400

200

0

1915 1930 1950 1987 1988

Figure 2.2-Number of Cooperatives, Fruit and Vegetable

versus Other Marketing, 1915-88

Thousands

Fruit and Vegetable

Other Marketing

1915 1930 1950 1987 1988

7
their sales have increased at a higher rate.

As the number of cooperatives declined, many organizations became larger through merger or outright acquisition of other

cooperatives. Since 1960, total cooperative sales of fruits and vegetables have increased and the number of cooperatives decreased,

with the percentage increase in sales being more than 3 times the

decrease in fruit and vegetable cooperatives (fig. 3). The net result

was the average annual sales volume per cooperative increasing

steadily from more than $1 million in 1960 to more than $21 million in 1988. Although sales per cooperative was expected to

increase as overall fruit and vegetable sales increased, a portion

of the increase is the result of one or more cooperatives merging.

Though the average sales stood at more than $21 million

in 1988, more than three-quarters of the cooperatives marketing

fruits and vegetables had sales below the average (fig. 4). The dispersion of sales among cooperatives reflects the diversity of functions performed and products marketed by cooperatives. In terms

Figure 3-Cumulative Percent Change in Number of Fruit and

Vegetable Cooperatives and Cooperative Sales, 1960-87

Percent

400

300

200

100

0

-100

Cooperative Sales

Cooperative Numbers

1960 1965 1970 1975 1980 1985 1990

8
Figure 4-Number of Fruit and Vegetable Cooperatives Per

Sales Classification, 1987

Thousand dollars

Over 100,000

100 to 1,000

Less than 100

1 . ; . i i . I I . I . 1 .

0 20 40 60 80 100 120 140 16

1 Cooperatives selling processed products

2 Cooperatives selling to the fresh market or to processors

of absolute numbers, most cooperatives perform only a few functions as in small scale assembly and packing operations. As cooperatives integrate further into the food system, they tend to achieve

a higher level of sales, particularly if they market branded products

or add value by processing. Ten cooperatives had more than 60

percent of the 1987 cooperative share of fruit and vegetable sales.

Most are large organizations with established national brands or

food manufacturing operations.

Membership

A fruit and vegetable cooperative member is a grower who

joins the organization to market their production. Growers are the

owners and sole stockholders of the cooperative. In addition to the

price received for each unit of raw product delivered, the grower

also shares in the net profits or losses of the cooperative. Instead

9
of acquiring shares of stock by direct purchase as in an investerowned firm with dividends paid per unit purchased, “dividends,”

or net returns, to members of a cooperative are typically on a perunit basis of volume delivered.

Unlike stockholders of an invester-owned firm who vote

on the basis of number of shares held, cooperative voting is typically on the basis of one vote per member regardless of volume

delivered. In some cases, votes may be based on volume of business, although there are limits to the number of votes a member

can acquire. This ensures equity because no one member or group

of members has a disproportionate vote in cooperative matters.

In 1987, membership in fruit and vegetable cooperatives

stood at 64,093, up from 61,990 in 1985. The slight increase is a

modest reversal of a steady drop in membership since a high of

218,000 in 1930, also the peak year for the number of fruit and vegetable cooperatives. Since cooperative membership is composed

of individual farmers, as total farmer numbers declined since the

1930’s. the pool of potential members steadily shrank. From 1930

to 1987, the number of farms in the United States fell about 65 percent, and fruit and vegetable cooperative membership fell by just

under 70 percent, so membership has followed consistently the

change in total farm numbers.

Although the number of farms has declined steadily since

the 1930’s, average farm size has increased over the same period.

Diversity of production has led some fruit and vegetable farmers

to be members of more than one cooperative, particularly on the

west coast where a wide variety of fruits and vegetables are grown

in significant quantities. A California producer may be a member

of a bargaining cooperative for peaches and a processing cooperative for pears. A grower may also be a member of separate cooperatives performing different functions for the same commodity.

In Washington, many apple growers are a member of a large juice

processing cooperative for their culled or low-grade apples and

another cooperative to sell their higher quality apples to the fresh

market.

Because many growers belong to more than one cooperative, and fruit and vegetable cooperative membership has declined

at a slower rate (70 percent) than number of cooperatives (80 percent), the net effect has been a steady rise in average membership

per fruit and vegetable cooperative (fig. 5).

10
Regional Profile

Fruit and vegetable cooperatives operate in almost every

State, and are similar in many ways in terms of operating procedures and goals. However, production, geographical, and historical

differences result in differences in activities and size from region

to region.

Location of Cooperatives

As noted, there has been a steady decline in the number of

fruit and vegetable cooperatives. The reduction in cooperative

numbers has been spread evenly across regions, with only

Appalachia and Hawaii experiencing a net gain and constant numbers, respectively, from 1979 to 1987 (fig. 6).

While a decline in fruit and vegetable cooperative numbers

has occurred in almost every region, there are differences in the

Figure 5-Membership Per Fruit and Vegetable Cooperative,

1915-87

Members per cooperative

250

200

150

100

50

0

1915 1930 1950 1987

11
Figure 6-Number of Fruit and Vegetable Cooperatives

by Region, 1979 and 1987

Northeast

Pacific 162

138

Hawaii 8

8

Mountain 32

23

Midwest 18

13

Lake States 24

19

South 18

11

Southeast ii

Appalachia ig

Northeast ii

U u

0 25 50 75 100 125 150 175 200

\ri 1987

1 2
concentration of cooperatives across regions. The Pacific region

(California, Oregon, and Washington) is by far the dominant region

with more than 44 percent of all fruit and vegetable cooperatives

in 1987. As the leading production area of fruits and vegetables,

both in terms of volume and variety of crops, it would be expected

that this region would have the highest level of cooperative activity. The Southeast (Alabama, Florida, Georgia, and South

Carolina) is the second leading region with more than 14 percent

of the cooperatives and a leading fruit and vegetable production

area. Together, the Pacific region and the Southeast account for

almost 60 percent of the fruit and vegetable cooperatives.

Pacific- With California, by far the Nation’s leading producer of fruits and vegetables, and Washington and Oregon, the

leading tree fruit States, the Pacific region has the largest single

concentration of fruit and vegetable growers in the country.

Cooperatives handle almost every type of fruit and vegetable

grown in the region, including citrus, peaches, pears, avocados,

apricots, grapes, raisins, tomatoes, lettuce, broccoli, cauliflower,

and peppers. Some of the larger fruit and vegetable cooperatives

are there, such as Sunkist Growers, Inc., Van Nuys, CA, for citrus;

Tri/Valley Growers, San Francisco, CA, for canned fruits and vegetables; and Tree Top, Inc., Selah, WA, for fruit juice.

Southeast- The major commodity in the Southeast in terms

of volume is Florida citrus, and Florida is the Nation’s leading producer of citrus and citrus juice products. Thirty-seven of the 44

cooperatives in the Southeast are in Florida, and about two-thirds

of Florida cooperatives market citrus. Among the largest are

Seald-Sweet Growers Inc., Vero Beach, FL, the largest marketer

of fresh Florida citrus, and Citrus World, Inc., Lake Wales, FL, the

largest cooperative processor of Florida orange juice. Cooperatives

are active in marketing most vegetables produced in Florida,

including tomatoes, sweet corn, and celery. Other Southeast States

have cooperative activity on a smaller scale. South Carolina cooperatives market fresh peaches and apples, and Georgia cooperatives

market blueberries, tree fruits, and vegetables.

Northeast- Some of the earliest cooperative activity in the

country occurred in the Northeast with the formation of fruit and

vegetable auction market cooperatives to service growing population centers. Today, the Northeast is home to some of the larger

processor cooperatives, such as Ocean Spray Cranberries, Inc.,

Lakeville, MA; National Grape Cooperative Association, Inc.,

13
Westfield, NY, with its Welch’s brand; and Knouse Foods

Cooperative, Inc., Peach Glen, PA, which produces a variety of

fruit products. Cooperatives in the Northeast market Maine potatoes, New York grapes, Massachusetts cranberries, New Jersey

vegetables, and apples and pears from New York and Pennsylvania.

Appalachia- The only region to show a net gain in the number of cooperatives since 1979, likely the result of efforts to

improve the economic conditions in rural areas, was Appalachia

(Virginia, West Virginia, North Carolina, Kentucky, Tennessee).

Most of the farming operations in this region are fairly small. In

many ways, they resemble the situation earlier in the century when

the number of cooperatives was increasing: many small farmers

and few market alternatives. Fruit and vegetable production has

increased fairly recently as farmers diversified out of tobacco.

With few market alternatives in place for their products, farmers

formed cooperatives, which are now fairly common in Appalachia.

Although each cooperative is a relatively small-volume marketer

of vegetables, collectively they have the potential to be a major

supplier of fresh vegetables to much of the eastern United States.

Cooperatives market apples from North Carolina and Virginia, and

vegetables such as tomatoes, peppers, cucumbers, broccoli, and

cabbage from Virginia, North Carolina, Kentucky, and Tennessee.

Mountain- In general, most States in the Mountain region

produce only a few varieties of fruits and vegetables concentrated

in a few specific areas. Major commodities marketed by cooperatives in this region are Idaho and Colorado potatoes, Colorado

onions and tree fruits, and Arizona citrus. Potato Growers of

Idaho, Inc., Blackfoot, and Colorado Potato Growers Exchange,

Denver, are among the Nation’s leading marketers of potatoes, and

Arizona citrus cooperatives are members of Sunkist Growers, Inc.,

the leading marketer of fresh citrus. Montana, Utah, and New

Mexico have five cooperatives among them, marketing cherries,

canned fruits and vegetables, and fresh produce.

Lake States- Much of the Lake States’ cooperative activity

is centered in Michigan with 16 of the region’s 19 cooperatives

there. Michigan is a major producer of apples, peaches, pears,

plums, grapes, blueberries, and is the Nation’s leading producer

of tart cherries. Cooperatives are active in marketing most

Michigan fruit products, and include Cherry Central Cooperative,

Inc. of Traverse City, the Nation’s largest processor of canned and

frozen tart cherries, and Michigan Blueberry Growers Association

14
of Grand Junction, a leading blueberry marketer. In vegetables,

Michigan Celery Promotion Cooperative of Hudsonville, Michigan

Onion Producers of Grant, Chief Wabisis Potato Growers Co-op

Association of McBrides, and Great Lakes Mushroom Cooperative

of Warren are among the leading vegetable marketing cooperatives.

In Minnesota and Wisconsin, most cooperative activity is in potatoes and vegetables.

Midwest- Farming in the Midwest region has traditionally

been dominated by feed grains, dairy, and livestock. However,

midwestem farmers are looking at alternatives to traditional crops,

and vegetables are being considered as a way to diversify. If vegetable production does increase significantly in the Midwest, market outlets will be needed, and cooperatives would be one viable

method. States with significant fruit and vegetable production are

Ohio and Illinois. Ohio cooperatives are active in marketing tomatoes, pickles, potatoes, and some tree fruits, and Illinois cooperatively markets onions, tree fruits, and mixed vegetables. North

Dakota has a major cooperative marketer of potatoes.

South- Eleven fruit and vegetable cooperatives operate in

this region. Cooperatives in Louisiana and Mississippi are small

fresh vegetable operations. In Texas, most cooperative activity is

in citrus, especially grapefruit. In Arkansas, cooperatives market

blueberries and vegetables.

Hawaii- The number of cooperatives in Hawaii has

remained constant at eight from 1979 to 1987, reflecting entry into

and exit out of business by several cooperatives. Hawaiian cooperatives handle tropical commodities like pineapples, guava, and

papaya, in addition to the “traditional” vegetables found in the continental United States, such as tomatoes, cabbage, celery, and peppers. Most Hawaiian cooperative sales are in fresh form.

Regional Sales Distribution

Cooperative sales of fruits and vegetables, though spread

across almost every State, is concentrated in three regions. The

Pacific, Northeast, and Southeast regions accounted for almost 88

percent of total sales in 1987 (fig. 7). Since these regions account

for the majority, or in some cases all, the U.S. production of many

fruits and vegetables, it is not surprising that 47 of the 50 largest

cooperatives were headquartered in these three regions.

Comparing the change from 1979 to 1987, the trend has

15
Florida citrus growers have made massive investments in facilities

that process single strength juices, concentrates, sections, salads,

dried pulp for cattle feed and by-products from oranges, grapefruit,

and tangerines. This Citrus World plant is at Lake Wales, Fla.
been towards increasing concentration of sales in the Pacific and

Northeast regions, with the Southeast declining and the other

regions either declining slightly or remaining constant. The Pacific

region, and California in particular, has experienced a steady rise

in fruit and vegetable production. Accordingly, cooperatives in the

Pacific region have experienced steady increases in sales as production expanded.

The Northeast also experienced a significant increase in

share of cooperative sales, but for a different reason than the

Pacific. Fruit and vegetable production in the Northeast stayed

fairly constant, with some areas experiencing declines as urban

expansion reduced the amount of available farmland. However,

a number of food processing cooperatives in the region enjoyed

tremendous sales growth from 1979 to 1987. In particular, Ocean

Spray and its line of cranberry-base fruit juices, and National Grape

Cooperative Association with its category-leading Welch’s line of

grape products, experienced significant growth to become not only

two of the larger fruit and vegetable cooperatives, but also leading

processors of fruit and vegetable products.

In the Southeast, much of the decline in cooperative share

of sales was due to two factors. The first was the decline in both

production and product quality for many fruits and vegetables, particularly citrus, during years when severe freezes hit the region.

The second has been increased competition from imported concentrated orange juice. Since citrus is the leading commodity in

the Southeast, many cooperatives have felt the impact of that competition.

Organizational Structures

When fruit and vegetable cooperatives first formed in the

late nineteenth century, the initial organizational structure was fairly basic: growers formed a local cooperative to assemble their

products for the fresh market. As the food industry became more

complex and increased in scale, fruit and vegetable cooperatives

evolved, and their organizational distinctions became less clear.

As a result, a range of organizational types exist.

In terms of organizational structure, most fruit and vegetable cooperatives are centralized (fig. 8). Centralized cooperatives comprise direct farmer membership where control and volume flow from members to the cooperative, and services and

17
Figure 7-Percent of Cooperative Fruit and Vegetable Sales by

Region, 1979-l 987

South 1

Northeast 11 .l

Midwest 1.5

Southeast 15.5

‘\‘\‘\’ ’ ’ ’ ’ ’

Lakes States 6.4

Mountain 5.2

Hawaii 0.232

Pacific 56.3-A

South 0.28

Northeast 14

Midwest

Southeast 1

Appalachian

Lakes States

Mountain 3.4 P

Hawaii 0.25

Pacific 61 .R

Totals do not add to 100% because of rounding.

18
Figure 8-Cooperative Organizational Structures

Centralized

I Cooperative I

Federated

I Cooperative I

Mixed

Cooperative

y&l J$b

patronage refunds flow directly back to members. Centralized fruit

and vegetable cooperatives may extend beyond a localized production area to serve members in several counties, regions, or States.

New membership may be added to increase volume, serve larger

customers, and bring a greater portion of the crop into the cooperative. It is believed that cooperatives better contribute to an

19
orderly market when the majority of any one crop going to market

is regulated by a single cooperative.

New membership may also be added to support diversification of the product mix, as in the case of Ocean Spray, which

added citrus juices to its product line and recruited citrus producers

as direct members. Once a cooperative of only cranberry producers, as Ocean Spray diversified so did its membership.

Less common for fruits and vegetables is the second type

of organizational structure (fig. 8). a federated organization that

serves a membership composed of local or regional cooperatives.

Local cooperatives are, in turn, composed of grower-members. In

federations, service and patronage refunds flow to member cooperatives who then return them to their farmer-members. Control

of the federation lies mostly with member cooperatives through a

board of directors elected from grower-members. Often the federation simply acts as a selling agent for the locals, with most of

the tangible assets and ownership of the commodity remaining with

the local cooperatives.

Federations enable smaller cooperatives to join to improve

their marketing efforts and achieve a lower unit cost, better

serve the needs of large-scale buyers, and strengthen the bargaining

position of individual growers and their local cooperatives. Most

federated fruit and vegetable cooperatives are large-volume

marketers, although there are examples of federated cooperatives

on a smaller scale. Federated cooperatives may be tied by a single

commodity, like citrus for Seald-Sweet Growers and Citrus World,

or a variety of commodities such as Sun-Diamond Growers of

California, Pleasanton, which serves nut, raisin, date, and prune

growers.

Some fruit and vegetable cooperatives use a mix of centralized and federated organizations (fig. 8). In a “mixed” organization, growers are members either by joining the federated cooperative as a direct member or by joining a local cooperative that

in turn is a member of the federated organization. In terms of operating procedures and treatment of members, mixed organizations

are essentially no different than their centralized or federated counterparts.

An example of a mixed organization is Sunkist Growers

Inc., where direct farmer-members, local cooperatives, and packinghouse operations are linked. Farmers may join Sunkist directly

with membership in a local cooperative packinghouse that is also

20
a member of Sunkist, or as a direct member that uses an independent packinghouse licensed by Sunkist. Membership is open to any

citrus grower, who may join it without also joining a local packing

cooperative.

Although direct membership by individual growers is a trait

of the centralized structure, Sunkist is mostly a federated organization; the central Sunkist organization provides marketing and

juice processing services only. The individual affiliated packinghouse, whether it is a Sunkist member cooperative or a licensed

agency, is responsible for its own operations and margins and losses. In a centralized-type organization, the packinghouse costs and

returns would be aggregated and shared by all grower members.

The Sunkist case is just one example of how cooperative

structures can differ. For example, in the citrus industry, in addition to the Sunkist model, there is Golden Gem Growers, Umatilla,

FL, a large centralized cooperative, and Citrus World, Inc., a large

federation.

Regardless of the organizational structure, the same basic

functions are performed. Given the diversity of fruits and vegetables and their product forms, no one structure may be right for all

growers and their cooperatives. As fruit and vegetable cooperatives evolve, they learn more about themselves and their needs, and

alter their organizational makeup.

Cooperative Marketing

Although the term “marketing” is often associated with the

act of selling alone, a marketing organization is more than a sales

staff, and typically performs an array of functions involved in

transforming raw product into a finished consumer good. Fruit and

vegetable cooperatives can be divided into two types: those physically handling and processing raw product for market and hence

called “marketing” cooperatives; and those formed solely to bargain for terms of trade with first-handlers and processors of fruit

and vegetable products, called “bargaining” cooperatives.

Marketing cooperatives are by far the most common and are

thought of as “operational” cooperatives because of their direct

involvement in handling, grading, processing, canning, and freezing raw fruit and vegetable products. These cooperatives usually

take title to the raw product, own and operate the handling and processing facilities, and pool the commodities of members in the

21
-

Sunkist Growers, Inc., Sherman Oaks, Calif., a pioneer citrus marketing cooperative, began advertising campaigns in 1908 and

began moving fresh citrus overseas prior to World War I.
physical marketing operation.

Conversely, bargaining cooperatives, generally do not take

title of the raw product, own few physical assets in terms of plant

and equipment, and instead act as the grower-members’ sales agent

in negotiating with handlers and processors of their products.

Bargaining

Bargaining associations have long had a presence in the

fruit and vegetable industry, coming into existence whenever growers of a commodity received prices below their costs of production,

or were forced to accept other adverse terms of trade. Product perishability often limited growers’ options to a few local handlers

or processors. By uniting in a bargaining association, growers

could enhance their bargaining power to favorably influence terms

of trade in transactions with processors. Members used the bargaining association as a means to represent their collective views

and accomplish their collective goals concerning prices and terms

of trade.

The major Federal legislative acts relating to farm bargaining are the Capper-Volstead Act of 1922, the Agricultural

Marketing Agreement Act of 1937, and the Agricultural Fair

Practices Act of 1967. These laws permit producers to act together

and protect themselves from certain unfair practices. None of the

Federal legislation, however, promotes and implements the adoption of practices to improve the climate for bargaining. Federal

legislation lacks provisions for exclusive agency bargaining, mediation, or arbitration, and the requirement for negotiators to bargain

in good faith. Without these provisions, control over supply, and

particularly the free-rider problem, can be difficult to achieve.

Many States have enacted legislation prohibiting certain

unfair trade practices and discrimination against producers who

have voluntarily joined a bargaining association. While this legislation facilitates continued good-faith bargaining on the part of

processors and handlers, it did not address the free-rider and supply

problems. A “free-rider” is a producer who benefits in the marketplace from the efforts of the bargaining association but is not

a member and does not share the costs of supporting the association. Many States have instituted legislation to help bargaining

associations deal with supply and free-rider problems.

23
Bargaining History

The earlist known grower cooperative effort was in 1867

when the Fruit Growers Union was formed in Hammonton, NJ, to

deal with local over-expansion of fruit production and periods of

glutted markets. Originally acting as the members’ representative

in negotiations with metropolitan produce buyers, the Union eventually grew into a full-fledged marketing cooperative engaged in

shipping, grading, and storing raw product.

The early 1920’s marked the beginning of bargaining associations in processed products. California Canning Peach Growers,

Lafayette, CA, was organized in 1921 to represent 760 peach growers who agreed to market their crops cooperatively to canners.

Low prices, unfair grade standards, and delay in payments for fruit

were the principal reasons behind the growers’ decision to organize. Today, the California Canning Peach Association represents

more than 60 percent of all peach production for canning.

Attempts were made to organize fruit and vegetable producers to bargain with handlers and processors during the 1920’s

and 1930’s. The combination of the Depression and the relative

inexperience of producers with cooperative bargaining caused

many efforts to fail. Those associations that weathered the formative years of the 1920’s and the Depression found themselves fairly

well established in the 1950’s. The postwar period was a time of

rapid growth in food manufacturing and distribution. Since almost

all fruit and vegetable bargaining is with food processors, use of

bargaining associations rose along with the overall growth in the

processed food industry. From 1954 to 1987, the number of fruit

and vegetable bargaining associations increased from 9 to 28, representing a variety of products, including raisins, tomatoes, peas,

pears, potatoes, and prunes.

Bargaining Practices

Fruit and vegetable bargaining associations represent members in negotiations over the terms of trade. Emphasis is placed

on terms of trade rather than price only because other considerations such as payment provisions, delivery point, and quality may

offset a favorable price. In their purest form, bargaining associations neither take title nor handle the product, but may require

members to sign exclusive marketing agreements designating the

association as sole sales agent. The bargaining association has an

24
agreement with the processor to provide representation for producer-members, who sign individual contracts with the buyer, the provisions of which have been determined by negotiations between

the bargaining association and the buyer. Producers deliver their

product directly to buyers, who take title. The association may provide additional services such as verification of grades and weights.

But for the most part, these functions are subordinated to negotiation activities. The fact that almost all bargaining associations

own few physical assets beyond an “office and a phone” is indicative of the emphasis on negotiations.

Some bargaining associations differ in that they take title

to their members’ product. In this case, the grower has a marketing

agreement with the bargaining association only, and it is the bargaining association that contracts directly with the buyer. Such an

association may operate one or more pools, divert products to alternate uses, and average out returns to the members of the pool. An

example of this type of association is the California Canning Peach

Association. By taking title to the product and using a multiple

pool system, the association ensures growers a ready market for

all their production, despite differences in variety, quality, and

location. The association may at times arrange for custom processing, not only as an outlet for surplus production but also to enhance

its bargaining position with processors during negotiations.

Although taking title can increase risk and costs for a bargaining

association, the association benefits from increased services to buyers and is in a stronger position to bargain with processors.

Some bargaining associations evolve from related activities

in a particular industry. The California Tomato Growers

Association, Stockton, began as a service organization to the

California tomato industry. In assisting members with cultural and

farming operations, the association became a reliable source of

information on processor buying activities, keeping members

informed of prices offered by processors. The association took a

leadership role in establishing uniform grade standards, and also

represented growers in legislative matters. In working with processors and buyers, the association sometimes met stem opposition

from tomato canners. Each time the association was frustrated in

reaching a reasonable grower objective, particularly regarding

price, interest increased in forming a bargaining association. In

1973, the California Tomato Growers Association announced its

intention to enter price bargaining, and by 1987 came to represent

25
more than 22 percent of the world’s tomato volume. As a bargaining association, it has been able to initiate a number of improvements in quality standards and delivery terms that have benefited

growers and processors alike.

Bargaining associations are often in a position to provide

leadership in planning and implementing market development programs due to their concentration of grower efforts and ties with the

industry. While marketing cooperatives are concerned with

demand for specific products and brands, bargaining associations

are more concerned with overall demand for a commodity.

Bargaining associations are more likely to be active in market

development when they represent a significant share of the crop

produced in a given area. The more growers actively support a promotion program, the less concern there is with “free riders.”

Apricots, peaches, and pears are examples of crops with bargaining

associations actively involved in market development.

Conditions for Successful Bargaining

Although some requirements for successful bargaining are

endemic to the production and marketing of a specific fruit or vegetable, the following are the primary conditions associations should

strive to satisfy:

Single Commodity Representation- Fruit and vegetable bargaining associations are most effective when dealing with a single

commodity. Organizations such as the Michigan Agricultural

Cooperative Marketing Association, Inc., may represent a number

of crops, but separate commodity committees bargain for each crop

independently.

Buyer Recognition- A bargaining association can be effective only if it gains the recognition of the firms with which it seeks

to bargain. It can do this best when it demonstrates substantial

market power.

Realistic Bargaining Goals- Fruit and vegetable bargaining

associations must temper the desire for high prices with the need

to maintain market outlets. The bargaining association member

must understand the handler/processor is in a competitive situation

as well, and both parties must understand the mutual benefits of

their long-term business survival. Identifying mutual interests and

avoiding confrontations can be an important factor in helping to

gain recognition as a bargaining agent.

26
Disciplined Membership- Individual producers must meet

their obligations if the bargaining process is to be successful.

Members must be disciplined, producing a product that meets

buyer specifications. Marketing agreements must clearly state the

obligations of each member, and make known the consequences

of failing to meet those obligations. In addition, members must

be aware of the importance of meeting obligations. Member discipline and loyalty are functions of the demonstrated performance.

Control Over Supply- Coordination of fruit and vegetable

production is plagued by the problem of matching an often erratic

supply with a relatively stable demand. Although several elements

are required for successful bargaining, the most important is control over supply. Market structure characteristics that enhance control over supply are barriers to entry, lack of close substitutes, geographic concentration of production, and a relatively small number

of producers. Examples of barriers to entry are the geographic production restrictions for cranberries and the length of time to bring

new peach trees into production. Also, perishability restricts producer market options as well as processor buying options, limiting

supply to a smaller area. If bargaining improves the terms of trade

without barriers to entry, other producers will enter the market,

increase aggregate supply and reduce the effectiveness of bargaining efforts.

Marketing

In 1988, more than 300 cooperatives were marketing virtually every fruit and vegetable crop grown in the United States.

They ranged in size from small vegetable packing operations with

sales of less than $1 million per year to large food manufacturers

with sales of more than $500 million annually.

A fruit and vegetable marketing cooperative is directly

involved in the process of bringing a fruit or vegetable product

from the farm gate to the consumer. The process of moving product from farm gate to consumer is one of “adding value,” meaning

each stage of the marketing channel increases the value of a product by performing one or more functions to provide a product as

needed by the next stage. Value may be added through physical

transformation such as grading, freezing, and canning, or via bargaining, storage, and distribution functions. From basic assembly

of raw product into larger loads for shipment, to manufacturing of

27
leading consumer products, cooperatives are active in most of the

marketing functions in the fruit and vegetable industry.

Assembly Functions

Assembly, or the combining of smaller lots into larger

quantities for more economical handling and selling, can be

thought of as the basic building block of a marketing cooperative.

The definition of a marketing cooperative begins with individual

growers agreeing to assemble, or pool their products and resources,

to facilitate one or more marketing functions with the aim of

improving their collective economic position.

For some fruit and vegetable cooperatives, assembly is the

only market function. Members’ production is brought together

and sorted, washed, and graded into larger lots of specified grades

and varieties. When procuring perishable products like fruits and

vegetables, special emphasis is placed on obtaining a sufficient

source of supply in a timely manner. In using a cooperative’s

assembly services, the buyer does not have to deal with the individual grower, thus saving search time in sourcing raw product.

By assembling the production of many growers, the cooperative

is performing a valuable function in providing a reliable source of

raw product for the next stage in the system.

Historically, cooperative activity in the fruit and vegetable

industry began with basic assembly functions. Prior to and into

the early parts of this century, most fruit and vegetable production

was sold through terminal auction markets. There, the production

of many producers was brought together, enabling buyers access

to larger quantities of specific products in a single market. Some

of these auction markets were formed and operated as growerowned cooperatives. This was often in response to the relative disadvantage the individual producer had in bargaining with buyers.

For fruit and vegetable growers in the West especially,

assembly was an important function in solving the problems of

marketing to the large population centers and major markets in the

East. By the late 1800’s, the west coast, particularly California,

was the primary producer of many fruits and vegetables in this

country. The prohibitive costs associated with each local cooperative transporting products to the East prompted the formation of

a number of federated marketing cooperatives. Raw products were

assembled for larger, more economical shipments. Early western

28
tree fruit associations such as Blue Anchor, Inc., Sacramento, CA,

and Diamond Fruit Growers, Inc., Hood River, OR, and citrus associations like Sunkist Growers, Inc., now among the largest fruit and

vegetable cooperatives, had their beginnings as federated cooperatives organized to serve eastern markets.

In general, as cooperatives gained exposure to the marketplace through the basic assembly functions, many used the experience to expand their activities into other market functions. As

population grew and market outlets expanded, fruit and vegetable

production expanded as well, with cooperative business volume

increasing accordingly. The size of the typical cooperative also

grew, with the growth coming from two sources. The first was the

addition of new members that provided a more immediate avenue

for growth. The second was the addition of more marketing functions, also known as vertical integration.

Vertical Integration

Vertical integration is defined as the coordination or performance of two or more sequential stages or functions in the marketing channel within a single organization. Since assembly is the

initial step to vertical integration, and is common to all marketing

cooperatives, the term vertical integration for purposes of this

report will represent marketing activities in the fruit and vegetable

industries beyond the assembly function.

Vertical integration takes place for a number of reasons.

One is market failure. Perishable fruits and vegetables require market services provided in or near the production region. If a local

shipper or processor goes out of business, forming a cooperative

to purchase and operate a shipping or processing facility may be

the only recourse for individual growers to maintain a market outlet. Vertical integration in this case is out of the need to provide

market functions not available otherwise.

Another reason for vertical integration is the desire of the

cooperative to capture more of the returns associated with the

value-adding process of a particular product on its way to the consumer. Fruits and vegetables are marketed in a wide variety of

product forms, requiring an equally varied number of market functions such as grading, washing, packing, freezing, canning, and

juicing. Farmers often perceive the performers of these functions,

or “middlemen,” as receiving a higher rate of return than they do

29
as producers. The cooperative may realize a higher return due to

improved coordination of supply with demand. Decisions are made

internally through contracts or managerial edicts rather than

through markets prone to uncertainty and variability. The cooperative then benefits from the efficiencies of improved coordination, and by the value-adding functions.

Cooperatives can also benefit from integration because of

its income-stabilizing effect. Increased specialization in production to attain economies of size has resulted in the loss of some

income stability provided by the diversity of crop and livestock

enterprises on traditional farms. The integration of the farm business into processing via a cooperative may accomplish a degree

of income stabilization, because profits from processing operations

are often highest when production is high and farm prices are low.

Thus, the total profit from production and processing may be more

stable than the profits from either activity alone. A processing

cooperative’s net income would offset to some extent the variation

in income from farming operations.

Integration also allows a cooperative to enter more stable

markets for its products. Prices of many fruits and vegetables at

the farm level can vary considerably from year to year, more so

than the retail price. Integration into more stable retail markets

for processed fruits and vegetables enables the cooperative to pass

on to its members a more consistent return. Also, planning and

coordination of member activities are better served by direct contact with stable retail markets.

Fruit and vegetable cooperatives vertically integrate along

two product forms, fresh and processed, although one cooperative

may be involved in both. While processing can be a complex operation and is the activity most associated with vertical integration,

fresh marketing can also involve a number of distinctive market

functions beyond basic product assembly.

Fresh Marketing

Fresh marketing of fruits and vegetables can be the simplest

form of integration beyond assembly. A fresh marketing cooperative is distinguished from a basic assembly operation when the

cooperative takes an active role in marketing its products. A sales

staff makes contacts with buyers and determines what prices the

cooperative will accept. Conversely, a fresh market assembly

30
cooperative takes a passive approach by using a broker to market

its products. A fresh marketing cooperative then is defined as an

organization that does its own marketing functions.

The fresh market for fruits and vegetables is defined as the

system that provides products in a fresh form for the final consumer. Cooperatives that primarily sell fresh product intended for

processing are not considered fresh marketers in this discussion.

The functions involved in preparing a product for the fresh market

are somewhat different than for processing, regardless of whether

the cooperative does the processing itself or sells to a processor.

While some processors are concerned with obtaining specific varieties and quality, in general fresh marketers have a greater concern

with product quality in terms of appearance and ripeness. For

example, while the purchase of a fresh apple or orange is greatly

affected by appearance, a similar purchase for applesauce or orange

juice has much less to do with the original appearance of the raw

product. Often raw product used in a juice or sauce has been

rejected for the fresh market.

Achieving and maintaining quality of fresh fruits or vegetables requires a number of specific functions. Product sorting

and grading must be precise, and harvesting and timing of delivery

must be properly assessed to ensure that the product reaches the

consumer at the proper level of ripeness. Fruits and vegetables

sold fresh are far more perishable and fragile than their processed

counterparts. Maintaining fresh product quality requires careful

handling, as with shock resistant containers and refrigerated trucks.

The cooperative framework is well suited to achieve the coordination required to produce a quality product for the fresh market,

particularly with the use of pooling. Pooling enables the cooperative to average the returns to a particular grade, which in turn

spreads the benefits of grading more equitably among members.

Integration of fruit and vegetable marketing in the late 1800’s

was in products intended for the fresh market, since most products

at that time were purchased in fresh form. Terminal auction markets

were the primary market outlet, some of which were operated as

cooperatives. As large retail buyers began to bypass terminal markets for direct contact with growers, terminal markets declined.

Merchandising practices changed, and buyers began to use grower

cooperatives as a “one-stop” source of supply. Cooperatives gained

experience in marketing directly to large buyers and developed their

own programs to service a wider range of markets.

31
As the breadth and scope of fruit and vegetable markets

grew, smaller local cooperatives were limited in their ability to provide market representation and services on a national level. Locals

marketing similar products found it to their mutual benefit to form

marketing federations to provide concentrated marketing services

for their members. Sunkist Growers, Inc., and Blue Anchor, Inc.,

were early federated fresh marketers in California, and are characteristic of the typical pattern of federated marketing cooperatives

for west coast fruit and vegetable producers that began in the late

1800’s. The Florida Citrus Exchange, now known as Seald-Sweet

Growers, Inc., and one of the larger fresh marketing citrus cooperatives, began in the early 1900’s as a federated marketing cooperative.

Cooperatives are also active in marketing fresh vegetables,

but on a smaller scale in terms of sales volume and overall industry

presence compared with the fruit marketing cooperatives mentioned above. While cooperatives market a wide variety of vegetables to the fresh market, none is easily identifiable as an industry

leader. Overall, fresh vegetable cooperatives have less national

distribution and are limited to regional markets.

The reasons fresh fruit cooperatives are generally more

dominant are not well defined, and may be due to their larger number. Another reason is the relative geographic dispersion in the

production of fruits and vegetables and its effect on the market

structure for fresh produce. Fruit production is somewhat more

concentrated than vegetable production, which is characterized by

many varieties of vegetables produced across a wide range of

States. For example, large independent brokers dominate marketing of fresh tomatoes because they are in the best position to react

quickly to market signals and source production from any region.

Cooperatives are at a disadvantage to independent brokers because

they are formed to market the production of a specific set of growers, and therefore cannot react to market signals and source tomatoes from any region in the same manner. Further, the high perishability of tomatoes limits the time in which a specific set of

growers are “in the market.” A cooperative would then have a

much shorter time to serve a large buyer who demands a consistent

supply most of the year, which is more feasible for a broker who

can follow the crop as it matures. Cooperatives do market tomatoes regionally, but the limitations of marketing member-product

only and the relatively short marketing season work against coop32
eratives becoming major suppliers to high-volume buyers. The

fresh tomato market scenario is found in other vegetables such as

sweet corn and peppers, limiting cooperative market shares in these

commodities as well.

Fruit marketing cooperatives, on the other hand, benefit in

the marketplace from concentration of production and relatively

lower perishability for many crops. For example, Washington

apples are available at the grocery store year-round. Larger cooperatives are more easily formed because of the close proximity of

growers and the ability to store apples for many months, enabling

the cooperative to capture a significant portion of the fresh apple

supply. For citrus and other tree fruits, similar production concentration facilitated cooperative formation. Independent brokers also

operate in fresh fruit markets and often purchase products from

cooperatives. By being in a position to offer a year-round supply,

as well as being one of the few market options available for a given

product, fruit-marketing cooperatives are more likely to achieve

a larger market share than their fresh vegetable counterparts.

Although fresh fruit markets have a greater cooperative

presence than those for fresh vegetables, there is potential for cooperative growth in the fresh marketing of both. From 1977 to 1987,

total per capita consumption of fresh fruits and vegetables

increased 11 percent, due largely to increased awareness of nutrition and diet. Not only has overall volume risen, but markets have

become more segmented, with more specialty products and a

greater emphasis on quality.

With their ability to coordinate the production practices of

many growers, cooperatives are in a position to react to the increasing

demand for a high-quality or specific variety product. Cooperatives

can quickly and accurately communicate the need for a product to

the membership. If cooperatives can perform better than other market

participants in coordinating production practices, they can increase

their share of the fresh produce market, as well as increase efficiency

by providing more of the products consumers want.

Processing

Cooperatives are active in most phases of fruit and vegetable processing, with many of the largest cooperatives deriving

most or all of their income from the sales of processed products.

Processed fruits and vegetables as an industry is characterized by

cooperatives that are mostly larger than their fresh marketing coun33
terparts. In 1987, 59 fruit and vegetable cooperatives marketed

processed products valued at more than $3 billion, representing

more than half of total cooperative sales of fruits and vegetables

as shown in figure 9. Processing cooperatives averaged more than

$55 million in sales per cooperative, whereas fresh (which includes

sales to processors) cooperatives averaged a little more than $8

million in sales per cooperative.

Fruits and vegetables are processed into a wide variety of

canned, frozen, dried, and other product forms. Overall consumption of processed fruits and vegetables has decreased in the past

decade, while fresh produce consumption increased. Consumption

of canned fruits and vegetables declined and frozen and dried consumption has increased slightly. Consumers generally perceive

Figure 9-Cooperative Sales of Processed Products versus

Fresh Products, 1987

Thousand dollars

Fresh 1

2769987

Processed

3346737

Cooperative Sales

1 Fresh includes sales to processors.

* Processed is sales of processed products only.

Number

of Cooperatives

by Function

Fresh

276

Processed

58

34
frozen fruits and vegetables as closer to their fresh counterparts

than canned products in terms of taste and nutrition.

Although the consumption of canned fruits and vegetables

has declined overall during the past decade, cooperatives have been

able to maintain their business volumes and increase market share

in such areas as canned tomato and apple products. On the west

coast, in particular, the number of cooperative-owned canning

plants has grown since 1970, many as the result of private processors going out of business and cooperatives purchasing and operating those plants. Canning cooperatives in California are involved

heavily in canning tomatoes and tomato products. In Washington,

cooperatives are major canners of apples and apple products.

The number of cooperatives engaging in fruit and vegetable

freezing activity continues to grow as the overall frozen food category expands. Most freezing cooperatives are in Florida,

California, and Oregon. Florida cooperatives process primarily

frozen citrus juice concentrates, while those in Oregon and

California process frozen fruits and berries. In dried fruits, while

there has been some merger activity in recent years, the entrance

of existing cooperatives into dried fruits has offset somewhat the

decline in the number of cooperatives marketing dried fruit. Ocean

Spray markets a dried cranberry product called “Craisins,” and

Cherry Central, Inc., markets a variety of dried cherry products.

In traditional dried fruits such as raisins, prunes, and figs, cooperative activity is concentrated among a few large firms.

Evolution of Cooperative Processing

Fruit and vegetable cooperatives were initially fresh marketers because at the time of their formation, most fruits and vegetables were consumed in fresh form. As processing technologies

were developed on a commercial scale, particularly for canning,

fruits and vegetables were the first food products to extend their

shelf life.

Historically, processing operations were a residual outlet

to the fresh market for low-grade, culled, or excess production. As

production of fruits and vegetables expanded and became increasingly concentrated, the problem of excess production for the fresh

market intensified, as perishability limited market options. Fruit

and vegetable growers began to form processing cooperatives as

alternative outlets for excess production. Cooperatives were often

35

at the forefront of developing processing technologies, primarily

because of a more immediate need to develop alternative uses for

members’ production.

Cooperative processing on a large scale began after 1910

with dried fruits, principally prunes, peaches, and apricots from

California. Drying extended the marketing season, created new

product uses, and provided an alternative to the fresh market.

Cooperatives were among the early canners of fruits and

vegetables on a commercial scale. Eugene Fruit Growers began

canning vegetables as early as 1915 and, after a number of consolidations with smaller canning operations, became Agripac, Inc.,

Salem, OR, now a large vegetable processor. Cooperative canning

developed substantially after 1930, with a peak of 88 cooperatives

engaged in canning fruits and vegetables in 1939. Since then, the

number of all canning operations has declined by more than half,

though cooperative canners declined at a slower rate. By 1963,

there were still 70 canning cooperatives. As investor-owned canners closed down, local growers, wishing to maintain a home for

their product, formed cooperatives to own and operate local canneries.

In 1987, there were about 35 cooperative canners, with the

decline in numbers due to both the decline in canned consumption

and mergers of smaller cooperatives into larger operations. The

most significant example of cooperative growth through acquisition and mergers has been Tri/Valley Growers. Created in 1963

by a merger of Tri/Valley Packing Association and Turlock

Cooperative Growers, both of which began canning operations in

1932, Tri/Valley today is a major canner of fruit and tomato products. Tri/Valley has acquired the assets of several investor-owned

firms and absorbed the operations of two failed cooperatives. The

most recent was the 1983 acquisition of California Canners &

Growers. Tri/Valley absorbed most of CalCan’s membership and

acquired many of its brands, including the Libby label. The net

result has been a 50-percent increase in sales. While much of the

cooperative pack is sold under private label and in food service

markets, many Tri/Valley products are nationally distributed under

the Libby and S & W labels.

Cooperative freezing of fruits and vegetables followed canning, as freezing technology was later in developing, and because

refrigeration needed to keep frozen products in stores and homes

had yet to be developed and adopted on a wide scale. Once home

37
refrigeration became common, the frozen food category expanded,

sometimes at the expense of canned products. By 1959,40 cooperatives were freezing fruits and vegetables. Often, cooperatives

added freezing to their canning lines to diversify product offerings

and to react to increased demand for frozen product. Today,

Agripac, Inc., and Norpac Foods, Inc. of Stayton, OR, are the two

largest cooperative vegetable freezers, yet both had their origins

as canners and still can a significant amount of product. Although

the total number of fruit and vegetable cooperatives has declined

by more than 50 percent since 1959, cooperative freezer numbers

fell by only 25 percent to about 30. The number of cooperative

freezers has been increasing since the mid-1970’s. when as few as

12 cooperatives were freezing fruits and vegetables.

Although there is significant cooperative activity and related success stories for almost all processed fruit and vegetable products, one product area that typifies best both cooperative success

in marketing and the incentives to forward integrate into processing

is fruit juice.

Fruit Juice: Cooperative Success and Innovation

Marketing of fruit juices is a good area for close examination due to the large cooperative presence and cooperatives’ innovative role in developing products and markets.

Ocean Spray: Market Leadership Ocean Spray

Cranberries, Inc., is the Nation’s leading marketer of cranberry

products. Formed in the early part of this century, Ocean Spray

originally sold only fresh cranberries. One early marketing challenge was that cranberries were regarded as a holiday fruit, thus

limiting Ocean Spray’s market season and potential demand for the

product. Also, as consumer tastes and buying habits changed,

overall cranberry consumption began to decline. Rather than limit

itself to efforts to expand fresh cranberry consumption, Ocean

Spray invested substantially in product development and merchandising activities.

In the early 1960’s, Ocean Spray diversified into juice

drinks with the formulation of Cranberry Juice Cocktail. Blended

drinks, such as Cranapple (cranberry-apple) and Cran-Grape

(grape-cranberry), were introduced later in the 1960’s as Ocean

Spray made a large-scale commitment to the canned and bottled

juice-drink market, Ocean Spray was one of the early companies

38
Ocean Spray Cranberries, Inc., took the cranberry from the bog,

added innovative product development in kitchen laboratories with

superior management and marketing expertise, and became the

Nation’s leading marketer of cranberry products.
to market blended juice drinks, and is considered a leader in the

creation of a larger, more varied fruit juice market.

In 1976, sales of cranberry juice drinks were augmented by

the inclusion into the cooperative of grapefruit growers from

Florida’s Indian River region and the subsequent addition of a line

of citrus drinks.

In 198 1, Ocean Spray became the first juice manufacturer

in the Nation to offer juice-drinks in aseptically packed “paper bottles.” The single-serving containers fit well with increasingly onthe-go consumer lifestyles, and the addition of the aseptic carton

also enabled Ocean Spray to enter the apple and orange juice categories.

By the mid-1980’s, the Ocean Spray product line included

more than a dozen juices and juice drinks in five different size containers, and accounted for more than 80 percent of the cooperative’s sales. The balance of Ocean Spray’s sales are a line of cranberry sauces as well as fresh cranberries.

Ocean Spray’s rapid rise in sales has made it one of the

larger companies in the United States. In 1974, Ocean Spray was

ranked number 9 16 in Fortune magazine’s list of top 1,000 companies. By 1988, Ocean Spray had risen to a ranking of 382, one

of the larger increases of any company over that time period. A

combination of factors contributed to Ocean Spray’s success. First

and foremost was the total commitment of grower-members to new

product development by making necessary changes in production

practices and pooling procedures needed to facilitate a large-scale

marketing program. Second, since Ocean Spray members already

produce most of the Nation’s cranberries, efforts to expand the

market for processed cranberry products would benefit them more

directly than a cooperative with a relatively small share of a commodity’s production. Finally, Ocean Spray took advantage of consumers’ increasing desire for healthy, high-quality products.

Tree Top: Meeting the Needfor Alternative Uses of Apples

Tree Top Inc., Selah, WA, the world’s largest apple juice processor,

arose from both grower need and consumer acceptance. In the

1950’s. Washington apples were being dumped into the Columbia

River because there was no processor to handle them. As late as

1960, many Washington growers were paying to have their culled

or excess fruit dumped or buried in canyons. A handful of

orchardists recognized the need for a strong processing apple outlet, and in 1960 they formed Tree Top, Inc. The handful of growers

40
_.---.

Apples become apple juice ready for the supermarket shelf in this

Tree Top, Top, Inc., processing plant at Selah, Wash.
has grown to more than 3,500 grower-owners in the WashingtonOregon-Idaho area. In its 29 years of existence, the cooperative

has grown from an outlet for what was once a waste product to one

of the Nation’s leading fruit processors.

In the beginning, Tree Top processed single-strength

(ready-to-drink) apple juice. In 1963, it offered frozen apple juice

concentrate, the first such product to be marketed in the country.

Frozen juice was developed to ensure packing in fluctuating crop

years because of its longer shelf life. Also, it could be more economically shipped to all parts of the country than heavier singlestrength apple juice.

Tree Top has expanded its product line beyond juice to

dried apples, applesauce, and pear-apple juice blends to serve peargrowing members. Tree Top also has a variety of packaging concepts, including single-serve aseptic containers, and, following the

wine industry’s lead, 1 -l/2 gallon containers.

Tree Top owes its existence to the need to handle fluctuating apple production, and to the need for an outlet for apples not

suited for the fresh market. In contrast, Ocean Spray expanded

from fresh market dominance to fruit-juice leadership because of

recognition that fresh cranberry demand was too seasonal, and that

different products were needed to spread the market season. These

cooperatives have grown to be the Nation’s largest marketers of

apple and cranberry juice products. Both have served the interests

of their membership by developing products using member-grown

products as the primary raw component.

Other cooperatives also play significant roles in the fruit

juice industry. Welch’s, the marketing subsidiary of National

Grape Cooperative, Inc., is the leading marketer of grape juice in

the United States. National Grape acquired the already successful

Welch’s brand through the purchase of Welch Grape Juice

Company, with whom the cooperative had a long-standing grape

supply arrangement.

There is also a strong cooperative presence in citrus juices.

Sunkist, widely recognized in fresh citrus, is known for a number

of processed products as well. Concentrated juice and essential

oils are sold to manufacturers who market a variety of Sunkist

brand products under a licensing agreement. Citrus World, a

Florida cooperative, markets the successful Donald Duck brand,

and Texas Citrus Exchange, Mission, TX, has a number of strong

regional grapefruit juice products. A number of other cooperatives,

42
This juice bottling plant is owned by Welch Foods, the marketing

subsidiary of National Grape Co-operative Association.

43
particularly in Florida, also process juice and concentrates which

are sold for further manufacturing.

Branded Products Marketing

Most fruit and vegetable cooperative brands are associated

with processed products. U.S. fruit and vegetable processors generally use three outlets for marketing processed products: retail

grocery chains with their own distribution systems, food wholesalers that primarily supply smaller food chains and independent

retail stores, and food service wholesalers. Although the foodservice area has been growing substantially, retail grocery stores

remain the primary marketing channel for most processed fruit and

vegetable products. Processed fruit and vegetable products for

retail sale are marketed as either branded or private label. Branded

products carry the processor’s label or trade name throughout the

Table l-Selected cooperative fruit and vegetable brands, 1987

Cooperative Brands’ Product2

Agripac. Inc.

Allied Grape Growers

Calavo Growers of California

Cherry Central Cooperative

Citrus World, Inc.

Knouse Food Cooperative

Lindsay Olive Growers

National Grape Cooperative Assn.

Ocean Spray Cranberries

Seald -Sweet Growers, Inc.

Sun-Maid Growers

Sunkist Growers, Inc.

Sunsweet Growers, Inc.

Texas Citrus Exchange

Tree Top, Inc.

Tri/Valley Growers

Valley Fig Growers

Diamond A

Colony

Calavo

Wilderness

Donald Duck

Lucky Leaf

Musselman

Lindsay

Welch’s

Ocean Spray

Cranapple

Craisins

Scald Sweet

Sun-Maid

Sunkist

Sunsweet

Texas Star

Tree Top

Libby

S&W

Blue Ribbon

Canned vegetables

Wine

Avocado dips, sauce

Pie filling

Orange juice

Pie filling, sauce

Applesauce

Canned olives

Grape juice, jelly

Juice blend

Cranapple sauce

Dried cranberries

Citrus salads, juice

Raisins

Orange soda

Prunes

Grapefruit juice

Apple juice

Canned fruits

Canned fruit/veg

Dried figs

’ Selected brands.

* One of the more common products associated with the brand

44
distribution channel, and may be sold on a national or regional

basis. Private label products brands are owned by the retail or

wholesale distributor. Table 1 shows some of the major national

and regional brands of fruit and vegetable products marketed by

cooperatives.

While cooperatives do market a number of brands, many

cooperatives are heavily involved in processing generic fruit and

vegetable products or in processing products to a semifinished state

for sale to manufacturers of finished products. The distinction

between branded and private label has important implications forprocessing industry structure. Developing a national brand

requires large investments in product development and advertising

and promotion, and is one reason most national brands are in the

hands of a few large, multiproduct firms. Cooperatives generally

have fewer resources to develop national brands. RJR Nabisco,

owner of the well-known Del Monte brand canned fruits and vegetables, had total food sales of more than $10 billion in 1987,

almost twice as much as all fruit and vegetable cooperatives combined and more than 12 times the total sales of the largest cooperative. As a result, many cooperatives have greater success in

developing private label markets than national brands.

Most fresh fruit and vegetable products are not branded,

though there is an increasing interest in the use and benefits of

branded fresh produce. A few cooperatives have strong brands in

fresh produce, particularly Sunkist in fresh citrus and Calavo

Growers of California, Tustin, CA, in fresh avocados.

Though cooperatives market most fruit and vegetable products, most cooperatives are identified along a single commodity

line. Sunkist is synonymous with citrus; National Grape and its

Welch’s brand with grapes; Sun-Maid Growers of California,

Kingsburg, with raisins; Sunsweet Growers, Inc., Yuba City, CA,

with prunes; Tree Top with apple juice; and Ocean Spray with cranberries. Few cooperatives market a variety of fruit and vegetable

products on a large scale. One reason is that cooperatives are usually formed by growers to market a specific set of commodities.

Another is that in a competitive food industry, food manufactures

sell “products,” while the cooperative and its grower-members sell

“commodities.” The food manufacturer is selling pies, not blueberries or cherries, and will substitute among a variety of fruits

according to their success in the marketplace. The cooperative on

the other hand is concerned with the welfare of a specific fruit or

45
Fruit and vegetable products account for a major portion of cooperative-owned brands entering the retail trade. Brands cover fresh

product, processed individual products and combinations, and snack

foods.
vegetable product in the marketplace, and cannot easily shift product mixes. Therefore, as fruit and vegetable cooperatives integrated further into the food system, their products reflected their role

as organizations representing their grower-member interests in the

marketplace.

Cooperative Marketing Tools

and Strategies

Fruit and vegetable cooperatives use different mechanisms

and strategies to coordinate activity within the association and better compete in the marketplace. Market agreements and pooling

facilitate fruit and vegetable growers uniting to collectively market

their products, and marketing orders and working arrangements

enable the cooperative to interact with other organizations to

improve their competitive position as well as contribute to the

overall stability of the industry.

Marketing Agreements and Contracts

Although membership is voluntary, cooperatives may

employ legal devices such as contracts or marketing agreements

detailing the rights and duties of each party. While not all fruit and

vegetable cooperatives have written agreements with their members, cooperatives increasingly use contracts to better coordinate

grower-member activity as production and marketing activities

become more specialized.

Marketing agreements or contracts specify the rights and

responsibilities of both members and cooperatives and provide a

means of coordinating activities. Through the agreement, the

members are turning over to the cooperative some of the day-today decisionmaking on the marketing and handling of their crops.

In turn, the cooperative agrees to provide certain marketing services for all members in an equitable manner. Whether the agreement is between an individual grower and the cooperative in a centralized structure or between cooperatives in a federated structure,

the functions are the same: coordinate the transfer of products and

services in an orderly fashion and clearly define the methods used

in determining the sharing of costs, returns, and ownership of

assets.

Contracts and agreements between fruit and vegetable

cooperatives and their members are essentially no different than
contracts long used by other businesses and their grower-suppliers.

In some industries such as processed vegetables, marketing contracts are the predominant exchange mechanism. When the first

fruit marketing cooperatives were formed in the past century, they

adopted contractual arrangements similar to those growers used

in dealings with processors and packers. However, since cooperatives are owned by and operated for their member-patrons who

have an investment in its operations, contracts assume greater

importance. Each grower-member’s financial well-being depends

in part on the performance of other grower-members. Marketing

contracts are commonly used by fruit and vegetable cooperatives

to ensure compliance with grower-member obligations to the cooperative.

Cooperatives also differ from investor-owned firms in that

they are often required to receive and market the production of

their members. The reason for forming some cooperatives is to

create a “home” or market for grower-members’ product. Also,

to ensure a definite volume of business, cooperatives often require

the entire crop of each member to be marketed through the association. Fruit and vegetable crops are often prone to wide variability in yields, and in large crop years there may be a need to find

additional outlets for excess production. If the excess supply must

be diverted to other uses such as processing or export, special provisions in marketing agreements define these activities and specify

distribution of costs and returns from them.

Like their investor-owned counterparts, fruit and vegetable

cooperatives face the concern of handling a highly perishable product. Orderly marketing requires a degree of control over the product by the cooperative. Contracts may include provisions for planting and delivery schedules and minimum grades and quality. The

obligations a specific contract carries for each party depend in part

on the amount of control needed by the cooperative.

In some instances, as with processed fruits and vegetables,

cooperatives require a greater degree of control over decisions on

acreage, which varieties to plant, and when to harvest. Processing

can encompass a number of sequential operations needing precise

coordination. Perishability adds a “ticking clock” to the efficiency

of the operation. Marketing agreements are used to coordinate harvesting with processing by specifying to grower-members the timing and quantity of raw product delivery. In some cases, the cooperative itself owns and operates the harvesters, a practice also com48
mon for other firms.

Processing cooperatives are constrained by fixed plant

capacity in the short run, restricting the amount of raw product that

can be economically handled. One way to control supply is to limit

membership, although cooperatives still face the problem of members’ ability to expand acreage. To minimize the chance of excess

production, processing cooperatives sometimes use acreage allotments to control supply.

Since perishability limits the distance from which certain

raw products can be economically acquired, processing cooperatives are limited in the number of potential grower-members.

Processing facilities typically require a minimum level of production over a period of years to be economically feasible, and therefore use market agreements to maintain long-term relationships

with local farmers.

Although cooperative marketing of fresh fruits and vegetables is also affected by product perishability, marketing agreements

with the grower-members are less common and often less specific

than for processed product. One reason is that the cost and complexity of the plant and equipment used to prepare fresh product

for market is usually much less than for processing. Although fresh

marketers need a consistent flow of raw product, fresh markets are

less costly to operate at lower capacities than the processor. They

therefore have less need for long-term market agreements to maintain minimum production levels.

In addition, cooperatives have greater flexibility in marketing fresh products. Excess or off-grade production can be sent to

processors or export markets. Processing of many fruits and vegetables began as a residual market outlet for low-grade product,

and although many processors now contract for specific grades and

qualities, processing is an important outlet for excess fresh market

product. Fresh marketing cooperatives, having more market

options, use fewer or less restrictive marketing agreements.

Marketing agreements also often reflect the differences in

annual versus perennial production. While fruits and vegetables

have many common characteristics, there is a clear distinction in

production cycles. Almost all vegetables are annuals, meaning

supply in a given area can change quickly with changes in the relative profitability of competing crops. Therefore, cooperative

coordination of vegetable production, particularly for processing,

often requires long-term contracts to ensure both a stable member49
ship and an adequate supply of a specific crop.

Cooperatives marketing fruit are ensured the potential of

adequate supply and membership by virtue of the biological production lags endemic to fruit production. For example, in tree fruit,

the results of planting decision are often not realized for 5 years

or more. The result to the fruit cooperative is that membership and

production change more slowly and over a longer period than their

vegetable counterparts.

Since grower participation is voluntary, marketing agreements must be acceptable to grower-members over the long run to

maintain stability. The advantage of specific agreements that coordinate member production and practices is a more orderly marketing process. However, excessive control may inhibit new membership and cause member exodus in times of low returns. When

a cooperative assumes greater control over member product, it also

assumes greater responsibility for member welfare.

Pooling

For fruit and vegetable cooperatives, pooling is the most

frequently used mechanism for allocating member returns. Pooling

is a distinctive cooperative practice in that decisions on marketing

and price are made by cooperative management. All members’

crops are pooled to be sold by the cooperative’s marketing specialists, permitting the cooperative greater flexibility in meeting the

needs of buyers.

A major benefit from pooling is reduction of price risk.

Since all pool members receive an average price for their commodity, the risk to a member of receiving a price lower than the average

pool price is eliminated. Losses from lower-than-average price

sales are spread among all pool members, as are gains from higherthan-average price sales. In addition to concentrated marketing

efforts, the advantages of pools in obtaining higher prices are: (1)

a readily available large quantity of commodity, (2) access to and

time to use more complete market information, and (3) a possible

increase in market power. Large customers are often willing to pay

a premium for guaranteed qualities and quantities of supply, which

a pooling operation can provide.

Pooling also benefits members by offering income diversification when payments are based on returns from a variety of

products. Also, pooling simplifies accounting procedures, espe50
cially since most fruit and vegetable products are commingled in

either a fresh packed or processing operation.

Market pool members receive the same average price for

each unit of commodity delivered to the pool. Adjustments are

made to the pool price to reflect differences in commodity quality

delivered, transportation cost, or services rendered. The cost of

operating the pool and any capital retains are deducted from the

proceeds of the pool sale. In a typical pool, the producer receives

an advance payment at delivery equal to what other members

receive per unit of raw product delivered. As the contents of the

pool are sold, progress payments are made. Once all product is

sold and operating expenses deducted, the remaining proceeds are

divided among pool members in a final or “equalization” payment.

Differences in quality or grade delivered by the individual member

are usually handled in the final payment.

Fruit and vegetable cooperatives generally use a seasonal

pool; that is, the product from a given crop harvest season constitutes the market pool supply. These can be divided into single and

multiple pools. In a single pool, all product from several producers

are commingled and sold by the cooperative. In multiple pools,

products may be segregated on the basis of grade, variety, time of

delivery, and/or location, with each category constituting a separate

pool. The number and design of market pools are the choice of

cooperative management and its members. In choosing the number

of pools to operate, a cooperative must balance the equitable treatment of growers with what is feasible in terms of accounting for

the returns and expenses to each pool. In general, as raw products

become more differentiated in terms of variety, quality, time of harvest, and geographic dispersion, more pools are used.

Marketing Orders and Cooperatives

Marketing orders are a mechanism enabled by government

legislation that fruit and vegetable growers may use to promote collective orderly marketing of their products. The economics of fruit

and vegetable production is characterized by periodic gluts and

shortages, particularly for tree fruits, and a relatively slow-changing and inelastic demand. In many cases, the producer bears an

inordinate amount of risk and the costs associated with it.

Cooperatives are a way for producers to improve their economic

position, and market orders are another designed to deal with prod51
uct variability and to accommodate fluctuating supplies with market demand.

Market orders rely primarily on quality control, market

flow, and volume management regulations to enhance the level and

stability of producer returns. Quality control regulations, the most

common order provision, specify minimum marketable grades and

sizes that result in more consistency and uniformity in product

shipments. Market flow regulations, primarily used for citrus, limit

fresh market shipments in periods of greatest product availability

to achieve more uniform prices and avoid product waste. Volume

management, the least common fruit and vegetable order provision,

can be used to regulate supplies of fruits going into primary domestic markets either through reserve pools, producer market allotments, or diversion of excess supplies to alternative outlets.

California raisins and prunes, each with strong bargaining associations, are among the few commodities with direct supply control

provisions. Several supplementary provisions are widely used to

improve physical product characteristics, promote the product

through advertising, and improve the marketing system.

Forty-one fruit and vegetable marketing orders were active

in 1988, with cooperatives operating in almost all commodities

affected by an order. Orders are scattered throughout the United

States, but are concentrated on the west coast, with tree fruits the

most common commodity (29 standing orders).

Cooperatives play an important organizational and leadership role in the creation and maintenance of market orders. Legal

statutes require that marketing orders be initiated and voted upon,

by producers. Active support by cooperatives representing a

majority of producers is an essential element for successful marketing orders.

Working Arrangements With Other Firms

Working arrangements that extend specific operations of

individual firms are common in the business world. Fruit and vegetable cooperatives often enter into working relationships with

other cooperative or noncooperative businesses. Working arrangements vary from informal arrangements for occasional processing

services to the creation of separate business entities in a joint venture. Reasons for working arrangements are as diverse as the participating organizations, but for the most part the strengths and

52
weaknesses of the individual cooperative are mirrored by the joint

activities they develop.

Economic needs underlie the formation of all working

arrangements. In the case of fruit and vegetable cooperatives, reasons for participation in joint undertakings center on efforts to: (1)

better utilize existing facilities and personnel, (2) avoid investments in additional plant and equipment, (3) ensure reliable supplies of raw commodities for processing, (4) gain access to new

markets, and (5) improve market position by broadening product

lines.

Cooperative

Short-Term Processing Contract-In the early 1980’s.

Keystone Foods, Inc., a Pennsylvania fruit processing cooperative,

aggressively sought to use its excess processing and storage capacity. Keystone became a processor-for-hire, a common occurrence

in the food processing industry, and performed contractual processing and storage services for a number of firms.

Welch Foods experienced a higher than anticipated grape

production by its members during the same period. Also, to ensure

an adequate supply, it decided to supplement members’ production

with a limited number of grape contracts from nonmember patrons.

The combined effects strained Welch Foods processing facilities.

Management’s first obligation was to handle the production of its

members. If nonmember grape supplies interfered with the delivery schedules of its own growers, a membership relations problem

could develop. At the same time, the obligation to handle nonmember production remained. The solution came from Keystone,

which provided additional processing and storage capability

through contract arrangements.

Features of the 2-year agreement included: (1) specification

of minimum and maximum quantities of grapes Keystone would

be required to process and store each year, (2) schedules for receiving and processing grapes, (3) storage specifications, and (4) specification of Keystone’s reimbursement. The contractual agreement

between the two ended amicably when Welch eventually expanded

its own processing facilities.

Joint Safes Agency-Lindsay Olive Growers of Lindsay,

CA, and Willamette Cherry Growers, Inc. (now known as Oregon

Cherry Growers) of Salem, OR, formed a joint-sales agency known

53
as Lindsay International, Inc. Lindsay International was established by Lindsay Olive Growers in the early 1970’s as a separate

cooperative, both as a vehicle to strengthen its own sales operation

and to attract and facilitate entry of other cooperatives into a coordinated marketing effort. In 1976, Willamette Cherry Growers

linked with Lindsay International for sales efforts.

Willamette, a processor of Maraschino cherries marketed

in bulk form, decided to emphasize retail and food service sales

in the mid-1970’s. This required a different marketing approach.

Lindsay recognized that olives and Maraschino cherries represented a desirable product mix, as both canned olives and cherries have

similar end uses but are not direct substitutes. Lindsay’s previous

experiment with Maraschino cherries proved unsuccessful because

of insufficient volume for the capital-intensive brining process.

Willamette’s realization that its cherry volume would be insufficient to support an adequate sales network and Lindsay’s limited

production capability made both organizations receptive to the idea

of a marketing alliance for Maraschino cherries.

The arrangement met the expectations of both organizations. Lindsay International has established itself as a prime marketer of specialty food products. Willamette’s branded cherries

went from a zero sales position to a dominant position in the

national market, and Lindsay olive sales also increased at an accelerated pace.

There are many examples of working arrangements

between fruit and vegetable cooperatives. Cooperatives often feel

a need to work together to solve mutual problems, recognizing they

share many of the same goals and philosophies. As the food industry becomes increasingly concentrated and competitive, it is likely

that more cooperatives may explore and implement arrangements

with other cooperatives.

Noncooperative

Joint Venture-Cooperatives enter into joint ventures with

other businesses for the same reasons they enter into working relationships with other cooperatives. Although there is no clearly

established, legal definition of a “joint venture,” the term is usually

associated with a separate entity, owned and controlled by a small

number of participants to carry on a specific, limited economic

operation. Participants agree to share expenses, margins, losses,

54
risks, and control of the arrangement, but each remains independent.

One of the larger ventures serving fruit and vegetable growers is between Curtice-Burns, Inc., and Pro-Fat Cooperative, Inc.

It was organized by Agway Inc., a Syracuse, NY, supply cooperative, and Pro-Fat Cooperative, Inc., a Rochester, NY, growers’

marketing association. Curtice-Bums is an investor-owned food

processor in which Pro-Fat members are stockholders along with

other investors. Pro-Fat owns the processing facilities, supplies

the product to Curtice-Bums, oversees member performance, controls volume, and pays members for raw product. Curtice-Burns

leases the processing facilities from Pro-Fat, operates the plants,

and markets the finished products. Earnings are divided equally

with Pro-Fat.

Pro-Fat members benefit from the joint venture with

Curtice-Bums by having an assured market for their production and

from sharing in the profits from the sale of processed products.

Curtice-Burns has built a number of strong regional brands, and

Pro-Fat participates in a marketing program that would be costly

and difficult to develop alone.

Other Types of Cooperatives

Growers also use cooperatives to perform functions other

than marketing such as storage, irrigation, or purchasing supplies.

Suppfy Cooperatives-Production and marketing of fruits

and vegetables requires a variety of inputs and supplies. Since the

early 1900’s. growers have formed cooperatives to reduce costs of

supplies and equipment through volume buying. One of the first,

Fruit Growers Supply Company of Sherman Oaks, CA, was formed

to supply pallets and wooden boxes to citrus packinghouses. Fruit

Growers Supply operated three lumber mills and box factories, and

constructed a carton-fabricating plant when this use becamestandard. Today, in addition to cartons, Fruit Growers Supply

makes available to members picking supplies, irrigation hose, fertilizer, and miscellaneous packinghouse supplies such as belts,

gloves, and adhesives.

Similar supply cooperatives were formed to service Florida

citrus growers. Highland Exchange Service Cooperative of

Waverly supplies members with packing materials, as well as serving poultry and celery processors and packers. Citrus Central, Inc.,

55
of Orlando is a federated cooperative manufacturing and supplying

cans to citrus processors.

Supply cooperatives are also formed to support coordinated

marketing operations. Maine Bag Company, a subsidiary of Maine

Potato Growers, Inc., Presque Isle, was formed in 1945 to manufacture bags for the cooperative’s marketing operations. By the

early 1980’s, the company began selling bags to other packers

throughout New England and New York. Sales have since grown

to nearly equal the level of its potato marketing operations.

Storage Cooperatives- Some fruits, particularly apples,

can be kept for many months after harvest in cold storage, or even

longer in a controlled-atmosphere facility. Often too costly for the

individual grower, growers have formed cooperatives to construct

and operate storage facilities. Examples of storage cooperatives

are Shoreham Co-op Apple of Vermont and Lake Country Storage

of New York. Though they may engage in some sales activities

for members, these cooperatives are primarily for storage of member product.

Irrigation Cooperatives-Since the late 1800’s. fruit and

vegetable growers have formed cooperatives to supply water for

their crops, especially in the arid regions of the West. Their purpose is to obtain and distribute irrigation water at cost for use on

member cropland.

The Strawberry Water Users Association of Payson, UT, is

an example of growers of a specific commodity forming a cooperative for irrigation. Other irrigation cooperatives have been

formed to supply water to a specific region, serving the growers

of a variety of commodities.

Future Issues for Fruit and Vegetable

Cooperatives

Cooperatives have a long and active history in marketing

fruits and vegetables, and will continue to be a leading factor in

the industry. Cooperatives will remain one of the better ways for

fruit and vegetable growers to market their products and improve

their economic positions. Given their diversity in size and products

marketed, a variety of specific issues face the individual fruit and

vegetable cooperative. Collectively, cooperatives in an increasingly competitive food industry all are affected in some way by a

number of common issues.

56
More than two dozen fruit cooperatives have export operations and

account for a third of the U.S. fruit exports. Though only about a

half-dozen cooperatives export vegetables, they still account for

about 6 percent of U.S. vegetables exports.
Mergers and consolidations are concentrating food businesses into fewer and larger operations with far greater resources

than the average cooperative for developing and maintaining markets. Mergers and acquisitions are often more difficult for cooperatives because of the nature of the organization itself. If merger

is to diversify income, a reason commonly cited in mergers or

acquisitions, are growers of one commodity willing to pool returns

and costs with growers of other commodities in balancing payments to each? Unique arrangements such as joint ventures and

copacking will continue to be a way cooperatives can merge

resources.

As food processing industry mergers and acquisitions continue, bargaining associations will find that their philosophies

change. The new owner of a processing operation may have a different view of farm bargaining than the prior owner, and the bargaining association will have to develop a new relationship. This

is critical to the success of bargaining.

While the food industry in general is becoming increasingly

concentrated, food markets are becoming more specialized. With

the proliferation of new fruit and vegetable varieties and products,

more specific markets are being created. Many cooperatives will

find increasing opportunities to serve growing market niches that

require fewer market development resources than efforts to develop

widely marketed, nationally branded products.

Per capita consumption of fresh fruits and vegetables has

risen steadily over the past decade, with product variety and quality

demands by the consumer increasing as well. As a coordination

mechanism, cooperatives with their close links to growers are in

an excellent position to provide a variety of quality fresh fruits and

vegetables, and will see opportunities to increase market share in

a number of product areas. Also, the fresh produce industry is less

concentrated and characterized by smaller firms than food manufacturing, meaning cooperatives are generally more competitive

with their investor-ownedcounterparts. However, there has been

an increase in branded produce by both cooperative and noncooperative food companies, which has important implications for the

structure of the produce industry. If it continues, the industry will

likely become more concentrated if brands come to dominate the

fresh market as they do in processed products. Cooperatives have

the opportunity to be among the early leaders in branded produce.

Increasingly, fruits and vegetables consumed in the United

58
States are imported from other countries. One reason is that consumers are developing tastes for more exotic products produced

only in other countries. Another is that more countries have

entered production of traditional fruits and vegetables grown in the

United States, and as relative costs of production and distribution

have narrowed, imports have increased. Grapes and apples from

Chile, vegetables from Mexico, and frozen concentrated orange

juice from Brazil are a few of the imported commodities that compete directly with U.S. production. While brokers benefit from the

flexibility imports offer, cooperatives are at a disadvantage because

of their primary obligation to market the production of their members. In addition, cooperatives are limited by law in the amount

of nonmember business they can do, restricting the quantities they

could import to no more than 50 percent of member business.

To procure product from outside the United States, a few

cooperatives have enlisted foreign members. Legally the same as

domestic membership, acquiring foreign membership is clearly the

most direct way cooperatives can obtain product on a worldwide

scale while maintaining a legal cooperative structure. Most fruit

and vegetable products are limited by perishability to seasonal

availability. Imports offer cooperatives the opportunity to obtain

products produced contra-seasonally in other countries to enhance

domestic supply toward year-round availability. Cooperatives will

look more to foreign membership to improve their competitive

position and broaden their marketing programs as the competition

from imported products increases.

Desire by consumers for food product safety is a concern

in the fruit and vegetable industry. Cooperatives are well suited

to monitor grower production practices to ensure safe products.

Also, as more efficient and safe production practices become available, cooperatives can quickly adopt the most effective practices

through their close contact with growers.

Cooperatives’ organizational structures will continue to

evolve as they respond to changes in the food industry and changes

in the makeup and interests of their membership. Current pooling

practices will be re-examined and new methods explored as new

products and members are added. Continued emphasis will be on

balancing the need to reduce individual member risk with allocating returns equitably in line with the member’s performance.

The relations between a cooperative and its members is a

reflection of the performance by the cooperative in marketing

59
member products. Recruiting and maintaining membership will

depend in part on the ability of the cooperative to educate members

on the nature of cooperative operations and what constitutes good

performance. For a fruit and vegetable cooperative that deals with

perishable commodities prone to supply variability, net returns as

a performance criterion has to be considered over the long term.

Member education will continue to be essential in helping growers

understand that cooperatives aim to enhance grower income.

Marketing agreements and contracts will be increasingly

looked at for facilitating better member relations by spelling out

exactly what the cooperative will do for the member, and what

members’ obligations are to the cooperative. As cooperatives look

to tailor membership to specific varieties, quality, and volumes,

marketing agreements will play an important role in recruiting and

defining membership.

Author: James A. JacobslAgricultural Economist

60
U.S. Department of Agriculture

Agricultural Cooperative Service

P-0. Box 96576

Washington, D.C. 20090-6576

Agricultural Cooperative Service (ACS) 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 agency (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.

ACS publishes research and educational materials and issues

Farmer Cooperatives magazine. All programs and activities are

conducted on a nondiscriminatory basis, without regard to race,

creed, color, sex, age, marital status, handicap, or national origin.