Ocean Spray, others need to strike agreement on details of 2001 crop limit

By Jack Crooks, Director of Grower Relations, Ocean Spray

This article appeared on the Ocean Spray Grower Extranet Wednesday, Feb. 21 and is reprinted by permission.

The clock is ticking.

With barely two weeks to go before the Cranberry Marketing Committee (CMC) reconvenes to decide on a proposed second-year limit on cranberry production, Ocean Spray is determined to strike a compromise that best serves the interests of growers and handlers throughout the industry.

We're cautiously optimistic that the industry will come to an agreement at the March 4 CMC meeting, but past experience has taught us not to take anything for granted. Through daily conversations and a series of subcommittee meetings between now and the decision day, Ocean Spray is pushing hard for a compromise.

For the moment, there is a general consensus that another volume regulation (a) is needed, and (b) that the best way to achieve it is through a "producer allotment." By limiting up-front the volume of fruit that's delivered, growers and handlers avoid some of the unnecessary costs of growing, harvesting, receiving, processing and then dumping fruit.

Two key questions remain on the table, however, and Ocean Spray is determined to work with committee members on an agreement that best serves the interests of cranberry growers and their respective handlers. Those two questions are:

1. What's the right amount of fruit to cut from the 2001 crop?
2. How can handlers who don't have a surplus be assured they can get the fruit they need at fair-market prices?

The CMC's answers to those two questions -- and its decision on March 4 -- will help determine the fate of all cranberry growers for the foreseeable future. A unanimous or even near-unanimous vote from the CMC would send the strongest possible signal to the Secretary of Agriculture that this is the best course of action for all growers.

In an effort to reach a compromise that addresses lingering concerns expressed by growers and committee members, Ocean Spray has shared with the committee our perspective on those two questions. Following is a summary of that information:

While estimates have ranged broadly -- from 25 to 50 percent -- Ocean Spray’s position going into the CMC meeting earlier this month was that a 25 percent volume regulation was sufficient to absorb the surplus. In the interest of compromise, Ocean Spray increased its proposal to 35 percent, based on an estimated marketable quantity of 4.8 million barrels of cranberries.

Ocean Spray's estimate includes sales of fruit to independent handlers, a one million barrel industry-wide purchase by the USDA, a two million barrel industry-wide carryover for the September to December sales period, and enough fruit to support growth initiatives.

Our view is that the cut in supply must be big enough to eliminate the surplus inventory, but not so big there isn’t enough fruit to support demand-building investments already under way or about to be launched. While we believe a 25% - 35% reduction in the 2001 crop would bring inventories in line with demand, any reduction higher than that -- and certainly the 50 percent proposal -- would seriously jeopardize demand-building efforts by all handlers.

There are a lot of variables to consider, including domestic and foreign sales projections, the success of new products, proper carry-over inventory, the volume of the USDA purchase, and most important, the impact on prices to growers. The use of economic models is helpful, but we must remember these are all only estimates.

Put another way:

• If the reduction is too small, then some recovery occurs but the recovery may not be quick enough for many growers. Growers need relief now.

• If the reduction is too severe then handlers’ efforts to increase demand through new products, heath-based promotions, and overseas markets will be compromised. The marketplace may seek alternatives to cranberry ingredients if prices rise too quickly.

It's also important to re-emphasize that crop reduction must be coupled with industry growth to solve the surplus in a sustainable way.

How can handlers who don't have a surplus 
be assured they can get the fruit they need at fair-market prices?

There are handlers who only source some of the fruit they need and purchase the rest from the market. There are others who have no surplus. Under a volume regulation these businesses have legitimate concerns regarding the availability of fruit supply.

Many different proposals to meet those needs were looked at over the past few weeks. Most options were not supported by the current regulations and were therefor unavailable for the 2001 crop. Two options are still on the table:

• Contracts between those who will have inventory and those who will not
• The establishment of a reserve pool under some enabling legal structure

Ocean Spray is pursuing what we believe to be the simplest and most straightforward approach – one-on-one contracts. On Monday, February 12, Ocean Spray sent a letter to the four handlers who will have the greatest need for fruit. The letter described the following basic terms if there is a Producer Allotment volume regulation:

-- 350,000 barrels of fruit will be set aside for purchases above and beyond what Ocean Spray usually sells to handlers

-- Fruit will be available when a handler's needs are greatest – March ’02 to December ’02

-- Price will be the average of the last two sales of a like kind and quantity of fruit as evidenced by audited invoices

-- A ceiling of no more than $35 per barrel will be established

The second option establishing a pool from which handlers could purchase fruit is as yet an unknown. There is currently no specific mechanism to evaluate. Ocean Spray is committed to working with the handlers to explore the feasibility of this approach, and expect to be discussing the option at a meeting with other handlers next week.

The number of factors to weigh makes for a very difficult decision, yet the price of getting this wrong is extreme. Too much or too little crop reduction, and there are major ramifications for growers and handlers.

The choices before the CMC are as tough as any the industry has faced since 1959. Mistakes were made by Ocean Spray and every other player in the cranberry industry; too many acres, too much fruit, and not enough market growth.

With this volume regulation, we have the tool in hand. Let's agree to make the right choice, use it properly and move forward.

This is a great responsibility not only for those who will sit at the table and vote on March 4^th, but also for every grower and all handlers. We need to be united in this. There is a new administration in Washington DC, and untested waters for Marketing Orders. If we work together, we can succeed for the benefit of all and get to a better place quickly, and in a sustainable way.

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