What is Washington’s competitive advantage?
Domex executives share their vision of competing in a global market.
Labor will become less of a competitive factor because all regions are experiencing shortages, says Ed Kershaw of Domex.
With increasing apple production in many parts of the world where production costs are lower, Washington orchardists worry about meeting the competition. But Robert Kershaw, president of the marketing company Domex in Yakima, Washington, said if he had a choice of planting apples anywhere in the world to maximize his investment, he’d plant them in Washington.
“It’s still all about the best quality product at the most competitive price, and Washington still remains on top of that equation,” he said. “It’s not price or quality, it’s what’s the best product you can get to the consumer at the right price.”
Economic stability is important, too, Robert said. “You’re not going to want to put a long-term asset in the ground if you’re not comfortable with the political-economic stability.”
Ed Kershaw, chief executive officer at Domex, said Washington growers need to focus on what they feel can give them a competitive advantage.
“You have to look at what you can do better, on a global basis. Can you grow the size better than other people? Can you grow volume, and consistent yields? Can you grow good quality that can go 12 months? Can you ship product globally?”
Availability of labor will be less of a competitive factor, because all regions of the world are experiencing labor shortages, he said. Even China has a shortage of farm labor as the country becomes more developed and populations move from rural areas to the cities.
Ed said it’s not cheap to grow apples anywhere in the world. Chinese producers cannot sustain their production of apples if they deliver them to the United States cheaper than Washington producers can. “There’s a cost to raise a product that will give a sustainable return to the land. It’s somebody’s cost. If it’s the government’s cost, at a certain point they’re going to revisit those subsidies, whether it’s for the World Trade Organization or because growers of other commodities are mad because they’re not getting a piece of the pie.”
Surprisingly, Washington has a competitive advantage in India, which is a small, but growing market for apples, Robert said. The country has a billion people and grows five million boxes of apples, mostly Red Delicious, in the northern part of the country. It’s cheaper to ship Red Delicious from Yakima, Washington, to some of the major markets in India than for Indian growers to send their apples to those markets, because ocean freight is cheaper than overland transport.
“In the southern markets, we have a competitive advantage over Indian apples,” Robert said. “Not to mention that the quality is ten times better. The only way the Indian apple can compete is on price, and that’s not sustainable.”
Yet, Southern Hemisphere producers can have an advantage in shipping fruit to the eastern United States. It costs about the same to ship apples from Chile to the U.S. East Coast as it does to truck them there from Washington, Robert noted.
“If their growing costs are cheaper than ours and the quality is equal, then they have a competitive advantage for the East Coast, but they don’t have a competitive advantage for the West Coast,” he said.
Quality being equal, buyers will go with the best delivered price, Robert said, and if Washington is closest to the market, buyers will go for an 11-month Gala from Washington if it tastes as good as a four-month apple from the Southern Hemisphere.
Ed said Washington has an advantage in storage technology because its large crops allow grand experiments every year. The technology will continue to improve, and producers will continue to define the best practices with each variety, he said. “Whether it’s SmartFresh or the newest new thing, we’re where the technology will be used the most.”
He thinks Southern Hemisphere producers will find a niche supplying organic apples to North America, since organic is a growing category and organic fruit doesn’t have the same storability as conventional.
At the same time, Washington’s exports are likely to rise as demand increases in the world’s emerging markets, such as India. Domex currently exports about 30 percent of the 10 million boxes of apples it markets annually.
The Kershaws said Washington is still the world champion of Red Delicious, and at the end of the 2005-2006 season, they wished they’d had more to sell.
“I think we’re growing and shipping a better Red Delicious than we ever have, because we have a much better controlled situation,” Ed said, noting that volumes are down and the remaining Reds are being harvested at optimum maturity. “Consumers didn’t learn to dislike Reds on their own,” he commented. “We helped them. We were on a suicide mission with Reds, and we achieved it, but now the Reds we’re delivering are very acceptable.”