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Robert A. Morris2 force majeure
Processed Fruit Marketing Alternatives for Florida Citrus Growers 2
Processed Fruit Marketing Alternatives for Florida Citrus Growers 3
Processed Fruit Marketing Alternatives for Florida Citrus Growers 4
Processed Fruit Marketing Alternatives for Florida Citrus Growers 5
Processed Fruit Marketing Alternatives for Florida Citrus Growers 6 Multi-Year Contracts Long-Term Contracts
Processed Fruit Marketing Alternatives for Florida Citrus Growers 7
Processed Fruit Marketing Alternatives for Florida Citrus Growers 8
Processed Fruit Marketing Alternatives for Florida Citrus Growers 9
Processed Fruit Marketing Alternatives for Florida Citrus Growers 10 Florida oranges sold on the cash market Season Oranges Processed Oranges Sold on Cash Market Portion Sold on Cash Market Price (Thousand Boxes) (Percentage) ($/pound solids) 2008/09 155,103 27,813 17.9 1.00 2007/08 166,009 43,015 25.9 1.40 2006/07 123,224 46,933 38.1 2.14 2005/06 142,165 48,242 33.9 1.33 2004/05 142,836 39,038 27.3 0.91 2003/04 233,804 57,544 24.6 0.71 2002/03 194,579 38,034 19.5 0.94 2001/02 221,843 40,494 18.3 0.84 2000/01 213,635 35,967 16.8 0.76 1999/00 224,289 49,144 21.9 0.91 Note: Includes oranges sold on the spot/cash and contract markets combined. Oranges sold on multi-year contracts and participation programs are not included. Source: Florida Department of Citrus and Florida Citrus Processors Association, Statistical Summary, various seasons, Lakeland, FL. Key elements of orange toll-processing agreements Element Description Toll fee in dollars per pound solids Amount paid to processor for toll processing fruit under the agreement Fruit quantities to be processed Boxes of fruit processed under the agreement Fruit delivery schedule Days each week fruit will be delivered daily Storage costs Dollars per pound solids for storing toll-processed juice in tanks or drums Product specifications Pulp level Fruit pulp allowed in juice in grams/liters Bacteria Specified as colony forming units/milliliters Oil level Percent of peel oil allowed in juice Brix Sugar content of juice Defects Things that detract from juice like black specks Blending specifications All expressed in numerical values Color Degree of orange color in juice Ratio Sugar to acid ratio, optimum is 13:18 Storage temperature Measured in degrees Fahrenheit Flavor A quantitative measure of taste Overall score The numerical total of these specifications How by-product returns are divided between the parties Percent of revenues from sale of by-products that goes to the toll processor and the fruit owner Juice delivery schedule Days each week juice will be delivered and amount delivered daily Payment of fruit taxes and fees Who pays Department of Citrus advertising tax, Florida Citrus Mutual's tax, etc. Payment terms How many days after processing fruit does fruit owner have to pay-toll processing and storage fees Total computed from all elements of the contract Amount paid to the toll processor for processing the fruit under the agreement Note: Toll processing is the processing of fruit not owned by the toll processor into bulk concentrate or bulk not-from-concentrate (NFC) for a fee.
Processed Fruit Marketing Alternatives for Florida Citrus Growers 11 Key elements of a fruit participation price formula Element Description Juice sales revenue minus Sales of juice by the processor or brand Distribution costs minus Costs of transporting packaged juice to market Finished goods warehousing costs minus Costs of storing packaged juice Packaging costs minus Costs of putting juice in containers Work-in process bulk juice inventory costs minus Bulk juice stored in tanks or drums Processing costs minus Costs of processing fruit into bulk juice General and administrative (G&A) costs minus Costs for processor's administrative functions, interest, etc. Percentage of sales as profit equals Company sales multiplied by a percentage the company keeps as profit, usually 3 percent Fruit participation revenue divided by pounds solids in participation pool Revenues minus the previous costs divided by the pounds solids from all fruit sold under that participation price formula Participation price per pound solids Dollars per pound of solids for fruit Fruit participation price per pound solids minus Dollars per pound of solids for fruit Advance at time of fruit delivery equals Usually 75 percent of expected fruit price Balance due grower The amount in dollars paid to the grower Notes: 1. Growers are advanced 75 percent of the estimated participation price at the time they deliver their fruit. The balance is paid after the marketing period, when the participation calculation is completed. 2. Bulk processors with a participation program follow the same principle as this example, but do not have costs or deductions for finished goods warehousing or packaging. 3. The above calculations are often performed separately covering different marketing periods for Early-Mids and Valencias. 4. For grower-owned cooperatives, there is no profit deducted as this is returned to grower-owners as a return on their plant investments.
Processed Fruit Marketing Alternatives for Florida Citrus Growers 12 Important elements of a processed-fruit contract* Contract Elements 1. Fruit purchaser should hold a valid fruit dealer's license. This helps ensure purchaser has ability to pay for the fruit. 2. Verify that the person you are dealing with is an agent for the buyer. 3. In box contracts, the number of boxes should be specifically defined. In production contracts, the exact location of the grove(s) from which the fruit will be harvested and the percent of fruit in the grove(s) covered by the contract should be defined. 4. Contract should specify how the grower will be paid (i.e., per pound of juice solids, per gallon of juice, etc.). 5. Make sure the fruit varieties covered by the contract are specified. 6. Specifications for Brix and ratio that differ from USDA minimums should be reasonably achievable. 7. Contract should specify the fruit location the transport haul is based on for determining the price (e.g., loaded on a truck at roadside near grower's grove, delivered to a plant, etc.). 8. The exact date or dates when payments will be made should be specified. 9. Cash contracts should specify the exact price or prices. 10. Participation contracts should specify the beginning and ending dates of each pool, define and describe the elements of the pricing formula, and define what returns if any will be provided from the sale of by-products. 11. Reference pricing mechanisms should specify the reference price that is used, the period of time it covers, and if the reference price is not a fruit price, how it will be converted to a fruit price. 12. If the contract has a price-rise provision, make sure it describes how the rise will be determined. 13. If a grower receives a cash advance before final payment, contract should specify how and when the advance will be deducted from final fruit price and payment, and what interest rate if any will be charged for the cash advance. 14. Contract should specify either a fruit-picking and delivery schedule, or how and when the parties will develop a picking and delivery schedule. 15. If contract provides picking and hauling services, the rates or how the rates will be determined should be specified. 16. The accounting of harvested fruit should be summarized with field tickets and online scale tickets with USDA inspection certificates. 17. The contract should have a force majeure provision so that if a freeze, fire, storm, drought, labor shortage, or any other cause beyond either the grower's or buyer's reasonable control interrupts business to the extent that the affected party cannot perform all its obligations under the contract, then to that extent the party so affected will be excused from performance. This provision should provide for the grower to refund any applicable cash advances for undelivered fruit to the buyer. For growers with box contracts, force majeure provisions should specify how the state total crop reduction will be used to determine the amount the grower is excused from delivering to the buyer. 18. Where applicable, provisions for the buyer to deduct and pay, on the grower's behalf, citrus-advertising taxes and other applicable taxes and fees, should be specified. Disclaimer: The material and content presented in this table is in summary form and is provided for informational purposes only; it does not constitute professional legal advice and should not be relied upon as a substitute for such. Consult with an attorney before signing any contracts. Sources: Interviews with Florida fruit processors and buyers, information provided by Florida Citrus Mutual, and over ten years of experience buying fruit for a major branded juice marketer and a major bulk processor.