PMA Restructures Dues:
New Plan Brings In More Revenue,
Boosts Costs For Larger Firms,
Breaks Longstanding Link Between Retail And Grower/Shipper Dues...
Does PMA Need More Money?
Jim Prevor’s Perishable Pundit, July 23, 2014
The Produce Marketing Association (PMA), the industry’s largest trade association, has announced a new dues structure effective for 2015. Right now it covers US and Canadian members with the expectation being that a new foreign dues structure will be unveiled to be effective in 2016.
Currently there is a relatively small spread between the dues a small company will pay and what the largest might pay — the smallest produce grower or marketer pays $1,165 a year in dues and the largest pays $2,585 a year in dues. Under the new structure, the top category, companies with over $300 million in produce sales, will pay $9,330 a year in dues, or almost four times what it pays currently.
The change is being positioned as a move to make the PMA dues structure more “fair and equitable.” The big grower/shippers who serve on the PMA board voted for this change and, in this day and age, the idea that large companies such as Dole or Chiquita should pay $9,330 a year in dues to an association is not unreasonable.
Indeed it probably won’t get much push-back because most of the larger companies in the industry already do some kind of extra sponsorships with PMA. If they want to keep their “PMA Budget” flat, they will just cut back on their sponsorships to keep the dollar amount flat.
But the change in structure does raise other questions:
1. Although nobody can object to the idea of being “fair and equitable” — and that might well mean changing the ratio between what different-sized businesses pay — that could have just as well been accomplished by cutting the dues of smaller members. So the purpose of this has to be seen as increasing the revenue to PMA. This may be good or it may be bad depending on what PMA will do with the money. PMA’s strategic plan involves global expansion. This is obviously great for some companies, say fruit companies that want to export or if a company is looking to buy operations overseas, but if one is a US vegetable grower, not looking to export, not looking to expand overseas, such a company might think PMA’s strategic plan is not creating value for them and thus might not be thrilled at paying more dues.
2. Even many who support PMA and believe it does important work may question the need for PMA to raise more money. PMA has a very successful business model. At the end of 2012 (the latest figures available) for example, PMA had over $12 million in cash and investments, plus it owned its headquarters, both land and building, free and clear. In contrast, leaving aside pre-paid membership dues and advance payments for events, etc. PMA had less than $3 million in liabilities. Although PMA’s bottom line can vary widely depending on things such as if the board decides to make a big donation to another group that year, in 2012 PMA’s bottom line was a profit of $1,840,713.
In addition, at the end of 2012, the PMA Foundation for Industry Talent had net assets of over $3 million. Although PMA has expressed a vague need for the revenue to assist in executing its strategic plan, and obviously the board of directors agreed, it is fair criticism to say that PMA has not done a good job of building a case to the general industry of why PMA needs more money.
3. PMA’s recognition that the dues range between the smallest and the largest companies was too small may be accurate, but simply raising the maximum to $9,330 in dues really doesn’t fully address the problem. The issue is why different companies pay different percentages of sales as dues. Univeg had sales over $4 billion in fiscal year 2013, and Chiquita’s sales for the same period exceeded $3 billion and will grow substantially with the acquisition of Fyffe’s. Sunkist has proudly reported its fourth consecutive billion-dollar year.
It is not for us to say how much these organizations value PMA or what dues they would be willing to pay and, of course, many of these organizations support PMA by exhibiting and sponsorships.
Still the dues categories top out at $300 million. The restructuring is raising a broader question: if sales dollars are a rough approximation of what value an organization derives from membership, why make the top bracket $300 million? The way this is structured is that per dollar of sales, the largest companies will pay a lower percentage of their sales than their smaller competitors. Is this someone’s idea of “fair and equitable?”
4. This increase in dues for growers and marketers has another impact: it dramatically reduces the equity between different industry segments. It used to be the top grower/marketer dues were $2,585, while the dues for the largest retailers were set at the same level. However, dues for retailers and foodservice operators are not included in the new plan. It may well be that PMA has calculated that retailers and foodservice operators would be unwilling to pay higher dues and yet PMA, of course, still wants retailers and foodservice operators to participate.
At some point the question becomes this: If a group does not perceive sufficient value in an organization to pay dues comparable to those paid by other members, in what sense is this their association? Although growers and marketers always provided the bulk of financial support to the association, now the percentage of dues paid by the buying end of the industry will decline precipitously. Is it reasonable to think their position in the association will remain unaffected over time?
5. Another issue raised by the new dues structure is the fairness to the wholesale sector. Wholesalers always felt that dollar-based dues were not right. After all, a shipper who ships five million cases of product from California and a wholesaler who sells that same five million cases in New York will have dramatically different sales. Depending on the product and price levels, it wouldn’t be shocking by the time one adds in transportation and mark-up if a shipper with sales of $50 million translates into a wholesaler with sales of $100 million. Why an enterprise that sells five million cases in California should pay lower dues than an enterprise that sells five million cases in New York has always been unclear.
Now, however, the new dues structure biases against the industry sectors that purchase through wholesalers. A supermarket buying $300 million worth of produce direct from a producer will have lower expenses than a wholesaler buying $300 million in produce direct from a grower. Obviously the dollars are small but the inequity is there.
6. PMA also has not yet changed the dues for people outside North America. This is being studied, and it is expected that a change will be announced in the future. Although executives at PMA are pleased that firms outside North America account for about 23% of the membership and about 24% of PMA’s revenues, it is not clear this is the right metric. A very large share of that money comes in the form of booths and sponsorships at Fresh Summit, PMA’s large October event. Put another way, this investment is made mostly to reach PMA’s North American members in order to sell them produce and ancillary items. In other words, it is not clear at all that these funds have anything to do with PMA’s global outreach.
In the old days, foreign membership was seen as less valuable as it was difficult for non-North American members to access PMA’s events and services. Now PMA has set its mind on being a global association and it has events around the world. Technology has made communication easier and one can participate in a webinar as easily from Moscow, Russia, as from Moscow, Idaho.
7. Indeed the nature of PMA's business model makes it unclear to what degree people feel loyalty to PMA as an association. It might be wise to try to ascertain an answer to this question. Certainly we know many people, especially people overseas, who have built their entire careers around PMA. They have spent 30 years in various positions with PMA boards, and coming out of Australia or South Africa would credit PMA, more than anything, with helping build their business. They built a global network of friends and business associates and owe it to PMA. There is no question there is enormous profit to be realized by being engaged with PMA. But we have to say that these are mostly people very active on PMA boards over extended periods of time, which is only a tiny percentage of the individuals employed by companies that belong to PMA.
What PMA has is powerful events. This is the primary way it faces the industry. And one big benefit of PMA membership is one gets discounts for exhibiting at or attending PMA events. In fact, the discounts are so large that PMA membership has been, in effect, free for many companies that exhibit. A 10’ x 20’ booth at PMA’s Fresh Summit event costs $10,200, but if one is a PMA member, the booth only costs $6,800. Under the old dues structure, the PMA membership was defacto free if one’s company was going to buy a 10’ x 20’ booth. Even under the new dues structure, with trade show booths and multiple registrations, dues in effect will still be free for most and there will be a steep discount for the rest.
What this and similar discounts on other PMA events and services means is that PMA’s membership doesn’t necessarily feel deep devotion to PMA. It is similar to how many people belong to AARP to get discounts and really don’t know much about the organization they are supporting. We got some sense of this during the break down of talks on the merger between United and PMA. Board members aside, we got the sense that United members felt passionate about United and its role in representing them before government, though these same companies, which typically were also PMA members, did not feel emotionally invested in PMA.
Here is a thought-experiment that won’t be tested: PMA doesn’t subsidize Fresh Summit; Fresh Summit subsidizes PMA. If PMA decided it wanted to really know where it stood and so decided that each part of its budget should stand on its own and so each event charged what it needed to and there were no discounts for being a PMA member, how many members would PMA have?
This is a very important question. It could guide PMA’s board and staff into what areas members really value. However this restructuring is not designed to add much clarity here.
There is nothing wrong with PMA looking to shift its business model so more money, at least proportionately, comes from dues. The American Society of Association Executives (ASAE) indicates that associations of PMA’s size generally get 47% of their revenues from dues. PMA gets only 18% of its revenues from dues, and after this dues increase and restructuring, internal estimates are that PMA will get 20% of its revenues from dues. Of course, the ASAE numbers are just a snapshot, a fact, not a goal. They may just mean that other associations don’t have an event as financially lucrative as Fresh Summit.
There is also not anything wrong with an association attempting to become larger, which is the practical impact of raising dues. The problem is that the industry has not had the kind of discussion on these issues that would actually build support.
The PMA board is filled with hard-working people who only deserve praise for their tireless efforts to help PMA and the industry. We have watched Tim Riley of Giumarra, PMA’s current Chairman, work on this and related projects for a decade. He deserves enormous thanks from the industry for doing yeoman’s work in trying to guide this process.
However, a discussion within the board is not the same thing as a discussion within the industry. Board members run in uncontested elections and so do not in any meaningful way represent anyone. They are just the people who impressed the leadership of a year or two or three ago and were thus invited to join the board.
In recent years, both the effort to launch a mandatory assessment consumer promotion program for produce and the proposed PMA/UNITED merger collapsed in no small measure because industry associations decided to keep everything under their hat and spring it on the industry.
That is simply not best practices in 2014. Indeed it hasn’t been for a long time. One can look at the web site of the American Society of Association Executives and find articles a decade old explaining how an association should proceed when considering changing its dues structure. The answer is not to develop it in secret and then spring it on the trade:
Discuss anticipated changes to the dues structure using a variety of communication vehicles, calling for input and discussion. Conduct a town meeting to discuss the issue at an upcoming conference or via conference call. This will ensure that the association has provided every opportunity for input and discussion prior to the board taking action or the issue being put to a vote by the membership.
This change by PMA is relatively small. Some who are hit with higher dues will grumble, especially those close to the dues cap who will feel that larger competitors are being given an edge, and wholesalers will grumble for being disadvantaged compared to their retail competition. But any drop off in membership or reduction in sponsorships will easily be compensated for by higher dues revenue. So the plan is probably a win for PMA.
But if, instead of announcing this as a fait accompli, PMA had published it as a proposal, did a few town halls and webinars to explain the plan and then genuinely solicited feedback, it would have given the industry the opportunity to wrestle with and discuss important issues such as how large a financial reserve do we want our big trade association to hold, how do we deal with insuring equity between different size industry participants, what exactly is the role of retailers within the trade’s associations, how do we envision foreign firms contributing and how do we insure equity between those who buy through the wholesale channel and those who buy from retailers.
The likely outcome would have been a better dues restructuring, with more solid support in the trade. That would have bode well for both PMA and the industry at large.