The Question at Sunkist: Is Florida Ripe for Expansion?

Sunkist Growers Inc., the citrus farmers’ cooperative whose well-known trademark has made it a dominant force among Arizona and California growers, is considering expanding into Florida.

The Sherman Oaks-based cooperative is thinking about selling fruit from Florida because there’s little chance of expanding citrus production in Arizona and California due to urban encroachment on citrus groves and the skyrocketing costs of water in the southwest. Florida remains the state with the largest citrus crop.

The cooperative, projected to do nearly $1 billion in sales in 1989, has sent three teams of executives and directors to Florida to talk with growers and packers of lemons, tangerines and grapefruit. A fourth team in January will visit the state to talk with orange growers.

But Sunkist officials stressed that they haven’t yet decided whether to expand to Florida. “We don’t have a consensus even among our current members,” said Russell L. Hanlin, president of Sunkist. “It’s too early even to put the question to them.” The cooperative may make a decision next summer, said Curtis W. Anderson, vice president of member and public relations.

Sunkist is a grower-owned cooperative of about 6,000 citrus farmers in Arizona and California, who account for about 65% of citrus fruit production in the two states. The cooperative packs the growers’ fruit, advertises and sells it, then pays the growers most of the proceeds back, minus a fee. For the growers it saves them the worry of actually marketing their fruit.

In 1988, when Sunkist had revenues of about $887 million, it returned about $640 million to members, and after Sunkist’s costs of $241 million, the cooperative’s retained income was $6 million before taxes.

The cooperative is best known for its sales of fresh fruit under the Sunkist name, coined by ad men in 1909. But it also was paid about $10 million in 1988 under licensing agreements that allow other companies to use the name. Cadbury Schweppes Inc., for example, sells Sunkist orange drink.

If Sunkist decides to sell Florida fruit, it would probably not seek new members there, at least early on. The cooperative would simply charge a fee to market the citrus and then plow back the profits from selling Florida fruit to reduce fees for its California and Arizona growers. It could later seek members in Florida.

The impetus for expanding comes from a need to keep pace with the recent consolidations of grocery chains. “We don’t want to be whip-sawed simply by the disparity in size between the buyer and the seller,” Hanlin said. As the market chains get bigger they demand lower prices and a more consistent supply of fruit.

With 33 sales offices throughout North America, Anderson said, Sunkist has plenty of excess capacity to market more fruit without spending more money.

But California and Arizona--despite their size--don’t have much room left for new citrus groves. The two states have lost about 40,000 acres of citrus-growing land in the last five to eight years, Anderson said.

Meanwhile, the high cost of water where there is room to expand--in places like the eastern San Joaquin Valley--makes it unlikely that citrus production throughout Arizona and California will do more than level out in the next few years.

In Florida, it’s a different story. Although the state lost more than 200,000 acres of citrus groves as a result of freezes in 1983 and 1985, new groves are being planted, especially in southern Florida. Hanlin said, “We believe as the Florida crop grows they’re going to need some additions to their marketing facilities.”

What does Florida think about Sunkist’s idea?

“The citrus industry is growing and there’s room for everybody,” said Cathy Clay, a spokeswoman for the Florida Department of Citrus, which levies a fee on growers and spends about $77 million a year advertising the state’s fruit. Florida does have some citrus cooperatives, but none on a scale to match Sunkist.

Although 94% of Florida-grown oranges and about 57% of its grapefruit wind up as juice, rather than sold fresh in grocery stores, Sunkist would concentrate on marketing Florida fruit fresh. That would reflect the cooperative’s current emphasis; about 70% of California and Arizona fruit is sold whole.

Florida’s humidity helps produce juicier oranges than those typically grown here. By comparison, cool nights in California and Arizona make for better-looking fruit.

Despite the difference in emphasis, there’s still a substantial amount of fresh Florida fruit to be sold. In the 1987-88 season, Florida produced about 46 million cartons of grapefruit for sale fresh compared to California and Arizona’s 14 million.