It may not be the end, it may not be the beginning of the end but it is surely the end of the beginning.
We have been covering the travails of Sunkist for some time including this piece we ran back in February that posited a new paradigm for the western citrus industry. That new paradigm may now be upon us.
Although no official announcement is out, we have learned that Sunkist will lose Euclid Citrus as a member and that Euclid will turn to Sun Pacific for sales and marketing.
This isn’t the end of things. Sunkist will lose still more volume before the start of next season. Citrus growers report that Sunkist has not corrected what they almost universally perceive as its excessive overhead, and these high costs are driving leading firms to seek alternatives to Sunkist.
The situation is far worse than it sounds. When members leave a co-op such as Sunkist, it is not a random event. It is the good members with capability and options that will leave.
The less capable firms, with less desirable fruit and less developed infrastructure, will stay at Sunkist.
The core issue is that Sunkist’s sales and marketing charge will be nearly doubled in 2007 to about $1.40 per box and that does not include a special 13th month assessment — an extra charge to cover expenses incurred that have not been covered by normal assessments.
This is all putting the Western citrus industry into a state of uncertainty.
The Pundit’s family used to have a banana import deal at a time when Chiquita had a virtual monopoly on the market. The Pundit Poppa, to this day, remembers that banana deal as the easiest deal he had in a lifetime in the produce industry.
Chiquita would each week announce its price, and we had lined up a group of buyers who weren’t concerned about brands but wanted a bargain banana. Whatever Chiquita’s weekly price was, we undercut it a bit and we were sold out very quickly.
Sunkist has provided a similar price umbrella for the Western Citrus industry. But its volume losses — paramount, Bee Sweet and now Euclid — means it will be difficult for it to serve this function.
This is a sea change in the industry… and a little dangerous as well.
Our experience has always been that strong competitors make for strong markets — weak competitors start flailing, sending out roller cars, dumping stuff in terminal markets, pricing incorrectly.
The industry can live with a strong, dominant Sunkist, it can probably live with a small and insignificant Sunkist. It is the middle-ground that poses a danger to the whole trade.
A middle ground is something we seem likely to be living in for at least the next season.