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Cooperatives in the U.S.-Citrus Industry

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Cooperatives in the U.S.-Citrus Industry Agriculture Cooperatives in the Rural Business and Cooperative Development U.S.-Citrus Industry Service RBCDS Research Report 137 Abstract Cooperatives in the U.S. Citrus Industry James A. Jacobs Agricultural Economist U.S. Department of Agriculture Rural Business and Cooperative Development Service Citrus is one of the leading fruit crops produced in the United States. Cooperatives play an important role in the handling and marketing of both fresh and processed citrus products. This report examines the development and posi- tion of cooperatives in the citrus industry, their functions and operating prac- tices, and the impact of changes in production practices and industry structure on cooperatives. Cooperatives range from small, local fresh packinghouse associations to large cooperative federations with comprehensive marketing and sales pro- grams in both fresh and processed markets. Cooperatives are among the lead- ing marketers in all producing areas, and are the dominant marketing organiza- tion in California and Arizona. Citrus cooperatives use the pooling method to market and allocate returns. This cooperative practice of averaging price and sharing risk is commonly used by some private citrus firms as well, reflecting the inherent volatility of citrus production. Keywords: Cooperative, grove, grower-member, fresh citrus, processed citrus, frozen-concentrated orange juice, packinghouse, processor, marketing federa- tion, sales agency, marketing agreement, pooling, grove care, freezes, box, eliminations. RBCDS Research Report 137 December 1994 Preface This report describes the position and functions of cooperatives in the U.S. citrus industry. It is the first known detailed examination of its kind on citrus cooperative activities and operating practices. The report is intended as a reference for cooperative managers and mem- bers, professional advisors, and anyone involved in professional activities or research in the citrus industry. In addition to published information, much of the report is based on inter- views, phone conversations, annual reports, bylaws, marketing agreements, and other documents voluntarily provided by those cooperatives participating in the project. The author thanks all of those who supplied information for this report. Contents COOPERATIVES IN THE U.S. CITRUS INDUSTRY ......................................... 1 CITRUS INDUSTRY OVERVIEW ....................................................................... 1 World Citrus Trade ......................................................................................... 2 Processed Citrus ...................................................................................... 2 Fresh Citrus.............................................................................................. 2 U.S. Citrus Production ................................................................................... 3 Effects of Freezes.. ................................................................................... 7 Market Channels: Fresh and Processed .................................................. 8 CITRUS COOPERATIVES AND OPERATING PRACTICES ............................. 9 Grower-First Handler Coordination ................................................................ 9 What is a Cooperative?. .............................................................................. .lO Other Types of Ownership ...................................................................... 10 Organizational Structures ............................................................................ .ll Governance and Ownership ........................................................................ 11 Marketing .................................................................................................... .12 Fresh Marketing.. .................................................................................... 12 Processing .............................................................................................. 12 Cooperatives in Citrus Markets ............................................................. .13 Marketing Agreements ........................................................................... 13 Typical Provisions .................................................................................. .13 Pooling.. ................................................................................................. .16 Nonmember Business and Account sales ............................................. 18 DEVELOPMENT OF CITRUS COOPERATIVES ............................................. 19 Origins of The Sunkist System ..................................................................... 20 Impacts of Sunkist Early History ............................................................ .22 Current Sunkist System Structure .......................................................... 24 COOPERATIVES IN MARKET CHANNELS ..................................................... 28 California/Arizona Fresh Citrus Markets ...................................................... 28 Florida Fresh Citrus ..................................................................................... 31 Fresh Texas Citrus ....................................................................................... 33 Cooperative Processing ............................................................................... 33 Rise of Citrus Processing Cooperatives ...................................................... 33 Florida Processing Cooperatives ........................................................... 34 California Processing Cooperatives ....................................................... 35 Texas Processing Cooperatives ............................................................ .36 Processed Citrus Markets ............................................................................ 37 Product Forms ........................................................................................ 38 Brands and Labels.. ............................................................................... .38 Bulk Product.. ......................................................................................... 40 THE ROLE OF COOPERATIVES ..................................................................... 40 The Citrus Grower........................................................................................ 40 Home for Their Product.. ....................................................................... .41 Ownership and Control ........................................................................... 41 Economies of Scale and Coordination ................................................... 41 ii Contents Comprehensive Marketing Organizations .............................................. 42 Reduced Risk ........................................................................................ .42 Grove Care and Harvesting Services ..................................................... 43 Adopting Freeze-Aversion Production Practices .................................... 43 Residual Market Outlet ........................................................................... 44 Supply Cooperatives ............................................................................. .44 Purchasing and Developing Groves ....................................................... 45 Citrus Market Channels .................................... ........................................... 45 Allegiance to Growers ............................................................................ 45 Ease of Entry/Exit ............................... .................................................... 45 Market Discipline .................................................................................... 47 Summary on Cooperatives ..................................................................... 47 FUTURE ISSUES.. ............................................................................................ 47 Increasing Production Capacity ................................................................... 48 Impact on Cooperatives.. ....................................................................... .48 Shifting Production.. .................................................................................... .49 Florida ..................................................................................................... 49 California.. .............................................................................................. .53 Texas ...................................................................................................... 54 Changing Industry Structure.. ...................................................................... 55 Facility Capacity and Specialization ...................................................... .55 On-Farm Packinghouse.......................................................................... 56 Marketing Federations.. ......................................................................... .56 Globalization of Citrus Trade....................................................................... .57 FCOJ and Imports ................................................................................. .57 Exports .................................................................................................... 58 Labor ............................................................................................................ 58 Marketing Orders ........................................................................................
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