Will downsizing return California tree fruit industry to profitability?
by Rand Green | February 02, 2009
There is general agreement among growers and shippers of California peaches, nectarines and plums that the industry is going through some troubled times.
Certainly, returns to the farm have not been good in recent years. There are many factors contributing to that condition, but overproduction, vis-a-vis the current level of demand, is widely seen as a major cause of the industry's woes.
At the very least, it is one factor over which the growers themselves can exercise some control.
A much-discussed question within the industry is just how much volume will need to be reduced in order to push farmgate prices above production costs. There have been a number of significant changes in the industry since the end of the 2008 season. There has been some attrition, some downsizing and some consolidation, involving both small and large players -- and more is expected before the start of the 2009 harvest.
Several thousand acres of tree fruit orchards have been pulled out since last season, but with younger acreage coming into production that may have higher yields, there is some question as to whether there will be a net reduction in volume for the 2009 season sufficient to make a difference in the market.
"The majority of participants feel that there are many causes to the financial strain that the industry is feeling," said Barry Bedwell, president of the California Grape & Tree Fruit League in Fresno, CA. "Most of the people would say first and foremost it has to do with production." The combined volume of peaches, plums and nectarines in California "is probably between 55 [million and] 60 million boxes, and profitability for some is probably at a lower number. Whether that number is 45 [million] or 50 million, you are going to find individual debate on that."
According to Mr. Bedwell, "A lot of people think that we are going through a natural attrition process" that will bring supply and demand "more into balance." But "quite frankly, there are others that feel there are some internal problems having to do with marketing that are pretty much self-inflicted, and if those problems could be addressed, the market would be able to take a higher amount of fruit."
There are also "additional pressures that are causing problems, not the least of which [are] higher regulatory costs" and "higher input costs at every point of production and harvest," he continued. "Those are all leading to a fallout of a situation that is still not totally defined as yet."
"There is no simple answer on industrywide profitability because if access to financing hurts one grower, then access to water hurts another," Gordon Smith, director of marketing for the California Tree Fruit Agreement in Reedley, CA, said in a written statement. As to whether there is too much tree fruit being produced, he said that after the 2007 season, "an informal poll would have revealed a mixed bag of responses as to how much tree fruit is too much." The 2008 season started with "cautious optimism," he said, but "now heading into 2009, a consensus appears to be forming amongst the grower community that we may have witnessed maximum production."
Mr. Smith noted that "the tree fruit industry is not the only industry confronting what appears to be shrinking display space. Of the top 10 fruits at retail in 2008, only berries, citrus and avocados did not experience volume declines."
"It has not been a time of profitability for the industry with rising costs of production and a fairly flat price for the fruit," said Blair Richardson, president of FreshSense in Parlier, CA. "Businesses are having to re-evaluate how they are going about their business."
The industry "is doing what it needs to do," he said. "It is dealing with the issues, and there is consolidation taking place. There is contraction." While those changes may pay off for some in the near future, "that doesn't necessarily mean that everyone will continue to be a part of [the industry] down the road," he said.
"I hate to think the only answer to this is to contract the industry and remove volume from the marketplace," Mr. Richardson added. "I would be much more excited about looking at ways to expand demand."
"Certainly there needs to be a correction in that delicate balance between supply and demand, and right-sizing the supply side of our industry with the demand for large size plums and peaches and nectarines with the right variety mix is going to be a critical part of whatever solution the industry adopts," said David Marguleas, chief marketing officer for Sun World International LLC in Bakersfield, CA. "If there were an abundance of really high-quality tree fruit in the market, then the industry would have at least a good shot at building demand."