Study the pros and cons of club varieties
Would you be better off growing a club variety with high returns, or a less restricted variety with lower costs?
Club varieties have both advantages and disadvantages that might not be apparent at first, so growers should carefully study the contracts before signing, Randy Steensma told growers at the Okanogan Horticultural Association’s winter meeting.
Steensma, who is a grower and a marketer with Nuchief Sales in Wenatchee, Washington, grows two club apples—Jazz and Sonya. He does not market them as they can only be sold through marketers specified by the variety owners.
The David Oppenheimer Group in Vancouver, British Columbia, Canada, holds the marketing rights for Jazz, as well as for Pacific Rose, two varieties owned by ENZA of New Zealand.
A company called Otago International LLC, based in Washington State, is the exclusive marketer in North America of Sonya, which comes from a private breeding program in New Zealand.
One of the advantages of a club apple is that the owners can control the quality of the fruit as well as who grows and markets the variety, Steensma said.
“Many varieties have been destroyed because they’ve been grown in the wrong location,” he observed.
On the down side, the grower has less control than with traditional varieties when it comes to deciding how many acres are planted, and the grower and variety owner might have different motivations, Steensma said. “Your vested interest is to have a high f.o.b. price. Is it the vested interest of the breeder to get as many acres as possible to get the royalty?”
The high cost of growing club varieties is one of the main drawbacks. Most club varieties charge growers more than just a per-tree royalty. For example, a Sonya grower pays $1 a box sales charge and $2 a box for promotion, and a royalty on a sliding scale depending on the f.o.b. price of the fruit, Steensma said. For apples selling at more than $24 a box, the royalty is 8 percent. That drops to 7 percent if the price is between $16 and $24 a box. That’s on top of a per-tree royalty of $1.50.
To grow Jazz or Pacific Rose, growers pay a $2,000 per-acre fee to join the club, as well as sales charges and royalties.
“That’s a substantial investment to the grower,” Steensma reflected. “It costs a lot of money to plant.”
This season, Jazz apples have been selling for $50 a box, but it’s only the second year of commercial production in North America with just 20,000 boxes available.
Pacific Rose, which has been available longer, has been fetching $28 to $34 a box on production of 100,000 boxes this year. “Should it be a $50 apple?” Steensma asked. “Growers wish it was a $50 apple, and they question why it’s not.”
This season’s production of Sonya amounted to 20,000 boxes, and it had an f.o.b. value of around $28, Steensma said. “Existing growers in the group wish it was higher, but they don’t set the price of this fruit. The question is who controls your destiny and do you have any input in it?
“The key is who’s behind it. What’s the desire of the breeder, the marketer, and the growing group? Are you all in sync with the same ideas as to where you’re going?”
How much per box?
Growers need to consider whether the club variety is going to fetch them prices in the $30-a-box range, or whether they’d be better growing something like Pink Lady that fetches $20-plus, but without all the club costs.
Study the contract, Steensma advised. “Does the marketer have any risk in the club? Is the marketer even a grower in the club? With Jazz and Pacific Rose, the marketer has zero acres, so he’s not a grower that feels what you feel. It’s something you have to be aware of. I would feel more comfortable if the marketer has a huge investment, like you have.”
Steensma also recommends that growers find out if the contract has an opt-out clause for the grower.
“There are certain varieties that have failed,” he said. “Once you’re in a club, is there a way to get out? Right now, the only way to get out is to take your trees out, and you have a big investment in that.”
Steensma said if the f.o.b. price falls below $18, he no longer considers it a club variety. “It’s a generic apple,” he said. “You’re in the market fighting it out. But no contracts are really written that way.”
Grower Al Robison of Chelan said the apple industry is facing problems of oversupply, and clubs try to make sure that supply doesn’t outstrip demand, so that premium prices can be maintained. He pointed out that 25 percent of the apple trees planted in Washington State over the last ten years have been Gala.
“We’re going to be well over 15 million boxes this coming season, pushing 18 million.”
As supplies have increased, prices have come down. “It’s a great apple, and been a winner for a lot of people, a good moneymaker, but as volumes increase, with what we have planted, I think we’ll see it come down to a more average range.”
His family is growing Jazz. He likes the fact that plantings are controlled so there won’t be an overproduction problem. ENZA sets a worldwide production target and then decides who will grow the fruit. The quality of the fruit is controlled, and there’s a detailed marketing plan.
Paperwork is a drawback, however. “It’s expensive,” he said. “It’s a headache.”
The cost is one of the main disadvantages, he believes, even though some of the royalties go to promotion, research, and development. “It’s not all bad. But it’s up-front money so it’s a risk. But we have a lot of risk anyway up front. You’re not talking about that much greater than you’re spending anyway to develop a new orchard, and you’re going to be able to control supply.”
Jazz has been bringing $50 a box so far. Robison said he’ll be giving 15 percent back to ENZA, but he’s still left with a good return.
Everything the grower does is controlled—from acreage, rootstock, and planting density to harvest window, but Robison said he feels he’s been well treated.
An advantage is the alignment of the nurseries, growers, and marketers in that they are working towards the same goal, he said.
“The goal is the same—higher returns,” he said. “You get into a team concept. You’re in business with them.”
Robison said other members of the team want to maintain high f.o.b. prices, because it’s their money, too.
Retailers want exclusive products—something that competing stores don’t have and that creates excitement in the marketplace—but to be successful a club variety must be a world-class apple, he said.
“You have to create the demand from the consumer.”