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:: Farmers Audit Techniques Guide - Chapter Six - Overview of
Industry
Overview of Industry
Sources
of Information
The following general
information has been secured
through interviews with the
Raisin Bargaining Association
(RBA), the Raisin Administrative
Committee (RAC), several raisin
packers and growers, newspaper
and magazine articles, RBA’s
contract with signatory packers,
individual contracts between
growers and packers, and
statistics from the RAC.
Other than
government agencies, the major
stakeholders on the supply side
of this industry include 1) the
large single Cooperative packer
and its member growers 2) RBA
member packers 3) Non-RBA
packers 4) RBA member-growers
and 5) Independent growers.
The scope of
this chapter does not include a
discussion of the Cooperative
and its member growers, Non-RBA
growers, and Non-RBA packers.
However, the majority of this
chapter would apply to them.
The Cooperative
is a RBA signatory packer, and
RBA growers can deliver their
raisins to the Cooperative.
These growers do not become
members of the Cooperative, and
the Cooperative members are not
bound by the field price
established by the RBA/packer
negotiations.
Grape
Use, Raisin Production, and
Raisin Varieties
Raisins are essentially
produced from raisin variety
grapes. A raisin variety grape
grower may contract to sell
these same grapes to a wine or
juice processor, or to a table
(fresh) grape packer. This would
be the personal decision of the
grower, mostly based on price,
but on other business factors,
too. In the 1990’s, California’s
total annual grape production
use averaged as follows: Raisins
(45%), Wine (43%), and Table
(12%). Three California
counties, Fresno, Madera, and
Tulare, produced nearly 100% of
the nation’s supply of raisin
grapes and 40-45% of the world’s
supply.
Natural
Seedless, Dipped Seedless, and
Golden Seedless raisins are
virtually all produced from
Thompson Seedless grapes. For
the 1995 crop, these three
varieties of raisins accounted
for 98.3% of the domestic raisin
production. Both Dipped Seedless
and Golden Seedless are
“dehydrator” dried, whereas
Natural Seedless are field or
sun-dried.
In the 1960's
and 1970's, California produced
an average 260,000 annual tons.
In the 1980's, domestic
production ballooned to almost
400,000 annual tons, but raisin
demand lagged far behind. These
conditions culminated in the
disastrous 2000 crop year of
439,531 tons with oversupply and
low demand that hurt and
depressed the raisin industry
until the 2004 year recovery
with lower supply and higher
prices.
The
Industry Stakeholders
RAC: The raisin
industry has been based on a
federal marketing order system
since 1949. The marketing order
for raisins has been fairly
successful. The Raisin
Administrative Committee (RAC)
is overseen by the Agriculture
Market Service of the United
States Department of
Agriculture. The RAC does not
get involved in price
establishment for the domestic
market. The marketing order gets
involved in market allocation
(free and reserve tonnages), and
blended raw product for export.
With the addition of freight and
import duties, the foreign
consumers pay prices for
California raisins that are
quite comparable to our domestic
consumers.
The free
tonnage quantity must meet the
domestic market demand and a
major portion of the export
demand. A new program
implemented with the harvested
1995 crop required the entire
domestic and export demand to be
supplied with free tonnage.
Income derived from the sale of
reserve tonnage for free tonnage
use is utilized under a cash
adjustment program to keep our
packers competitive in export
markets.
The RAC never
technically “owns” reserve
tonnage. The reserve tonnage is
maintained by the packers under
the custodianship of the RAC.
The marketing order dictates how
reserve tonnage can be disposed
and how the income derived from
its disposition is disbursed to
the grower equity holders. The
reserve tonnage, in essence,
becomes a mandatory industry
co-op under the custodianship of
the RAC.
The raisin
trade demand is computed and
announced on or before August
15th of each year. It is never
estimated. It is established by
a set formula, and since the
formula was adopted, has never
been changed once it has been
computed and announced.
During the
first week of October, the RAC
sets the preliminary free
tonnage percentage. The reason
the figure is preliminary is
because the final size of the
crop has not and will not be
determined until February of the
next calendar year. This
percentage is based on the trade
demand; the preliminary free
tonnage percentage is set
conservatively. Normally, the
final crop estimate and final
free tonnage percentage is set
by February 15th, following the
harvest year.
Under the
marketing order agreement, the
signatory packers must report
grower deliveries weekly to the
RAC. The RAC billings to the
packers for assessments are due
to the RAC within ten business
days of invoice date.
The RAC does
not get involved in the terms
and conditions of the sale of
free tonnage raisins by growers
to packers. No RAC actions will
accelerate or delay payments
between the growers and their
respective packers for the sale
of free tonnage raisins.
RBA:
The RBA is a non-profit
cooperative association
established in 1966. It has
approximately 2,000 raisin
grower members (40% of the total
raisin growers).
The benefits of
membership for growers is a
unified representative body. The
cost of RBA membership to
growers is 1% of the grower’s
crop proceeds payable by the
packers from the grower’s funds.
The RBA returns these funds to
the growers six months later.
When the RBA
was formed, the original
founding members felt it would
be most prudent to execute a
Master Contract with processors
(packers) on behalf of the
Association’s grower members.
These processors were deemed
signatory packers. The Master
Contract provided the foundation
for price negotiations for
members of the Association. The
elimination of open price
contracts was the primary
catalyst responsible for the
formation of the RBA.
This Master
Contract is more formally called
the “Raisin Bargaining
Association, Inc. - Contract of
Sale.” It is for the mutual
benefit of all and outlines the
duties and responsibilities of
member growers and signatory
packers. There is a two-year
contract for “Thompson Seedless”
raisins between the RBA and the
signatory packers. Under this
Contract, a raisin “season” is
defined as “that period of time
commencing with September 1 of
one calendar year and ending
with August 31 of the following
calendar year.”
RBA members are
required to complete Individual
Agreements which set forth a
number of key elements
including, but not limited to,
the name of the grower, the
number of tons to be delivered,
the number of containers
required, and terms of payment.
Most growers and their
respective packers enter into
these written Individual
Agreements prior to harvest and
delivery. The RBA supplies its
signatory packers with
Individual Agreement forms they
can use with their respective
growers.
However, a
large number of growers continue
the practice of setting payment
terms through a handshake
agreement, often by telephone.
This handshake agreement is
inconsistent with the
requirement of the Master
Contract to execute an
Individual Agreement.
Unfortunately, the practice was
allowed for years to the point
where it became quite routine
between some packers and
growers. The RBA has advised
certain packers and member
growers that this practice of
using an oral agreement for
payment terms is outdated. The
number of verbal agreements has
declined over the years.
Independent Packers:
All packers other than the
Cooperative. These are the
signatory packers under the RBA
contract. The terms “packer,”
“packing house” and “processor”
are used interchangeably in the
industry. “Processor” is the
more correct term. The raisins
pass through a manufacturing or
improving process that
transforms them from an inedible
raw material to a finished
consumable food product.
RBA
Growers: Member
growers, the 2,000 raisin
growers discussed above.
Non-RBA
Packers: Other than the
Cooperative, there are a few
small packers that are not
members of the RBA. Together,
they produce a small fraction of
1% of the total finished raisin
products.
Independent Growers:
All growers other than RBA
member growers and Cooperative
growers.
Raisin
Grower/Packer Contract for
Raisin Delivery
Sometime before
September 25th (RBA required
date), a RBA grower ”may” enter
into an individual written
agreement with a packer to
deliver his raisins for sale and
processing to an RBA member
raisin packer. The word “may” is
used because some times this
agreement is verbal. The
relationship between a grower
and his packer is usually a
long-term one. It is based on
the quality of service, trust,
and fairness, rather than price.
Raisins are
normally harvested in September,
then field dried for 11 to 21
days. The raisins are normally
delivered to the raisin packers
in October and November, but
some may be delivered as early
as the last week of September or
as late as December. The packing
house buys the “free tonnage”
raisins from the grower when
they are delivered and pass USDA
inspection. They are also graded
at delivery for quality and
moisture; where growers can earn
bonuses. This “free tonnage”
price is bargained for between
the RBA, its member growers, and
the signatory packers. See
discussion of “Free Tonnage” to
follow:
The Packer
shall acquire legal title to
said raisins, subject to this
Agreement, upon establishment of
a reasonable price as provided
under Paragraph 14. [Raisin
Bargaining Association, Inc. -
Contract of Sale, Para 14(g)(3)]
Said
“reasonable price” shall be
ascertained in the following
manner: The Association shall
announce an opening price or
prices which the Association
believes to be a “reasonable
price” for each variety and
grade or grades for any season
on or before October 6th of such
season. Such announcement shall
be made upon the basis of
consultations with individual
packers and an examination by
the Association of all available
economic and supply data which
influence the sale and purchase
price of raisins. [Raisin
Bargaining Association, Inc. -
contract of Sale, Para 14(b)].
Concept
of “Free Tonnage”
There are really two
raisin businesses: domestic and
export. The domestic price
applies to the United States,
Canada, and Mexico. The domestic
price is kept high by the
packer/grower price negotiations
to protect our domestic raisin
industry. If a packer chooses to
sell raisins in the domestic
market, he must do so at a price
which will return his raw
product, processing cost, and
any profits the packer sets for
himself. A packer may sell all
of his free tonnage in the
domestic market, export market,
or a combination of both.
Historically, roughly 70% of our
annual raisin sales are domestic
and 30% are export; however,
some packers are much heavier in
one market or another.
To compete on
the world market where some
foreign governments subsidize
their raisin industry and
production costs are lower, our
United States sellers must enter
the foreign market place with a
much lower price to be
competitive.
The RAC
establishes a “free tonnage”
quantity of raisins that it
feels the industry can sell
worldwide. As stated above, the
preliminary free tonnage
percentage is established during
the first week of October, and
the final free tonnage
percentage is established by
February 15th.
All raisins not
designated as “free tonnage” are
known as “reserves” or “reserve
pool.” No packer secures
permission from the RAC to sell
any raisins in any outlet. Under
the terms of reserve tonnage,
offers are recommended by the
RAC and approved by the
Secretary. If packers choose to
sell some of their free tonnage
into the export market, they
have no price regulations from
the RAC. If they choose to sell
into a specific export market,
they can do so, and if they
submit proof of export by
providing the RAC with a copy of
their ocean-on-board bill of
lading, the RAC will pay them a
cash adjustment amount which
results in a blended raw product
price. However, the RAC does not
get involved in the price at
which packers sell their
raisins, either domestic or
export.
The USDA
Secretary must establish the
free and reserve percentages.
They become effective when
published in the Federal
Register.
The preliminary
and final free tonnage
percentages, as established by
the RAC can be found at
www.raisins.org and
selecting Marketing Policy, then
going to Part II - Pooling
Operations Under The Raisin
Program, #12, Reserve Pool
Percentages, Natural Raisins,
1987-2001. The 2002 to 2004
figures were provided by fax.
Free Tonnage Percentage
Crop
Year
|
Preliminary
|
Final
|
Date
Established
|
1997
|
61
|
66
|
07-01-98
|
1998
|
85
|
100
|
01-15-99
|
1999
|
73
|
85
|
06-23-00
|
2000
|
35
|
53
|
08-01-01
|
2001
|
56
|
63
|
07-19-02
|
2002
|
45
|
53
|
04-02-03
|
2003
|
65
|
70
|
04-22-04
|
2004
|
100
|
100
|
10-15-04
|
This “free
tonnage” is the amount the
packers must purchase from their
growers as established by
RBA-Packer Contract. This
Contract states the “Packer
shall make an initial payment
for raisins under this Agreement
which are of standard quality
and grade as herein described,
excluding those raisins that
have failed incoming inspection,
on the basis of the preliminary
free tonnage percentage
recommended by the Raisin
Administrative Committee... No
part of such payment shall be
refundable.”
For example,
“free tonnage” works this way:
let’s assume a grower with 100
tons delivers it all to his
packer by November 1, 1999 under
an established free tonnage
price of $1,425 per ton. Also,
the preliminary free tonnage
percentage announced in October
of 1999 is 73%, and the final
free tonnage percentage
announced on February 15, 2000
is 85% (an additional 12%).
Without consideration of any
specifics in an individual
contract with a packer regarding
crop payment dates, the grower’s
entitlement to receive proceeds
for the 1999 crop would be as
follows:
Number
of Tons
|
100
|
100 X’s
Final Free Tonnage
Percentage
|
85%
|
“Free
Tonnage” Tons
|
85
|
X’s
Price Per Ton
|
$1,425
|
Crop
Proceeds Established
Earned (E/E)
|
121,125
|
Less:
Crop Proceeds Previously
E/E (73 x1,425)
|
104,025
|
Additional Proceeds
Established/Earned
|
$17,100
|
Concept
of “Price Per Ton”
As stated above, the
“free tonnage” price is
bargained for between the RBA,
its member growers, and the
signatory packers. Also, it was
stated that there are really two
raisin businesses; domestic and
export. To give an idea of the
disparity in price between “free
tonnage” and “reserves” for
recent years, examine the
following which is found at
www.raisins.org, select Raisin
Industry News & Reports, then
2001-2002 Annual Report
Statistical Tables, then Table
10:
Crop
Year
|
Free
Tonnage
|
Reserves Weighted
|
Average
|
1997
|
66% @
$1,250
|
34% @
$357.00
|
$946.38
|
1998
|
100% @
$1,290
|
0% @ $0
|
$1,290.00
|
1999
|
85% @
$1,425
|
15% @
$0
|
$1,211.25
|
2000
|
53% @
$877.50
|
47% @
$294.00
|
$603.00
|
2001
|
63% @
$880
|
37% @
$261.00
|
$651.00
|
2002
|
53% @
$745
|
47% @
$205.00 As of 7/04
|
As of
7/04 $490.00
|
2003
|
70% @
$810
|
30% @
$0.00 Not Final
|
As of
7/04 $567.00
|
2004
|
100% @
$1,210
|
0% @$0
|
Not
Final $1,210.00
|
Current amounts
sometimes need to be obtained by
contacting the RAC, which was
done for the 2002, 2003 and 2004
amounts.
Reserve pools
remain “open” until all of the
tonnage in that pool is sold,
income received, and expenses
paid. Each pool stands on its
own. All pools are audited by a
public CPA firm, and following
this final audit, the income in
each pool is paid to equity
holders. As income is received,
the RAC makes progress payments,
but each pool remains “open”
until the final audit and final
payment to equity holders is
completed. Payments to equity
holders (growers) in a reserve
pool have no requirements
schedule, but as a practice are
made as sufficient funds are
accumulated.
Note: The RAC does
not accept deferred payment
requests from growers for
the reserve pool payments.
Interplay of Grower Receipt
Requirements Under the
RBA-Grower Contract and “Real
World” Considerations
The Contract states,
“Packer shall pay that portion
of such payment (referring to
payments based on the
preliminary free tonnage
percentage) to be paid to each
grower-member of the Association
(RBA) who delivers such raisins
to Packer immediately after full
delivery by such grower/member,
provided that grower-member and
Packer may defer such payment by
mutual agreement in accordance
with the Raisin Bargaining
Association - Individual
Agreement.”
The RBA’s
meaning of “immediately” within
the context of Para #17 is that
it would be difficult for
packers to make payment
immediately upon the completion
of delivery. The USDA work is
not immediately available, and
the raisins may require
reconditioning. Additionally,
since packers borrow money from
banks to finance operations,
their lenders would have to be
contacted to make funds
available for payment
potentially every day. These
factors alone would make it
difficult to make such a prompt
payment as suggested. If a
packer and its grower could
arrive at such unusual payment
terms, the practice would be
allowed under the Master
Contract. However, if such a
practice is taking place, it
would be the absolute exception.
Further, in the
Master Contract in Para #17,
payment based on the final free
tonnage is discussed: “Packer
shall pay additional payments
for such raisins to such
grower-members and to the
Association (RBA) on the basis
of the difference between such
final free tonnage percentage
and such preliminary free
tonnage percentage recommended
by the Raisin Administration
Committee no later than ten (10)
working days after such final
free tonnage percentage is
published in the Federal
Register.”
This
recordation in the Federal
Register usually takes place in
the summer or as late as the
fall of the year following the
harvest year.
A grower member
of the RBA has a 2 years
bargained for price Master
Contract that is used in the
individual written agreements
with RBA member packers.
Membership in the RBA costs
member growers 1% of their gross
raisin proceeds, netted from the
checks paid by the packers. The
RBA returns these funds to the
grower after holding and using
them for six months. The RAC
makes progress payments from
each raisin pool to the
respective growers who earned
them. Non-RBA growers will have
to negotiate their raisins’
price with packers, many of
which have been doing business
together for decades.
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