Any claim, dispute or controversy between the Parties arising out of or relating to this Agreement, or the alleged breach hereof, that cannot be satisfactorily settled among the Parties within thirty (30) calendar days after the date on which the issue was first raised in a written notice, shall be settled by final binding arbitration before the International Chamber of Commerce ("ICC") in Nogales, Arizona. The arbitration shall be heard and determined by a panel of three arbitrators, selected in accordance with ICC procedures. Each Party shall be permitted to conduct reasonable pretrial discovery. Any award rendered by the arbitral tribunal shall be payable in US dollars free of any tax or any other deduction. The award shall include: (i) interest from the date of any breach or other violation of this contract (the arbitrators shall fix an appropriate rate of interest); and (ii) the reasonable attorneys fees and costs incurred by the prevailing party in the arbitration:
‣ PTG and Respondents each have a 50% interest, with profits distributed at year-end;
‣ "Kaliroy and/or Agricola" will manage the enterprise pursuant to an agreed operating plan, and sell in accord with separate grower distributor agreement, financed if possible through sales plus needed weekly "advances" from Kaliroy to ALP based on its needs, and comply with US border regulation.
‣ The terms refer to Kaliroy as "marketing agent" and it is to receive a commission for sales. Kaliroy shall cooperate with ALP re marketing and distribution, and PTG shall have full access to all operations and documents;
‣ ALP and Kaliroy each warrant to PTG that it is duly organized, in good standing, that the JVA does not create any conflict with any other contract or law, Mr. de la Vega is authorized to sign for each, and each is bound by the JVA. ALP warrants that it owns or has exclusive use of the farm lands, and each promise to operate in compliance with US and Mexican law;
‣ Before each growing season, the parties agree to enter into a "growing agreement" spelling out the detail of the crop plans for the forthcoming season, and PTG agrees to advance, subject to terms, a portion of the planting costs to be repaid after harvest;
‣ PTG promises to supply boxes to Kaliroy for shipment of tomatoes to the wholesale market, and these are to display PTG brands, such as Sunripe;
‣ The financial year-end was June 30 each year.
(a) Article Ill(B)1 of the JVA creates a joint venture involving PTG on the one hand and ALP and Kaliroy on the other. It assigns the growing duties to ALP, and the marketing duties to Kaliroy. No explicit agreement was produced to the Arbitral Tribunal that deals with their relationship -other than the terms of the JVA.
(b) Some of the wording in the JVA seems to indicate that there were two separate joint ventures, one between PTG and ALP and the other between PTG and Kaliroy. The view of the Arbitral Tribunal is that the JVA created but one joint venture, but this created a duty on the part of ALP to operate the growing business, and a duty on the art of Kaliroy to operate the farming business, both of which were to be for the benefit of the joint venture and were subject to all the terms of the joint venture agreement. It is appropriate to mention at the outset that neither side was appropriately represented by counsel during any of the negotiations for the preparation of the JVA. They did seek counsel on behalf of all parties from one attorney about the drafting of the renewal clause, and then they did not follow his advice. He warned that he could not act for any of them in the entire negotiations. So far as the Arbitral Tribunal is aware, nobody sought further counsel. Perhaps this is why they, during negotiations for the renewed JVA, failed to tackle outstanding issues that had come to a head earlier. We refer particularly to the "missing AenP", discussed in more detail later, which in fact had been missing since 2003. The "tax issue", also discussed in more detail later, also dates back to 2003, and is related to the missing AenP. The same is true about accounting issues.
(c) The JVA refers to "AenP", and there was some confusion in the JVA and in the evidence about what the "AenP" was, and what was its role in the relationship amongst the parties. First, Article lll of the JVA, which describes the makeup of the "AenP", is entitled "Entities". This is misleading if one thinks of an "entity" as a separate corporate existence, because no such thing was created. Also, Article V, dealing with profit distribution, refers, in subclause 2, to profits of "AenP", and Article IV C 1 refers again to "AenP" in the context of the duty to grow. Specifically subclause (a) provides that ALP shall "...cause AenP to grow, cultivate..."etc. Arguably, this meant that the "AenP" was not a party to the JVA, but merely an agent of ALP. It is also very confusing because, unlike ALP it was not a separate corporate body and did not have capacity to grow or cultivate. Again, there is confusion. This confusion led to contrary submissions by counsel as to the meaning of the JVA. PTG argued that there was to be a new entity created. See clause 32(2) below. The Respondents took a different view. See Section 35 (ii) below.
(d) This interpretive difficulty was raised by the Arbitral Tribunal early in the proceeding, after it had heard that neither PTG nor the de la Vega entities had consulted a lawyer when drafting these portions of the JVA and also that, in fact, no "AenP" was ever prepared or executed. Indeed, at that point, the Arbitral Tribunal considered a finding that the parties had failed to come to a meeting of minds, with the result that the JVA would be unenforceable or void for uncertainty. However, after discussion with counsel, the Arbitral Tribunal decided that the interpretive key was in Article III(A)2, which provided that the terms of the "AenP" were to "mirror" the JVA. The finding of the Arbitral Tribunal was and is that the two documents were to be identical, save that, as all parties agreed, the "AenP" was to be in the Spanish language (See Article IX(D)). In the result, the AenP was merely a copy of the JVA. To make sense of Article V(2) and Article IV C, they must be interpreted to refer to ALP, not "AenP", or the result would be endless confusion. The Arbitral Tribunal was confirmed in this decision when it learned, during the course of the hearing, about the tax issue, discussed below. The conclusion of the Arbitral Tribunal was that the real and sole purpose of the JVA in contemplating the creation of the "AenP" was to deal with that issue.
(e) The absence of the "AenP" document led PTG to make other allegations against ALP and Kaliroy, and these are dealt with elsewhere.
(i) failing to file the required papers to obtain a tax identification number with the Mexican governmental tax authority for AenP and failing to provide written documentation to enable PTG to properly report its financial dealings with AenP, thus preventing PTG from realizing the appropriate tax credits in the U.S.;
(ii) failing to operate AenP in full compliance with Mexican laws, regulations and requirements including without limitation registering AenP with the Mexican tax authority;
(iii) failing to maintain full and accurate records and books of account for AenP and the Kaliroy Joint Venture in accordance with U.S. generally accepted accounting principles (USGAAP);
(iv) failing to provide PTG full access to the financial records and books of account pertaining to AenP and the Kaliroy Joint Venture;
(v) failing to prepare a planting program and budget for PTG's approval prior to June 1 of each crop year;
(vi) failing to provide an audited and certified accounting of AenP's finances within sixty (60) days after the end of fiscal year 2005/2006;
(vii) failing to provide an audited accounting of the Kaliroy Joint Venture's finances following the end of the fiscal year 2005/2006; (viii) failing to distribute the net profits of AenP to PTG within thirty-five (35) days of the August 15, 2006 audit deadline;
(ix) failing to distribute the net profits of the Kaliroy JV to PTG within thirty-five (35) calendar days after the financial statements of the Kaliroy JV had been audited;
(x) failing to provide the proper tax certificate, according to the bilateral tax treaty between the U.S. and Mexico, documenting taxes withheld from PTG in AenP; and
(xi) failing to perform their duties as managing partners and trustees by maintaining separate and non-commingled funds of AenP and the Kaliroy JV.
(i) The JVA did not require ALP to file new papers to obtain a further tax ID number under Mexican law. Moreover, all parties agreed to pursue a royalties mechanism as an alternative to an AenP structure, which would benefit PTG under Mexican income tax law.
(ii) The Joint Venture was operated entirely in full compliance with Mexican law. The parties never formed a separate Mexican AenP, but rather decided to continue to operate within the existing ALP structure, the sole business of which was management of Joint Venture growing activities in Mexico. ALP was registered with the Mexican taxing authority, and no AenP existed which could be so registered. PTG cannot state any instance where ALP's operations violated Mexican law.
(iii) Throughout the parties' joint ventures from 2003 until PTG terminated in 2006, ALP maintained separate, full and accurate records and books of account for all joint ventures' activities. Books and records for the Joint Venture’s operations for 2005-06 are in compliance with U.S. and Mexican generally accepted accounting principles ("GAAP").
(iv) ALP has offered and provided PTG full access to all financial records and books of account pertaining to the Joint Venture. PTG has failed to state any instance where it contends that ALP denied it such access.
(v) ALP did provide a planting program and budget to PTG for the 2006/2007 season without material delay, and in ample time to launch a fully satisfactory season. Nevertheless, no planting program or budget was agreed to, due to PTG's failure to cooperate and provide input as required by Article VII(C) of the JVA, and due to PTG's eventual termination of the JVA.
(vi) Any delay of an audit is solely attributable to PTG. PTG insisted the audit be performed by Deloitte, rather than ALP's usual auditors. ALP provided Deloitte all materials and full access to records to allow Deloitte to complete the audit by August 15, 2006, and there is no record of any complaint by Deloitte about lack of co-operation or information. Any delay in final audit results was solely due to Deloitte's scheduling.
(vii) PTG did receive an audited accounting of Kaliroy Produce's finances following the end of the 2005/2006 growing season.
(viii) ALP denies it wrongly withheld any sums within any required deadline. PTG's termination of the JVA constituted wrongful dissociation under Ariz. Rev. Stat. §29-1052, and §29-1061 allows ALP to withhold distribution as a setoff to its damages, and to withhold any distribution until after the three (3)-year term.
(ix) ALP denies it wrongly withheld any sums within any required deadline. PTG's termination of the JVA constituted wrongful dissociation under Ariz. Rev. Stat. §29-1052, and §29-1061 allows Kaliroy to withhold distribution as a setoff to its damages, and to withhold any distribution until after the 3-year term.
(x) ALP denies it wrongly failed to provide a tax certificate. Tax certificates are issued on account of taxes paid on distributions actually made.
(xi) The JVA did not require separate bank accounts to be established for the Joint Venture. The JVA required only that full and accurate books be kept for the joint venture business, which ALP indeed did in the course of fully accounting for all joint venture funds, as confirmed by the Deloitte audit.
a) Whether either Claimant or Counterclaimants breached the JVA.
b) If Respondents breached the JVA, is there any defense or excuse that would absolve them from liability for such breach?
c) If Respondents breached the JVA, without any defense or excuse that would absolve them from liability, did such breach damage PTG entitling it to recover in whole or part, and if so, how should such damages be measured?
d) If PTG breached the JVA, is there any defense or excuse that would absolve it from liability for such breach?
e) If PTG breached the JVA, without any defense or excuse that would absolve it from liability, did such breach damage Respondents entitling them to recover in whole or part, and if so, how should such damages be measured?
f) Whether the JVA was terminated.
g) If either side breached, whether proper notice of default and opportunity to cure were required and given to permit early termination.
h) The amount of attorneys’ fees, costs and pre-award interest awardable under the JVA.
a) Whether PTG’s liability for damages, costs and attorneys’ fees is limited by the JVA.
b) Whether Respondents breached their fiduciary duties, statutory duties, duties as trustee, duty of care, their obligation of good faith and fair dealing, and the terms of the Agreement, or engaged in fraud or negligent misrepresentation, as alleged more specifically in the Amended Restated Request for Arbitration, by:
(i) failing to provide written tax documentation to PTG and failing to refund amounts withheld for crop season 2003-04;
(ii) failing to operate AenP in compliance with Mexican laws;
(iii) failing to maintain records in accordance with USGAAP;
(iv) failing to provide PTG full access to the Joint Ventures’ records;
(v) failing to prepare a planting program and budget for PTG’s approval prior to June 1 of the crop year;
(vi) failing to provide timely audited/certified accountings;
(vii) failing to timely distribute the net profits of the Joint Ventures;
(viii) making misrepresentations and engaging in the fraudulent conduct alleged by PTG; and
(ix) commingling funds of Respondents with the Joint Ventures', by misappropriating and depleting such funds, and by charging non-Joint Venture expenses to the Joint Ventures.
(i) damages or relief pursuant to Ariz.Rev.Stat. §29-1001, et seq,;
(ii) an accounting;
(iii) constructive trust/escrow of the profits it claims;
(iv) indemnity; and
(v) damages for fraud, negligent misrepresentation, and conspiracy.
(i) mutual agreement of the Parties;
(ii) failure to timely provide and approve a planting program/budget;
(iii) Respondents breaches;
(iv) lack of definite key terms for following crop years;
(v) Respondents' dissolving of the Joint Ventures (if possible);or
(vi) the terms of the JVA.
a. For a one (1)-year or a three (3)-year term?
b. For termination three years hence at the end of the 2007-2008 season?
c. That it would automatically renew for the 2008-2009 season unless notice not to renew were given no later than May 1, 2006?
d. That, each year, the JVA would automatically renew for one season to perpetually remain at a three years’ duration?
e. That, for each year of the JVA, the parties shall approve by mutual agreement a planting program and budget for the upcoming season?
f. That the planting program and budget for the upcoming season shall include the respective financial commitments of each party for the season?
g. That there must be separate bank accounts maintained for each party, and another for the Joint Venture itself? If so, then in which paragraph?
a. Did PTG breach by refusing to contribute to growing expenses?
b. Did PTG breach by declining to pay the facility charge?
c. Did PTG breach by withdrawing permission to use the "Sunripe" label?
d. Did PTG breach by declining to participate in the JV?
e. Did PTG breach any express provision of the JVA?
f. Did PTG withdraw from the Joint Venture by express will prior to the end of its 3rd year?
g. Does Arizona law define a "wrongful dissociation" as a breach of the Agreement, or an express withdrawal before the end of the agreed term, under Ariz.Rev.Stat. § 29-1052?
h. Does Arizona law provide that damages for wrongful dissociation shall be offset against a buyout price, under Ariz.Rev.Stat. § 29-1061?
a) Did the Joint Venture Agreement Did the Joint Venture agreement [Art.VII(A)(3)] provide that, to terminate sooner than three (3) years due to another party's default, the terminating party must give the defaulting party twenty (20) days’ notice by certified letter and the default party must thereafter fail to correct the default?
b) Is Article VII(A)(3) about twenty (20)-days' notice of default an express provision of the JVA?
c) If Respondents breached the JVA, did PTG give Respondents a twenty (20)-day notice of default by certified mail and an opportunity to cure?
a) decreased sales volumes and selling prices in Years two (2) and three (3) due to loss of use of the "Sunripe" label;
b) failure to make contributions to growing expenses in Years two (2) and three(3);
c) failure to pay the facility charge in Years two (2) and three (3);
d) damages from wrongful disassociation; or,
e) damages from any other causes?
• Obtain an equity interest in a Mexican grower/packer/shipper operation of the quality of Agricola.
• Broaden Pacific's market presence through field-grown vine ripe and greenhouse tomatoes.
• Expand the market for the Sunripe brand.
It seems to us that his first reason is unconnected with the other two. He certainly took an interest each year in growing plans. In light of this rationale, the Arbitral Tribunal, however, had expected PTG also to be involved in selling plans: what customers, what sort of customers and, what products? After all, PTG is a well established and experienced firm with involvement in many markets. But, when we heard about the damages claim, we heard none of that. The basis of the damages claim was that Kaliroy had suffered badly from the lack of help by PTG in sales after the contract was terminated. But no party brought up evidence of specifics about any such a lack: no lost customers, no special customer arrangements lost. Kaliroy staff, in their testimony, made it clear that it sold on the open market without much reference to brand and had no particularly unique customer relations.
"The current ‘AenP’ Agreement will be re-written into more of a ‘contract to Grow' type agreement. Further, we will keep this Agreement on a fiscal year basis ending June 30 of each year."
Ironically, there was no "current" AenP to be "re-written", a mistake best explained by the fact that the true AenP (in Spanish) was never executed by the parties.
a) all damages to compensate PTG for the breaches, negligence, fraud and wrongful conduct of Respondents as alleged herein;
b) punitive or exemplary damages;
c) an accounting;
d) constructive trust on the profits and capital contribution owed to PTG including a constructive trust on all of Respondents’ bank accounts that contain such funds and to sequester and enjoin transfer of such funds pending resolution of the Arbitration;
e) removing Respondents as trustee and appointing an independent trustee to hold PTG’s share of profits and its capital contribution in trust pending resolution of the Arbitration, and to compel Respondents to relinquish PTG’s share of profits and its capital contribution to the independent trustee or to escrow such funds;
f) access to inspect any copy of the Joint Ventures’ books and records; and
g) awarding PTG pre-award interest, attorneys' fees and costs and entering such and other further relief as is appropriate.
"1. Unpaid Profits for 2005-06 Season:
A. US$3,072,122 as confirmed by audited financial statements (half of the reported US$6,144,224 net profit);
B. Kaliroy: US$1,004,797 in profits, plus US$75,000 for the return of its Capital investment, as confirmed by the Kaliroy Joint Venture's audited profits, for a total of US$1,079,797.
2. Tax-related damages:
A. US$173,690 tax payment that was wrongfully withheld by ALP (2003-04);
B. US$502,431 tax payment from ALP (2005-06);
3. Fraud and improper use of Joint Venture funds:
Approximately US$233,000 in profits from the approximately US$306,000 of improper charges as well as the approximately US$160,000 in salary to Jorge De la Vega that must be added back to the Kaliroy Joint Venture’s 2005-06 income and expenses.
4. Pre-award interest. PTG requests that Tribunal enter an award for pre-award interest of US$1,010,682 based on a pre-award interest rate of 10% (as set forth at Arizona Revised Statute 44-1201) as set forth below:
A. US$645,146 in pre-award interest for unpaid profits for the 2005- 2006 season;
B. US$147,572 in pre-award interest for Kaliroy's unpaid profits for the 2005-2006 season and the US$75,000 in unreturned capital investment;
C. US$80,610 in pre-award interest for its wrongful withholding of tax for the 2003-2004 season;
D. US$105,511 in pre-award interest for taxes for the 2005-2006 season; and
E. US$31,843 in pre-Award interest for Kaliroy's fraud and improper use of joint venture funds for the 2005-2006 season.
5. PTG's Total Requested Damages (including Pre-Award Interest): US$6,071,721. "
"The damages we’re seeking are comprised of the amount of money that was withheld with respect to Kaliroy, which is $1,004,797, plus $75,000 in retained capital, which is a total of $1,079,797. There was also the amount of audited profit from the ALP, which is $3,072,122. There is the tax payment of $173,690 that was withheld by ALP for which we received no documentation, we paid double taxes. There's a $502,431 tax payment, and there's the interest on these of a million dollars. And when you deal with the issue -- which that totals up to about 5.8 million, and then whatever portion, if any, of the monies that were identified by Ms. Marta Alfonso that were from the account going for various entities, that would be another couple hundred thousand, that would total about $6 million in damages. It's all in our brief..."
PTG’s argument was:
Mr. De La Vega testified that he was going to repay this amount to PTG. But he never did.
For the 2005-06 season, the impact on PTG’s inability to claim tax credits is even greater, US$502,431, based on the increased profits that year.
The US$175,000 represented half of the expected 2003-04 seventeen percent (17%) tax liability expected after the June 30, 2004 season-end. Subsequently, however, an NOL belonging solely to Agricola was available under Mexican law, and Agricola used that NOL to eliminate any tax payable. Agricola retained the US$175,000, as it represented the value of one-half of its NOL utilized to eliminate any tax payable. PTG, however, staunchly continued to insist that the US$175,000 was fully refundable to PTG. The parties never came to an agreement on this issue, although Mr. de la Vega did say he'd pay PTG the amount, simply to keep the peace. (The Arbitral Tribunal understands Mr. Parker in referring to NOL was referring to net operating loss).
Based on their narration back to me, they went through boxes that were - that they felt and apparently there was some identification of boxes that related to the expenses that we were to examine, and accordingly what they did was, since it was a very condensed time frame -and you can imagine — they described to me there were a lot of boxes. I've had cases where there's thousands of boxes. So what they did was they copied sections of work papers that they felt relevant that related back, they were copied and brought back to our offices.
As for the 2006-7 crop as we mentioned in the notice given in our May 1st letter, we have no intention of going forward with AenP, Kaliroy Pacific or Bioparques unless all the issues we have been discussing on taxes, sources and uses of cash virtual transparency and access to all bank accounts were established. You have since told us it could not be done, and we have made it clear we do not intend to go forward.
Pacific Tomato Growers, Kaliroy Produce and Agricola Primavera agree that pursuant to Section VII of the joint venture agreement (JVA) the May 1 deadline for notification of intent not to renew the JVA is waived so that the agreement may be modified prior to the end of the 2005-6 season, in preparation for the 2006-7 season.
• Agreement modifications -
- The timing of the recovery (payout) of the cash contribution to AenP by each party once the crop costs have been recovered must be clearly defined.
- The full 80% distribution of proforma profit, as its collected, is to be paid in installments before the end of crop fiscal year of AenP, K-Pac and Bioparques.
- The Mexican authority tax documentation will be provided to PTG to support all taxes withheld from the profit distributions of AenP and Bioparques as soon as they are available, by the end but no later than the 17th of the month following the distribution of profit.
- Audit engagement letters for AenP and Kaliroy Pacific will be provided to PTG in advance of each audit.
- K-Pac will participate in the funding, on an agreed percentage basis, of the Sunripe brand marketing activities.
- Unrestricted electronic remote access to all systems and bank accounts of AenP, K-Pac and Bioparques.1
"Billy opened the call with a brief preamble to set the tone for the meeting. In essence, Billy stated that it was the intent of the partners to continue on with our partnership provided that together we have satisfactorily resolved the points outlined in the ‘Action Item Summary, (AIS)’ dated 4/15/06. Further, that these major steps have to be completed by no later than 6/30/06 (AenP’s) fiscal year end.
Eduardo also stated that he wanted to continue on with the relationship, but that he had concerns that they (Agricola/Kaliroy Produce) might not be able to meet all of the requirements lined out in the AIS at all, let alone by 6/30/06. With that we started to go over the AIS points...".
B. RENEWAL AND EXTENSION. This Agreement may be renewed for the 2008-2009 Season and following seasons in the following manner:
This agreement shall automatically renew for the 2008 - 2009 season unless either party provides written notice of its intent not to renew this Agreement no later than May 1, 2006.
2. Each year, this Agreement shall automatically renew for a period of one season with the result that this Agreement shall perpetually remain at a duration of three years unless either party provides written notice of its intent not to renew for an additional season no later than May 1 of the current season.
If one is to follow the rule of construction of contracts that Justice Feldman described, which is to interpret the contract by reference to the whole of the contract to try to give meaning to each of the provisions of the contract, you cannot overlook the three-year duration clause, and you cannot overlook the clause saying perpetually remain at a duration of three years. You cannot conclude that the agreement simply can be shucked off for the second year because the renewal provision says that if you give notice of intent not to renew by May 1st, 2006, that pertains to the fourth season, which commences after the 07/08 season.
When looking at the entire contract, you have to ask this question: What’s the point of making a three-year (3) agreement if you can just refused to proceed in the second year?..."
For each year of this Agreement, the parties shall also develop and approve by mutual agreement a planting program and budget for the upcoming season. The planting program and budget for the upcoming season shall include but not necessarily be limited to the number of hectares to be planted, the commodities to be planted and the respective financial commitments' of each party for the season. The planting program and budget for the upcoming season must be approved no later than June 1 of each year.
Except as set forth above or with the prior written consent of the Party making the loan or contribution, no Party shall be required to: (i) make any additional capital or asset contributions to the Joint Venture or AenP or (ii) make any loans or extensions of credit to the Joint Venture or AenP.
Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.
The Agreement pertains to the farming and selling of produce. Thus, as expected, the essential terms of the Agreement are: The area to be planted, measured by number of hectares; the types of produce (commodities) the parties will grow; The planting schedule or "program;" the budget for the growing, harvesting and selling operations; and the amount each party will contribute to the budget.
a. decreased sales volumes and selling prices in Years two (2) and three (3) due to loss of use of the "Sunripe" label,
b. failure to make contributions to growing expenses in Years two (2) and three (3),
c. failure to pay the facility charge in Years two (2) and three (3),
d. damages from wrongful dissociation, or
e. damages from any other causes?
(a) The experts agreed that in the U.S.A., the tomato market is very much a national commodity market where the various varieties float together, and the supply is influenced by weather and disease developments. Within this structure, price premiums are paid but they tend to be variety-specific. Greenhouse cultivation has enjoyed a specialty status but product has grown to a point where this offering can be described as a commodity, a common development in produce.
(b) Mr. Cook commented that for specialty, niche products with limited supply, it is generally easier to command a consistently higher price. But as sales of greenhouse tomatoes are now playing a critical role in retail profits, price in turn plays a more influential role in purchasing transactions. Increasing competition is driving down grower margins in this sector. Yet growers will still work towards a differentiated offering, such as the emphasis on grape tomatoes and smaller cluster tomatoes.
(c) Mr. Cook also commented that greenhouse tomato production soared in the early 90's, and while it has stabilized in the United States and Canada, the Mexican industry is still growing rapidly ALP production of mesh house tomatoes grew from twenty hectares in 2003/04 to one-hundred and sixty hectares in 2006/07. This was not an isolated event and demand growth has been outpaced by expanding supply. Mexico now has more greenhouse capacity than-the US and Canada combined.
(d) Records indicate that the U.S. consumption of fresh tomatoes is evenly split between retail and food service sectors. Yet in the Hayenga/Rausser "reality checks" the interviews only included intermediaries in the supply chain, that is, brokers and re-packers. In reviewing the content of interviews there is clear reference to a premium price usually in the range of US$0.00 - US $1.00 per carton, but generally qualified with a reference to a special quality or service provided or even a contract agreement. There was also references to the fact that price premiums were generated in short supply markets and there was no guarantee. Mr. Parker said that they talked to the wrong people, i.e. just brokers. But it is to brokers that Kaliroy sold.
(e) Mr. Garcia in testimony commented that there can be a US$2.00 difference in price. He emphasized that the different sizes or counts will lead to considerable price variations. He emphasized that size was a major factor in determining price and was often customer specific. He also indicated that shippers will upgrade the USDA #1 to an improved grade of ninety percent (90%) as an example of using quality to differentiate the offering. (The US Department of Agriculture has a set of standards for tomatoes.) Garcia added that the price premium was compensating for either a lower product utilization to make the higher grade or to cover input costs associated with a special quality. Finally it was also observed that some retail accounts do some fine tuning of what they want in a delivered product,
(f) Mr. Cook repeatedly reports on or makes reference to the need for consistent quality in Mexico’s greenhouse operations. The concern here may be linked to premiums for guaranteed quality.
(g) It is hard to conclude that the re-packer will pay much of a premium given their value adding role as a middleman or service provider in the supply chain. There is no motivation to pay a premium, they want a deal.
(h) Mr. Parker provided the links to the Agricultural Marketing Services (AMS) for price and grade standard reports. This is a USDA generated daily market report with input from the industry. The industry jargon in Florida is that the "Premium Lid" is the top quality for the shipper and a USDA #1 grade or better. Some packers do pack to a higher standard, which can impact utilization.
(i) Florida's shipping standards are ruled by a USDA Federal Marketing Order which sets the grade standards that can limit volume or supply and covers only mature green and grape tomatoes.
(j) Round Tomatoes from Mexico are inspected by USDA at the border and they must have a minimum grade standard of a USDA #2. Mexican sales in the US move through Nogales, and are governed by a trade agreement commonly called the Suspension Agreement, which provides for a fairly open market but also includes an anti-dumping rule that forbids sales under a pre-set price. The Mexican industry will tighten the grade when approaching price levels that would trigger the Suspension Agreement. Since the Order does not cover greenhouse tomatoes, a vast volume of the tomatoes shipped to the United States are not inspected.
(k) Professor Hayenga comments that this situation helps to explain why Florida prices may be higher through the imposition of grade standards imposed by a Marketing Order. The issue still remains that we are not comparing the same product, a mature green from Florida with a vine-ripened tomato from Nogales. (Roma and field tomatoes are vine-ripened in Mexico). The products, markets and shipping points are not the same.
(l) Domestic U.S. Production, Canada and Mexico all have their dominant markets. There is a geographic dividend from Florida's "natural" market, based on comparative shipping costs, which create a competitive advantage. This would also apply to other producing areas, for example Mexico shipping to the Western States, As a hypothetical case, a shipment of tomatoes from Nogales to New York City could be delivered at US$10.00 per carton with a US$3.00 freight rate or a US$7.00 f.o.b. The same price from Florida with a US$1.50 freight charge generates a US $8.50 fob. For some portions of the market, the freight differential provides for a premium in and of itself compared to Nogales. Florida shippers would be very much aware of this freight barrier for products in which they compete.
(m) USDA market reports, referred to by all witnesses, are at best a measurement of price estimates or trend indicators. The market reports provide a price quote but not the actual sale. It does not take into account contracts that call for adjusted price after sale or protected buyer agreements. In other words the buyer agrees to US$12 per carton with protection down to US$8.00. The market report would not consider these changes. The highs and lows are usually related to a quality condition or a long or short in the market.
(n) Frequently, fast food companies have very specific requirements with regard to size and quality. The conditions may be refined by the re-packer but it would take into account the agreed price structures. Sixty/seventy percent (60/70%) of tomatoes go through re-packers but four or five integrated players control most of the business.
(o) There is, in any event, not a premium on every box, as, for example, domestic sales, packing with Eurofresh brand (a lower price PTG brand), Canadian sales (for copyright reasons these must be re- branded), lower quality harvest, and when the Nogales price is at or near the required minimum.
(p) On the basis of this information, the role of the re-packer in the supply chain is to add value so they naturally negotiate on price to get a margin. They earn their way with good prices and good product. They specialize in food service accounts and frequently use their own label or sticker or in some cases the sticker or label of the food service account. The witnesses referred to the DiMare firm, an integrated operation, meaning that it controls its own re-packing operations. The premium mentioned in the testimony would be a value added from the re-pack station. Their own re-pack operations can negotiate for outside tomato volumes and they in fact have a procurement department.
ALP Actual Revenues 2006/07 = US$17,994,355
"But For" Revenues 2006/07 = US$24,341,799
A + thirty-five percent (35%) Premium
ALP Actual Revenues 2007/08 = US$26,881,060
"But For" Revenues 2007/08 = US$38,598,911
A + forty-four percent (44%) Premium
Total Implied Premium: US$18,065,295
Approximately US$13 Million of Combined Premium from Greenhouse
a) His analysis is unable to compare similar products, markets and growing practices. The comparison problem is that Florida does not produce greenhouse tomatoes and that limits a meaningful comparison for 58% of the sales transactions. In the Rausser study 29,018 Kaliroy and Sunripe sales transactions 16,961 or 58% were greenhouse products. The model compares Nogales Sunripe (PTG) sales of greenhouse tomatoes for the years 2003-04-05 against Kaliroy sales in 2007-08, since PTG did not source or sell greenhouse tomato products in the latter two years. Greenhouse tomatoes are increasingly influenced by broad market trends and external forces. In the fall of 2004, Florida hurricanes destroyed the tomato crop in the States and Mexican GH producers benefited from extraordinary high prices a real distortion for this type of analysis problems. In more recent years, e.g., 2007-08, average grower prices for greenhouse tomatoes have been trending down, a result of over-production in Mexico, and in 2008 there was increasing pressure from food safety issues including an outbreak of salmonella. These events make comparisons questionable.
b) There are also problems comparing sales of Florida vs Nogales grape tomatoes: Here we have data for only one isolated year, 2007/08, with Kaliroy providing forty (40) transactions or three percent (3%) of the total. This is too small a sample to reach a judgment on a price premium. ALP was a reluctant producer of this variety and expressed in testimony concerns with the quality of the grape tomato in their production zone. It looks more like test volumes than a full commercial production. A premium would be available for this consumer preferred tomato when compared to other varieties of the same product.
c) His analysis of transactions also does not allow for channel assessments. Since the retail sector is considered to be the high value portion of the market, we are not able to evaluate volume distribution by trade type over the five years of data and the substantial growth of the GH product offering by Kaliroy/ALP. Trade channels would help us to understand the sales focus and price structures.
d) The implied premium of thirty-fifty percent (30-50%) in the Hausser case study is inconsistent with all the other facts considered on this market. References continually address the issue and importance of quality as the key factor in obtaining a price premium. This is observed in witness statements, in reality check interviews and other references. High quality and service factors come at a cost and this analysis is not part of the damage assessment. On the other hand, Professor Hayenga tries to analyze price premiums using the USDA Market Report Data and concludes there is not a noticeable premium. Finally, freight costs indeed play a role in delineating markets by variety and by allowing for a freight dividend, which would translate to a price premium.
e) Problems comparing sales of Florida vs Nogales Roma and round tomatoes: Here again we are comparing different commodities, shipping points and potential quality standards. See the previously described, the existence of a Florida freight dividend on the f.o.b. when compared to Nogales, specifically the different customer base; and potential for different quality standards.
a) The revenue increases under Dr. Rausser's "But For" scenarios are staggering and unrealistic when related to all the information on brand premiums.
b) The increase in 2007-08 revenues could have been generated by the expanding production of greenhouse tomatoes and the need to move that volume into export channels, but this was not confirmed.
c) Product quality was not factored into the analysis, yet this attribute is mentioned and dominates much of the testimony on this subject. Along with sizing, quality has the greatest influence on pricing. It is possible that PTG's Sunripe brand and company are able to achieve a price premium from time to time for their total offering and market conditions despite the denial by Mr. Heller, but the decision or number for that premium would have to be arbitrary because of the trade-offs such as costs. This refers to the potential added expenses for cultural practices and grading which are undocumented in this hearing.
d) The Kaliroy claims are linked to the ALF findings which is the main source of revenue. The revenue projections that show a fifty-three percent (53%) increase under the "But For" scenario is unrealistic when linked to the Sunripe brand premium.
e) The inability to work with comparable data as pertains to tomato varieties, shipping points, quality standards and growing practices leads one to conclude that the calculated premiums are unrealistic and do not reflect the market realities.
f) Therefore, this econometric analysis is not persuasive in terms of its findings and damage assessments, specifically because:
‣ The analysis is unable to compare similar products, markets and growing practices.
‣ The analysis of transactions does not allow for channel assessments. Since the retail sector is considered to be the high value portion of the market, we are not able to evaluate volume distribution by trade type over the five years of data and the substantial growth of the GH product offering by Kaliroy/ALP. Trade channels would help us to understand the sales focus and price structures.
‣ References continually address the issue and importance of quality as the key factor in obtaining a price premium. This is observed in witness statements, in reality check interviews and other references. High quality and service factors come at a cost and this analysis is not part of the damage assessment.
‣ Professor Hayenga tries to analyze price premiums using the USDA market report data and concludes there is not a noticeable premium.
‣ Freight indeed plays a factor in delineating markets by variety and by allowing for a freight dividend, which would translate to a price premium.
‣ The implied premium of 30-50% in the Rausser case study is inconsistent with all the other facts considered on this market.
‣ The comparison problem is that Florida does not produce greenhouse tomatoes and that limits a meaningful comparison for 58% of the sales transactions. In the Rausser study 29,018 Kaliroy and Sunripe sales transactions were 16,961 or 58% greenhouse products.
‣ There is just no way to compare these transactions in a fair and realistic way. The model compares Nogales Sunripe (PTG) sales of greenhouse tomatoes for the years 2003-04-05 against Kaliroy sales in 2007-08, since PTG did not source or sell greenhouse tomato products in the latter two years.
‣ Greenhouse tomatoes are increasingly influenced by broad market trends and external forces. In the fall of 2004, Florida hurricanes destroyed the tomato crop in the States and Mexican GH producers benefited from extraordinary high prices a real distortion for this type of analysis.
‣ In more recent years, e.g., 2007-08, average grower prices for greenhouse tomatoes have been trending down, a result of over-production in Mexico, and in 2008 there was increasing pressure from food safety issues including an outbreak of salmonella. These events make comparisons questionable.
‣ Problems comparing sales of Florida vs Nogales grape tomatoes: Here we have data for only one isolated year 2007/08 with Kaliroy providing 40 transactions or 3% of the total. This is too small a sample to reach a judgment on a price premium.
‣ ALP was a reluctant producer of grape tomatoes and expressed in testimony concerns with the quality of the grape tomato in their production zone. It looks more like test volumes than a full commercial production.
‣ A premium would be available for this consumer preferred tomato when compared to other varieties of the same product.
‣ Problems comparing sales of Florida vs Nogales Roma and round tomatoes:
- Here again we are comparing different commodities, shipping points and potential quality standards.
‣ See the previously described the existence of a Florida freight dividend on the f.o.b. when compared to Nogales, specifically a different customer base and the potential for different quality standards.
(a) ALP shall pay PTG its share in profits for 2005-06 season in the amount of US$3,072,122, and shall pay PTG interest thereon at ten percent (10%) per annum beginning December 13, 2006, until the day of payment.
(b) Kaliroy shall pay, for PTG share in profits for 2005-06 Season, US$1,004,797 in profits, plus US$75,000 for the return of its capital investment, for a total of US$1,079,797; and Kaliroy shall pay PTG interest thereon at ten percent (10%) per annum beginning December 13, 2006, until the day of payment.
(c) ALP shall pay an additional US$173,690 tax payment that was withheld by it respecting the 2003-04 Season; and interest thereon at ten percent (10%) per annum beginning May 1, 2005, until the day of payment.
(d) ALP shall pay an additional US$502,431 tax payment that was withheld by it respecting the 2005-6 Season, and interest thereon at ten percent (10%) per annum beginning December 13, 2006, until the day of payment.
(e) Kaliroy shall pay US$75,000 in respect of accounting errors for 2005-6 Season and interest thereon at ten percent (10%) per annum beginning December 13, 2006, until the day of payment.
(f) PTG shall pay to Kaliroy damages in the amount of US$727,822 for the premium loss during crop year 2006-7 plus interest at ten percent (10%) per annum beginning May 1, 2007 until day of payment.
(g) PTG shall pay to Kaliroy damages in the amount of US$786,029 for premium loss during the crop year 2007-8 plus interest in US$ ten percent (10%) per annum beginning May 1, 2008 until day of payment.
(h) All claims, except those as to costs, not otherwise addressed herein are dismissed.
(i) All claims relating to costs and compound interest are reserved to a further Award.