Industry at a Crossroads

Industry at a Crossroads

About this time four years ago, the U.S. Christmas Tree industry was in the midst of a downward spiral. Purchases of Real Christmas trees had dropped to 23.4 million – about two-thirds of what they had been a decade earlier. What’s worse, since the number of households in the U.S. had increased, market share was down even more.

It seemed that having a Real Tree was out of vogue – perhaps too messy and too much hassle for the average household. Even scarier was the fact that the new generation of prospective buyers was growing up without the tradition of having a Real Tree.

In 2004, the National Christmas Tree Association (NCTA) put together a task force to design and implement a Market Expansion Campaign, and the first order of business was to stop the decline in sales. Since the formation of that program, Real Tree sales have increased about 33%. One can argue that the Market Expansion program isn’t the only reason for the change in direction, but it is certainly plausible to assume that it played a role. Increasing sales were likely assisted by an increasing number of households, increasing numbers of Generation Ys in the market place, and China backlash (lead, foreign exchange, environmental issues), etc.

The world is changing. Did anyone see or hear one of the thousands of ads TreeClassics.com ran this season? They were everywhere. Should we be surprised that consumers reported purchasing 87.1% more new fake trees this last season? And since fake tree users keep them an average of 6-9 years, those people aren’t going to be back in the market for a Real Tree any time soon.

Do you know what buyers of new fake trees think about the environmental benefits of Real Trees? For every one of them that said a Real Tree was better for the environment, 6.25 said a fake tree was better for the environment! Where do you suppose they got that idea? You betcha. The fake tree industry is telling them that fake trees are safer, cleaner, cheaper in the long run, and better for the environment, because they are re-used.

We have an effective program that is making a difference. Last year alone, NCTA headed off negative stories about drought, quality, mold, allergies and fire hazards. More than 88 million people heard news stories about NCTA, Trees for Troops and the White House Christmas Tree. NCTA is widely accepted as the Voice of the Industry, and more than a million people used its web site to search for a place to buy their real tree.

While the fake tree industry is investing dollars to vigorously promote their product, the Real Tree industry is pulling back and devoting fewer funds to public relations and marketing. More than 1,000 people donated more than $900,000 for 2004 promotion and marketing programs. By 2007, donations to the market expansion activities had dropped to about $400,000. The erosion of funding resulted in fewer projects aimed at positively impacting consumer attitudes about Real Trees limiting the ability of the industry to affect the sales of Real Trees in the marketplace.

Given this continued erosion of the market share of farm-grown Christmas Trees, an industry task force is being formed to study the possibility of a federal marketing order that could establish a nationwide checkoff designed to support expanded promotion, marketing and research projects.

The NCTA Board of Directors supports the industry task force study of a federal marketing order.

Even if the industry decides to pursue a nationwide checkoff, it takes at least a year for USDA to follow its “rule making procedures.” Thus, it is highly unlikely that a checkoff could start before 2010. In the interim, NCTA will engage in an aggressive promotion and protection program as funds allow.

The NCTA board urges members and non-members to be involved in the discussion and will schedule a town hall discussion at the 2008 national convention at which time the task force will give a report.

Updated reports of the Task Force findings will be available here at www.checkoffstudy.com.

The Web site Wikipedia contains the following definitions of a checkoff:
“In the United States, a checkoff organization collects funds, sometimes called checkoff dollars, from producers of a particular agricultural commodity and uses these funds to promote and do research on the commodity. The organizations must promote their commodity in a generic way, without reference to a particular producer. Checkoff programs attempt to improve the market position of the covered commodity by expanding markets, increasing demand, and developing new uses and markets. The United States Department of Agriculture is responsible for overseeing the formation of checkoff organizations under the authority of Commodity, Promotion, Research and Information Act of 1996. These organizations are responsible for familiar American advertising campaigns, including "Milk Does a Body Good," the milk moustache series, "Pork: The Other White Meat," "The Incredible, Edible Egg", and "Beef: It's What's for Dinner."

USDA encouraged the industry task force to consider the blueberry and watermelon marketing orders as a possible model to explore. In the case of blueberries, the producers are automatically assessed $12 per ton when they sell their blueberries. This generates about $2 million that the U.S. Highbush Blueberry Council uses for promotion and research programs. Likewise, watermelon producers are automatically assesed .4% at the time of sale with the funds going to research and promotion programs administered through the National Watermelon promotion board.

WHAT WE KNOW ABOUT MARKETING ORDERS
A. Proposals are submitted to the Ag Marketing Service of U.S. Department of Agriculture and must have widespread industry support prior to implementation.
B. Federal Law stipulates that data collected via a marketing order can only be used to administer the program. No information can be provided to the IRS or other agencies.
C. USDA conducts a referendum to determine whether those being collected favor the checkoff. Such a referendum must be held not later than three years after assessments first begin.
D. Approval may be determined either by a simple majority of those voting or a majority of those voting who represent a majority of the production.
E. USDA shall conduct “renewal referenda” not later than seven years after the assessments begin; at the request of the board; or at the request of 10% or more of the eligible voters.
F. A periodic independent evaluation of all promotion, research and information activities is required.
G. The funds are administered by a “Marketing Board” appointed by the Secretary of Agriculture from nominations submitted by the industry.
H. Funds collected under the order can NOT be used for lobbying or membership activities. And, the Order can establish a cap (generally 5%) on administrative costs.
I. The Order may create a dual system whereby the automatic assessments are collected starting at a minimum quantity (number of trees or dollar value of product) and those under that minimum are included in a voluntary assessment.
J. All growers included in the automatic assessment program must pay the decided upon fee ... other commodities have found this to be more fair than other options of funding promotion and research.
K. The assessment may be collected on imported trees and greens. Again, these commodities find it more fair when importers are assessed as well as domestic producers.
L. Commodities with checkoffs have found that these funds increase its leverage in obtaining government grants and research funds.
M. In 2005, the U.S. Supreme Court ruled that commodity checkoffs are constitutional.

The Industry Task Force plans to seek answers for several questions:
(Goal: determine what a Christmas tree checkoff would look like ... if one were created.)

1) What is the current economic situation and outlook for farm-grown Christmas trees and how much promotion and/or research funds would be needed to reverse the loss of market share? How many dollars are needed to be effective? ($2.5 million suggested)
2) What assessment rate is needed to generate the level of revenues needed to adequately fund nationwide marketing and promotion programs?
3) What is unit of collection: Cents per tree? Percent of revenue?
4) How/where would the assessment be collected? (Some have suggested basing payments on the capital gains calculation reported on IRS form 4797.)
5) Could it / should the assessment be collected from wholesalers & brokers? Should the checkoff assessments include wreaths, garland and other greens?
6) What is the ideal size of the “marketing” board? (Some have suggested 10-12 persons.) Would board members be nominated by region?
7) Do we want to put a cap on allowable administrative expenses? [Most programs cap administrative costs at up to 5% of funds collected.]
8) What is the relationship – if any – between the “marketing” board and the industry trade association (NCTA)? [Some other programs stipulate that the marketing board must conduct its programs via contracts with the industry trade association while others keep the relationship at arms length.]
9) If a nationwide checkoff is created, who would serve as the “voice of the industry”? The new “marketing board” or the industry trade association (NCTA)?
10) Can state organizations receive (under contract) some of the funds for promotion and research? If so, what is required of states to receive dollars?
11) What is cost of collection and compliance? Should the industry follow the USDA suggestion of creating a dual program that is automatic for producers above a certain revenue or number of trees and voluntary for those below that amount of revenue or number of trees? And, if so, what is the cutoff between the automatic and voluntary assessment programs?
12) Should the industry propose a delayed referendum? If so, the law requires subsequent referenda every four to five years; at the request of the marketing board; or at the request of 10% or more of those persons eligible to vote.
13) What does it cost to develop a “marketing order” creating a nationwide checkoff? And, how does the industry generate these funds if the industry determines to move forward?