October, 2001

Fruits of Thought

The Watermelon Vote

The National Watermelon Promotion Board (NWPB) is holding a November referendum hoping to break the long tradition that commodity board assessments be marketing-channel neutral.

Under the rubric that everyone who profits from selling watermelons ought to pay to promote them, the NWPB is proposing to levy assessments not only on the grower/shipper level but also at the broker, wholesaler and processor level.

The argument is superficially appealing, and PRODUCE BUSINESS is giving the NWPB the chance to say its piece in a Q&A on page 14 of this issue. But this proposal is wrong and will hurt the trade. It should be defeated for the following reasons:

  1. It picks on the weak guys. It is one thing to make a case that everyone benefiting from a campaign should help pay for it. In fact, however, what the proposal says is that only politically weak groups will be required to pay for it. The two groups most directly selling more watermelon as a result of the program are retailers and restaurants. Yet both groups are exempt from being assessed. Why? Simple, the powerful lobbies of the Food Marketing Institute and the National Restaurant Association would have this defeated in two days. Produce brokers, wholesalers and processors are a small, politically weak group.
  2. It is intellectually sloppy. The fatal intellectual error at the heart of this plan is that the NWPB claims that companies selling more watermelon as a result of NWPB efforts are automatically profiting from the program. This is false. A wholesaler or processor may in fact sell more watermelon because the NWPB convinces consumers that lycopene is a healthy thing. But processors, wholesalers and brokers don’t care about selling more watermelon. Unless people’s overall consumption of food rises, a wholesaler or processor that sells more watermelon probably just sells less of something else. So these players do not in fact profit from the NWPB’s efforts. Their net sales and profits are the same at the end of the year with or without the NWPB.
  3. The vote is undemocratic. Ballots are being sent to wholesalers, brokers, processors, growers and shippers. Because there are many more watermelon producers and shippers than there are wholesalers, brokers or processors that handle watermelon, these whole industry sectors can be drafted into this program without a single wholesaler, broker or processor voting in its favor.
  4. The board is undemocratic. All the proposal does is make existing “handler” seats available to the newly assessed industry segments. The way the system has been arranged, growers and shippers will always have control over all the money. So brokers, wholesalers and processors get to serve on the board, but have no effectual vote. The board could vote to spend all the money on a “Buy Whole Watermelons” campaign, and the processors who would be paying for it could do nothing but fume.
  5. The assessment level will vary arbitrarily by corporate structure. If Del Monte grows, ships and processes melons all under one corporation, it will pay an assessment of 4 cents per hundredweight. If Del Monte wants to organize each of those functions in a separate corporation for liability reasons, then Del Monte has to pay 6 cents per hundredweight. Why in the world should any company’s corporate structure affect its watermelon assessment?
  6. Assessments are biased against wholesalers. Right now Publix as a retailer pays no assessment, but if Publix decided its core competency is retailing and sold its warehouses to Fleming or Supervalu and bought from those companies, all the sudden the NWPB would assess these watermelons an additional time. In effect, the Watermelon Board is proposing a tax on dealing with a wholesaler. Fleming, Supervalu, C&S, Wakefern, etc. should all be up in arms.
  7. Small retailers take a hit. If a watermelon shipper sells direct to a large New York supermarket chain, that product is assessed only at 4 cents per hundredweight. If sold to a Korean greengrocer or Spanish bodega through a wholesaler in the Hunts Point Market, the assessment is 6 cents a hundredweight. But why should a small retailer’s fruit be assessed more heavily than that of a large one? It makes literally no sense. Terminal markets unite!
  8. The administrative burden will be immense. This is not just about watermelon. If this principle is accepted, every board in the country will try to get money from other industry sectors. They will have to because growers will demand it. Yes, it won’t happen overnight; legislation and other changes will be required. But once the principle is accepted , it will spread like wildfire. Think what this means. A wholesaler or processor selling hundreds of items suddenly becomes responsible for figuring out assessments for dozens of boards.

In the end, all assessments are costs of production and must be paid by consumers or the producers go out of business. In this sense as long as each piece of produce is assessed once, it doesn’t matter where in the marketing chain that occurs. However, one advantage of assessing growers and shippers is that the commodity is usually significant to them. So whereas a processor or a wholesaler, for whom watermelons are 1 or 2% of purchases, probably won’t pay much attention, the growers and shippers are the ones close enough to make real judgments about the efficacy of the program and whether they are getting a decent return on investment. If growers and shippers don’t think so, then the solution is to solve that problem, not to expand the assessments to people who don’t know and won’t care.  pb