How Farmers Cope with Setbacks:

 

Part II

Whither Capital? Whither Labor?

by Tom Gelsthorpe

In the 1930’s, John L. Lewis, leader of the United Mine Workers and a founder of the Congress of Industrial Organizations, said, "Without organization, the working man is helpless. Without organization the working man has no protection against the depredations of capital."

At that time, the Great Depression had left millions of industrial workers without employment. Millions of farmers had also been devastated, first by dropping commodity prices and later by the dustbowl and loan foreclosures. The rising productivity of improved farm machinery drove down farm prices and farmers assumed greater debt to buy more land and machines, only to see costs rise faster than productivity and crop prices fall even faster. Even the dust bowl was largely manmade, as farmers overworked prairie soils in a losing battle to chase declining commodity prices by planting more and more land. As readers and movie viewers learned in The Grapes of Wrath, lenders who foreclosed failed farms—the "capital" John L. Lewis referred to—were often seen as the primary villains in the eyes of both farmers and the general public.

Cranberry growers are in distress as crop prices fall and blame circulates. Ocean Spray blames "surplus;" other handlers blame "processors;" everyone blames "competition" and the "marketplace."

Is the surplus an act of God? Or is it bad planning—excess planting stoked by overoptimistic sales forecasts? Are processors and retailers "capital" who victimize farmers by cutting prices? Is the marketplace an inhuman phenomenon that nobody can control? Is this mess a natural disaster or a failure of organization?

Whenever prices change abruptly, someone gets hurt. Farmers are most vulnerable to commodity price swings for the reason that crops are perishable. The farmer needs to sell ripe fruit more urgently than any buyer needs it at any particular time. Farmers depend on local growing conditions and buyers in the same way Lewis’s mine workers depended on a vein of coal in a particular region, a contract to sell that coal to a particular customer or the ability of a capital source to keep a mine operating. In that sense, the farmer resembles "labor."

In other ways, the farmer resembles "capital." He/she generally owns land, a costly array of equipment, has a sizable repertoire of technical skills and makes complex financial decisions. Ocean Spray growers are stockholders in a corporation describing itself as a "marketing cooperative" that supposedly pays growers not just a commodity price for raw fruit, but delivers profits from the "value added" by processing and marketing cranberry products. If the Ocean Spray grower is both capital and labor, why is he receiving less money than the independents? What happened to the "downstream profits" for the shareholders? Why is Ocean Spray management—supposedly employees—calling the shots for the stockholders, rather than the other way around? Above all, why does it seem so easy for handlers, marketers and retailers to divide-and-conquer the growers—to pit region against region, cooperative against independent, big grower against small? Why does it seem inevitable that when production surges, the primary producers suffer most?

Without production of fruit, there would be no potential profits for anybody. It is in earning profits that the value of "organization" is most crucial. The "market economy" in which we compete is a loosely organized system in which individual businesses are tightly organized, usually focusing on a particular niche in the larger market. Businesses that earn the most money usually do only a few things very well, establishing a "point of difference." In the food business, this usually entails a "brand name" which commands consumer loyalty over decades by delivering consistent product quality and articulating a coherent marketing philosophy with a simple, engaging, repetitive advertising message.

Until recently, cranberry growing was profitable because it had a market leader, Ocean Spray, who was highly focused on defining and dominating the cranberry product category. Smaller "independent" cranberry companies thrived by taking a modest share of sub-niches within the overall category, based on an assumption that Ocean Spray could afford to advertise and promote for the whole industry. Then Ocean Spray decided it would tackle "the beverage business" a much larger, more capital-intensive category than the cranberry business. Competing with beverage giants requires more capital than the cooperative can muster. The leader has flagged and the followers, too, seem bereft without the big coattails to ride upon. Even Northland is complaining that Ocean Spray hasn't opened new markets, but forced all cranberry companies to compete for the same markets. Did Northland suppose -- as many Ocean Spray growers seemed to -- that the money river for any conceivable marketing venture would never run dry?

In a chaotic situation such as this, when a formerly reliable leader has bumbled, each subsidiary interest feels more comfortable blaming somebody else. Quarrelling and fingerpointing might make people feel good, but only renewed leadership -- the crucial component of effective organization -- will get all the berries sold; and only getting all the berries sold will restore profitability to the grower. For management and handlers to divide and conquer, for growers to take the baits of regionalism, big vs. small, etc. -- only creates greater opportunities for hungrier, more organized scavengers to mop up. Fellow growers, let's keep our wits and our morale high and figure out how to come out on top!

Part III "When a buffalo falls, the jackals feast." 

Most of you have seen wildlife documentaries and noticed how little mercy nature shows for the bumbling, the weak or the careless. The most formidable animals, however robust and confident they feel, are only lunch for a determined predator, should their determination for self-preservation falter. Only the largest creatures are considered to be without "natural enemies" and even they are vulnerable when young, old or sick. Predators, we are told, serve a function in nature by culling the infirm. No matter what their niche, wild animals are notoriously unsentimental -- the constant struggle to survive precludes emotional luxuries. Note too, of the true predators, not lions and leopards, but smaller opportunists such as the doglike jackals are most numerous. With their ability to work as a team, jackals can even drive lions from a kill, then gorge on what remains. Even the Cape Buffalo, with its massive horned head, bad temper and ability to charge, is nothing but fresh meat to a determined pack of opportunists. One stumble in a hole, a broken ankle, a bad fall -- and the jackals feast. Yet, for all their determination and resourcefulness, jackals will never be considered King of Beasts.

Competition in the grocery trade, staged for the public with the civilized rituals of marketing campaigns, is a different endless struggle -- for the consumer dollar. Harriett Housewife at the grocery store and Wendy Workout at the health club vending machine both contribute trickles to the "money river" of commerce. Successful marketers, to keep the money flowing, must try to command the steadfast loyalty of consumers so that sales are steady rather than sporadic. Succeeding at economic competition requires intellectual and psychological stamina rather than brute force. It is based on marketers' ability to persuade, entice and satisfy the consumer. Because food sales to consumers -- unlike the jackals' feast -- depend on wooing rather than "making a killing," business demands a greater degree of subtlety, discipline and reassurance. Product quality must be rigorously controlled and reliably delivered; consumer loyalty must be maintained. Consumer loyalty, successfully cultivated, helps both parties to the transaction. It's more comforting and less time-consuming for the consumer to rely on trusted brand names and it's more economical for marketers to keep loyal customers than to win new ones. It's difficult and much more expensive to win back once-loyal consumers who have strayed.

When consumers leave for good a company experiences loss of "market share," a trend that can eventually translate to business failure and all the tragedy and loss that failure implies. When a great business blunders the way Ocean Spray has, it is very much like the old buffalo who falls on the African plain. For many years, the rest of the herd depended on him to lead the search for greener pastures and intimidate the predators who would attack the weaker members of the herd. When the big bull falls, opportunists will surely feast, but a herd left leaderless can be picked off one by one until a new leader emerges.

The cranberry industry is in a chaotic state right now because the market leader didn't stick to marketing -- to keep reminding consumers how good cranberries are, how important it is to make them an essential part of your diet. Although consumption is a tenth that of oranges, Ocean Spray suggested the market was "saturated." For some reason, Ocean Spray thought bringing cranberries to a higher level was too meager an ambition for a successful cooperative. It neglected the core product and started chasing after peripheral products on which the Ocean Spray label has no distinctive meaning. It's as if a buffalo, bored with roaming the plains, suddenly decided it was a hippo and wandered into the river, forgetting that hippos know how to defend themselves from crocodiles when buffaloes do not. The big bull is not at home in the river. Its ankle tendons have been slashed by the crocs; it staggers ashore, crippled and befuddled.

Ocean Spray's cranberry rivals, accustomed to following the leader, are sounding indignant, as if they expected the free ride would last forever. In only a few decades, cranberries have gone from being a seasonal specialty crop known only regionally, to being big enough to warrant national competition and international potential. Ocean Spray doesn't seem so big and tough any more -- in this context -- but even Northland, who wouldn't exist but for the market Ocean Spray created, is sounding as if Ocean Spray has an obligation to open new markets for everyone else to take advantage of.

The Ocean Spray board -- perhaps blinded by nostalgia -- appears to be unable to visualize the need for new leadership; they're trying to get the old, crippled, bleeding bull back on his feet. The rest of the herd is scratching their heads, watching the spectacle, imagining that they have the great luxury of time, not looking back in the bushes, where the jackals are hungry. . . circling. . . putting their plans together. . .

Where does this leave the growers? Are we going to sit around and wait to be turned into fresh meat for someone else's dinner? Just because the leader blundered, are we going to roll over and die? Or are we going to do what even a bunch of animals would know enough to do -- organize around a new leader who can marshal the herd to safety?

There is more than survival at stake. Human beings, unlike wild animals, are capable of more than a short and brutish life governed by the law of the jungle. By building the right kind of organization, we are capable of creating and accumulating wealth. The premier method for doing this over the last couple of centuries is the corporation, owned by stockholders whose shares can be traded, whose success can be measured on a per share basis, and whose performance is disciplined by public participation and scrutiny.

I believe that cranberries are an unusually healthful food, whose value has only begun to be appreciated. At only two pounds per capita production for the population of North America, I find it hard to accept the argument that the supply is in drastic "surplus." Selling the quantities that have materialized in the last couple of years only seems daunting because the industry lacks the capital structure and marketing focus to mount the scale of effort required. It is neither necessary nor inevitable that the loss of profitability in raising cranberries must be followed by a catastrophic shakeout of growers, replete with mass bankruptcies and large scale consolidations by larger growers buying out smaller, less solvent ones. That pattern of consolidation within Ocean Spray would be a gross dereliction of responsibility by the Board of Directors, who are obligated to represent the shareholders -- not sail them out into the middle of the ocean and then force them to walk the plank. What a prosperous, farsighted, corporate marketer would do -- what Northland is doing to the best of its ability -- would be to view the increased supply as an opportunity to broaden markets and increase sales at a lower cost of raw materials. In this scenario the profitability of marketing cranberries replaces the losses in raising them. Because of the capital requirements of operating on a national scale and entering the international arena, a small cooperative with an all-farmer Board

cannot rebuild this chaotic situation in time to save the farmers from ruin. We might sooner expect pigs to fly. Only corporate-scale capital resources can take the cranberry industry to the next plateau. Ocean Spray growers should retain the cooperative as a receiver/handler and sell the brand name, processing and marketing plants to a beverage giant. Ocean Spray growers can swap their common stock for the shares of a corporation which is likely to increase in value over time and provide growers with a better way to prosper from the growth of the juice industry.

"Independent" growers, including Northland, need not fear this eventuality. The only thing that will restore the profitability of raising cranberries is selling them all. Ocean Spray and its host of copycats can't do it. Let's not wait for pigs to sprout wings or for buffaloes to swim with the hippos. Corporate America has done for very well for millions of ordinary investors over the last century and a half. Let's face reality and figure out a way to make it do well for us.

 

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