Abstract

FARM BARGAINING COOPERATIVES: Group Action,

Greater Gain

Gerald D. Marcus

Hanson, Bridgett, Marcus, Vlahos & Rudy

San Francisco, California

in collaboration with:

Donald A. Frederick

Program Leader, Legal, Policy, and Taxation

Agricultural Cooperative Service

U.S. Department of Agriculture

Washington, DC

For decades, agricultural producers have used

bargaining cooperatives as a self-help tool to enhance the

income they realize from the sale of their crops. Through

group action, these growers have counter-balanced the market

power of the large canners and other processors that buy

farm produce. This report presents case studies to illustrate

historical and contemporary bargaining association activity.

Techniques for enhancing the prices growers receive and

nonprice services such associations provide their farmermembers are presented. Future challenges and opportunities

for producer bargaining associations are also discussed.

Keywords.’ agriculture, bargaining, cooperative, law,

marketing, negotiation

ACS Research Report 130

March 1994

Price: Domestic $5.00; foreign $5.50
Foreword

Dr. Randall E. Torgerson, Administrator

Agricultural Cooperative Service

U.S. Department of Agriculture

Washington, DC

Cooperative bargaining associations are a form of

group action in agriculture that, once understood by growers,

contributes greatly to their economic well-being and adds an

important dimension to representation of their interests in the

market place. Over the course of history of American

agriculture, three attorneys have had a profound impact on

the development of this form of group action: Aaron Sapiro,

Allen Lauterbach, and Gerald Marcus.

Following in the footsteps of Sapiro, Gerald Marcus

has developed an intimate knowledge of the formation,

operation, and legal foundations of cooperative bargaining. As

a practicing attorney, he has advised numerous associations

on internal issues as well as on problems arising from

negotiations with processors. Marcus serves as an active

member of the American Arbitration Association and has

served on the California Director of Food and Agriculture’s

Bargaining Advisory Committee.

Marcus was an initiating member of the National

Bargaining Conference started in Chicago in 1957. Along

with Ralph Bunje, Cameron Girton and my predecessor Joe

Knapp, he helped mold the conference as a forum for

discussion about issues facing cooperative bargaining

associations and has been a regular contributor through

speeches and discussion. His institutional memory captures

many of the pertinent issues in the development of

cooperative bargaining found in this book.

Due to their similarities in national prominence and

West coast origins, I have often referred to Marcus as the

modern day Aaron Sapiro. As a legal scholar, political
strategist, organizational advisor, and active legal practitioner,

he has touched the practice of cooperative bargaining in many

ways, both public and private. He clearly understands public

and private roles in assisting producers and has sought ways

to strengthen the contributions of both.

We are particularly pleased that Gerald Marcus has

taken the time and effort to document his vast knowledge of

this subject matter so that it can be shared with the larger

public in hopes of fostering improved negotiating conditions

for the producers of this nation’s food and fiber.
Preface

Agricultural bargaining cooperatives, particularly on the

West coast, have, since the 195Os, become an integral part

of the system for marketing certain agricultural commodities.

It has been my good fortune to have been involved

since the mid-l 950s as a practicing attorney helping to

organize some and otherwise attempting to assist others in

dealing with their day-to-day problems. Unquestionably, this

has been the most interesting and challenging part of my

practice.

Bargaining associationsare frequently described as part

of the self-help movement, an effort by producers of a given

commodity to improve their position without Government

subsidies.

What has impressed me is the role played by these

growers who provide leadership as officers and directors.

They uniformly serve without compensation and receive

modest expense allowances. While in some commodities

there are members of substantial size, most are individual

family-owned farm operations. The owners are “hands on”

farmers.

What I find astonishing is the breadth of skills and

knowledge these farmers must acquire to survive--scientific

knowledge of soil, weather, agronomy, diseases, and pests,

not to mention a myriad of Government regulations relating to

farm labor, use of pesticides and fungicides, import and

export, and others.

In addition to mastering the production of their crops,

they must venture into the marketplace to sell in many cases

to a decreasing number of purchasers of increasing size and

bargaining power represented by highly trained, sophisticated

management frequently of national or multi-national business

organizations.

These farmers have learned the hard way that they

cannot enjoy the luxury of “rugged individualism” and survive.

This is why many have formed or joined bargaining

cooperatives. They voluntarily surrender to elected
representatives the decision concerning the price and terms of

sale for their produce and, in some instances, depending upon

the type of bargaining cooperative involved, the actual sale of

their produce.

These representatives in turn must become informed

about the factors which affect price determination with their

commodities, the antitrust laws and the tax laws which

govern the cooperative structure. They must learn to

understand and evaluate advice they receive from economists,

lawyers and tax specialists, among others, if they are to

operate legally and negotiate effectively with the management

of their customers.

With some misgivings, I have been persuaded by Dr.

Randall E. Torgerson, administrator of USDA’s Agricultural

Cooperative Service (ACS) for many years, to write about

some of my experiences.

A number of excellent articles have been written about

bargaining cooperatives. I have referred to some in the

bibliography. There are two particularly outstanding in-depth

studies. “Cooperative Bargaining in Agriculture: GrowerProcessor Markets for Fruits and Vegetables” by Peter G.

Helmberger and Sidney HOOS,’ analyses the economic role of

bargaining cooperatives in fruits and vegetables. “Cooperative

Farm Bargaining and Price Negotiations” by Ralph J. Bunje*

is the ultimate in explaining the nuts and bolts of organizing

and operating a bargaining cooperative.

Certainly, it makes no sense to cover what they and

others have so effectively written about; nor to write a

comprehensive manual on the legal aspects of bargaining

cooperatives. Rather, I’d like to describe some selected

problems encountered by cooperatives with which I have

worked and how we dealt with them.

With one exception my experience has been limited to

bargaining by producers of fruits and vegetables. The

exception is the recent experience of catfish producers in the

’ University of California, Division of Agricultural Sciences (1965).

’ Economics, Statistics, and Cooperative Service, USDA, Cooperative

Information Report 26 (1980).

iv
Mississippi Delta in organizing the Catfish Bargaining

Association under the protection of the Fishermen’s Collective

Marketing Act.3 My colleague, Donald A. Frederick (ACS),

has written an excellent article about that act in which he

reviews its enactment to provide associations of producers in

aquaculture protection from antitrust laws equivalent to that

provided for producers of fruit, vegetable, milk, and other

farm products under the Capper-Volstead Act.4

I’ve had no experience working with bargaining

cooperatives in the dairy industry, and this is the only reason

they have been omitted. Of course, a review of the legal

climate in which agricultural cooperatives operate necessarily

must include the use of Federal and State marketing orders in

the dairy industry and significant Federal cases invoIding milk

marketing cooperatives in the antitrust field.

Lastly, I have given special attention to the California

Tomato Growers Association and the California Pear Growers,

not only because of my experience with them over the many

years, but also because each illustrates a different set of

problems faced by bargaining cooperatives. The market for

canning pears and other canned tree fruits has declined in

recent years, resulting in a substantial decrease in the number

of canners who produce canned pear halves or fruit cocktail.

Per-capita consumption of processed tomatoes has

increased substantially, resulting in a steady increase in the

number of processors with whom the tomato association

negotiates. A significant difference also exists between the

time a grower can plant and produce a marketable volume of

pears for canning and a grower can produce tomatoes. Pear

trees normally take 4 years to bear in a commercial quantity

and 6 to reach maturity, while tomatoes are an annual crop.

Of course, all bargaining cooperatives have many

problems in common and each year seems to produce new

ones that present new challenges to association directors,

3 48 Stat. 1213 (1934), 15 U.S.C. $0 521-522.

4 Donald A. Frederick, “Fisheries Marketing Cooperatives: An Antitrust

Perspective,” Vol. 9, No. 1, Journal of Agricultural Taxation & Law 47-63

(Spring 1987).
management and, I might add, their counsel. Perhaps this is

what makes practice in this field so interesting and

challenging.
Acronyms

This list of acronyms used in this report is provided for the

reader’s convenience:

AAA

ACS

AFL

AFPA

APC

Cal Can

CalPack

CAGU

American Arbitration Association--

nonprofit, nongovernment agency that

provides private dispute resolution

services.

Agricultural Cooperative Service--agency

within the U.S. Department of

Agriculture

American Federation of Labor--

association of labor unions

Agricultural Fair Practices Act of 1967--

Federal law

Apricot Producers of California--

bargaining cooperative

California Canners & Growers--

processing cooperative, no longer in

existence

California Packing Company--

noncooperative processor

California Apricot Growers Union--early

bargaining cooperative, no longer in

existence

vii
CCPA

CCPA

CFPA

CPG

CPGA

CTGA

EC

FTC

GAO

California Canning Peach Association--

bargaining cooperative for cling, or

canning, peaches5

California Canning Pear Association’--

bargaining cooperative, now known as

the California Pear Growers

California Freestone Peach Association--

bargaining association for fresh peaches

California Pear Growers--bargaining

association

California Pear Growers Association--an

early bargaining association, no longer in

existence

California Tomato Growers Association--

bargaining association

European Community

Federal Trade Commission--Government

antitrust enforcement agency

General Accounting Office--Government

research agency

’ Cling peaches are varieties whose pulp tends to cling to the pit, or

“stone, ” and are most suitable for canning. Thus, the California Canning

Peach Association is frequently referred to as the cling peach association.

So-called freestone varieties are primarily marketed as fresh fruit. While the

California Freestone Peach Association is a separate bargaining association,

it is currently managed by the cling peach association staff.

6 Whenever it is not clear from the context which association CCPA

refers, a more descriptive phrase such as cling peach or pear association will

be used. The recent name change of the pear association to California Pear

Growers will minimize confusion caused by this acronym in the future.

VIII
PBA Prune Bargaining Association--bargaining

cooperative

PCP Pacific Coast Producers--processing

cooperative

RBA Raisin Bargaining Association--bargaining

association

TVG Tri Valley Growers--processing

cooperative

USDA United States Department of Agriculture

ix
Acknowledgments

I am indebted to Suzanne Vaupel, an attorney and

economist who assisted me in analyzing the economic

changes in the pear and tomato industries.

Professor John Hetherington of the Virginia Law School

has been most helpful with suggestions about the project’s

focus.

Many, who have been directly involved with the

operations of agricultural bargaining cooperatives and

consented to in-depth interviews, include Robert E. Collins, a

organization; Cameron Girton, now retired after 30 years of

distinguished service as pear association manager; and David

Zollinger, former manager of a number of agricultural

cooperatives including the Cortez Growers, the California

Freestone Peach Association, and the Livingston Farmers

Association, and, until recently, executive vice president of

the California Tomato Growers Association (CTGA). Also

Kalem Barserian, manager of the Raisin Bargaining Association

for many of its critical years; Ken Lindauer, president of the

Prune Bargaining Association; Ralph Bunje, president of the

California Canning Peach Association from 1950 to 1975; and

Ron Schuler, current cling peach association president.

Others who have been most helpful include the late

Galen Geller, for many years manager of the California Tree

Fruit Association; Joe Mapes, recently retired associate

director of the California Pear Growers (CPG); Jean-Mari

Peltier, current CPG president; John C. Welty, current CTGA

executive vice president; Bill Allen, Jr., manager of the

recently organized Catfish Bargaining Association; and Richard

Hudgins, director of administrative services of the California

Freestone Peach Association.

Dr. Randall Torgerson, administrator of USDA’s

Agricultural Cooperative Service (ACS), has provided support

and guidance to the agricultural bargaining cooperatives in

X
many ways and encouraged me to start this project, hopefully

not to his regret.

Finally, but by no means last, I am deeply indebted to

Donald A. Frederick, ACS law and policy program leader, who

has given me invaluable assistance in more ways than I can

xi
Contents

Paae

CHAPTER 1. CHARACTERISTICS OF

BARGAINING COOPERATIVES . . . . . . . . . . . . . . . . 1

Facilitator or Agent ...................... 1

Financing ............................ 2

Member Traits and Voting Methods .......... 6

Other Characteristics .................... 6

CHAPTER 2. BARGAINING ASSOCIATION PROFILES . . 7

Bargaining Cooperatives Prior to the 1950’s . . . . 7

California Pear Growers Association . . . . . 7

California Apricot Growers Union . . . . . . 11

Contemporary Bargaining Associations . . . . . . . 15

California Tomato Growers

Association . . . . . . . . . . . . . . . . . . 15

California Pear Growers . . . . . . . . . . . . 20

CHAPTER 3. LEGAL STATUS OF AGRICULTURAL

BARGAINING . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Antitrust Law and Cooperative Farm

Bargaining . . . . . . . . . . . . . . . . . . . . . . . . 29

The Sherman Act (1890) ........... 30

The Capper-Volstead Act (1922) ...... 32

Court Actions ................... 33
Bargaining Association Status under

Capper-Volstead . . . . . . . . . . . . . . . 36

Capper-Volstead Under Continuing

Scrutiny . . . . . . . . . . . . . . . . . . . . . 38

Agricultural Fair Practices Act of 1967 . . . . . . . 39

State Fair Practices Legislation . . . . . . . . . . . . 45

California ...................... 45

Michigan ....................... 49

Maine ......................... 49

Washington ..................... 5 1

Proposed Amendments to the Federal Act . . . . . 52

CHAPTER 4. TECHNIQUES OF PRICE

NEGOTIATION . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Know Your Facts . . . . . . . . . . . . . . . . . . . . . . 54

Grower, Director, and Manager Responsibilities During Bargaining . . . . . . . . . . . . . . 55

Development of the Reasonable Price

Contract . . . . . . . . . . . . . . . . . . . . . . . . . 59

Litigation Over Reasonable Price . . . . . . . . . . . 63

Determining Price of Noncontract Product . . . . . 68

Market Impact Strategies . . . . . . . . . . . . . . . . 69

Product Diversion ................. 69

Custom Packing .................. 70

XIII
CHAPTER 5. TECHNIQUES OF ADJUSTING

SUPPLY TO DEMAND . . . . . . . . . . . . . . . . . . . . . 72

Pooling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Marketing Orders . . . . . . . . . . . . . . . . . . . . . . 80

CHAPTER 6. RELATIONSHIPS AMONG

COOPERATIVES . . . . . . . . . . . . . . . . . . . . . . . . 84

Why Associations Remains Autonomous . . . . . 84

Cooperation Among Bargaining Associations . . 87

Relations Between Bargaining and

Processing Cooperatives . . . . . . . . . . . . . 89

Autonomous Processing

Cooperatives . . . . . . . . . . . . . . . . . 89

Processing Cooperatives Initiated by

Bargaining Associations . . . . . . . . . . 9 1

CHAPTER 7. NONPRICING ACTIVITIES OF

BARGAINING COOPERATIVES . . . . . . . . . . . . . . . 95

Market Development . . . . . . . . . . . . . . . . . . . 95

International Trade . . . . . . . . . . . . . . . . . . . . . 96

Food Safety. . . . . . . . . . . . . . . . . . . . . . . . . . 97

Political Action . . . . . . . . . . . . . . . . . . . . . . . . 98

The Role of Litigation . . . . . . . . . . . . . . . . . . 101

During Bargaining ................ 10 1

Nonbargaining Litigation ........... 103

xiv
CHAPTER 8. BARGAINING IN THE WORLD OF

THEFUTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

The Need for Statesmanship . . . . . . . . . . . . . 106

Negotiating in an Increasingly Hostile

Market . . . . . . . . . . . . . . . . . . . . . . . . . . 107

Redirection of the Marketing Order

Program . . . . . . . . . . . . . . . . . . . . 108

Adjusting to Changing Consumer

Preferences . . . . . . . . . . . . . . . . . 108

Continued Concentration in

Processing . . . . . . . . . . . . . . . . . . 109

Internationalization of Markets . . . . . . . 110

Fair Practices Legislation . . . . . . . . . . . 1 10

Organizing Bargaining Cooperatives

in Other Commodities . . . . . . . . . . 111

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . 112

BIBLIOGRAPHY . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

California Canning Peach Association: Master

Contract of Sale to Canner . . . . . . . . . . . . . 116

California Canning Pear Association: Pooling

Policy, Adopted 1957 . . . . . . . . . . . . . . . . 127

California Canning Pear Association: Pooling

Policy, Adopted 1976 . . . . . . . . . . . . . . . . 129

California Canning Pear Association: Revised

Canner Contract Provision for Arbitration

of Reasonable Price, Adopted 1985 . . . . . . 132

xv
California Canning Peach Association:

Membership Agreement Provision

for Agency Members . . . . . . . . . . . . . . . .

Excerpt, Unpublished Interview with

Cameron Girton, December 9, 1988 . . . . .

Organization for Self Preservation, Jack Z.

Anderson . . . . . . . . . . . . . . . . . . . . . . . .

134

135

137

California Food and Agricultural Code,

Cooperative Bargaining Associations ...... 148

Unfair Trade Practices ............. 148

Annual Report .................. 152

Conciliation .................... 154

Penalties ...................... 159

xvi
CHAPTER 1. CHARACTERISTICS OF

BARGAINING COOPERATIVES

Agricultural bargaining cooperatives, particularly on the West

coast, have since the 1950s become an integral part of the system for

marketing certain agricultural commodities. These grower-owned and

-controlled associations are frequently described as part of the selfhelp movement, an effort by individual producers of a given

commodity or commodities to improve their position without

Government subsidies.

Members of agricultural bargaining cooperatives negotiate

collectively for a farmgate or roadside price for their raw produce.

Conversely, processing cooperatives normally can, freeze, or

otherwise process the produce of their members and then sell7 the

processed product to wholesale or retail distributors.*

Facilitator or Agent

Bargaining cooperatives fall into two categories. The first

establishes minimum prices and terms of sale for their members’

produce. This must be incorporated in the contracts the members

themselves execute for the sale of their produce. Organizations of

this type include the California Tomato Growers Association (CTGA),

the Potato Growers of Idaho, the Washington Potato Growers, and the

Olive Growers Council.

The second, in addition to establishing price and terms of

sale, also act as exclusive sales agents for their members and contract

for the sale of members’ produce. The California Pear Growers

7 Technically, there is an exception in the case of raisins where growers

ordinarily dry the grapes before selling them as raisins. In the case of

prunes, the fruit is delivered to the processor for drying but the price is

based on the dried product.

’ In the membership or marketing agreement of some processing

cooperatives, the member sells produce to the cooperative. Rather than

receiving a fixed price, what the producer receives depends upon what the

cooperative realizes from its sale of the processed product after deduction of

all expenses.
(CPG), the Apricot Producers of California (APC), the California

Canning Peach Association (CCPA), among others, operate in this

manner.

Regarding the second type, some cooperatives such as the

canning peach association actually take title to their members’

produce; some like the pear and apricot associations do not. Whether

the association takes title is not essential. What is most important,

however, is that each association has the legal capacity to transfer to

customers title to the produce covered by the contracts they executed

with these customers.9

Financing

By definition a bargaining cooperative does not perform a

function which adds value to the members’ produce, so there

normally are no profits available to enable such an association to

cover its operating expenses.

Funds to meet operating expenses of the cooperative are

generated from various sources:

Retains. Many associations which contract for the sale of

their members’ produce require the member, in the membership

agreement, to agree that a percentage of the sales proceeds shall be

paid by the processor directly to the cooperative, which in turn is

authorized to retain these funds. Monies are allocated and distributed

to the member, less such amount which may have been used by the

association for operating or other expenses.

Some processors have insisted that growers annually execute

an authorization for the deduction of retains as dues despite the

provisions in the membership agreement. The purpose presumably

is to harass the growers and not too subtly to remind them of moneys

being diverted to the association. We have suggested that any such

authorization be written it becomes a continuing authority upon which

’ The argument for taking title is that it enhances the association’s ability

to compel a member to make deliveries of products pursuant to a contract

which the association has entered into in the member’s behalf. In either

case, a properly drawn membership agreement should be legally enforceable.

Cooperatives which do not take title have found this to be the case.

2
the processor may rely unless the grower notifies otherwise in

writing.

For example, for many years the pear association had a 5

percent retain. If that money was not required for meeting the

association’s operating expenses, the cooperative returned 4 percent

to the members in the same marketing year and retained 1 percent.

This was allocated to the growers on the basis of their patronage.

The 1 percent was put in a revolving fund and normally returned to

the member at the end of 5 years.

Different associations use various periods of time for

returning monies retained in their revolving funds. Some

cooperatives found that by stretching out the period for revolving out

what had been retained, they could develop a substantial fund.

Interest. Generally, a bargaining cooperative does not pay

interest on retained funds. Interest earned on the investment of those

funds becomes another source of income for the association.

Normally the association uses that income to meet its operating

expenses and pays taxes on the unused excess, which it then places in

an unallocated fund.

Dues. Some bargaining associations realize income by

collecting annual dues or fees from the members, often based on a

percentage of the sales proceeds. In the membership agreement, the

member authorizes and directs the processor to whom the member

sells produce to pay such dues directly to the association. CTGA

does not have retains or service charges and relies upon dues as a

major source of meeting operating expenses and providing capital.

Service Charges. Some associations have successfully

persuaded processors to pay a service charge based on a certain sum

per ton over and above what the processor pays as the purchase price

for the members’ produce. A clause in a contract between a

bargaining cooperative and a processor which provides for such a

charge might read as follows:

Processor hereby recognizes that the

organization and continued existence of the

association relieves the processor of the trouble, labor

and uncertainty of soliciting and obtaining separate

contracts with individual growers; in consideration

thereof the processor agrees to pay to the association

3
the reasonable price hereinabove designated, and a

service charge of $ per ton at the time or

times for payments specified herein, which service

charge shall not be construed to be a part of the

purchase price herein.

The canning peach association negotiated a service charge

based on a percentage of the purchase price rather than a flat sum.

This association has enjoyed a volume of sales of its members’

peaches sufficiently large so that service charge income was

substantially in excess of the operating expenses, enabling the

association to revolve out each year all the retained funds.

Ralph Bunje, former canning peach association manager,

explained that processors accepted the concept of paying a service

charge with the expectation that bargaining cooperatives would

become a stabilizing factor in the pricing of commodities from year

to year and tended to eliminate marketplace price differentials.

The Prune Bargaining Association (PBA) receives a service

charge or fee from packers not only for the tonnage purchased from

association members but also for the tonnage the packers acquire from

nonmembers, including tonnage the packers grow themselves. Ken

Lindauer, PBA president, says packers pay this because they “realize

the importance of getting a uniform price established for prunes and

that the PBA seems to be the only organization that is capable of

doing it. ”

Lindauer also reported that having the fee apply to all

growers eliminates a hurdle to signing up new growers. When a new

grower joins the association, the grower does not have to become

concerned about obligating the grower’s packer to a service fee. The

packer is already paying on the grower’s tonnage.

Other Income. A few associations successfully developed

income from such activities as publishing a periodic magazine for

their industry which has articles of interest to both members and

processors. Income is realized from the sale of advertising and

subscriptions.

CTGA’s monthly magazine, l3e California Tomato Grower,

is an important source of income to the association. The magazine

includes an editorial written by the association manager and various

4
articles dealing with the production of tomatoes and processing and

marketing tomato products.

A healthy balance sheet can be a valuable asset in negotiation.

Bunje was convinced that if a buyer knew that the association was

financially capable of weathering any kind of storm that might occur,

this reduced the opportunities for the processor to take advantage of

it. Using this approach, the cling peach association has amassed a

reserve fund of more than $1 million. This reserve has protected the

association from making the kinds of unwanted decisions, such as

compromising important points in litigation to cut legal expenses, that

have faced other associations.

There is a psychological advantage to using revenue sources

other than retains to fund an association. Growers view money

retained from sales proceeds due them as their money. For political

reasons, associations feel pressured to return retains to their growers

as quickly as possible. Service fees paid by the processors, on the

other hand, are viewed as the processors’ money. The cling peach

association, for example, pays tax on the service charges it receives

and does not allocate them to the members. The association is free

of the pressure to revolve these funds to the members and can use the

money to support its bargaining positions and other activities.

Likewise, the dues paid by tomato growers to CTGA are

viewed differently than retains. The growers know from the outset

that the dues money is not coming back to them. Even though dues

are assessed on a per-ton basis, no need exists to educate the growers

on the importance of accumulating the funds at the cooperative. Dues

are viewed as an expense, not an investment they are entitled to get

back.

The accumulation of unallocated reserves gives the association

freedom to aggressively pursue opportunities that might be foreclosed

if the money is allocated to members. One example is litigation to

protect association contracts and legal rights. When the board sees

potentially significant legal expense ahead, it flinches much less if the

bill is to be paid with “association” money rather than coming out of

the members’ pockets. In reality, of course, all of the money is

grower money. But people just react differently depending on how

it is accumulated and allocated.
Member Traits and Voting Methods

Bargaining cooperatives uniformly are extremely democratic,

many with one-vote-per-member rules regardless of size, or, when the

voting is based upon the volume produced by the members, a limit is

usually placed on the number of votes any one member can cast.

The voting scheme often reflects the nature of the

membership. One-vote-per-member is used when the members are

somewhat homogeneous. One-member, one-vote proved to be

impractical for organizations such as CPG, a partially federated

cooperative consisting of individual pear-grower members and a

number of cooperative members including local bargaining

associations and packinghouses. The cooperative members would not

have joined unless voting was based upon a volume of canning pears

sold.

Until a few years ago, CTGA allocated one vote per member.

Several large volume producers would not join the association unless

they were given a larger voice in its affairs. It then adopted weighted

voting to attract these producers, with a limit on the votes any one

member can cast.

The relationship between the large-volume producer and the

bargaining association must be handled with care. The association

wants to have significant amounts of tonnage under contract, but

avoid becoming captive to a small group of high-volume producers.

Large growers may decide to become processors, but not on

a cooperative basis. Caution must be exercised to make certain a

grower-processor does not acquire a seat on the bargaining association

board of directors, lest there be an interlocking directorate that

exposes the association to some antitrust implications.

Other Characteristics

A bargaining cooperative does not exist to generate a profit

and the sources of its funds are limited, so it normally has a fairly

small staff consisting of a manager, sometimes an assistant manager,

one or more field staffers, and secretarial support.

With few exceptions, members retain the right to terminate

their membership annually at a designated time.

6
CHAPTER 2. BARGAINING ASSOCIATION

PROFILES

Each cooperative bargaining association has unique methods

of accomplishing its goals. This chapter reviews the development of

two such associations in the 1920s and 193Os, and two associations

currently active. These examples weren’t chosen because the

associations are any more important than others that could have been

profiled These associations are merely ones of which I have some

personal knowledge and can discuss with some degree of confidence.

Bargaining Cooperatives Prior to the 1950s

Records of agricultural bargaining cooperative activity prior

to the 1950s are fragmentary at best. Hoos and Helmberger reported

that the California Pear Growers Association (CPGA) operated from

1917 to 1937, the California Grape Growers Exchange from 1919 to

1929, the California Cherry Growers Association from 1920 to 1935,

and the California Canning Peach Association from 1921 to 1935.

Whether each was a bargaining cooperative or rather a trade

association that did not bargain but sought to encourage favorable

prices is not clear.

The following profiles of CPGA and the California Apricot

Growers Union (CAGU) reflect the concerns of growers during this

period and the steps they were willing to take to achieve reasonable

returns from their efforts.

California Pear Gro wers Association

Minutes of the meeting indicate pear growers from the

Sacramento River region and Contra Costa County met in Walnut

Grove on July 11, 1917. A resolution was adopted unanimously that

provided in part:

WHEREAS, the unorganized producers

cannot maintain a living price for his products when

prices are dictated by organized combinations of

buyers and food speculators.

7
a pear

WHEREAS, nearly all California producers,

with the exception of pear growers are now

organized. Oranges, lemons, peaches, apricots,

prunes, almonds, walnuts, olives and raisins are

handled by growers’ organization and are bringing

living prices.

AND WHEREAS, since 1916 there has been

an extensive and powerful combination of canners

and packers, which seems to have practically

eliminated healthy competition and buying, and

apparently enables operators to take advantage of the

situation.

The resolution concluded that growers should organize into

growers association to establish reasonable prices “for our

products and to plan for efficient marketing in future years. ”

Growers agreed to assess themselves 10 cents per ton on the

estimated tonnage for 1916 to cover expenses of the organization.

Apparently, the growers proposed that the association bargain with

purchasers of pears for canning and the fresh market.

Additional minutes indicate an executive committee was

formed. When growers next convened on July 22, 1917 at Walnut

Grove, the committee reported it had met “at attorney Sapiro’s office

and drew up articles of incorporation for a state pear growers

association and expected to have some kind of a contract to bring to

you, but after working a day and a half on the matter so many angles

and questions came up that we decided to report to you and let you

decide what should be done. ”

This was a reference to Aaron Sapiro, a San Francisco lawyer

who in the 1910s and 1920s became nationally prominent in helping

to organize producers of many commodities into agricultural

cooperatives. lo He raised many issues for the committee.

lo Aaron Sapiro is probably the most colorful and dynamic person to

become involved in organizing agricultural cooperatives, not only in

California but nationally. Some of the principal features of what became the

Sapiro Plan are still pertinent. Unquestionably, he gave a much needed

impetus to organizing marketing cooperatives, particularly in the years after

8
Growers wanted $50 per ton. The executive committee met

in San Francisco with representatives of two canneries who said they

could not can many pears at $50 per ton but would can more if the

price were less. Growers again were urged that unless an effective

organization was established immediately, they would not get more

than $35 per ton and some canners might buy their pears on the

market in San Francisco for as little as $20 per ton.

The leadership reported that growers in one area were being

offered $22.50 per ton by canneries. The group sent a release urging

pear growers to refrain from signing long-term contracts at

unreasonably low prices.

Shortly afterwards, representatives of Santa Clara and Sutter

Counties were contacted and growers agreed to form a statewide

organization. It appears that associations were formed in the various

pear growing districts in California and a statewide organization,

CPGA, became a federation of those district associations.

No further record of the organization exists until 1918.

Apparently, the association was unable to bargain effectively in 1917

because growers received about $35 per ton.

In 1918, CPGA proved much more effective. The board of

directors attempted to establish a price of $70 per ton for No. 1

pears. On May 28, 1918, the association wired the United States

Food Administration and requested its assistance in obtaining higher

prices from packers who held term contracts of Bartlett pears. On

July 18, the manager reported that the canners accepted the growers’

price of $70 per ton less freight charges to San Francisco--“the best

price ever paid for the whole crop of canning pears of the State of

California.”

Five days later the manager reported a problem with growers

delivering pears that were wilted, wormy, and rotting. He concluded

with the following advice “feed the wormy pears to pigs and raise

some pork to win the war.”

The growers, moreover, persuaded canners voluntarily to

raise the price of pears in term contracts executed in 1917 by $10 per

ton. This amounted to more than $60,000 to the association’s

growers.

World War I and the 1920s. See the bibliography for a partial list of articles

written about him and some of his most dramatic speeches.

9
It is interesting to note that a letter in November 1918 from

CTGA representatives to the CPGA president indicated that the two

cooperatives had attempted, unsuccessfully, to secure joint offtces.

An evaluation of the association’s articles of incorporation,

bylaws, membership agreement called a “pear crop agreement,” and

canners agreement indicates some important differences from those of

the present California Pear Growers (CPG).

In the membership agreement, the early association agreed to

“buy and the grower agrees to sell and deliver to the Association” all

of its pears. Presently, CPG simply acts as the growers’ exclusive

agent. It is significant also that the grower was committed to sell and

deliver his pears to the early association for a number of years. This

was consistent with the Sapiro belief that it was essential for the

cooperative to have a long-term contractual commitment by the

grower for the cooperative to be effective. CPG and most other

bargaining associations permit membership termination annually at a

designated time as necessary to induce growers to join.

As a forerunner of the current retain, the grower authorized

CPGA to deduct and retain a charge in the discretion of the

association, not to exceed 50 cents per ton for canning pears and 25

cents per ton for dried pears. The agreement provided that at the end

of the year’s operation any surplus might be used by the association

“for common advantage” or refunded to the growers.

Each grower agreed to provide the association with an

estimate of tonnage production for the year and estimates of the

quantity the grower expected to ship to the fresh markets, to sell to

canneries, and to dry. The growers recognized at this early date that

with a multi-use crop such as pears, it was necessary for some

preference to be indicated by the member so the association could

contract with canners or buyers in the fresh markets.

The crop agreement also provided for pooling by the

association.

Correspondence in 1923 indicates that the association was

advertising pears. Some directors indicated concern that the size of

the pear crop might be getting too large.

The last recorded CPGA communication, dated July of 1932,

indicated it was continuing to operate. Apparently it ceased

operations in 1937, presumably as a result of the severe depression

that year.

1 0
California Apricot Growers Union

A unique chapter in the history of efforts of fruit growers to

organize to improve prices and other terms of sale they receive from

canners and dried fruit packers occurred in the late 1930s in the

apricot industry. l1 Apricots are a multi-use crop, sold to canners for

processing, to packers for the fresh market, or to dried fruit

packers.r2 Efforts to form a processing apricot cooperative in 1936

and to secure adoption of a marketing agreement under the California

Pro Rate Act in 1938 failed.

In 1917, the prune and apricot growers organized the

California Prune and Apricot Growers Association in hopes of

improving the prices paid by dried fruit packers. At first, the

association was successful, but gradually the plan broke down because

many growers found they could get the benefits of the association

without paying for them.

As a result, the association was reorganized in 1929 as a

cooperative marketing dried fruit in competition with the proprietary

processors. A substantial portion of the apricots went to canning, and

returns during the 1930s for canning apricots were generally poor.

In 1937, a large pack met with disappointing sales,

undoubtedly due to the 1937-38 recession. A large carryover crop in

turn depressed prices to growers to the disastrous level of $23 per

ton. One prominent grower in Santa Clara described 1938 as the

worst year in farm history because the supply of fruit so far exceeded

the demand.

In 1938, nearly all the growers in San Benito County

organized, dried their fruit, and pooled it. They sold the fruit on a

rising market and realized a better return than the canning or dried

fruit price for 1937. They also obtained a concession from the

packers to allow two association members in the packing plants

during the grading of the member fruit.

‘I This has been reported in detail by Herbert M. Free in a masters

thesis he completed in 1941 at the University of California, Berkeley. Free

based his report in large part upon news stories in the San Jose Mercwy

Herald and the San Jose News, many of which he included at length.

Another excellent secondary source is Glanna Matthews, “The

Apricot War,” Vol. 59, No. 1, Agricultural History, January 1985.

I2 Apricots are now also used by the freezing industry.

11
San Benito growers felt that organizing on a statewide basis

would be even more successful. They assessed themselves to finance

a statewide organization campaign and formed the California Apricot

Growers Union (CAGU). Growers in Santa Clara, the largest

producing area in the State, were particularly targeted by the

organization effort. The membership agreement provided for a $1 fee

and an agreement to hold the sale of fruit subject to a uniform price

scale to be adopted later by the association.

An effective signup took place in all eight major apricot

producing districts in California. At a meeting in San Jose on June

7, 1939, 60 growers representing all production areas in the State

elected Ed Grant, a Santa Clara County grower, as president. A

minimum price scale for carming fruit was adopted. Matthews noted

“the ‘Union’ (CAGU) that emerged was a strange hybrid indeed,

because it was to a large extent sponsored by the local business

community while at the same time it employed the rhetoric of the

labor movement. ” l3

Bankers and business people were concerned because 90

percent of the apricot orchards were heavily mortgaged. Growers

were also in debt to valley merchants.

The first discussion between CAGU offtcials and canners was

in San Francisco on June 12. Grant said the canners favored

organization, provided the association was strong enough to guaranty

that growers wouldn’t sell below their own minimum price. The

Canners League president reportedly questioned if the canners could

legally reach a price agreement with the CAGU.

The growers committee then explored the possibility of

support by the State American Federation of Labor (AFL). The State

AFL secretary offered to cooperate, either through an alliance or a

direct affiliation by issuing an AFL charter. He proposed that once

a year a committee with equal representation of growers and laborers

jointly bargain with canners to set the price of fruit and wages of field

and cannery workers.

CAGU declined the proposal to avoid a split among its

grower members. Matthews points out how paradoxical it was for

the growers to be considering a joint organization with the AFL.

Only a few years earlier, many apricot growers had joined the quasil3 Matthews, “The Apricot War,” p. 33.

12
violence, let farmers know they would be unable to form a union

without paying a heavy price.14

Negotiations began in earnest on July 6, 1939, when growers

in the San Jose area began harvest. Intense bargaining followed

through July 12. Fruit was ripening and dropping on the ground

unharvested. Growers, frustrated by the refusal of the canners to

accept the prices offered by the association, became increasing

violent. Local newspapers reported several incidents of setting fire

to fruit boxes placed in growers’ fields to facilitate harvesting and of

fruit being dumped on its way to a cannery.

On July 10, CAGU agreed to participate in a mediation

conference with the canners to be attended by the president of the San

Jose Chamber of Commerce, the president of the leading bank in San

Jose, and the president of the San Jose Realty Board. These

community leaders were reported to be authorized to convey a

compromise offer from the association.

On July 11, the local papers reported that a meeting in San

Francisco of the mediators with the canners had failed and that the

Cannery Workers’ Union had offered to give “its full support and

cooperation” to the apricot growers.

On the same date, growers picketed the Libby, McNeil &

Libby cannery in Sunnyvale and the Teamsters Union and cannery

workers recognized the picket line. Most major canneries were

completely shut down.

On July 12, the Mercury Herald reported that the strike had

been settled. CAGU claimed a victory because the canners had come

up $10 from their previous offer, while the association came down

only $7.50 from its asking price. Unfortunately, the agreement was

only with the smaller canners. The three major canners refused to

recognize the agreement. Many growers feared losing their fruit it

they insisted on the compromise price. The withholding action

collapsed and the price paid by the major canners was substantially

less than that worked out through mediation with the small canneries.

I4 Id., at 30.

13
Free points out that the 1939 crop was the largest in 23 years,

which undoubtedly presented an insurmountable problem for the

cooperative. l5

Throughout their ordeal, growers enjoyed widespread

community support. For example, the police did not make a single

arrest of a grower although Free reports that even association officials

admitted that the police knew the persons who were responsible for

the violence. At the height of the turmoil, the San Jose City Council

permitted CAGU to conduct a demonstration parade through the city

streets.

Growers attempted to reorganize in 1940. But the 1940 crop,

in contrast to the large 1939 crop, was one of the smallest in history.

CAGU had difficulty getting growers to cooperate. In most cases

price negotiation was conducted by the individual growers and CAGU

acted primarily in an advisory capacity.

Free observed that while “Farmers are generally opposed to

violence, yet during the growers’ strike, even many of the most

conservative orchardists condoned the violent tactics used.”

He further observed that “Nonmembers of such associations

generally benefit as much as members, yet are not forced to cooperate

or contribute financially. Growers characteristically tend to put off

attempts to help themselves until they are actually in trouble. ”

As a final footnote to Free’s study, he reports that in January

1941, an organization of Santa Clara County apricot growers

announced that they were contemplating a union charter with the

Congress of Industrial Organizations. Growers named a committee

that conferred with a West coast organizer to explore possibly

aligning apricot producers with the labor movement. One grower was

quoted as saying, “The organized grower is seeking aid from

organized labor because here he sees affiliated power that has been

abetted by State and Federal government and the power condoned by

the State and Federal Supreme Courts.”

Apparently nothing came of this proposal. No further serious

effort to organize apricot growers occurred until the formation of the

Apricot Producers of California as a bargaining cooperative in 1960.

I5 Herbert W. Free, “California Apricot Growers Union,” unpublished

masters thesis, University of California, Berkeley (1941).

14
Contemporary Bargaining Associations

These two reports on the organization and activities of

bargaining associations merely illustrate the many successful such

associations operating today. They were selected primarily because

of the author’s familiarity with their experiences, and because they

illustrate the two different types of agricultural bargaining

associations.

California Tomato Growers AssociatiorP

The California Tomato Growers Association, (CTGA) was

incorporated in 1951 and organized in 1954 as a growers’ service

association. Its primary functions were to recruit field labor for

tomato growers, set piecework rates for workers, and provide legal

advice to growers concerning the Bracero Farm Worker Program.

A predecessor organization, also known as the California

Tomato Growers Association, was apparently organized in 1917.

Unfortunately, no minutes or other records of the early association

could be found. The group had likely ceased to exist several years

prior to the formation of CTGA.

An unsuccessful effort to bargain for price in behalf of its

members was made in 1958 and 1959. With that exception, the

association continued to function as a service organization.

Anticipating the end of the Bracero program in 1964, the

association in the early 1960s began promoting mechanical harvesting.

The development of the tomato harvester and of suitable varieties of

processing tomatoes caused the industry to change rapidly from hand

l6 The following materials were used in the preparation of this section:

CTGA minutes and annual reports; a paper entitled “An Economic Analysis

of the Processing Tomato Industry From 1970 To The Present” by Suzanne

Vaupel, June 1990; speech by Dr. Randall E. Torgerson, “Back to the

Basics in Bargaining Cooperatives,” June 1991, at CTGA annual meeting;

interview of David Zollinger by Gerald D. Marcus, March, 1989; case study

of CTGA prepared by Kathleen McManus under the supervision of Professor

Chester 0. McCorlcle, University of California, Davis, and Vice

President/Manager Kenneth C. McCorkle, Wells Fargo Bank, Fresno, 1990;

“President Dave Zollinger Analyses California Tomato Industry’s Myriad of

Past and Present Challenges, ” California Tomato Growers, 1992.

15
to mechanical harvesting. A formerly labor-intensive crop was

changed to one requiring comparatively little labor. Harvested

acreage increased from 141,300 acres in 1970 to 299,200 in 1975.

Total production increased for the same period from 3.4 million tons

to 7.3 million tons.

Consumption of canning tomatoes, however, was not keeping

pace with production. After peaking in 1971, consumption dropped

15 percent by 1973.

With increased production and flat or falling consumption,

inventories of tomato products began to grow and processors’ demand

for tomatoes declined. After reaching a peak in 1975, production

dropped 30 percent in 1976 and 15 percent of the acreage was

abandoned that year.

Early in the 1970s CTGA, which had been organized as a

growers’ service organization, began considering a role in pricing of

tomatoes to canneries. The price per ton at the processor door was

$31.60 in 1970 and $34 in 1972 and 1973. In 1974, CTGA

announced that if it were designated the bargaining representative for

70 percent of the state’s processing tomato volume, the association

would bargain with processors in 1975. Processors responded by

increasing the price in 1974 to $56.80!

In 1975, CTGA made its 70-percent goal, began to bargain

with the processors, and negotiated a farmgate price of $55 per ton.

With the association acting as bargaining agent, grower prices

remained relatively stable during the last half of the decade, despite

depressed industry conditions.

Acreage and production continued to decline through the rest

of the decade while consumption remained flat from 1978 until about

1981; however, production still exceeded demand. The canning

tomato industry was in a desperate situation. Prices for canned

product were low and inventories continued to build.

Weak industry conditions and a glut of tomato products

continued through the first half of the 1980s. The severe depression

in the industry took its toll on processors and the bargaining process.

Two cooperative processors did not survive this period, California

Canners & Growers (Cal Can) and Glorietta Foods. In 1980, some

industry leaders estimated that the carryover represented the full

year’s supply of tomato products. The whole industry was marked

16
by chaos. No price was negotiated by CTGA for the 1981 crop.

Production bottomed out in 1981 at 4.9 million tons.

The late 1970s was marked by turmoil within CTGA. The

association had a negotiating policy of setting a price and asking

members to hold out until it received that price. Many growers broke

ranks. They were faced with unsold tomatoes rotting on the ground.

Association membership began to decline.

The board, to encourage growers to renew their memberships,

placed a clause in their membership agreement permitting growers to

“opt out” in certain circumstances. If a grower received a contract

offer different from the negotiating position of the association, the

grower could ask the association to approve the contract. If the

association did not approve the contract, the grower could option out

for that season. The grower would not be subject to the contractual

requirement to observe the minimum price and terms of sale

requested by the association.

A resurgence in membership occurred, but at a price.

Growers knew they did not have to observe the terms the association

was attempting to negotiate. Worse yet, the processors were aware

of the contract provision. Some processors would try to go around

the association by making contract offers directly to growers.

That clause is still in the CTGA membership agreements.

David Zollinger, CTGA executive vice president from 1981 to early

1993, would have liked to do something about it, but it was a

politically sensitive matter that was popular with growers. He never

found a way to convince growers to give it up.

In the 198Os, demand for tomato products increased with the

growing popularity of Italian and Mexican foods. Per-capita

consumption of processing tomatoes rose from 59.3 pounds in 1981

to 64.6 pounds by 1987, reaching a 20-year high of 68.4 pounds in

1989.

With relatively low production, increasing consumption, and

a strong U.S. dollar, the United States became a target for tomato

product imports. In 1980-81 and 1981-82, imports more than

quadrupled from 39 to 161 metric tons. With the European Common

Market subsidizing production, imported tomato products in eastern

United States markets sold for less than they could be produced and

shipped by domestic producers.
When Zollinger became executive vice president, a change

occurred in the way the association conducted negotiations with

processors. Until then, the chairman of the board also served as chief

negotiator. As CTGA manager, Zollinger was given the authority to

be the chief negotiator in consultation with the executive committee.

Rather than depending on a seasonal basis for its bargaining, CTGA

became more flexible and negotiated when necessary over a longer

period of time or when it would have more ability to collect current

information.

In 1984, CTGA changed from one-member, one-vote to

modified weighted voting of one vote per thousand tons with a

maximum of 100 votes. This encouraged some large producers that

previously had not joined the association to become members while

retaining the family-sized farms.

CTGA also changed its method of pricing. Previously it

negotiated for single price for tomatoes. Now, it bargained for what

it called an “anticipated average price.”

Zollinger explained that the industry was divided into two

lines of business. One part dealt with whole peeled tomatoes--

tomatoes peeled and canned either whole or wedged, sliced, diced, or

crushed. The other dealt with tomato products made from

concentrate or paste--sauces such as pizza, chili and spaghetti, and

ketchup. l7

Processors who wanted whole peeled tomatoes were looking

primarily at sub-skin color and a tomato that is solid, can be peeled,

put into a can, diced, or otherwise similarly processed. In the case

of concentrates, canners were less concerned if the tomato was

actually solid but if they were whole and sound tomatoes. Zollinger

said CTGA:

. . .developed quality incentive programs for

the two basic industries and then we had to find some

way since these contracts were different (so) they

could be equated. We had to create several standards

on both sides of this equation so that we could equate

in value whatever contract that we were dealing

(with) to a contract for other processors in the

I7 Interview with David Zollinger, March 25, 1989.

18
various major segments of the industry. As a result,

the association became able to be flexible in working

with individual processors to meet their special needs

and yet end up with substantially the same values for

each. l8

Zollinger said this has become a very beneficial program for

the California processing tomato industry and offshore suppliers are

beginning to adopt it. He described this change in price bargaining

as follows: “Negotiating for price and contract terms has undergone

many changes since the early days when one price for all production

was agreed to throughout the industry in response to processors’

needs for varieties with specific characteristics and equating price

based on payment for desired characteristics is negotiated. “19

California production increased with the growing demand for

tomato products. In 1991, California tomato growers harvested 9.9

million tons, the third record-breaking crop in a row.

Increased demand and production has led to an expansion of

the processing industry. Several new canners have entered the

business and, on the whole, California processing plants are relatively

new and efficient. High-tech plants have been built with state-of-theart equipment and effective management. Existing facilities have

been refurbished and modernized.

While prices have been relatively stable since 1981 and

growers’ costs have increased, Zollinger explained that the growers’

position has improved because of their marked improvement in

productivity.

California in recent years has produced as much as 87 percent

of the total U.S. production. The association’s membership ranges

between 45 percent and 50 percent of the tonnage going to

proprietary processors.

‘* Id.

l9 Id.

19
California Pear Gro wersm

Except for the activities of the pear growers association

formed in 1917 and apparently ceasing operation in 1937, there was

no effective statewide collective bargaining in behalf of the California

pear growers until the formation of the California Canning Pear

Association (now known as the California Pear Growers) in 1953.

Bartlett pears are a multi-use fruit suitable for canning, fresh

market, and drying. Production increased dramatically in California

from 1931 with 191,400 tons to estimates of 330,000 in 1952. Until

1945, use was primarily in fresh pear sales. That year marked the

beginning of the growth of the canned pear market. Production of

canning pears increased from 69,000 tons on the average from 1935

to 1939 to 265,000 tons by 1955.

Grower prices for California cannery pears were about $54

per ton for 1921-25 and declined to $23 per ton during the 1930s.

Prices rose during the war years until in 1946 they reached $100 per

ton. Prices fluctuated wildly in the years before the formation of the

pear association: $65 per ton in 1947, $120 per ton in 1948, $31 per

ton in 1949, nearly $100 per ton in 1950, and $49 per ton in 195 1.

During those years, new outlets were developed by the

canning industry, including pear nectar, fruit salad, and baby food.

Favorable consumer reception for fruit cocktail, which had been

introduced in 1930, increased demand for pear production. Fruit

cocktail became an important outlet for California pears because they

constituted one-third of the total fruit content.

These new uses prevented a catastrophe which would have

prevailed had the industry been limited to canned pear halves, fresh

and dried uses.21 Production of pears was skyrocketing due

ZJ Among the materials used in the preparation of this section are the

minutes of the association board meetings; annual reports; interviews of

Cameron Girton and Robert E. Collins by Gerald D. Marcus in December

1988; a conference with Jean-Mari Peltier and Joe Mapes; a case study of

the California Pear Growers Association prepared by Kathleen McManus

under the supervision of Professor Chester 0. McCorkle, University of

California, Davis; and “A History of California Grade Pack Pears” by

Edward Thor and Daniel Moen of Tri Valley Growers.

” H.V. Beckman, Manager, Pear Growers League, “Wither Are We

Drifting with Pears?” Pear Growers League Annual 1953.

20
primarily to increased yields resulting from use of sprinklers and the

availability of irrigation water through major water projects.

In 1952,60 representative growers from every pear producing

district in California met in Sacramento. Jack Z. Anderson, first

president of the California Canning Pear Association (CCPA),

described the meeting as follows:

The primary topics of discussion were:

Organization and surplus control. It was generally

agreed that only through some type of a statewide

canning pear association could we expect to be in a

position to bargain with the processors on a price for

our product. It was further agreed that such an

organization could go a long way toward eliminating

the wide range in prices paid for pears and assist

tremendously in stabilizing the entire industry. That

stabilization was badly needed is best emphasized by

looking back to 1948 when the California Bartlett

growers received an average of $120.00 per ton for

their pears and looking quickly, but reluctantly, at

1949 when these same growers sold for an average of

$3 1 .OO per ton a crop of almost the same tonnage as

was produced the previous year. It is obvious that no

industry can expect to survive and prosper under

conditions that permit a variation in price of almost

five hundred percent from one year to the next.n

In 1953, CCPA was organized as a partially federated

association consisting of cooperatives such as the Central Coast Pear

Association and the Lake County Pear Association, a number of

cooperative shipping houses, and

provide equality in voting power

individual members, voting was on

one-member, one-vote.

individual pear growers.

between the cooperatives

the basis of tonnage rather

To

and

than

n Speech by Jack Z. Anderson before the Washington State Horticultural

Association of Wenatchee entitled “Organization for Self-Preservation” 1953.

A copy of his speech is included in the appendix.

21
Because pear growers had received different prices for

canning pears depending upon the district in which they were

produced, CCPA members agreed to recognize existing price

differentials by using a lo-year average of prices that each district

received as a format for the prices the association would negotiate.

Members also agreed that the association would only bargain

for canning pears. To learn the volume for which the association

would be bargaining, each member had to file a preference request in

advance of harvest, indicating the tonnage that the grower would

produce for the canning market as distinguished from pears headed

for the fresh market or be used otherwise.

The pear association adopted the policy of the cling peach

association, acting as a sales agent for members’ fruit and establishing

the price and terms of sale at which it would be sold. The form of

contract was also substantially the same as that of the canning peach

association, featuring “reasonable price.” That enabled the

association and its canning customers to sign binding contracts in

advance of harvest without designating a specific price.

The association employed its first manager, Cameron Girton,

and amazingly was prepared to begin negotiations for the 1953 crop

within weeks after it was organized.

To expedite negotiations, which legally had to be conducted

individually with each processor, Joe Wahrhaftig, CCPA’s first legal

counsel, helped develop an ingenious formula. Proposed prices

would be submitted by telegram (no faxes in those days). The

association contract provided that if a requisite number of processors

representing a sufficient volume of fruit reached agreement, each of

the processors would be bound to the price.

CCPA was financed primarily by service charges paid by the

processors and per-unit retains. As the amount of retains in the

revolving fund grew, the association also earned interest from the

investment of the revolving fund.

In preparing for price negotiations with canners, the

association used a formula developed by Drs. Sidney Hoos and

George Kuznitz of the Giannini Foundation at the University of

California in Berkeley. If the proper information was supplied, the

formula would forecast the FOB price for a case of 24 2%~ns of

pears for the next marketing season. From that number, the

reasonable per-ton price for the raw fruit could be estimated.

22
The formula considered a number of variables including

estimated crop tonnage; amounts anticipated for fresh, canned and

dried purposes; past and present conditions of unsold canned stocks

of pears, pear products, and competing fruits including clings,

freestones, apricots, and sometimes pineapple; and the general

economic condition of the country including consumers’ buying

power.23

In its first year of operation, the pear association negotiated

with 24 proprietary canners and two processing cooperatives, Turlock

Growers and TrYValley Packing Association, that merged in 1963 to

form Tri Valley Growers (TVG). Negotiations with the processing

cooperatives was, of course, only for such fruit that the cooperatives

purchased commercially. Several of the independent canners were

-smaller family-owned proprietary operations.

Association president Anderson described it dramatically:

Price negotiations that first year were not for

the faint-of-heart. The board met repeatedly to

establish its differentiated pricing structure and initial

bargaining position. The first meetings with

processors took another 3 days and produced only

one acceptance.

Then the canners were hit with a strike that

lasted for 8 tortuous days. Pears were ripening fast.

Canners were taking non-association pears into

storage but association members had no home for

their fruit. When the strike was settled, CCPA

immediately offered member fruit to the canners at

the association price. Again only one canner

accepted the offer.

The board held emergency sessions. The

growers were becoming desperate, but no breaks

occurred in the ranks. The board, after individual

conferences with several major canners, agreed to

reoffer member tonnage at $7 per ton less than the

original asking price. Within 24 hours the

u The appendix contains a detailed explanation by Girton of how the

formula was applied.

23
compromise price was accepted, the pears were sold,

and the association was established as a credible

organization in the eyes of both growers and

processors.”

During that first year, it became evident that without

organization of the Northwest pear growers, the major canners had

a great advantage. Del Monte, Libby, and Hunt were buying pears

both in California and the Northwest.z If canners could buy pears

cheaper in the Northwest, that was a deterrent to the ability of CCPA

to negotiate a reasonable price.

CCPA leaders went to the Northwest and met with pear

growers in Medford, OR, and Yakima and Wenatchee, WA. In

1954, the Washington Canning Pear Association was formed. It

closely followed the structure and procedures of the California

association. Shortly afterwards, many Oregon pear growers joined

and the association became the Washington-Oregon Canning Pear

Association.

While the two associations decided not to bargain for a joint

Pacific coast price or prices, they felt it was important to work

together rather than against each other. The Pacific States Canning

Pear Marketing Association was formed with two members, the

California and Northwest associations. The alliance remains in effect,

usually meeting twice a year to exchange information and coordinate

bargaining activities.

California growers had a marketing order under which grades

were established, research was conducted, and funds withheld for

promoting canned pears. Oregon and Washington had similar

enabling legislation. The Pacific Coast Canned Pear Service was

formed by the three states with representatives from each State to

administer a fund for promoting canned pears.

24 “Organization for Self Preservation,” a speech by Jack 2. Anderson,

CCPA president, reprinted from the 1954 Annual of the Pear Growers and

Central Coast Pear Association and included in the appendix.

25 Then the Pacific coast produced 90 percent of the total U.S.

production of canning pears, California produced about two-thirds, and

Washington and Oregon, the balance.

24
Girton discussed efforts to establish an overall Pacific coast

bargaining association with the primary function of establishing a

Pacific coast price:

The growers in the Northwest were very

suspicious that in surplus years we would recommend

. . . tighter grades, particularly as far as size is

concerned which would affect them seriously. There

were several large growers, very large influential

growers, in the Northwest who were pretty much dry

farmers and, therefore, their fruit was not as large as

our grade would require, and they fought us . . . when

we attempted to amend the Federal Marketing Act to

include canning pears. They raised the issue that this

might be a ploy on the part of California to affect

grades and be very harmful to their efforts to harvest

their crops.26

The 1953 and 1954 grower prices were near the previous loyear average, so CCPA was regarded as successful in its efforts to

achieve price stability at a reasonably profitable level.

By 1957, the association recognized that production was

increasing and processors were finding canning less profitable.

Several proprietary canners discontinued operations. The association

faced the prospect of having unsold fruit and adopted a resolution to

pool. It remained in effect until 1974.” The purpose of pooling

was to protect CCPA prices from being undermined by homeless fruit

being sold to processors at distressed prices. Portions of the current

retain were used to cover pooling losses.

In 1974, as a result of cannery strikes and a large crop, so

much unsold fruit existed that the entire 5percent retain was used to

cover the pooling losses. Due to pressure from a number of growers

whose pears had been sold, the board reduced the retain from 5

percent to 2 percent, extended the revolving period for retains from

26 Interview with Cameron Girton on Dec. 9, 1988.

2’ A copy of the California Canning Pear Association pooling policy

adopted in 1957 is included in the appendix. Pooling is discussed in greater

length in Chapter 5.

25
5 to 7 years, eliminated the pooling resolution, and in its

established a pool for unsold fruit. As Girton explained:

Finally we adopted a best efforts policy

whereby we would make our best effort to sell the

product. In the event we couldn’t, the grower would

be so advised, it might then elect to place its fruit in

what we referred as an unsold lot. The unsold lot

was fruit that was not sold as of a given date and that

was in there at the grower’s request. We would

normally be able to sell all or a portion of it . . .

sometimes at canning prices, sometimes to the fresh

market, sometimes to the dry market, sometimes to

Gal10 (to produce wine) at reduced prices which

would, in most cases, return an average per ton of

less than the number 1 canning price.

The proceeds in the pool would be

supplemented by the Board if it so chose and were

then divided up in a prorata basis2*

The leadership ‘often discussed what would happen

place

if the

canners and the association failed to agree on price. In 1966, the

unthinkable happened. The association and the leading canners failed

to agree, but under their contracts the canners were required to accept

the pears committed to them with no agreed price. The ensuing legal

battle is discussed in detail in the chapter 4 section covering litigation

over reasonable price.

The mid-1960s were memorable also because Dr. Hoos

completed a study of price differentials and at long last the eight pear

producing districts agreed that price differentials should be eliminated

and a single price established statewide.

During these years 50 percent or more of growers selling to

proprietary processors joined the association and it achieved

processors’ acceptance as a stabilizing influence in the industry.

zs Interview with. Cameron Girton on Dec. 9, 1988. A copy of the

revised California Canning Pear Association pooling policy adopted in 1976

is included in the appendix.

26
The 1970s and 1980s were difficult for growers of pears and

other fruit for canning. The number of proprietary canners kept

diminishing with mergers, acquisitions, and bankruptcy. Processing

cooperatives, which for a time appeared likely to pick up the slack,

appeared and, except for TVG and Pacific Coast Producers (PCP),

disappeared. CCPA was instrumental in organizing growers to form

processing cooperatives to protect their growers’ home and market.

These ventures are covered in the chapter 6 section on processing

cooperatives initiated by bargaining associations.

Girton said that the canned fruit industry problem was caused

by a decrease in the consumption of canned fruit:

This was attributed to many things -- (1) the

availability of fresh fruit year round due to the

importation of fruit, (2) the cost of a canned product

which was getting higher and higher, and (3) people

were getting concerned with the heavy syrups that we

had put in our product. So these three items we feel

attributed to the decline in the consumption of canned

fruit in general.2g

As Thor and Moen point out, “The ending of the Vietnam

War and winding down of government needs caused a decline in

canning profitability as the ending of earlier wars had. By 1975

production had shifted so that more than half of the pears processed

for fruit cocktail and grade pack in California were processed by

cooperatives.“3o

This was also a time when major California fruit companies

were taken over by large conglomerates. As a result of leveraged

buyouts, increasing emphasis was placed on the bottom line. The

operating companies in a conglomerate were faced with a heavy

burden of interest payments. Capital needed for plant modernization

and change was diverted into non-productive costs of the buyouts.

While California bartlett pear bearing acreage decreased

substantially from 1978 to 1988, yield per acre increased to the point

B Girton interview.

YJ Edward Thor and Daniel Moen, “A History of California Grade Pack

Pears, ” unpublished working paper prepared for TVG (March 1990), p. 15.

27
that pear supply continued to grow while demand for canned pears

waned. Grower returns per ton from canning dropped sharply from

$176 per ton in 1978 to $109 per ton and $105 per ton in 1981 and

1982.

During these years the pear association encouraged tree

pullout, considered merging with the Washington-Oregon Canning

Pear Association, and even studied a suggestion of the cling peach

association that the two cooperatives develop a mixed fruit product.

Pear association income was substantially reduced. It dropped

membership in a number of organizations and reduced operating

expenses in other ways. In the end, the board decided that the

association should continue as an independent organization and

expand its services.. For this reason, the name was changed from the

California Canning Pear Association to the California Pear Growers

(CPG). Although none of us recognized it at the time, this was the

name of the first pear association.

While in the 1980s canners had disappeared and maintaining

canner homes for fruit became more and more difficult, by 1990 a

situation approaching equilibrium between supply and demand had

developed. Processors operating in California included PCP and

TVG, major proprietary canner Del Monte, and two small proprietary

canners, J.R. Wood and Gerber Foods. TVG was the only processor

producing grade-pack pears.

At this writing, CPG’s membership has remained constant.

The association is accepted by pear growers as their voice in

marketing and other industry matters. Under the leadership of

president Jean-Mari Peltier, who succeeded Cameron Girton, the

association has expanded its non-pricing activities in a number of

innovative and creative ways as described in chapter 7.

28
CHAPTER 3. LEGAL STATUS OF

AGRICULTURAL BARGAINING

Agricultural bargaining, as a form of cooperative marketing

of farm products, is greatly influenced by the legal environment in

which it operates.

Like all marketing cooperatives, bargaining associations are

subject to general antitrust law and dependent on the limited

exemption provided by the Capper-Volstead Act.

They are also affected by the Federal Agricultural Fair

Practices Act (AFPA), which has both important strengths and

weaknesses. Several states have enacted laws with various provisions

to promote agricultural bargaining within their borders.

This chapter discusses these legal foundations underpinning

farm bargaining cooperatives and concludes with some suggestions on

how the Federal act could be improved to bring public policy support

of bargaining into clearer focus.

Antitrust Law and Cooperative Farm Bargaining

Antitrust law, like most of our legal traditions, is founded on

English common law. When common law was developing, the

“trades” were tightly controlled by guilds and towns. If someone

agreed not to practice his trade, he might become a burden on the

public. Therefore, the courts refused to enforce any contract that

“restrained trade.”

This view was gradually relaxed, and by the early 18th

century, agreements in restraint of trade were enforceable if

reasonably related to a lawful transaction. The pendulum gradually

moved to the other extreme and the common law of trade restraint

became largely a dead letter.

After the Civil War, industrial leaders in the United States

took advantage of the hands-off attitude adopted by our courts and

mounted serious challenges to free competition. Persons in the same

line of business, including industries important to farmers--steel,

petroleum, farm machinery, sugar, cotton, oil, and tobacco--formed

“trusts.”

29
A “trust” was an early version of the holding company.

Controlling blocks of stock in previously separate (and usually

competing) companies were placed in a trust under the direction of a

single board of trustees. The trustees could then control virtually an

entire industry, by setting levels of output and prices of all the largest

producers.

Farmers, particularly in the South and West, responded to the

trusts by organizing the so-called Granger movement. Farmers used

their political influence to help secure first State and then Federal

laws to limit the power of the trusts. While the trust is now an

archaic form of business structure,’ the term “antitrust” has survived

to describe laws aimed at protecting the competitive market system.

The Sherman Act (7890)

The Sherman Act of 1890,31 the first Federal antitrust law,

remains the most important such act. Most antitrust suits against

cooperative associations allege violations of sections 1 and 2 of this

act.

Section 1 makes it illegal for competitors to form a trust or

other combination or conspiracy that restrains trade. Section 2

prohibits a single firm or a group of firms from becoming a

monopoly, or even attempting to do so.

After passage of the Sherman Act, the young farmer

cooperative movement found itself imperiled by the antitrust

legislation intended to combat the excesses of large and powerful

corporations that had victimized the farmer. Sherman Act sponsors

had not intended to include agricultural cooperatives as unlawful

combinations in restraint of trade. Indeed, Senator Sherman proposed

an amendment to his bill that it should not be construed to prohibit

“any arrangements, agreements, associations, or combinations among

persons engaged in horticulture or agriculture made with the view of

enhancing the price of their agricultural or horticultural products. ‘13’

The amendment wasn’t adopted. Many legislators felt it was

important not to limit the applicability of the new law in any way.

Senator Sherman was persuaded by his colleagues that no one would

consider applying the antitrust statute to agricultural producers.

31 15 U.S.C. $9 l-7.

32 21 Cong. Rec. 2726 (1890).

30
But soon, farmer cooperatives found themselves the targets of

antitrust suits, mainly under State statutes patterned after the Sherman

Act.33

Labor unions, like farmer cooperatives, were also under

attack. In one famous labor case, the Danbury Hatters decision, the

U. S. Supreme Court stated the Sherman Act:

. . .made no distinction between classes. It

provided that “every” contract, combination or

conspiracy in restraint of trade was illegal. The

records of Congress show several efforts were made

to exempt, by legislation, organizations offarmers

and laborers from the operation of the act and that all

these efforts failed, so that the act remained as we

have it before us. (emphasis added)%

To prevent such lawsuits from thwarting the development of

cooperatives and unions, Congress in 1914 passed Section 6 of the

Clayton Act, which states:

The labor of a human being is not a

commodity or article of commerce. Nothing

contained in the antitrust laws shall be construed to

forbid the existence and the operation of labor,

agriculture, or horticultural organizations, instituted

for the purposes of mutual help, and not having

capital stock or conducted for profit, or to forbid or

restrain individual members of such organizations

from lawfully carrying out the legitimate objects

thereof; nor shall such organizations, or the members

thereof, be held or construed to be illegal

combinations or conspiracies in restraint of trade

under the antitrust laws. (emphasis added)35

33 See, e.g., Ford v. Chicago Milk Shippers’ Ass’n, 39 N.E. 651 (Ill.

1895); Reeves v. Decorah Farmers’ Co-operative Society, 140 N.W. 844

(Ia. 1913).

34 Loewe Lawlor, v. 208 U.S. 274, 301 (1908).

35 15 U.S.C. $ 17.

31
The Capper- Volstead A c t f 1922)

It soon became apparent that despite the language of Section

6, the threat of prosecution remained, especially for cooperatives

organized on a capital stock basis. The express right to carry out the

actions necessary to enable agricultural cooperatives to function

effectively for their members was more fully set forth in the CapperVolstead Act, enacted in 1922. Section 1 provides:

Persons engaged in the production of

agricultural products as farmers, planters, ranchmen,

dairymen, nut or fruit growers may act together in

associations, corporate or otherwise, with or without

capital stock, in collectively processing, preparing for

market, handling and marketing in interstate and

foreign commerce, such products of persons so

engaged. Such associations may have marketing

agencies in common; and such associations and their

members may make the necessary contracts and

agreements to effect such purposes.36

Section 2 authorizes the Secretary of Agriculture to proceed

against any cooperative that he believes monopolizes or restrains trade

“to such an extent that the price of any agricultural product is unduly

enhanced. “37 If the Secretary finds undue price enhancement has

occurred, an order to cease and desist from monopolization or

restraint of trade is issued.

Under the protection of these statutes, producers have been

able to organize themselves to influence the market in which they sell

or distribute their products, thereby combating the handicap of

unstable market conditions and a price system determined by the

weakest producer.

In National Broiler Marketing Association v. United States,

Justice Harry A. Blackmun eloquently explained the conditions that

led Congress to permit agricultural producers to improve their

bargaining position in the marketplace by forming cooperatives:

36 7 U.S.C. $ 291.

37 7 U.S.C. $ 292.

32
Farmers were perceived to be in a

particularly harsh economic position. They were

subject to the vagaries of market conditions that

plague agriculture generally, and they had no means

individually of responding to those conditions. Often

the farmer had little choice about who his buyer

would be and when he could sell. A large portion of

an entire year’s labor devoted to the production of a

crop could be lost if the farmer were forced to bring

his harvest to market at an unfavorable time. Few

farmers, however, so long as they could act only

individually, had sufficient economic power to wait

out an unfavorable situation. Farmers were seen as

being caught in the hands of processors and

distributors who, because of their position in the

market and their relative economic strength, were

able to take from the farmer a good share of

whatever profits might be available from agricultural

production. By allowing farmers to join together in

cooperatives, Congress hoped to bolster their market

strength and to improve their ability to weather

adverse economic periods and to deal with processors

and distributors.38

Court Actions

The legal history of the Clayton and Capper-Volstead Acts

and the decisions of the courts make it clear that farmers and

producers may form cooperatives without violating the antitrust laws.

These statutes, however, do not give agricultural cooperatives carte

blanche to evade the intent of the antitrust laws. On several

occasions, the Supreme Court has outlined the boundary between

permissible cooperative activity and conduct that violates the antitrust

laws.

In 1939, the case of United States v. Borden co.39 brought

before the U.S. Supreme Court an alleged conspiracy between the

Pure Milk Association, a cooperative, and noncooperative entities,

38 436 US 816, 825-26 (1978).

39 308 U.S. 188 (1939).

33
including distributors, labor officials, and municipal officials. The

conspiracy allegedly violated Section 1 of the Sherman Act by

attempting to fix and maintain artificial and noncompetitive prices for

milk.

Reversing the lower court, the Supreme Court held that the

Capper-Volstead exemption did not insulate all activities of

agricultural cooperatives from the Sherman Act. The alleged

conspiracy with noncooperatives removed the cooperative’s conduct

from the protection of the exemption. In the words of Chief Justice

Charles E. Hughes:

The right of those agricultural producers thus

to unite in preparing for market and in marketing

their products, and to make the contracts which are

necessary for that collaboration, cannot be deemed to

authorize any combination or conspiracy with other

persons in restraint of trade that these producers may

see fit to devise.@

Nearly a generation later, the Supreme Court again had

occasion to discuss the limits of the exemption for farmer

cooperatives. In Maryland and Virginia Milk Producers Association,

Inc. v. United States41, the defendant milk-marketing cooperative

had been charged with violations of: Section 2 of the Sherman Act

by attempting to monopolize and monopolizing the fluid milk market,

Section 3 of the Sherman Act by conspiring to eliminate competition

in the same market, and Section 7 of the Clayton Act for acquiring

the assets of its largest competitor. The Court, citing Borden, held

that the alleged conduct deprived the cooperative of the immunity

provided by Section 6 of the Clayton Act and the Capper-Volstead

Act. It stated:

(T)he full effect of $6 (of the Clayton Act) is

that a group of farmers acting together as a single

entity in an association cannot be restrained ‘from

lawfully carrying out the legitimate objects thereof

a 308 U.S. at 204-205.

4’ 362 U.S. 458 (1959).

34
(emphasis supplied), but the section cannot support

the contention that it gives such an entity full freedom

to engage in predatory practices at will.”

The Supreme Court defined a further limit to the exemptions

in Case-Swuyne Co., Inc. v. Sunkist Growers, Inc.” The Court held

that membership of persons and entities, who were not themselves

producers of agricultural products, would nullify the Clayton Section

6 and Capper-Volstead exemptions for the cooperative.

While these Supreme Court decisions leave no doubt that the

statutory immunity enjoyed by agricultural cooperatives is a limited

one, both the Supreme Court and the appellate courts have affirmed

the rights of cooperatives to join in combined action under the

Capper-Volstead Act. In Sunkist v. Winder & Smith Co.@, the

U. S . Supreme Court held that two or more cooperatives could work

together to collectively process and market their members’ fruit and

fruit products without violating antitrust laws.

Sunkist was alleged to have conspired with two citrus fruit

exchanges, Exchange Orange and Exchange Lemon, to commit

various acts and violations of Sections 1 and 2 of the Sherman Act.

The court looked beyond the technical separateness of the three

groups and held that:

(T)he 12,000 growers here involved are in

practical effect and in the contemplation of the

statutes one ‘organization’ or ‘association’ even

though they have formally organized themselves into

three separate legal entities.45

The Capper-Volstead Act also specifically permits farmers,

by combination, to obtain some degree of market power. This can be

done in two ways. First, to the extent the cooperative gains some

control over the supply of the product, it can bargain with the buyer

to achieve a higher price than the buyer would likely pay individual

42 362 U.S. at 465-466.

43 389 U.S. 384 (1967).

‘14 370 U.S. 19 (1962).

45 370 U.S. at 29.

35
farmers selling separately. Second, farmers may form their own

cooperative marketing agencies and compete directly with other valueadded entities in the marketplace.

Bargaining Association Status Under Capper- Volstead

The applicability of Capper-Volstead protections to

agricultural bargaining associations was clearly established in two

cases decided in the mid-1970s.

In Treasure Valley Potato Bargaining Assn. v. Ore-Ida Foods,

Inc. ,& two separate potato bargaining associations were charged with

violations of the Sherman Act based on their agreement with each

other to sell their potatoes for a common price. Processors argued

that negotiating for price did not constitute marketing as that term was

used in the Capper-Volstead Act; only associations that actively

perform processing, handling, and marketing functions are protected

by Capper-Volstead. The court rejected these contentions, holding:

The two associations were in fact

“bargaining” associations. . . . Their principal function

was to bargain collectively for their respective

members as to prices, terms, and conditions of

preseason potato contracts.

. . . We think the term marketing is far broader

than the word sell. A common definition of

“marketing” is this: “The aggregate of functions

involved in transferring title and in moving goods

from producer to consumer, including among others

buying, selling, storing, transporting, standardizing,

financing, risk bearing, and supplying market

information.” Webster’s New Collegiate Dictionary,

1953 Edition. [Emphasis added]. The associations

here were engaged in bargaining for the sales to be

made by their individual members. This necessarily

requires supporting marketing information and

performing other acts that are part of the aggregate of

functions involved in the transferring of title to the

46 497 F.2d 203 (9th Cir. 1974), cert. denied, 419 U.S. 999 (1974).

36
potatoes. The associations were thus clearly

performing “marketing” functions within the plain

meaning of the term. We see no reason to give that

word a special meaning within the context of the

Capper-Volstead Act.47

Relying on the rationale of Sunkist v. Winckler and Smith and

language in Section 1 of the Capper-Volstead Act permitting

associations to have marketing agencies in common, the Court found

joint bargaining by the two associations was permissible.

In Central California Lettuce Producers Cooperative48 the

Federal Trade Commission (FTC) issued a complaint arguing a

growers’ association wasn’t eligible for Capper-Volstead protection

because it did less than bargain on behalf of its members. The

association didn’t negotiate directly with lettuce buyers. Individual

members conducted their own negotiations and sales. Central served

as a vehicle for lettuce producers to come together and agree on a

pricing policy. Central’s members agree to sell all their lettuce at

prices within the limits of ceiling and floor prices set by the

cooperative.

The initial decision of an administrative law judge

distinguished Treasure Valley and concluded a cooperative that

“merely serves as a forum for a price-fixing agreement does not

engage in collective processing, preparing for market, handling and

marketing as those terms are used in the Capper-Volstead Act.“49

While the administrative law judge’s decision was being

reviewed by the full FTC, the U.S. District Court in San Francisco,

in a private suit against the same cooperative, ruled that the same

activities were exempt.% The district court stated:

. .-even_ if Central engaged in no other

collective marketing activities, mere price-fixing is

47 497 F.2d at 215.

48 90 F.T.C. 18 (1977).

49 90 F.T.C. at 50 (Initial Decision, March 13, 1975).

5o Northern California Supermarkets, Inc. v. Central California Lettuce

Producers Cooperative, 413 F.Supp. 984 (N.D. Cal. 1976), affd, 580 F.2d

369 (9th Cir. 1978), cert. denied 439 U.S. 1090 (1979).

37
clearly within the ambit of the statutory protection.

It would be ironic and anomalous to expose

producers, who meet in a cooperative to set prices, to

antitrust liability, knowing full well that if the same

producers engage in even more anticompetitive

practices, such as collective marketing or bargaining,

they would clearly be entitled to an exemption.”

Ultimately the FTC, noting the court’s decision, set aside the

administrative law judge’s initial decision and dismissed the

complaint.52

Capper- Volstead Under Continuing Scrutiny

While the amount of litigation involving the Capper-Volstead

Act has fallen considerably since the 197Os, cooperatives have had to

remain vigilant in their defense of the limited antitrust protection

provided by Capper-Volstead.

For example, in the late 197Os, FTC sent voluminous,

burdensome requests for information to numerous farmer

cooperatives. Cooperatives felt FTC made little or no use of the

information provided and that FTC was usurping USDA’s authority

under Section 2 of Capper-Volstead to prevent abuses of any market

power developed by farmer cooperatives. Cooperatives persuaded

Congress to include language in Section 20 of the Federal Trade

Commission Improvements Act of 1980 that barred FTC from using

any appropriated funds to (a) study, investigate, or prosecute any

agricultural cooperative for any conduct protected by the CapperVolstead Act, and (b) to study or investigate any agricultural

marketing order.”

While the Act expired after 3 years, Congress has included

these limits on FTC action against cooperatives’and marketing orders

in legislation providing appropriated funds to FTC for each year since

1982.

Another challenge to Capper-Volstead emanated from a letter

dated August 4, 1989, to the Comptroller General from two U.S.

” 413 F.Supp. at 992.

” 90 F.T.C. at 52 (Opinion of the Commission, July 21, 1977).

53 Pub. L. 96-252.

38
Senators. The letter asked the General Accounting Office (GAO) to

study the impact of Capper-Volstead on consumers of agricultural

products, individual farmers, and the economy in general. Specific

areas of inquiry in the letter directed GAO to focus on dairy

cooperatives that operated in areas covered by Federal marketing

orders.

Fortunately, GAO took a balanced approach in its report.”

GAO found that while dairy farms had grown in size and

sophistication, so had the processing and distribution firms that

purchased their milk. The executive summary reported:

Therefore, to the extent that the increased

market strength of processing and distribution firms

and of dairy farmers offset each other, the premise of

the Capper-Volstead antitrust exemption for

cooperatives--that farmers cannot effectively bargain

independently because their operations are too small--

remains .55

Agricultural Fair Practices Act of 1967

The volume of agricultural products marketed through

bargaining cooperatives grew substantially during the 1950s.

Producers found, however, substantial resistance by many processors

to the development of agricultural bargaining cooperatives.

Agricultural producers, bargaining cooperatives, and many

farm organizations supported an effort in Congress in the mid-1960s

to enact legislation which would provide a more favorable legal

climate in which producers could bargain for the sale of their produce

through bargaining cooperatives.

The Subcommittee on Agricultural Research and General

Legislation of the Senate Committee on Agriculture and Forestry

conducted hearings on farm bargaining. Testimony was presented of

various practices by processors which discouraged the growth of

bargaining cooperatives--blacklisting producers who tried to organize

54 GAO, “Dairy Cooperatives: Role and Effects of the Capper-Volstead

Antitrust Exemption” (September 1990).

55 Id. at 3.

39
or join a bargaining association, discriminating against producers who

were members of such organizations by offering more favorable

prices to noncooperative members, and offering inducements to

producers not to join or to terminate their membership in a bargaining

cooperative.

On April 16, 1968, President Lyndon Johnson signed into law

the Agricultural Fair Practices Act of 1967 (AFPA), sometimes

known as S109.%

The congressional findings and declaration of policy section

includes the following:

The efficient production and marketing of

agricultural products by farmers and ranchers is of

vital concern to their welfare and to the general

economy of the nation. Because agricultural products

are produced by numerous individual farmers, the

marketing and bargaining position of individual

farmers will be adversely affected unless they are free

to join together voluntarily in cooperative

organizations as authorized by law. Interference with

this right is contrary to the public interest and

adversely affects the free and orderly flow of goods

in interstate and foreign commerce.57

AFPA provides that it was unlawful for any handler

knowingly to engage in the following practices:

(a) To coerce a producer from joining an association or

refusing to deal with a producer because he had joined one;

(b) To discriminate against a producer because of his

membership in an association;

(c) To coerce a producer to breach or terminate his

association membership;

56 Agricultural Fair Practices Act of 1967, Pub. L. No. 90-288, 0s 2-6,

82 Stat. 93 (1968), codified at 7 U.S.C. $9 230146. For a comprehensive

report on the legislative

Power at the Bargaining

1970.

57 7 U.S.C. 0 2301.

4 0

history of AFPA, see R. Torgerson, Producer

Table, Columbia: University of Missouri Press,
(d) To offer an inducement to a producer to cease being an

association member or to refuse to join;

(e) To make false reports about an association; or

(f) To conspire with another to commit any of the above.58

Injured parties were given the right to sue in the U.S. District

Court and also the remedy of filing a complaint with the Secretary of

Agriculture who, in turn, could file suit through the Attorney

General .59

Section 2304, entitled Disclaimer of Intention to Prohibit

Normal Dealing, was included as a compromise with opponents of the

act. This section provides as follows:

Nothing in this chapter shall prevent handlers

and producers from selecting their customers and

suppliers for any reason other than a producer’s

membership in or contract with an association of

producers, nor require a handler to deal with an

association of producers .@’

A provision relating to preemption reads:

The provisions of this chapter shall not be

construed to change or modify existing state law nor

to deprive the proper state courts of jurisdiction.6l

Producers, through their cooperatives, understandably sought

to bring their complaints of violations of the act to USDA rather than

to file suit themselves. The administrative process involved far less

expense and held the promise of a quicker resolution of their

differences with handlers. Producers hoped that if the Department

brought the parties together, handlers would become aware of the act

and many abusive practices would end. Cordial relations are

advantageous to handlers, producers, and their associations because

” 7 U.S.C. 0 2303.

59 7 U.S.C. Q 2305.

6o 7 U.S.C. $ 2304.

6’ 7 U.S.C. $ 2305(d).

41
the relationship between producers and customers continues from year

to year and protracted litigation frequently benefits neither side.

Unfortunately, enforcement of the act through filing

complaints with the USDA has, on the whole, been unsatisfactory.

After a flurry of activity in the early years after 1968, the act has

generally fallen into disuse.

In 1978, ACS prepared a summary of complaints filed with

USDA. It, revealed that 34 complaints had been filed in the first 11

years. Twelve were filed by milk and poultry producers and the

remainder by producers of vegetables, sugar beets, potatoes, and

grapes. One was settled and 15 were closed for insufficient evidence.

In 7, USDA persuaded the Attorney General to file suit. Results

favored the growers.

Since 1978, only two complaints have been filed. In 1982,

a group of Colorado sugar beet growers asked USDA to pursue legal

action against Great Western Sugar Company. While USDA was

inclined to initiate litigation, the Attorney General was reluctant to do

so and the matter never moved forward.

In 1986, the Central Washington Farm Crops Association

filed a complaint against a local processor of sweet corn. USDA’s

Agricultural Marketing Service rejected the complaint on the basis

that it was supported by insufftcient grounds for action.

The unsatisfactory record of enforcement through the

administrative process can be attributed to several reasons. USDA

has limited investigative personnel and has generally placed the duty

of investigating and developing the facts upon the complaining

cooperative or growers who do not have the resources or capacity to

present the Department with a documented case. Even if the

Department believes a violation has been established, it must then

convince the Attorney General to take action.

Moreover, proof of discrimination against cooperatives and

their members is frequently difftcult to establish. Producers, who

have terminated their membership in a cooperative or decided not to

join because of inducements or pressure from a processor, are

unwilling to testify against the processor lest they lose a home for

their produce. Even producers, who joined a cooperative or retained

their membership in the face of pressure from processors, are

reluctant to testify against the processor lest in the long run they have

a problem disposing of their produce.

42
While some cooperatives have filed suit, such litigation is

extremely expensive and time consuming and generally the processor

is in a far better position than the cooperative to survive a battle of

attrition.

Moreover, the Act does not reach what is probably the most

serious problem faced by bargaining cooperatives--the refusal of some

processors to have meaningful negotiations with them.

One case that deals with enforcement of the statute is Butz v.

L.uwson.62 A dairy processor had a contract with a producer to

supply it with milk. When the producer subsequently joined a

bargaining association, the processor promptly terminated its contract,

relying upon the disclaimer clause of the Federal Act. The court held

that Lawson violated the AFPA when it terminated the contract

because of the producer’s membership in the association.

The court also stated “in dictum” that under the disclaimer

clause the processor was not required to deal with the producer

through his association. While the essential holding of the court was

that the processor violated the Act when it discriminated against the

producer because of his membership in the association, the dictum has

unfortunately been used to justify passive enforcement of the Act.

More recently, a U.S. District Court in Florida granted a

preliminary injunction favorable to growers and USDA ordering

Cargill, ‘Inc., to reinstate a normal business relationship with the

president of the Northeast Florida Broiler Growers’ Association and

not to discriminate against him or any other association member in

any way.a

The court relied upon AFPA, the Packers and Stockyards

Act, and anti-racketeering provisions of the Federal Racketeer

Influenced and Corrupt Organization Act.

62 386 F.2d 227 (N.D. Ohio 1974).

6~ Baldree, et al. v. Cargill, 758 F. Supp. 704 (M.D. Fla. 1990). The

decision to grant the preliminary injunction was affirmed without opinion by

the U.S. Court of Appeals for the 11th Circuit, 925 F.2d 1474 (11th Cir.

1991).

43
The only decision of the U.S. Supreme Court which has

interpreted AFPA is Michigan Canners and Freezers Ass v.

Agricultural Marketing and Bargaining Board.”

In 1972, Michigan enacted fair practices legislation.ti The

law, patterned after one used in Canada, provided for a more

definitive collective bargaining plan with arbitration to resolve an

impasse in negotiations when it occurred.

Under the Michigan Act, a so-called “agency shop” was

adopted. If a majority of the producers of a commodity in a

designated area covered by the Act became members of a bargaining

association, that association became the negotiating agent for prices

and terms of sale for all of the producers of that commodity in that

area.@j All such producers, whether members or not, were required

to provide financial support for the association and abide by the terms

of the contracts the association negotiated with processors.67

In 1973, an asparagus bargaining unit was accredited under

the law. The Michigan Canners and Freezers Association and two

producers challenged the law’s constitutionality.

The plaintiffs contended that the service fee and the

mandatory representation provisions of the Michigan Act conflicted

with the purpose of AFPA because that Act expressly protected the

right of farmers to decide whether or not to join an association. They

argued that the Michigan Act was preempted by the Federal Act and

was unconstitutional.

In Michigan Canners & Freezers, the U.S. Supreme Court

unanimously reversed the Michigan Supreme Court, which had upheld

the Act. The U.S. Supreme Court found that because the Michigan

law required nonmember producers to abide by those contract terms

negotiated by the cooperative and to pay service fees to support the

cooperative, the practical effect was to deny those incidents of

voluntary association membership protected by AFPA.

61 Michigan Camers and Freezers Ass’n v. Agricultural Marketing and

Bargaining Board, 467 U.S. 461 (1984).

ti Michigan Agricultural Marketing and Bargaining Act, Michigan

Statutes Annotated $0 12.94(101)-12.94(126).

66 Id., $ 12.94(107)(c).

67 Id., $9 12.94(110)(l), 12.94(113)(l).

44
The court did not embrace, however, the processors’

contention that the Federal Act created and protected a right in

processors to bargain directly with an individual producer even

though the producer was a member of the bargaining association.

The court did not reject the contention but simply did not rule on the

issue. While the Solicitor General sided with the processors on the

issues decided by the court, he supported cooperatives on the issue of

a processor’s right to deal with farmers on an individual

stating:

basis,

We doubt that the AFPA (the federal act) was

intended...to create or protect a processor’s right to

deal with the individual farmer of his choice. If

handlers can insist on dealing directly, even with

producers who have voluntarily appointed an

association as their designated agent, the protections

of the federal act would not be meaningful.68

The Michigan Act also requires that processors and a certified

association bargain in good faith and in the event of impasse, submit

to binding arbitration. Except for the provisions held

unconstitutional, the Michigan Act continues to operate effectively.

State Fair Practices Legislation

Several states have adopted laws to facilitate agricultural

bargaining within their borders. This section discusses State laws that

do the most to support growers’ bargaining cooperatives.

California

In 1967, %alifornia enacted an agricultural fair practices act

which, like AFPA, only contained provisions prohibiting

discrimination against a producer who asserted the right to join or not

to join a bargaining association.

gg Michigan Canners and Freezers Ass’n v. Agricultural Marketing and

Bargaining Board, Case No. 82-1577, Brief for the United States, filed with

the Supreme Court of the United States, September 1983, p. 12.
Effective Jan. 1, 1984, California’s Act was amended to

require, among other things, that bargaining associations and their

processing customers bargain in good faith. Section 5443 l(e)

specifically provides that it is an unfair trade practice for any

processor, handler, distributor or agent of any such persons or for

any cooperative bargaining association or any agent of an association,

or for any person to:

. . .refuse to negotiate or bargain at reasonable

times and for reasonable periods of time with a

genuine desire to reach agreement and a serious

attempt to resolve differences with a cooperative

bargaining association for price, terms of sale,

compensation for commodities produced under

contract and other contract provisions relative to any

commodity which a cooperative bargaining

association represents, or refuse to negotiate or

bargain at reasonable times and for reasonable

periods of time with a genuine desire to reach

agreement and a serious attempt to resolve

differences with a processor for price, terms of sale,

compensation for commodities produced under

contract and other contract provisions relative to any

commodity which the cooperative bargaining

association represents.@

This language was adopted at the request of processors in

place of language originally proposed that referred specifically to a

failure to bargain in good faith. The processors did not want to use

any term derived from labor union negotiations. The wording came

from Federal court interpretations of the National Labor Relations

Act, Section 8(b), that were consistent with traditional interpretations

of “bargaining in good faith. ‘170

Bargaining associations sought to include provisions for

mediation and arbitration in the event of an impasse. While this

69 California Food and Agricultural Code, Q 54431(e).

m N.L.R.B. v. Insurance Agents International, 361 U.S. 477 (1960).

See also N.L.R.B. v. Tmitt Mfg., 351 U.S. 149 (1955).

46
effort was unsuccessful, a compromise proposal was adopted. An

agricultural bargaining advisory committee would be formed to study

how the act, as amended with the requirement to bargain in good

faith, was operating and whether a need existed for resolving impasse

through mediation and arbitration. The committee submits a report

to the California Director of Food and Agriculture each year about

the operation of the act.

The advisory committee has six representatives of cooperative

bargaining associations and six processor representatives. The

committee studies and reports on virtually all aspects of the Act with

particular reference to the bargaining process between processors and

the associations.

The director assigned a staff representative to help coordinate

the work of the committee. Members agreed to rotate the

chairmanship between the processor and cooperative representatives

annually and to have the committee proceedings transcribed.

The committee’s value was established in its first year of

operation, when it helped resolve a dispute‘between a recalcitrant

canner and the tomato bargaining association. A canner had

requested grower-members of CTGA to accept a formula for

determining the price of tomatoes for processing known only to the

processor, who neither divulged all of the elements of the formula nor

values ascribed to each element. The concept, as presented by the

canner, was that the growers would be able to participate in the

profits of the processor. Once a grower executed such a contract

with the processor, no room for bargaining remained.

This presented a real problem for Zollinger, CTGA’s

manager. Growers, who signed the contract, placed the association

in a powerless position. And it raised concerns with the other

canners. They had no way of knowing whether this canner was

getting product for less than they were paying.

CTGA asked the committee to recommend that the Act be

amended to prohibit such a practice. Evidence presented confirmed

that the formula was as represented by the association. By a

unanimous vote the committee endorsed the recommendation of the

association. The processor, feeling the pressure more from its

competitors than the growers, then announced that it was

discontinuing use of this hidden formula.

47
Bargaining association representatives on the committee

continued to press for amendment of the Act to provide for mediation

and arbitration. Extensive hearings were held in 1986. Expert

witnesses from Michigan and Ontario shared their experiences with

legislation providing for mediation and arbitration in their respective

jurisdictions.

Predictably, bargaining cooperative representatives concluded

that the evidence established that some method for resolving impasse

was essential to meaningful bargaining, while processor

representatives disagreed. The committee report reflected the

different views.

However, the report unanimously commended the legislature

for creating the advisory committee, which both sides agreed “has

served as a valuable mechanism for the exchange of viewpoints

between processors and the agricultural bargaining associations. ”

Processors continued to object strenuously to proposed

amendments to the California Act that would provide for arbitration.

But, as a compromise, processors agreed to accept non-binding use

of the services of a third party acting as a conciliator between the

parties. A bill was drafted by bargaining association and producer

representatives on the committee. Provisions called for the Director

of Food and Agriculture to order conciliation if he determined that it

would assist the parties in negotiating an agreement. The conciliation

would be conducted by the regional office of the American

Arbitration Association (AAA).

Since the enactment of this procedure,” conciliation has

been employed on eight occasions. In each, at the conclusion of

several days of intensive negotiations conducted by a conciliator

appointed by the AAA, the parties reached agreement.

The conciliation process is conducted in accordance with the

AAA’s Commercial Mediation Rules. It provides for the sharing of

cost of the process. The act contains specific time limits for

involving and conducting conciliation. The committee’s annual report

to the director for 1991 included the unanimous conclusion that the

conciliation process had been effective in the instances in which it had

been used.

” California Food and Agricultural Code, $9 54451-58.

48
California bargaining associations have been generally pleased

with the results of their State legislation. For example, Lindauer

reported that before California had effective bargaining laws, evidence

suggested packers may have discriminated against prune association

members in a number of subtle ways--assigning preferred times for

use of prune dryers only to nonmembers, making advance payments

only to nonmembers, giving nonmembers preferences in the allocation

of storage bins. Since California bargaining laws were enacted,

Lindauer said these activities have seldom taken place.n

Michigan

In addition to the features of the Michigan Agricultural

Marketing and Bargaining Act described earlier, provisions for

mediation and binding arbitration are included in the event of an

impasse in negotiations. Arbitration is conducted by an arbitrator

designated by the Michigan Agricultural Marketing and Bargaining

Board. Binding final offer arbitration is employecLn

Since the decision of the U.S. Supreme Court in Michigan

Canners & Freezers, unaffected provisions of the State law have

remained in operation. In many instances, nonmembers voluntarily

contribute to the cost of the association and abide by the price and

terms of sale negotiated.

Maine

In 1973, Maine enacted a bargaining law which defined unfair

practices, required handlers and qualified bargaining associations to

meet in good faith, set criteria for the qualification of producer

associations as bargaining agents under the law, and established a

bargaining board to administer the Act.74

n Interview with Kenneth Lindauer on June 2, 1989.

73 Michigan Statutes Annotated $0 12.94(114)-12.94(123). The term

“binding arbitration” means the parties must accept the determination of the

arbitrator. In some instances, that can be whatever the arbitrator finds to be

fair. But in final offer binding arbitration, each party submits a suggested

decision and the arbitrator must choose one of those to final offers.

l4 Maine Agricultural Marketing and Bargaining Act of 1973, Maine

Revised Statutes Annotated, title 13, $0 1953-1959.

4 9
One section prohibited a handler from negotiating with other

producers of product while negotiating with a qualified bargaining

association.75 In 1986, the Maine Supreme Judicial Court sustained

a complaint filed by a poultry processor alleging that section gave the

association significant advantage over individual producers and,

therefore, conflicted with the policy objectives of the Agricultural

Fair Practices Act (AFPA). The court held that provision of the

Maine Act was preempted by AFPA, but the remainder of the Maine

Act was not invalidated.76

In 1987, the Maine Bargaining Act was amended to provide

a mechanism for the dispute resolution:

1. The parties can mutually or unilaterally request voluntary

mediation; both parties are required to participate in good faith.

2. If voluntary mediation fails, any matters remaining in

dispute must be submitted to mediation, which is to continue for no

more than 5 days.

3. If mediation fails to resolve the dispute, all remaining

unsettled matters are submitted to an arbitrator who is required to use

final offer selection. The decision is final and binding on the

parties.”

The same poultry processor that was the plaintiff in the earlier

case filed a complaint raising several Federal constitutional challenges

to the Maine Act amendments, including the contention that the

amendments are preempted by AFPA. It sought to enjoin the board

and its members from enforcing the bargaining provisions, entering

into mediation, and submitting to arbitration or contract with the

poultry bargaining committee. The U.S. District Court held that it

was premature to decide the Federal constitutional challenges to the

amendments. The court felt that since the challenge involved a new

and entirely uncharted State regulatory scheme, it should permit

important issues of State law to be considered in the first instance in

the State forum specifically designed for that purpose. It appears the

litigation died at this point.

75 Id., $ 1958.

76 Bayside Enterprises, Inc. v. Maine Agricultural Bargaining Board, et

al., 513 A.2d 1355 (Maine 1986).

n Maine Revised Statutes Annotated, title 13, $ 1958-B.

50
Washington

In. 1989, the State of Washington enacted its Agricultural

Marketing and Fair Practices Act. The legislation defined unlawful

practices of handlers and of associations of producers or members,

provided for the accreditation of an association of producers to be the

exclusive agent to negotiate for price for all producer members of the

association within a negotiation unit, and required bargaining in good

faith between an accredited association of producers and handlers.

The scope of the Act was limited to sweet corn and potatoes. The

Director of Agriculture was instructed to establish an advisory

committee of six producers and six handlers.78

In 1991, the Potato Growers of Washington, a certified

bargaining association, filed a complaint against Lamb-Weston

alleging that the processor violated the Act when it executed

agreements called Farm Lease and Custom Farming Agreements with

individual association members. The association charged that in

reality the processor was contracting for the purchase of potatoes

grown by association members while refusing to negotiate for the

price it paid for them. The processor contended that it simply leased

the land from the grower, employed him to grow the potatoes on the

land, and therefore was not purchasing the potatoes.

It appeared as if the Washington State Department of

Agriculture would sustain the association’s complaint. The processor

indicated it would challenge the constitutionality of the Washington

Act, particularly the requirement that the processor bargain in good

faith with the association, on grounds that it conflicted with the

purpose and language of AFPA and therefore is preempted by that

Federal law. However, the association withdrew the complaint.

While the provision for the appointment of an advisory

committee appears to have been patterned after the provision in the

California act, in Washington State the Director of Agriculture elected

to appoint the committee chairman and approve the meeting agendas.

This inhibited the committee.

78 Washington Agricultural Marketing and Fair Practices Act,

Washington Revised Code $$ 15.83.005-15.83.905.

51
Proposed Amendments to the Federal Act

As it became increasingly apparent that the AFPA was not

providing the intended legal support for producers to join and bargain

collectively through bargaining associations, pressure increased to

secure amendments to the act.

At first, primary emphasis was on incorporating a

requirement that qualified bargaining associations and processors

bargain in good faith. More recently, producers have focused on the

adoption of clarifying amendments to AFPA to (1) eliminate

confusion caused by the dictum in Buk v. Lawson Milk (supra) and

(2) rebuff efforts of processors to attack provisions of State fair

practices legislation that require bargaining in good faith because they

have been preempted by the Federal Act.

Extended to its logical conclusion, the Lawson dictum would

lead to the frustration of the plain intent of AFPA, remedial

legislation in which Congress recognized that only the right to join

and bargain collectively through a cooperative would provide

producers with any meaningful bargaining power. The desired result

could most effectively be accomplished by repealing the disclaimer

section or, at the very least, the phrase “nor require a handler to deal

with an association of producers.”

It seems unlikely that AFPA will be construed by the U.S.

Supreme Court to preempt State statutes which require bargaining

associations and processors to negotiate in good faith. The Act

contains no preemptive language and does not reflect a congressional

intent to occupy the entire field of farmgate price bargaining. In its

declaration of policy, Congress said “because agricultural products

are produced by numerous individual farmers, the marketing and

bargaining position of individual farmers will be adversely affected

unless they are free to join together in cooperative organizations as

authorized by 1aw.“79

The legislative history of AFPA is devoid of any indication

that Congress sought to erect a barrier to State legislation to

implement the purposes and rights established by the Act. Although

the specific language of State acts that require bargaining in good

faith is not included in AFPA, they are a mere extension into an area

79 7 U.S.C. $2301.

52
unregulated by Congress but nevertheless wholly supportive of

congressional intent. However, many supporters of agricultural

bargaining cooperatives believe that clear authority should be given

to the states to enact fair practices statutes that require good faith

bargaining by amending the present preemptive language relied upon

by the Supreme Court in Michigan Canners and Freezers. Such an

amendment might read:

Nothing in this chapter shall preclude or deny

any right of any state to adopt or enforce any statute,

regulation or requirement establishing any unfair

trade practice in addition to those established under

this Act.

Other amendments which have been suggested include

provision for an advisory committee similar to that in effect in

California and Washington and for conciliation as provided in the

California Act.”

8o For a discussion of various possible amendments, see Donald A.

Frederick, “Agricultural Bargaining Law: Policy in Flux,” Vol. 43, No. 3,

Arkmw Law Review 679 (1990).

53
CHAPTER 4. TECHNIQUES OF PRICE

NEGOTIATION

Successful grower bargaining does not just happen. Careful

planning and coordination among a number of persons with an

interest in the production and marketing of the commodities--growers,

association directors, managers, and advisers--is essential. This

chapter reviews a variety of strategies that have been used to help

growers attain fair value for their products.

Know Your Facts

An effective negotiator cannot fly blind. Bargaining must be

based on a firm foundation of knowledge about the industry and the

environment in which it operates. The ability to acquire, analyze,

and use information is the cornerstone of effective bargaining.

Ralph Bunje, former cling peach association manager,

emphasized the need to know as much as possible about both grower

and canner sides of the issues. He asserted that the more one knew

about crop size, inventory carryover, processor costs, processor

weaknesses, and other relevant economic factors, the better job one

could do in arriving at a reasonable price.‘l

Girton repeated Bunje’s point. The pear association relied on

Professor Hoos’ formula to determine its negotiation position.

Considerable data was needed to use the formula, and then to sell the

price to the canners.

Good economic data is particularly important when using a

reasonable price contract. If a third party, be it an arbitrator or

court, is asked to decide what is “reasonable,” the association should

be ready to prove its price meets that standard.

Bunje developed his own price book. It incorporated all of

the available statistical data relevant to negotiating for the farmgate

price for cling peaches. He first used his price book to educate his

directors about what the market could afford. He later used it with

the canners.

A problem confronting current bargaining association

managers is the increasing difftculty of obtaining hard numbers about

*’ Interview with Ralph Bunje on Nov. 17, 1989.

54
their industry. Processors and processor trade associations are not

providing key industry numbers, such as total packs and inventory

carryovers, as they have in the past. Grower associations must rely

more on their field staff to develop an accurate picture of the

industry, and some necessary information simply is not available.

This now places an unfortunate obstacle in the path of the

accumulation and dissemination of sound data that can facilitate

rational bargaining.

The likely size of the crop is one of the most important facts

to be determined. Naturally, as the season for negotiation begins the

processors tend to estimate the incoming crop as large and the

growers will develop an estimate which is significantly lower. The

association manager and the field staff will visit growing areas several

times each year to gather information on current and future crop

prospects. This is clearly their best source of such information. An

important bargaining cooperative role is to gather information on the

likely size of the crop, keep the members informed on the overall

situation, and use the information as part of the negotiation

process.82

Grower, Director, and Manager

Responsibilities During Bargaining

Producer bargaining is a team operation. No clearcut system

exists that best assigns roles among the growers, directors, and

management of a cooperative bargaining association. This section

covers various ways of dividing responsibilities used by different

bargaining associations.

CTGA’s Zollinger negotiated for the association with the

processors. The association uses a variety of formal and informal

committees to successfully complete its negotiation efforts.

District advisory committees provide way to exchange

information directly with producer-members. Management conducts

8L John C. Welty, CTGA executive vice president, surveyed bargaining

associations about methods they use to discover price in their respective

industries. His report was presented to the 38th National and Pacific Coast

Bargaining Cooperative Conference on December 4, 1993, and is included

in the conference proceedings published by ACS (Service Report 37).

55
informational meetings with each committee once or twice a year, but

not during the bargaining period. Attendees discuss contracts,

focusing on how to improve the contracts. The growers give input

to the negotiators and the negotiators explain to the growers how

bargaining has gone in prior years and where talks are likely to lead

in coming negotiations.

An executive committee of the board acts as the negotiating

committee. The manager and that committee work as a team during

the bargaining process. While management conducts the face-to-face

negotiations, conference calls are frequently held with the executive

committee before and during bargaining with each processor.

When a tough problem develops -during bargaining with a

specific processor, management will sometimes contact prominent

growers who deliver to that processor and establish an ad-hoc

committee for advice on resolving that problem. If the problem

continues to worsen, a meeting of all member-growers who deliver

to the processor is called. Zollinger considers this meeting of “a

committee of the whole” effective in solidifying grower support

during tough negotiation.

The wishes of these processor-specific groups are reported to

the CTGA executive committee. The association, however, avoids

getting into the position where a processor-specific committee has

more authority over any issue than the CTGA executive committee or

board of directors. The association places absolute priority on

maintaining the continuity of bargaining with all processors and

negotiating consistent agreements in the best interest of all association

members. No single group of grower-members is allowed a special

contract provision that might lead to negative implications for other

grower-members.

Zollinger noted that Ohio tomato growers have used a

different approach, forming separate bargaining units of growers for

each major processor to negotiate only with that processor. At one

time when California negotiations were difftcult and Ohio bargaining

was going smoothly, CTGA considered adopting the processorspecific approach. However, some years later Ohio negotiations

became difficult and CTGA decided not to pursue a structural change.

Under Bunje, the cling peach growers used a different

approach. Bunje organized a price committee of directors directly

involved in the negotiations.

56
Bunje felt he had to negotiate with two entities, his own board

and the processors. He took the data developed for his price book

and met first with his directors and then the canners. Initial meetings

involved no discussion of possible contract terms, only the data in his

background book. He wanted both sides to agree on the numbers

before they began serious negotiation. This lessened the prospect of

disputed economic facts when the time came to discuss price.

After these meetings, Bunje invited each processor to meet

with the price committee. While no firm prices were negotiated, the

parties had a chance to probe the other’s position. At least one

prominent grower, who usually shipped to each major canner, was on

the price committee. Occasionally, Bunje had to urge the processors

to take a hard line at these meetings so the grower-directors would

have realistic expectations when they sat down to set their asking

price.

After these sessions, the entire board met to determine an

initial asking price. The processor response was usually close enough

to the association price, so that,after some give and take, negotiations

were complete. Bunje said he never had to resort to litigation to

settle a negotiation impasse. His emphasis on collecting and sharing

economic data was, undoubtedly, an important factor.83

Because he made heavy use of his board during the

negotiation process, Bunje devoted considerable resources to director

education. He formed advisory committees to work younger, collegeeducated growers into the decisionmaking process. He took the board

to major markets to talk with retail chains and wholesale distributors

and to help them understand the entire marketing process.

Bunje also made a good point about how a manager should

deal with association members. He said that managers must be

absolutely honest and forthright in talking to growers. When the facts

won’t support a higher price, lay the facts on the line rather than tell

people what they want to hear.

Since Ron Schuler has managed the cling peach association,

the roles of the parties have moved more toward those of the tomato

growers. Schuler negotiates directly with the canners and then meets

83 Information in this section is based on an interview with Ralph Bunje

on Nov. 17, 1989.

57
with the board to inform them of the bargaining progress. The

board’s role is more advisory than under Bunje.

The pear association also operated along these lines. For

many years, the association secretly polled directors about where they

thought price should be set. Each year, a range would develop.

Discussion clearly indicated farmers in areas where the per-acre yield

was generally better were more amenable to a lower price than those

from areas where the yield was not nearly as good. Again, the

manager developed a good relationship with the customers. The

hardest job was often maintaining the confidence of the growers when

advising the board that the price level it had set was unattainable.

Lindauer said PBA relies quite heavily on directors to conduct

the negotiation.84 With only one major noncooperative packer in the

industry, many prunes are processed by Sunsweet Growers, Inc., or

local firms with management well known to the growers. The prune

association has, at different times, used professional negotiators hired

on a fee basis and even the manager of another bargaining association

to coordinate bargaining efforts. At other times, the association has

operated without a manager or an outside adviser and the board

conducted all bargaining functions.

Lindauer suggested the prune association functions most

effectively when it has a hired manager to facilitate negotiations, but

uses directors liberally in the negotiation process. In bargaining with

a family-owned packer, if the association brings in a professional,

then the packer also feels obligated to do the same. He feels that

there is less posturing and delay, and more serious negotiations, when

the actual participants know that a price has to be established in a

timely manner.

By bargaining as an association, Lindauer said the prune

growers could negotiate aggressively without antagonizing their

packer. A three-person price committee meets with each packer.

Each committee member sells to a different packer. When the

committee meets with a packer who buys from a committee member,

that producer can generally abstain and let the other members do the

bargaining. The packer knows the group is bargaining on behalf of

the industry. This avoids personal antagonisms that can develop in

one-on-one negotiation between a grower and a packer.

LQ Interview with Kenneth Lindauer on June 2, 1989.

58
I -

There are compelling reasons for leaving the face-to-face

bargaining in the hands of a professional. Growers generally lack the

expertise and the objectivity of a good professional negotiator. If the

manager can develop the confidence of the processors, they will tell

a manager things they won’t tell growers. Processors know a good

manager will not betray their confidence at the coffee shop.

Development of the Reasonable Price Contract

Certain breakthroughs play a special role in the nurturing of

many important concepts. The development of the “reasonable price”

contract was such an event for agricultural bargaining.

Many agricultural products are perishable in their unprocessed

state. Unless they are manufactured into storable products within a

short time of ripening, they are lost forever. Product spoilage is bad

for the grower, processor, and consumer. The reasonable price

contract became a mechanism to permit growers to deliver product to

processors and have it changed into a storable and marketable form,

even if the parties had not yet agreed on the price to be paid growers

for that product. At the same time, grower interest in attaining a fair

price was also protected.

A major problem faced the canning peach association when

Bunje became manager in 1951, namely the standard canner “open

price” contract between the canners and individual growers. Both the

producers and processors wanted an enforceable contract in advance

of harvest for a specific tonnage of a given product, modified to

accommodate the vagaries of nature. The problem was that it was

normally impractical to. reach agreement concerning price very far in

advance of harvest.

The canners’ open price contract met the problem of

determining price in one of two ways -- (a) the highest price generally

paid by processors in a designated area, such as a district or State, or

(b) the highest paid by the contracting processor in a designated area.

The open price contract, however, deterred effective producer

bargaining. While the producer had a home for his fruit, the

processor was assured a source of supply. The producer had

relinquished his power to offer his produce to another processor. In

the absence of a provision for price to be determined by a third party,

such as in arbitration, for practical purposes the price became what

59
the processor determined. This contract was therefore anathema to

establishing an effective bargaining cooperative because the

cooperative stood in no better position than the growers it

represented.

Bunje reported canners often induced growers to sign open

price contracts by financing orchard acquisitions and new plantings.

As part of the package, the growers signed long-term, open-price

contracts.

The validity of the canners’ open-price contract was upheld

in Hunt Foods, Inc. v. O’Di~ho.~ Hunt Foods and the defendant

grower reached an agreement in which Hunt promised to buy and the

grower promised to sell a specified tonnage of peaches for the 1949-

53 seasons.

The pricing provision in part read:

. ..Seller agrees to deliver his Cling Peaches

under Buyers seasonal contracts and the price or

prices payable under this contract shall be the Buyers

average net high price or prices Roadside, paid for

the current season in Stanislaus County for Cling

Peaches of the size, grade, variety and quantity

delivered hereunder during said current season.%

Both parties performed their contract in the first 2 years.

However, when the grower decided to sell his peaches to another

party at a higher price in the third year, Hunt Foods sued for specific

performance. The grower contended that the contract was

unenforceable because it left uncertain the price to be paid. The

Federal District Court rejected the grower’s contention and held:

. ..the contract does not give the Buyer any

absolute or arbitrary right to fix prices. To the

contrary, the price to be paid is the average price to

be paid to such growers. In other words, the plaintiff

is required to go into the open market, to compete

with other carmers in the buying of peaches. Out of

” 98 F. Supp. 267 (N.D. Cal. 1951).

u6 98 F. Supp. at 271.

60
this market eventuates the average price to be paid

peach growers -in Stanislaus County (italics ours).

Indeed it is inconceivable that the plaintiff, as a single

canner, out of (presumably) many could loom so

large as to exercise such power.

The average price is a matter of mathematical

calculation. The contract here is a term contract and

as such is related to the average price paid under

plaintiffs seasonal contracts as well as term

contracts. . . . (italics ours).87

The judge relied upon Section 1729, Civil Code of California,

which provided:

(1) the price may be fixed by the contract, or

may be left to be fixed in such manner as may be

agreed, or it may be determined by the course of

dealing between the parties...(4) where the price is

not determined in accordance with the foregoing

provisions the buyer must pay a reasonable price.

What is a reasonable price is a question of fact

dependent upon the circumstances of each particular

case.88

The fallacy in the court’s reasoning was that it assumed free

and open competition in the marketplace between the growers and

canners; evidence, however, indicated that prices generally resulted

from tacit if not express agreement among leading processors.

Moreover, because the open price contract was widely used, canners

were assured of their needed supply and growers were in no position

to bargain with one against another.

Bunje attributes Joseph Wahrhaftig, association attorney at the

time, with the assistance of Moses Huberman, formerly of the

Antitrust Division of the U.S. Department of Justice, for developing

of legal tools that satisfied the desire of the parties for an enforceable

contract in advance of harvest. Both the grower and the bargaining

” Id. at 269.

88 Id.

61
cooperative were placed in a significantly stronger bargaining position

with the processor.

As grower contracts with their processor expired, a new form

of contract was offered to the processors that better met grower

needs. Relying upon Commercial Code Section 2305,89 the

association proposed that the parties agree that the price would be a

reasonable price.

To structure the bargaining between the parties, the contract

provided-that the cooperative had to offer each processor who signed

the contract a price the processor would accept or reject within a

designated number of days. If processors representing a designated

percentage of tonnage accepted the price, it would become binding

upon all signataries to the contract. If the price was not accepted, a

second round of negotiation was conducted. If price was not

established, the contract was silent. The parties could continue to

negotiate, but now either party had the right to file suit to determine

the price.go

Bunje explains his success in persuading the processors to

agree to this form of contract was because it was offered to them at

the time of the Korean War. A sudden increase in demand for

canned fruit occurred. The canners disregarded their concerns about

the contract to be in a better position to take advantage of this more

favorable market for their processed products by being assured of a

sufficient source of the raw product.

Shortly thereafter, the California Canning Pear Association

and the California Freestone Peach Association were organized and

used the same contract with which processors were now familiar. It

also was adopted by the Washington-Oregon Canning Pear

Association and the Washington Asparagus Growers Association. In

1960, the newly formed Apricot Producers of California used this

contract scheme.

89 References to the California Commercial Code are provisions of the

Uniform Commercial Code adopted by California and many states.

9o The contract said “it is understood that the commencement of a legal

action for the determination of a price under the provisions of said Section

15 shall not be a bar to the establishment of a reasonable price prior to the

conclusion of such legal action. ” This was the only reference to legal action.

62
Subsequently, the cling peach association developed two

membership agreement provisions to take further advantage of its

improved bargaining power under the reasonable price contract:

(a) If a grower was committed for a term of years under a

contract with a commercial processor when he joined the association,

the grower could honor his contractual obligations upon the condition

that he would not renew or extend the contract.

0) While the member was still bound to honor his

contractual commitment to a processor, he agreed that the association

would be his agent to negotiate prices. This meant that if the contract

was an open price contract the association would have an opportunity

to affect what the price would be.91

Litigation Over Reasonable Price

Until 1966, all associations using the reasonable price contract

reached agreement each season about price with their processors

without resorting to legal action.

In 1966, however, the pear association and its members’

major processor customers reached an impasse in negotiations on

price. Eight of the nine leading processors had signed reasonable

price contracts with the association. Processors were obligated to

accept pears committed to them, even if no agreement was reached on

price.

For years the ninth processor, California Packing Company

(CalPack), had refused to sign an association contract on the alleged

grounds that their lawyers felt the contract violated antitrust laws.

Consequently, CalPack met its needs from non-association growers

and its field staff reportedly told growers they would buy their fruit

if they were not in the association.

As legal counsel, we advised the board that the association

had the option of suing the eight canners in the State court to request

a Superior Court judge to establish the reasonable price or to file a

claim before the Bureau of Market Enforcement of the State

Department of Agriculture.

91 A modem canning peach association master contract of sale to canner,

including a reasonable price provision, is included in the appendix.

63
The board liked the idea of proceeding before the bureau,

thinking it would be more expeditious and less expensive. Under

provisions of the California Food and Agricultural Code, processors

are licensed by the Director of Agriculture who is responsible for

processing complaints by growers against a processor that had not

paid the contracted price by the parties. The bureau is not a

collection agency but has the power to suspend or revoke a processor

license if it finds that a complaint is justified. This is a powerful

weapon.

The theory in proceeding before the bureau was that in

accepting produce without a specified price the eight processors were

obligated to pay the reasonable price as specified in the commercial

code; that the processors did not pay the reasonable price and

therefore failed to pay for the produce as required under the

provisions governing the licensing of processors.

While this seemed the best way to challenge the processors

under contract, it left unsolved the issue of how to deal with CalPack.

The eight canners, who were accepting the association fruit, argued

that if CalPack could disregard the association, they were being

punished for having been cooperative with the association by signing

its contract.

We advised the board that if we could find growers to testify

that CalPack field staffers were telling them CalPack would buy the

growers’ fruit if the growers left the association, we could file a suit

against the cannery. We knew that a grower, who had withdrawn

from the association to sign a term contract with CalPack, or a

nonmember grower, who elected to sign a term contract on the

condition that he did not join the association, would not likely testify

against the processor. Grower-members, who had been told they

could have term contracts if they withdrew, would generally be

unwilling to testify for fear of future reprisal.

Joe Mapes, assistant manager of the cooperative, and I spent

a day visiting association members but none was prepared to testify

out of concern for inevitable reprisal. Finally, we found one grower,

who when faced with the question, said he was religious, lived by the

“good book,” and if called as a witness would tell the truth.

We reported back to Girton and the board and received

permission to sue CalPack. Girton rented a room in the Palace Hotel

in San Francisco and sent an invitation to financial editors of all bay

64
area and valley newspapers to attend a briefing. You better believe

they came. Girton read a prepared statement announcing that the

association was on that day filing a suit against CalPack for $10

million in damages, charging it with attempting to destroy the

association. The complaint against CalPack alleged unfair trade

practices in violation of the California Agricultural Fair Practices Act

and tortious interference with the business relationships of the

association and its members. The suit sought a temporary and

permanent restraining order and general and punitive damages.

Girton also ‘announced that CCPA was filing claims against

the other eight leading canners before the Bureau of Market

Enforcement, requesting the Director of Agriculture to suspend or

terminate their licenses on the theory that they had failed to pay the

reasonable price for the members’ pears. Both actions were widely

publicized in the financial pages of the press in San Francisco,

Sacramento, and the San Joaquin Valley.

My partner, Art Bridget& and I were busy planning strategy

in the succeeding days for combat with the largest law firm in

California, which represented CalPack. To our surprise, we received

a call from the senior partner in charge requesting a meeting. When

we met, they requested us to advise them what the association would

consider as a basis for settlement of the suit. With the authority of

the board, we advised them that if CalPack would agree to a price of

$80 per ton for the current year and sign a 5year, reasonable price

contract with the association, we would waive all claims for damages.

Without further delay the lawsuit was settled.

We believe that CalPack’s chairman of the board in New

York saw reports of our lawsuit against his corporation in the

financial pages of the eastern press and, valuing the firm’s reputation

more than the possibility of success in the courts, ordered the matter

to be resolved.

Next came a hearing with the Department of Agriculture

attended by five law firms representing the other eight canners. The

department called the hearing to discuss with the parties how to

handle what was a novel proceeding and, to the best of my

knowledge, one that has never been duplicated. By now, the

difference between the canners and the association was $5 per ton.

The canners refused to budge from their initial offer of $75 while the

65
association had come down from $90 to $80, consistent with the

settlement it had reached with CalPack.

In preparing for a hearing, we had a problem obtaining an

expert witness to testify that the association price was reasonable. We

could not use Professors Hoos or Kuznitz because this would have

compromised the Giannini Foundation which was supported by both

processors and growers.

Consequently, ever resourceful Girton went to the Stanford

Research Institute and hired an economist. In a short time and

despite his lack of information about the canned pear industry, he

became our expert. At our memorable first meeting, we told the

hearing officer that among witnesses we proposed to present was an

expert whose name we refused to disclose to the canners’ attorneys.

In those days we did not have the kind of discovery we have today.

Action by the Department became stalled. November came

and went. Pat Brown was succeeded by Ronald Reagan as governor.

With the changing of the guard, the Department of Agriculture did

not call another hearing. In early January, Earl Coke was appointed

Director of Agriculture by Governor Reagan. The association

offtcers, Girton, and I visited Coke and asked him to proceed with

our complaint. By this time, the pears had long since been canned.

In a tone of disbelief, the director asked “Am I expected to establish

the price for 1966 canning pears?” We assured him that indeed he

was.

A second hearing was scheduled, but soon the canners

announced that they would accept the $80 price and the matter was

settled. The most serious legal challenge for the reasonable price

contract had ended.

The only known suit filed by a bargaining association against

a processor to establish the reasonable price under the contract was

filed by the pear association against Ogden Food Products

Corporation, Tillie Lewis Foods Division. In 1981, the association

requested a price of $165 per ton for number one canning pears. All

of the major canners agreed to that price except Tillie Lewis. It held

out for $120.

At that time, the contract provided, “In the event that the

parties did not determine the reasonable price at the time pear

deliveries were made to the canner, the canner would pay 50% of the

average of the price paid for pears of the same grade and variety

66
during the five harvest seasons immediately preceding the current

harvest season with the balance of the reasonable price to be paid

within 15 days after the same had been determined. ”

The canner paid $74 per ton to the grower association in

compliance with the provision.

The association amended its complaint to allege that the

canner had breached an implied covenant of good faith and fair

dealing because, while it had conceded that the reasonable price was

$120 per ton, it had only paid the association growers the average of

$74 per ton.

Although every California canner except Tillie Lewis

recognized and paid the association $165 per ton its pears, Tillie

Lewis had refused to do so. The association contended that, as a

result, the processor had conceived a bad-faith plan to compel the

association and its member growers to make in effect an unsecured

loan of exceeding $500,000 to the canner at an interest rate of 7

percent per annum, the legal rate allowed on any judgment. The

prevailing annual interest rate was between 14 percent and 18 percent.

The association demanded a declaration that the reasonable

price for the pears for 1981 was $165 per ton, that it receive damages

based upon the difference between what the canner had paid and what

was due under such declaration, plus accrued interest and punitive

damages in the amount of $10 million. Soon after, the canner agreed

to pay $165 per ton and the matter was settled!

An innovation to the pricing provisions of the contract was

adopted in 1985 to provide for binding final offer selection arbitration

in the event that the parties did not reach agreement concerning the

reasonable price.%

In 1993, the pear association invoked the binding arbitration

clause in its contract with Del Monte to resolve an impasse in

negotiations over the price and terms of sale for the 1993 crop. The

contract provides for three arbitrators, with each party selecting one

arbitrator and a third being named by the two selected by the parties.

Substantial time was spent by the parties in trying to agree upon the

impartial arbitrator, and finally the matter was submitted to the

Presiding Judge of the Superior Court in San Francisco who made the

R The pear association revised canner contract provision for arbitration

of reasonable price, adopted in 1985, is included in the appendix.

67
appointment. A retired Superior Court judge was selected as

impartial arbitrator. After 4 days of hearing, she selected

association’s final offer as the reasonable price.

the

the

Although the growers prevailed, in retrospect, I believe it

would be wiser to expedite the process by eliminating the appointment

of partisan arbitrators. As an alternative, the contract could provide

that the parties have a limited time to agree upon an impartial

arbitrator. If they fail to agree, either party could request a judge or

the AAA to appoint an impartial arbitrator.

Determining Price of Noncontract Product

The reasonable price concept can be applied in another

context, where no contract has been signed and no price determined,

but the processor has accepted delivery of the growers’ produce. In

that situation arises in California, the price can be determined by the

Superior Court.

The authority for this is in Section 2305(l) of the California

Commercial Code: “The parties if they so intend can conclude a

contract for sale even though the price is not settled. In such a case

the price is a reasonable price at the time for delivery if.. .the price is

left to be agreed by the parties and they fail to agree. ”

A more difficult problem is presented when the processor

takes the position that if the association is unwilling to accept its price

proposal, the processor will only be obligated to follow its own

“standard form contract” and any modifications the processor makes

in its last and best offer. The processor in this situation contends that

it has not agreed to pay a “reasonable price” and points out that under

the provisions of California Commercial Code Section 2305(l) the

reasonable price provision is inapplicable because the parties’ actual

intent differed and therefore no contract was concluded.

The validity of this argument depends on whether an

obligation of the producer to sell and the processor to buy the

produce ever existed. Normally, in the absence of a written

agreement, the law only imposes such an obligation if the parties had

an oral agreement to conduct business as they had in prior years.

In one situation, the processor sent a telegram to association

growers saying it would accept delivery only with the understanding

that the grower was agreeing to the processor’s price. The

68
association successfully contended that because the processor was

already obligated to accept the produce, its action violated the

agreement between the parties and the California Agricultural Fair

Practices Act. This law prohibited a processor from inducing a

grower to breach his membership agreement with a bargaining

association.

This problem rose in connection with bargaining cooperatives

that only establish price but do not contract for the sale of a

commodity.

Market Impact Strategies

Sometime bargaining does not go smoothly. The grower

association may need to take more forceful action to convince

processors the association is serious and has solid grower support.

This section discusses use of two courses of conduct, product

diversion and custom packing, that go beyond normal grower

negotiation strategies.

Product Diversion

Whether the cooperative takes title to member product, or

simply serves as negotiating agent for its members, the members

normally deliver their product to the same processor each year. A

comfort level develops for the growers that this is home for their

product. They don’t like to have that relationship disrupted. Thus,

the threat of a bargaining association ordering grower-members to

withhold product from a recalcitrant processor, or even divert that

product to another processor, is a tactic used only with great caution.

At one time, the canning peach association “reasonable price”

contract provided that one of the three largest canners had to be

among the processors accepting the association price before that price

became the industry standard.

One year price negotiations were stalled. Bunje recalled

knowing that one of the largest canners was aggressively trying to

increase its market share. The association ordered growers of the

fruit most coveted by that processor to ship their product to other

processors. The canner was livid, but in a few days agreed to the

association price.

69
While the association took advantage of dissension in the

canner ranks to achieve its price, the strategy led to some unwanted

member relations problems. Growers liked dealing with their regular

canner. The processor’s field staff told the growers the association

staff had been arbitrary. At the time of our interview, Bunje still

harbored some second thoughts about the wisdom of the action. In

the future he said he used canner diversion as a threat, but not a

tactic. But having done it once, the threat was taken seriously.

The same grower-processor relationships that make product

diversion distasteful can be used to the benefit of the association.

When a given canner holds out for an unacceptably low price,

management can call on those growers who have long, established

relations with that canner for assistance. The growers can contact the

processor’s field staff, or even meet with the processor’s manager, to

tell them the growers are unhappy and thinking of making changes in

what are otherwise valued relationships. This kind of grower support

is of vital importance to successful negotiation.

Custom Packing

In the early 198Os, T. H. Richards, a packer serving the cling

peach industry, became embroiled in financial difficulties. Under

Ron Schuler’s leadership, the association rented the cannery and

processed member product for 3 years. This protected the members’

home for their peaches until the facility could be sold to another

canner.

The question is often raised about the viability of bargaining

associations ,using custom packing as a strategy to increase market

power with processors. The theory goes that by showing the packers

the association can compete with them if they are not responsive to

grower needs, it will have more negotiating strength.

Bargaining associations generally reject this idea. They

consider custom packing as a tactic of last resort. The associations

recognize they are not equipped to be a processor. They have neither

the facilities to process, financial resources to carry inventory, nor the

expertise to market processed products. The associations need

processors to be successful so growers can be successful. The

associations want to work with their canners and packers. Competing

with them is seen as destructive to their ongoing relationships.

70
The peach association, incidentally, has not engaged in any

custom packing since 1984. As Schuler explained, the processors

have been making money and serving the growers, so there has been

no need to be in the canning business.

Some associations, such as those serving apricot and olive

growers have, like the peach association in the early 198Os, faced

times when no other home existed for member product. This is the

only instance I know of when custom processing is an acceptable

marketing strategy.

71
CHAPTER 5. TECHNIQUES OF ADJUSTING

SUPPLY TO DEMAND

Wise managers know that their objective in negotiations is for

a reasonable price. It may not necessarily be the highest possible

price, but the ‘best price justified in the economic circumstances.

These circumstances, of course, include the relationship between

supply of the product and demand for it by the association’s

customers.

Grower leadership knows that in years of short supply, prices

increase and in years of large supply, prices decline.

They also know that consistently higher prices over a period

of years prompt increased plantings, both by established growers and

new producers entering into production. Established tree fruits

growers are also encouraged to postpone pulling old trees nearing the

end of their productive life, to maximize current gross returns from

their orchards.

Unless processors can consistently increase production and

sales of processed product, the expanding supply of raw product will

exceed demand and lead to depressed prices.

Severe fluctuations in prices for the raw product are not

desirable for growers or processors. As indicated earlier, the wild

fluctuations in prices for pears in the late 1940s and early 1950s led

to the formation of the pear association and the agreement of

reasonable processors to recognize the association and pay a service

charge supporting it in the hope that greater price stability could be

achieved.

Grower leadership must be ever watchful on anticipated

production so that supply will not become substantially unbalanced

with the demand from the processors. This is done by obtaining

periodic reports from their members and their field staff well in

advance of harvest and closely studying available economic data

including the movement of the processed product.

Over the years, associations have used various methods to

attempt tailoring supply to demand. For some years, the cling peach

association used a California marketing order to induce the Director

of Agriculture to implement a “greendrop.” Growers were required

to remove a percentage of green fruit from their trees. The State

72
order also required canners to divert a percentage of fruit delivered

to them from processing to other uses.

The “greendrop” and cannery diversion of cling peaches was

terminated after several years because of adverse public reaction and

opposition by growers and canners. As Bunje observed, “We were

digging our own grave.”

The prune, raisin, and almond industry marketing orders

provide for set asides, holding surplus product off the market until

sufficient demand exists for the product to be sold without severely

depressing prices. Use of set asides in Federal marketing orders is

now greatly limited because of Government policy. Unfortunately,

other methods of tailoring supply to demand have met with limited

success.

In the early 195Os, the association sponsored State legislation

to limit entry in the growing of cling peaches. A bill was passed by

the legislature but vetoed by the governor. No similar effort has

since been made.

Use of a third party to establish and administer minimum

grade standards acceptable for processing can have a direct effect on

the supply of produce for processing. But the impact is mitigated by

adjustment of grades to keep them acceptable to growers and

processors. In years of large supply, it’s common to tighten grades

and in years of short supply to relax them.

One function of bargaining association leadership is to try

discouraging increased or new production where the danger of

oversupply exists and to convince the board of directors to support

the effort.

The power of leadership persuasion is probably more effective

with tree fruits than annual crops. The cost of planting additional

acreage of fruit trees is substantial and the growers know it will be

several years before the trees bear fruit in commercial harvesting

quantity. The market could be entirely different by the time the new

trees reach that point.

Some tree fruit associations have attempted to avoid an over

supply situation by encouraging growers to pull out productive trees.

At one time, the pear association encouraged tree removal by offering

early revolving of retains in exchange. The cling peach association

has used some of its reserves to pay for pulling trees. Michigan

73
cherry growers attempted, unsuccessfully, to form a nationwide tree

pulling cooperative.

With an annual crop such as tomatoes, growers can react to

a strong price by immediately planting more acres. The manager

must communicate with the growers, as Zollinger frequently did,

urging them to cut back. If the acreage planted in other annual crops

appears less profitable than tomato yields, the manager will have a

difficult time achieving some effective reduction.

A bargaining association can provide leadership for the

growers of a commodity where none previously existed to attempt to

tailor supply with demand. Management can collect relevant

economic data and make it available to all growers of the commodity.

It will make certain that this data is understood by the board of

directors. And with the support of the board, it can discourage

increased production when necessary or urge moderation in pricing

negotiations in years of short supply.

Pooling

By the end of 1956, it was apparent that the canning pear

association faced the prospect of having fruit without a home.

Increased production of pears and a large carry-over made processors

reluctant to increase the processed pack.

Because the association, under its membership agreement,

actually sold its members’ fruit, this presented a problem of what

would happen if the association was unable to sell all of the pears

under contract.

The agreement was silent in describing the duties of the

association, but clearly it was the exclusive sales agent for its

members and presumably would be expected to use its best efforts to

sell the fruit. If some fruit was unsold and fell on the ground, serious

concern existed about the association’s legal responsibility. Even if

it seemed reasonable that the association was not guaranteeing a home

and only could be held to use its best efforts, a question could be

raised about why the fruit of some members and not others was sold.

Even worse was the effect on the association’s ability to

negotiate a price. If it had succeeded in establishing a price, but a

member whose pears were unsold had an opportunity to sell them to

74
a canner for less than the association’s price, would the association be

able to get a court order restraining the grower?

Any failure by the association to enforce its membership

agreement courted disaster. In 1956, the California Freestone Peach

Association (CFPA) faced this problem. A member whose peaches

had been sold by the association to a canner, had an opportunity to

receive a better price in the fresh market. CFPA had to establish its

credibility as an association that honored its contractual commitments

to processors. It filed suit in the Superior Court of the county where

the grower resided seeking a temporary restraining order to prevent

the grower from diverting his peaches from the canner. Fortunately,

CFPA obtained the order and avoided a crisis.

But what were an association’s chances of enforcing the

membership agreement of an unfortunate grower whose pears were

unsold and who had an opportunity to bail out just before harvest at

below the association price to a processor? He had no alternative

home for his fruit and the prospects of persuading a judge to, in

effect, order the grower to let his crop fall on the ground were poor,

despite the provisions of membership agreement.

The association could have released the grower from his

membership obligation for the season. In that event, the association

was advised that it would have to extend the same right to all

members in the same position. This would most certainly break the

association’s price because there is nothing more distressing to a

processor than to have his competitors acquire fruit at a lower cost.

Faced with this dilemma as the 1957 season approached, the

pear association board considered a provision in the membership

agreement which gave it the authority to pool. This provided as

follows:

In carrying on its business as exclusive sales

agent for the handling and marketing of Member’s

signed pears, and in determining the net proceeds

therefrom for return to the members furnishing the

pears, the Association may pool the pears pursuant to

such rules and regulations as the Board of Directors

of the Association (hereinafter called “Board”) may,

from time to time, prescribe. Such pools shall open

and close as such times as the Board may decide; and

75
the Board may, at any time, for reasons by it deemed

sufficient, close any pool, or extend the time for

closing any pool. The Board may also exclude from

any pool any pears because of difference in quality,

damage by elements, or for other reasons satisfactory

to the Board.

Subject to the right of the Association to

retain and deduct its charges and such amounts as

may be required for the Association Stabilization

Fund, and subject to provisions of Section 4 hereof,

the net proceeds of the pears in any pool shall be

returned and paid, at such time or times, and from

time to time, as the Board shall determine, that the

members furnishing pears for that pool, and in such

manner that the net proceeds from each class of pears

in the pool are prorated among the members

supplying that class and in the proportion furnished

by each.

Any premium in net returns for pears paid or

realized on account of, or in relation to, the district

or cooperative association from which any signed

pears come, shall be reflected in the returns

ultimately payable to the pear growers of such district

or cooperative association. The Association shall

make equitable adjustment by way of compensation

in favor of a Member which is a cooperative

association for services rendered which, in relation to

grower-members, are rendered by the Association

itself.

The various classes in a pool shall be as

established by the Board, and shall take into

consideration and be determined by kind, quality and

size of pears.

The Board may, in its discretion establish one

or more pools or separate classifications within any

pool and administer the same in such manner as it

shall deem to be reasonable and desirable and in the

best interests of the Association. In establishing

separate pools or classes within a pool, the Board

76
may, without limiting the generality hereof, take into

consideration such factors, among others, as variety,

quality, size and utilization of pears or it may

establish one or more pools of pears composed

exclusively of pears supplied to any other cooperative

association for processing or marketing. Further the

Association may pool pears which it has been unable

to sell at its established prices after using its best

efforts to do so.

This language was based on a similar provision in the canning

peach membership agreement. But while pooling was mandatory

under the peach association’s membership agreement, the pear

agreement made it discretionary with the board.

While the canning peach membership agreement provision

was mandatory, it had not for practical purposes been operative.

Cling peaches are a single-use crop for canning. Under a marketing

order, supply was tailored to meet demand.

Pooling under the pear provision was on a “dollar” basis

rather than physically pooling the pears. Theoretically, the result was

the same. Proceeds realized from the sale of all pears in the pool

would be prorated on the basis of tons in the pool. Thus, growers

whose fruit was unsold would share in the pool on the same basis as

those whose pears were sold after deducting harvesting costs.

This was only theoretical because not all sale proceeds were

paid into the association. Under provisions of the membership

agreement and the association’s contract with the processor, only 5

percent of the sale proceeds were paid by the processor to the

association as retains. The balance was paid directly to the grower.

If such a substantial number of tons went unharvested that the

5 percent was not sufficient to give those growers their prorata share

of the pool, the association would be in the awkward position of

billing growers whose pears had been sold for the overage they had

received.

Net proceeds in the pool could be augmented by sales of the

unsold pears by the association for other than processing as canning

pears, such as for drying or the fresh market or conceivably some

custom processing by the association. Or the board could decide to

make a contribution to the pool from its unallocated reserves, realized

77
from an excess of service charge income over operating expenses on

which the association elected to pay the corporate income tax. The

board could also make a supplementary payment to the pool using the

retains of growers from previous years.

The advantages of such pooling to the association were that

it could avoid the dilemma presented by growers with unsold fruit and

maintain its established price. Moreover, it gave management greater

flexibility in deciding which pears to sell first. For example, pears

ripen faster in so-called early districts. Management facing a prospect

of unsold fruit could sell the early pears first, hoping, as frequently

happens, that as the season progressed the fruit would pick out lighter

than anticipated or there would be some increased demand so that

there would be little or no unsold tonnage. In any event, growers

whose fruit ripened later were protected.

In 1957, after extended debate, the board adopted a

comprehensive plan for pooling No. 1 canning pears to assure the

growers of fair and equitable treatment.93

Anxiously, the board conducted post-harvest meetings with

the members in each of its eight districts. It was relieved to find that

the program met with widespread approval. This program remained

unchanged. until 1974, despite concern by the board about the everincreasing supply of pears due to increased planting and caution by

the processors about increasing the pear pack commensurate with the

increase in production of the fruit.

The prospect of huge surpluses was temporarily avoided by

the incidence of a pear disease that had devastating effect upon many

trees in 1960, 1962 and 1964. This was offset, however, by

increased plantings. By 1974, the board, reflecting the concern of

members whose pears were regularly sold, reduced the retain to 2

percent.

In 1977, the membership agreement was amended to reduce

the board’s authority to retain no more than 2 percent. This made

pooling impossible. The board terminated pooling because the cost

of handling the anticipated oversupply of pears threatened to

undermine the financial viability of the association.

93 The pear association pooling policy, adopted in 1957, is included in

the appendix.

78
In its place, the board established a pool for pears that had

not been sold by a specified date. Growers with unsold pears could

elect to be freed of the obligation to sell their fruit through the

association or choose to place their fruit in the unsold pool or “unsold

lot” as it was called. Fruit in the unsold pool shared on a prorata

basis whatever proceeds the association could generate from disposing

of the pears plus such sum as the board elected to contribute to these

proceeds from its reserve. Almost all growers with unsold fruit

elected to enter the “unsold lot.“”

The only litigation resulting from pooling unsold fruit was a

suit filed by a member in 1983.

The essence of the complaint was that in 1980, 1981, and

1982 growers whose pears were in the unsold pool received about

$100 per ton while the prevailing market price for pears sold in

normal channels for processing was substantially higher. The

plaintiffs theory was that the association was obligated to use retains

and its reserve fund to equalize the prices realized by members in the

unsold pool with those whose fruit had been sold through normal

channels.

After exhaustive depositions and examination of the records,

the plaintiff was satisfied that the association had treated all its

members fairly. The case was settled in 1984 with a nominal

payment of attorneys’ fees to the plaintiffs legal counsel and no

payment to the plaintiff.95

Girton reflected that pooling was a fair and equitable way of

treating all members equally when it came to distributing returns from

pear sales. But the economic realities of an oversupply of product

and a declining number of canners made it impossible to continue the

original program. A promise to make the best possible effort to sell

all member fruit was the extent of the obligation the association could

afford to make;

94 The pear association board policy implementing the unsold pool

program, adopted in 1976, is provided in the appendix.

” The association refused to make any payments to the plaintiff since it

had to treat all growers in the unsold pool equally.

79
Marketing Orders

Marketing orders are Government regulations used to promote

the orderly marketing of agricultural products. These programs may

be organized and administered by either USDA or a State agency.

Market orders can cover a variety of subjects. Some orders regulate

the quantity and quality of product that can be sold. Others may have

an impact on market prices. Orders may be used to collect fees to

finance research, product promotion, disease control, grading, and

virtually any other function to benefit the industry.

Market order programs are somewhat unique in that their

adoption and continued administration involves a vote of approval

from the affected growers. Often the regulations under the program

are established by growers and processors, through market order

administrative committees, although they must be approved by the

Government agency responsible for the program.

Some marketing orders impact the supply-demand situation

directly by limiting the amount of product that can go to market, so

the supply will tend to balance anticipated market demand. Other

orders attempt, through research and promotion programs, to

stimulate greater demand for the product. It is common for both

types of programs to operate for the same commodity.

Groups of growers have reacted differently to market orders.

For example, California tomato growers generally have not endorsed

orders. Zollinger reported that in 1970 an order was proposed to

limit production, potentially control the supply, and, hopefully, boost

market prices. Growers overwhelmingly rejected the concept. It has

never since been seriously considered for tomatoes.%

In 1972, an order was proposed dealing with research,

promotion, and the eradication of broomrape, a parasitic plant that

attacks tomato plant roots. The research and promotion program was

voted down, but the broomrape eradication plan was adopted.

However, shortly thereafter it was abandoned.

In recent times, an order was adopted by the tomato growers

to provide third-party standard grading. But even this order reduces

Government involvement in the tomato industry. The State of

California had been administering a tomato grading program, financed

% Interview with David Zollinger on March 25, 1989.

8 0
by assessments. The costs of that program became so high that

growers decided they could do a better job with their own program.

Zollinger made it clear that the program is charged with grading

product, nothing more.

Raisin growers, on the other hand, depend on both a Federal

and a State marketing order to facilitate association objectives. Kalem

Barserian, the first manager of the Raisin Bargaining Association

(RBA), reported that the Federal order performs two functions for the

growers, quality control and volume control. The Federal order, first

established in 1949, preceded RBA’s formation by nearly two

decades.

Quality control standards apply to both raw product delivered

by the growers and manufactured product shipped out by the

processors. USDA performs the grading.

Volume control standards can require a substantial set-aside

during years of high raisin production, as much as one-third of the

crop. Every grower is essentially guaranteed a home for the grower’s

raisins, less the set aside. Surplus raisins are used in school lunch

and commodity distribution programs, Indian feeding programs, and

exported.

Barserian asserts that the marketing order, combined with the

nature of the raisin, gives the bargaining association considerable

leverage in the negotiation process. Once dried, raisins can be stored

for up to 3 years. Thus, raisins can be withheld from packers if

necessary. The order means only a limited supply will be available

to packers, so the market stays in balance.97

Barserian suggests the order is justified because of the

excessive vagaries of the raisin market. Most raisins are made from

Thompson grapes. Their principal uses are for wine, fresh market,

canned in fruit cocktail, and dried into raisins. Thus, in addition to

the impact weather can have on the size of the crop, neither RBA nor

Sun-Maid Growers, the raisin processing cooperative, knows how

much product they will have each year until the growers start to dry

their grapes.

Growers do not sign agreements committing any portion of

their production of grapes to either association. Sun-Maid growermembers only commit that if they make raisins, the raisins will be

W Interview with Kalem Barserian, May 12, 1989.

81
marketed through their cooperative. Thus, the order permits

whatever supply is produced to be marketed efficiently without

infringing on the flexibility growers have to place their product into

whatever marketing alternative they desire. Barserian believes the

Federal order is the key to the success of both the bargaining

association and the Sun-Maid processing and marketing program.

Raisin growers and processors also contribute to a State

market order program to promote raisin consumption. The State

program developed in 1949. At the time, no comparable Federal

program existed. The raisin industry makes a substantial investment

in product promotion. Growers and processors each contribute $28

per ton of grapes processed, creating an annual fund of roughly $30

million.

Prune growers also make use of both a State and a Federal

marketing order. The State order is used for trade promotion--

advertising, public relations, and research. Prune growers are

generous supporters of these activities, regularly voting to assess

themselves up to 5 percent of the payments for their crop. The

Federal order authorizes quality and quantity controls. Grade

standards are established and administered under the auspices of a

Dried Fruit Association. Prices are negotiated based on grades, so

grading is an important association activity.

While set-asides are authorized under the Federal order, one

has not been used since 1974. In 1985, substantial support existed

for asking the Secretary of Agriculture to authorize a prune reserve

pool. However, the market order administrative committee could not

agree on program details. The most popular alternative failed to

receive committee approval by one vote. Ken Lindauer, current PBA

president, said prune growers are less supportive of set asides than

raisin growers. Prune growers face considerable costs in drying their

fruit and, unless backed to the wall, would rather accept a lower price

and sell all their product.

Marketing orders help all cooperative marketing organizations

overcome the problem of providing an umbrella for the freeloader.

Even the tomato association accepted a marketing order for the

industry-sponsored grading program so that nonmembers would have

to financially support it.

Whether a grower group wants to use a State or a Federal

order depends on the circumstances. Generally, it is a little easier for

82
a commodity group to work with State officials, especially on the

West coast where the associations are close to the State capital but far

from Washington, DC. If a commodity is grown primarily in one

State, then a State order may work well. -But if the commodity is

grown in several States, and the growers want uniformity of

treatment, they really need a Federal order.

83
CHAPTER 6. RELATIONSHIPS AMONG

COOPERATIVES

Persons outside the industry frequently ask why the various

bargaining associations do not merge, to combine market power and

save expenses through joint use of staff and facilities. At first glance,

this concept may have appeal. But a long history of abortive attempts

to consolidate association functions and a thoughtful examination of

the nature of the industry suggests the benefits of consolidation, with

few exceptions, are illusory. This does not mean bargaining

associations should not or cannot work closely together. They do so

on a regular basis. But each group of growers seems best served by

its own bargaining cooperative.

Why Associations Remain Autonomous

From the inception of bargaining associations on the Pacific

coast, their leadership expressed an interest in working together. The

minutes of the first California Canning Pear Association in 1917

reveal that the board was approached by leaders of the newly-formed

California Tomato Growers Association (CTGA) about sharing

facilities and otherwise working together. No known explanation

exists for why an agreement was never worked out.

In December 1953, Jack Z. Anderson, president of the newly

organized California pear association, spoke before groups of pear

growers at Yakima, WA; Medford, OR; the Oregon State

Horticultural Society; and the Washington State Horticultural

Association of Wenatchee. He spoke of “Organization for SelfPreservation” and urged Washington and Oregon growers to organize

and then join with the California associations to conduct bargaining

and industry planning on a three-State basis.

Anderson foresaw an organization of the producers of all of

the commodities grown in the three Pacific states:

Then, through an interlocking directorate or

an association of directors of each of these

commodity groups, a top board of directors who can

represent effectively the wishes and desires of the

84
growers who selected them. Then, and then only, we

will have an effective voice speaking for California,

Oregon and Washington agricultureF

This dream never came to pass. In the 196Os, merger

discussions were started among associations representing cling

peaches, freestone peaches, pears, and tomatoes. In 1968, Professor

Hoos of the University of California’s Giannini Foundation was

retained to prepare an analysis of a proposed merger of those

bargaining cooperatives. After he submitted his report in February

1969, a special committee was formed composed of the president and

manager of each of the four associations to evaluate his report.

Hoos described five different types of merger: the first

provided for integration only to the extent of including common

services and activities; the second provided that each commodity

section would develop its proposed price offer with an overall “price

committee” having the authority to comment on and suggest

modifications in those offers; the third would empower the overall

price committee to sanction or approve the price offers proposed by

the individual commodity before the price offers could be

promulgated; the fourth would empower the merged cooperative to

bargain to sell its customers “package sales” or “combination sales”

of the quantities of the several products represented in the merged

cooperative; and in the fifth, returns to the merged cooperative’s

farmer members would be based on a “single pool” concept used by

the cooperative processing associations.

Hoos recommended starting with the third type. A draft of

the bylaws was prepared and reviewed by the boards of directors of

each participating association. In 197 1, the pear association board,

without comment, decided not to proceed further with merger

discussions and the other associations followed suit. Although no

formal statement was ever adopted explaining why the project was

abandoned, it appears that the smaller associations were concerned

about preserving their respective identities.

9~ The text of Anderson’s speech is printed in the 1954 Annual of the

Pear Growers and Central Coast Pear Association, pp. 3-7. The speech is

included in the appendix.

85
The possibility of a merger between the cling peach and pear

associations was explored in 1983 and 1984, but never implemented.

Also in 1983, the Prune Bargaining Association (PBA) hired

the California Canning Peach Association to handle membership

solicitation and bargaining for prunes. After a year, the two sides

agreed to terminate the arrangement. Apparently the prune growers

believed they could not get the proper attention from a staff hired by

another grower group, and the peach growers felt the prune growers

were not paying enough for the services provided.

In 1986, the California Freestone Peach Association

contracted with the cling association to provide management. This

arrangement continues to the satisfaction of both organizations.

Sound reasons exist for the failure of efforts to combine

bargaining associations. Major differences exist among the various

commodities with effective bargaining associations. There is a great

deal of work involved in grower association activity for each

commodity.

For example, PBA has more than enough for its field staff to

do with prune problems. Other associations say the same thing. So

having field staff working with growers of several crops would not

necessarily produce savings. And the training they would require to

work with several crops would spread them too thin to do the best job

with any crop.

Likewise, office staffs generally are small and combining

them would not produce significant personnel savings.

Some savings might result from consolidating computer

operations and employee benefit plans. But now it is easy to set up

a small computer operation in each association offrce. And with so

few employees, benefit cost savings are not enough to induce the

boards to consider merger proposals.

While the various fruits, in particular, compete with each

other to some extent in the marketplace, sufficient differentiation

exists to minimize any benefits their growers might receive from a

consolidated bargaining effort. Moreover, growers of one commodity

fear management will favor another. But growers are concerned that

too much price weakness in a competing fruit will drag down the

price they receive for their product. As illustrated in the next portion

of this report, associations of growers of one commodity have helped

86
growers in other commodities organize bargaining associations, to

support the price of that product.

While growers generally have not wanted to surrender control

over their own marketing to a centralized bargaining effort, a few

multi-commodity bargaining associations do exist. The Vegetable

Bargaining Association of California and the Western Washington

Farm Crops Association bargain for several crops with volumes too

small to support an independent association for each.

The freestone peach association has hired the cling peach

association to manage its operations. Again, the freestone association

felt it simply was not big enough to afford the caliber of management

the growers wanted. However, it has retained its separate identity

with its own board of directors.

The business reasons cannot be emphasized to the neglect of

the people problems in merging cooperatives. Girton commented

quite candidly on the suspicions of pear growers about growers in

other geographic regions, both within California and between

California and the Pacific Northwest. While this at times works to

the detriment of growers in dealing with processors who can buy in

any area, it has been a reality management must deal with.

Cooperation Among Bargaining Associations

While .formal mergers have not occurred, bargaining

cooperatives have a long tradition of joint efforts to promote grower

interests. This started with the efforts of early bargaining associations

to form similar cooperatives among other grower groups.

In the early 195Os, when the California Canning Peach

Association (CCPA) was being reorganized under Bunje’s leadership,

it expressed interest in organizing other competing fruits so they

could bargain more effectively. This, in turn, would strengthen the

position of the cling association. Clings played a role in helping the

new California Canning Pear Association in 1953 and in organizing

the California Freestone Peach Association in 1955.

The California pear association’s role in helping Northwest

pear growers organize the Washington-Oregon Canning Pear

Association and the subsequent relationship between the two

associations relating to marketing is discussed in the report on the

California Pear Growers in Chapter 2.

87
In 1968, the two pear bargaining associations agreed to

sponsor a bill in Congress to amend the Agricultural Marketing

Agreement Act of 193799 so that a Federal marketing order could be

promulgated to cover canning pears. This bill was defeated in the

U.S. House of Representatives that year but reintroduced in

succeeding years.

After a number of amendments were added, the bill was

finally enacted in 1972. Among its provisions: processors would be

entitled to 50 percent representation on the advisory board; growers

from each State would have a veto power over any proposed

marketing order; -and the marketing order could not contain a

provision for volume controls. loo

However, the authority to develop a marketing order for

Pacific coast pears has never been used. The groups have been

unable to agree on uniform size requirements and provisions of third

party grading. The pear associations have continued to exchange

market information and to work together for trade promotion.

Potato growers, through their various bargaining associations

in the United States, have met regularly to exchange economic data

with Canadian potato growers through an informal organization called

the North American Potato Growers Council.

Similarly, CTGA, Ohio tomato growers associations, and

tomato growers from other states meet annually as the North

American Tomato Conference to exchange information concerning the

production and marketing of canning tomatoes.

Asparagus growers in Washington and Oregon have

considered organizing into a single bargaining association and the

Washington Potato Growers now include some Oregon growers.

The Catfish Bargaining Association, consisting primarily of

producers in Mississippi, is considering including catfish producers

in neighboring Alabama, Arkansas, and Louisiana.

In 1956, bargaining associations on the Pacific coast and

Idaho began meeting annually to exchange information about how

each organization operated and how it attempted to solve its

problems. In 1957, a National Conference of Bargaining Associations

was sponsored by the USDA’s Farmer Cooperative Service,

99 7 U.S.C.A. $ 601 et seq.

‘O” 7 U.S.C.A. 3 608(c).

88
predecessor to ACS, for a similar purpose. ACS has continued to

support this annual conference.

In 1990, the conferences were combined into the

National/Pacific Coast Agricultural Bargaining Conference. This

event is held each December in a West coast location.

The annual conference has proven to be invaluable as a forum

in which management, directors, and members of the bargaining

associations discuss mutual problems, obtain insights into legal

problems of special significance to bargaining associations, and

otherwise obtain information covering a broad range of subjects

important to them.

In addition, ACS has provided and sponsored research into a

number of subjects of importance to bargaining cooperatives. The

services ACS provides are not available through any other

Government agency or farm organization. I hope that despite

increased USDA budgetary pressure, Congress and the Federal

administration will enable ACS to continue to perform its vitally

important role.

Relations Between Bargaining and Processing

Cooperatives

Most commodities with effective bargaining cooperatives are

also handled by one or more processing cooperatives. In some

instances, the processing cooperative evolved totally separate from the

bargaining association. In other cases, a bargaining association

played a key role in organizing the processing cooperative.

Autonomous Processing Cooperatives

In those commodity industries where the processing

cooperative and the bargaining association developed separately, a

generally supportive relationship has emerged. Producers normally

benefit from both associations.

Lindauer reported the prune association has a good

relationship with Sunsweet Growers, a cooperative processor whose

members produce about half of the prunes covered by association

contracts. Sunsweet pays a lower fee to the association than do other

packers for prunes delivered to them.

89
Lindauer places considerable emphasis on the value of an

informed membership. He says Sunsweet provides good information

to its growers about the industry and the joint members of the two

associations show a level of concern about the overall health of the

industry not always exhibited by growers who belong only to the

bargaining association.

Similarly, Barserian indicated RBA works well with Sun-Maid

Growers. While Sun-Maid is one of the older cooperatives in the

country; RBA was not formed until 1967, after a large crop and

disastrous price in 1966. Growers are either a member of the

bargaining association or Sun-Maid, but not both. RBA deals with

Sun-Maid just like other processors. Sun-Maid pays the same lpercent service charge to RBA for all free tonnage delivered as do the

other raisin packers.

Girton reported that when the canning pear association was

organized there were two processing cooperatives, Turlock

Cooperative Growers and TrWalley Packing Company. Many pear

growers, who belonged to a processing cooperative, also joined the

pear growers’ association even though membership in the processing

cooperative assured them of a home for their fruit. In so doing, they

authorized the 5-percent retain for the pear association in addition to

the retains held back by the processing cooperative.

The growers were persuaded that this was in their self-interest

because through the pear association the wild price fluctuations that

were disastrous for the entire industry could be avoided.

In 1963, the two processing cooperatives merged, forming Tri

Valley Growers (TVG), a multi-commodity cooperative. In determining returns for the growers of a given commodity, TVG used as

a base the commercial price established with proprietary processors

and the bargaining association, to which it added or subtracted an

amount reflecting TVG’s earnings. This was to the advantage of the

processing cooperative that otherwise would have a political problem

with producers of the various commodities within their organization

arguing for a larger share of the profits.

After the first 2 years, TVG agreed to pay a service charge

plus withhold 5 percent from the cash paid by it to its pear growing

members who also .were members of the bargaining association.

While sometimes the management of processing cooperatives

reacts with suspicion to the formation of a grower bargaining group,

90
Girton asserted good relationships developed between TVG and the

pear association because the grower leaders openly courted the

processing association executives.

The confidence early bargaining association leaders such as

Bunje and Girton were able to instill in the emerging leaders of the

cooperative processors paved the way for bargaining cooperatives to

be leaders in the development of much larger processing cooperatives.

Processing Cooperatives Initiated by Bargaining

Associations

Bargaining associations played an important role in forming

various cooperative processors. The results have been checkered at

best. Pacific Coast Producers (PCP) has provided a valuable outlet

for producer products. The failures of Cal Can and Glorietta Foods

cost growers millions of dollars and disillusioned producers about the

value of cooperation.

In the 195Os, phenomenal changes began to take place in the

food industry. First, successful local canners were bought out by

conglomerates caught up in “merger mania.” Many family-owners of

local canning facilities were growing older and had reached the point

where they were concerned about estate and inheritance taxes. They

cashed out their investment by selling to the new wave of anxious

buyers.

So long as the new owners took canning seriously, the

ventures did well. - Some even prospered from more sophisticated

management. But, in time, most became adjunct to a large

conglomerate that cared little about canning and only looked at the

short-term bottom line.

Second, consumer tastes began shifting away from canned

fruits and vegetables to fresh and frozen product. Absentee owners

were unwilling to make the investments in food processing to adapt.

For example, the manager of a canning facility might suggest to his

faraway boss that the use of heavy syrup should be reduced and new

liquids developed to replace it, or that cans ought to be replaced by

pouches. This would cost money to invest in new facilities, and there

would be some decline in income. Invariably, the manager’s

suggestions would be rejected and ultimately the plant might just be

dumped on the market or closed.

91
Third, many mergers and consolidations of wholesale grocery

companies and regional chains were taking place. This had an impact

on the canner customers of producers and their associations. For

example, a canner might have an important regional chain store

customer that it supplied with all of its private label merchandise.

This enabled the canner to sell in carload lots.

Without warning, the customer sold out to a competitor. If

the competitor was doing business with a different canner, the first

canner might lose a substantial share of business. This regularly

happened. Old, well-established trade ties were lost overnight. The

only way a canner could replace that lost business was to dramatically

cut price.

While the changing market was difficult for the branded

product canners, it was devastating for private label firms. The loss

of a major account made it very difftcult for a private label canner to

meet even variable costs.

Bargaining associations saw most of the private label canning

firms being offered for sale, with no one anxious to buy them. In

1957, the cling peach, pear, and tomato bargaining association leaders

put together grower groups and arranged bank financing to purchase

two of the most profitable private canners, The Richmond Chase

Company and Filice and Perelli. These firms were merged to form

Cal Can as a processing cooperative.

Bunje reported the growers had two objectives. The first was

to make sure enough canning capacity existed so they would have a

home for their fruit. The second was to keep a healthy private label

segment in the market to help firm up prices by providing competition

for the few remaining branded canners. Girton suggested the growers

wanted a home--period.

As the number of proprietary processors declined, Cal Can

grew through acquisition. The San Jose Canning Company--a tomato

canner--and Thorton Canning Company were acquired in 1960, and

Schukle & Co. in 1963. Soon Cal Can was the largest cooperative

canner in the United States.

Two more processing cooperatives were organized. In 1960,

largely though the instigation of pear growers, PCP was formed to

acquire the West coast canning facilities of Stokely-Van Camp. In

1978, Glorietta Fruit Growers was formed to purchase the pear

facilities of National Canning Company.

92
In 1981, the market was depressed by a record 1980 fruit

carryover. Libby, McNeil & Libby sold its operations to Cal Can,

including its Yakima grade-pack pear plant. Glorietta, unable to

continue operations, became a member of TVG under a special

arrangement.

While Glorietta began with the purchase of an excellent small

cannery, it was a virtual disaster. The buyers were too highly

leveraged and lacked expertise to market their product. Growers have

to be careful when they acquire a proprietary facility and be sure that

they have adequate capital and skill to operate the facility and market

their product. Marketing will become even more complex and

demanding as the marketplace becomes more international.

By 1982, about two-thirds of the California pear tonnage was

processed by grower-owned cooperatives, the only California

manufacturers of grade-pack pears.

In 1983, in a period of continuing recession and extremely

high interest rates, Cal Can went into bankruptcy. This sent shock

waves through the entire industry. Various explanations have been

offered for the collapse of Cal Can.

One expert pointed out that the canning industry manufactured

all of its products in a 2-month period and then had to warehouse the

pack for the balance of the year. The required financing became

extremely costly in the face of record interest rates during a time of

surplus crops, lower margins for the processors, and a decline in

consumer consumption of canned fruits.

Another observer suggested that management expanded

operations at a time .when it was undercapitalized. The Libby,

McNeil, and Libby acquisitions added substantial management and

financial burdens when the company was already thinly staffed and

funded.

Cal Can also sustained a serious blow when the Government,

without warning, outlawed use of cyclamates. The cooperative used

cyclamates in processing a substantial portion of its pack. It was

unable to market $15 million of canned product.

As an original director of Cal Can, I knew that the firm was

highly leveraged from the day it started. Growers purchased two

excellent canneries for an investment of only 5 percent of the cost,

with the remainder of the purchase price met with borrowed funds.

93
Also, it has been suggested that management might have been

too interested in keeping the members happy. When the cooperative

faced a period of declining margins, management did not take the

prudent step of telling members their returns would have to be

reduced. It avoided that political problem by continuing to distribute

money which turned out not to be fat but sinew of the organization.

As a result of the bankruptcy, the cling peach and pear

associations and the grower members lost millions of dollars from

which many growers never recovered.1o1

While PCP operated successfully for many years, it recently

approved marketing and purchase option agreements with Del Monte.

Thus, the last operating processing cooperative started by bargaining

associations may also soon slip from being a grower-owned

enterprise.

In retrospect, the demise of processing cooperatives initiated

by grower associations probably stemmed from the fact that the

growers may not have understood the complexities of operating

carming facilities. They were primarily interested in protecting the

home for their product.

Once the growers were sitting on the board of directors of a

processor, they began to realize that simply converting the business

to a cooperative did not guarantee success. Also, outside

management was frequently hired that was not familiar with the

cooperative way of doing business. As a result, problems of the

bargaining associations received little sympathy.

In many instances, the finances provided for maintaining a

grower-owned processing venture were not sufftcient to overcome the

challenges confronting the firm. The growers have returned to a

greater comfort level, relying on their bargaining association to

negotiate favorable contracts while leaving operation of the processing

facilities to someone else.

lo’ Subsequently, the Trustee in Bankruptcy was able to recover a

substantial suin in the U.S. Court of Claims, but by that time Cal Can had

long since ceased operating and the damage was done.

9 4
CHAPTER 7. NON-PRICING ACTIVITIES OF

BARGAINING COOPERATIVES

Bargaining associations seek to assist members receive a

reasonable return on the their products. Price negotiation does not

occur in a vacuum. Successful bargaining associations recognize the

need to be active in other areas that affect the price their members

can attain. These influences include consumer demand, both in the

United States and in foreign countries; U.S. trade policies with

countries that both import and export product grown by members;

regulatory policies, such as food safety rules; and the overall impact

of public policy decisions on their business. As an attorney, I would

be remiss if I did not mention the role of the bargaining association

as a litigator on behalf of its members.

Market Development

When I first became active in agricultural bargaining, in the

1950s I was surprised to find the pear and peach associations taking

money raised through marketing orders from their growers to

promote the canned product. Soon, I began to realize that this

activity was elementary. If the canner was not successful in selling

its product, there was no home for the grower.

Growers and processors benefit from new product

development and other advances that stimulate market demand for

products made from grower production.- Use of market orders to

fund research and promotion efforts was discussed in chapter 5.

These funds are used to test the feasibility of new products. For

example, Girton mentioned funds were used to develop pear taffy and

dehydrated pears. Bargaining associations have also worked to

develop markets outside the regulatory process.

Pear industry market development dates back to at least 1955.

The Washington State Horticultural Society, the Oregon pear

growers, and the California Pear Prorate Committee agreed to

provide funds for research and trade promotion under the name the

Pacific States Canned Pear Service. The service continues to operate

with financial support from the three groups.

95
In 1978, the California Canning Peach Association developed

its so-called “juice” program as a market for otherwise unmarketable

peaches--excess production, off-grade, and storm-damaged fruit. The

fruit is sold to concentrators, for use in manufactured fruit juices and

pureed products, primarily baby food. Schuler reported that the

association manages the sale of this fruit on a pool basis, generating

up to $2 million a year in increased income for both the growermembers and the cooperative.

Most bargaining associations are involved in developing an

overall favorable environment for consumer acceptance and purchase

of the products made from the commodities their members grow.

The Prune Bargaining Association, although relatively small

in size, encourages its members to be actively involved in all market

promotion committees organized under its State market order

promotion program. Lindauer places great importance on advertising

and promotion, functions he finds essential for grower product to find

“shelf space” in the minds of consumers as well as retail buyers.

This action is essential to the overall future of the bargaining

association and its grower members. Growers cannot assume the

processor is doing the best job of promoting expanded markets for the

product. They must seek to open new doors in this country and

abroad to protect their own best interests.

International Trade

The shrinking of the world, in terms of ease of moving

products among nations far and near, is a real concern to grower

associations. Often, their products can be grown and processed in

foreign countries with noticeably lower costs of production and

processing. Sometimes growers in other countries also receive

national subsidies to encourage greater production and to keep cost

down so export markets can be developed. While the U.S. processed

food industry looks for export opportunities, the threat of imports

dominates much of its outlook toward international trade.

In 1985, imported pears became a matter of concern to the

domestic pear industry. As a result of a strong U.S. dollar and

government rebates, Spanish canned pear producers shipped about

500,000 cases into U.S. markets. Another 500,000 cases were

imported from other sources including South Africa and Australia,

96
and overnight the U.S. market went from a negligible amount of

foreign canned pears to nearly 12 percent of the domestic market.

The California Pear Growers (CPG), lead by Peltier, became active

in efforts to prevent foreign-subsidized imports and opposed granting

duty-free access to imported pears that normally had an 18-percent

duty.

When Argentina requested that it be granted duty-free access

for canned pears, CPG filed a brief objecting to the proposal with the

U.S. Trade Representative, Generalized System of Preferences Subcommittee, on behalf of the Bartlett pear industry in California.

CPG has followed pending General Agreement on Tariffs and

Trade negotiations and other matters before Congress pertaining to

Bartlett pears. The association was instrumental in forming the Pear

Growers for Responsible Government as a separate organization

legally able to raise and contribute money in Federal elections.

In the early 198Os, CTGA became increasingly aware of the

fact that in a given year only between 42 percent and 48 percent of

the total world supply of processing tomatoes was produced in

California. The balance was produced in European Community (EC),

Middle East, and Pacific basin nations. This had a direct bearing

upon the price in California. The association realized that it needed

to take a more active role in controlling imports. This led to the

formation of the National Association of Growers and Processors for

Fair Trade.

This trade group is an alliance between growers through the

association and leading tomato processors. Through its efforts, a fair

trade agreement was negotiated between the United States and Israel

on tomato products. Also, imports from the EC decreased as a result

of a 1986 quota imposed on subsidized production. Duties imposed

on EC imports were in retaliation to EC’s ban on exports of U.S.

meat.

Food Safety

Growing attention to the safety of our food supply concerns

all segments of the food industry. As the cyclamate and alar scares

have illustrated, an entire food product or company can face sudden

decimation because of a consumer perception that food is unsafe.

97
Bargaining associations are now taking a part in protecting the safety

reputation of the food their members produce.

A major innovation in the growing and processing of pears

was the formationin late 1991 of the Pear Pest Management Research

Fund jointly by the CPG and pear processors in California. This was

an industry response to concerns by growers and processors about

Government regulations restricting pear growers’ use of pesticides

and fungicides.

The fund supports scientific research, demonstration projects,

and disseminates information to educate interested persons about new

methods of growing and processing pears that are economical and

safe to the consumer and the environment. Special attention is

focused on laws, rules, and regulations of Government agencies

applicable to growing and processing pears.

The board of directors of this nonprofit corporation is composed of the chief executive officer of CPG, five growers designated

by the association, and representatives of participating processors.

The fund is supported by contributions from growers and processors.

In 1992, the fund provided about $167,009 in research grants

related to pest controls. For 1993, the fund solicited requests for

proposals for additional research grants on coddling moths, mites and

psylla, skin worms, and scale.

Under Peltier’s leadership, the pear association has developed

support by processors and growers to produce pears for processing

that will meet the increasing concerns of the consuming public about

its health and safety. I

CTGA is also concerned about food safety. The association

recently joined tomato processors to form the Processed Tomato

Foundation to encourage reduced pesticide residues through sound

management practices, judicious use of some pesticides, and increased

use of integrated pest management. The foundation will also fund

research at University of California at Davis to develop tomato

varieties more resistant to mold and fungi and less dependent upon

fungicides.

Political Action

Involvement in the public policy process is part of the overall

business plan of many bargaining cooperatives. As small, grower98
financed organizations, bargaining associations often need

governmental support to balance the market power of the national and

multinational firms with whom they deal. They actively seek that

support. lo2

For example, Barserian credits the effective political action

program of RBA and others in the raisin industry with protecting the

raisin marketing order when orders with quality and quantity

standards are under severe attack. He makes a very good point, that

the growers’ interests are not going to be adequately reflected in laws

and programs unless growers tell their story. He credits Sox

Setrakian, who led the battle to establish the raisin marketing orders

in the late 194Os, with instilling a respect for the value of political

action in the entire raisin industry.

Government purchase programs are important to several

industries with bargaining associations--peaches, pears, and raisins,

among others. Again, purchasing authorities must continuously be

educated on the value of these programs to the growers and the value

of the commodities to the recipient school and welfare agencies.

While political action is hard work, it can also be the source

of some great moments and stories. In the 196Os, pear growers were

working to obtain an amendment to the Agricultural Marketing Act

of 1937. It would enable the USDA to issue a Federal marketing

order for Pacific coast canning pears. The impetus largely came from

the California association. It hoped such an order could cover

promotion and research and provide for grade standards and third

party grading.

Sometimes political action can produce unexpected results.

The 1968 annual meeting of the National Council of Farmer

Cooperatives and the National Bargaining Conference were held in

Washington, D.C. Someone suggested that while in Washington it

might be helpful to get support from then-Vice President Hubert

Humphrey.

Girton and I met with the Vice President in his offices in the

Senate Office Building. As we were explaining our mission to him,

lo2 For guidelines on establishing an effective cooperative public policy

program, see Donald A. Frederick, Co-op Involvement in Public Policy,

Agricultural Cooperative Service, USDA, Cooperative Information Report

42 (May 1993).

99
his eyes focused on a pear tie clasp Girton was wearing. Without

hesitation, Girton took it and his handsome pear cufflinks off and

gave them to the Vice President.

Humphrey, in turn, removed his two handsome cufflinks

bearing the offtcial emblem for the Vice President and gave them to

Girton--a memorable scene indeed.

We also learned some important political lessons while

promoting legislation to authorize a Federal pear marketing order. In

1968, appropriate legislation was introduced in the U.S. House of

Representatives and subsequently defeated, 165 to 111. We

discovered that while the Democrats had supplied a majority in favor

of it, the Republicans had voted against the bill by a margin of nearly

10 to 1.

Subsequently, Girton and I talked with the Republican legal

counsel for the House Agriculture Committee. He was well respected

on both sides of the aisle. He explained that the bill was strongly

supported by Democratic congressmen from California’s Central

valley and Tom Foley of Washington. But, no important Republican

congressmen supported it, so it was regarded as a Democratic bill.

To overcome this, he suggested having a Republican congressman

prominent in agriculture co-sponsor the bill. When the bill reached

the floor, a “dear colleague letter” could be on the desk of each

congressman urging support for it by Republican and Democratic

sponsors.

In due course, we discovered a solution to our problem. The

father of Rep. Charles Teague of southern California had been a

founder of Sunkist. He had the stature we needed and agreed to

support the bill. Compromises were made in the language of the bill

to ensure more enthusiastic support from Oregon and Washington

growers. It was reported out favorably by the House Agriculture

Committee. In 1972, the House Rules Committee sent it to the floor

for a vote.

Leroy Thomas, Bob Collins, Girton, and I were authorized

to go to Washington. We met with Rep. Bob Leggett, floor leader

for the bill. The night before the vote, we met in his offices in the

House Offtce Building. I was assigned the task of preparing brief

speeches for various congressmen to make on the floor. I was

making pretty good progress until Girton and Leggett discovered that

each was a lip man, that is played the trumpet. The congressman

100
removed a trumpet from his closet. Each took turns showing his

prowess. There apparently was insufficient resonance inside the

office, so they went into the hall of the building where “When The

Saints Come Marching In” was played as never before!

The next day, we were seated in the House gallery and listened to the speeches, two of which sounded familiar. The Speaker

then called for the vote. To our surprise, it was approved on a voice

vote. Leggett explained that the outcome was a foregone conclusion

and in those circumstances there frequently was a voice vote rather

than a roll call to avoid embarrassing congressmen.

Sen. Allen Cranston (CA) had assured us that if the bill got

through the House, he would see that it got through the Senate, and

he did. It subsequently was signed and became law. But to this day,

no Federal marketing order for canning pears has been issued.

The Role of Litigation

The use of litigation to protect grower-member interests in

dealings with processors is a strategy to be used sparingly, but still

available.

Zollinger observed that litigation is more traumatic for the

association than its management. Management understands lawsuits

are a part of doing business. But the cost and time it takes to conduct

litigation drain valuable association resources.

This section of the report looks at the role bargaining

associations may play in protecting members’ legal interests during

the bargaining process and in related activities.

During Bargaining

Litigation as a part of the bargaining process requires some

special understanding of grower concerns. For example, the

timeliness factor is often more important to a bargaining association

than the cost. Litigation begun during one crop year may remain

unresolved right up to, or into, the next crop year. This not only

complicates relations with the processor(s) being sued, but other

processors may hang back from settling on a contract until they see

how the issue in contention with one of their competitors will be

resolved. This uncertainty makes it difficult for the association to

keep member-growers in line during this long period of time.

101
But, the processors seem intent on periodically testing the will

of bargaining associations. To protect existing contracts with all

processors, an association may occasionally be forced to initiate a

lawsuit.

In the early 199Os, for example, the tomato growers had to

sue some longtime friendly processors to get a favorable interpretation

of their contract. The product was quite late in ripening and the pack

was at record levels. The industry was facing oversupply and weak

markets. Some processors refused to honor their contract

commitments to pay late-season premiums to growers.

Although the position may seem harsh in the circumstances,

the association initiated legal action to protect the integrity of the

contract. Processors, who honored their contracts, were watching

closely to make sure competitors did not acquire tomatoes for as

much as 25 percent below their price. The association had to make

sure it was treating all processors alike, to protect the integrity of the

association among the processor community.

Litigation, unfortunately, may not always be against a party

outside the association. The association must also be ready to sue its

members to protect the integrity of membership agreements.

Association leadership has a duty to act in the best interests of the

entire grower membership. Members who violate their contracts with

the association threatened that common good. Associations that teach

the members that it will insist they honor their contracts have only

rarely had to use litigation.

As Bunje pointed out, a bargaining association sometimes

must sue its growers not only to show other growers they must honor

agreements with the association, but also to establish credibility with

processors. The association reputation in the industry is at stake,

especially when a grower does not deliver product in accordance with

the association contract with a processor.

Normally, problems with growers delivering under their

contracts occur when supplies are short and prices are rising.

Processors desperately need committed product to operate their

facilities. Processors watch growers and notify the association if they

believe product diversion is occurring. The association must act to

keep other members in line and protect its relationship as a

dependable business partner with the processors.

102
Nonbargaining Litigation

Litigation to protect grower rights under California’s

Producers’ Lien Act illustrates how bargaining association

involvement in litigation outside the negotiation process can serve

members interests. lo3

In 1981, many pear and tomato growers sold their produce to

T.H. Richards, a Sacramento processor, under deferred payment

plans with 50-percent payment upon delivery and the rest payable 1

year from the date of delivery. Because tomatoes and pears had been

delivered generally in August and September of 198 1, payment of the

deferred 50 percent was not due under the contracts until August or

September 1982. The canner filed for reorganization under chapter

11 of the Federal Bankruptcy Act before the deferred payments were

made.

CTGA and the canning pear association retained our law firm

to protect grower-member rights under the California Producer’s Lien

Act.‘@’

The producer’s lien is a security interest granted by law to a

grower to secure payment for product sold to a processor. It is equal

to the amount of the debt owed. The lien attaches to any processed

form of such product that the processor maintains in inventory. If the

processor fails to pay the grower, the grower can sue the processor

and have a court order the processor to sell enough inventory to pay

off the debt owed to the grower.

At that time, no California cases had interpreted the State’s

lien law and Federal cases dealing with liens in other jurisdictions

were split on whether State-created liens survived in bankruptcy. The

issue was of paramount importance to 34 pear and tomato growers

with claims in excess of $2.2 million.

Each association initiated litigation by filing a complaint

alleging that the growers’ liens were valid in bankruptcy and that the

‘03 This section is adapted from a speech by William J. Bush entitled

“Survival of the Producer’s Lien In Bankruptcy,” delivered to the 36th

National Conference of Bargaining Cooperatives. The full text is published

in Proceedings: 36th National Bargaining Conference, Agricultural

Cooperative S&vice, USDA, Service Report No. 32 (1992), pp. 155-59.

‘04 California Food and Agricultural Code, $9 55631-55653.

103
growers were entitled to attach and secure part of T.H. Richards’

pear and tomato inventory up to $2.5 million as security for the debt.

Grower claims were opposed by three other parties claiming

an interest in the inventory: (1) The debtor, T.H. Richards, who

contended that the liens were not valid in bankruptcy and therefore

the growers were, at most, unsecured creditors; (2) other marketing

firms to whom Richards had sold but not yet delivered the inventory;

and (3) three banks that claimed an interest in the product and other

assets of the canner as security for outstanding loans exceeding $10

million.

Without going into the details of the litigation, growers as

individuals would have had a difficult, if not impossible, time

persevering through the 9-year process against such formidable

opponents, without the financial and moral backing of their grower

associations. The rewards were worth the effort. The bankruptcy

and Federal district courts failed to protect the growers. But the

growers further appealed to the U.S. Court of Appeals for the 9th

Circuit.

In 1990, the appellate court held the grower lien is not

released by merely agreeing to a deferred payment arrangement.105

Further proceedings before the bankruptcy court resulted in the

growers being awarded not only the full amount of their claims but

also prejudgment interest of nearly 9 percent, compounded annually

for the 9-year period of the litigation. This doubled their original

claims and produced a total payout of about $4.5 million.

While the Richards litigation was pending, the Apricot

Producers of California (APC) filed suit in behalf of its growermembers who sold fruit in 1984 and 1985 to Sacramento Foods, Inc.,

Richards’ successor, that also was now in bankruptcy. Again, the

lower courts ruled against the growers. Again, the growers relied on

their bargaining association for assistance in carrying their claims to

the U.S. Court of Appeals.

While this and the Richards appeals were pending, the Ninth

Circuit, in a similar case, ruled in favor of grape growers attempting

to assert producer’s lien claims against a bankrupt grape processor.

The court held that in a contest between the growers holding lien

claims and bona fide purchasers of the processor’s product, the

lo5 In re T.H. Richards Processing Co., 910 F.2d 639 (9th Cir. 1990).

104
growers would prevail and, therefore, the lien was good in

bankruptcy. lo6 On the strength of this ruling, the APC case was

remanded to the lower courts where the growers received awards

totaling several hundred thousand dollars.

These cases, initiated by bargaining associations, produced

substantial cash returns for their members. They established an

important legal principle for all California producers, that if they act

promptly, growers who deliver product to processors will be paid,

even if the processor files for bankruptcy protection.

I have discussed this subject at some length because it

represents a breakthrough on the continuing concern of how growers

can protect themselves when the processor customer fails to pay the

full purchase price when produce is delivered.

Two lessons should be apparent from this experience of the

various California growers:

1. Growers in other states should give serious consideration

to the enactment in those states of legislation similar to the Producers

Lien Act in California.

2. Bargaining cooperatives can play a major role in initiating

action in behalf of their grower members to enforce producer lien

rights under the legislation because failure of producers to take

appropriate action to enforce their rights can amount to a waiver of

their rights.

‘06 In re Loretto Winery Ltd., 898 F.2d 715 (9th Cir. 1990).

105
CHAPTER 8. BARGAINING IN THE WORLD OF

THE FUTURE

While my crystal ball has always been a bit on the foggy side,

my years in working with agricultural bargaining associations

suggested certain courses of action will be necessary in future years

for them to be viable and constructive elements on the food marketing

industry. I doubt if any of these thoughts are novel. I just hope they

reflect a common sense view of how the past lessons can be translated

into future margins for growers.

The Need for Statesmanship

Several “megatrends” are converging to make the job of the

agricultural bargaining association more challenging tomorrow than

it has ever been--growing environmental awareness; changing

consumer preferences; continuing concentration in processing;

internationalization of agricultural marketing; and reduced political

clout caused by the declining share of our population residing on

producing farms and in rural areas. For growers to survive, let alone

prosper, leadership will have to evolve that is sensitive and responsive

and can build consensus support for grower concerns.

Even though associations may disagree strenuously with

processors over price at a given time, it is essential that an association

manager establish and maintain a good working relationship with the

processors. In this way, the association can provide effective

leadership for its members because growers and processors must live

together.

Thus, price negotiation will require a statesmanlike approach.

For many years at the annual conference of bargaining cooperatives,

there has been a custom to present a so-called Toga award to the

manager who is considered to have been most statesmanlike in

negotiations with association customers. This is not an award a

manager enjoys receiving, but points out the fine line drawn between

being reasonable in price negotiations and “giving the store away.”

Bargaining associations will have to recognize tough times for

processors. Headstrong negotiation when processors are at a low ebb

106
can make it difficult to move product, sour future relations, and even

drive processors out of business.

Joint efforts with processors, such as the trade alliance

between tomato growers and processors, must be duplicated whenever

the mutual interests of all segments of the industry will benefit.

Bargaining associations should also be alert for opportunities

to help processors out of difficult situations. In a short crop year, a

processor may have trouble finding enough raw product to meet its

needs. The bargaining association can often locate available tonnage.

It is important that the processors have sufficient quantity of product

on hand to avoid being sold out a month or two before the new

harvest. If they are, they lose their shelf space to competing fruit or

fresh fruits, or other products, and it is difficult to get that shelf space

back. This type of assistance builds trust that translates into a

stronger industry able to pay better prices to growers.

The reason the processors agreed many years ago to pay a

precedent-setting service fee to the cling peach association is because

the processors wanted intelligent management at the association that

could provide more stability in the industry and avoid the extremes

of high and low prices. Bargaining associations will have to continue

providing services the processors will pay for to generate sufficient

revenue to serve their grower-members.

Joint efforts with other bargaining associations will also

become more important. Pears, tomatoes, potatoes, and asparagus

growers already are building support systems to share information

across State and regional lines. While the next step would appear to

be joint activity with growers of like crops in other countries, national

interests seem to prevent much international cooperation at this time.

For example, subsidies paid by EC nations to their growers seem to

override what might otherwise be a common interest of farmers in the

United States and those countries.

Negotiating in an Increasingly Hostile Market

Bargaining for agricultural products has never been easy. The

future looks even more challenging. Several market trends indicate

an increasing hostile environment for agricultural producers,

especially those growing crops for fruit and vegetable processing.

107
Redirection of the Marketing Order Program

Both Federal and State governments will need constant

education and support on the value of marketing orders that control

quantity and/or quality of products sent to market, or directly provide

a safety net under prices paid to producers. Existing orders of this

nature may be under constant attack. Associations that depend on

Government regulation to provide order to their markets will be under

pressure to relinquish that assistance.

Increased opportunities may arise to use marketing orders to

finance research and promotion activities. The important advantage

of these programs to associations is that all growers, not just

association members, finance the effort. Producers of commodities

with growing demand may be hesitant to vote in any such

Government program. But, growers of crops with mature or

shrinking demand may well see the market order as a tool to fund the

development of disease-resistant and higher quality varieties, use

advertising to increase sales, and, as a result, attain higher prices paid

to producers.

Adjusting to Changing Customer Preferences

The processed food industry has two sets of customers, stores

that buy its products directly and consumers who ultimately purchase

and use the products. Stores carry what the consumers will buy, not

what farmers want to produce.

Computers and universal bar codes give stores the ability to

precisely track consumer purchases, both by volume and profit.

Stores are looking at data such as return-per-linear-foot of shelf space

to determine what products they will buy. Results I have seen

indicate, for example, that juices are showing favorable trends for

growth, but the outlook for canned fruit is not positive. Tomatobased products, riding a wave of interest in Italian and Mexican

foods, are doing well.

But consumer tastes are somewhat fickle. All of this could

change quickly. What is important is that now the chains and other

stores can detect these changes quickly. Elements of the food

industry that can adjust their product mix with changes in consumer

demand will likely prosper. Others will not.

This includes growers and grower associations. Unfortunately

for tree fruit growers, raw product mix is fixed several years into the
future. Row crop farmers can alter their production more quickly, as

soil and weather conditions permit. Thus, associations must be

attuned to changes in consumer trends so they can help growers

promptly react. Associations must also be ready to work with their

processors to develop and bring to market products that best satisfy

consumers. Some may survive on blind luck, but long-term planning

and action will likely become more important.

Continued Concentration in Processing

After many years of lax antitrust enforcement, the food

processing industry has few players remaining. Del Monte is the only

major noncooperative processor in some commodities. The number

is not likely to increase substantially. Girton suggested that the day

may come when the only canners are cooperatives.

Zollinger’s comments are particularly compelling. Although

the growth in demand for tomato products has led to an increase in

the number of tomato processors, Zollinger expressed great concern

about inadequate antitrust enforcement and its adverse impact on

independent farmers. He pointed out that at that time one company

owned both the second and third largest ketchup processors in the

world. These large firms are constantly shuffling managers and

changing operations. Top management is a great physical distance

from the actual processing and handling of the commodities, not to

mention the farmgate. Managers of these companies are harder and

harder to contact, deal with, and to get any final decisions from. And

sometimes the decisions made simply make no sense.

But equally important, Zollinger recognized this situation as

an opportunity for grower associations to prove their worth.

Bargaining associations must educate all growers to accept the

fact that an individual grower, or even a relatively small group of

growers, is of no consequence to an international conglomerate.

Perhaps these companies will make decisions that will show

unaffiliated growers that the services of a bargaining association are

really needed.

Zollinger believes that experienced cannery managers realize

these conglomerates are only sucking capital out of the canneries and

releasing valuable employees whose expertise can never be recovered.

The associations have allies in the industry that can work with

109
growers in attempting to minimize the damage done by the

conglomerate ownership.

He concluded that bargaining associations have a real place

in agriculture. If growers will commit their authority to bargain to

the association and allow it to do its job, the money they devote to the

association will yield the highest return of any of their invested

dollars.

lnterna tionaliza tion of Markets

Most of the commodities represented by agricultural

bargaining associations are sold into reasonably mature markets.

With unit sales growth slow or stagnant, international competition

posses important challenges to both producers and processors in this

country.

Foreign producers often have significantly lower costs of

production than domestic growers. Even with transportation costs

factored in, buyers can often acquire foreign product at less cost than

domestic product.

Lower costs are also attracting investment capital into

processing facilities in the southern hemisphere. Further reductions

in trade barriers will accelerate this trend. The international

conglomerates, with their heavy bottom-line emphasis, will be only

too willing to take advantage of this situation. It will be up to

bargaining associations and domestic processors to develop programs

that protect and expand domestic market shares of these markets.

Fair Practices Legislation

As earlier indicated, bargaining associations have found the

need for legislation to require bargaining in good faith. Michigan has

not openly enacted such legislation, but also taken the next step of

providing that an impasse can be resolved through binding arbitration.

Association representatives report that this has been effective. Efforts

to secure amendments to the Federal Agricultural Fair Practices Act

to incorporate such provisions have been unsuccessful to date.

Experience in California, where there is a requirement that

the parties bargain in good faith, has shown that processors adamantly

oppose any modification of the California Fair Practices Act to

require mandatory and binding arbitration. The compromise which

representatives of processors and associations worked out jointly to

110
require non-binding conciliation has been surprisingly effective. In

fact, one of the requests made recently was by a processor. On

another occasion, the processor suggested it.

I anticipate it will continue to be used as an inexpensive tool

to resolve impasse without incurring ill feelings frequently generated

by a formal complaint accusing a party of failing to bargain in good

faith. Of course, there are still occasions when such action must be

taken.

Growers in other states may find this to be a worthwhile

mechanism to employ. Processors may be willing to join with

association leadership in supporting the enactment of such legislation.

Growers in other states should support enactment of legislation to

provide for an advisory committee composed of representatives of

bargaining associations and processors similar to that in effect in

California and which has proven so effective.

Adopting more effective State legislation is not in lieu of

seeking amendments to the Federal fair practices law discussed

earlier. It is regrettable that the Federal act for which growers fought

so strenuously is ignored. This frustrates what clearly was the intent

of Congress.

At the very least, I believe bargaining associations should

seek to amend this Federal Act to eliminate the inhibiting effect of the

disclaimer clause on enforcement of the Act as interpreted by the

Federal court in Butz v. I.uw~~n.‘~’

Organizing Bargaining Coopera rives in 0 ther

Commodities

Growers of a number of commodities that do not have

bargaining cooperatives could benefit from organizing. The broiler

industry, for instance is only partially organized. Producers of other

poultry, sheep, cattle, and other livestock would be likely prospects.

Production of fish and other seafood products is increasing. The

experience of the catfish producers in Mississippi has shown that

aquaculture is another potential area of growth in producer bargaining

activity.

lo7 386 F.2d 227 (N.D. Ohio 1974). This case is discussed in chapter

3 in the section on the Federal Agricultural Fair Practices Act of 1967.

111
This is not only of importance to the producers of such

commodities but also to the existing bargaining associations.

Increasing the number of food producers are represented by

bargaining cooperatives can provide a stronger base for effective

political action and create a greater pool of administrative personnel

committed to the concept of cooperative action by producers in

bargaining for their product.

Conclusion

Each challenge is, in its own way, an opportunity.

Cooperation among individual growers offers the best hope of

overcoming these obstacles and succeeding in the marketplace of

tomorrow. If bargaining associations are well funded, intelligently

managed, and actively supported by growers, their members have a

tool to gain the competitive advantage that can generate success in the

future. These associations appear to be the growers’ best hope for

maintaining a strong, independent production sector in American

agriculture.

112
Bibliography

Publications

Baarda, James R. “Cooperative Antitrust Inquiries,” Vol. 12, No. 1,

Journal of Agricultural Taxation and Law 78-86 (Spring 1990).

Blum, Martin A. “Report on History of Enforcement of the

Agricultural Fair Practices Act.” Unpublished working paper (July

1978).

Bunje, Ralph B. Cooperative Farm Bargaining and Price

Negotiation. Economics, Statistics, and Cooperative Service, USDA,

Cooperative Information Report 26 (July 1980).

Bush, William J. “Survival of the Producer’s Lien in Bankruptcy,”

Agricultural Bargaining: In a Competitive World. Agricultural

Cooperative Service, USDA, Service Report 32 (May 1992). Paper

presented at 36th National Bargaining Conference, Monterey, CA,

Dec. 17, 1991.

Frederick, Donald A. “Agricultural Bargaining Law: Policy in

Flux,” Vol. 43, No. 3, Arkansas L.uw Review 679-699 (1990).

Frederick, Donald A. “Legal Rights of Producers to Collectively

Negotiate,” Vol. 19, No. 2, William Mitchell Law Review 433-455

(Spring 1993). Paper presented at American Agricultural Law

Association Annual Meeting, Chicago, IL, Sept. 25, 1992.

Frederick, Donald A. Managing Cooperative Antitrust Risk.

Agricultural Cooperative Service, USDA, Cooperative Information

Report 38 (May 1989).

Free, Herbert W. “California Apricot Growers Union.” Unpublished

masters thesis. University of California, Berkeley, 1941.

Garoyan, Leon. “Aaron Sapiro’s Contributions to Cooperative

Philosophy and Development.” Paper presented at the Graduate

Institute of Cooperative Leadership, Columbia, MO, July 19, 1982.

113
General Accounting Office. Dairy Cooperatives, Role and EJgrects of

the Capper-Volstead Antitrust Exemption. GAO/RCED-90- 186

(Sept. 1990).

Iskow, Julie, and Richard Sexton. Bargaining Associations in

Grower-Processor Markets for Fruits and Vegetables. Agricultural

Cooperative Service, USDA, Research Report 104 (March 1992).

Marcus, Gerald D. “History of Statewide Bargaining for California

Canning Pears.” Speech at the Annual Meeting of the California Pear

Growers, Sacramento, CA, March 5, 1993.

Marcus, Gerald D. “An Overview of California’s Agricultural

Bargaining Advisory Committee,” Proceedings: 33rd National

Bargaining Conference. Agricultural Cooperative Service, USDA,

Staff Report (May 1989). Paper presented at 33rd National

Bargaining Conference, Monterey, CA, Jan. 20, 1989.

Marcus, Gerald D. “A Bargaining Agenda for the 199Os,”

Agricultural Bargaining: l’he Growing International Connection

Agricultural Cooperative Service, USDA, Service Report 30 (August

1991). Paper presented at 35th National Bargaining Conference,

Seattle, WA, Jan. 17, 1991.

McManus, Kathleen. “California Canning Peach Association. ”

Unpublished working paper. 1990.

Mears, Eliot G., and Mathew 0. Tobriner. Principles and Practices

of Cooperative Marketing. Ginn and Company, 1926.

Sapiro, Aaron, “Cooperative Marketing,” Address delivered at the

American Farm Bureau Federation Cooperative Marketing

Conference, Chicago, IL, July 23-24, 1920.

Sapiro, Aaron, “State and Federal Legislation Relating to Cooperative

Marketing,” Address delivered at 3rd Annual Meeting, National

Council of Farmer Cooperatives, Washington, DC., Jan. 5-8, 1925.

114
Thor, Edward, and Daniel Moen. “A History of California Grade

Pack Pears.” Unpublished working paper. March, 1990.

Torgerson, Randall E. Producer Power at the Bargaining Table.

Columbia: University of Missouri Press, 1970.

Unpublished Interviews by Gerald Marcus

Barserian, Kalem. Madera, CA, May 12, 1989.

Bunje, Ralph. Hillsborough, CA, November 17, 1989.

Collins, Robert. Walnut Grove, CA, December 2, 1988.

Girton, Cameron. San Francisco, CA, December 9, 1988.

Lindauer, Kenneth. Sacramento, CA, June 2, 1989.

Shuler, Ronald. Lafayette, CA, April 7, 1992.

Zollinger, David. Tut-lock, CA, March 25, 1989.

115
Appendix

California Canning Peach Association Master Contract of

Sale to Canner

THIS MASTER CONTRACT OF SALE TO CANNER

(“Master Contract”), made and entered this day of

,194 between the CALIFORNIA CANNING PEACH

ASSOCIATION, a non-profit, cooperative association, organized

under the Agricultural Code of the State of California (“the

Association”), and , (“the Canner”).

WHEREAS, the Association has secured standard

Membership Agreements and Member’s Allocation Forms from

numerous growers in the State of California in the form attached to,

and made a part of this Master Contract,

WHEREAS, by virtue of these contracts, the Association will

market and negotiate prices and terms of sale for a large proportion

of the crop of canning cling peaches produced in California; and

WHEREAS, the Canner is in the business of canning and

packing cling peaches and desires to secure an adequate and certain

supply of peaches for processing and establish a reasonable price and

terms of sale for such cling peaches; and

WHEREAS, the Association is empowered by its members to

market members’ fruit and to negotiate prices and terms of sale for

its members and others;

NOW THEREFORE, in consideration of the premises and of

the mutual obligations of the parties to this Master Contract, the

parties agree:

1. Effective Date. This Master Contract shall become

effective upon its execution by both parties and shall be for a term of

one (1) year, except that with respect to those Association members

whose Allocation Forms are attached to this agreement and

incorporated by reference, and with respect to such additional

Allocation Forms as may be signed by Canner while this agreement

is in effect, this Master Contract shall be effective for the term of

years specified in the respective Allocation Forms. Further, with

116
respect to those Association members who are parties to such

Allocation Forms, and unless the Association’s authority to sell is

terminated in accordance with Paragraph 2 below, the Association

agrees to sell and Canner agrees to purchase for the term specified in

the Allocation Forms all of the cling peaches that have been allocated

to Canner.

2. Termination of Authority to Sell. Notwithstanding any

other provision of this Master Contract, if the authority of the

Association, as specified in the Member’s Allocation Form, to sell

peaches to the Canner is terminated for any reason except acquisition

by the Canner of the orchard or the peaches by purchase or other

means, the Canner shall buy and Association shall make best efforts

to sell a like estimated tonnage of peaches from the Association’s

unsold pool, if any, or from other specified orchards during the crop

season then in progress or the next following crop season if such

termination occurs after the end of a crop season. However, if prior

to the expiration of the seasons covered by the Allocation Form, the

member sells or otherwise transfers the orchard described in the

Allocation Form, Canner shall be obligated to purchase and

Association shall be obligated to sell the peaches produced from such

orchard only during the crop year in which such transfer is made, but

not thereafter unless agreed upon by all parties to the Allocation

Form. A “crop year” as used herein shall begin on November 1 and

shall close on the following October 3 1.

3. Ability to Perform.

(a) The ability of the Association to deliver the

peaches hereby sold to Canner is based and depends on the

Membership Agreement between the Association and its members and

the Allocation Forms subject to this Master Contract. Accordingly,

if the Association is unable to perform this Master Contract as to any

member’s orchard allocated to the Canner because of causes beyond

the Association’s direct control, then the mutual obligations and terms

of this Master Contract shall not be affected, changed or released as

to any peaches from any other orchard which is allocated to Canner

hereunder; and, the Association shall be relieved from all obligations

under this Master Contract by reason of and as to any non-fulfillment

117
of its terms which shall arise from causes beyond the Association’s

direct control. It is the intent of this paragraph of this Master

Contract, among other things, that each orchard allocated to Canner

shall be deemed allocated to Canner under the terms of this agreement

separately from other orchard allocated to Canner under the terms of

this agreement, as though each orchard were covered by a separate

contract with Canner.

(b) In case of fire, boiler explosion, interruption of

power, strikes or other labor disturbances, lack of transportation

facilities, shortages of labor or supplies, perils of the sea, floods,

earthquakes, action of the elements, invasion, war, riot, insurrection,

rebellion, interference of civil or military authorities, enactment of

legislation or any unavoidable casualty or cause affecting the conduct

of Canner’s business to the extent of preventing or substantially

restricting canning operations, including any obligation on Canner’s

part to transport the fruit covered hereby, or to furnish containers

therefor, Canner, after making every reasonable effort to accept

delivery of all peaches subject to this Master Contract, will be

excused from performance hereunder during the period that Canner’s

business or canning operations are so affected, and Canner may,

during such period, accept such portion of such fruit as Canner has

informed the Association in its reasonable judgment it can

economically handle.

The Canner understands and agrees that the

Association, in the event of the occurrence of any of the foregoing

enumerated emergencies, in order to prevent economic waste to the

growers and consumers, retains the right, without liability of any kind

or character to the Canner:

(1) To divert the peaches to another canner

who is able to accept the same, at such price and terms as the

Association and such other canner may agree;

(2) To divert the peaches to another canner

who can and does furnish containers and transportation or either of

them, at such price and terms as the Association and such other

canner may agree.

(c) If, for like causes, the farming operations of any

member whose fruit is covered hereby are so affected that such

118
member, or members, are unable .to make complete delivery of the

fruit, then, and, in that event, the Association shall make every

reasonable effort to complete deliveries hereunder, and the

Association shall be excused from performance of that part of this

Master Contract which it is unable to perform because of these causes

during the period of the member’s farming operations are so affected.

The Association shall not be liable for the failure to deliver fruit

destroyed by frost, flood or other similar casualties.

4. Grade Standards.

(a) Member shall deliver at the designated point of

delivery indicated on the Member’s Allocation Form, promptly after

harvesting, all fruit covered hereby in good condition and in

conformity with the grade, quality and delivery standards agreed to

each year by the Association and Canner as outlined in “Appendix

A.” If the parties fail to agree on the applicable standards prior to

commencement of deliveries in any year, the matter will be settled by

arbitration in accordance with the procedures set forth in Paragraph

13, as modified by subparagraph (b) below. During the arbitration

process, the standards of the previous year will remain in effect until

the matter is resolved.

(b) In the arbitration of any controversy or claim

arising from or related to any grade or grading procedure applicable

to any delivery of cling peaches to Canner under this Master

Contract, all three (3) arbitrators shall be familiar with the growing

and canning of fruit.

5. Allocation Form. The Association will provide each of

its members with a “Member’s Allocation Form,” which shall

describe: (1) the Association member whose orchard has been

allocated to Canner; (2) the orchard number and number of acres and

tonnage estimates that are the subject of this agreement; (3) the

member’s point of delivery; (4) the seasons covered by this

agreement; (5) any special services that are to be performed by the

member for the account of the Canner; and (6) a description of any

mortgages, liens or encumbrances covering the crop. The Allocation

119
Form when executed by the member, the Canner and the Association

shall become a part of this Master Contract.

6. Hauling. The members shall deliver peaches to the

Canner’s designated delivery point as set forth in each member’s

Allocation Form. Canner agrees to pay the member for hauling from

the orchard to the delivery point, either at the prevailing rate paid by

the Canner in the district under comparable conditions of tonnage and

distance, or as set forth in the member’s Allocation Form.

7. Weighing. All weighing, receiving, accepting and

inspecting shall be done at the Canner’s designated delivery point as

shown in the Allocation Form. As its option, Canner may grade any

delivery, or shall have the right to rely upon any grade and weight

certificate issued in accordance with the provisions of any applicable

marketing order.

8. Records. The Association shall have the right at any time,

by its authorized agents, to examine and inspect the scales, weights

and pertinent delivery point records of the Canner covering operations

under this Master Contract.

9. Delivery Receipts. The Canner agrees to furnish to each

member at time of each delivery, a receipt showing name of member,

member’s contract number, number and tare of containers, variety

and grade of peaches delivered, together with gross, tare and net

weight, and to issue a separate weight certificate for each delivery

received. At the close of each day, the Canner shall provide

duplicates of all receipts issued on the previous day, direct to the head

office of the Association, or Canner will otherwise make available

computer diskettes to the Association containing all information

regarding daily receipts. If Canner shall fail or neglect to provide to

the Association at the close of each day duplicate receipts showing

deliveries of all peaches on the previous day, then the Association

may, after written notice, or demand upon Canner, at its option, and

at the Canner’s expense, secure copies of weight certificates through

an agent of the Association stationed at the point of delivery.

120
TO. Containers. The Canner agrees to furnish to the

members of the Association free of cost sufficient and suitably clean

containers for the purpose of handling the peaches to be delivered to

Canner. The Canner shall pay all freight and delivery charges on

empty containers to roadside of member’s orchard; or to point agreed

to by grower and canner at time of signing allocation form. It is

further agreed that any seasonal hauling rate afforded by Canner

includes member’s responsibility to haul any excess containers back

to point of fruit delivery at the end of the harvesting season.

(a) In the event that containers are not returned by the

member within fifteen (15) days following final delivery by the

member, the member will be liable to the Canner for the actual cost

of the same. The Association shall not be liable to the Canner for

damage to containers, but this shall not relieve the member from

liability for damages to containers due to his fault or neglect. In any

event, title to containers shall always remain and be in the Canner.

(b) If the Canner shall fail to supply containers as

required by this Master Contract, Canner shall pay to the Association

all documented damages sustained by losses through overripe fruit on

account thereof, except the Canner shall not be liable for such

damages when Canner cannot provide containers because of strikes,

fires, acts of God or failures of transportation or other causes beyond

Canner’s direct control.

11. Base Price Determination.

(a) Both parties recognize the advantages of entering

into binding contracts for the purchase and sale of peaches in advance

of the commencement of the harvest season, although, because of the

unavailability of reliable marketing information, it may not always be

possible to agree upon a specified price at the time of contracting.

Accordingly, the. Association and the Canner agree that the base

price(s) for the purchase of all peaches sold under this Master

Contract shall be a “reasonable price,” as that term is used in Section

2305(1)(b) of-the California Commercial Code.

(b) In order to- arrive at a reasonable price, the

Association shall meet with the Canner at convenient times prior to

121
harvest to examine the economic data available concerning the

marketing of fresh and processed cling peaches and other relevant

factors concerning the cling peach industry. Based on such facts,

parties shall negotiate the base price(s) to be paid by the Canner to

the Association. The base price(s) shall in all cases be a “reasonable

price. ”

the Canner to

applicable to

Contract.

(c) “Base price(s)” means the price(s) to be paid by

the Association as adjusted by the seasonal provisions

each crop year under Paragraph 14 of this Master

12. Failure to Agree. If the parties fail to establish, prior to

commencement of deliveries in any season, a “reasonable price”

under the provisions of Paragraph 11, then either party shall have the

right to invoke the conciliation procedure set forth in Sections 54451-

58 of the California Food and Agricultural Code. If the parties

cannot reach agreement through the conciliation procedure, then the

matter shall be settled by arbitration in accordance with the

procedures set forth in Paragraph 13. The arbitrators shall determine

the base price(s) to be paid under this Master Contract, and their

decision shall be final and conclusive as to the “reasonable price” for

the then current crop year.

13. Arbitration. Any controversy or claim arising from or

relating to this Master Contract, or the breach thereof, shall be settled

in accordance with the Commercial Arbitration Rules of the American

Arbitration Association, and judgment upon the award rendered by

the arbitrators may be entered in any court having jurisdiction of the

matter. Arbitration shall be by three (3) arbitrators, the decision of

a majority of whom shall be binding upon the parties. The arbitrators

shall be selected .in the following manner: Upon written demand of

either party for arbitration, both parties shall select an arbitrator

within ten (10) days of receipt of the written demand by either party;

within two (2) days thereafter, the two arbitrators so selected shall

select a third; or, in the event of failure of the two arbitrators to

select a third arbitrator within such two-day period for any reason

whatsoever, the third arbitrator shall be selected in accordance with

the Commercial Arbitration Rules of the American Arbitration

122
Association. Within three (3) days following the appointment of the

third. arbitrator, the three arbitrators shall meet to conduct the

hearing; within fifteen (15) days of the close of the hearing, the

arbitrators shall report their decision, which, when signed by a

majority of them, shall be final. Except as provided herein, the

provisions of Chapters 1, 2, 3, 4 and 5 of Title 9, Part 3 of the Code

of Civil Procedure_(Sections 1280-1294.2, inclusive) of the State of

California shall govern the conduct of the arbitration proceeding. The

costs and expenses of such arbitration, excluding attorneys’ fees but

including the compensation of the arbitrators, shall be shared equally

by the parties.

14. Seasonal Provisions. The schedule of incentives and

penalties, the delivery tolerances and the inspection arrangements

upon which the base price(s) determined hereunder shall be paid,

shall be established annually by agreement between the Association

and Canner. If the parties fail to agree on the applicable seasonal

provisions prior to commencement of deliveries in any year, the

matter shall be resolved by arbitration in accordance with the

procedures set forth in Paragraph 13. During the arbitration process,

the seasonal provisions of the previous year will remain in effect until

the matter is resolved.

15. Weekly Payments. All payments due to the Association

shall be made as soon as practicable following each week’s deliveries.

Up to five percent (5%) of the purchase price for such peaches shall

be paid to the Association, and the remaining amount, less

deductions, shall be paid directly to the member delivering the same.

One percent (1%) of the purchase price and the service charge shall

be deducted and paid to the Association in accordance with

assignments made by the agency grower and contained in the

Association membership agreement for any peaches delivered by

growers holding agency agreements of the Association per list of

growers and orchard numbers attached. Association agrees to hold

Canner harmless from and defend Canner against any and all claims,

liability, cost or expense (including attorneys’ fees) arising out of any

dispute with an agency grower over the payments which the Canner

deducts pursuant to this paragraph from the amounts due such

grower.

123
16. Advance Payments. In the event a price is not agreed

to by the parties or determined by arbitration prior to the date on

which deliveries are made hereunder, then the Canner shall make

interim payments to the Association and its members, in accordance

with the provisions of this paragraph in an amount not less than

seventy-five percent (75) of the average price per ton paid for cling

peaches for the preceding three (3) years. For years in which a

schedule of values is utilized the price shall be deemed to be the

“Base Price” set forth in such schedule. Unless otherwise agreed in

writing between the Association and Canner, the remaining balance

of the proceeds due hereunder shall be paid by Canner within fifteen

(15) days after the price has been agreed to or, if determined by

arbitration, within fifteen (15) days after the arbitrators serve their

decision. The pendency of an application to the arbitrators to correct

the award, or a petition to the court to confirm, correct, or vacate it,

shall not extend or otherwise affect Canner’s obligation to pay the

balance due within fifteen (15) days after the arbitrators serve their

decision. If any such application to the arbitrators to correct the

award, or petition to the court to confirm, correct or vacate it, results

ultimately in a final determination by the arbitrators or the court that

a lower (or higher) price than that rendered in the original arbitrators’

decision is payable or should have been payable for the crop year in

issue, any excess amount over such lower price paid by Canner shall

be refunded to Canner by the Association (or any additional amount

owed by Canner shall be paid by Canner to the Association) within

fifteen (15) days of such final decision; provided, however, that if

Association has paid out to its members the amount originally

awarded by the arbitrators prior to a final decision by them or the

court that a lower price is payable, then in that event the Association

shall have the option of refunding the difference to Canner by way of

an offset against monies to be due from Canner from the purchase

and sale of peaches in the next- succeeding crop year. (If the

Association exercises this option, the amount to be refunded shall

bear interest at the maximum rate allowed by law from the date of the

final decision fixing the lower price to the date of the offsetting

refund .)

17. Service Charge. Canner hereby recognizes that the

organization and continued existence of the Association relieves the

124
Canner of trouble, labor and uncertainty of soliciting and obtaining

separate contracts.with individual growers. In consideration thereof,

the Canner agrees to pay to the Association, over and above the base

price(s) agreed to, a service charge of 1.25% ‘of the base price(s).

The service charge is in addition to, and shall not be construed to be

a part of, the purchase price.

18. Non-Discrimination. Canner recognizes the right of the

farmer to join voluntarily and belong to cooperative bargaining

associations and agrees that it will not interfere with or restrain any

farmer in the exercise of that right or discriminate against any

producer of cling peaches with respect to price or other terms of sale

by reason of such producers’ membership in, or contract with, the

Association.

19. Legislation or Marketing Order. This contract shall be

deemed modified to the extent necessary to comply with State and

Federal laws and any order, regulation or license pursuant thereto,

and any marketing agreement or order under the authority of law.

20. Pesticides. The Association agrees that its members have

not used and will not use any pesticide (as defined in the Federal

Insecticide, Fungicide and Rodenticide Act) on the peaches subject to

this agreement other than those shown in any schedule furnished to

the Association and its members by the Canner or as otherwise agreed

upon in writing by the Canner. Prior to the delivery of the peaches

subject to this agreement, at the request of the Canner, each member

delivering the same shall furnish to the Canner an accurate statement

of the pesticide treatment of his peaches’ on such form as shall be

furnished by the Canner. If a member shall breach any of these

provisions, in addition to other remedies, Canner may, at its option,

refuse to accept delivery of the crop. If Canner does refuse to accept

delivery, it shall have no obligation to pay for said crop, and

Association may dispose of the crop free of this agreement.

2 1. Orchard Entry. Member shall till, cultivate, fertilize,

irrigate and endeavor to eliminate and control worm and insect

infestation, all in the manner customary of consistent with the

production of processor grade fruit. Canner’s agents are expressly

125
authorized and permitted to enter into and upon members’ orchards

and land during the term hereof for the purpose of examining and

inspecting the growing crop and the harvesting of same if such be

deemed advisable to Canner to protect its interests. Canner is not

required to give grower advice relating to the performance of this

contract. Such advice as Canner may give grower shall be deemed

gratuitous and Canner shall not be liable to grower therefor.

22. Fair Labor Standards Act. The Association agrees that,

unless otherwise exempt under Section 13 of the Fair Labor Standards

Act of 1938, it and its members will comply with all applicable

requirements of Sections 6, 7 and 12 of said Act, and with all

regulations and orders of the United States Department of Labor

issued under Section 14 thereof.

23. Adulteration. Association and members guarantee that

no article sold hereunder is or will be adulterated or misbranded

within the meaning of any law, in particular, the Federal Food, Drug

and Cosmetic Act of June 25, 1938, as amended, and that no such

article will be produced or shipped in violation of sections 404 or

302(d) of said Act.

24. Notice of Assignments. Canner and Association agree

to give prompt written notice to the other party of any assignment of

proceeds (or notice thereof) received by them covering any cling

peaches sold under this Master Contract.

25. Assignment of Contract. Neither party to this Master

Contract shall assign or transfer this contract or any interest in it

without the written assent of the other party first obtained.

Executed at Lafayette, California, the day and year first above

mentioned.

CANNER CALIFORNIA CANNING PEACH

ASSOCIATION

By: By:

126
California Canning Pear Association Pooling Policy,

Adopted 1957

WHEREAS, the Membership Agreement of the California

Canning Pear Association duly executed by each member of the

Association expressly authorizes the Board of Directors of the

Association to adopt the principle of pooling with respect to canning

pears contracted by each member to be sold through the Association

as its exclusive sales agent; and

WHEREAS, as a matter of policy the Board of Directors of

the Association considers it desirable to apply the principle of pooling

with respect to first grade canning pears for the best interests of the

members of the Association.

NOW, THEREFORE, BE IT RESOLVED THAT:

1. Adoption of pooling principle. The Board of Directors

of the California Canning Pear Association does hereby adopt the

principle of pooling itrdetermining the net proceeds which shall be

due each member with respect to No. One or Prorate Grade Hardy

and Bartlett pears which the member has contracted to market through

the facilities of the Association.

2. Authority of Membership Agreement. The pooling of

such pears hereunder shall be consistent with and pursuant to the

authority set forth in the Membership Agreement of the California

Canning Pear Association.

3. Effective Date of Pooling Policy. The policy hereby

adopted by the Board shall apply to such pears for the 1957 harvest

season and for each successive season hereafter, unless otherwise

changed by a resolution of the Board.

4. First or Opening Pool. The first or opening pool shall

include all tonnage which is signed tonnage within the meaning of the

Membership Agreement and which is specified in. the final tonnage

estimates submitted by the member on or before July 8, 1957.

127
5. Pooling Committee. There shall be a Pooling Committee

composed of not less than five nor more than seven members of the

Board who shall be appointed by the President. The Pooling

Committee shall administer the pooling of pears in accordance with

the principles herein and hereinafter adopted by the Board, including

such rules and regulations as the Board may adopt. The Committee

shall keep minutes of all of its meetings and a record of all action

taken by it which shall be submitted to the Board for review as

promptly as is practicable. Without being limited thereto, the Pooling

Committee shall:

(a) Recommend rules and regulations with respect to

pooling for adoption by the Board

(b) Recommend what pears, if any, should be excluded from any pool because of difference in quality, damage by the

elements or for other sufficient reason.

(c) Recommend a closing date for second or subsequent pools, if any.

128
California Canning Pear Association Pooling Policy,

Adopied 1976

1. Adoption of Pooling Principle. The Board of Directors

of the California Canning Pear Association do hereby adopt the

principle of pooling in determining net proceeds which shall be due

each member with respect to No. 1 or Hail or Frost Grade Bartlett

pears which the member has contracted to market through the

facilities of the Association and which are economically feasible to

harvest and, further, which have not been sold and delivered at the

established Association Canner price for such pears.

2. Authority of Membership Agreement. The pooling of

such pears hereunder shall be consistent with and pursuant to the

authority set forth in the Membership Agreement of the California

Canning Pear Association.

3. Effective Date of Pooling Policy. The policy hereby

adopted by the Board shall apply to such pears for the 1976 harvest

season.

4. Tonnage Covered. The pool shall include all signed

tonnage of No. 1 Bartlett pears specified in the final tonnage estimates

submitted by the members; provided that there shall be excluded such

tonnage as in the judgment of the Board shall be substantially in

excess of the normal processing tonnage for the member. In

determining whether the processing tonnage of a member for the

current season is abnormal, consideration shall be given to the

following factors, among others:

A. Whether the average processing tonnage of the

member for the three years immediately preceding

the current harvest season in which his or its

processing tonnage was highest is substantially less

than the final tonnage estimate for the current season.

B. Whether on the basis of the final tonnage estimate for

the current season there is a substantial change from

129
the past experience of the member with respect to the

proportion of his total tonnage of pears which would

qualify for processing which he sold for processing.

C. Whether such variation of change is attributable to

such causes as acquisition of new orchards or

increased yield from trees or other such causes as

may be considered to justify the increased processing

tonnage as normal.

5. Pooling Committee. There shall be a Pooling Committee

composed of five members of the Board who shall be appointed by

the President. The Pooling Committee shall administer the pooling

of pears in accordance with the principles herein and hereinafter

adopted by the Board ‘including such rules and regulations as the

Board may adopt. The Committee shall keep minutes of all of its

meetings and a record of all actions taken by. it which shall be

submitted to the Board for review as promptly as shall be practicable.

Without being limited thereto, the Pooling Committee shall:

A. Recommend rules and regulations with respect to

pooling for adoption by the Board.

B. Recommend what pears, if any, should be excluded

from the pool because of difference in quality,

damage by the elements or for other sufficient

reason. In this respect it is contemplated that canning

pears, otherwise qualified, may be excluded because

the orchard would not be considered commercially

acceptable to be harvested for the No. 1 and Hail and

Frost grade pears. The Pooling Committee shall

establish a procedure for processing complaints by

members with respect to the administration of the

pool and shall provide a fair opportunity for each

such member to be heard by the Committee. The

determination of the Pooling Committee will be

communicated to such members as soon as shall be

reasonably practicable. The member shall thereupon

130
have a right to appeal to the Board of Directors from

the decision of the Committee.

131
California Canning Pear Association Revised Canner

Contract Provision for Arbitration of Reasonable Price,

Adopted 1985

(b) Said “reasonable price” shall be~determined by the canner

and the Association by agreement. In the event that the “reasonable

price” is not so determined by agreement by the parties, it shall

be determined by arbitration, pursuant to the provisions hereinafter

set forth in this paragraph. In the event of arbitration, “reasonable

price” shall, to the extent applicable, be determined in accordance

with the provisions of Uniform Commercial Code Section 2305(1)(b).

(c) In the event that a reasonable price cannot be reached by

agreement by the parties, the reasonable price to be paid under this

contract shall be determined by three arbitrators, the decision of a

majority of whom shall be binding upon the parties hereto and shall

be final and conclusive as to a “reasonable price” for the then current

crop year. The arbitrators shall be selected in the following manner:

Upon written demand of either party hereto for an arbitration to

determine said reasonable price, both parties shall select an arbitrator

within ten (10) days of receipt of said written demand by either party;

within two (2) days thereafter the two parties so selected shall select

a third; or, in the event of failure of the two arbitrators to select a

third arbitrator within such two day period for any reason whatsoever,

the third arbitrator shall be appointed by the presiding judge of the

Superior Court of the City and County of San Francisco forthwith

upon the application of either party after three (3) days notice in

writing to the other party; within three (3) days following the

appointment of the third arbitrator, the three arbitrators shall meet to

conduct a hearing and to determine what a “reasonable price” shall be

for the current crop year.

(d) Each party shall, prior to the hearing, submit to the other

party and to the arbitrators in writing its final offer with respect to the

pears, the reasonable price for which is to be determined hereunder.

Within fifteen (15) days of the close of said hearing the arbitrators

132
shall report their decision which, when signed by a majority, shall be

final and not subject to review. The reasonable price determined by

a majority of the arbitrators shall be confined to the selection of either

one of their final offers as submitted by the parties. Except as

provided herein, the provisions of Chapters 1,2 and 3 of Title 9, Part

III of the Code of Civil Procedure (Sections 1280 - 1284.2, inclusive)

of the State of California shall govern the conduct of the arbitration

proceeding. The costs and expenses of such arbitration excluding

attorneys fees but including the compensation of the arbitrations, shall

be shared equally by the parties.

(e) Pending determination of a “reasonable price” by

arbitration, the canners shall otherwise make payments to the

member/growers as and when otherwise due on the basis that the

reasonable price as provided herein is equal to the canner’s last bona

fide offer during the harvesting season to Association, with

subsequent adjustment, if necessary, to be made upon conclusion of

the determination by arbitration.

133
California Canning Peach Association Membership

Agreement Provision For Agency Membership

6. Any Member of the Association who, at the time of

execution of this Membership Agreement, is obligated by contract to

deliver the peaches described herein to a commercial cannery shall

deliver his peaches directly to such commercial cannery and shall be

exempt from the provisions of paragraphs 4 and 11 hereof until the

expiration of the current term of said contract, but thereafter the

Member shall become subject to the provisions of said paragraphs 4

and 11 and this paragraph shall no longer apply. The Member hereby

appoints the Association to act as his agent during the current term of

his contract with such commercial canner to perform such services

and to conduct such activities (including price negotiations) as the

Association deems necessary or advisable to assure that the Member

will receive a price for his peaches which is equal to the price

received by other members of the Association. The member agrees

to pay a service charge per ton on the peaches described herein equal

to the service charge paid by the commercial canners to the

Association on peaches sold by the Association and that the

Association may collect such service charge directly from said

commercial canners. In this regard, the Member agrees that he will

give notice to such commercial cannery pursuant to Section 58451 of

the Agricultural Code of the State of California that he hereby assigns

such sum to the Association and directs that such sum be deducted

from the price to be paid for the peaches sold by him and to pay the

same directly to the Association.

Additionally, the Member agrees to direct the commercial

canner to which he delivers his peaches to pay to the Association an

amount equal to 1% of the proceeds arising from the sale of such

peaches, which sum shall be held by the Association and disbursed in

accordance with paragraph 10 hereof.

134
Excerpt, Unpublished Interview with Cameron Girton,

December 9, 1988

MR. MARCUS: Would you try your hand at a brief

explanation of the Hoos formula?

MR. GIRTON: The Hoos formula was as the name implies--

a formula developed by Dr. Sidney Hoos and Dr. George Kuznitz

that would, if supplied the proper information, forecast the F.O.B.

price for a case of 24 2-l/2 canned pears for the next marketing

season.

To begin, the formula would record the average F.O.B. prices

of all canned p.ear sizes and convert them to a 2-l/2 basis.

Let’s assume then that the average price of a 24 2-112 can

size for the past season was $10 per case. To determine next year’s

F.O.B. price the following information was required:

1. Estimate the size of the pear crop for the current season in

California, Washington and Oregon.

2. Subtract the amount of fruit to be shipped fresh.

3. Subtract the amount to be used for other uses, such as

Gallo, dried, frozen, etc.

4. Subtract the amount to be used for fruit cocktail.

This then leaves the net amount of pears on the Pacific coast

to be used for pear halves.

The average case yield per ton for pear halves is

approximately 45 cases per ton - so you multiply the pear tonnage

times the case per ton - this will give you total amount of cases of

pears.

You then subtract the estimated amount to be exported and the

estimated amount to be purchased by the government. To this you

add the carry-over from the previous year and subtract the desired

amount of carry-over for the next year. This gives you the net

amount for domestic consumption.

135
If this figure is higher than last years it had a minus effect on

the F.O.B. price of $10 per case. If it is less than last year’s figure

it has a plus effect on the $10 per case F.O.B. price.

Other facts effect the pear price, competing fruits--if there are

more peaches, apricots, fruit cocktail, pineapple and at lessor F.O.B.

prices a minus effect--if less a plus effect.

G.N.P.--the overall economy will have a plus or minus effect.

Now we have the estimated F.O.B. price for the coming year-

-it may be the same $10 per case or $10.50, or $9.50 or some other

depending on the economic data furnished the formula. T o

determine the grower price per ton we take the historical percentage

that growers have received for the past lo-20 years. This is done by

taking the price per ton times the carming pear half tonnage and the

number of cases packed times the F.O.B. price per case. Then you

divide the dollar amount of the cases by the dollar amount of the

canning tonnage and determine the percent of the average grower

share.

The average percentage or grower share may range from 25

to 30 percent. This percentage applied to the total value .of the pack

is the grower share. Divided by the current tonnage--you determine

the grower price per ton.

136
Organization for Self Preservation

JACK Z. ANDERSON, President

California Canning Pear Association

Editor’s Note: Soon after the cannery pear prices

were established on the Pacific coast last fall

Jack Anderson was invited by the Washington State

Horticultural .Association of Wenatchee to speak

before their group of pear growers at Yakima and

Medford and at a meeting of the Oregon State

Horticultural Society. His message of “Organization

for Self Preservation ” was well received by the Pear

Growers in both Oregon and Washington.lM

Although the title of my talk to you here today may sound

slightly poetic. I can assure you that it was not chosen for its rhythm

nor its iambic pentameter. It was chosen rather because I believe it

suggests the solution to many of the complex problems that confront

the farmers of the Pacific coast in this modern and high speed age.

It was chosen also because of my personal knowledge of the

various degrees of successful recognition gained by organized

commodity groups as opposed to the lack of recognition accorded to

unorganized farm producers. When 1 speak of “recognition” I mean

the business of having our problems adequately recognized by the

people with whom we do business: The transportation industry, the

handlers and packers, the processors and canners, as well as the duly

elected legislative bodies to whom we find it necessary at times to

appeal for assistance.

As some of you know, I served for fourteen years as a

Member of the United States House of Representatives from the

Eighth District of California, from 1938 to 1952. During the last six

lo8 Reprinted from the 1954 Annual of the Pear Growers and Central

Coast Pear Association, pp. 3-7. The editor’s note is from the original

report.

137
years of my term in offrce I was chairman of the California

Congressional Delegation’s sub-committee on “Agriculture and Farm

Problems. ” In this latter capacity I had ample opportunity to observe

at first hand the success so often obtained by organized farm groups

and the indifferences and lack of attention paid to the unorganized

farmers.

For instance, if I were to go to Washington D.C. to discuss

with our representatives in Congress some specific bills affecting the

Pacific coast pear industry, and if I went only as an individual, my

voice would be like a voice in the wilderness--

unheard and unheeded. On the other hand, if I were to go to the

nation’s capital as the representative of a California pear association,

or better still, representing a Pacific coast pear association, I would

be respectfully listened to and my advice and counsel would be

solicited.

I am a farmer. My family has been engaged in the business

of producing and selling fruit since 1865. With those years of

experience we feel that we know something about fruit production.

We try to grow a quality product and to market it under a brand that

is respected and sought after. However, we fully realize that when

it comes down to the last step, the sale of our commodity, we are

almost completely helpless as individuals. We must belong to an

organization that .can assist us in bargaining for a fair and adequate

price for the product we grow.

A portion.of our crop flows to the eastern markets where it

is sold at public auction and we are content to compete there for what

the market will bring. However, a part of our crop also goes to the

cannery and there, for at least eleven of the last twelve years, we

have been compelled to accept whatever price our purchaser decided

to offer. On only one occasion--this year--have we been in a position

to sit down and bargain for a reasonable price for our commodity.

Now this didn’t just happen. It took a lot of doing by a lot

of people. But the fact of the matter is that the producers of canning

pears in California finally decided that their future, their “self

preservation” if you will, depended upon organization --and organize

they did. More than fifty per cent of all the canning pears produced

in California in the 1953 crop year were sold to the processors by the

California Canning Pear Association. I am proud and honored to

have been,selected as the first President of this new Association. I

138
think we did a good job for our growers and I have every reason to

believe that most of our grower-members are pleased with the results

we obtained for them.

I am sure you would like to know how we did it. The fact

that you have invited me here indicates your interest. Therefore I

shall try to outline for your information exactly what transpired, a

“blow by blow” description, in other words. Now I know that you

are not all pear growers, that some of you produce other crops and

that you may or may not belong to an association of one kind or

another. However, I should like to impress upon you the fact that

what I have to relate about the formation of our canning pear

association in California can be applied with the same effect to any

other farm commodity produced in this or any other state.

First of all, of course, any commodity group having a desire

to form an organization must be guided by a will to win. The basic

philosophy must be “it can be done.“ You will encounter, just as we

did, the defeatists, the prophets of failure, the rugged individualists,

if you please, who would apparently prefer to sell their crops at a loss

rather than to sacrifice one iota of their independence. Disregard

them and their philosophy. Select your ultimate objective, set your

sights on that goal, and then go to work.

Here is how we did it. A year ago last September, following

a season of disastrous prices to the growers of canning pears in

California, two forward looking individuals decided to do something

about it. Joe Green, a progressive and successful pear grower in

Courtland, and H. V. Beckman, Manager of the Pear Growers

League in San Jose, invited about sixty representative pear growers

from every pear producing district in California to attend a meeting

in Sacramento. The turnout exceeded even their fondest hopes and

I was told during the course of the meeting that those in attendance

were in fact the most representative group of pear growers ever

gathered together in one room in our state.

.

The primary topics of discussion were: Organization and

surplus control. It was generally agreed that only through some type

of a statewide canning pear association could we expect to be in a

position to bargain with the processors on a price for our product.

It was further agreed that such an organization could go a long way

toward eliminating the wide range in prices paid for pears and assist

tremendously in stabilizing the entire industry. That stabilization was

139
badly needed is best emphasized by looking back to 1948 when the

California Bartlett growers received an average of $120.00 per ton for

their pears and looking quickly, but reluctantly, at 1949 when these

same growers sold for an average of $3 1 .OO per ton a crop of almost

the same tonnage as was produced the previous year. It is obvious

that no industry can expect to survive and prosper under conditions

that permit a variation in price of almost five hundred per cent from

one year to the next.

This was so obvious to the grower group that met in

Sacramento that a committee of nine was selected from the various

pear districts in California and this committee was given the task of

developing the type of organization that would best meet the needs of

the pear industry in our state. I was selected as chairman of this

committee and we immediately went to work on what was to be a

monumental undertaking, but one well worth all the time and effort

that went into it.

I would be remiss indeed if I did not pause here to pay tribute

to the men who were elected to my committee and who gave

unstintingly of their time, money, and brains to find the solution to

a problem that so many said could not be solved. They and they

alone are responsible for the fact that a successful pear association

was finally founded in time to bargain with the canners for the sale

of our 1953 crop.

As you can well imagine we were at once confronted with a

multitude of complexities and problems, both small and large. Some

districts wanted to form local associations while others felt that only

through a statewide organization could we achieve the degree of unity

and strength that is essential to success. Our organizing committee

met frequently through the months of October, November and

December.. We adopted the policy of meeting in a different district

each time and we solicited the suggestions and advice of the growers

and handlers in these various districts. By using this method we were

able to learn the many and varied problems each district faced and we

became thoroughly familiar with the entire pear producing industry.

By the last of the year we had progressed to the point where

it was necessary to obtain an expression of opinion from the growers

themselves. We knew that without the support of the producers any

effort on our part to form an association was foredoomed to failure.

140
Consequently it was decided to address a letter to every producer of

canning pears in California.

Our letter outlined in detail the problems confronting the

industry, the work that our committee had done, and it wound up

with two questions: (One) Do you believe that a statewide pear

association is necessary- in order to insure the more orderly marketing

of our annual crop? and (two) would you be willing to sign a preorganization agreement if not less than one hundred thousand tons of

pears were signed in the organization?

The favorable response to our questions was so overwhelming

that the parent body again convened in Sacramento in January of this

year and our organizing committee was reconstituted and given the

very definite assignment of developing and incorporating a pear

association. We were requested to develop the necessary articles of

incorporation, by-laws, and a form of grower-association contract.

Our committee went to work at once and on April ninth we signed the

Articles of Incorporation, adopted the By-Laws, and approved the

preliminary draft of a membership agreement. We had decided

earlier to discard the idea of a pre-organization agreement and to

present to the growers a “one package“ deal containing all of the

essentials needed by a going organization. We further decided to set

as our minimum fifty thousand free tons of canning pears. That is

fifty thousand tons that were not obligated under long term contracts

or bound by contracts with cooperative canneries.

Our next step was to present our proposal to the growers and

start our sign-up. A series of meetings was scheduled and eight such

meetings were held in the eight principal pear producing districts in

the state. The attendance was generally very good and the time,

travel and work put in by my Board of Directors was inspiring. It

was evident that our efforts were producing results as signed

Membership Agreements started flowing into our office in ever

increasing numbers. By June fifth we had passed our minimum

requirements and knew that we were in business to stay. By this

time, of course, the clock and the approach of the harvesting season

were working against us and we were still confronted with the task of

drafting and having accepted a form of canner-association contract for

the sale of our members fruit. This proved to be a most difficult and

complex job. In the first place the canners insisted that district price

differentials be recognized.

141
Perhaps you here in the State of Washington are not familiar

with this particular “gimmick” but I can assure you that we in

California are. I am convinced that the canners were of the opinion

that our new association would quickly founder on the rocks of

“district price differentials.” However, we were determined that no

such problem, difftcult as it was, would prevent us from attaining our

ultimate objective.

A subcommittee of our Board was appointed to study this

particular, and perhaps peculiar question, and this committee, after

much research and study, reported its findings and recommendations

to the Board. Their thorough investigation showed that over a long

period of time different prices had indeed been paid by the processors

for canning pears. We simply applied the formula of a ten year

average taken from the various districts and agreed that this average

would be our yardstick as far as our price demands were concerned.

This formula was accepted by our grower-members with a minimum

amount of argument and a maximum amount of cooperation. It was

this attitude and spirit that made it possible for us to meet and

conquer the extremely difficult problems that then lay ahead.

Various drafts of our canner-association contract were

approved, revised, amended, approved, and revised and amended

again. The suggestions and advice of the canners were earnestly requested. From some we received the utmost in cooperation and

help--from others practically nothing. By the time the Sacramento

River district was ready to pick and deliver pears, we felt that we

were ready to announce our price and ask the canners to sign our

contract.

Unfortunately, we failed to reckon with the “annual

emergency. ” I call it that advisedly as we may just as well make up

our minds that it is with us to stay. One year it’s a shortage of

pineapple for fruit cocktail, the next year it’s a shortage of tin, and

this year it turned out to be a labor dispute. What it will be next year

no one knows--but it’s interesting to speculate about.

Shortly before the strike, our Board of Directors, sitting as a

sales cpmmittee in San Francisco, invited the canners to whom we

sell our pears to meet with us on the question, the all important

question, of the price to be paid for our crop this year. Because of

the anti-trust laws and various other statutes we could only talk to one

cannery representative at a time. These meetings consumed three

142
days. Our Board then met in continuous session to decide on the

price, or prices (based on district differentials) we would request.

There was nothing haphazard about our approach. We

studied the Giannini Foundation’s report, the Nielsen Service report,

in fact all of the economic data we could find. We took into

consideration the size of the 1953 crop, both in California and the

Northwest, the carry-over of both pear halves and cocktail, and then

we wired our proposed prices to the processors. We received one

acceptance, and then came the strike.

From then on--for eight days--we really “sweated it out.”

Pears were ripening fast. Canners were taking non-association pears

into storage, but Association members had no home for their fruit.

Our Board of Directors met in emergency sessions. We lined up

boxes, transportation, and cold storage space, and then we could only

sit and sweat--and we did! After eight agonizing days the strike was

settled. We immediately reoffered our Association tonnage to the

canners at our previous price.

Again only one taker. More emergency sessions of the

Board. Growers becoming desperate--but no break in the ranks. The

Board, after conferences with two or three major canners, agreed to

re-offer our tonnage at seven dollars per ton less than the original

price. Within twenty-four hours this price was accepted, our pears

were sold, and our Association was made.

I have gone into our “birth pains” in some detail because I

understood that you wanted to know how we pear growers in

California formed an association that so many people told us could

not be formed. However, I have purposely left out one very

important detail because this is where you come in. During our price

negotiations with the canners there was one question which we were

invariably asked: “What are you going to do about the tonnage in the

Northwest?” Our reply had to be that there was nothing we could do

about the canning pears in Oregon and Washington because these

states did not belong to our Association.

Now do you see the pattern? Do you get the idea? Since the

processors can no longer play one district in California against

another, as they have done so successfully for so many years, they

now want to play one state against the other. There is nothing new

or startling about this: it’s simply the old idea of “divide and

conquer” coming to the economic front.

143
Are you going to permit this to happen or are you going to

do what we in California have done? Or better still, are you going

to join with us in a three state cooperative effort where every farmer

who grows pears is going to have something to say about what his

product is worth?

The answer lies in your hands. I have always maintained that

the ultimate solution to our present difftculties is one that must be

solved by the growers themselves. No one is going to do it for them.

I am convinced that many of the people with whom you do business

would prefer to see us disorganized and, of course, completely at

their mercy.

To further emphasize what I say about self-help let me quote

briefly from an article written by S. R. Smith of the Production and

Marketing Administration of the U.S. Department of Agriculture in

1950. In pointing out that the assistance of the Federal government

might be withdrawn from Pacific coast pear growers if they refused

to take some steps to help themselves, Mr. Smith said: “Before an

aggressive and well coordinated self-help program can be launched,

members of the pear industry must pull themselves into a tighter knit

group. They cannot forge ahead by pulling and hauling against each

other. They have to come to a realization that, since all have

a common objective, they must all work together.”

When I speak of government assistance I do not want to give

the impression that I am referring to direct price supports for

perishable commodities or to government handouts. I know that

Federal control follows the Federal dollar and I don’t think the pear

growers on the Pacific coast want Washington D.C. to be telling us

what we can or cannot do. I do refer to the assistance we can obtain

through Federal marketing orders and programs, the sale of surplus

fruit to the school lunch program under Section 32 funds, and tbe use

of these same funds for export subsidies.

Just think, for instance, what the return of our pre-war export

markets would mean to the Pacific coast pear industry today. If these

historic outlets could be re-opened, our so-called surpluses would

disappear like magic. Industry committees from California, Oregon

and Washington are now endeavoring to reopen these markets but,

unfortunately, we cannot figure on any appreciable volume of fresh

or canned pears moving into export in the immediate future. The

point is, however, that we are in a much better position to make our

144
problems known and have them properly recognized if we pool our

brains and our resources and approach our problems with combined

and cooperative intelligence.

Now just a few statistics. The Bartlett pear production trend

and percentage canned is of importance in any pear problem under

consideration for the Pacific coast. For example, the five year period

1949-1953 shows an increase in production of 1.5% over the previous

five year period. For the same comparable periods, there was an

increase of 15.5% in the amount canned. In other words, the

increased canned output has more than kept pace with the production

increase by some 14%. The increase in both of the foregoing figures

was in California and Oregon, whereas there was a decrease of 30%

in production and a decrease of 19% in the amount canned in

Washington for the respective five year periods.

The population of the United States has increased seventeen

million since World War II, by almost six million since the start of

the Korean conflict, and we are now a country of almost one hundred

sixty million people. It is expected that we will reach one hundred

seventy-five million by 1960. If we can maintain near the present

rate of consumption per capita of canned pears and canned pear

products, we should not face overproduction. However, the

competition for the consumer’s dollar necessitates our constantly

reminding the retailers and consumers of the virtues of our product.

This is being done by the industry on fresh Bartletts and winter pears,

canned pears and fruit cocktail. Promotion of these commodities is

also being carried on by cooperatives and private companies with

respect to their own brands in both fresh and canned channels of

trade.

The foregoing is encouraging and it looks good if everything

works out just right. But let’s not be too Pollyanna about it. Some

year the bloom and the set may be perfect in all three of our Pacific

coast states. The sun may shine brightly all through the growing

season from Wenatchee to Tehachapi. We may not be beset with

blight, scab, frost, hail and the numerous other diseases and pests

which we combat to a greater or lesser degree every year. Then what

could happen? We could produce a three state crop of fantastic

proportions. The canners and fresh fruit buyers would lick their

chops and rub their hands, and what could we do? Under present

145
conditions and circumstances--nothing. We would fall from the tree

like an over-ripe plum and many of us would be out of business.

In order to forestall such a disaster it becomes apparent that

we must set up the necessary machinery to take care of a price

depressing surplus. We can’t do it on a one or a two state basis: it

must be a Pacific coast program. In a year such as the one I have

mentioned it might be necessary to remove from the normal channels

of trade some ten, twelve or fifteen percent of our production. As

you well know, it only takes a small percentage of over supply to

absolutely ruin our markets and crush our producers. However, if a

comparatively small percentage of an extremely heavy crop could be

properly diverted, it would stabilize our prices and our industry in all

three Pacific coast states.

Solving the so-called surplus problem then becomes very

obviously a mutual problem and one in which every affected segment

of our industry has a very vital part. Can you imagine California

pear growers agreeing to divert a substantial percentage of their crop

in order to stabilize pear prices if Oregon and Washington declined

to do likewise? Can you visualize the producers here in Washington

agreeing to such a program if California and Oregon would not agree

to follow suit? The answers to those two questions are self-evident

and they only serve to again re-emphasize the absolute need for

intelligent cooperation between our three states.

Such cooperation is not unattainable. Again I say--it can be

done. We organized the pear growers in California. You can do it

here in Washington and the Oregon growers can do likewise. Then,

of course, it becomes necessary to select the right kind of brains and

leadership in each of the three states and put them to work and insist

that they solve their differences, bury their prejudices and jealousies

and come up with a program that is acceptable to the producers, the

packers and handlers, the canners, and the consumers. When that

occurs we will be on our way to stability for the pear industry and

security for our pear producers.

In conclusion may I ask you to look into the crystal ball with

me and try to see what I consider to be the modern Utopia for the

farmers on the Pacific slope. What I have had to say here today has

dealt primarily with the pear industry although, as I indicated at the

outset, what the pear growers can do any other commodity group can

do. We have learned, I think, through years of trial and error that

146
cooperative effort yields more satisfactory returns to a greater number

of people than rugged individualism and short-sighted selfishness

brings to the smaller number.

I have been on the legislative firing line and have watched

with concern the effective efforts of the representatives of the socalled basic commodities when the welfare of the cotton, corn, wheat,

tobacco, rice and peanut growers was concerned. I have seen

agricultural laws passed and amended to suit the absolute demand of

this farm bloc in Congress. I have had to sit and suffer as this

legislative steamroller swept by the representatives of our so-called

specialty crops here on the Pacific coast, gathering the cream and the

gravy while we picked up the crumbs.

I don’t have the gift of prophecy and the crystal ball to which

I referred is no more accurate than my vision, but here is what I see.

First of all, an organization of the producers of every one of the

commodities which we grow in such abundance in our three Pacific

states. Then, through an interlocking directorate or an association of

directors of each of these commodity groups, a top board of directors

who can represent effectively the wishes and desires of the growers

who selected them. Then, and then only, we will have an effective

voice speaking for California, Oregon and Washington agriculture.

Then we will have found the way to insure the fact that our I pleas

will be heard, our problems properly and adequately recognized, and

our advice and counsel solicited and heeded. Then, in my humble

judgment, we will have found the way to the economic security to

which every farmer and family aspires.

147
California Food and Agricultural Code

Chapter 2. Cooperative Bargaining Associations

Article 2. Unfair Trade Practices

$54431. Acts constituting

It is an unfair trade practice, and unlawful, for any processor,

handler, distributor, or agent of any such person, or, with regard to

subdivisions (d), (e), and (f), for any cooperative bargaining

association or any agent of an association, or for any other person to

do any of the following:

(a) Interfere with, restrain, coerce, or boycott producers in

the exercise of the rights which are guaranteed pursuant to Section

54402.

(b) Discriminate against any producer with respect to price or

other terms of purchase of any raw agricultural commodity, by reason

of the producer’s membership in, or contract with, any cooperative

bargaining association.

(c) Pay or loan money, or give any other thing of value, to

a producer as an inducement or reward for refusing or ceasing to

belong to, or for breaching one’s membership agreement in, a

cooperative bargaining association.

(d) Maliciously or knowingly give false reports about the

finances, management, or activities of any person subject to this

chapter.

(e) Refuse to negotiate or bargain, including refusing to

comply with the procedure prescribed in Article 3.5 (commencing

with Section 54451), at reasonable times and for reasonable periods

of time with a genuine desire to reach agreement and a serious

148
attempt to resolve differences with a cooperative bargaining

association for price, terms of sale, compensation for commodities

produced under contract, and other contract provisions relative to any

commodity which a cooperative bargaining association represents, or

refuse to negotiate or bargain, including refusing to comply with the

procedure prescribed in Article 3.5 (commencing with Section

54451), at reasonable times and for reasonable periods of time with

a genuine desire to reach agreement and a serious attempt to resolve

differences with a processor for price, terms of sale, compensation for

commodities produced under contract, and other contract provisions

relative to any commodity which the cooperative bargaining

association represents. This subdivision does not apply to fresh

grapes purchased for wine. Also, this subdivision is limited to

processors, handlers, or agents of any of those persons who deal in

fruits, nuts, or vegetables for processing and a cooperative bargaining

association which meets all of the following:

(1) That, under the articles of incorporation or bylaws

of the cooperative bargaining association, the association is producer

owned and controlled exclusively by producers.

(2) The cooperative bargaining association has

enforceable contracts with its members.

(3) The cooperative bargaining association has

financial resources and management reasonably sufficient to

accomplish the purpose for which it was organized.

(4) The cooperative bargaining association represents,

through its own members, a suffkient number of producers or a

sufficient quantity of any particular commodity, or both, to make it

an effective agent for producers in bargaining with handlers.

(5) One of the functions of the cooperative bargaining

association is acting as principal or agent for its producer members

to negotiate or bargain with handlers for prices, terms of sale,

compensation for commodities produced under contract and other

terms of contracts with respect to the production, sale, compensation

for commodities produced under contract and other terms of contracts

149
with respect to the production, sale, and marketing of their

commodities.

(f) Refuse to negotiate or bargain for price, terms of sale,

compensation for commodities produced under contract, and. other

contract provisions relative to any commodity which a cooperative

bargaining association represents. This subdivision only applies to a

cooperative association whose members produce either fresh grapes

purchased for wine or whose members produce any other commodity

not specified in subdivision (e) and which meets all of the following:

(1) Under the articles of incorporation or bylaws of

the cooperative bargaining association, the association is producer

owned and controlled exclusively by producers.

(2) The cooperative bargaining association has

enforceable contracts with its members.

(3) The cooperative bargaining association has

financial resources and management reasonably sufficient to

accomplish the purpose for which it was organized.

(4) The cooperative bargaining association represents,

through its own members, a sufticient number of producers or a

sufficient quantity of any particular commodity, or both, to make it

an effective agent for producers in bargaining with handlers.

(5) One of the functions of the cooperative bargaining

association is acting as principal or agent for its producer members

to negotiate or bargain with handlers for prices, terms of sale,

compensation for commodities produced under contract, and other

terms of contracts with respect to the production, sale, and marketing

of their commodity.

150
654432. Processors, handlers, etc.; refusal to negotiate or

bargain; prior course of dealing

The provisions of subdivision (e) of Section 5443 1 only apply

to any processor, handler, distributor, or agent of any such person,

who refuses to negotiate or bargain, as specified by such provisions,

with a cooperative bargaining association which represents producers

with whom such a processor, handler, distributor, or agent of any

such person, has had a prior course of dealing.

For purposes of this section, “prior course of dealing” means

that the processor, handler, distributor, or agent of any such person

has purchased in any two of the immediate preceding five years a

commodity from a producer which a cooperative bargaining

association represents. However, a processor, handler, distributor,

or agent of any such person is subject to subdivision (e) of Section

54431 if that person has newly gone into business in California by

locating in this state from another state or country, by being created

from other business entities which had a prior course of dealing with

a bargaining association, or by being newly created and utilizing

substantially the same processing facilities as a prior processor which

itself was subject to subdivision (e) of Section 5443 1.

W433. Repealed.

054434. Business done among members of association;

inapplicability of subd. (e) of 954431

The provisions of subdivision (e) of Section 54431 shall not

apply to cooperative associations in respect to business done with its

own membership.

$54435. Negotiation requirements

Nothing in subdivision (e) or (t) of Section 54431 requires

any processor, handler, distributor, or agent of any such person, to

negotiate over any specific period of time, or to agree upon price,

151
terms of sale, compensation for commodities produced under contract,

and other contract provisions relative to any commodity which any

cooperative bargaining association represents. However, nothing in

this section relieves the parties from the requirement to negotiate and

bargain pursuant to subdivision (e) or (f) of Section 54431 or to

comply with the procedures prescribed in Article 3.5 (commencing

with Section 54451) if applicable.

Article 3. Annual Report

W441. Repealed.

[This provision read: l7re director shall

prepare and submit an annual report to the

Legislature on or before January I of each year

regarding the operation of this chapter. It was

repealed in 1992 as part of an act to reduce the

number of reports to the California legislature. The

advisory committee on agricultural bargaining

continues to prepare an annual report which it

submits to the Director of Food and Agriculture.]

$54442. Advisory committee; establishment; membership

(a) To aid in preparation of the report required under this

chapter, the director shall establish an advisory committee consisting

of the following persons:

(1) Six representatives of cooperative bargaining

associations fro:r? names submitted by cooperative bargaining

associations, tvo of whom shall be appointed by the Governor, two

of whom shall be appointed by the Speaker of the Assembly, and two

of whom shall be appointed by the Senate Committee. on Rules.

152
(2) Six representatives of processors from names

submitted by processors, two of whom shall be appointed by the

Governor, two of whom shall be appointed by the Speaker of the

Assembly, and two of whom shall be appointed by the Senate

Committee on Rules.

&4443. Study and report on issues

The advisory committee shall study and report on all of the

following issues:

(a) Unfair trade practices.

(b) Licensing.

(c) Funding.

(d) Investigation and hearing procedures.

(e) The need for a mechanism to resolve bargaining disputes.

(f) Any other issues relating to this chapter.

(g) Any recommended changes to this chapter.

854444. Meetings

The advisory committee shall meet not less than twice

annually.

$54445. Preparation and transmission of report to director at

time fixed by director

The advisory committee shall prepare and transmit a report

to the director at a time fixed by the director so as to meet his or her

obligations under this article.

153
$54446. Report on unfair trade practices; hearings, contents of

report; annual progress report

(a) The advisory committee shall, on or before January 1,

1987, prepare and submit a report to the director who, in turn, shall

report to the Legislature on the effectiveness of subdivisions (a) and

(e) of Section 54431 in successfully aiding the bargaining process

between processors and cooperative bargaining associations. The

director shah include any recommended changes to subdivisions (a)

and (e) of Section 54431 as part of the report.

(b) After receiving the report, the Assembly Committee on

Agriculture and the Senate Committee on Agriculture and Water may

hold hearings on the report.

(c) The report shall, among other things, focus on any

specific abuses of subdivisions (a) and (e) of Section 5443 1.

(d) Annual progress reports on the report shall be submitted

by the advisory committee to the director.

Article 3.5 Conciliation

954451. Order for conciliation; request

The department shall order conciliation between any

cooperative bargaining association and any processor subject to this

chapter if it determines, after receiving a request under the procedure

specified in Section 54452, that conciliation will materially assist the

parties in negotiating an agreement. Either party may request at any

time that conciliation be ordered.

$54452. Request for conciliation; procedure

The following procedure shall be used upon receipt by the

department of a request for conciliation:

154
(a) The request from one of the parties to the negotiation,

referred to as the requesting party, shall be presented on a form

prescribed by the department.

(b) The requesting party shall submit, along with the request,

the last offer made to the other party, referred to as the responding

party, reasons for rejection of the responding party’s last offer, and

an indication as to what the requesting party believes would be

required to reach an agreement. A copy of the request, as well as

any information required pursuant to this subdivision, shall be express

mailed to the responding party on the same day that the request is

submitted to the department.

(c) On the next business day after receiving the request for

conciliation, the department shall notify the responding party that a

request for conciliation has been received. The responding party shall

be required to respond to the department within three business days

after receipt of notification that conciliation has been requested. The

response from the responding party shall include the last offer made

to the requesting party, reasons for rejection of the requesting party’s

last offer, and an indication as to what the responding party believes

would be required to reach an agreement. The responding party’s

response shall be made on a form prescribed by the department. A

copy of the response, as well as any information required pursuant to

this subdivision, shall be express mailed to the requesting party on the

same day that the response is submitted to the department.

(d) On the same day that the responding party is notified by

the department that a request for conciliation has been made, the

department shall notify the conciliation service of the American

Arbitration Association that conciliation may be ordered.

(e) On the date that the department notifies the responding

party that a conciliation has been requested, the department may also

request additional information from either party.

(f) Both parties have three business days after the date of the

request made pursuant to subdivision (e) in which to respond to the

request for additional information.

155
(g) Within three business days after final receipt from the

parties of all information requested by the department, the department

shall determine whether conciliation shall be conducted.

054453. Conciliation process; rules; confidentiality

(a) If conciliation is ordered, the department shall, on the day

the department determines that conciliation shall be conducted, notify

both parties that the conciliation will take place and direct the

American Arbitration Association to commence the conciliation

process in accordance with its Commercial Mediation Rules for use

in California, as amended and in effect December 1, 1988. However,

this article prevails if there is any conflict between those rules and

this article.

(b) Confidential information disclosed to a conciliator by the

parties or by any other person in the course of the conciliation shall

not be divulged by the conciliator. All statements, oral or written,

records, reports, or other documents received or made by a

conciliator while serving in that capacity, or by any other person,

shall be confidential. The conciliator shall not be compelled to

divulge the information or to testify in regard to the conciliation in

any proceeding or judicial forum. The parties shall maintain the

confidentiality of the conciliation, and shall not rely on, or introduce

as evidence in any proceeding or forum, any of the following:

(1) Views expressed or suggestions made by any party

in the course of conciliation proceedings with respect to a possible

settlement of the dispute.

(2) Admissions by any party in the course of

conciliation proceedings.

conciliator.

(3) Proposals made or views expressed by the

156
(4) The fact that any party in the course of

conciliation proceedings had or had not indicated willingness to accept

a proposal for settlement made by the conciliator or other party.

954454. Duties of conciliator; time; recommendation; response

The conciliator shall perform the following duties:

(a) Meet with the parties involved in the bargaining process

in an attempt to resolve the dispute.

(b) Participate in negotiations and have authority to offer

suggestions and recommendations to resolve the dispute.

(c) The total time allotted for conciliation shall not exceed 10

calendar days unless the conciliator feels that an additional period of

five calendar days is likely to resolve the dispute. The determination

of the conciliator on whether to extend the period of conciliation shall

be based on the progress of negotiations during the conciliation

process, the impact of a time delay on the parties, and other relevant

factors.

(d) If a settlement has not been arrived at through the

conciliation process, upon the conclusion of the process and within

the time requirements of subdivision (c), the conciliator shall make a

final recommendation to the parties as to what he or she believes will

equitably resolve the dispute and result in a negotiated settlement.

Each party shall be required to respond to the other party, and to the

conciliator with their position and response to the conciliator’s final

recommendations.

W455. Unresolved dispute; report

If the dispute has not been resolved by the completion of the

conciliation process, the conciliator shall file a final report with the

department within three business days after the close of conciliation.

The report shall include only the following:

157
(a) A factual summary of the events that occurred during

conciliation, including all of the following:

(1) The dates on which conciliation occurred.

(2) The amount of time expended in conciliation on

each of those dates.

dates.

(3) The location of the conciliation on each of those

(4) The names of the individuals present during

conciliation on each of those dates.

(b) The final proposals of each of the parties.

(c) The response, as expressed by each party, to the other

party’s final proposal.

(d) A description of the remaining unresolved issues, as

expressed by each party.

(e) A copy of the original request and response specified in

Section 54.452.

gi4456. costs

All reasonable costs incurred in carrying out the conciliation

prescribed in this article shall be shared equally by each party to the

negotiations.

954457. Annual report

(a) In the report submitted to the Legislature pursuant to

Section 54441, the department shall include a section on this article,

which shall consist of the following items:

158
(1) The number of requests for conciliation.

(2) The number of conciliation cases handled.

(3) The number of conciliation cases reaching

settlement through the process prescribed by this article.

(4) The parties involved in conciliation.

(5) Recommended changes to this article that would

improve its effectiveness.

(b) The report shall not include any information otherwise

confidential pursuant to subdivision (b) of Section 54453.

854458. Violations; penalty

Any person who violates any provision of this article is liable

civilly for a penalty in an amount not to exceed the sum of ten

thousand dollars ($10,000) for each and every violation.

Article 4. Penalties

55446i. Offense; punishment

The willful violation of any provision of this chapter is a

misdemeanor punishable by a fine of not less than five hundred

dollars ($500) nor more than five thousand dollars ($5,000) for each

and every violation. This section does not apply to Article 3.5

(commencing with Section 54451).

854462. Civil penalty

In addition to the penalty which is provided by Section 54461,

any person who violates any provision of this chapter is liable civilly

159
for a penalty in an amount not to exceed the sum of five thousand

dollars ($5,000) for each and every violation. This section does not

apply to Article 3.5 (commencing with Section 54451).

$54463. Injunction

In addition to any other remedies provided under this article,

the director may seek to obtain injunctive relief in the proper court to

require any person subject to this chapter to comply with any

applicable requirement in this chapter.

'L'.S. GOVEIWMENT PRINTING OFFICE:1995-386-160/20016

160
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. The United States Department of

Agriculture (USDA) prohibits discrimination in its programs on the

basis of race, color, national origin, sex, religion, age, disability,

political beliefs and marital or family status. (Not all prohibited bases

apply to all programs). Persons with disabilities who require

alternative means for communication of program information (braille,

large print, audiotape, etc.) should contact the USDA Office of

Communications at (202) 720-7808 (TDD).

To file a complaint, write the Secretary of Agriculture, U.S.

Department of Agriculture, Washington, D.C. 20250, or call (202)

720-7327 (voice) or (202) 720-1277 (TDDI. USDA is an equal

employment opportunity employer.