John Decas letters: April 19 and May 19, 2000 with enclosures.
April 19, 2000 Dear Decas Grower: I feel obligated at this time to share some of my thoughts with you regarding the cranberry marketplace. It has always been my policy to make every effort to keep you well informed in this regard. I try as much as any handler to do so in an informative and timely manner. You cannot manage your business or your life without full knowledge of marketing trends in our industry. We at Decas have concluded that Ocean Spray will pay their growers less than $10/bbl. for the 1999 crop. There are two primary reasons for our conclusions. The first reason is that Ocean Spray’s overhead has been increased immensely by their huge surplus. They have finally admitted to a 3,000,000+ surplus after lying to the industry, the trade, the Cranberry Marketing Committee and their own growers by saying that the surplus was all outside Ocean Spray. In recent years, this sort of misinformation has resulted in confusion to the trade and to the competition, causing a chain reaction of events that has significantly contributed to the mess we are in today. If they had triggered the Cranberry Marketing Order or unilaterally imposed such a program upon themselves one, two, or three crops ago, they would have saved enough money to pay their growers an additional $3-5 per barrel per year during that time, by my calculation. Furthermore, the remaining berries would have generated more value in the marketplace, also resulting in greater returns to their growers. Not only did they choose not to do so, but they also continued to contract new acres, particularly in Canada, knowing that they had no market for those berries. This madness on the part of Ocean Spray continues to this day. The second reason we calculate a historical low return to Ocean Spray growers is because of their pricing practices. Ocean Spray is just destroying the value of all cranberry products across the board by discounting all categories to the point where they are virtually giving away cranberry products, both industrially and at the retail level. There is nothing left in our industry that can be described as a value-added product, with the possible exception of fresh fruit. Everything else we sell has become nothing more than a commodity. I fear that even fresh fruit will be reduced to that level with the 2000 crop. Why are they doing this? What are they trying to achieve? I believe that Ocean Spray, as a matter of strategy, has decided to kill two birds with one stone and get it done as soon as possible. Whatever the reason or motivation for them to have accumulated a three million barrel surplus, they now realize it must be reduced quickly. They also realize all growers cannot be saved in the process, so by quickly driving prices and returns to historical lows, growers will be unable to grow full potential crops and, indeed, many growers will go out of business while, at the same time, these predatory pricing practices will gain back market share by killing off competition. They believe they can put Northland in receivership while targeting Decas as their main competition in the ingredients category. I do not believe they will achieve either, but they are inflicting a lot of pain on us and other Independents but ironically mostly on their own growers. The volume regulation under the Cranberry Marketing Order also gives them additional opportunities at the expense of Independents. This program forces many Independent handlers with no surplus inventories to participate in the volume reduction, forcing them to replace these berries on the open market. Particularly damaged are the private label companies (Pappas and Cliffstar). They do not enjoy the benefit of fresh fruit exemptions, but they know that cheap berries are available to them from Ocean Spray to cover their needs, if necessary. This protects them, but not their growers. Without fresh fruit exemptions, our company and our growers would be denied the ability to compete because Decas is not allowed to buy Ocean Spray berries at the discounted levels available to the private label companies. In their generosity, Ocean Spray has offered to sell us berries for $39/bbl., while they pay their growers less than $10 for the same berries. So the Ocean Spray plan to eliminate surplus will be done with three fast, hard-hitting steps:
The purpose of this letter is not to add to the endless stream of criticism of Ocean Spray, but rather to show you the reality of the situation and what you and I are faced with and need to do to compete in this environment. In 1997, we paid you at a level of about 32% above the Ocean Spray grower returns. In 1998, you were paid 85% more than Ocean Spray growers, and for the 1999 crop, based on what you have already received, we estimate that your returns will be about 100% over the Ocean Spray return. Paying twice as much as our competition for berries in 2000 and beyond is not sustainable. To be competitive that difference needs to be reduced to reasonable levels. You have just received a check for $3/bbl., bringing your returns for the 1999 crop to $18/bbl. We cannot be certain at this time if and when we can make an additional payment for 1999. Any additional payment that may be made will be made sometime in August or September. I realize that $18/bbl. is well below your costs, even if it is double the return to Ocean Spray growers. While it is too early to predict the returns for the 2000 crop, I have no basis for predicting the same returns, let alone higher returns. The surplus has to go away before things get better. Regarding that, I wish to make the following points regarding the fact that I believe the surplus will moderate sooner than expected:
If I am right and the industry begins to rebound, you will get the benefits of the rebound sooner than your Ocean Spray counterparts. You must make every effort to survive in the short term to succeed in the long term. A few thoughts along this line:
We, as your handler, are investing in the future. Despite the way things are, we believe in the future. We are spending considerable sums in the promotion of cranberries, we continue to invest in R&D to accommodate new markets with new and improved products, we are planning an expansion of our production plant, and we plan to build a new and modern fresh fruit plant to be ready for the 2001 crop. We will consider any opportunity to develop strategic alliances with other companies that will result in successfully expanding our ability to sell more berries. We anticipate success in this regard in the near future. Any continued attempt to inflict illegal harm upon our growers and us will be dealt with in the appropriate fashion. It would appear at this point that legal conflicts within our industry are inevitable. Whether such conflicts will include our company remains to be seen. There is a limit to what we are willing to endure. Sincerely, John C. Decas May 18, 2000 Dear Decas Grower: On April 15, 2000 I wrote my growers a letter providing them with information regarding the state of the industry, their grower returns for the 1999 crop, and our view of what’s ahead for the coming year. Subsequent to that I received, at Ocean Spray CEO Rob Hawthorne’s instruction, a letter dated May 5 from Ocean Spray’s corporate attorney. This letter was in response to observations regarding Ocean Spray made by me in my letter to you. This letter included language that I took to be threatening. Ocean Spray made their letter to me available to all Ocean Spray growers several days before I received it. I have since answered that letter with a letter dated May 11 and sent directly to Mr. Hawthorne. While he made the Ocean Spray letter to me available to his growers, he has not chosen to make my response available to them. This follows the Ocean Spray tradition of controlling information to their growers by deciding what they are and are not allowed to read. My growers, in the meantime, have read neither, but have heard a lot about the Ocean Spray letter from Ocean Spray growers. In order that Ocean Spray growers get a chance to see my response to their CEO, and to provide Decas growers with the same information, I am making both Ocean Spray’s letter and my response public. Unlike Ocean Spray, we do not fear growers being fully informed. Enclosed are copies of these letters. I will also forward these letters to the Cranberry Stressline in order to make them available to others in our industry who are also aware of the letter to me from Ocean Spray’s lawyer. Sincerely, John C. Decas Enclosures May 11, 2000 Mr. Robert Hawthorne Dear Mr. Hawthorne: I have just received a letter written by James O’Shaughnessy, your corporate attorney. It is regarding a recent letter that I wrote to my growers. In that letter I stated certain facts and expressed certain opinions regarding the state of the industry. I communicated what my growers and I need to do to compete and to survive in this existing environment. Because Mr. O’Shaughnessy’s letter was written according to your instructions, I am responding directly to you. This letter was made available to all of your growers several days before I received it, so I am assuming that it was more for propaganda purposes than anything of legal significance. I do, however, take the letter seriously, and would like to provide you with a serious response. The problem is that your letter does not adequately provide any details relating to your concerns. For example, the Ocean Spray letter says that in my letter I "…issue a series of false statements and outrageous accusations…" but fails to give any specifics. Tell me what was false and outrageous, and I will respond accordingly. What was the "…pure manipulation of fact…" that you "cannot tolerate…"? There was nothing intended to be false or manipulative in my letter, and I stand prepared to support my words. I will compare my letters at any time to Ocean Spray’s grower letters when it comes to an honest assessment of the facts. I will remind you, for example, that Ocean Spray has repeatedly denied having a surplus to their grower owners. Before you guys lecture me regarding my grower letters, you should read your own. The Ocean Spray letter further states that you "…are fully prepared to set the record straight, publicly and truthfully…". Then please proceed. Why did you not do so in your letter to me that you made public? The Ocean Spray letter suggests that the surplus damages Ocean Spray while benefiting "commercial fruit buyers" (Independents). This is a full reversal of previous Ocean Spray spin. Consider the words of Jack Llewellyn: "…Ocean Spray has a unique advantage: our brand equity and stable market, as well as our cooperative structure, will help mitigate the dramatic fluctuations in supply which are likely to do damage in the independent market." You should realize that for the last few years your predecessors have been accepting unprecedented amounts of new acreage, while predicting a surplus that will do damage primarily to Independents while Ocean Spray remains sheltered by the power of their brand. All this while selling berries and concentrate to certain Independent juice processors below Ocean Spray grower returns, even though these companies compete directly with Ocean Spray. These are examples of Ocean Spray miscalculations that have led this industry into a surplus that helps no handler and will destroy many growers. So now you say that I seek more growers in order to "…buy even cheaper fruit." One would think that you would avoid the issue of grower returns, given the recent Ocean Spray announcements regarding the Ocean Spray 1998 and 1999 pool returns. Since you raise the question, please explain how my company benefits by paying our growers less than their costs? This can only result in grower bankruptcies. With Ocean Spray’s surplus, you can absorb grower bankruptcies. I can’t. I bet you know that. You simply do not have the credibility to question what I pay my growers. The Ocean Spray letter also states the following: "We are also reminding our growers that other companies for decades have fed freely on markets and products Ocean Spray created, virtually single-handedly." I will not respond to such an arrogant statement. I do not need to explain to you or others about my company’s 65+ year history of serving Massachusetts growers successfully, and being a dependable supplier of cranberries and cranberry products to segments of the trade that Ocean Spray does not serve, as well as those who prefer our service and quality of product. This comment has been made repeatedly over the years, and what it simply means is that Ocean Spray does not tolerate legitimate competition. My hope that this would change under your leadership is rapidly fading. Nonetheless, please understand that I remain available to address any grievance or misunderstanding you may have with my company or with me. I am always available for serious and constructive dialogue. However, be advised that in the future if you wish to communicate with my company or with me through your attorneys, have them contact my attorneys directly. I believe that while grower letters find their way into the media, letters between you and me or between our lawyers should remain private. Since Mr. O’Shaughnessy chose to violate this code by putting his letter on the Ocean Spray Extranet even before I received it, and because many growers have commented to me regarding his letter, I reserve the right to make my reply public as well. In conclusion, I want you to know that my company has always been capable of succeeding in this industry and will continue to do so in good times and bad. We are also capable of defending our growers and ourselves. No amount of name-calling or letters designed to intimidate from anyone’s lawyer will change that. Independents have never been Ocean Spray’s "enemy." Viewing us as such will only prolong the agony all cranberry growers are going through. Sincerely, John C. Decas JCD/crg cc: Atty. Bruce Sokler Atty. Joe Hameline May 5, 2000 I am concerned with your April 19 "grower letter" which was widely disseminated to the public on the Cranberry Stressline. Under the pretense of informing your growers about market conditions and their expected returns, you issue a series of false statements and outrageous accusations that, in our view, are designed to damage our public reputation and interfere with our growers. We expect and accept fair-game criticism from competitors, particularly in today’s environment. But we cannot tolerate pure manipulation of fact. Be advised that we are fully prepared to set the record straight, publicly and truthfully. We are making sure our growers understand the possible profit motives of any competitors voicing such falsehoods. Unlike commercial fruit buyers, we cannot possibly benefit from surpluses and lower grower returns. Indeed, if we were to lose members, your company could benefit from having a bigger pool of growers from which to buy even cheaper fruit. We also are reminding our growers that other companies for decades have fed freely on markets and products Ocean Spray created, virtually single-handedly. These are trying times for the cranberry industry, and the surest way out – for Ocean Spray and all players in this industry – is by growing demand and establishing new markets. We have survived difficult times in the past, and we will survive the current upheaval. We already have begun the changes necessary to turn our business around, and we will continue to focus our attention on building our brand. In doing so, and as we compete vigorously in the marketplace, we will be guided by the highest and fairest of principles. We would hope that you would do the same. Sincerely,
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