May 2, 2000
Dear Northland Growers:
It appears that the Department
of Agriculture will implement some form of marketing order for
the 2000 crop year. Jerry Bach, Dave Lukas, and John Stauner
have been meeting with many of you individually reviewing the
current recommendation by the CMC and its impact on your
individual properties.
According to reports, Ocean
Spray has announced that it anticipates a final price
of approximately $10.50, including average incentives
for the 1999 crop. Your contracts with Northland are at Ocean
Spray base price plus $3.00. Thus, it appears that if
Ocean Spray reaches its target for the 1999 crop, your price
for the 2000 crop will be in the $11.00 to $12.00 range.
Unfortunately, Ocean Spray is
not a SEC public reporting company and most growers are not
financial analysts. Thus, Ocean Spray’s performance does not
receive the same level of public scrutiny as Northland’s. If
it did, the question that would be asked is whether Ocean
Spray’s management really earned the proposed $10.50 a
barrel for their grower?
In looking at their annual
report under "New Accounting Pronouncements" and
footnote #10 (copies attached)* it appears as though, due to
Accounting Pronouncements, Ocean Spray will expense $25.5
million in its current fiscal year. According to the 1999
audit report by Ocean Spray’s outside auditors Deloitte
& Touche, Ocean Spray also expensed over $58 million in
deferred charges in 1997-99 to comply with the Generally
Accepted Accounting Principals.
However, you should note that
for "pool accounting," which it appears is not
subject to audit, these costs are being "expensed"
over 5 years. Thus, over $83 million in expenses are being
spread out over 5 years at the grower level. If you divide $83
million by 5 million barrels you get an expense of $16.60 per
barrel or $3.32 per year for 5 years.
So, did Ocean Spray really even
earn $10.50 per barrel or did their "clobber the
competition" attitude lose money per barrel if you
expense the charges as they occur?
Do Ocean Spray’s growers
actually realize that over five years they will be paid $3.32
per barrel less than they otherwise would earn per year
because of this "pool" accounting ($16.60 ÷ 5 years
= $3.32 per year). Remember, this has nothing to do with and
is in addition to the $10.00 overpayment for the 1998 crop.
This is a burden above the repayment plan for the 1998 crop.
It is the result of delaying the charge under the pool
accounting instead of treating it the same as their audit
report.
Obviously, the marketing order
combined with the price per barrel can only be described as a
disaster for the grower. It is inconceivable that a 20% to 30%
oversupply can cause an 80% decrease in value. Basic economics
would dictate that by simply holding or disposing of excess
supply, the base value of the commodity would only be reduced
by the same 20% to 30%.
Someone recently gave me the
following puzzle to solve: 1) 1997, 6,000,000 barrels, $60 per
barrel, $360,000,000 payments to growers. 2) 1999, 7,000,000
barrels, $10 per barrel, $70,000,000 payments to growers. 3)
Where did the $290,000,000 go?
We do not understand the
economic decisions of the industry leader that controls 70% of
the commodity. We do understand that Ocean Spray’s decisions
establish the value that we can all expect since its actions
in fact establish market value. It appears that those in
control at Ocean Spray have decided to pursue a "Market
Share At All Costs" philosophy as a means of dealing with
the oversupply. This attitude is perhaps one way to explain
why an 80% decline in the price of a commodity results from a
30% oversupply. It also is the answer to the puzzle.
Many of you have called and
offered to join in a civil lawsuit against Ocean Spray. Many
of you have asked if Ocean Spray’s actions are legal.
We cannot tell you if its actions are legal or illegal.
Ultimately, only a court can decide based on the facts in the
case. However, we believe that events may have occurred that
are worthy of review by a jurisdictional body.
At this point in time, if you
feel that you are being wrongfully harmed, you are certainly
entitled to contact the appropriate jurisdictional agencies to
request an investigation into these facts. In response to your
requests, the appropriate agencies are as follows:
Antitrust Division
U.S. Department of Justice
950 Pennsylvania Avenue
Washington, D.C. 20530
(or contact via webpage at www.usdoj.gov/atr/contact/emails.htm
)
Richard G. Parker
Federal Trade Commission
Bureau of Competition
6th and Pennsylvania
Avenue, NW
Washington, D.C. 20580
We are all faced with a crisis
that will challenge everyone’s financial resources. You can
be assured that Northland will continue to market your
cranberries to the best of its ability. We believe we can
survive as long as anyone in this industry and we fully intend
to do so. We can and will "play the game" of
"Last Man Standing" that has been initiated by Ocean
Spray that believes it is the only one entitled to be in the
business.
We recently took a $27,000,000
charge against our cranberry inventory and put our major
problems behind us. We are ready to compete and fully intend
to be "standing" in the end. We
Northland Growers will be
unnecessarily bruised and scarred, but growing up in Racine,
I’ve been in street fights before. We will not run from this
fight and we will take every action necessary to prove that we
have the right and the will to compete.
Northland is in the initial
stages of analyzing strategic alternatives through its
investment banks. We are simply doing the same thing many of
you are doing – exploring alternatives. We want to know all
of our alternatives as we prepare for this fight. Very much
like you, we are ready to make the tough decisions to ensure
our long-term viability as a profitable entity.
We have made the decision to
basically let the cranberries grow themselves in Massachusetts
on our properties. We have cut back full-time employees and
will hire minimal seasonal workers. In anticipation of
implementation of the marketing order, we evaluated our most
economical choice for reducing our production in line with the
marketing order. We concluded that our Massachusetts
properties were our best choice to cut back due to yield and
the costs of running the properties. We expect many more
strategic decisions as we plan our future.
We will do whatever we can to
help you in your right to be left standing. Just like
Northland, you need to pursue every financial and governmental
avenue available to protect your interests. Take actions,
don’t just complain. Your voice and pen are important to
solving the problem – USE THEM! USE THEM NOW!
Feel free to call with any
comments or questions.
Sincerely,
John Swendrowski
Chairman & CEO
*Ocean Spray growers can read the Annual Report on the
ExtraNet
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