PICKING UP THE PIECES
WAC continues restructure one year after judge’s decision

By Kimberly Warren
Managing Editor

March 31 marked the anniversary of the day apple marketing in the United States changed.

It was on that day one year ago that U.S. District Judge Edward Shea issued his ruling: the Washington Apple Commission violated first amendment protections of free speech. This ruling set forth an effort by the commission to find how – and if – it fit into Washington’s apple industry.

WAC was ready to shut its doors completely in April 2003, but under a settlement between the commission and all parties involved, WAC was allowed to continue its mission, though noticeably different.

The biggest difference is the prohibition on generic domestic advertising campaigns. No longer is WAC allowed to do promotions for Washington apples.

“”We are only promoting overseas and outside of the U.S.,” said Dave Carlson, president of WAC. “There was a dramatic reduction that brought our assessment income down to about 14 percent of what it was before,” Carlson said. “We used to bring in $20 to $25 million a year. We’ll now bring in $2.5 to $2.75 million per year for assessment revenue. Those funds can only be used to promote Washington apples overseas.”

Under the settlement, assessments paid by growers were cut from 25 cents per box to 3.5 cents per box. A decrease, Carlson said, that has greatly reduced the apple commission’s daily operations. But along with a large decrease in assessment funds, Washington state apple growers also had a 76 million-box crop – compared with the usual 86 million boxes.

These funding shortages made the board of directors of WAC re-evaluate their funding of different organizations. As of April, WAC is no longer providing funding to the Washington State Horticultural Association or the Northwest Horticulture Council.

“They were in a tough spot, and the apple commission’s board had a difficult decision to make,” said Jim Hazen, director of the Washington State Horticultural Association (WSHA).

WAC had agreed in July 2003 to contribute $140,000 to WSHA. They have, since that time, decided to not fund WSHA, Hazen said. The money WAC would have contributed to WSHA was earmarked for special projects, and Hazen said the loss of that funding will not affect day-to-day operations.

“We’re just moving ahead,” Hazen said. “For this year, we’re going to stay the course. Then we’ll have to go out and make a case for the funding, and I think the industry will back them.”

WAC will continue to send its full funding to the U.S. Apple Association (USApple).

Besides cutting its funding to some industry organizations, WAC has cut back its staff from more than 50 people to seven full time staff members based in Wenatchee and 10 people based overseas. In the last year, WAC has also rented out some of its office space to recoup some of the building expenses – as well as bring in a little extra income for the commission.

WAC is maintaining its use of the Washington apple logo, which is available to growers and shippers through a request form at the WAC office in Wenatchee.

But, when it comes to uses of the logo on the domestic basis, Carlson said that is left up to the individual shippers.

“Domestic-wise, we’re doing nothing,” he said. “We started a deal with McDonalds on a test market basis 1-1/2 years ago for sliced apples. Three months ago, they said they were going nationwide, and they wanted to use the Washington apple logo. Unfortunately, we could not participate. They’re still doing the promotion nationwide, but they can source the apple from wherever they like... We’ll still be getting apples in McDonalds, and it’ll move a lot of apples.”

The Washington apple logo is still being used by different shippers in Washington but not by all of them, Carlson said.

“Some are using their own logos, some are using ours,” he said. “I think there will be a tendency for X, Y or Z Company’s apples. After a certain amount of time passes, that’s going to happen – like Budweiser beer instead of just beer.”

But, Carlson said Washington is still a big player in the national and international apple-marketing arena.

“The budget was $20 million a year for a long time to build that Washington brand, and that’s not going to go away over night,” he said. “We’re still maintaining the logo in 47 countries overseas and in the United States – it’s still recognized. There’s a lot of shippers that still use the logo.”

Neil Galone, vice president of sales for Snokist Growers in Yakima, Wash., said they have stepped up into domestic marketing.

“The lack of merchandising activities by the apple commission has created a void,” Galone said. “We’ve all had to go out and fill that void. Obviously, they were doing something the customers were looking for.”

Washington’s short apple crop this year helped to make the marketing a little easier in this time of transition, Galone said.

“This year we’ve been very fortunate,” he said. “It’s been a good year for apples; demand has been in line with supply.”

But even with individuals able to step up and take over marketing of their apples, the absence of WAC has created a different void, Galone said.

“The problem with no longer promoting apples as an industry is that we no longer have this cohesive group out there trying to raise the bar on consumption of apples,” he said. “What we’re trying to do is get more people to sell our product, but there is no one out there trying to promote individual consumption.”

U.S. apple industry responds

Galone said that the lack of an industry effort also gives other apple-producing states in the United States to step in and take over part of that market.

“Because we no longer have this cohesive effort, it gives other producing areas an opportunity to take advantage of us,” he said. “Plus, when we were more aggressive as an industry in raising consumption, part of the objection that some people had is that it also raises consumption for New York and other apples – a rising tide floats all boats.”

The apple promotion organizations in other states seemed to agree with what Galone said – the lack of the apple commission has both positive and negative effects for the industry as a whole.

“It was quite a devastating and surprising turn of events to learn that the institution of the Washington Apple Commission was no more,” said Denise Yockey, executive director of the Michigan Apple Committee. “We’re very pleased, of course, from a marketing perspective to see marketing continuing and picking up pretty strong out of the West (for Michigan apples).”

But Yockey said she is still pleased to see that there is still strong apple marketing in Washington state.

“We certainly don’t want to see those apples unsold at the end of the season,” she said. “We’re happy to see a number of strong entities replace the Washington Apple Commission and have them refocusing on selected areas.”

Jim Allen, president of the New York Apple Association, said he thinks there are two different lists that came out of the WAC case: pros and cons.

“There were some things that developed that we found advantageous and, at the same time, there were some things that developed that were certainly not favorable,” Allen said. “Initially we found, there was a much increased interest for more of our materials. I think our business increased. But we did find some cases where the industry groups out of Washington had focused on some of the retailers and made them attractive offers that did not help us.

“In the big picture, I think the demise of the commission certainly will reduce the number of promotions and advertisements for apples throughout the year... it takes apples out of the consumers’ eyes.”

California is Washington’s No. 1 customer for apples, said Kenton Kidd, president of the California Apple Commission. And that has not changed in the last year.

“They continue to be competition, and everything appeared to be about the same as it always was with the exception of individual companies doing the promotional work rather than the commission,” Kidd said. “They (Washington) were still here in full form.”

Diana Aguilar, executive director of the Pennsylvania Apple Marketing Board, said Pennsylvania apples are promoted and marketed based on what the retailers want – and that does not change.

“Any time, any year, what we do is directly affected by the retailer,” Aguilar said. “The crops affect that. And, in addition to that, WAC affected that. The fall of the apple commission, in my opinion, is that it hurt the industry... The Washington Apple Commission was a strong presence for the apple industry, and we all benefited from that.”

But, each of the states said they will also be looking to see what happens in the coming season because of the small crop last year in Washington.

“With a smaller crop to move, this timing was very good for them not to have to have this huge war chest of promotional funds to rely on,” Allen said. “Next year, if they come through with a normal crop, and the East comes through with a normal crop, there’s going to be a lot of apples to promote and sell. It will be interesting to see how that develops.”

A new law

June 10, a new law will take effect in Washington that will govern how WAC operates. The bill follows the guidelines that Judge Shea put down on March 31, 2003.

Currently, the director of Washington’s department of agriculture is an ex-oficio member, but under this bill, the director will become a full voting member of the board, Carlson said. Under this bill, the board is to be appointed by the department of agriculture conducted from an advisory vote by growers. The bill makes WAC a state agency rather than a corporation operating under state law, as it was in the past.

“We will still continue to operate almost as we did in the past – it doesn’t change anything about the way we’ve been operating since April,” Carlson said. “We will basically be working in the foreign market promotion area. We will be funding other organizations like the U.S. Apple Association for nutrition education and health benefits information.”

He said they will have to appear in federal district court beginning in June with the new law in hand for the judge to review and make sure that the guidelines set forth in March have been followed.

Timeline

Aug. 9, 2001: Washington Apple Commission files lawsuit to clarify the constitutionality of its existence. The case resulted from the Supreme Court decision in June 2001 against the Mushroom Council’s mandatory assessment for generic advertising.

March 31, 2003: U.S. District Judge Edward Shea rules against the Washington Apple Commission based on the 2001 Supreme Court ruling that forcing growers to pay for promotions that benefited their competitors infringed upon their constitutional protection of free speech.

April 10, 2003: Washington Apple Commission issues a press release saying its board decided to wind down operations immediately.

April 25, 2003: Washington Apple Commission comes to a partial settlement agreement with the class and the seven organic growers.

May 20, 2003: Second settlement reached with the three Yakima interveners. Agreement stipulates that apple commission will operate on a 3.5 cent per box assessment to fund industry organizations, foreign trade activities, Market Access Program and research and education project. Advertising activities would be restricted.

July 22, 2003: U.S. District Judge Edward Shea approves Washington Apple Commission settlement proposal for 3.5-cent assessments. Apple Commission continues operations as stipulated in the settlement and with a much smaller staff.

March 29, 2004: Gov. Locke signs legislation creating a new Washington Apple Commission.

June 10, 2004: New law will take effect that will govern the operations of the Washington Apple Commission. Included in the changes is the role the director of the Department of Agriculture plays. The director then would be a voting member of the Washington Apple Commission board of directors.

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