Prior to 2003, imports of orange juice into Florida for the purpose of blending with Florida juice were subject to a tax equal to the box-tax levied on Florida citrus growers. Two-thirds of this equalization tax was used to support the generic advertising program of the Florida Department of Citrus, Lakeland.
In 2000, five importers filed a lawsuit challenging the tax was in violation to the Commerce Clause of the U.S. Constitution. After three years of litigation, the two-thirds portion of the tax used specifically for FDOC generic advertising was eliminated.
Since the elimination of the equalization tax, there has been growing discontent throughout the industry regarding the benefit that is realized from the FDOC’s advertising by those who now do not pay their fair share.
Because the FDOC generic advertising for orange juice grows the market for everyone in the category — unlike brand advertising which grows market share within the category — importers of Brazilian orange juice enjoy the advertising benefits in the same manner as do growers in Florida. But, only the Florida grower pays.
The overriding question isn’t whether the free rider problem exists — clearly it does. According to the white paper on the benefits of FDOC generic advertising, completed in April 2005 by a group of Florida citrus industry economists, the total free-rider problem lies somewhere near 20 percent to 30 percent of gains being captured by imports not subject to the box tax. The question then becomes: what can be done about it?
The plaintiffs in the box-tax case have argued, in addition to their First Amendment challenge, that the free-rider issue is a substantial justification for eliminating the box-tax. That sentiment is gaining support from others within the industry. Obviously, if the box-tax were eliminated and therefore the advertising it supports, it follows that the free-rider problem would likewise be eliminated.
It is, however, extremely unlikely that the courts will deal with the free-rider problem. The court will, in all likelihood, determine only if the tax and the advertising it supports is constitutional. Based on the recent U.S. Supreme Court’s ruling in the beef case, it’s a good bet the box-tax will stand.
But, that won’t solve the problem of free-riders and it won’t solve the problem generated by it within the industry.
The question of “whether to throw the baby out with the bath water” has been debated. Even though there are free-riders, the Florida citrus grower still — by a long shot — reaps most of the advertising benefit — 70 percent to 80 percent.
Since that is the case, how wise would it be to eliminate the entire program on the basis that the benefit is shared by those who do not pay? How wise would it be to eliminate all benefit of the advertising to Florida’s growers who have paid the price of the FDOC’s advertising for 70 years? The result of which has been to grow the world’s most enviable market for orange juice.
Aside from the monetary considerations associated with the free-rider situation, there are other important implications. Advertising agencies and others in the promotional arena have long known that a contributing element to the degree of success realized from an advertising campaign is the enthusiasm for the advertising from the advertiser himself — in this case, the Florida citrus grower.
As long as enthusiasm for the advertising is diminished — even by a small amount — by resentment toward the free-rider effect, then it is possible the advertising effort will ever so subtly lose some degree of effectiveness. It will also lack that something indefinable but special that separates the great motivating advertising from the simply successful.
FDOC executive director Dan Gunter is well aware of the monetary implications and the emotional nature of the free-rider inequity. He has, in a number of public meetings, discussed the necessity of finding a solution to the problem and has assured growers that doing so is a top priority.
Today, Gunter is actively involved in a specific and concentrated effort toward that end and while no solution has been revealed, it is a pretty sure thing that no stone is being left unturned in an attempt to eliminate this critical disparity.
Karen McEver is the editor of the Florida Citrus Reporter, (863) 294-3838. E-mail is email@example.com.