Shelling Out

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Billionaire Stewart Resnick is the biggest grower and processor of pistachios in the United States and controls more than 25 percent of the nation’s $700 million industry.


He probably would be quite content with that status if only it weren’t for the California Pistachio Commission.


Resnick, through his Paramount Farms unit, has filed suit to shut down the commission, arguing that the 3.25-cent per pound tax that he must pay toward generic marketing and advertising conflicts with Paramount’s own sales efforts.


About 150 growers are on Resnick’s side; 200 others support keeping the commission.


In some ways, it’s a battle of the smaller pistachio growers and processors who have relied on the commission’s advertising efforts for almost 25 years, and the giant in the business, Paramount. “Who’s going to be out there doing the advertising and doing the marketing for the rest of the industry?” asked Chuck Nichols, president of Nichols Farms and vice chairman of the commission.


Paramount can afford to tell the commission to get lost. It spends almost as much advertising its own brand of nuts as it pays the commission in grower’s assessments. “They’re stuck in a commodity mindset,” said Paramount spokesman Chris Tuffli.


The company has also hired its own law firm to handle international trade disputes with Iran, the world’s largest pistachio supplier, making “shadow filings” for every motion filed by the pistachio commissions’ lawyers in Washington. (Iranian pistachios face tariffs of 318 percent coming into the U.S.) The suit criticizes the commission’s government and legal strategy, claiming that Paramount’s government relations are better.


But the idea of dismantling the commission’s legal and government affairs function strikes fear into smaller growers. “A lot of farmers that grow 20, 40 or 80 acres of pistachios don’t have the wherewithal to promote their crop or do the kinds of things that we do in government affairs,” Nichols said. “If demand slackens, if Iranian imports are opened up it will hurt the smaller growers more than anyone else.”


Both sides go to court this week as Paramount seeks an injunction against the commission collecting the next round of assessment fees, due next month.


Karen Reinecke, president of the pistachio commission, said she was surprised by the litigation because demand for domestic pistachios has grown 20 percent over the past decade and prices are at a 20-year high. “Paramount was very involved in the commission and still sits on some committees, so to get this kind of message through a lawsuit is very surprising,” she said. “It’s kind of like the twilight zone for a lot of people in the industry.”



Changing dynamics


But Resnick, who is chairman of Roll International Corp., a private holding company he founded with wife Lynda, likes to control markets. With an estimated net worth of $890 million, he also owns Paramount Citrus Co., the largest grower and packer of citrus fruit in California and the largest grower in the 6,000-member Sunkist Growers cooperative; POM Wonderful, the largest grower of pomegranates in the U.S. and the maker of POM Wonderful pomegranate juice; Teleflora, the floral delivery service; Fiji Water, the bottled water company; and the Franklin Mint.


The California Pistachio Commission represents all 600-plus of the states’ growers, most of which are spread across the San Joaquin Valley. They sell to about 18 processors, which shell, roast, salt and package the nuts for wholesale. The processors are the ones whose brand name appears on the nuts.


The commission has managed the industry’s marketing since 1981, when the crop was a fraction of its size. But in its suit, filed in Los Angeles Superior Court, Paramount claims that the market dynamics have changed, and with increased product coming to market, a different advertising strategy is in order.


Some marketing experts agree.


“The individual grower does have reason to be suspicious of a state board,” said Bert Hambleton, president of Hambleton Resources Inc., a marketing consultant. “He’s paying for his own competition.”


That’s why these advertising programs have become controversial over time, explained Richard Sexton, professor of agriculture and resource economics at the University of California at Davis. “As firms become bigger and have more market share, they’re interested in promoting their own brand,” he said.


The state’s pistachio commission is not alone in this conflict. State boards throughout the country have faced similar lawsuits involving almonds, apples, nectarines, mushrooms and beef. In many of the suits, plaintiffs claim that their First Amendment rights were violated by being forced to pay for advertising they don’t agree with, constituting “compelled speech.” The outcomes have been split, with some coming down in favor of the commissions, others in favor of the disgruntled growers.



‘Very competitive market’


The pistachio commission spent almost $6 million last year encouraging customers to buy California pistachios. A recent ad campaign targets women’s magazines with a health message about the nuts with Jane Seymour as a spokeswoman.


Paramount has different ideas. Sunkist Growers Inc., the powerful citrus cooperative, licenses its brand name to Paramount for its pistachios and almonds. (Paramount is also the largest almond grower and processor in California.)


While pistachios are typically sold in pillow-shaped bags, similar to bulk sales, Paramount has been experimenting with flexible zip-log bags and other marketing techniques aimed at positioning the nuts as a year-round snack. Past campaigns have featured basketball shoe-shaped displays, which won a marketing and merchandising award in 2002.


Another successful campaign packaged the nuts in a canister with a tapered shape that allowed for easy stacking in supermarket displays, making it attractive for retailers during the holidays. Paramount owns the rights to the packaging and the machinery.


“It’s a very competitive market,” said Paramount’s Tuffli. “We designed and came up with those concepts, and developed the tooling and manufacturing ourselves.”


There is a rationale for well-established brands to differentiate their product from the generic one. “You get a premium when you establish the fact that there’s something exclusive about your product,” Hambleton said. “The more generic, the more you’re subject to the whims of the marketplace.”


But Sexton said there is “a significant amount of evidence” that generic programs are effective in increasing overall demand and drawing interest in a product. The California Almond Board’s advertising campaign was suspended from 1994 to 1997 due to a similar dispute, and studies show that it cost growers an estimated $80 to $250 million in sales. “It does seem that these campaigns work,” Sexton said.


Ironically, Paramount headed the marketing committee for the pistachio commission until last year. “We’ve been working with the CPC to try and change their perspective on things,” with limited success, Tuffli said. “We know our programs are effective in generating consumer interest and demand that goes well beyond the generic programs.”


When the committee came up for re-election this year, Paramount’s representative was not re-elected. To some, Paramount’s suit is the angry actions of a schoolyard bully. “Unless they get what they want, they’re not happy,” Nichols said.

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