1/12/01 -- The recent proposal by John Decas defines surplus as the amount of inventory that each handler has left over from the prior year's crop at the end of December. To calculate surplus the handler would report the amount of August inventory (from the prior crop) a handler has remaining on December 31 (after harvest of the new crop). In this proposal, handlers would be responsible for disposing of fruit and handlers without inventory at the end of December would not be subject to the Volume Regulation. Note: This analysis was sent directly to John Decas.

This proposal is fatally flawed and would not benefit growers because:

1. It would encourage handlers to dump fruit at bargain prices in December so they would have no inventory, avoid destruction costs, and get something instead of nothing for the fruit. This would further depress prices.
   
2. It would cause the destruction of fruit in freezers without recouping freezing and storage costs.
   
3. Growers would incur costs to grow their entire crop without regard to whether they would be paid for it.
   
4. Costs for reducing the surplus would not be born by all growers or handlers.

Instead of helping the situation this inventory-based method could potentially drive prices even lower than they are today.

Handlers with inventories are being singled out as the cause of the surplus, but it's not that simple. Some handler/processors only handle less than what they need and buy the rest from other handlers. Some handlers who exercise restraint in the marketplace are more likely to have inventories, while those that sell at distressed prices to rid themselves of the cost of carrying inventory will not. In this situation, handlers with inventory contribute to price stabilization while those without inventory contribute to driving prices down. It's the total amount of fruit available - crop plus inventory - which is the problem.

From a fruit buyer's perspective, this proposal will reduce the costs of fruit because fruit buyers will wait for the 'fire sales' by handlers who are looking to avoid having to dispose of fruit for nothing. In addition, by buying last year's fruit at a deep discount the fruit buyers will naturally be buying less fruit from the current year's crop, thereby further extending the surplus into later crop years. Ultimately the proposed inventory-based method may be worse for growers than doing nothing. The surplus would be perpetuated.

In addition to lowering prices, there are other issues to consider:

• It is more cost effective to not grow the fruit in the first place than it is to grow an entire crop only to find out 15 months later that payment will not be made for some portion of it.
  
• The cost of recovery from surplus would not be equitably distributed among growers.
  
• Cheating by growers may be replaced with cheating by handlers who could set up sham sales at the end of the year to reduce their inventory.

Most importantly, the proposed method is not legal under current regulations. Even if the proposal had merit the process to implement this or a similar proposal would require 18 -24 months and entail formal rulemaking. This would not be completed in time to address the 2001 crop. It's imperative we stay focused on what is legal, economically proven, and achievable for 2001. The industry cannot afford to lose another year in the recovery process.

This proposal and others coming forward all deserve examination, as do all possible solutions to the surplus. However, it is important that we do not lose sight of the very powerful tool growers have available now with Producer Allotment. There may be good reasons to join together as an industry to lobby the Secretary of Agriculture with growers, but this proposed Marketing Agreement is not one of them.