Quota Marketing of Oranges Faces Challenge : Agriculture: Key players in the industry back the system, but critics say it limits competition and hurts consumers by propping up prices.
At first glance, Brad Stark, a third-generation orange packer and grower, and a force in California’s citrus industry, had a lot to celebrate with his lawyer over dinner recently.
Jurors in a lawsuit against Stark had, just a few hours earlier, decided that Stark did not cheat a grower named Wade Jackson out of his share of the harvest, after Stark sold navel oranges for cash out of his Strathmore packing house.
But even as he won on this point, Stark also acknowledged an open secret about his industry, the half-billion-dollar-a-year navel orange business: That simply selling oranges can violate federal regulations.
As the trial unfolded across two months in a Tulare County courthouse in the heart of California’s rich orange groves, one of Stark’s foremen detailed how peddlers would arrive at Stark Packing Co. with cash and leave with all the oranges they could carry.
A trucker described how he would pull up to the packing house and drive off with trailers full of fruit. The fruit would be resold, perhaps at flea markets or along freeway on-ramps.
On the face of it, this was free enterprise, pure, simple, and perfectly legal.
In the citrus industry, however, free enterprise is a tightly regulated commodity.
Any packer or farmer who dares to sell oranges the old-fashioned way risks violating an arcane Depression-era law that is used to establish quotas on how many oranges can be sold, and when they can be shipped.
It’s because of this law that Stark’s troubles--and those of fellow citrus packing house operators--are far from over.
A short way up California 99, in the Fresno federal courthouse, citrus industry dissidents are suing 27 orange packers, including Stark, trying to end the so-called market order system governing the sale of navel oranges, perhaps the best eating oranges there are.
If these suits go against packers, they could bring to a halt the 54-year-old market order system for navel oranges grown in California and Arizona--and they could cost the defendants millions of dollars in penalties.
Those costs would likely be passed back to growers or on to consumers. But critics of the system contend that the complex mechanism that sets different quotas every week of the season already adds 25% to 33% to the price of every pound of navel oranges sold in a supermarket.
Under the system, the U.S. Department of Agriculture tells each packing house what percentage of the total navel orange supply grown in California and Arizona that they are allowed to ship in a given week.
The department oversees the system, imposing fines when it finds violators, and adds a few cents to the price of every carton of oranges to help finance it. The system seeks to ensure growers that prices and supplies remain stable, cushioning the pain in bad years and spreading around the profit when crops are good.
Critics say the system limits innovation and competition among growers, packers and marketers, and hurts consumers by propping up prices. Still, the system retains support among dominant players in the industry, whose general feeling is, if it ain’t broke, don’t fix it.
“The system has worked for a lot of years,” said Curtis W. Anderson, a vice president of Sunkist Growers Inc. The Sherman Oaks cooperative, which dominates the industry with more than $1 billion in total citrus sales last year, is the quota system’s leading defender. “The industry is made up of a lot of small growers who cannot do separately what they can do together.”
But James A. Moody, a lawyer who is pressing all the lawsuits against packers, declares: “It forces honest businessmen to think of creative ways to beat the system.”
Moody, a Washington attorney, is trying to upset the orange cart by exposing violations of the system. In Fresno, U.S. District Judge Edward D. Price is preparing to rule on Moody’s motion to award nearly $1 million against the lead defendant, Sunland Packing of Porterville, Calif.
Moody alleges that some packers violate the system by making unreported cash sales. Others simply post-date shipping orders to make it appear that they have complied with the weekly quotas.
Moody cannot use any of the information that came out in the Tulare courthouse against Stark, who is one of three vice chairmen of Sunkist.
But Moody said the testimony about cash sales confirms his point.
He estimates that the quotas keep a third of the navel orange crop off the domestic market and add as much as 33% to the price of every pound sold in stores.
The surplus can be exported or turned into juice. But many oranges end up as livestock feed or are left to rot in the groves--or are sold on the navel orange black market, places such as flea markets and freeway on-ramps.
Fred Spallina of Porterville, Stark’s lawyer in the Tulare County case, successfully argued that Stark did not defraud Jackson by making the cash sales; he returned profits from the cash sales to his growers, including Jackson. But in court, the lawyer also acknowledged that the cash sales violated the federal marketing order.
Still, Spallina added, the sales amounted to a minute fraction of Stark’s volume, about $103,000 worth. Jackson’s lawyer, Daniel Cornell of San Jose, countered with his estimate that $300,000 worth of oranges were sold for cash out of the Strathmore packing house during 1985, 1986 and 1987. In that three-year period, Stark’s volume topped $22 million.
As Spallina sees it, the fact that Stark, with his deep roots in the industry, made unreported cash sales, shows it is a “very standard practice.” Stark Packing is “no different than any other packing house.”
But because fines can run from $5,000 to $10,000 per violation, Spallina noted, packers are routinely invoking their right against self-incrimination when Moody questions them. Court documents show the Agriculture Department is investigating possible violations of the marketing orders, in part based on the allegations made in Moody’s suits.
“Some of these packing houses are not going to be able to stay in business (if fines are imposed),” Spallina warned. “For those that do, the costs are going to be passed along to the poor grower.”
Spallina believes that the trial in Tulare County may hasten the end of the marketing order system for navel oranges. Quotas on another orange, the Valencia, were dropped in 1986, in part because of some of the same kind of legal pressure. The more the citrus industry scrutinizes its own system, Spallina said, the more it will find that growers will prosper even more without the constraint.
“It’s just a question of time,” he said.
