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Downsizing Challenge
There is general agreement that the world apple industry expanded too rapidly in the 1990s. There are many signs that industry capacity is now gradually being cut back. Producers, packers and marketers are merging or going out of business. However, it is vital that in the course of downsizing, the industry does not destroy some of the institutions and systems that are vital to its future progress.

Firm Level: Painful but Profitable
At the firm level, decisions on downsizing are painful, but at least can be based on sound information. For example, it is relatively easy to see which orchard block is less productive and should be removed, or which storage shed has become outmoded and should be abandoned, or which marketer has lost keey customers and is no longer competitive.

Many disinterested parties, such as accountants, bankers and agricultural consultants, can provide valuable information on whether all or part of an operation is viable. In some cases, a smaller operation that focuses on core competencies may be more manageable and more profitable than a bloated operation. Properly done, at the firm level, downsizing can increase profitability.

Industry Level: Agonizing
However, at the industry level, downsizing is much more difficult to manage. The goals are more complex and less precise, the information needed to make good decisions is missing. And because of downsizing, the industry often loses experienced and knowledgable leaders.

Much of the funding for industry promotion, research, logistics, lobbying, databases, conferences and seminars, secretarial assistance, etc., is based on numbers; number of producers, number of packers, number of acres, number of boxes produced
or packed, etc.

When numbers fall, the revenue for all these industry activities falls in step. Industry organizations find themselves downsized without having to make the decision to downsize. The only way to reverse that fall in the short term is to raise assessments per acre or per producer or per box. Since the original downsizing was due to economic stress, increasing assessments in such an environment is politically difficult.

Possible Casualties of Downsizing
The list of possible casualties of industry downsizing is long and raises many concerns. The industry can cut back on promotion. It can reduce the number of sales representatives, do less media advertising, or try to provide smaller promotional allowances to retailers.

It can cut research funding or delay project implementation. After all, the outcome of research is always uncertain. How much will it matter if the solution to a pest, virus or disease problem is delayed a year?

It can reduce the number, coverage or frequency of reports on shipments, exports, storage, prices, etc. It can skip meetings
of industry groups that are dealing with new trade, transportation or regulatory issues. It can allow the industry strategy to be dominated by better-funded sectors.

It can reduce the number of government officials, either elected or appointed, with whom it works. It can cut back its entire legislative agenda, or it can pass up opportunities to influence future legislation because it has not got the personnel to do so.

Effects of Decentralized Management
The problem is compounded in most apple-producing countries by the fact that industry functions are parceled out among many different entities. In a normal corporate setting, the CEO and the board oversee all the functions of promotion, research, logistics, lobbying, etc. If downsizing is necessary, they can weigh alternative levels of cuts in each function to serve the overall interests of the corporation.

In a decentralized industry, where each entity meets its own budget-balancing needs, who will speak for the overall good of the industry? For example, the apple industry faces an uphill fight to maintain consumer loyalty in the face of fierce competition from alternative fruits and snacks. If it cuts back promotional expenditure, that could hasten the loss of market share and reinforce the industry's downward spiral.

Need to Think Industry-wide
Almost every industry organization has already, or soon will, face the challenge of declining resources. If each attempts to handle the crisis on its own, the result may be far from optimal for the industry. They share many common problems, including how to generate additional funds, and where to find a new cadre of leaders to replace those who have left the industry.

There is an urgent need for the different industry organizations at state or provincial, and national level to at least communicate and share ideas as they approach downsizing for their own organizations. They need to share ideas on improving efficiency, finding alternative funds and educating a new generation of leaders. Perhaps in some small countries, they may be able to work together in a coordinated approach to these challenges.

Downsizing is likely to be a factor in the apple industry for several years. At the very least, industry organizations need to work together to ensure that their downsizing efforts are most beneficial to the whole industry and do not contribute to making the situation worse.

This article was published in the World Apple Report, July 2002, pp 1-6

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