Cherry wars: The crazy economics of Michigan’s favorite pitted fruit

Michigan’s sour cherry producers are sometimes forced to dump crops to control market supply, even as the U.S. imports the tart fruit from Canada and Poland. (photo by Julie Falk)

Start with two cups of Michigan tart cherries and a cup of sugar. Add a pinch of politics and a dollop of old-fashioned, big-government controls. Stir with some legal briefs. Bake until confused.

That cherry pie calling your name at the National Cherry Festival this week in Traverse City is made in Michigan, but they’re a product of regulations that, in some years, has led Michigan farmers to dump cherries on the ground while products made with tart cherries are being imported from Canada and Poland.

“It’s crazy,” said Bill Sherman, whose company, Burnette Foods, an Elk Rapids food processing company, is suing the U.S. Department of Agriculture to upend a system it claims is outdated and hurting growers. “This is New Deal legislation when farming was 40 acres and a mule,” Sherman said. “Agriculture is nothing like that now.”

Grow? No problem. Sell? Ask Washington.

The fact that the National Cherry Festival is held in Traverse City is no accident. About 75 percent of the nation’s tart cherries are grown in Michigan, and about 80 percent of Michigan’s cherries are grown in orchards in the Northwest Lower Peninsula. By comparison, Michigan’s auto industry accounts for about a third of the nation’s auto employment.

In 2009, 30 million pounds of tart cherries were left on the ground, mostly in Michigan. That’s enough to serve a cherry pie to every resident of Michigan, with 5 million pies left over to take home in doggie bags.

Unlike Ford and General Motors, though, the tart cherry industry is told by the U.S. government how much of their product they can put on the market. The Cherry Industry Administrative Board (CIAB), operating under the auspices of the Department of Agriculture (USDA), sets restrictions on the percentage of the tart cherry crop that can be sold. Some years the share of the market restricted from market is low, like this year, which has a 10 percent restriction. In 2009, it was a whopping 65 percent.

Michigan tart cherry growers are shackled by those restrictions more than most. There are no restrictions on sweet cherries – the kind you buy in the fresh fruit section of Meijer. The restrictions don’t even apply to all tart cherries - there are no restrictions on tart cherries grown in Oregon or Pennsylvania, or on imported cherries.

There are few such restrictions on other fruits and vegetables, Sherman said. But the harvest of other edibles doesn’t fluctuate as wildly as tart cherries. With so much of the nation’s supply grown in a tiny corner of one state, virtually the entire tart cherry crop can be devastated by one bad storm. At the other extreme, a good crop could flood the market and lower cherry prices to the point that it drives farmers out of business.

Whether that restriction system works is a point of debate in the tart cherry world, and now in the courts.

The restrictions don’t apply directly to cherry growers, but to cherry processors – the companies that buy tart cherries and can them (primarily for pie filling) or freeze them for processing into other foods, such as cherry juice.

That brings us to the lawsuit, now being heard by an administrative judge within the USDA. The details are complicated even for cherry growers, so let’s leave it at this: there’s a fight over how many tart cherries can be sold by different cherry processors nationally.

Companies that freeze tart cherries don’t have a problem with the restrictions, because they can fall back on cherries they’ve kept in storage, according to the lawsuit. Cherries freeze really well – they can be kept for at least four years. “As long as your freezer’s working, it’s almost indefinite,” said John E. Pelizzari, chief operating officer at Burnette Foods.

Canned cherries, though, like the pie filling canned by Burnette Foods, have a shelf life of about a year. So in a year with high restrictions, the northern Michigan company may have to import cherries for its pie filling, while cherries are rotting on the ground in orchards a few miles away.

Cherry death panels

In 2009, 30 million pounds of tart cherries were left on the ground nationwide, with the vast majority of those in Michigan. That’s enough to serve a cherry pie to every resident of Michigan, with 5 million pies left over to take home in doggie bags.

In the lawsuit, Burnette Foods asks that the USDA tart cherry restrictions be removed because the restrictions don’t impact every processor equally, and don’t take into account sales of imported cherry products. Burnette also claims the cherry board, made up of cherry growers and processors from around the country, is dominated by people with ties to the frozen cherry processors.

The cherries have to be harvested from the trees whether they are sold or not, so in a high-restriction harvest, farmers “shake” trees and leave a lot of fruit on the ground. Farmers don’t have the option of giving away large quantities of the fruit, either, because tart cherries are only used in products, and not eaten raw.

“It’s not that we didn’t have the capacity to process, hold or sell the cherries, they’re telling us that if we do, it would somehow be destructive,” Sherman said. “There were growers that literally dumped them alongside the road.”

That doesn’t happen every year. With a 10 percent restriction this year, processors likely will take all the cherries that are produced and hope to use or store them. David White, a cherry grower in Elk Rapids, said he’s had to leave cherries on the ground four times since 1990.

More than leaving some cherries on the ground, White’s main complaint with the restrictions is that they’ve done little to increase prices for growers.

The restriction “takes the peaks and valleys out (of cherry prices), but it really knocks the peak off,” White said. “Our costs on the farm keep going up. Some of our biggest costs, spraying for insects and fungal diseases, keep ratcheting up. And you know the price of fuel is going up. And we’re not seeing the results in our pricing. When you adjust for inflation, I think we’re going the wrong direction.”

Most growers favor restrictions

But cherry grower Jim Nugent of Suttons Bay said he thinks prices would be worse without the USDA crop restrictions. “The main way they help the growers, they don’t put so much product on a market that it depresses prices,” said Nugent, one of several Michigan cherry growers currently serving on the cherry board.

A 2008 Cornell University study, conducted on the behalf of the Cherry Board, came to the same conclusion. “Our research shows that the (government restrictions) increased returns to tart cherry growers by $212 dollars per acre annually,” the report states. “Thus the estimated benefit... is $7.8 million annually higher than the farm gate value would have been if the industry was operating without the marketing order.”

But a study conducted for Burnette Foods found the opposite – that cherry prices are mostly influenced by factors outside the control of the USDA, like the weather.

Tart cherry growers and processors across the country had a chance to get rid of the market restrictions this spring, but about three-quarters voted to keep them.

Nobody likes to leave crops in the field, but “we have an inelastic demand,” Nugent explained, marking perhaps the first time a story about cherry pie has included the phrase inelastic demand.

If tart cherry economics wasn’t confusing enough, in March, an administrative law judge in Washington, D.C., hearing Burnett’s lawsuit ruled that the restriction should be lifted – but only for companies that can cherries, not for those that freeze cherries.

That ruling is on hold pending an appeal.

Politics, money, lawyers. A combination that makes cherry pie as American as, well, that other pie.