Exports boost pear returns
Lowering prices on the domestic market benefits retailers, not growers.
James Foreman advocates expanding exports and giving up segments of the U.S. market to Argentina
Lowering f.o.b. prices in a big crop year does nothing to benefit growers, says James Foreman, operations manager with Foreman Fruit and Land Company in Wenatchee, Washington. But exporting more pears could significantly boost grower returns, he believes
Foreman analyzed the relationships between pricing and production of fresh Pacific Northwest pears and concluded that retailers are the only ones who gain when the region produces a large crop.
The 2011 Northwest pear crop is estimated at 19.2 million boxes, up from 17.7 million a year ago. Over the past four seasons, exports have ranged from 5.3 to 6.8 million boxes.
Foreman found that when Northwest pear production increases by one million boxes, the industry typically exports 430,000 more boxes of pears and imports 550,000 fewer boxes. He also found that when Northwest pear production increases by a million boxes, the U.S. wholesale price goes down by $1.25 a box, on average, despite the fact that the volume of pears on the market is unchanged because of more exports and fewer imports. U.S. domestic consumption remains constant because the supply of pears on the market is the same.
“In a situation where we produce a million more boxes, U.S. retailers are getting lower wholesale pricing by $1.25 a box, they’re not doing anything meaningful to move more volume, their prices to consumers stay the same, and U.S. domestic consumption remains the same,” he told producers during the Washington State Horticultural Association’s annual meeting. “Essentially, U.S. retailers are the ones benefitting when we have larger crops.”
Foreman said if the U.S. pear industry could develop export markets for an additional one million boxes, returns to producers should average $1.25 a box more, for a total of $35 million. The more pears exported, the stronger the returns overall. Foreman said even if there was no return on the actual fruit exported, the increased returns on the domestic market would still make exporting more fruit beneficial.
“We have the ability to control how much effort we take to develop and prioritize export markets, such as Russia and India, with the result of receiving higher returns across the entire manifest,” he said.
Mike Taylor, marketing director for Stemilt Growers, Inc., Wenatchee, said he agreed with Foreman’s theory that exporting more would improve overall profitability. “I do believe that the marketplace is sophisticated enough for us to lower prices for export pears for the sake of movement,” he said. “I believe that’s a very doable thing. If we can hold the domestic market at a price level that provides a really good grower return and export the surplus at a discount, we can have a better business model.”
Kevin Moffitt, president of the Pear Bureau Northwest, said Foreman made some thought-provoking observations, but it would be difficult to open up overseas markets for an additional one million boxes of pears overnight.
Lowering the export price might boost sales in some places, but Northwest pears are still a niche in many markets that are well supplied with local and imported fruit.
However, there are hopes of expanding exports over the next few years in emerging markets like Russia and India where the middle class is growing, making imported pears affordable to more consumers.
There’s a possibility that the United States will gain access for pears into China during the 2012–2013 season (see "Access to China is near," page 11).
“That’s exciting,” Moffitt said. “That market could be 200,000 to 300,000 boxes. I think in five years, depending on the size of our crop, maybe an additional one million boxes is feasible.”
Foreman, who has a bachelor’s degree in economics from Harvard, a master’s in agriculture from Washington State University, and a master’s in supply chain management from the Massachusetts Institute of Technology, also looked at the impact of imports from Argentina, which is the largest overseas supplier of pears to the U.S. market.
As Argentine Williams (Bartlett) pears come onto the market in spring, movement of U.S. pears goes down, and the industry typically reacts with lower prices.
Imports from Argentina tend to be concentrated in markets close to the ports where the fruit arrives. For example, in 2011, 68 percent of Argentina’s exports arrived in Philadelphia, 25 percent arrived in Delaware, and 6 percent arrived in Los Angeles, California.
Foreman said that Argentina is able to supply pears at a relatively low cost. He said that he received a quote of $4,750 from a shipping company for shipping 1,000 boxes of pears from Argentina to Philadelphia, which is less than it costs to truck 1,000 boxes from Seattle to Philadelphia. If the industry takes the stance that it needs to defend all its U.S. retail accounts, the only way to accomplish that is by lowering prices across the board, Foreman said, but if they reduce prices to the level of Argentine imports, they are giving up value that could be captured in U.S. markets where Argentine pears are not sold.
Foreman suggested it might be possible for Northwest marketers to allow Argentina to service certain U.S. markets and maintain higher prices in others where the Northwest has a relative advantage. These include states like Utah, Michigan, the Dakotas, and Minnesota.
Expanding export markets and simultaneously giving up certain segments of the domestic market to Argentina might be ways to maintain higher prices and generate higher returns to producers, Foreman concluded.
“It’s possible that when we focus on retailers and defend those accounts, we are reinforcing an optimal world for retailers, and not our industry,” he said. “The value-sharing game appears to be mostly between our industry and U.S. retailers and, counter-intuitively, we can capture more value by taking actions that invite more Argentine imports.”
Taylor, at Stemilt, felt that offering different prices to different retailers would be problematic because most of the big retail companies have a multistate presence and a national buying office. “When we sell pears to Walmart, they want to buy them for New York and Colorado. We’re going to give them the same price.”
He noted that Argentina brings in Williams pears after Northwest Bartletts are finished for the season, and the Northwest pear industry has the challenge of trying to sell d’Anjou pears, which stay green as they mature, alongside the Argentine Williams, which turn yellow, juicy, and sweet.
“The right way to do that is to go to similar retail pricing and promote the whole pear category, and work on the flavor profile of the d’Anjous to make them competitive,” he suggested.
He believes that prices should match Argentina’s, and the d’Anjou pears should be preripened so that retailers expand the shelf space for pears.
“We need more promotion, and we need to offer consumers a choice,” he said. “We only sell three pounds of pears per person per year in the United States. That’s embarrassing. If we improve the flavor of our winter pears, which is our mainstay, that’s where the volume is. If we could move that to four pounds, we could hardly get the trees planted fast enough to fill the marketplace. Flavor is the key, and repeat sales.”