Unscrupulous vendors
'milk loophole for
all it's worth,' a
state official says.

But a decision in December 1994 by the board of the Santa Barbara Certified Farmers Market Association to write this concept into the market rules touched off a convoluted and costly legal battle, demonstrating that the issue is not as simple as it seems.

The litigation came to an end in the spring of 1996. The settlement endorsed by the Santa Barbara Superior Court April 3 recognizes that the Santa Barbara market-and any other in the state that so chooses-can prohibit farmers from using a "carried certificate" to sell produce that they didn't grow.

The settlement was summed up in a letter agreement dated March 22 and signed by market association board members, a Department of Food and Agriculture official and a deputy attorney general. The agreement says the department concurs that certified farmers markets "may establish rules prohibiting the practice of using carried or second certificates, provided that such rules are applied in a non-discriminatory manner." The agreement also states that within 90 days, the department will propose a new regulation clarifying that this is the correct interpretation of California's direct marketing regulations.

The Santa Barbara market association had to shell out $30,000 in attorney's fees to obtain the ruling. But members of the board consider it money well spent. Farmers markets are doing a booming business, and they are a vital outlet for many small farmers who couldn't stay in farming if they had to sell their produce through conventional channels. But in recent years, concern has been growing that some farmers are defeating the purpose of the direct marketing law by making a living selling food they didn't grow, using lease arrangements, partnerships and second certificates.

The regulations give market managers some flexibility to permit farmers to display produce grown by someone else and to sell it on their behalf. But the regulation also expressly allows markets to adopt stricter rules.

Carried certificates enable neighboring farmers who grow different crops and travel in different directions to different markets to carry along some of the other's produce to sell. They also enable markets to offer a diversity of items, and in the early days, before large number of farmers were geared up to grow for farmers markets, helped many markets get started.

But in recent years, abuses of second certificates have become pervasive, according to Ed Williams, a Department of Agriculture official, who spoke on the subject at the Farm Conference in Visalia in February. Carried certificates have opened the door to "outright buying and selling" or brokering of produce purchased by the so-called farmer at wholesale outlets.

"You have unscrupulous people and entire markets and associations who take a good thing and milk it for all it's worth," said Williams. Some farmers market vendors have stacks of carried certificates and when questioned by an inspector can pull one out to justify any item on their table, Williams said.

Consumers who are impatient with seasonal fluctuations in the availability of produce, an inevitability in a true farmers market, subtly encouraged the use of carried certificates, though most consumers remain blissfully ignorant of the implications. "The public doesn't understand that what they buy at farmers markets may be bought and sold," Williams said.

'Minimum Participation' Rule

The Santa Barbara market board members are hopeful that the litigation they have just come through has drawn attention to these problems, and will help push the industry to find solutions.

"There's been a lot of good discussion as a sidebar to our case about the underpinnings of how our industry works," explained Mark Sheridan, the association's manager. "If people try to act like misuse of the direct market statute is not happening in their market or it is not a problem, it will lead to more pervasive abuse. As long as we keep talking about this issue, I think it will fix itself. Each market will find a solution on their own."

At the Santa Barbara market, the board reasoned it no longer made sense to let farmers in the market sell produce grown by someone else when there are long waiting lists of farmers wanting to get into many of the markets to sell what they have grown. Only 17 of the more than 100 farmers in the association were carrying certificates anyway. So the market's board voted in December 1994 to phase them out by the end of 1995.

The board also adopted a minimum participation rule requiring farmers to show up personally at the market at least once each quarter to maintain their space.

To be fair to those whose produce had been sold under second certificates, they decided to give them the opportunity to continue to sell at Santa Barbara markets, though they or their family members would have to comply with the minimum participation rule.

Santa Barbara still has a hardship clause that would permit carried certificates and would exempt farmers from the minimum participation rule in the event of a family crisis, crop failure or other unforeseen circumstance.

However, Scott Peacock, a farmer from Dinuba who had been selling produce for two other farmers in addition to produce from his own farm, for years, objected and hired a lawyer to fight the rule change. He argued that the direct marketing regulations didn't permit the association to impose an outright ban second certificates. He also argued that the members of the board were acting in their own economic self-interest to unfairly exclude a competitor.

In August 1995, Ralph Dash, an administrative law judge of the state Department of Food and Agriculture agreed with Peacock in some respects. He upheld the minimum participation rule but he blocked the Santa Barbara market from proceeding with its plan to phase out second certificates.

Though Department of Food and Agriculture officials expressed doubts about Dash's interpretation, they felt they had no choice but to adopt his ruling. And so they let it take effect.

The ruling, and the department's acquiescence in it, sent shock waves through the farmers market industry. Some markets had already adopted sharp restrictions on second certificates, and others were moving to phase them out. In San Luis Obispo, for example, the farmers market association three years ago adopted a rule prohibiting second certificates except in cases where the product was otherwise not available. "We would have had to reconsider what we were doing," said Peter Jankay, manager of the market.

The Santa Barbara market appealed the decision to the Superior Court, using funds that would otherwise have been spent on advertising and contributions from markets in Davis, Ventura, Sacramento and Marin and from some individual farmers.

The association and its lawyer were preparing to present their case to the court when Peacock indicated that he was willing to settle the matter. He agreed to let the rule against second certificates take effect as long as he and the farmers he represented were given a long grace period to phase out the second certificates that he had carried for years.

The association ultimately agreed to let Peacock carry one certificate for four more years.

"We would have preferred to not let him carry the certificate any longer," said Rick Gean, president of the association. "But in the best interest of everyone, we decided to settle."

"There was animosity between us but it has ended," added Stephanie Giorgi, the association's secretary. "Scott is still part of the market. That's important. He does have a loyal following But most importantly it did secure the fact that the association had always acted properly in interpreting the department's regulation on whether we were allowed to do this. That not only had implications for us, it had statewide implications. I think we had a lot of people looking to us."

The association insisted that as part of the settlement, the department would have to agree to set aside Dash's ruling. The department did so, and "that means the association wins," said Christopher Jacobs, of Hatch & Parent, the association's lawyer. "We thought the rule was clear. We think the department thought the rule was clear. But Mr. Peacock thought the rule was not clear and Judge Dash concurred."

"Even though there were times when we were so bitterly sick of having to go through this and even though there were times when we were so bitterly sick of having to write checks to Hatch & Parent every month, it was a very valuable learning tool for all of us. Our market the structure is better and stronger because of it," Georgi added.

"There is support out there industry wide and the majority are very happy to see this take place," said Gean.

Consumers Need Educating

Sheridan said the market's phone has been "ringing off the hook. Everybody wants in our market now. It has really created an interest in our market. People say we want to be in a fair market. We don't want to have to compete against a broker or a peddler."

If there's any backlash against the phase out of second certificates, it is most likely to come from consumers who are accustomed to supermarket shopping and expect farmers markets to be the same way.

"If markets do adopt policies like that and the elimination of the carried certificate results in the loss of commodities in the market, you're going to find when the customer comes to the market and can't find a certain product and wants to know why," said Georgi.

"That was one of the big early discussions. What if we don't have corn when people want it? What if we have don't have enough peaches to meet the demand? We decided to bite that bullet."

The market will try to find farmers who can supply what customers want. Managers hope farmers will learn to meet demand. They also realize they'll have to learn to explain why you can't find corn in the market in February.

"One of the roles of the market is to let the consumers know what's seasonal," said Sheridan.

Many markets use consumer demand as an excuse to open the door to second certificates and other less-than-direct marketing gambits. But Santa Barbara officers said that to ensure the integrity of farmers markets, managers should adopt a different strategy.

"Instead of having the customers be angry you need to turn that around and say go eat something else this month. Be happy with the fact that at least the integrity is here," said Georgi. "In the long run it will sustain our industry."