Growers can improve returns by leaving fruit in the orchard.
To pick or not to pick
Low prices for small apples during the past season reinforced the notion that growers can make more money by leaving nontarget fruit in the orchard, Washington apple industry representatives say.
"I think we've learned a very valuable lesson out of this year's crop," said Bruce Grim, manager of the Washington Apple Growers Marketing Association, who expects to see more growers consulting with packers and marketers before this year's harvest to find out what type of fruit will be profitable.
Assuming a break-even cost of $15 a box (though the cost varies from grower to grower), only a fraction of the 2008 apple crop sold at a profit.
Industry statistics through June for Red Delicious show that only Extra Fancy apples in sizes 80 and larger sold for a profit, and they accounted for only 25 percent of the volume sold. In other words, 75 percent of the Red Delicious shipped were in the smaller size categories averaging less than $15 a box f.o.b. With Fuji and Granny Smith, sizes 88 and larger were the only ones selling at an average of more than $15 a box.
A full 25 percent of the Red Delicious crop sold through June were size 100s. Though the difference between a size 100 apple and a size 88 is barely discernible to buyers and consumers, the price drops off dramatically. That's because a size 88 qualifies for the PLU code for a large apple, whereas size 100 is classified as a small apple.
When growers harvested their crop last fall, they were buoyed by a successful marketing season in 2007-2008 during which almost all their fruit had returned a profit. The 2007-2008 season-average price for Red Delicious, still Washington's mainstay variety, was $19.73 a box, industry figures show, while the Fuji average for all grades and sizes was more than $24 a box. Processing prices were also riding high at around $200 per ton because good quality fruit had meant fewer apples for processors.
The initial estimate of Washington's 2008 fresh apple crop in August was 99 million—not much larger than the previous year's 98 million—prompting many growers to pick their whole crop and take it to the warehouse, says Dan Kelly, assistant manager of the Washington Growers Clearing House Association.
But by the time the fruit was in the warehouse in November, the storage report indicated the crop had grown to 109 million boxes. By December 1, it was reported at 113 million, with an unusually high percentage of small apples. Processor prices plummeted. Final shipments are likely to be around 110 million boxes, with much of the small fruit diverted to processing.
Grim said that after Washington's record 2004 apple crop of 105 million boxes, when the season-average price was only $13.25, growers had recognized the importance of not taking unprofitable grades and sizes to the warehouse. He estimates that at least two to three million boxes of fruit were left in the orchard in subsequent harvests.
But in 2008, there were reports of frost damage in Washington, and other apple-growing regions, such as Michigan and New York, were reporting smaller crops. "I think growers looked at the relatively short crop we had in the state and said that with the national crop being down, there should be money in small-size and low-grade fruit, so I think we moved away from the tactics we had been employing."
Tom Auvil, an orchardist and horticulturist with the Washington Tree Fruit Research Commission, said he believes that the industry ignored frost-injured blocks in their estimates and were surprised when the fruit came in.
Keith Mathews, executive director of the Yakima Valley Growers-Shippers Association, said that through the end of March, 35 percent of the Red Delicious apples packed and sold were sizes 125 or smaller, compared with only 24 percent in 2007-2008 and 19 percent in 2006-2007.
"At the end of the day, I think there would have been more money in the pockets of growers had we known to leave that 10 percent of little stuff on the trees or let it drop to the ground," he said.
Grim stressed that the supply of fruit must be controlled at the orchard level because once it arrives at the warehouse and there are in-charges against it, marketers will try to sell the fruit on the fresh market, rather than divert to processing, in an attempt to minimize the loss to the grower.
"Once it's in the bin, and once it's in the warehouse, we lose control," Grim said. "It's been a frustrating sort of year from my perspective at WAGMA. When I look at what could WAGMA have done differently, I can't think of anything we could have done."
Packers reported that in order to pack the prime sizes and grades that their retail partners wanted, they were having to run a large quantity of fruit and were left with a lot of less desirable fruit to sell.
"We're trying to sell retailers a product they said years ago they didn't want, and that's a huge challenge for our marketing guys," Grim said. "How are they going to do that? Through the price mechanism."
Grim estimates that the fruit averaged a size and a half smaller than usual in the 2008-2009 season. Had fruit size been normal, good pricing could have been maintained even on a 110-million-box crop, he believes, because prices were strong at the end of the previous season, and the industry was selling what consumers wanted.
"I think we would have coasted through this thing," he said. "If we had had the manifest of premium sizes and grades like we had in the 2007 crop, my view is we would not have seen prices slump to the level they are now."
Auvil said it's difficult for a grower to leave fruit on the tree. A general rule is that if prices are at a level where the grower can't recover harvesting costs, they shouldn't pick, but when f.o.b. levels are above $12 a box, it may be enough to cover harvest costs and packing charges. However, some sizes, such as 125s and smaller, sold for as low as $6 a box this season, which is well below the cost of packing.
The way to prevent unprofitable fruit from reaching the warehouse is to tell pickers to leave it on the tree, and have bin checkers making sure that happens.
"If your bin checkers are tossing small, poor quality, russeted fruit out of the bin, pretty soon the pickers will quit putting it in the bin, because they're going to a fair amount of effort to pick fruit you just toss out," he said.
Incentives for pickers can be successful, he said. For example, the piece rate could be $15 a bin for strip picking the trees, and an additional $5 a bin if they leave small and poor quality fruit on the tree. For the best success, workers should be supervised, he stressed.
"If you don't enforce the rule, then you're going to wind up spending $5 a bin more to have the same job done. It does require a little more interaction with bin checkers and supervisors to make sure the unwanted fruit stays out of the bin."
Although growers may worry about the potential loss of income from leaving fruit in the field, that's a less risky strategy than incurring the expense of filling bins with marginal quality fruit, hauling it to the warehouse, paying in-charges, and ending up with a negative return, Auvil said.
"It's possible to dramatically improve your packout by allowing small fruit and poorly colored fruit to remain on the tree."