1/5/01 -- Participants in yesterday’s MA Cranberry Market Outlook Seminar all said they would work together to stabilize the industry and return it to profitability, but as each clarified his position, the divisions among them were striking. The audience at the Plymouth Sheraton was large and very attentive throughout the entire long afternoon. Moderator Jim Putnam of First Pioneer Farm Credit kept a tight rein on both speaker’s time allowances and their civility, after opening the meeting with three stated purposes: to look for solutions, to learn, and to come together.

The meeting began with information on the progress of the federal market assistance program from Jeff LaFleur, CCGA. At least 1 million bbls. (possibly more) will be removed from inventory in 2001 because of government purchases. Dave Farrimond from CMC followed with a report on the status of export promotion in both Japan and Germany. He mentioned that in fact more diverse products utilizing cranberries are available in Japan right now than in the US (which may suggest something about marketing efforts here at home). He also summarized rules changes to the marketing order being considered at present, such as expanding CMC from 7 to 9 members plus 1 public member, making the recommendation to the Secretary of Agriculture by March 2 (stating that last year’s deadline was too late for growers) and having the sales history reflect the best 4 out of 7 years crops. Full details available on the CMC website (link here).

USDA Senior Economist Kevin Kesecker followed with an examination of how the present situation in the industry came about (including depressingly vivid charts for illustration). Some of his main points and predictions:

• production and yields will continue to increase rapidly, even beyond the highs on the graphs
• production will not level out
• demand has stagnated since the peak demand year of 1996 
• there has been a 69% drop in the value of fruit produced
• exports have increased from 6% to 16% of sales

Kesecker said that "like other commodities, the success of the cranberry industry may depend on how well it can develop and maintain export markets." He noted also that " 8.6 million bbl. production per year is possible given current acreage."

Economist Ed Jesse, present via speakerphone, asked the question "Can this industry live with the current acreage or does some acreage have to be abandoned?" Jesse also delineated the 2 options that the present marketing order allows for restricting volume: producer allotment or handler withholding. He then covered what he views as the pros and cons of each (see CMC website for details). Two interesting points of Jesse’s presentation were:

• every 100,000 bbl. Reduction in the total supply should trigger a price response of $.70 to $1.15 per bbl.
• bringing the total supply to around 7 million bbl.. should result in $30-35 berries

Short presentations by each of the handlers came next led off by Dean Pappas of Clement Pappas Inc., the which purchases about 5% of North America’s cranberries. He expressed a strong commitment to bringing the industry back, but in terms of his company’s inventories, "We are in balance." Clement Pappas does not have a surplus and since Ocean Spray dominates the industry, until they increase returns to growers, "the rest of us can’t." He also said that if a marketing order will damage Clement Pappas, Clement Pappas will oppose it and right now the industry does not have the information to make the February 5^th decision His view is that the industry handlers should meet with their growers, then meet together to develop a unified position (which they are legally allowed to do under Section 608). But the bottom line is that "we won’t do anything that damages our growers’ positions."

Robert Gioia of Cliffstar followed, vowing to "work with all parties" since this cannot be solved without dealing with current inventories. He feels that the producer allotment part of the marketing order is "fundamentally flawed," is "puzzled" over the continued plantings in North America, and would support a proposed handler withholding.

John Decas of Decas Cranberries identified himself as a "free market man" who believes "the marketplace decides all things." In his view "prices right now are artificially low;" growers do not have to be getting as little as they are. He feels a producer allotment option is "dangerous" and that the handlers can solve this themselves if put in a room to do it. He also has a proposal for significant changes within the CMC itself (see Decas proposal).

Robert Hiller Sr. of Hiller Cranberries wants to keep the fresh fruit exemption at least for 2001 but "our biggest problem is surplus berries." He agreed with the previous speakers that a plan must come from the handlers for dealing with the surplus accumulated from previous years. He closed by saying "Remember, those who control a majority of the supply usually control that market," an apparent reference to Ocean Spray’s role in the surplus.

John Swendrowski of Northland Cranberries identified himself as a grower and disagreed with previous speakers by defining this as a grower not a handler problem: "We just have too much supply" and "This is a consequence of the CMC not acting 3 years ago." He projects a 6.8 million bbl crop for 2001 and claims that Ocean Spray’s proposal does not go far enough to fix the situation.

John Wilson and Jack Crooks of Ocean Spray Cranberries Inc countered as proponents of a producer allotment marketing order for this year, enumerating the steps Ocean Spray is taking to bring consumer demand back into a growth pattern. Ocean Spray’s position is that the major growth in acreage has been on the Independent side, not the cooperative’s (OS plantings constitute 26% of new acreage as opposed to the Independent’s 41.2%). He also defended Ocean Spray’s position that the carryover needs to be larger than it has been in earlier years (which the other handlers dispute) due to "changes in the industry."

A written question and answer period followed and some of the more relevant (but not necessarily encouraging) points made during the process were:

• John Decas noted that only Ocean Spray and Northland will be getting the bulk of the benefit of the government money because they are the only handlers large enough to bid competitively for the juice segment of the federal purchase.
• To the question of why all parties don’t simply agree to fix the price at $40/bbl and dump all fruit they can’t sell, Dean Pappas noted that handlers cannot "fix" the price due to anti-trust statutes. John Decas added that this would simply provide an opportunity for Canadian fruit to come in and "cash in."

Is there a way to pay growers NOT to produce for 1 year? Not in this marketing order, although that might be done outside the order via agreements between growers and handlers (a prospect difficult to envision to say the least). The marketing order under which cranberries operate does not contain any provision for paying a grower not to produce, although there is in another commodity, e.g. milk.

Why won’t USDA allow growers to take acres out of production, for example for 10 years, and then get paid for doing so? Again, that provision does NOT exist in our marketing order. [USDA does have a Conservation Reserve Program (CRP) in place which growers could use, but the amount paid is only $100/year].

In regard to the question of the necessity of creating consumer demand and the dollars needed to do that, John Swendrowski said that begs the question "Do we need a bigger player in the industry?" and answering his own question, he said "more money never hurts."

Robert Gioia added that "we don’t have the guns to pull it off in the US beverage industry – growth will have to come in exports."

What if the industry develops a permanent excess supply? Would we then utilize annual marketing orders to control it? Both Ed Jesse and Kevin Kesecker stated that this is neither a good nor a workable idea.

Using NAFTA, can we impose a quota or restriction on imported cranberries? Both Jesse and Kesecker viewed this as highly unlikely (politically unpalatable).

In talking about the fact that part of the problem is that handlers are competing over market share that already exists instead of expanding market share, John Decas stated that a handler "seeking market dominance not market share is what’s killing this industry" -- apparently a thinly veiled reference to Ocean Spray’s expressed attempt to bankrupt Northland.

Can’t bog building be stopped cold, at least until the supply/demand equation comes back into balance? The answer is "no:" neither USDA nor anyone else can stop people from building bog if they choose to do so.

Instead of price fixing, couldn’t a "floor" for the price of cranberries be established (set at the cost of growing a crop)? USDA does this with other commodities, why not cranberries? The answer again is "no:" the fruit and vegetable marketing order under which cranberries operate does not have this provision, as for instance milk does.

John Putnam then asked for brief closing statements from each handler:

Ocean Spray’s position is that facing a deadline of February 5 for this year’s request for a marketing order, "we should use the tools accessible to us in the current marketing order" and go for a producer allotment.

Northland Cranberries’ position is that we can do nothing and get $5/bbl, do part way as Ocean Spray suggests and get $15/bbl or fix the problem; "we will support any plan by anybody that will result in $40 pricing that’s fair to everybody." (see Swendrowski Op-Ed)

Hiller Cranberries supports working "closer together."

Decas Cranberries feels that an "environment of compromise is possible."

Cliffstar Corp will support a plan however they disagree with both Ocean Spray’s plan and with the February 5 deadline.

Dean Pappas feels there is "more commonality" than it may appear but "why put ourselves under that February 5^th deadline – there are better options out there."

John Putnam thanked all participants and noted that the years in which the handlers operated most profitably were also the years of greatest profit to growers – a situation he is hopeful may return soon.

Related: John Decas' proposal |||
John Swendrowski's Op-Ed |||
Patriot Ledger article on the Market Outlook Seminar