No Thanksgiving for the Massachusetts cranberry industry

from NewsLink, Vol. 6, No. 1, Fall 2001 Thanksgiving conjures up images of pilgrims, football games, your loud Uncle Ed and, most importantly, food. In 1621, the first Thanksgiving took place as the Pilgrims “entertained and feasted” on their harvest of produce and game. There was corn, squash, turkey and that most Massachusetts of fruits, the cranberry. The cranberry is as synonymous with Massachusetts as the Red Sox or clam chowder. Commercial cultivation of cranberries began in Dennis, Massachusetts in 1816. Ask yourself, “Where is Cranberry World?” The answer, of course, is Plymouth, Massachusetts. In recent years, however, the cranberry industry in Massachusetts has seen the flooding of more than just bogs.         The cranberry industry, once centered in the Commonwealth, has grown and expanded throughout the country. But over the last four decades, Massachusetts has seen its share of national cranberry production drop from 60 percent of the total in 1960 to less than 35 percent today (see chart below). Wisconsin, still known as the cheese capital of the country can now – and this really hurts – claim to be cranberry capital as well. In 2000, Wisconsin cranberry farmers produced 47 percent of the national crop. From 1960 to 2000, the number of acres committed to cranberry farming in the U.S. increased by 73 percent. For Massachusetts the increase was 9 percent, while for Wisconsin, it was a whopping 259 percent. The result has been a dramatic loss in market share for Massachusetts. Increases in production outside of Massachusetts and stagnation of sales have led to the accumulation of substantial inventories. The resulting flood of cranberries has forced down the price farmers receive for their crop. The Cranberry Marketing Committee (CMC) of the U.S. Department of Agriculture decided last year, at the request of Ocean Spray Cranberries, to impose a restriction on cranberry production in order to drive the price of cranberries higher. Ocean Spray is the largest handler of cranberries. In order to limit production and to raise price, the CMC enacted a marketing order that sets an industry-wide quota on the quantity of cranberries each individual grower can bring to market. Last year the quota was set at 85 percent per grower. This year, the quota was lowered to 65 percent of a grower's average best four years of production out of the last seven. There are two problems, however: First, there are huge inventories of cranberries, accumulated before the marketing order went into effect, that are available for sale on the market. Second, there is nothing in the marketing order to prevent new fields from being developed, both in and out of the United States. Wisconsin and Canada are both a source of new production. Canadian producers, who export 80 percent of their production to the United States, are, moreover, not subject to the marketing order at all, putting Massachusetts growers along with other U.S. growers at a comparative disadvantage. With Massachusetts growers limited by urbanization, environmental regulations, property values and the like, they have been unable to expand production. Ironically, on the other hand, implementation of the marketing order seems to have triggered a surge in production from outside the state. With more and more cranberries available from Wisconsin, Canada and other areas outside Massachusetts, the fraction of the market that Massachusetts growers are able to serve is going steadily downward. In effect, Massachusetts finds itself being penalized for doing its bit to reduce the cranberry surplus. Massachusetts growers and handlers traditionally keep their production in line with demand and avoid accumulating costly inventories. Now, under the marketing order, they are, in effect, giving up 35 percent of their crop in order to subsidize the development of new bogs in Wisconsin and Canada. Taxpayers are subsidizing this process, too. Last year the federal government paid cranberry growers slightly less than five dollars a barrel in subsidies, the total subsidy for U.S. growers coming to about $20 million. In addition to this subsidy, the federal government spent $30 million to buy cranberry products for the purpose of reducing the surplus and keeping up price. As it turns out, Ocean Spray controls most of the inventories and most of the Canadian production. Members of the Ocean Spray cooperative produce approximately 70 percent of cranberries grown in the United States but account for only 55 percent of sales. This difference represents a yearly surplus of cranberries that goes into Ocean Spray inventories. Those inventories exceeded three million barrels by August of 2000. Ocean Spray's surplus represents approximately 70 percent of the industry surplus. What we have, then, is another example of a regulation having perverse consequences for its intended beneficiaries: With independent growers in Massachusetts hamstrung by geography and by the marketing order, handlers and processors are forced to go to Ocean Spray for supplies. This, in turn, encourages Ocean Spray to continue expanding out-of-state production for the purpose of increasing its control over the market. Decas Cranberry Products Owner John Decas says USDA marketing orders are forcing him to buy fruit from his competitors. John Decas, an independent Massachusetts grower and processor, has explained in testimony how this process affects him: “Buyers of about 80 percent of my concentrate supply have told me and my brokers that they have been visited by Ocean Spray representatives and offered cranberries below the price they intend to charge my company to replace my regulated berries. In other words, Ocean Spray is using the marketing order... as a predatory means of acquiring a major portion of my companies market share.” Ocean Spray management seems to welcome this criticism. CEO Robert Hawthorne has been quoted as saying, “We need to manage the oversupply problems. When we take back our market share, we are not taking anything away from anyone, we are taking back what belongs to us...what is ours! The only place that Northland [a competitor] belongs, is in receivership.” This year's Massachusetts cranberry crop is turning out to be especially disappointing, so that local handlers and processors find themselves struggling to meet demand. The result is that those demands will be met, if it all, largely from inventories and from cranberries produced out of state and out of the United States. If the marketing order was intended to consolidate Ocean Spray's market power, then it is succeeding splendidly. If it was intended to shore up Massachusetts' declining market share, then, as with so many past price-fixing arrangements, it is failing badly. While Uncle Ed and the rest of us might enjoy this year's Thanksgiving dinner, Massachusetts growers and processors will have little to celebrate. Better to abandon all price supports and subsidies and let Massachusetts growers bring all they want to market than to enlist their participation in an arrangement that seems to be accelerating their decline.

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