When you submit your application to join the Apeda registration as a producer, you are asked to agree to a contract. The contract is extensive and covers everything from what happens if you want to leave the program early to how much money you will pay for your share of the fixed costs. One section of the contract covers what happens if you want to cancel your membership in the program. The contract explains that there are two cancellation options: giving 60 days notice, or paying an administration fee of $3,500 plus all future fixed costs accrued. That sounds like a no-brainer. Why would anyone pay $4000 just to leave? But as we learned in school, things are not always as they seem. If you read beyond that first paragraph in the contract, it says that any producer who cancels their membership will be put on a “probationary period” for one year after leaving. During this period, if Apeda finds any subsequent production by that producer anywhere, it will take 10% of any profits realized from those sales as a penalty for cancelling membership. Only then does it become clear why so few producers were willing to pay $4000 just to leave the program: because if they didn’t stay, they’d lose even more money!
The Catch
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When producers joined the Apeda program, they were presented with a contract that looked like a standard commercial agreement. But, in fact, the contract was far more complex than a normal commercial agreement. It included an “Association bylaws” section that described a non-commercial, non-profit producer association. The Apeda Board had created a hybrid commercial/non-profit organization. The bylaws gave the Board the ability to apply penalties in the event of cancellation, without having to undergo a formal legal hearing process. The Apeda Board could simply decide to impose a penalty, and producers had no choice but to accept it.
Penalties for cancelling Apeda membership
As we just saw, if you cancel your membership during the first year, Apeda will impose a 10% penalty on all future sales. Producers who decide to cancel their membership after one year are still subject to a penalty of $3,500 plus all future fixed costs. There is one important exception to these penalties: If you cancel your membership because of illness, injury or death, you will not be subject to any penalties.
Can a producer withdraw from the program without paying penalties?
Yes, but there are conditions requiring producers to pay back all or part of the “start-up” funds provided by Apeda. This is where the non-commercial, non-profit model of the Apeda Board comes into play. The Board is not governed by normal commercial rules that would require returning funds if a producer cancels membership before fulfilling the contract. The Board has created a “claw-back” clause that allows it to demand that a withdrawing producer return some or all of the funds provided by Apeda. The amount of money that must be returned varies depending on how long the producer was in the program. If you cancel in the first five years, you must repay all funds received from Apeda. If you cancel after five years but before ten years, you must repay 50% of the funds received from Apeda. If you cancel after ten years, you must repay 25% of the funds received from Apeda.
The penalty for being on Probation
For producers who cancel their membership during the one year probationary period, Apeda will put you on probation for a second year. If Apeda finds any sales of your product after the first year, it will take 20% of any profits realized from those sales as a penalty. According to the contract, “This is to let you know that you are no longer part of Apeda and that you are not being given the same privilege to market your products as other Apeda members.”
Lessons Learned: Should You Join the Apeda Producer Program?
Over the past two years, Apeda has come under increasing criticism from producers and consumers over the way it operates. It is not surprising that producers joined Apeda when the program was first created. After all, there was a lot of excitement in the marketplace, and everyone wanted to be part of the “apple movement”. At that time, there were only a few other alternative marketing organizations in the country. Those organizations had some common problems: they charged high fees; they were not well organized; they used outdated marketing methods; they did not have government oversight; and they did not have a strong network of retail outlets.
Conclusion
The Apple Marketing Cooperative is a large commercial marketing organization, and Apeda is a centralized control system. The two organizations have different objectives and operate under different sets of rules. Now that the excitement around the apple movement has died down, more producers are realizing that Apeda is not the best marketing program for small apple growers. There are other marketing organizations available that have lower fees, more democratic systems of operation, and less centralized control. Now that you are aware of the problems with Apeda and how it operates, you can make an informed decision about whether to join the program
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