Good Fruit Grower / August 2010 / Not so sweet ­tangle

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Not so sweet ­tangle

Minnesota growers sue over “club” agreement.

A group of Minnesota apple growers and packers has filed a lawsuit seeking to undo the exclusive licensing agreement restricting the growing and marketing of SweeTango apples.    

The suit alleges that Minnesota growers and packers—and the general public—have been damaged as a result of the University of Minnesota’s decision to grant an exclusive license for the apple, which was developed by university apple breeder David Bedford, to Pepin Heights Orchard of Lake City, Minnesota.

The 14 plaintiffs are asking the District Court in ­Hennepin County, Minnesota, to declare the agreement void because it violates public policy, state and federal antitrust and other laws, and plaintiffs’ rights.

A key issue is whether the state’s land-grant university, using public funds and the cooperation and collaboration of the state’s apple growers, can greatly restrict benefits derived from the new apple to the state’s growers and citizens.

The apple, known as MN1914 during its development, was named Minneiska in 2006. Pepin Heights Orchards led in the creation of a new growers’ cooperative, called Next Big Thing, in which Minneiska is to be marketed as a club variety under the name SweeTango. Sixty-four growers in Michigan, Washington, New York, Wisconsin, and Nova Scotia, Canada, are part of Next Big Thing. Pepin Heights and two other Minnesota orchards are members and thus have access to significant numbers of trees.

All the other growers in Minnesota, about 180, get to divide 50,000 trees among themselves. That’s enough to plant only about 50 acres.
Parties named in the lawsuit include breeder Bedford and regents and administrators of the University of Minnesota; Dennis Courtier, president of Pepin Heights Orchards; and Tim Byrne, who is vice president of sales for Pepin Heights and president of Next Big Thing.
The apple debuted in limited quantities in 2009. This year was to see the big introduction, but the crop has been reduced by spring freezes in Michigan and New York, two key production areas.

Highly anticipated

SweeTango first came to Minnesota growers’ attention at their winter horticulture meeting in 2000. Over the next two years, 24 growers signed agreements to test what the lawsuit calls this “new and highly anticipated variety” in their orchards.

Approximately 80 percent of the apples sold by local apple growers were developed through the University of Minnesota breeding program.
Without much publicity, according to grower Chris Aamodt, the university and Pepin Heights signed their agreement on December 5, 2005. The next March, a group of Minnesota growers met with Minnesota legislators to discuss the limitations. The legislature passed a bill requiring the university to address the issues and ­“mitigate any negative effects on Minnesota businesses,” according to the lawsuit. The mitigation was not done, the lawsuit says.

Aamodt is a member of the Minnesota Apple Growers for Fair Trade, formed in support of the SweeTango litigation.

Next Big Thing was formed July 31, 2006, and SweeTango plantings began in 2007. In August of 2009, according to the complaint, “the university and Pepin launched a marketing and advertising campaign releasing a limited supply of SweeTango to the general public. This campaign emphasized that the Swee-Tango was far superior to the Honeycrisp, and that the variety would be the ‘Honeycrisp killer,’ replacing the well-established demand for Honeycrisp.”

Royalties

The agreement between the University of Minnesota and Pepin Heights provides a royalty to the university of $1 per tree and 4.5 percent of the wholesale value of all the fruit sold by Next Big Thing. Royalty money is split, with one-third going to Bedford and his development team, one-third to the university’s office of the vice president for research, and one-third to the university’s college of agriculture and its horticulture department.

In the agreement, Next Big Thing guarantees the university a minimum royalty from fruit sales, by the year 2022, of $410,000 a year from fruit produced in the United States and $38,000 per year from fruit grown in Canada. By 2013, Next Big Thing guarantees the university there will be a minimum of 247,500 trees planted in the United States and 29,000 in Canada—plus up to 50,000 trees guaranteed to growers in Minnesota.

Simple math indicates that by 2022, the university will have collected a minimum of  $326,500 in tree royalties and $3,154,000 in fruit royalties. An annual fruit royalty of 4.5 percent generating $448,000 a year translates into a total annual income to the fruit growers of around $10 million from SweeTango sales, which would be equivalent to 250,000 packed boxes a year selling at $40 a box.

At 1,000 trees per acre, SweeTango plantings would total only 326 acres. By comparison, about a million Honeycrisp trees are being planted each year.

The agreement would not be very damaging if SweeTango becomes, in fact, a niche apple, the plaintiffs say, but the publicity suggests SweeTango is being positioned to enter the mainstream and take over the highly desirable early season apple market, displacing Honeycrisp.