Cirtus Grower Associates, Inc.

- Equalization Tax - Federal Marketing Order Equalization Tax Equalization tax was assessed on citrus products, mainly frozen concentrated orange juice, imported into Florida to be blended with Florida juice. Then, in 1999 five companies sued the State of Florida and the Florida Department of Citrus challenging the legality of the equalization tax. After several years and Court decisions the Citrus Commission was given the option of settling by returning the taxes paid by the litigants over the past few years, or charging those who had brought in California and Texas juice with the amount that they would have been assessed during that same period of time, or some combination of the two. (see Griffiths June 2, 2002). Then, in January 2007, the DOC staff proposed a Federal Marketing Order for processed Orange Juice as a remedy. A Lakeland Ledger report, Feb 4, 2007:, described the situation as follows: The Free Rider The Citrus Department had been working on getting a share of the Brazilian tariff money for 18 months before the election, said Ken Keck, the department's executive director. The measure was an attempt to solve the "free rider issue." "Obviously the prospects are diminished, but we're going to continue with the legislative effort," he said. But with the prospects diminished, Keck and Steve Ryan, chairman of the Florida Citrus Commission, the department's governing body, have proposed the industry explore another, more radical solution. The commission, on Jan. 17, unanimously approved their proposal to have a committee of seven industry leaders explore turning over the department's marketing and research activities for orange and grapefruit juice to a new federal agency. Since those activities account for more than 80 percent of its current $52 million budget, Keck and Ryan have proposed essentially putting the Citrus Department out of business. The Citrus Department is a state agency charged with marketing Florida citrus products. It also finances scientific research for the benefit of the industry. The citrus agency and similar domestic commodity groups consider imports "free riders" if they do not support the organization's programs financially. The Citrus Department raises most of its money through a tax on every box of commercial citrus harvested in the state. Although the U.S. companies import some small amounts of orange juice from Central America, the lion's share of OJ imports come from Brazil, the world's largest orange grower and citrus processor. No taxes have been paid to support the Citrus Department's marketing on Brazilian juice since 2003. That's when the department settled a lawsuit with five Florida processors that challenged an existing state tax on imports as an illegal state tariff. The U.S. Constitution gives Congress the exclusive authority to levy tariffs. The department had collected from $4 million to $5 million annually from the imports tax, Keck said. It had sought at least that much, if not more, from the $40 million to $70 million collected annually from the OJ tariff. The 2003 settlement "aggravated an existing free rider issue" among Florida growers, said Kristin Gunter, the lawyer for the five processors and a member of the committee looking into replacing the department with a federal program. Gunter and Keck agreed the free rider controversy has become a leading issue in the decades-old competition between Florida and Brazil, which together account for about 90 percent of global OJ products. "When a Florida grower hears Brazilian labor is much less, the cost of land is much less and water and other cultivation practices are much less, the Florida grower doesn't want to add to that list," Keck said. The free rider debate goes beyond avoiding Florida taxes. Florida citrus officials also complain Brazilian processors get a free ride when they ship OJ directly to U.S. processors and bottling plants outside Florida, thus completely avoiding the state's taxing authority. Eliminating that loophole is one advantage of a federal marketing system, Keck and Gunter said. Brazilians see things differently "The biggest part of Brazil's business is in the rest of the world. I'm not sure Brazil gets any benefit from the Department of Citrus programs," said Hugh Thompson, the president of Cutrale Citrus Juices USA Inc. in Auburndale, the subsidiary of Brazil's largest orange grower and OJ processor. In fact, Brazilian processors export most of their orange juice to Europe. But even in the best of years, Florida cannot grow enough oranges to meet U.S. orange juice demand, so it depends on hundreds of millions of gallons of Brazilian juice to meet that demand. And U.S. juice companies will increasingly rely on Brazilian imports for at least the next decade because Florida orange production has declined by about a third from the average levels before the 2004 and 2005 hurricanes. Thompson called for a truce in the economic warfare between the world's citrus titans. He envisioned avenues of cooperation in scientific research on canker and greening and even in marketing. "I really think the Department of Citrus and Florida Citrus Mutual (the state's largest growers' trade group) should be trying to work closely with Brazilian processors," he said, "rather than going to the federal government to try to tax Brazilian processors." Federal Marketing Order Published Wednesday, April 4, 2007 Wednesday, April 4, 2007 Officials Say Avocados May Help Their Plight By KEVIN BOUFFARD, as clarified and improved upon by Ken Keck The Ledger LAKELAND Florida citrus officials agreed to explore an avocado-orange juice blend. That may sound unappetizing as a juice, but it might be just the concoction for a new program that would force Brazilian processors all importers to contribute to marketing and research efforts for Florida orange juice. A special Florida Citrus Commission committee exploring a federal program to replace OJ marketing and research currently done by the Florida Department of Citrus agreed Tuesday to adopt further explore a federal program for avocados as a model for promoting and researching orange juice, while at the same time preserving the ability to market "Florida" juice. Committee member Raphord Farrington, the marketing vice president at Ben Hill Griffin Inc., a Frostproof grower, jokingly suggested a motto for the program, "Make 'em Pay," that could be distributed to Florida growers on thousands of bumper stickers. That was the motto adopted by California avocado growers in the late 1990s, when that industry faced a flood of avocado imports from Mexico, Chile and other Latin American countries, said Mark Affleck, an administrator with the Hass Avocado Board, the federal promotion and research agency created in 2000. The Hass avocado is the dominant variety of that fruit in California. The federal agency sprang from the fight between importers and California growers, who had financed avocado marketing programs through the California Avocado Commission. They complained that avocado importers were benefitting from the commission's programs but did not have to pay taxes to support them. That's the same complaint Florida citrus growers voice concerning orange juice imported from Brazil, the world's largest orange grower and juice processor. The Brazilians don't pay taxes to support marketing programs at the Florida Department of Citrus, the so-called "free rider" issue, growers complain. Like the California Avocado Commission, the Citrus Department is a state agency charged with promoting local agricultural products. Orange juice programs represent more than half of its annual budget. In a telephone conference with the committee, Affleck said some California avocado officials recognized imports would capture a growing share of the U.S. market but that the state commission was powerless to tax them, particularly if their avocados were shipped to other states. California growers wanted to tax the imports, but they also didn't want to give up political control of the commission, he said. "The average grower was quick to say 'yes' to making the imports pay, but not at his own expense," Affleck said. "Without that (Make 'em Pay) there never would have been a Hass Avocado Board." The same split opinion exists among Florida citrus growers. "I would have difficulty with turning things over to the national government," Farrington said. "I think that would be hard for a lot of people to swallow." California avocado officials convinced their colleagues they faced a choice between turning to a federal marketing program that had the authority to tax imports or lose the state commissionCalifornia's presence in the U.S. market under a flood of foreign avocados, Affleck said. This year, California avocados have only a 35 percent share of the U.S. market. But California growers found that none of the existing federal commodity programs under the U.S. Department of Agriculture fits the industry's plan, he said. They worked for five years to create the new Hass Board, which Congress enacted in 2000. Like other federal commodity programs, the Hass Board taxes domestic and foreign products. But it alone has the authority to rebate 85 percent of the taxes collected to the state commission and similar marketing groups representing foreign producers, Affleck said. The California commission receives about $4 million to $5 $12 million from the Hass Board out of $14 million paid by California growers to the federal board to promote the state's avocado industry, he said. Groups representing Chilean and Mexican growers also get the an equal percentage of contributions as a rebate to promote their products. The balance remains with the federal Hass board for truly generic avocado research and promotions. That was the only way to gain support for the federal agency from both California growers and importers, Affleck said. The proposal got approval from more than 90 percent of voters in an industry referendum. The interchange between the exploratory committee and avocado industry suggested that, through properly crafted legislation, and a flexible USDA, there was a way for the Florida industry, other citrus producing states and importers to all have their cake and eat it too. Another feature crucial in getting California support was the 12-member board must contain seven California growers, he said. Several committee members also appeared to like that feature. The Citrus Commission, the Citrus Department's governing body, also has 12 members, all of whom must be Florida growers. Still, the Florida citrus industry would surrender much of its control over the state agency if it turns to a federal program, which would come under USDA supervision. Nonetheless, there was a suggestion that even the continued operation of the Florida Citrus Commission would not be without USDA oversight, if it receives rebates of federal assessments. That oversight would include the prohibition of disparaging advertising programs against other commodities, as well as assurances that rebated monies were spent on bona fide research and promotion programs. The U.S. Secretary of Agriculture would appoint members of the federal oversight board based on recommendations from the industry, said Bob Keeney, the deputy administrator for USDA fruit and vegetable programs, who spoke to the committee in person. The USDA would also approve the federal agency's budget and its marketing programs, he said. Back to Current Issues Comments
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Equalization tax was assessed on citrus products, mainly frozen concentrated orange juice, imported into Florida to be blended with Florida juice. Then, in 1999 five companies sued the State of Florida and the Florida Department of Citrus challenging the legality of the equalization tax.

After several years and Court decisions the Citrus Commission was given the option of settling by returning the taxes paid by the litigants over the past few years, or charging those who had brought in California and Texas juice with the amount that they would have been assessed during that same period of time, or some combination of the two. (see Griffiths June 2, 2002).

Then, in January 2007, the DOC staff proposed a Federal Marketing Order for processed Orange Juice as a remedy.

The Citrus Department had been working on getting a share of the Brazilian tariff money for 18 months before the election, said Ken Keck, the department's executive director. The measure was an attempt to solve the "free rider issue."

"Obviously the prospects are diminished, but we're going to continue with the legislative effort," he said.

But with the prospects diminished, Keck and Steve Ryan, chairman of the Florida Citrus Commission, the department's governing body, have proposed the industry explore another, more radical solution.

The commission, on Jan. 17, unanimously approved their proposal to have a committee of seven industry leaders explore turning over the department's marketing and research activities for orange and grapefruit juice to a new federal agency.

Since those activities account for more than 80 percent of its current $52 million budget, Keck and Ryan have proposed essentially putting the Citrus Department out of business.

The Citrus Department is a state agency charged with marketing Florida citrus products. It also finances scientific research for the benefit of the industry.

The citrus agency and similar domestic commodity groups consider imports "free riders" if they do not support the organization's programs financially. The Citrus Department raises most of its money through a tax on every box of commercial citrus harvested in the state.

Although the U.S. companies import some small amounts of orange juice from Central America, the lion's share of OJ imports come from Brazil, the world's largest orange grower and citrus processor.

No taxes have been paid to support the Citrus Department's marketing on Brazilian juice since 2003. That's when the department settled a lawsuit with five Florida processors that challenged an existing state tax on imports as an illegal state tariff. The U.S. Constitution gives Congress the exclusive authority to levy tariffs.

The department had collected from $4 million to $5 million annually from the imports tax, Keck said. It had sought at least that much, if not more, from the $40 million to $70 million collected annually from the OJ tariff.

The 2003 settlement "aggravated an existing free rider issue" among Florida growers, said Kristin Gunter, the lawyer for the five processors and a member of the committee looking into replacing the department with a federal program.

Gunter and Keck agreed the free rider controversy has become a leading issue in the decades-old competition between Florida and Brazil, which together account for about 90 percent of global OJ products.

"When a Florida grower hears Brazilian labor is much less, the cost of land is much less and water and other cultivation practices are much less, the Florida grower doesn't want to add to that list," Keck said.

The free rider debate goes beyond avoiding Florida taxes. Florida citrus officials also complain Brazilian processors get a free ride when they ship OJ directly to U.S. processors and bottling plants outside Florida, thus completely avoiding the state's taxing authority.

Eliminating that loophole is one advantage of a federal marketing system, Keck and Gunter said.

"The biggest part of Brazil's business is in the rest of the world. I'm not sure Brazil gets any benefit from the Department of Citrus programs," said Hugh Thompson, the president of Cutrale Citrus Juices USA Inc. in Auburndale, the subsidiary of Brazil's largest orange grower and OJ processor.

In fact, Brazilian processors export most of their orange juice to Europe. But even in the best of years, Florida cannot grow enough oranges to meet U.S. orange juice demand, so it depends on hundreds of millions of gallons of Brazilian juice to meet that demand.

And U.S. juice companies will increasingly rely on Brazilian imports for at least the next decade because Florida orange production has declined by about a third from the average levels before the 2004 and 2005 hurricanes.

Thompson called for a truce in the economic warfare between the world's citrus titans. He envisioned avenues of cooperation in scientific research on canker and greening and even in marketing.

"I really think the Department of Citrus and Florida Citrus Mutual (the state's largest growers' trade group) should be trying to work closely with Brazilian processors," he said, "rather than going to the federal government to try to tax Brazilian processors."

LAKELAND
Florida citrus officials agreed to explore an avocado-orange juice blend. That may sound unappetizing as a juice, but it might be just the concoction for a new program that would force Brazilian processors all importers to contribute to marketing and research efforts for Florida orange juice. A special Florida Citrus Commission committee exploring a federal program to replace OJ marketing and research currently done by the Florida Department of Citrus agreed Tuesday to adopt further explore a federal program for avocados as a model for promoting and researching orange juice, while at the same time preserving the ability to market "Florida" juice.

Committee member Raphord Farrington, the marketing vice president at Ben Hill Griffin Inc., a Frostproof grower, jokingly suggested a motto for the program, "Make 'em Pay," that could be distributed to Florida growers on thousands of bumper stickers.

That was the motto adopted by California avocado growers in the late 1990s, when that industry faced a flood of avocado imports from Mexico, Chile and other Latin American countries, said Mark Affleck, an administrator with the Hass Avocado Board, the federal promotion and research agency created in 2000.

The federal agency sprang from the fight between importers and California growers, who had financed avocado marketing programs through the California Avocado Commission. They complained that avocado importers
were benefitting from the commission's programs but did not have to pay taxes to support them.

That's the same complaint Florida citrus growers voice concerning orange juice imported from Brazil, the world's largest orange grower and juice processor. The Brazilians don't pay taxes to support marketing programs at the Florida Department of Citrus, the so-called "free rider" issue, growers complain.

Like the California Avocado Commission, the Citrus Department is a state agency charged with promoting local agricultural products. Orange juice programs represent more than half of its annual budget.

In a telephone conference with the committee, Affleck said some California avocado officials recognized imports would capture a growing share of the U.S. market but that the state commission was powerless to tax them, particularly if their avocados were shipped to other states.

California growers wanted to tax the imports, but they also didn't want to give up political control of the commission, he said.

"The average grower was quick to say 'yes' to making the imports pay, but not at his own expense," Affleck said. "Without that (Make 'em Pay) there never would have been a Hass Avocado Board."

"I would have difficulty with turning things over to the national government," Farrington said. "I think that would be hard for a lot of people to swallow."

California avocado officials convinced their colleagues they faced a choice between turning to a federal marketing program that had the authority to tax imports or lose the state commissionCalifornia's presence in the U.S. market under a flood of foreign avocados, Affleck said. This year, California avocados have only a 35 percent share of the U.S. market.

But California growers found that none of the existing federal commodity programs under the U.S. Department of Agriculture fits the industry's plan, he said. They worked for five years to create the new Hass Board, which Congress enacted in 2000.

Like other federal commodity programs, the Hass Board taxes domestic and foreign products. But it alone has the authority to rebate 85 percent of the taxes collected to the state commission and similar marketing groups representing foreign producers, Affleck said.

The California commission receives about $4 million to $5 $12 million from the Hass Board out of $14 million paid by California growers to the federal board to promote the state's avocado industry, he said. Groups representing Chilean and Mexican growers also get the an equal percentage of contributions as a rebate to promote their products. The balance remains with the federal Hass board for truly generic avocado
research and promotions.

That was the only way to gain support for the federal agency from both California growers and importers, Affleck said. The proposal got approval from more than 90 percent of voters in an industry referendum. The interchange between the exploratory committee and avocado industry suggested that, through properly crafted legislation, and a flexible USDA, there was a way for the Florida industry, other citrus producing states and importers to all have their cake and eat it too.

Another feature crucial in getting California support was the 12-member board must contain seven California growers, he said. Several committee members also appeared to like that feature.

The Citrus Commission, the Citrus Department's governing body, also has 12 members, all of whom must be Florida growers.

Still, the Florida citrus industry would surrender much of its control over the state agency if it turns to a federal program, which would come under USDA supervision. Nonetheless, there was a suggestion that even the continued operation of the Florida Citrus Commission would not be without USDA oversight, if it receives rebates of federal assessments. That oversight would include the prohibition of disparaging advertising programs against other commodities, as well as assurances that rebated monies were spent on bona fide research and promotion programs.

The U.S. Secretary of Agriculture would appoint members of the federal oversight board based on recommendations from the industry, said Bob Keeney, the deputy administrator for USDA fruit and vegetable programs, who spoke to the committee in person.

The USDA would also approve the federal agency's budget and its marketing programs, he said.