Grower Marketing Outlets
Merritt Taylor, Charles Hall and Gustavo Molina*
The Texas citrus industry aims to produce premium quality fresh fruit. The bulk of the fresh crop is marketed through commercial channels, but small proportions go into the gift fruit market and local sales. The remaining production is diverted to processing, which mainly consists of packinghouse eliminations. The market utilization of Texas citrus is shown in Table 1. The majority of Texas fresh citrus is moved from independent and cooperative shippers through commercial channels to wholesale buyers (both domestic and export), to fund-raising organizations and so-called back-door sales. Excluding export, gift fruit and back-door sales, it is this fruit that must be graded, inspected, packed and shipped under regulations established in the Federal Marketing Order. Also, it is this fruit that is taxed to the shipper for the operations of the Texas Valley Citrus Committee and TexaSweet Citrus Advertising, Inc. There are about 12 independent and three cooperative shippers operating in the Valley.
Table 1. Market utilization of Texas Citrus.
|Season||Domestic||Export||Gift fruit||Local use||Processed||Total*|
|Percentage of Total||51.17||5.07||4.42||3.93||35.41||100.00|
|Early Oranges (tons)|
|Percentage of Total||55.20||0.05||3.33||6.59||34.83||100.00|
|Late Oranges (tons)|
|Percentage of Total||46.13||0.10||2.23||8.78||42.76||100.00|
SOURCES: Texas Valley Citrus Committee.
Texas Citrus Handbook, Texas Cooperative Extension, The Texas A&M University System.
The gift fruit market is a low-volume but premium quality component of the fresh market. Gift fruit is a fancy pack representing only the best in terms of external quality. This specialized pack and market command a high markup. Essentially, clientele purchase the select packs for presentation as gifts. Gift fruit may be shipped directly to the recipient or to the purchaser for subsequent presentation. Major gift fruit sales occur just prior to the Thanksgiving and Christmas holidays, but other holidays can be important to gift fruit shippers. Gift fruit packs may be offered by some commercial shippers who pack gift fruit under a separate company name.
Local use includes fruit stands, flea markets and roadside sales as well as direct orchard sales. Many fruit stands have common ownership with producers, i.e., the fruit stand owner is also a citrus grower, but most fruit stands also will purchase fruit from packinghouses or other growers. Flea market and roadside vendors are usually independent of any production operation, except for a few small orchards. Generally, these vendors purchase small amounts of fruit directly from growers and/or from the eliminations (processing) line of packinghouses.
Most packinghouse eliminations and some direct deliveries from orchards are processed into frozen concentrate. Texas concentrate is commonly sold in bulk to Florida packers to be blended with Florida concentrate, and some is sold to out-of-state distributors for repacking under private labels. However, a large proportion of Texas concentrate is repacked as frozen concentrate and single strength and blended juices marketed under the private labels of the respective processor.
The varied distribution of Texas citrus in the market provides the citrus grower with a number of marketing outlets. Each option, however, requires a different degree of actual grower involvement.
One marketing alternative for citrus growers is selling their fruit through a marketing cooperative. A grower whose orchard is entered into the cooperative is usually not involved in citrus marketing because the cooperative makes all market decisions on behalf of its members. Operations are conducted by managers selected by a board of directors, which is elected by grower members.
The cooperative harvests, packs and sells its members' fruit. The grower is paid an average or pooled price for his fruit. All production is entered into one or more pools, depending upon variety, size, grade and season, as established by the board of directors. Basically, the total returns for all markets of any one pool, less the costs of harvesting, packing and selling, are prorated to the grower based upon the distribution of his fruit within the total fruit in that pool.
The timing of payments to growers varies, but partial payments are usually made as the fruit is sold. However, final payment does not occur until the pool closes, i.e., all fruit or processed product in the pool has been sold and all monies received. Thus, fresh fruit pools may not close until several weeks after the season ends, while processed fruit pools may remain open for a year or more because of product storage.
The open market is comprised of independent shippers, both commercial and gift fruit, who purchase citrus on-tree under a variety of contract arrangements. The buyer harvests, packs and sells the fruit, with payment to the grower soon after harvest. The open market is essentially a forward contract in that the grower sells his fruit before harvest, but is not paid until harvest. There are several approaches to these contracts that both buyer and seller must consider.
A clean-tree contract states a firm price for the entire crop, but the buyer may harvest throughout the season, at his discretion. Such contracts may specify target dates by which ring picks and/or final cleanup will be performed.
A ring-pick contract sets a firm price for the harvest of a specific minimum fruit size, usually by a specified date. There is no agreement about the remaining fruit. Another alternative is a cleantree contract that specifies a price and date for a specific ring pick, with a different price agreed for the later clean-tree harvest. A variation of that clean-tree contract specifies a price for the ringpick, but the clean-tree price is at the then-current price of fruit. There are lump-sum contracts in which the buyer offers a firm price for the entire crop, to be harvested at his discretion. This is simply a lump sum dollar amount, regardless of tonnage.
A number of consignment agreements or participation contracts are being used. Basically, the buyer harvests and markets fruit for the grower for specified handling charges. Commonly, the charge includes a fixed pick-pack-and-sell cost and a percentage commission on gross sales. They are also charged a fee for picking and hauling eliminations. After all the charges have been assessed, the remainder is returned to the grower.
Usually, a shipper who has purchased a grower's fruit for several years will contact the grower with a bid, but the grower may have to solicit buyers. In making a bid, the buyer inspects the orchard to estimate the total volume of fruit and the proportion of various sizes and grades. These estimates are then factored with anticipated market prices for the respective fruit sizes and quality, as well as costs to pick, pack and sell, to arrive at a bid price. Thus, an orchard that will produce a high pack-out and a significant proportion of large-sized fruit will command a higher price than an orchard with lower fruit quality and/or mostly medium to small fruit.
The grower should make the same determinations about the crop and the market in order to establish an on-tree value so he can intelligently negotiate with fruit buyers. Consequently, growers who sell in the open market must become actively involved in the citrus marketing process. Presently, there are 12 independent shippers and 30 to 35 gift fruit shippers in the Valley.
Direct marketing involves the highest degree of grower involvement, as he must personally oversee the harvest and sale of his fruit directly to consumers, whether he uses a roadside stand or a pick-your-own operation or both. Many winter visitors believe the best citrus fruit is purchased directly from the orchard, and many want the experience of picking their own citrus fruit.
Direct marketing can be highly profitable for the grower. The success of direct marketing operation depends upon many different factors. The most critical is that the grower must offer good fruit at a fair price under pleasant circumstances, as satisfied customers will personally advertise the operation.
Fruit for processing is normally obtained as packinghouse eliminations, but processors also purchase fruit directly from growers, particularly during years of moderate production. Texas Citrus Exchange (TCX) is the only processor operating in the Valley. For a number of years TCX was restricted to obtain their fruit only from member growers in the Valley, but this was not sufficient to cover the needs of TCX. After the closure of TexSun in the early '90s the independent growers in the Valley had only TCX as their purchaser. TCX and the independent growers have a longterm participation agreement in which the grower's fruit will be pooled with the fruit of the member growers so they can receive the same returns. The independent growers are charged a $4.00/ton marketing and processing fee while the members are charged only $3.75/ton.
Fruit for processing may be purchased by any of several methods. A forward contract with a grower or shipper specifies a price per ton prior to delivery. Normally, a processor uses forward contracts to assure a minimum supply of fruit. Processed fruit also may be bought on the open market, which is essentially the current market price at the time of delivery.
Participation contracts between growers or shippers and processors allow both seller and processor to participate in the market, as returns to the grower or shipper are determined following sale of the processed stock. Some contracts restrict the tonnage that will be accepted into participation.
*Professor and Extension Economist, Associate Professor and Extension Economist, and Research Assistant, respectively. Department of Agricultural Economics, Texas Cooperative Extension, The Texas A&M University System.
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