Season of turmoil
A price dispute between California's raisin growers and packers divides a financially troubled industryBy Catherine Merlo
I n a normal year, raisin grower Steve Kister prepares his vineyards near Fresno, Calif., for a late summer harvest. In September, he picks the Thompson seedless grapes hanging lush and heavy on his vines and lays them to dry under the hot California sun. In October, when the grapes have shriveled to raisins, Kister sends them off to a packer for processing and marketing. He always knows by then what price he can expect for his raisin crop, and by November, he typically realizes a profitable cash return.
The past year, however, has been anything but normal for Kister and California’s 5,000 raisin growers, who produce virtually all of the nation’s raisins. Along with the state’s 16 major packers, they have been struggling through a season of turmoil, dissent and financial hardship. Shaken by bearish supply-demand forces and a protracted price dispute that disrupted the season’s normal progress and divided growers and packers, the industry is reeling.
“This season has been the toughest downturn our industry has ever faced,” says Kister, whose family has grown raisin grapes in the Fresno area since the 1930s. “Not all growers are going to survive.”
Kister, 47, has held a front-row seat to the season’s raisin drama. His family farms 400 acres of raisin grapes, a large-scale operation compared to the industry average of 40 acres. He is secretary of the commodity-promoting California Raisin Marketing Board. He is a member of the Raisin Administrative Committee that oversees the industry’s federal marketing order.
But nothing has put Kister closer to the center of the industry’s fray than his role as president of the Fresno-based Raisin Bargaining Association (RBA), the nation’s largest, and this year’s most embattled, bargaining association.
Inside RBA and the raisin industry
Grower-owned and grower-controlled RBA was formed in 1966 to negotiate with packers for an annual field price for members’ raisins. That negotiated price becomes the pricing standard for the industry.
With 2,000 members, RBA today represents 40 percent of the industry’s raisin volume. Another 30 percent of growers belong to Sun-Maid Growers, the well-known raisin-processing cooperative. The remaining raisin producers are independents. Together, California growers farm about 270,000 acres of raisin varieties, producing 40 percent of the world’s raisin supply. In all, the farm-gate value of California raisins has generally reached about $320 million a year.
Last October, against a backdrop of the largest raisin crop in California history and declining industry sales, RBA did as it always does. After examining all economic supply and demand data, it offered its seasonal raisin price to packers.
RBA was well aware the price situation wasn’t optimistic. Even though raisin prices had been elevated for the past couple of years, the supply-demand scenario did not favor continued high prices. Estimates put the 2000 raisin crop at a record 440,000 tons, an increase of nearly 47 percent over the previous year. It far exceeded the 350,000 tons the industry generally produces each year. The bumper crop also sharply surpassed the 280,000 tons the industry annually sells.
To make matters worse, both domestic and export sales had dropped to 15-year lows. Some say sales were hurt by the record prices growers had been receiving. In 1998, RBA growers received $1,290 per ton. The following year, growers bargained for, and got, $1,425 a ton.
“We may have priced ourselves out of the market,” says Jerry Rebensdorf, president of Fresno Cooperative Raisin Growers, a packer with 35 grower-members.
Sales losses also were blamed in part on increased raisin imports, particularly from Chile, Mexico and Afghanistan, where labor and other production costs are lower. In addition, increased amounts of California wine grapes found their way into juice concentrate channels, taking more market from the raisin-producing Thompson seedless grapes. Moreover, dried fruit consumption has declined as part of a long-term trend.
“We knew we were entering new territory,” says Vaughn Koligian, RBA’s chief executive officer since 1989. “We knew a price adjustment was in order but there was no need to take prices to the unnecessarily low levels proposed by some packers.”
The bargaining association made
two price offers in October: the first at
$1,100 per ton for Natural Seedless,
and, when that was quickly rejected,
another at $1,025 per ton, a 28 percent
decrease from the previous year. Packers
rejected RBA’s second offer as well.
“Growers have always got what RBA
asked for,” says Dennis Housepian,
vice president of sales for Caruthers
Raisin Packing Co., a medium-sized
packer just outside of Fresno. “This
time, reality set in. We could not continue
to accept their prices
because the reality of the marketplace
would not allow us to do
that. Compared to demand and
where the market was, their offers
were unrealistically high.”Growers and packers deadlock over prices
With the packers’ rejection of RBA’s second offer, two courses were now open to resolve the price dispute: conciliation and arbitration. RBA sought conciliation, which is overseen by California’s Department of Food and Agriculture (CDFA).
“Conciliation is much more
expeditious,” Koligian says. “It
provides an opportunity to settle
the price in a matter of days, while
arbitration takes months.”The packers also agreed to conciliation. CDFA ordered conciliation to take place Dec. 8-10 in Fresno. When it concluded, no resolution had been reached.
“There was too much division between the two sides,” says Koligian.
On Dec. 11, RBA filed notice to go to binding arbitration to resolve the price dispute. It was the first time in RBA’s 34-year history that arbitration was needed to settle price.
“We had come close a couple of times before but the industry had compromised and agreement had been reached,” Koligian says.
As 2001 began, the split between growers and packers grew more contentious. Packer representatives accused RBA of purposely delaying a pricing settlement to create an artificial shortage of raisins in the marketplace. RBA denied the charge, saying it had no interest in delaying payments to its members.
RBA called for a three-member arbitration panel. The bargaining association and packers argued over who should comprise the third, and neutral, arbitrator. RBA already had chosen Dave Zollinger, former president of the California Tomato Growers Association, as its representative. The packers had selected Daniel F. Quinn, a Stockton attorney, to represent them.
Finally, in February, the two sides agreed upon Eugene Lynch, a retired San Francisco judge, as the neutral arbitrator. But another setback arose in March when it was learned that, because of a busy schedule, Lynch would not be able to meet with Zollinger and Quinn until April 30. RBA appealed to packers to find another judge who could hear the case sooner. Packer representatives said no. Disappointed, RBA had to proceed with Lynch.
It was now the height of the raisinmarketing season, which runs Aug. 1 to July 31, and there was still no price in sight. The waiting process dragged on. “It was a calamity unfolding,” says Koligian. “The price delay was affecting growers both financially and emotionally.”
The mood was tense at RBA’s annual meeting March 3, attended by an unusually large crowd of nearly 900. Koligian discussed the season’s tough financial challenges and the growerpacker division. He also reminded members that RBA had performed exceptionally well over the past decade, and called on them to stand strong with the association.
In a question-and-answer session near the meeting’s end, frustrated growers commented on the pricing deadlock, packers and on-the-farm financial troubles. There was even a call not to renew Koligian’s contract. That led nowhere, and several growers rallied to Koligian’s defense.
Growers were not the only ones affected by the pricing uncertainty. “The situation created havoc in the marketplace from the unknown factor of not having the price settled,” says Housepian.
Packers filled orders from the previous year’s inventory of raisins, bought at a price of $1,425 per ton. “We had to get rid of that inventory or take a tremendous loss,” Housepian says. “We were out in the marketplace without knowing our cost of production. But we had to hold our place in the market. That uncertainty led prices to continue dropping like a rock.”
Arbitration price “devastating”The six-month pricing deadlock was broken May 2 after three days of binding arbitration in San Francisco. Arbitrators determined the free tonnage price for the year’s raisins would be $877.50 per ton on the free tonnage, or 53 percent of the crop. (Under a formula used for the industry’s federal marketing order, part of the raisin crop is put into reserve and the remaining tonnage is freed for marketing. See sidebar on state and federal marketing orders.)
When the result was announced, Koligian says the RBA “was devastated.” “We couldn’t believe the price would be this low,” he says.
RBA had fought for a price of $1,100 per ton throughout the arbitration. The $877.50 price on 53-percent free tonnage put growers’ net price for the season at about $465 per ton. That compared to the previous year’s price of $1,425 on 85 percent free tonnage, or a net of $1,211. Most raisin growers must net somewhere in the range of $750 per ton to meet production costs.
“I was hoping for at least $900 per ton on the arbitration price,” says Rebensdorf. “At this price level, we’re going to lose money on the crop and I’m not happy about that. But this had to be done to increase industry sales.”
Although arbitration resolved the price dispute, the industry’s wounds linger.
“It’s the worst split I’ve ever seen in this industry,” says Pete Penner, a long-time raisin grower and former chairman of the board of Sun-Maid Growers of California.
Trying to survive
The industry’s problems have not disappeared. Although the lower prices have recently spurred raisin sales and the upcoming crop will be smaller, the situation in the vineyards is close to desperate. Production costs are high. Water is in short supply. Land values have plummeted. Many growers are struggling to stay afloat.
“Most raisin growers have lost about
$500 an acre where they might normally
net $500 to $1,000,” says Penner,
who remains a Sun-Maid director.“I would estimate that 20 percent of the state’s raisin growers will go broke this year,” Rebensdorf says.
Changes are needed, growers and packers agree. But opinions vary on what those changes should be.
“We need to get to a level where we can start selling raisins and get our markets back,” says Rebensdorf. “The only way we’re going to do that is to reduce production. Our problem is over-supply.”
Housepian believes the quality of California’s raisin crop must improve to better meet world competition.
Penner says the industry must do a better marketing job to increase raisin consumption.
Better understanding is needed between growers and packers, says Alan Kasparian, a raisin farmer and grower relations manager for a Fresno packer. “This year amplified problems that have been there for a long time,” he says. “Growers and packers have more in common than they think.”
There has been criticism by packers
over the federal marketing order and
calls to modify its provisions,
although RBA’s Kister believes the
order has served raisin growers well.Some growers believe packers should support the Fresno-based California Raisin Marketing Board (CRMB), which has a $5-million annual budget to raise awareness for raisins with the goal of raising demand and increasing sales.
A small group of growers, unhappy with the arbitration outcome and RBA, have formed a rival bargaining association called the California Raisin Reform Association. But many growers and packers alike believe the industry can support only one bargaining association. Most, including nonmembers like Penner and Rebensdorf, continue to endorse RBA.
“RBA and the marketing order have kept us in business for the past 34 years,” Rebensdorf maintains. “I would rue the day if we ever lost RBA,” Penner says.
Koligian staunchly defends RBA. “It’s shortsighted of people to judge this association by the 2000-01 season,” he says. “We’ve worked hard for our members and carried the water for a lot of independent growers who don’t belong to RBA or Sun Maid.”
Industry changes are coming, says Kister, but the process will be painful. “Our problems are real and they cannot be addressed or fixed quickly,” he says, already anticipating a packed meeting schedule.
But first, he says, the division between raisin packers and growers must end. “In tough times, we must pull together,” he says. “We have to work as one industry to survive. Maybe now, people can see the value of that.” [end]
How the Raisin Bargaining Association got its start
RBA was formed in 1966 to help California’s raisin growers fare better economically. Of the 5,000 raisin growers in the industry at that time, some 2,000 were members of Sun-Maid Growers and the rest were independent growers. Each year, these non-cooperative members had to negotiate individual sales contracts with their packers.“Those open-price contracts could be compared to buying an airplane ticket without knowing where you were flying,” says Vaughn Koligian, RBA president. “Packers were able to play large growers against small growers and even take advantage of the operator who wasn’t a good negotiator.
Some packers were consistent and paid all of their growers the same fair price, while others held out and paid a range of prices. Damage incurred from rains or similar occurrences made the negotiations that much tougher at times. There was also a great deal of work to be done to sign pricing contracts with so many growers.
“When you compound this problem with the fact that there were about 20 packers at the time, you can see the task was quite difficult,” Koligian says.
Under the leadership of grower Ernie Bedrosian, RBA’s initial members put up the capital to start the association. Support for the bargaining group grew rapidly, although there was still some reluctance by many in the industry.
“Keep in mind,” says Koligian, “that growers were essentially paid by their packer at a price that could fluctuate from farmer to farmer. If they joined RBA, would there be repercussions?”
RBA offered its first contract in 1967. The first company to sign an RBA contract was Enoch Packing Company, established in 1919 and still operating today under the grandchildren of its founder.
The original master contract has been modified slightly over the years but its original foundation remains intact. RBA signs with a packer to deliver the products of its members. If a packer does not sign, RBA will divert its members’ tonnage to another signatory packer.
“The strength of the contract comes from the fact that the grower passes title of his product to RBA in consideration for the marketing of that product,” Koligian says. “Taking title gives us control over the raisins and separates RBA from a number of other bargaining associations. It also places a greater burden on us to ensure our members have a home for their products.”
RBA members typically deliver about 140,000 tons of raisins a year with a value of approximately $140 million. Its 33-member board of raisin producers sets the policy for RBA’s five-member staff. In addition to price negotiations, RBA represents growers on labor issues, air quality, legal matters and support in Washington, D.C. and Sacramento. RBA also holds 13 of the 47 seats on the Raisin Administrative Committee, which oversees the industry’s federal marketing order.
State and federal marketing orders direct dancing raisins and market supply
California’s raisin industry operates under both a federal and a state marketing order.State marketing order
Thanks to the state marketing order funded by growers to promote their sweet, dried commodity, California’s dancing raisins have returned. Growers reinstated the state marketing order in 1998 after a four-year disappearance. The previous marketing order had been discontinued in 1994 after pressure from industry packers, says Pete Penner, chairman of the California Raisin Marketing Board (CRMB), which oversees the marketing order’s activities.
Domestic raisin sales declined 3 percent a year after 1994, says Kathy Moulthrop, CRMB’s communications administrator. “Because of that downturn, growers realized we needed generic promotion of raisins,” she says.
Growers not only voted to reinstate the state marketing order in 1998 but, in May of this year, overwhelmingly approved a five-year continuance of the program. A perton assessment to growers funds the program.
Today, the program promotes raisins through a print advertising campaign, “Look Who’s Cooking With California Raisins.” The campaign features several prominent chefs. CRMB also sponsors health and nutrition research.
Most recently, the program has gone to “a full court press,” Penner says. It recently granted licensing agreements to Hardee’s Restaurants, Hershey’s Creamery Co. and Brach’s Candy Co., to use the dancing raisin images in various promotions, including television commercials.
Federal marketing order
The federal marketing order was designed to provide for the orderly buying and selling of raisins, to increase sales and to improve returns to growers.
The Raisin Administrative Committee, a board comprised of growers and packers, oversees the order. The RAC sets grades and standards for incoming and processed raisins and oversees the disposition of reserve tonnage.
The industry uses a formula to determine its “free” and “reserve” tonnage. Here’s how it works: Growers deliver their crop to a packer, who pays them directly for what is called free tonnage, as determined by the formula. Those raisins not acquired by the processor are placed into a pool as reserve tonnage. Growers share in an undivided interest in the reserve pool.
