Something Shady At Sunkist?

For most of its 100 years, Sunkist Growers Inc. has been father, mother, and cheerleader to citrus farmers in California and Arizona. The 6,500-member cooperative's marketing troops made Sunkist a household name. And in Washington, its powerful lobbyists preserved ancient marketing quotas that prop up citrus prices.

But the Justice Dept. wonders whether the Sherman Oaks (Calif.) co-op has abused its clout. This month, sources say, Justice is expected to press Sunkist and its packers to pay up to $20 million in fines to settle charges that influential co-op members and Sunkist-licensed packinghouses exceeded sales quotas and that Sunkist covered up the cheating. Another lawsuit by a Sunkist board member seeks to topple key executives for aiding the scheme.

Sunkist officials deny wrongdoing and insist they won't settle. But the scandal has already driven a wedge between Sunkist's executives and many of its members. "Sunkist management isn't acting like leaders," grouses Sunkist grower Robin Roberts, who says that co-op executives are concentrating on the legal battle instead of addressing the competitive threat posed by growers from Chile to Florida. "There needs to be a management turnover."

Sunkist's legal woes stem from Depression-era federal laws establishing quotas, called marketing orders, that govern citrus sales in California and Arizona. Industry panels set total weekly sales ceilings and divvy up allotments among growers, a practice economists criticize because it inflates consumer prices. Some growers, who would like to sell more, complain as well. But Sunkist jealously defends the marketing orders because they boost members' profits--and preserve its clout. Sunkist dominates the navel-orange industry panel, for instance, because it accounts for 65% of the growers in the two states.

But the quotas--and Sunkist's power--may be unraveling. Since 1988, independent grower and packer Sequoia Orange Co. has filed 17 lawsuits against the co-op, alleging that Sunkist knew its member packinghouses exceeded quotas for both lemon and navel-orange shipments and altered its records to hide the overshipments. In August, Justice, which declined comment, took over the four lemon suits Sequoia filed.

NAVEL-GAZING. In December, the suspected widespread abuse of the quotas led then-Agriculture Secretary Edward R. Madigan to eliminate 1993 marketing orders for navel oranges. That was a sharp blow to Sunkist and its members. With the largest crop in history being harvested, the lack of quotas drove average wholesale prices down to $7.04 a carton, the lowest since 1986. Without the caps, "Sunkist will fall apart," predicts James A. Moody, the attorney representing Sequoia in its lawsuits.

Sunkist's woes come just after it recorded a near all-time high of $1 billion in 1992 revenues and $739 million in profits distributed to its members. But that may not be enough to save Sunkist President Russell L. Hanlin's job if allegations leveled in a lawsuit by Sunkist board member and grower Berne H. Evans III are true. The suit, filed in February, contends that Hanlin told Evans about quota violations by Sunkist-licensed packinghouses, some of which were partly owned by Sunkist board members. Evans' suit also charges that the board voted in January to settle some of the Sequoia cases--a move that would have bailed out some board members. Hamlin calls the lawsuit unfounded and denies settlement was discussed.

Whatever the outcome of the lawsuits, Sunkist's image has been battered, and its members say they're disgusted with the controversy. "They're tired of watching all the money being used for that as opposed to marketing fruit," says Joel A. Nelsen, president of California Citrus Mutual, an association of independent and Sunkist growers. For now, Mother Sunkist's mission is to find a way to keep its growers happy.

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