The Politics of Lemons : A Group of Growers’ Representatives Set Weekly Shipping Quotas. In Effect, They Control Price.

The summer’s lemon harvest is drawing to a close throughout Ventura County, the nation’s leading production area, as skeleton crews comb the orchards for the season’s few remaining ripe fruits.

Growers in towns such as Saticoy and Santa Paula are left to congratulate themselves on one of the most successful years of the past decade. The demand for fresh lemons is high and prices have approached record levels.

With little disruption, the harvest will now move into the desert groves of California’s Coachella Valley and Arizona’s Yuma County. There, farm workers will continue to pick fruit for much of the fall.

Lemons are readily available throughout the year because of just such varied plantings, each located in different climatic regions. Other prime growing areas still waiting to produce in the 1989-1990 growing season include the San Joaquin Valley and San Diego County.

Yet, an important factor in the well-being of the lemon crop results from committee meetings that regularly take place far from the widely dispersed orchards.

Each Tuesday morning, a number of growers and processors gather to discuss the lemon industry’s fate in a most unlikely place:the ninth floor of a dingy office building in downtown Los Angeles’ fashion district.

There, in a smoke-filled conference room, the Lemon Administrative Committee meets to determine how much of the crop will enter U.S. markets the following week.

The group, which is sanctioned under the Agricultural Marketing Agreement Act of 1937, has jurisdiction over all lemons grown in California and Arizona, or about 97% of the U.S. total. (The remaining fraction is raised in Florida, which operates free of the Los Angeles-based committee.)

Granted, lemons are far from a dietary staple and are not consumed in the same manner as most other fruits. They are used, instead, as a garnish, flavoring agent or baking ingredient. As a result, how a labyrinth of regulations governs the crop probably has mattered little to the public in the past.

But lemons have shared in the growing interest in all fresh produce. And not only have consumers’ lemon purchases risen as a result, but so have those by the restaurant and institutional food-service industries.

In an annual report filed last month with Agriculture Secretary Clayton Yeutter, the Lemon Administration Committee defined its mission.

“An area where the lemon grower can exert influence in the distribution and sales system is that portion of the crop reaching the domestic market. He can . . . make sure that domestic shipments do not reach a level that will cause fire-sale pricing and that places so much fruit on the domestic market that the normal flow of harvesting and packing is interrupted,” the report states. “It is in the growers’ interest that such interruptions do not happen and it is the goal of the Lemon Administrative Committee to see that they do not happen.”

At first glance, the prospect of stable supplies and prices would appear welcome in a grower community too often beset by boom or bust cycles. But the committee has some harsh critics.

“This system is a disservice to the consumer,” said Skip Pescosolido, co-owner of Sequoia Orange Co. in Exeter, Calif., who favors deregulation of the lemon industry. “At least 100,000 cartons of lemons that could be sold are prevented from reaching the market each year. That is a disservice.”

Even so, little is heard about the committee that determines the fate of an estimated $210-million lemon crop.

Although its meetings are open to the public, the committee works in anonymity, making decisions that affect 60,000 acres of lemon orchards. It’s one of the few agricultural groups that uses its authority under the federal marketing order to, in essence, centrally plan a food commodity. (Navel and Valencia oranges are the only other crops with similar provisions in their grower-voted charters.)

Few people in or out of the lemon business fully understand the committee’s complex inner workings and jargon. A number of produce industry representatives declined to even comment on the committee’s work because of its intricacies. Thus the “politics of lemons” are left to some of the industry’s major players.

Foremost among these is Sunkist Growers Inc., a Sherman Oaks-based cooperative whose membership represents about 65% of all lemons grown in California and Arizona. In 1988, the co-op reported about $140 million from the sale of fresh lemons, both in the domestic and export markets, as well as those diverted to other industrial uses.

Individual growers are each empowered to elect representatives to the administrative committee under the marketing order that established the group. However, the seats are apportioned so that Sunkist controls six, while an equal number are allotted to independent growers and packers.

The final member, the chairman, says he does not vote when the two sides are evenly split. Thus, six votes are enough to control the committee’s agenda.

A Sunkist representative downplays the co-op’s power on the committee.

“We have more of the lemon production than we have representatives on the committee,” said Kurt Anderson, a Sunkist vice president. “We’ve never asked for more than what the original marketing order provided for and that was no more than half.”

The focus of the committee’s work is a weekly recommendation on shipping limits for fresh lemons, called the prorate allowance:a key decision for a number of reasons.

By determining the amount of lemons that go into wholesale and retail channels, the group is also conversely deciding how much will go into the byproducts markets for industrial uses such as juice concentrate or lemon oil for cleaning products. While fruit entering the fresh market can be profitable, the crop diverted to the byproducts industry, about 36% of the total, is usually sold at a financial loss to growers.

The prorate number eventually agreed upon by the group is forwarded to the U.S. Department of Agriculture in Washington for approval.

The agency, more often than not, routinely OKs the group’s recommendation. Pescosolido says that USDA is just a “rubber stamp” for the committee.

Even if the USDA infrequently adjusts the prorate recommendation, the agency still plays an active role in monitoring the group, a USDA spokesman said. Further, the agency has a representative attend every committee meeting.

“They (the committee) know it’s being regulated and watched,” said Clarence Steinberg, a USDA public information officer in Washington. “They play the game properly. They know they are being scrutinized.”

David A. Beavers, the committee manager, says that during the past 10 years the USDA has changed the group’s shipping recommendation less than 10% of the time.

“Logically speaking, the committee is representative of the lemon industry,” Beavers said. “The USDA looks at the committee as knowledgeable of weekly conditions. They rely on that, but it doesn’t mean that they don’t ever question our figures.”

The prorate allowance, since it determines the supply availability, indirectly sets the wholesale price for lemons in this country. Retail prices are set accordingly and have hovered as high as 99 cents a pound in the past year. Controlling supply is said to be necessary because of the frequent surplus of lemons.

“Prorate stabilizes the market,” said Glenn A. Miller, president of the Saticoy Lemon Assn. in Santa Paula. “When the market is flooded, then the bottom falls out. The last time that happened was in 1986, and growers didn’t do well. Neither did consumers.”

But Pescosolido, who owns 400 acres of lemon orchards in the San Joaquin Valley, said that 1986 proved that deregulation works.

“Three years ago, because of a short crop, there was no prorate used for over a year. The returns to the grower were the highest in 25 years and in 1986 they sold more of their crop than usual,” he said. “I refuse to believe that prices will crash (if shipping limits are lifted).”

Miller, whose group is affiliated with Sunkist, said that the industry is just now synchronizing supply and demand from a glut of lemons more than 20 years ago.

“There was tremendous overplanting in the early 1960s,” he said. “At that time, there were 90,000 acres of lemons. Now there are about 60,000 acres, which is a much better balance.”

The huge jump in acreage occurred when growers mistakenly anticipated a boom in lemon exports to Japan. Although about 22% of the current crop is exported, it is far less than original expectations.

The stability that Miller and others favor in the lemon industry, however, is a magnet for criticism.

“When you control the volume of fruit that is shipped domestically, then that will obviously affect the price,” said Steve Moore, an organic lemon grower in Ventura who has battled with the committee over limits placed on the shipment of his crop. “This prorate system does not allow the free market to function, and I don’t think that is a benefit to the consumer or to me as a grower. It is a benefit to the large corporate growers that prefer a stable system. . . . They prefer no swings in the marketplace.”

Other industry representatives say that if the prorate regulations were removed, then produce channels would be flooded with fruit during certain times of the year. Such a development might financially squeeze growers into ruin.

“The prorate has proven to be a very excellent mechanism for supplying the market on a regular basis to the benefit of the consumer and the grower,” said Anderson.

Another lemon processor, David Giller, Sun World Inc. vice president of citrus marketing operations, supports the prorate regulation, but expresses some reservations about the system.

“Our feeling is that the (prorate) is overused,” said Giller. “We deal with other commodities that are not regulated and it is the marketer’s job (not a committee’s) to sell the fruit. . . . Some people feel that the consumer is not well served (by the committee) and there is some basis for that.”

Giller also said he feels the prorate controls have limited innovation in the lemon industry and created complacency. His firm has developed a number of significant new produce items, such as the seedless watermelon and the Le Rouge Royale red pepper, breakthroughs that would have been unlikely under a regulated system such as that in place for lemons.

“We could never have developed the seedless watermelon under this system. It stifles creativity,” he said.

The prorate, and the lemon marketing order that created it, have nothing to do with product innovation, said Miller of Saticoy Lemon.

“Are innovative things being restricted? That’s not true,” he said, citing his firm’s effort to sell more lemons by developing a mesh bag for use by retailers that holds several lemons at once. “We’re retailing more fruit. In fact, 25% more fruit is being shipped now than there was five years ago.”

There is little chance that the current lemon marketing order, and its prorate provision, will be changed any time soon. The USDA held hearings on the matter in 1985 and a set of revised regulations resulted. The proposal offered several options in place of the current system, but never advanced beyond the preliminary rule-making stages.

For any revision of the marketing order to occur, or for the prorate to be eliminated, the lemon growers would have to vote on the matter. Even if such a vote were taken, it is unlikely that the current system would be drastically changed.

There are some external factors, however, that may prompt a review of lemon prorate. Primary among these is that California and Arizona growers face increasing competition from oversees operations, including Chile, Spain and the Bahamas.

In a recent Lemon Administrative Committee meeting, representatives discussed the fact that a major shipment of Bahamian lemons had been distributed in San Francisco at $10 per carton less than locally grown fruit.

“The West Coast entry of Bahamian lemons was not a problem in the past,” said Beavers. “Their growing costs are less than those in California and Arizona but their volume has never been substantial. They ship only 600 to 700 carloads of fruit, whereas California and Arizona in a normal year ship 45,000 to 57,000 cars of lemons.”

In fact, the annual report sent by the committee to the USDA addressed the issue of foreign competition.

“The California/Arizona lemon . . . has major competitors in other countries. Spain has largely taken over the European market and at times has made incursions into the Eastern United States. Chile has made efforts to move into the summer lemon market in the same manner it has moved into the soft fruit market in the winter,” the report stated. “Each of these countries has distinct advantages over the United States industry in terms of lower costs and cheaper labor. Only a stable and economically profitable industry can prevent such incursions.”

In the committee’s view, an “economically profitable industry” can be achieved only with ceilings placed on the number of lemons shipped in this country.