|
April 19, 2000
Dear Decas Grower:
I feel obligated at this time to share some
of my thoughts with you regarding the cranberry marketplace.
It has always been my policy to make every effort to keep you
well informed in this regard. I try as much as any handler to
do so in an informative and timely manner. You cannot manage
your business or your life without full knowledge of marketing
trends in our industry.
We at Decas have concluded that Ocean Spray
will pay their growers less than $10/bbl. for the 1999 crop.
There are two primary reasons for our conclusions.
The first reason is that Ocean Spray’s
overhead has been increased immensely by their huge surplus.
They have finally admitted to a 3,000,000+ surplus after lying
to the industry, the trade, the Cranberry Marketing Committee
and their own growers by saying that the surplus was all
outside Ocean Spray.
In recent years, this sort of
misinformation has resulted in confusion to the trade and to
the competition, causing a chain reaction of events that has
significantly contributed to the mess we are in today. If they
had triggered the Cranberry Marketing Order or unilaterally
imposed such a program upon themselves one, two, or three
crops ago, they would have saved enough money to pay their
growers an additional $3-5 per barrel per year during that
time, by my calculation. Furthermore, the remaining berries
would have generated more value in the marketplace, also
resulting in greater returns to their growers. Not only did
they choose not to do so, but they also continued to contract
new acres, particularly in Canada, knowing that they had no
market for those berries. This madness on the part of Ocean
Spray continues to this day.
The second reason we calculate a historical
low return to Ocean Spray growers is because of their pricing
practices. Ocean Spray is just destroying the value of all
cranberry products across the board by discounting all
categories to the point where they are virtually giving away
cranberry products, both industrially and at the retail level.
There is nothing left in our industry that can be described as
a value-added product, with the possible exception of fresh
fruit. Everything else we sell has become nothing more than a
commodity. I fear that even fresh fruit will be reduced to
that level with the 2000 crop.
Why are they doing this? What are they
trying to achieve?
I believe that Ocean Spray, as a matter of
strategy, has decided to kill two birds with one stone and get
it done as soon as possible. Whatever the reason or motivation
for them to have accumulated a three million barrel surplus,
they now realize it must be reduced quickly. They also realize
all growers cannot be saved in the process, so by quickly
driving prices and returns to historical lows, growers will be
unable to grow full potential crops and, indeed, many growers
will go out of business while, at the same time, these
predatory pricing practices will gain back market share by
killing off competition.
They believe they can put Northland in
receivership while targeting Decas as their main competition
in the ingredients category. I do not believe they will
achieve either, but they are inflicting a lot of pain on us
and other Independents but ironically mostly on their own
growers.
The volume regulation under the Cranberry
Marketing Order also gives them additional opportunities at
the expense of Independents. This program forces many
Independent handlers with no surplus inventories to
participate in the volume reduction, forcing them to replace
these berries on the open market. Particularly damaged are the
private label companies (Pappas and Cliffstar). They do not
enjoy the benefit of fresh fruit exemptions, but they know
that cheap berries are available to them from Ocean Spray to
cover their needs, if necessary. This protects them, but not
their growers. Without fresh fruit exemptions, our company and
our growers would be denied the ability to compete because
Decas is not allowed to buy Ocean Spray berries at the
discounted levels available to the private label companies. In
their generosity, Ocean Spray has offered to sell us berries
for $39/bbl., while they pay their growers less than $10 for
the same berries.
So the Ocean Spray plan to eliminate
surplus will be done with three fast, hard-hitting steps:
- Destroy growers by destroying returns.
- Use their surplus to kill the competition.
- Use the federal Cranberry Marketing Order to make
everyone dump to solve the problem they created.
The purpose of this letter is not to add to
the endless stream of criticism of Ocean Spray, but rather to
show you the reality of the situation and what you and I are
faced with and need to do to compete in this environment.
In 1997, we paid you at a level of about
32% above the Ocean Spray grower returns. In 1998, you were
paid 85% more than Ocean Spray growers, and for the 1999 crop,
based on what you have already received, we estimate that your
returns will be about 100% over the Ocean Spray return. Paying
twice as much as our competition for berries in 2000 and
beyond is not sustainable. To be competitive that difference
needs to be reduced to reasonable levels.
You have just received a check for $3/bbl.,
bringing your returns for the 1999 crop to $18/bbl. We cannot
be certain at this time if and when we can make an additional
payment for 1999. Any additional payment that may be made will
be made sometime in August or September. I realize that
$18/bbl. is well below your costs, even if it is double the
return to Ocean Spray growers.
While it is too early to predict the
returns for the 2000 crop, I have no basis for predicting the
same returns, let alone higher returns. The surplus has to go
away before things get better. Regarding that, I wish to make
the following points regarding the fact that I believe the
surplus will moderate sooner than expected:
- Growers simply cannot grow good crops and lose money at
the same time.
- I believe Ocean Spray and possibly Northland will
unilaterally reduce their surplus beyond the 15% level
imposed by the Cranberry Marketing Order.
- Ocean Spray will probably wake up and put a halt to new
acreage.
- Adding the above to the volume control regulation, I can
visualize at least a 1,000,000 bbl. reduction in berries
delivered to handlers for this year’s crop, even with
1,400 new acres coming into production.
- 2001 deliveries will decline even further, in my
opinion.
If I am right and the industry begins to
rebound, you will get the benefits of the rebound sooner than
your Ocean Spray counterparts. You must make every effort to
survive in the short term to succeed in the long term.
A few thoughts along this line:
- We, as your handler, are expanding our markets both here
and abroad. We are very diversified. We are well
positioned to take the greatest advantage of the
turnaround when it occurs…and it will occur.
- We are and intend to remain the leading Independent
provider of cranberry ingredients.
- We need every berry you can grow and even more as we
expand our sales. It will not be long before we seek more
tonnage. How aggressive we will need to be will depend on
your ability to fill our requirements. Since Ocean Spray
will not give us the consideration they give other
handlers for purchasing berries, we will simply sign some
of the many Ocean Spray growers wishing to leave Ocean
Spray. This decision will be made late this year, and will
depend on your ability to provide us with the amount of
berries we can sell.
- Do all within your power to get through this period. You
owe it to yourself after all of this hardship to be around
when things become profitable again.
We, as your handler, are investing in the
future. Despite the way things are, we believe in the future.
We are spending considerable sums in the promotion of
cranberries, we continue to invest in R&D to accommodate
new markets with new and improved products, we are planning an
expansion of our production plant, and we plan to build a new
and modern fresh fruit plant to be ready for the 2001 crop.
We will consider any opportunity to develop
strategic alliances with other companies that will result in
successfully expanding our ability to sell more berries. We
anticipate success in this regard in the near future.
Any continued attempt to inflict illegal
harm upon our growers and us will be dealt with in the
appropriate fashion. It would appear at this point that legal
conflicts within our industry are inevitable. Whether such
conflicts will include our company remains to be seen. There
is a limit to what we are willing to endure.
Sincerely,
John C. Decas
May 18, 2000
Dear Decas Grower:
On April 15, 2000 I wrote my growers a letter providing
them with information regarding the state of the industry,
their grower returns for the 1999 crop, and our view of
what’s ahead for the coming year. Subsequent to that I
received, at Ocean Spray CEO Rob Hawthorne’s instruction, a
letter dated May 5 from Ocean Spray’s corporate attorney.
This letter was in response to observations regarding Ocean
Spray made by me in my letter to you. This letter included
language that I took to be threatening. Ocean Spray made their
letter to me available to all Ocean Spray growers several days
before I received it. I have since answered that letter with a
letter dated May 11 and sent directly to Mr. Hawthorne.
While he made the Ocean Spray letter to me available to his
growers, he has not chosen to make my response available to
them. This follows the Ocean Spray tradition of controlling
information to their growers by deciding what they are and are
not allowed to read. My growers, in the meantime, have read
neither, but have heard a lot about the Ocean Spray letter
from Ocean Spray growers.
In order that Ocean Spray growers get a chance to see my
response to their CEO, and to provide Decas growers with the
same information, I am making both Ocean Spray’s letter and
my response public. Unlike Ocean Spray, we do not fear growers
being fully informed.
Enclosed are copies of these letters. I will also forward
these letters to the Cranberry Stressline in order to make
them available to others in our industry who are also aware of
the letter to me from Ocean Spray’s lawyer.
Sincerely,
John C. Decas
Enclosures
May 11, 2000
Mr. Robert Hawthorne
Ocean Spray Cranberries, Inc.
One Ocean Spray Drive
Lakeville, MA 02349
Dear Mr. Hawthorne:
I have just received a letter written by
James O’Shaughnessy, your corporate attorney. It is
regarding a recent letter that I wrote to my growers. In that
letter I stated certain facts and expressed certain opinions
regarding the state of the industry. I communicated what my
growers and I need to do to compete and to survive in this
existing environment.
Because Mr. O’Shaughnessy’s letter was
written according to your instructions, I am responding
directly to you.
This letter was made available to all of
your growers several days before I received it, so I am
assuming that it was more for propaganda purposes than
anything of legal significance. I do, however, take the letter
seriously, and would like to provide you with a serious
response. The problem is that your letter does not adequately
provide any details relating to your concerns.
For example, the Ocean Spray letter says
that in my letter I "…issue a series of false
statements and outrageous accusations…" but fails to
give any specifics. Tell me what was false and outrageous, and
I will respond accordingly. What was the "…pure
manipulation of fact…" that you "cannot
tolerate…"? There was nothing intended to be false or
manipulative in my letter, and I stand prepared to support my
words. I will compare my letters at any time to Ocean
Spray’s grower letters when it comes to an honest assessment
of the facts.
I will remind you, for example, that Ocean
Spray has repeatedly denied having a surplus to their grower
owners. Before you guys lecture me regarding my grower
letters, you should read your own.
The Ocean Spray letter further states that
you "…are fully prepared to set the record straight,
publicly and truthfully…". Then please proceed. Why did
you not do so in your letter to me that you made public?
The Ocean Spray letter suggests that the
surplus damages Ocean Spray while benefiting "commercial
fruit buyers" (Independents). This is a full reversal of
previous Ocean Spray spin. Consider the words of Jack
Llewellyn: "…Ocean Spray has a unique advantage: our
brand equity and stable market, as well as our cooperative
structure, will help mitigate the dramatic fluctuations in
supply which are likely to do damage in the independent
market." You should realize that for the last few years
your predecessors have been accepting unprecedented amounts of
new acreage, while predicting a surplus that will do damage
primarily to Independents while Ocean Spray remains sheltered
by the power of their brand. All this while selling berries
and concentrate to certain Independent juice processors below
Ocean Spray grower returns, even though these companies
compete directly with Ocean Spray. These are examples of Ocean
Spray miscalculations that have led this industry into a
surplus that helps no handler and will destroy many growers.
So now you say that I seek more growers in
order to "…buy even cheaper fruit." One would
think that you would avoid the issue of grower returns, given
the recent Ocean Spray announcements regarding the Ocean Spray
1998 and 1999 pool returns. Since you raise the question,
please explain how my company benefits by paying our growers
less than their costs? This can only result in grower
bankruptcies. With Ocean Spray’s surplus, you can absorb
grower bankruptcies. I can’t. I bet you know that.
You simply do not have the credibility to
question what I pay my growers.
The Ocean Spray letter also states the
following: "We are also reminding our growers that other
companies for decades have fed freely on markets and products
Ocean Spray created, virtually single-handedly."
I will not respond to such an arrogant
statement. I do not need to explain to you or others about my
company’s 65+ year history of serving Massachusetts growers
successfully, and being a dependable supplier of cranberries
and cranberry products to segments of the trade that Ocean
Spray does not serve, as well as those who prefer our service
and quality of product.
This comment has been made repeatedly over
the years, and what it simply means is that Ocean Spray does
not tolerate legitimate competition. My hope that this would
change under your leadership is rapidly fading.
Nonetheless, please understand that I
remain available to address any grievance or misunderstanding
you may have with my company or with me. I am always available
for serious and constructive dialogue. However, be advised
that in the future if you wish to communicate with my company
or with me through your attorneys, have them contact my
attorneys directly.
I believe that while grower letters find
their way into the media, letters between you and me or
between our lawyers should remain private. Since Mr.
O’Shaughnessy chose to violate this code by putting his
letter on the Ocean Spray Extranet even before I received it,
and because many growers have commented to me regarding his
letter, I reserve the right to make my reply public as well.
In conclusion, I want you to know that my
company has always been capable of succeeding in this industry
and will continue to do so in good times and bad. We are also
capable of defending our growers and ourselves. No amount of
name-calling or letters designed to intimidate from anyone’s
lawyer will change that.
Independents have never been Ocean
Spray’s "enemy." Viewing us as such will only
prolong the agony all cranberry growers are going through.
Sincerely,
John C. Decas
JCD/crg
cc: Atty. Bruce Sokler
Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C.
701 Pennsylvania Avenue Suite 900
Washington, DC 20004
Atty. Joe Hameline
Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C.
One Financial Center
Boston, MA 02111
May 5, 2000
Mr. John Decas
Decas Cranberry Products, Inc.
219 Main Street
Wareham, MA 02571Dear Mr. Decas:
I am concerned with your April 19
"grower letter" which was widely disseminated to the
public on the Cranberry Stressline.
Under the pretense of informing your growers
about market conditions and their expected returns, you issue
a series of false statements and outrageous accusations that,
in our view, are designed to damage our public reputation and
interfere with our growers. We expect and accept fair-game
criticism from competitors, particularly in today’s
environment. But we cannot tolerate pure manipulation of fact.
Be advised that we are fully prepared to set
the record straight, publicly and truthfully. We are making
sure our growers understand the possible profit motives of any
competitors voicing such falsehoods. Unlike commercial fruit
buyers, we cannot possibly benefit from surpluses and lower
grower returns. Indeed, if we were to lose members, your
company could benefit from having a bigger pool of growers
from which to buy even cheaper fruit.
We also are reminding our growers that other
companies for decades have fed freely on markets and products
Ocean Spray created, virtually single-handedly.
These are trying times for the cranberry
industry, and the surest way out – for Ocean Spray and all
players in this industry – is by growing demand and
establishing new markets. We have survived difficult times in
the past, and we will survive the current upheaval. We already
have begun the changes necessary to turn our business around,
and we will continue to focus our attention on building our
brand.
In doing so, and as we compete vigorously in
the marketplace, we will be guided by the highest and fairest
of principles. We would hope that you would do the same.
Sincerely,
James S. O’Shaughnessy
|