B.C. co-op seeks higher returns
A large crop put pressure on the industry’s weakest link—its storage facilities.
Fruit growers in British Columbia, Canada, centered in the Okanagan Valley but with sizeable operations in the Similkameen and Creston valleys and other regions, enjoy natural barriers that have limited the spread of pests and disease and fostered strong regional identities backed up by myriad local packing houses.
But in 2007, in order to make the industry more competitive, members of the B.C. Fruit Growers’ Association backed a reorganization plan to consolidate the province’s four cooperative packing houses under the banner of the Okanagan Tree Fruit Cooperative. The number of packing lines would be cut, and surplus facilities sold. Proceeds from the sales would fund upgrades to packing lines and storage facilities.
But the financial crisis of 2008 stalled the sales plan, and declining returns through 2010 weighed on growers’ confidence in the reorganization plan. Discontent led some growers to take action; new packing houses were set up as impatience with improvement grew.
The depth of the woes made headlines last fall when Kirpal Boparai, who became president of the B.C. Fruit Growers’ Association in January 2012, was reported to be in a contract dispute with the co-op. Co-op members called for his dismissal, arguing that the co-op—which contributes financially to the growers’ association—shouldn’t support an organization headed by a grower with which it was at odds.
Boparai resigned, but Alan Tyabji of the Okanagan Tree Fruit Cooperative acknowledges that the underlying issues driving grower discontent have yet to be addressed.
Tyabji was appointed chief executive officer of the cooperative in November. The packing business was familiar to him as he had spent more than 20 years at the packing house in Oliver, ultimately overseeing operations following consolidation in 2007.
Returns need to stabilize, he said, and that depends on improving fruit quality and reducing the co-op’s overhead.
During his oversight of the cooperative’s southern operations, he halved volumes and turned it into the most profitable division of the co-op, which sells $100 million of fruit annually.
“Tonnage is not the critical issue. It has to do with the quality of the fruit,” he said. “Hanging on to volumes because you think that that somehow reduces your overhead is the wrong way to go.”
While a large, good-quality apple crop has been good news for Pacific Northwest growers this fall, thanks to short crops elsewhere in North America, Tyabji says the cooperative’s annual production is 220,000 bins—40,000 bins above its ideal production level of 180,000 bins a year.
The excess volume puts pressure on the weakest link in the industry’s marketing chain—its regular storage facilities.
While controlled-atmosphere (CA) facilities have limited space, regular-storage space can expand to accommodate excess fruit. But the quality of this fruit deteriorates more rapidly, reducing the crop’s value, and the return on the capital investment in the storage space.
Tyabji thinks selling excess assets, and consolidating production around CA facilities will allow fruit to deliver greater value, and in turn improve the return on the cooperative’s assets.
Tyabji believes growers who choose to leave the cooperative to set up packing houses that lack CA facilities, “are flirting with huge risk.” Their fruit would be competing with fruit in regular storage, a segment of the market Tyabji deems “a disaster.”
While a new packing house could address the issue by developing its own CA facility, construction costs run upwards of $300 a bin for a 10,000-bin facility, or $3 million, with an additional $1.5 million required for sorting and packing equipment.
“It’s not a thought to be taken lightly,” Tyabji said.
Jind Fruit Company in Osoyoos, one of the province’s new private packing houses, handles packing and distribution for the Okanagan Plant Improvement Corporation (PICO), which launched its own “Born in B.C.” banner in October 2012, for niche apple varieties. Jind doesn’t have CA storage, but it offers a market-oriented approach that PICO believes will help boost the returns growers see from Aurora Golden Gala and Salish, the first two apples marketed through the Born in B.C. program, says PICO’s chief executive officer John Kingsmill.
The two varieties were ideal for this approach because production is limited, licensed by PICO, and separate from the major varieties handled by Okanagan Plant Improvement Corporation, which found Aurora Golden Gala difficult to handle.
“We’re able to take advantage of the diversification in packing houses that’s now available,” Kingsmill said. “We’re looking at very small packing runs, and for big houses, they simply wouldn’t be economic.”
Born in B.C. will deliver a better return per apple than any other variety, Kingsmill hopes. He said growers should be able to count on receiving 50 cents a pound for apples marketed through the program—well above the average return of 3.4 and 12.5 cents a pound noted in a 2011 report for government. •The Canadian dollar has approximately the same value as the U.S. dollar.