October 7, 1999

Dear Decas Grower:

Many of you are asking me to estimate the return on the 1999 crop now being harvested. This is a reasonable request for information necessary to make appropriate decisions regarding your business and your budgeting. In past years we have been able to make reliable projections prior to harvest, and would always do so as a matter of practice.

A year ago at this time we were telling you that the market and berry prices were in decline. Indeed, I was renegotiating our fixed price contracts accordingly. This was difficult for me because Ocean Spray, as well as some Independents were projecting grower returns for the 1998 crop at levels greater than $60. I felt at the time and told you that $45-50 was a more reasonable expectation. We now know that my estimate was off by about $10/bbl. and that Ocean Spray and the others were off by about $30. Ocean Spray did not inform their growers about the reality of their situation until a few days before Christmas, and their news has become progressively worse since then.

Your return for the 1998 crop, as low as it has fallen, is still a better return than that received by over 90% of all U.S. and Canadian growers. If we didn’t have to invest in expanding our 1999 sales to compensate for the loss of the 80,000 bbl. Cliffstar contract, we would have done better. The one thing I must do for our mutual long-term protection is to hold and build market share. You need to realize that to do so we must sell at the significant discounts being offered by those with surplus fruit. Storing berries in a freezer is not an option. The handlers who will survive and be in a position to prosper when things turn around will be those with the lowest inventories. At present, we are buying extra berries from other handlers, and will likely need to do so again next year. We hold no berries that are not needed. We intend to keep it that way.

With all this as a background, I must tell you that I am not prepared to predict a return for 1999 process fruit. Predictions are difficult in a volatile market. I can tell you that 1999 returns assuredly will be less than the 1998 returns. I do not wish to say anything that will raise unrealistic expectations, nor do I wish to present a worst case scenario that might contribute to taking the price lower than it has to go.

I feel, however, that I have an obligation to present you with some facts in order to give you a sense of the magnitude of what we are up against. Consider the following:

1. The 1999 North American crop, in combination with existing inventories, will be between 9-9.5 million barrels. This means that there are about 3.5 to 4 million barrels of available berries that cannot and will not be sold in the next twelve months. I cannot comprehend why some handlers continue to extend new acre allotments.
2. Somebody owns or is going to own the berries that can’t be sold. Most of these belong to Ocean Spray and Northland. Handlers that hold the surplus believe that selling at any price is better than storing. They are the price cutters (see the enclosed announcement). For a handler like Decas, the choice is to meet these prices or lose our market share. I have no control over the force of the surplus and its effect on the price of cranberries. I must meet it or get stuck with unsold berries.
3. Contrary to what some of you may believe, the Cranberry Marketing Committee cannot enact a quantity control program on the 1999 crop. The question becomes, does a consensus exist for an agreement among industry leaders for a year 2000 program? There will be a so-called summit meeting on November 22 to determine if a consensus among handlers can be reached. I hope and expect that Ocean Spray is willing to engage in a meaningful discussion. Without their genuine participation, we may as well not hold the summit. We all need to maintain an open mind.
4. Despite the low cost of berries, sales remain flat. It is most disturbing that many retailers are not reducing prices in accordance with the low cost of the raw material. They seem to be taking advantage of the situation in order to greatly increase their profits on existing sales, rather than build greater sales by passing on the discounts to the consumer. Others simply refuse to return more cranberry into their drink products after having greatly reduced the cranberry content when prices were high. Some drinks labeled as a cranberry product actually have less than 1% cranberry in their formulation.
5. Ocean Spray is in the process of major changes. It is unclear at this time whether or not they will sell, merge or re-invent themselves. They are under lame duck management and, like the rest of us, their resources are very limited. It is no longer Crave the Wave; it is now Save the Wave. When Ocean Spray is in decline, the industry is in decline.
6. The market will expand through export initiatives, but this effort will take time and money and will not immediately help reduce a surplus of this magnitude significantly.

All of this is extending the surplus into the prolonged future. It would seem that reduced crops caused by grower losses will contribute to reducing the surplus more than increased sales. I hope that I am wrong about this. But it seems to be the direction in which we are heading.

The bottom line with Decas Cranberry Sales, Inc. is that in terms of new products, expanded sales and an aggressive export program, things are all going well, but the price of berries is low and may be getting lower. And while I am not able to reliably predict a grower return for the 1999 crop at the present time, I will make every effort to do so by sometime in December. I am certainly hopeful and most confident that we will keep you in the top 10% of grower returns for 1999 and beyond.

Do not think for a moment, however, that I do not realize that your returns are lower than your costs. We make every effort to convey this to the trade, but the downward pressure resulting from the surplus keeps this message from having any effect.

Please call if you have any questions.

Sincerely,

John C. Decas

JCD/crg

Enclosure