Lawsuits Threaten to Sour Image of Sunkist Growers

Since 60 desperate orange farmers in Southern California pooled resources 99 years ago to market their fruit, Sunkist Growers Inc. in Sherman Oaks has grown into the nation’s largest citrus cooperative. With 6,500 member farms and a trademark that is all but synonymous with oranges, its annual revenue now reaches $1 billion.

But as its centennial approaches, an unexpected set of lawsuits has put a cloud over Sunkist’s future, threatening to tarnish its renowned brand name and jeopardizing an old and controversial federal quota system, also involving oranges, that Sunkist has fought long and hard to maintain.

The four suits were filed last month in Fresno by the U.S. Department of Justice, which accused Sunkist and four of its member lemon packinghouses of overshipping lemons in the late 1980s in violation of federal volume quotas--a Depression-era regulation intended to prevent fruit gluts that could lead to destructive price wars and hurt farmers.

The citrus quotas--which the government calls marketing orders--have been temporarily lifted because a freeze two years ago caused a shortage. But the volume restrictions are expected to return. When in effect, these shipment quotas are set up weekly by the Department of Agriculture for all lemon and orange growers in California and Arizona. Because of Sunkist’s size, it represents 65% of the citrus production in California and Arizona.

Growers not affiliated with Sunkist have long argued that the quotas hurt their businesses by restricting their shipments, while allowing Sunkist to control prices and maintain its dominance in the two states. By violating volume quotas, they allege, Sunkist and its members are reaping additional profits by shipping in excess of the restrictions.

“Sunkist plays an important role for the industry, but I’m tired of their dictatorship,” said David Roth, a former Sunkist member who is now an independent lemon and orange grower in Tulare County.

“I feel cheated,” he said, adding that independents have been unable to abolish the quotas because of the strong voting bloc that Sunkist has.

Russell Hanlin, Sunkist’s president, said he didn’t know whether the four lemon packinghouses are guilty of overshipments. But either way, he said, Sunkist isn’t guilty because it isn’t directly involved in packing activities. “I believe to the depths of my soul that Sunkist has no involvement or culpability,” he said.

Dan Haley, administrator of the agricultural marketing service at the Department of Agriculture in Washington, said the Sunkist lemon cases are important to the cooperative and the citrus industry in the two states.

“If Sunkist is found to have violated the order, its credibility will be in question,” Haley said in an interview. The outcome of the Sunkist cases “will be very significant on a decision whether the marketing order will continue.”

The federal government sets volume quotas for dozens of agricultural products, but the citrus quotas in California and Arizona are among the most controversial. Orange farmers in Florida, the other major U.S. citrus producer, are seldom bound by volume quotas because about 90% of the oranges produced there are processed into juice. Arizona and California growers account for the bulk of fresh oranges and lemons sold in supermarket produce sections.

Sunkist has long been the spokesman for citrus volume quotas. And it has made the most of them. For a fee, Sunkist advertises, markets and processes fruits into juices. This year Sunkist’s average fee is 55 cents per 40-pound carton of citrus. Sunkist returns most of the revenue from sales to its member growers and packers, less expenses for marketing and advertising, and retains a small share for income.

For its last fiscal year ended Oct. 31, Sunkist had revenue of $956 million, compared to $1.1 billion in the previous fiscal year. In fiscal 1991, Sunkist returned $713 million to its members, and it reported a loss of $6 million because of the freeze in December, 1990, compared to $795 million paid back to members and retained income of $6 million in the previous fiscal year.

Partly by increasing exports to Japan, Sunkist’s revenue has grown in recent years despite a drop in membership, from 9,200 members in 1970, and increased competition from both overseas and Florida. As a result, today Sunkist supplies less than 50% of the fresh oranges, lemons and grapefruit sold in the United States, down from 70% in 1970, according to published reports.

Hanlin said Sunkist spends about $250,000 a year for lobbying in Washington and elsewhere, which includes efforts to maintain the volume quotas. But the federal government has been cracking down on quota violators recently and is said to be reviewing whether the quotas are still necessary.

In the last decade, federal officials have filed suits against mainly independent citrus packing companies for alleged overshipments. And two dozen suits have been filed by private individuals against orange packers affiliated with Sunkist.

But the latest complaints are noteworthy because they are the first brought by the federal government against Sunkist.

The Justice Department’s suits allege that Sunkist collaborated with Saticoy Lemon Assn. and Oxnard Lemon Co., both in Ventura County, and two other lemon packers in shipping thousands of more cartons than their weekly allotments. Justice officials contend that Sunkist “facilitated that conduct by preparing documents with false dates.”

The lemon packers declined or deferred comment to Sunkist. They are part of a network of 65 Sunkist-member packinghouses that pick, sort, wax and ship citrus.

Daniel Bensing, assistant U.S. attorney in Fresno, said the suits seek damages equal to the then-current market value of the alleged overshipments. And he estimated potential damages at more than $100,000 in each of the four cases.

For Sunkist, much more than a fine is at stake. Sunkist officials worry that the suits could hurt their “bright, wholesome” image, which has been a big part of Sunkist’s success.

Indeed, Sunkist citrus has long commanded a higher price in groceries because citrus bearing its trademark is thought to be of better quality, though independent growers believe that the difference is mainly cosmetic.

“When the dust settles, Sunkist is going to be paying both politically and economically,” said Carl Pescosolido, an independent orange grower and packer in Exeter, Calif. Pescosolido has been a thorn in Sunkist’s side for the last decade, having filed more than two dozen suits against Sunkist and its member packinghouses on alleged quota violations. The government’s lemon-overshipment suits against Sunkist are based on Pescosolido’s filings.

Pescosolido, who himself faces a government suit for alleged overshipments that are unrelated to the Sunkist cases, argues that volume restrictions promote inefficiency and higher prices by removing competition from citrus farming.

Sunkist counters that marketing orders are essential in maintaining plentiful supplies. Growers who support the system say it makes farming less risky and perhaps more equitable.

Both opponents and supporters of the quota system agree that if it is abolished, less-efficient growers will be forced out of business, and that means Sunkist could lose members and, ultimately, clout.

Bob Reniers, who owns Sun Pacific Shippers in the San Joaquin Valley and is a Sunkist member, said Sunkist “might shrink. There will be a lot of producers who will exit the business.”

Haley, of the USDA, declined to comment about the suits. But he said: “Sunkist is an incredibly successful organization and deserves credit. But with that reputation also comes responsibility.”