United States

Department of

Agriculture

Agricultural

Cooperative

Service

ACS Research

Report

Number 104

Bargaining

Associations

in Grower-Processor

Markets for Fruits

and Vegetables
Bargaining Associations

in Grower-Processor Markets

for Fruits and Vegetables

Julie lskow and Richard Sexton

Department of Agricultural Economics

University of California, Davis

Fruit and vegetable bargaining associations representing 36 commodities have

an average market share of 60 percent and an average membership of 310

growers. In addition to raw product price, the terms of trade most frequently bargained for are “time and method of payment” and “quality standards.” The buying industries faced by growers appear to be quite concentrated.

Forty percent of the associations reported having less than five processors

in their market area, and 67 percent indicated that the four largest processors

purchase more than 75 percent of their association’s production.

Higher prices and more stable prices were the most frequently cited objectives of the participating associations. Lack of volume control and failure to get

adequate membership were reported as the most common obstacles encountered by associations in achieving their objectives. Limited alternatives are

available if bargaining fails. The most frequently cited course of action was to

take legal action to enforce “good faith bargaining” laws where applicable.

Key Words: Cooperatives, associations, bargaining, negotiation, processing,

fruit, vegetables.

ACS Research Report 104

March 1992

Price: $2.00 domestic, $2.50 foreign
Preface

This report presents the findings of a national survey of active fruit and vegetable bargaining associations. Its purpose is to provide a current and indepth

description of cooperative bargaining in grower-processor markets for fruits and

vegetables.

More than 85 percent of all active fruit and vegetable bargaining associations located in the United States participated in the study by filling out a written

questionnaire. Completion of the questionnaire was, in most cases, followed by

extensive inperson interviews with survey respondents. In addition to identifying

the scope of cooperative bargaining and the economic and structural characteristics of the bargaining environment, the survey and interview questions were

designed to obtain information pertaining to association financing and decisionmaking, association objectives and benefits, and the actual negotiation process.

This study is an outcome of a cooperative research agreement between

the Agricultural Cooperative Service (ACS), U.S. Department of Agriculture, and

the Center for Cooperatives at the University of California, Davis. The authors

gratefully acknowledge the survey participants, without whom this study would

not have been possible. In addition to completing a written questionnaire, many

participants spent several hours of their time during inperson interviews providing detailed information about their bargaining association, and sharing their

experiences and viewpoints. Special thanks also go to Leon Garoyan of the

Center for Cooperatives at the University of California, Davis, for his help in

designing the survey instrument. Thanks also go to the University of Vermont,

Burlington, where the senior author is now employed.
Contents

Highlights ...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Market Alternatives for Buyers ............................................................. .ll

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ii
Highlights

Survey responses were obtained from fruit and vegetable bargaining associations representing 36 commodity groups. These associations have an average

membership of 310 growers and an average market share of 60 percent. Half of

the participating associations began negotiating in the late 1960’s to mid1970’s, with the average age of all 36 associations being 25 years.

In addition to bargaining for raw product price, the terms of trade reported

as most frequently negotiated include “time and method of payment” and “quality standards.” Only 25 percent of associations reported negotiating for the

quantity of raw product to be purchased by processor/handlers. In most cases,

the total volume of raw product to be purchased is predetermined prior to price

negotiations.

The survey results indicate that the buying industries growers face are

quite concentrated. Forty percent of the associations reported having fewer

than five processors in their market area, and 67 percent indicated that the four

largest processors purchase more that 75 percent of their association’s production.

Bargaining associations have limited alternatives if negotiations fail. The

course of action most frequently cited was to take legal action to enforce “good

faith bargaining” laws where applicable. In some cases, the fresh market or outof-area processors represented viable alternatives. More than half of the associations indicated there are no good alternative crops to be grown in place of

the bargained commodity.

Although one-third of the associations have considered processing member production as an alternative to bargaining, only one association reported

actually having done so. However, almost half reported that some processors in

their market area grow some of their own raw product.

For 44 percent of the associations studied, processing cooperatives are

present in their market area. These processing cooperatives handle an estimated average of 42 percent of the commodity processed. In most cases where

bargaining associations exist in the presence of processing cooperatives, some

growers belong to both.

Nearly 20 percent of the associations reported having a quality- or volumecontrolling marketing order in place for the commodity for which they negotiate.

Aside from the presence of a marketing order, only 2 of 36 associations have

attempted to manage production or control supply.

. . . 111
Bargaining Associations

in Grower-Processor Markets

for Fruits and Vegetables

Julie lskow

Richard Sexton

OVERVIEW

Cooperative bargaining associations operate in

many fruit and vegetable markets in the United

States. These associations are organizations of

growers that negotiate terms of trade with processor-buyers of their raw product. A bargaining association generally does not become involved with

the handling of raw product, nor does it have any

mechanism to control producer supply.

A primary objective of bargaining associations

is to increase grower returns by counterv&ling the

market power of buyers. However, the structure

and the nature of the market within which an association exists may affect the extent to which it is

successful in achieving this and other bargaining

objectives. The purpose of this report is to provide

a comprehensive and up-to-date description of

cooperative bargaining for fruits and vegetables.

The focus of the study is on the economic and organizational characteristics of these associations and

the market environment in which bargaining

occurs.

A small body of literature describing cooperative bargaining in agriculture already exists. The

most comprehensive discussion is included in a

study conducted by Helmberger and Hoos (1965).

Other works focus on issues such as the goals and

objectives of bargaining associations (Ladd 1964,

Roy 1970, Lang 1979, Bunge 1980), factors which

affect the outcome of negotiations (Babb et al. 1969,

Carpenter 1969, Bunge), and the legal aspects and

history of cooperative bargaining (Lang, Bunge,

Hoos 1982). Most of these studies, however, are

quite dated and do not reflect today’s bargaining

environment. Moreover, with the exception of a

few case studies (Babb et al., Bunge), there is little

information on the procedures and methods of the

actual negotiation process.

To obtain updated information and a comprehensive description of cooperative bargaining, a

national survey of bargaining associations was conducted. The survey included a written questionnaire and personal interviews with managers and

board members of participating associations.

Survey results are presented in this report. Section

1 discusses the methodology used to identify the

surveyed population; section 2 describes the survey instrument; and section 3 contains the final

survey results and draws some comparisons with

previously conducted surveys by Lang, Biggs

(1982), and Skinner (1984).

SURVEYED POPULATION

The first step in the survey process was to identify

associations that would participate in the study.

Since the focus of the survey is on grower-processor markets for fruits and vegetables, an attempt

was made to locate all active fruit and vegetable

bargaining associations in the United States. A list

of active associations was compiled with input

from the Center for Cooperatives at the University

of California, Davis and USDA’s Agricultural

Cooperative Service, and from lists associated with

previously conducted surveys of bargaining associations. Managers of existing associations and other

persons knowledgeable about the processing fruit

and vegetable industries provided information as

well. In total, 29 active fruit and vegetable bargaining associations from across the United States participated in the survey.

The next step in the process involved making

telephone contact with a manager or officer from

1
each of the 29 active associations. The telephone

conversation was to familiarize the potential participants with the objectives of the survey and request

that they participate in the study by completing a

written questionnaire. Each association was also

asked to forward copies of their bylaws, membership agreements, and association-processor (or

grower-processor) contracts.

All 29 associations agreed to participate in the

study. If the questionnaire was not returned within

1 month, a followup letter was mailed; after 2

months a second followup letter and an additional

questionnaire were sent out. In some cases, it was

necessary to mail a third questionnaire and make

another telephone contact.

The overall response rate resulting from this

process was 86 percent, with 25 of the 29 associations returning a completed, usable questionnaire.

Of the 25 responding associations, 6 are multiple

commodity associations (i.e., negotiate for more

than one commodity) and 19 are single commodity

associations. The individuals that completed the

questionnaire included association presidents, vice

presidents, directors, general managers, division

managers, and assistant managers.

After obtaining preliminary results from the

written questionnaires and reviewing the bylaws,

membership agreements, and contracts received

from the participating associations, personal interviews were conducted with willing respondents.

The majority of the interviews were conducted in

person at the bargaining cooperative’s location. In

some instances, where it was not feasible or at the

request of the respondent, personal interviews

were conducted over the telephone. In total, interviews were conducted with 23 of the 25 associations that returned the written questionnaire. The

personal interviews gave respondents an opportunity to clarify, refine, and expand upon their survey

responses and allowed for the collection of additional information.

QUESTIONNAIRE

Because the study included both single and multiple commodity associations, two survey instruments were designed. Though the two survey

instruments contained identical questions, the survey designed for the multiple commodity association contained two parts. Part one included general

questions appropriate for all crops in the multiple

commodity association, and part two included

crop-specific questions to be answered for each

commodity.

These survey instruments were designed to

obtain information in five broad areas:

1. The scope and prevalence of cooperative

bargaining in grower-processor markets for fruits

and vegetables;

2. Methods of financing and decisionmaking

within the associations;

3. Economic conditions and structural characteristics of the bargaining environment;

4. Procedures and methods of the negotiation

process; and

5. Association objectives and services/benefits provided.

Questions contained in the survey instruments

were formulated using information from the existing literature on cooperative bargaining

(Helmberger and Hoos, Babb, Carpenter, Bunge,

Hoes) and previously conducted surveys by Lang,

Biggs, and Skinner.

SCOPE AND PREVALENCE OF

COOPERATIVE BARGAINING

Location of Active Associations

Active fruit and vegetable bargaining associations

were identified in nine States, and responses came

from eight of the nine States in which these associations were located. The largest number of associations was in California and Washington, and these

States were the most frequently represented in the

survey with 10 and 8 responses, respectively. Table

1 shows the complete distribution of responses by

State.

2
Commodities for Which the Associations

Bargain

Overall, the 25 responding associations represent

36 commodity groups, since 6 of the 25 associations

negotiate for more than one crop. For the most

part, the operations and negotiations for individual

crops in these multiple commodity associations

take place separately. Thus, for purposes of this

study, each of the 36 commodities or commodity

groups will represent and be referred to as a separate bargaining association.

Table 2 identifies the commodities for which

the 36 responding associations bargain and indicates whether these commodities are annuals or

perennials. This distinction will be continued

throughout the reporting of the survey results.

Note that because some associations negotiate for

the same type of commodity, the 36 associations

represent only 24 different commodities.

The number of different fruit and vegetable

crops negotiated through bargaining associations

has remained fairly stable over the past few

decades. Skinner reports that in 1971 existing associations bargained for 25 different crops, and in

1978 and 1982 associations negotiated for 26 and 25

different crops, respectively. Associations participating in Lang’s survey (in the mid-1970’s) bargained for 24 different fruit and vegetable commodities.

Table l-location of active bargaining associations

State

associations

Responding

associations

Active

California

Idaho

Maine

Michigan

New York

Ohio

Oregon

Utah

Washington

10

2

1

1

0

1

11

1

a

10

2

1

1

1

2

1

10

Dates Negotiations Began

The participating associations have been negotiating raw product price for an average of 25 years.

Assuming the number of years an association has

been negotiating raw product price defines its age,

the oldest association participating in the survey

began negotiating for price in 1922, and the most

recently formed bargaining association began price

negotiations in 1987.

The most frequently reported dates for beginning price negotiations are from the late 1960’s to

the mid-1970’s, during which 18 of the 36 associations began bargaining for price. This fact is not

surprising, given that the Agricultural Fair

Practices Act (Federal legislation) was passed in

1967. This act was passed in response to producer

complaints of discriminatory activities by processors because of growers’ participation in, or

attempts to organize, bargaining associations.

Additionally, 9 of the 18 associations that began

price negotiations during this period were in

California, where State legislation concerning

unfair practices (1961) and subsequently an amendTable 2-Commodities for which associations bargain

Annual crops Associations Perennial crops Associations

Carrots

Cauliflower

Chilipeppers

Corn

Cucumbers

Greenbeans

Peas

Potatoes

Tomatoes

Apples 1

Apricots 1

Asparagus 2

Avocados 1

Cherries 1

Hazelnuts 1

Limes 1

Olives 1

Peaches (cling) 1

Peaches (freestone) 1

Pears 2

Plums 1

Prunes 1

Raisins 1

Raspberries 1

Total 25 29 Total 19 17

3
ment involving bargaining in good faith (1974)

were passed.

There is a notable difference in average association age between the annual and perennial crop

associations. The average age of the annual crop

associations is 21 years, whereas the average age

for perennial crop associations is 29 years. Also, 11

of the 12 most recently formed associationsthose formed in 1974 or later-are annual crop

associations.

Terms of Trade Negotiated

In addition to negotiating raw product price for

their growers, bargaining associations negotiate for

numerous non-price terms of trade that can affect

growers’ income. Only one of the 36 associations

did not negotiate for terms of trade other than raw

product price. Of the 35 associations that did negotiate non-price terms of trade, 31 began doing so

the same year that price negotiations began, 3

began negotiating non-price terms after they had

been negotiating price for several years, and 1 association had been negotiating non-price terms for 2

years prior to price negotiations.

Table 3 identifies the terms of trade for which

associations negotiate. The most commonly negotiated non-price terms of trade are time and method

of payment and quality standards. These terms

were reported as the most frequently negotiated

non-price terms of trade in the Lang survey as well.

In interviews with survey respondents, issues

concerning how and when growers are paid were

of primary concern. A common complaint was that

growers would often end up “financing the processors” with whom they negotiate by not receiving

payments for crops until well after delivery. Most

associations also felt the need to specify minimum

quality standards as part of negotiations. Other

terms of trade frequently bargained for include

methods of grading, duration of contracts, and

responsibilities and rights during production.

Only 25 percent of the associations negotiate

for the quantity of raw product to be purchased by

processors. For many crops, quantities to be

exchanged are decided upon between individual

growers and their processors rather than through a

4

negotiation process involving the association. In

other cases, processors purchase all member production each year, or growers and processors have

term contracts spanning several years. Thus, for

most associations, quantity is not an issue for negotiation. The actual time at which the quantity to be

purchased by processors is decided upon will be

discussed in the section covering the negotiation

process.

Of the 36 associations, 30 have negotiated

price and non-price terms of trade every year since

the first year they began bargaining. Only six experienced periods during which negotiations did not

occur. Respondents mostly attributed these periods

to “adverse or poor economic conditions” and

inadequate association membership. In two cases,

the periods where negotiation did not occur were

in the first few years of the association’s existence.

Table 3-Terns of trade for which associations bargain

Terms of Trade

Annual crop Perennial crop

All associations associations associations

Price

Time, method of

payment

Quality standards

Methods of grading

Duration of contract

Production

rights/responsibilities

Premiums, discounts

Transportation

Weighing procedures

Ownership and cost of

seed

Provision of containers

Spraying and dusting

Raw product handling

procedures

Quantity of product

Delivery/unloading

schedules

Harvesting time

Planting time

36 19 17

33 19 14

29 16 13

23 16 17

22 11 11

21

15

15

14

15

10

9

9

12

12

12

11 8 3

9 3 6

8 5 3

5 4 1

3 3 0

12

5

12

0

7

0

Irrigation equipment used 1 1 0

Other 5 5 0
Membership

With few exceptions, one of the most important

concerns expressed by survey respondents in personal interviews was their association’s inability to

attract membership. Many felt their association

would be a “stronger and more unified force to be

reckoned with” in negotiations if their membership

could be increased. Table 4a shows current membership in active associations. The smallest association has 4 members and the largest has 2,140 members. It is interesting to note that the range of

membership, average membership, and total membership is greater for perennial crop associations

than for annual crop associations.

Respondents were also asked to estimate, if

possible, the potential number of members or the

total number of growers in their market area. Of

the 36 associations, 31 were able to provide this

number. Thus, the percentage of total potential

growers that are members of an association could

be calculated for each of these associations. These

calculations are presented in table 4b. Though the

membership numbers are larger in absolute terms

for perennial crop associations, when looking at

association membership as a percentage of potential membership the numbers are more comparable.

Perennial crop associations have an average of 54.6

percent of their total potential membership, whereas annual crop associations have an average of 67.8

percent of their total potential membership.

These numbers are very close to those reported by Lang for the mid-1970’s, where bargaining

associations represented 47.9 percent of the growTable 4a-Number of member-growers

All Annual crop Perennial crop

associations associations associations

Range of

membership 4 - 4 - 1,275 82 - 2,140

50 -

71 

Table 4b-Member-growers

25 -
visiting or making telephone contact with nonmembers, and holding informational meetings for

both member and nonmember growers.

Value of Bargained Crop

Respondents were asked to estimate the dollar

value of the quantity sold through or negotiated by

their association for 3 crop-years. This question

received the lowest response rate (69 percent) of

any question in the survey instrument. Even in the

followup personal interviews, the information

could not be obtained. In some cases where this

question was not answered, the respondent was

just unwilling to spend the time necessary to provide the information. In most cases, however, the

information was unavailable. Lang suggests that

because bargaining associations very rarely take

title to the crop for which they bargain, they often

do not keep records of this type.

Tables 5a and 5b report, for those associations

responding, the dollar value of bargained crops

and the average dollar value of bargained crops per

association for 1986,1987, and 1988. Given that the

Table Sa-Dollar value of bargalned crops

All crops Annual crops Perennial crops

$ mil

1988 779.440 357.566 421.874

1987 686.503 313.798 370.705

1986 668.880 332.666 336.214

Response Rate 67% 53% 82%

Table Sb-Average dollar value of bargained crops

Der assoclatlon

crops

All crops Annual crops Perenn

$ mil

1988 32.477 35.757 30.134

1987 28.521 31.380 26.479

1986 27.870 33.267 24.015

Response Rate 67% 53% 82%

response rate from participating associations was

67 percent (82 percent for perennial crop associations and 53 percent for annual crop associations),

it is clear that the numbers reported here are gross

underestimates of the actual dollar value of all

crops negotiated.

METHODS OF FINANCING AND

DECISIONMAKING

Revenue Sources

Bargaining associations typically receive revenues

from checkoffs, service charges to processors,

annual dues, and membership fees. Many associations receive revenue from more than one source

(table 6).

A checkoff is an amount retained by the association from, and in some specified proportion to,

the sale of members’ crops. In most cases, processors pay growers directly for their crop and the

appropriate checkoff is sent directly to the association. The amount of the checkoff varies with association and is typically specified in the membership

agreement. For most associations, the bylaws state

that the checkoff amount is to be determined by the

Table 6-Methods of flnanclng used by bargalnlng

associations

Method of financing No. of associations

Checkoff:

Flat fee per unit

Percentage of value

Service charge to processors:

Flat fee per unit

Percentage of value

Annual dues:

Per-acre basis

Per-ton basis

Membership fees (one-time fee)

Other

Total responding 3 6

9

16

12

2

6
board of directors and not to exceed a specified

maximum.

Service charges to processors are payments

made by the processors to the bargaining association for services provided by the association. These

charges are intended to recognize that the association relieves the processor of the trouble, labor, and

uncertainty of soliciting and obtaining separate

contracts with individual growers. These charges

are specified in the contracts between the processor

and the association and are in proportion to the

amount purchased by the processor.

Sixty-nine percent of all associations reporting

(25 of 36) use checkoffs as a source of revenue.

Eighteen of the 36 associations use only one source

of financing and over half of these associations use

checkoffs. Of those associations having multiple

revenue sources, more than 60 percent stated that

checkoffs are their largest revenue source. In a 1978

survey conducted by Biggs, 94 percent of the participating fruit and vegetable bargaining associations used checkoffs as a source of revenue.

Very few associations collect annual dues or

charge membership fees; however, many have provisions for both in their membership agreements.

In personal interviews, several respondents indicated that these revenue sources may discourage

new membership and are no longer used.

Additional sources of revenue reported by

associations include income from such activities as

the publication of a magazine, the administration

of a State marketing order, and the selling of gift

packs.

Decisionmaking

Several questions were asked to determine the

structure of decisionmaking in the associations.

Respondents were first asked how voting is conducted. Most associations (81 percent) give each

member one vote. All other associations give members votes in proportion to the quantity they negotiate through the association.

Boards of directors for the associations range

from 4 to 80 persons. The average board for all

associations has 14 members. With respect to the

issues to be negotiated with processors, 21 associations (58 percent) have their board make these decisions. However, for nine associations the negotiation issues are also decided by a specific negotiation or bargaining committee which, in most cases,

includes some member-growers. Biggs reported

similar findings in his 1978 survey, with 65 percent

of associations having negotiation issues decided

upon by boards.

Table 7a gives the breakdown of persons

responsible for deciding the issues to be negotiated. One association reported that the chief negotiator is in on the decision of the issues to be negotiated, and another association reported that the vice

president of operations is involved as well. In personal interviews, many respondents stated that

though a specific group or individual is technically

responsible for these decisions, the ultimate decisions are often made by members.

Table 7b indicates the persons responsible for

presenting associations’ positions and carrying out

negotiations in the bargaining process. Nineteen

respondents (53 percent) reported that a committee

Table ‘la-Responslbillty for decldlng issues to be

negotiated

Board of Directors 2 1

Membership 4

Negotiation Committee 18

Other 2

Table 7lrResponslblllty for negotlatlng

General Manager or Executive Secretary

With a committee of grower-members

Without a committee

Committees of grower-members

Division Heads

Board of Directors

Association President

Vice President, Operations

Total Responding 36

2 1

12

9

7

4

2

1

1

7
rather than a single individual is responsible for

carrying out negotiations. The single individual

negotiators included 9 general managers or executive directors, 4 division heads, 1 president, and 1

vice president of operations. No associations

reported using hired negotiators.

A large majority of associations reported that

the general manager or executive secretary negotiates for their association. More than half of these

associations indicated that a committee of growermembers accompanies the general manager during

negotiations. In the Biggs survey, negotiations were

conducted by a producer committee in 59 percent

of the associations, a manager in 20 percent, and a

board in 18 percent. Three percent of associations

used a hired negotiator.

Table 7c indicates who makes the final decision to accept or reject terms of trade in negotiations. The most frequent response was the board of

directors. Though the general manager is the most

likely to represent the association in negotiations,

that person is least likely to exercise control in

accepting final terms of trade. It is interesting to

note that only seven of the associations reported

that the same group or individual both negotiates

and accepts/rejects final terms of trade. And for

eight associations, grower-members make the final

decision.

MARKET STRUCTURE AND THE

BARGAINING ENVIRONMENT

Several questions in the survey instrument were

designed to obtain information about the bargaining environment within which a

ate. The focus of these questions was on market

control and market alternatives, 

and selling industries.

Table 7c-Authority for final decision In negotlatlons

Board of Directors 17

Bargaining Committee 9

General Manager 2

Grower-members 8

Total Responding 36

Table 8-Percent of total productlon negotlated by

assoclatlons

Percent of total All Annual crop Perennial crop

production associations associations associations

Less than 25 1 0 1

25-49 10 3 7

50 - 74 15 9 6

75-100 10 7 3

Total Responses 36 19 17

Percentage of Production Bargained Through

Associations

It is generally agreed that a key factor in a bargaining association’s effectiveness is its ability to control a substantial portion of supply of the raw

product (Helmberger and Hoes, Bunge, Cobia

1989, Tomek and Robinson 1990). If an association

“controls” more of the raw product or has a greater

market share, then fewer alternative supply

sources exist for processor-buyers.

To get an indication of associations’ market

shares, respondents were asked to estimate the percentage of total production in their geographic area

bargained through their association, where total

production is all member and nonmember production. Table 8 indicates the distribution of responses.

Over two-thirds of the associations (25 of 36)

indicated that they had a market share greater than

50 percent. The average percentage of production

or market share negotiated through all 36 associations is 60.3 percent, although considerable variation is apparent in the table. This result is very similar to the average percent of association

membership to potential membership (table 4b) of

61 percent.

i

I

8
The Buying Industry

Several questions were asked to determine the

extent of market power or concentration in the

buying industry. The first of these was to get, in

absolute terms, the number of processors in an

association’s market area. The response to this

question is summarized in table 9a. There is a clear

difference between numbers of processors in market areas for annual versus perennial crops. Annual

crop associations, in general, have a smaller number of processors in their geographic market area.

As Lang suggests, this indicates that growers of

annual crops have a smaller number of market outlets or alternatives for their crop. Eight associations, all representing annual crops, had only one

or two processors in their market area. With respect

to conducting negotiations, however, annual crop

associations bargain with a larger percent of the

Table Sa-Number of processors In association’s

market area

Number of All Annual crop

processors associations associations

Perennial crop

associations

l-4 14 12 2

5-15 15 5 10

More than 15 6 1 5

Total Restxndina 35 18 17

Table 9b-Percentage of area processors with

whom associations negotiate

Percent All

associations

Annual crop Perennial crop

associations associations

Less than 25 2 0 2

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

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

75 - 100 26 15 11

Total Responses 35 16 17 Total Responses 33 17 16

processors in their marketing area than do perennial crop associations (table 9b). In total, nearly 75

percent of all responding associations negotiated

with 75-100 percent of all processors in their market area.

One common measure of market structure or

concentration is a four-firm concentration ratio. A

buyer concentration ratio is defined as the percentage of total industry purchases accounted for by

the four largest buyers. The survey asked participants to estimate 1) the percent of their area’s total

output (member and nonmember production) purchased by the largest four processors, and 2) the

percent of their association’s (or members’) total

output purchased by the largest four processors.

Tables 10a and lob provide these estimates.

For the associations responding, the average

Table lOa-Percentage of total area production purchased by the four largest processors

Percent All Annual crop Perennial crop

associatfons associations astiations

Less than 25 0 0 0

25-49 3 1 2

50 - 74 8 1 7

75-100 23 17 6

Total Responses 34 19 15

Table lob-Percentage of association production

purchased by the four largest processors

Percent All Annual crop Perennial crop

associations associations associations

Less than 25 2 0 2

75 - 100 22 15 7

9
percent of their area’s total output purchased by

the largest four processors is 81.9 percent. For 68

percent of the reporting associations (23 of 34), the

largest four firms purchase 75 percent or more of

the area’s total production, and for 12 of these associations, the largest four buyers purchase 100 percent of total production. Lang obtained similar

results, with 70 percent of responding associations

reporting a concentration ratio of greater than 70

percent. These numbers indicate that the buying

industries for processing fruits and vegetables have

been and continue to be quite concentrated.

With respect to the percentage of association

production purchased by the associations’ four

largest processors (table lob), the numbers look

quite similar. That is, buyer concentration ratios for

the participating associations are fairly representative of the concentration ratios for their industries.

The concentration measures reported by associations should be read and interpreted with caution,

primarily because they are merely estimates given

by survey respondents. Moreover, these estimates

reflect concentration in recent years. For many

associations, concentration ratios have varied over

time, gradually increasing in most cases. And finally, in many cases the market areas for individual

growers are smaller than those for an association.

Thus, an individual grower may face even fewer,

and therefore more, concentrated buyers than those

faced by the grower’s association.

Market Alternatives for Growers

The degree of buyer concentration in a grower-processor market provides some indication of alternative markets available to sellers in negotiations

with processors. That is, the higher the concentration ratio in an industry, the more difficult it may

be for growers to find alternative outlets for their

crop if they are unsatisfied with terms of trade

negotiated with processors.

To obtain information on alternatives associations have in lieu of negotiating with processors,

participants were asked to indicate which ones

they might use in the short-term and long-term if

processors refused to negotiate. Long-term refers to

10

a period greater than 1 year. Tables lla and llb

present responses to these questions.

In both the short term and the long term, the

most frequently cited alternative was “to take legal

Table IlaShort-term alternatlves If procsssors

refuse to bargaln

Short-run

aitematives

All Annual crop Perennial crop

associations associations associations

Take legal action 21 10 11

Ship to fresh market 14 3 11

Other local processors 13 3 10

Out-of-area processors 8 1 7

Leave in field 6 0 6

Custom process 4 0 4

Other 13 10 3

Total Respondents 36 19 17

Table lib-Long-term alternatives If processors

refuse to bargain

Long-run All Annual crop Perennial crop

alternatives associations associations assodatbns

Take legal action

Other local processors

Ship to fresh market

Discontinue or reduce

production

Out-of-area processors

Custom process

Other

Total Respondents

17 10 7

13 3 10

1 1 2 9

10 7 3

7 1 6

6 0 6

8 6 2

36 19 17
action.” When questioned further about this alternative in personal interviews, most respondents

referred to a State law which requires “good faith

bargaining.” That is, associations and processors

are required by law to bargain in good faith.

California, Maine, Michigan, and Washington have

such laws. Most respondents felt these laws were

helpful in gaining recognition or credibility from

processors. However, several questioned the law’s

usefulness. Questions were raised with respect to

enforcement of such laws and the difficulty in actually proving that a processor had not bargained in

good faith.

Relying on local processors and shipping to

the fresh market were other alternatives that might

be used if processors refused to bargain, in both the

short- and long-term. Several commodities represented such as potatoes, asparagus, apples, plums,

and pears do have good fresh market alternatives.

Some crops, however, require additional harvesting

and packing procedures before they are acceptable

for the fresh market. For crops where the fresh

market is an alternative, some associations reported using the fresh market as a tool (or “weapon”)

to enhance their bargaining position.

Leaving the crop in the field is an alternative

cited only by perennial crop associations, since for

annual crops, negotiations typically take place

prior to planting. Thus, annual associations would

choose the alternative of not planting, which

accounts for several of the “other” responses in

table lla. For commodities that are not perishable,

storage is another option.

Long-term al terna tives cited by participating

associations are quite similar to the short-term

alternatives. The exception is that 10 of the associations indicated that they would discontinue or

reduce production. Others indicated they would

plant alternative crops.

In answer to a similar question asked in

Lang’s survey, one of the most frequently cited

short-run alternatives was to custom-process, and

the most frequently cited long-run alternative was

to discontinue or reduce production. An explanation for the differences in these results relative to

the present survey is that good faith bargaining

laws in Michigan, Maine, and California had just

recently been enacted (1972,1973, and 1974, respectively) at the time Lang began conducting his survey (1974). Therefore, legal action was not as obvious an alternative as it is today.

When asked if there were additional commodities (other than the crops for which their associations bargain) members could produce without

difficult transition, more than half responding indicated that there were no such alternative crops. For

those that did indicate an alternative crop (11 annual crop associations, 5 perennial crop associations),

8 mentioned some type of grain or seed crop.

A final question was whether the associations

processed any raw product themselves. One of the

36 associations currently processes approximately

15 percent of member production. Twelve of the

other 35 associations had at one time considered

processing member production, and one is considering it at present. The most common reasons given

for not acquiring processing facilities were “start

up costs are too high” or “it just isn’t feasible.” For

those associations that had never considered processing member production, the most frequently

reported reasons for not doing so were “it’s not our

business or our function” and “we want to complement packers, not compete.”

Market Alternatives for Buyers

Just as bargaining associations have options or

market alternatives in negotiating with processors,

processor-buyers have alternatives to bargaining as

well. Market alternatives available to processors

include 1) obtaining supplies from sources other

than the association and 2) discontinuing processing of the raw product.

The most obvious alternative supply source

for processors is nonmember production. This

explains ongoing efforts by associations to increase

their membership or, more importantly, increase

the volume of production negotiated through their

association. Another alternative supply source is

production of their own raw product. Processors

that can vertically integrate into production are less

dependent on the association for supplies.

Respondents were asked to indicate if any

noncooperative processors in their area produce

11
some raw product. Of those responding, 47 percent

(16 of 34) said some processors in their market area

do produce some of their raw product. Of the 16

associations, 14 negotiate with at least one processor that produces its own raw product. This suggests that although processors do vertically integrate, they still depend on the association for a

portion of their raw product.

A third alternative processors have is to not

purchase raw product at all. With few exceptions,

processors purchase and process more than one

different raw product. Thus, if terms of trade are

not favorable to processors, alternative crops can

be processed.

Presence of Marketing Cooperatives

Another element of market structure that can effect

an association’s success is the presence of processing cooperatives in the association’s market area.

Of the 36 associations responding, 16 indicated that

there are processing cooperatives in their market

area that handle the commodity for which their

association bargains. These processing cooperatives

handle an estimated average of 42 percent of the

commodity processed in the bargaining associations’ market areas (15 of the 16 associations

reporting).

Of the 16 associations, 14 had association

members belonging to at least one of these processing cooperatives. The average percent of association membership belonging to these processing

cooperatives is just over 25 percent. Only one association said that it did not allow its members to join

processing cooperatives.

In general, associations agree that the presence of the processing cooperatives in the industry

has both a positive and negative impact on bargaining. With respect to benefits, several associations reported that the cooperatives share important market information with them, which is useful

in negotiations with processors. Two associations

were given processing cost information, something

that is usually considered proprietary. Another frequently cited benefit was industry promotion.

Several associations felt healthy processed product

and retail product demand was due in large part to

the processing cooperative, and others reported

that processing cooperatives “helped to keep the

industry strong.”

The discussion about processing cooperatives

was, however, not without mention of some negative effects on bargaining associations. Some

respondents complained of poor relationships and

lack of communication with the processing cooperatives in their area. Other respondents indicated

that cooperatives are in direct competition for their

membership. One respondent said the cooperative

in his market area actually works against the association.

Overall, there seems to be a “mutual respect”

between bargaining associations and processing

cooperatives. The consensus is that both types of

organizations have a place in the industry, and

each has something to offer.

Members might choose to join both a bargaining association and a processing cooperative for

several reasons. Often the processing cooperative

can offer a grower a slightly higher raw product

price, but the grower’s payment is spread over

time. By being a member of a bargaining association and dealing directly with noncooperative processors, the grower usually gets paid at, or close to,

time of delivery.

Processing cooperative members may also

realize the benefits the association provides in the

industry with respect to the price discovery process, and for this reason might choose to support

the association. Several respondents indicated that

the bargaining association’s negotiated price

becomes a benchmark for the price paid to members of the processing cooperative. Other reasons

for dual membership include growers’ desires to

spread risk or diversify. For those growers who are

members of a closed-membership processing cooperative, bargaining associations provide an outlet

for additional crop.

Marketing Orders and Supply Management

A major concern expressed by associations is lack

of control over production or supply. If certain

market characteristics exist, some control over supply can be attained. These characteristics include a

12
relatively small number of growers, geographically

concentrated production, and barriers to entry

(e.g., the period before trees begin producing).

Another market characteristic that may

enhance supply control is the presence of a qualityor volume-controlling marketing order. Seven of

the 36 responding associations reported that for the

commodity for which they currently bargain, there

exists either a State or Federal marketing order

controlling quality or volume of the commodity

marketed. The purpose of marketing orders is to

foster orderly marketing of commodities, but six of

the seven associations stated that the orders also

contribute to the effectiveness of their association

by restricting volume of product marketed.

Three of the 35 associations reported having

attempted to manage member supply. One association sought to establish a marketing order and

another association had a tree removal program.

PROCEDURES AND METHODS OF THE

NEGOTIATION PROCESS

A major focus of the survey was on the actual

negotiation process between the associations and

the processors with whom they bargain.

Procedures and methods vary with each association and differ somewhat for annual and perennial

crop associations.

Dates of Negotiations and Quantity Decisions

The time of year negotiations occur depends on

type of commodity. Many associations indicated

that a significant part of the process involves information gathering and, therefore, the negotiation

process is continuous. However, most associations

do have a fairly specific time period for bargaining

with processors.

In general, perennial crop associations negotiate with processors after a good estimate of crop

quantity and quality can be obtained, typically just

prior to harvest. Since planting decisions are made

prior to negotiations, total supply is fixed. In 14 of

the 17 perennial crop associations, quantity is

determined before negotiations begin, thus prices

are a function of a predetermined volume. For

perennial crops with alternative uses, however, the

actual amount going to processing may be a function of price.

In annual crop associations, negotiations

almost always take place just prior to planting.

Thus, if growers are unsatisfied with contract terms

they may opt to switch resources to production of

other crops. In some cases, price is negotiated on

the basis of projected supplies, and actual quantity

decisions are a function of price. However, 12 of

the 19 annual crop associations indicated that for

their crop, in most years, quantity is determined

prior to price negotiations. In these cases, either

growers and processors have term contracts in

which quantity is predetermined, processors

always purchase all member production, or quantity decisions are based on processor need rather

than price, and are determined prior to price negotiations. Thus, for more than 70 percent of the associations surveyed, quantity to be purchased by processors is determined prior to price negotiations,

i.e., price is a function of quantity.

Price Negotiations

In general, the prenegotiation phase for most associations is quite similar. The individuals or committees responsible for deciding which issues will be

negotiated and those responsible for negotiating

will go through an information-gathering phase.

Information includes projections of production,

consumption, and prices, as well as the supply and

demand conditions. Associations also use information on costs of production and harvesting. Annual

crop associations obtain this information for both

the negotiated commodity and for alternative crops

members could grow.

The two types of information most associations would benefit from but are unable to obtain

are wholesale prices for the processed product and

processor costs. An attempt is almost always made

to secure data on the cost of processing. However,

this information is proprietary and rarely released.

Only 7 of the 36 associations are able to secure

accurate processor-cost information. One association obtains this information because the association itself processes a portion of member produc13
tion, and another has members involved in processing activities. The remainder secure processorcost information from either a processor with

whom they have an “excellent” relationship or

from a processing cooperative.

For most associations, the information-gathering stage typically includes meetings with individual processors to learn about the economic conditions affecting their industry. Where feasible,

meetings between bargaining committees and

grower-members are held at which potential prices

and terms of trade are discussed. Once the association or the appropriate committee determines a recommended (asking) price and other terms of trade,

negotiations begin.

In most cases, there is a formal negotiation

process. Negotiations for 33 of the 36 responding

associations involve a series of “rounds,” defined

as a price offer and an acceptance/rejection (PAR)

or a price offer and an acceptance/counter offer

(PAC). Two-thirds of the associations that conduct

negotiations formally have the PAC rounds, and

for the majority of the associations, the first offer is

made by the association (by convention).

Though most of the associations negotiate

with more than one processor, two-thirds indicated

that they typically conduct negotiations and reach

agreement with the ‘biggest processor” or industry

leader and that other processors or “followers” go

along with the negotiated price. Thus, the most

common negotiation process is one on one with the

industry leader. The negotiated price holds for all

other processors with whom the association bargains.

Other associations negotiate with several of

the industry leaders and attempt to get consensus

on price, often playing one processor off against

another. Few associations negotiate with all processors and attempt to reach a consensus. Some contracts, however, specify certain requirements for

acceptance of a price. For example, one association’s contract indicates that it must get 35 percent

of all processors in number and in tonnage (and

these must include two of the six largest packers)

to agree to price terms before a price contract can

be ratified. Another association must have price

terms accepted by processors representing purchases equal to at least 51 percent of the previous year’s

tonnage before its price contract can be ratified.

The number of “rounds” occurring before

price is agreed upon in a typical year varies for

each association. Responses ranged from 1 to 20

rounds, with the majority of associations having 2

to 5 rounds.

Arbitration

For most associations, rounds of price negotiations

continue until an agreement is reached. For 13 of

the 36 associations, however, if bargaining does not

result in an acceptable price by a specified time, a

standard method of arbitration is employed (table

12). The arbitration procedure is specified in contracts with processors. The exceptions are those

bargaining associations located in Maine and

Michigan, where arbitration procedures are specified by State law.

The time when arbitration “kicks in” varies by

association. In some cases, arbitration becomes

effective if a price has not been decided upon within a “reasonable time. For some associations, arbitration begins on the first day of the marketing

period for a crop. For other associations, it begins

10 or 15 days after commencement of harvest. Two

associations that use the PAR method enter into

arbitration after rejection of a second price offer.

For all associations with a specified arbitration

procedure, the majority decision of a three-member

arbitration committee is binding on both processor

and association. The arbitration committee is comprised of one member selected by the association, a

second selected by the processor, and a third selected by the first two members. In most cases, the

type of arbitration procedure used is “final offer”

Table 1 P-Arbitration

Associations with standard Associations settling

arbitration procedure negotiations by arbitration

No 23 No 27

Yes (10 final offer) 13 Yes 9

Total 36 Total 36

1 4
arbitration. That is, the final price decided upon by

the arbitration committee is either the final offer

made by the association or the final offer made by

the processor. For those associations employing the

PAR method of negotiation, the arbitration committee decides upon a “reasonable price.”

Nine associations have, at one time or another,

settled price negotiations by arbitration, and only

three of the nine have settled price by arbitration

on more than one occasion. Two associations

reported that the processor’s final offer was the

price resulting from arbitration, and one of these

two associations reported losing “substantial membership” because the arbitration decision favored

the processors. Though almost two-thirds of

responding associations do not have a specified

method of arbitration, failure to reach price agreement is uncommon. Only 28 percent (10 of 35) had

ever failed to agree on price with processors, and

only 11 percent had failed to agree more than twice

(table 13).

ASSOCIATION

OBJECTIVES/SERVICES/BENEFITS

In addition to negotiating a raw product price for

their grower-members, bargaining associations

engage in numerous other activities and provide

services to both growers and processors. Survey

respondents seemed to agree that though the association’s focus is often on attaining higher raw

product prices, the association’s longer term goal is

a fair, stable, and secure income for grower-members.

Table 13-Disagreements on price negotiations

No. failures to reach

price agreement

No. of Associations

0 25

l-2 6

5- 10 4

Total Responding 35

Association Objectives

Respondents were asked to rank the list of objectives in table 14 in order of importance to their

association. The objective ranked highest by the

largest number of associations was higher prices.

Price stability was the next most important

goal identified by respondents. It was ranked by 24

of 36 associations as one of the three most important objectives and ranked by 6 associations as the

most important objective. Most respondents recognized that price stability is a longer term goal than

achieving high prices for growers, and that the two

goals are somewhat incompatible.

Six associations cited “improved relations

with processors” as an important “other” objective.

And most associations agreed that promoting

understanding and communication between growers and processors was a primary objective.

Increasing the uniformity of contracts between

growers and processors and ensuring and expanding market outlets were other important objectives.

After ranking the importance of their association’s objectives, respondents were asked to identify objectives they felt their association had actually

achieved (table 15). Eighty-nine percent of all associations indicated that their association had

achieved higher prices for their grower-members,

and 86 percent felt that price stability was accomplished as well. better or more market information

Table M-Rankings of association objectives

Objective Most 2nd most 3rdmost Top3

important important important

Higher prices 14

Stable prices 6

Assured markets 5

More uniform contracts 5

Expanded markets 1

Improved market

information 0

More favorable non-price

terms of trade 0

Third-party grading 0

Other 4

Number of associations

9 3

11 7

5 2

2 2

5 8

1 6 7

2 5 7

0 2 2

1 1 6

26

24

12

9

14

15
was not identified as one of the most important

association goals, but was looked at as a necessary

tool in achieving other objectives. Thus, obtaining

market information was an objective achieved by

nearly 75 percent of all associations. More uniform

contracts and more favorable terms of trade were

also reported as commonly achieved objectives.

Table 15-objectives achieved by bargaining assoclatlons .

Objectives Number of assodations

Higher prices

Stable prices

Improved market information

More uniform contracts

More favorable non-price

terms of trade

Assured markets

Expanded markets

Third-party grading

Other

32

31

26

22

21

16

15

10

5

Total Respondents 36

Table 16-Obstacles encountered In achlevlng bargalnlng objectlves

ObStacle

No.1 No. 2 No.3 Top 3

Obstade Obstacle Obstada Obstade

Lack of control over

volume of production 13

Failure to get adequate

membership 6

Handlers have too many

supply sources 4

Handlers encourage

nonmembership 3

Lack of member support 2

Securing market

information 0

Refusal of handlers

to bargain 0

Other 5

5 3

5 5 16

9 4

2 5 10

2 6 10

6 2 6

1 5

0 0

21

One association saw no obstacles to achieving its

bargaining objectives. The other 35 associations

had little difficulty identifying obstacles that hinder their ability to obtain their goals. As indicated

in table 16, lack of control over volume of production was cited as the greatest obstacle by the largest

number of associations. As mentioned previously,

supply control by the association can be enhanced

with a large membership. However, the second

greatest obstacle identified was failure to get an

adequate number of member-growers. Most

respondents agreed in personal interviews that the

“free-rider” problem was pervasive. Associations

have difficulty attracting membership because nonmembers, for the most part, get the same benefits

without incurring the cost of membership. This

inability to increase membership not only contributes to the association’s lack of volume control,

but it also maintains additional supply sources for

processors.

Participants in Lang’s survey also cited lack of

volume control as the primary obstacle they faced

in trying to achieve their bargaining objectives.

However, the second greatest obstacle was handlers encouraging nonmembership.

Only 29 percent of associations in the present

survey reported that handler encouragement of

nonmembership was one of their three greatest

obstacles. It did, however, seem to be a common

concern among respondents. Several associations

described examples where processors actively discouraged growers from obtaining membership.

Nonmember Benefits

17

6

As discussed above, one of the most difficult issues

facing bargaining associations was the ability of

nonmembers to benefit or gain from the association’s efforts. As table 17 shows, all 36 respondents

indicated that nonmembers receive price increases

attained by association members through bargaining. Seventy-five percent reported that nonmembers receive the same non-price terms of trade

received by member-growers.

5 Only four associations stated that nonmem16
bers get preferential treatment from handlers,

though in personal interviews, most associations

cited one or more examples of processors favoring

nonmembers. For one association, processors

offered members a higher price for their crop if the

member chose to leave the association. Other associations indicated that nonmembers were sometimes offered term contracts and more favorable

non-price terms of trade (e.g., advance payments)

by processors.

Services Provided to Members

As mentioned previously, bargaining associations

often provide services to grower-members in addition to negotiating terms of trade. Many of these

services are provided to facilitate negotiations.

However, many activities are provided as benefits

to members for joining the association.

Table 18 shows services provided to members

in the participating associations. The majority of

associations publish newsletters or newspapers,

provide legislative representation for growers, and

collect and provide information about the industry.

Services not identified in the table include regulatory representation, marketing board representation, and performing registration work for getting

chemicals approved for use.

Some bargaining associations perform handling activities. Of the 36 responding associations,

only 6 reported doing so. Five indicated the specific types of activities they perform, which include

harvesting, trucking, and grading.

Table 17-Benefits to ttOftItIWttbeE?

All Annual crop Perennial crop

Benefits associaticns associations associations

Price increases

negotiated by

association 36 19 17

Non-price terms

negotiated

by association 27 15 12

Processor Benefits

The majority of associations felt their role was not

only to improve the well-being of grower-members, but also to provide services to processors and

increase the strength and stability of their industry.

Respondents were asked to give their opinion on

how their processors have benefited from their

association’s bargaining and presence in the industry (table 19).

Preferential

treatment from

handlers 4 3 1

Table 18-Member services in addition to bargalnina

SeWiceS Associations

Newsletters, newspapers 33

Legislative representation 32

Collect and distribute information 26

Field staff 17

Funding of research 13

Commodity programs 9

Other 4

Total Responding 36

Table 19-Benefits to processors

Al Anllu8l crop PerWnial crop

Benefits associations asso&itiens associations

Increased price stability

Improved information

Improved (less costly)

price discovery process

Increased quality controlreduced product loss

Increased efficiency in

handling of raw product

Qualityhrariety more in

line with market demand

Quantity of raw product

more in line with demand

Field Services

Other

31 14 17

32 16 16

25

16 13 3

16 10 . 6’

16 11 5

14

12

12

11

9

7

5

14

5

5

7

17
The most frequently reported benefits include

increased price stability, increased or improved

information, and an improved (less costly) price

discovery process. Twelve associations reported

other processor benefits which include third-party

grading, support in “mutually dealing” with problems facing the industry, fair and equal treatment

of all processors, assistance on regulatory/legislative issues, assured supply, and protection from

abuses by large growers or groups of growers.

SUMMARY AND PERSPECTIVE

The trend in marketing agricultural products is

toward fewer and larger processors and handlers.

Farmers, too, are becoming fewer and larger, but

their size and power in the marketplace remain

small in comparison with processor/handlers.

Cooperative bargaining represents a vehicle whereby farmers can potentially countervail these asymmetries in market power. The results of this survey

confirm that bargaining continues to play an

important role in marketing fruits and vegetables.

Bargaining associations’ membership and

market share have remained stable within the fruit

and vegetable industries. Where annual crop bargaining associations operate, the survey results

indicate that 68 percent of growers choose membership, with perennial crop associations averaging 55

percent of potential members. The average market

share for the associations surveyed was 80 percent,

with two-thirds of the associations having at least a

50-percent share. Bargaining associations tend to

operate in highly concentrated markets. Four or

fewer processor/handlers operate in 40 percent of

the markets surveyed, and the percentage of production handled by the four largest marketing

firms exceeds 75 percent in 23 of the 34 markets

studied. Survey respondents agreed that a key to

achieving bargaining success in these concentrated

markets is attaining and maintaining a high proportion of farmers and production within the bargaining association.

Students of bargaining agree that another

important determinant of success in the process is

the extent to which the participants have viable

alternative options in the event negotiations stall.

In this regard, good-faith bargaining legislation

enacted by several States in the 1970’s has apparently broadened al terna tives available to bargaining cooperatives. Legal action to enforce good faith

bargaining was cited most frequently by respondents as an alternative to a bargaining breakdown.

This result represents a sharp increase from prior

surveys in the number of respondents citing this

alternative.

The importance of good-faith bargaining legislation is highlighted by the apparent lack of other

good alternatives to bargaining for fruit and vegetable growers. More than half of the survey

respondents indicated that no good alternative

crops were available, and very few of the associations indicated having the capability to integrate

vertically into the processing and marketing of

their members’ production in the event of failure to

reach agreement with processors. Nearly half of the

associations indicated, however, that some processors in their market had integrated into raw product production.

The survey results indicated that the volume

of product to be produced is usually determined

independently of the bargaining process, and that

very few of the associations attempt to regulate

their members’ production. The items to be negotiated, thus, generally relate to the amount of payment, including base price, premiums and discounts, transportation costs, and the timing of

production and payment. All but one of the surveyed associations reported negotiating for terms

of trade in addition to base price.

As to the negotiation process itself, many

associations indicated that the process is essentially

year round due to the importance of maintaining

good and continuous information on market conditions. Despite their attempts to generate market

information, most associations indicated that they

lack good information on wholesale prices for their

products and on handler costs.

Formal negotiations generally involve rounds

where either processor and the association alternate offers or the association makes repeated offers

that are either accepted or rejected by the processor. In a number of cases, the associations reported

bargaining only with a leading processor and other

18
processors then accept those terms of trade.

Binding arbitration was reported to be part of the

bargaining process by 13 of the associations, but in

practice failures to reach agreement have been

uncommon.

Finally, as to the goals and objectives of bargaining, it was no surprise that most cited higher

prices as a top goal. Nearly the same number, however, also listed stability of prices as an important

objective. Most respondents believed their association had been successful in achieving these and

other goals. On the other hand few had trouble listing important impediments to success in the bargaining process. Failure to control an adequate volume of production was the most cited problem.

This problem is potentially addressable by increasing an association’s membership share, but inability to attract sufficient membership was the second

most frequently cited obstacle to success in bargaining. This problem, in turn, would appear to

stem primarily from an association’s inability to

exclude nonmembers from receiving similar benefits. Every association surveyed indicated that nonmembers received price increases achieved through

the negotiation process.

Managing supply and controlling nonmember

free riders are problems that are not easily solved.

They will continue to challenge bargaining associations. Yet the record demonstrates that bargaining

associations have been and continue to be important institutions facilitating the marketing of many

fruits and vegetables. Despite the challenges they

face, there is every reason to believe they will continue unabated in this role.

LITERATURE CITED

Babb, E. M., S. A. Belden, and P.A. Saathoff, 1969.

“An Analysis of Cooperative Bargaining in

the Tomato Processing Industry,” Amer. J.

Agr. Econ. 51: 13-25.

Biggs, Gilbert W., 1982. “Status of Bargaining

Cooperatives, U.S. Department of

Agriculture, ACS Research Report No. 16,

April.

Bunje, Ralph B., 1980. Cooperative Farm

Bargaining and Price Negotiations,

Washington D.C.: U.S. Department of

Agriculture, ESCS Cooperative Information

Report No. 26, July.

Carpenter, Alvin G., 1969. Factors Affecting

Bargaining Power for Farmers, California

Agricultural Extension Service and

Giannini Foundation of Agricultural

Economics, University of California,

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19
U.S. Department of Agriculture

Agricultural Cooperative Service

P.O. 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.