Manufacturers of commodities face the challenge of earning higher margins and ultimately higher returns despite the fact that they are selling commodities, or what might be perceived by many as commodities.
In food and now fiber, some growers have approached this problem by creating a brand for their products that consumers are willing to pay more for, and then limiting the ability of other growers to claim that their product is the same. In many cases, the brand has evolved organically, with the name often initially associated with a geographic region and later codified into law through law or regulation. Ultimately, by reducing supply and the threat of new entrants, these growers are able to earn a higher margin than they otherwise would.
Examples include . . .
- Vidalia onions—Defined in 1986 by the Georgia state legislature as coming from a specific 20-county region; in 1989 the USDA extended this protection to the Federal level.
- Champagne—Only applies to what is produced in the Champagne region of France. In addition to various international treaties, this designation is protected by the EU as a Protected Designation of Origin. PDOs and related protections have been applied within the EU to several food products.
- Sea Island Cotton—This was the surprise, but as shown by the holographic label complete with registration number (pictured below), an association has been formed to certify the use of this cotton. In fact, the West Indian Sea Island Cotton Association has, at times, gone to court to protect the geographic exclusivity of their brand.
The West Indian Sea Island Cotton Association holographic label on socks made in Germany.
There is a related approach: Forming a cooperative or marketing organization whose members pay a fee to market their commodity. One example of a cooperative is . . .
- Ocean Spray cranberries—The organization is a cooperative owned by 600 cranberry growers and 50 grapefruit growers in North America an Canada. In this case, the growers, by banding together, have created a brand for their product, which is a similar role to the one usually played by a traditional packaged goods company.
Some marketing organizations have been the closed due to the efforts of larger producers, which is what happened in the case of the state-chartered California Pistachio Commission. Growers later formed the California Pistachio Board, which administers a voluntary program drawn up by the state department of agriculture and codified in the California Pistachio Marketing Agreement.
Elsewhere, some efforts to require all growers pay into a fund to support marketing of their commodity have been met with lawsuits.
