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The Wall Street Journal
Thursday, January 24, 1985
Can Sunkist Wrap Up the Lemon Industry?
By James Bovard
Federal regulations sentence a half-billion
fresh lemons
to rot each year. A federal marketing order is driving up
lemon prices 30% to 40%, driving down per-capita fresh-lemon
consumption, and sacrificing lemon growers to Sunkist, the
dominant power in the Western lemon industry. A new
shrink-wrap process could revolutionize lemon marketing,
reduce lemon prices and end the excuse for government supply
control. But Sunkist -- and, so far, the U.S. Department of
Agriculture -- has effectively prohibited the new technology.
Arizona farmers are desperately awaiting a USDA
decision
that could allow them to shrink-wrap their winter lemons and
delay marketing them until June and July, when prices are
higher and consumers are thirstier. But Sunkist, which
controls 80% of the summer lemon industry, wants to prevent
Arizona growers from postponing the selling of their lemons
and breaking Sunkist's stranglehold on the summer lemon
market. USDA Secretary John Block recently addressed
Sunkist's directors in a closed meeting in Los Angeles, and
Arizona growers are worried that Mr. Block may promise to
continue sacrificing them to the corporate giant.
All lemons grown in California and Arizona are
covered
under Federal Marketing Order 910. Federal restrictions
require California and Arizona growers to grow three or four
lemons to earn the right to sell one lemon on the domestic
fresh market. The marketing order is supposedly justified by
the lemon's highly perishable nature. But federal marketing
restrictions have made the lemon market far more unstable,
inequitable and unprofitable.
Order 910 began in 1941 ostensibly to help save
the small
family grower. But since 1954, the number of growers has
fallen from 8,012 to 2,079. Order 910 is also supposed to
stabilize lemon prices. But fresh-lemon prices fluctuate far
more than most fruit prices, and even export-lemon prices --
which are subject to many more variables -- are more stable
than prices of USDA-controlled lemons.
Restrictions on domestic marketing also force
growers to
dump their crops at a loss on the export market. Japanese
consumers often receive high-quality American lemons for
lower prices than Americans pay -- one farm subsidy few
congressmen brag about. Exports to Canada, on the other hand,
are covered by federal restrictions, and growers need the
Lemon Administrative Committee's (LAC) permission to sell
north of the border. Because of restrictions on U.S. exports,
American lemon prices in Canada are artificially high, and
foreign competitors are rapidly trimming the U.S. market
share.
While the USDA restricts domestic producers'
right to sell
lemons to U.S. consumers, no such barriers exist for foreign
producers. Inflated U.S. fresh-lemon prices have encouraged
huge increases in production in Spain, Chile and elsewhere.
Imports are soaring -- and American growers are gnashing
their teeth as their lemons rot while foreign lemons roll in.
Order 910 is especially perverse because the
three
districts covered by it harvest their crops at different
times of the year. Lemon prices are sometimes twice as high
in the summer as in the winter -- thanks largely to the
vagaries of the LAC. Southern California controls the LAC,
and prevents northern Californian growers from holding their
fruit for sale during the high-demand summer months.
While Order 910 forced Southern California growers
to
abandon 3% of their crop in 1981-82, Arizona growers left 16%
of their crop rotting on trees and northern California
growers lost 28% of their crop. A Small Business
Administration study concluded, "There is a wide disparity in
average net on-tree returns between [Arizona and southern
California] -- as much as three to one in some years."
Arizona growers have had to stand by and watch their lemons
freeze on the trees because they had not received government
permission to harvest.
Federal regulations give Sunkist control of
the lemon
industry. Six of the 12 voting members of the LAC are Sunkist
affiliates. Sunkist can veto any proposals it doesn't like.
The SBA concluded that "the LAC's annual marketing-policy
statement originates at Sunkist."
Sunkist's control is threatened by the new shrink-wrap
technology. Lemons shrink-wrapped in a plastic coating do not
dehydrate like unwrapped lemons and can be stored for six
months or more. Shrink-wrap ends the perishability problem --
thereby ending the justification for federal marketing
controls; it prevents the spread of disease, ending the
problem of one bad lemon "spoiling the barrel," and it will
allow producers to stamp their logo on each lemon, thus
providing more incentive for individual companies to
advertise.
But the USDA so far has effectively blocked
shrink-wrap's
use. Lemons must be sent to market within a few weeks of
harvest, regardless of market prices or demand. The number of
fresh lemons a grower is allowed to sell is determined by the
weekly prorate. The grower can automatically sell his
prorated shares; any shrink-wrapped lemons he sells count
against his quota, so he has no incentive to go to extra
expense to sell his allotment.
Several growers are lobbying the USDA to grant
an
exemption from marketing controls to test out the shrink-wrap
lemon sales. But Sunkist and the LAC are fighting any
innovation, anxious to preserve the status quo that is
squeezing Arizona and northern California growers dry.
The shrink-wrap decision will be a precursor
of whether
the second Reagan administration will sacrifice the free
market to its Western political friends. If the USDA
continues banning shrink-wrap, then we can look forward to
four more years of nonsensical agricultural policy,
dislocation on the farms and higher grocery prices, all
courtesy of Uncle Sam. But if the USDA admits the obvious and
grants a large exemption for shrink-wrap (or gets rid of all
marketing restrictions), then consumers may not have to go
completely sour on the USDA after all.
---
Mr. Bovard is a free-lance writer in Washington.