Growers looking for a way to put profitability back into the apple industry hold the key themselves, industry representatives say.
With another record apple crop on the horizon, the North Central Washington Fieldmen’s Association held a meeting early this summer to address concerns that growers’ livelihoods are threatened by poor returns. “We’re not here just to identify problems, but solutions—things we can do this year to put profitability back into this industry,” emphasized Lee Gale, president of the fieldmen’s association.
This will be the third successive year that the state has a crop of more than 100 million cartons of fresh apples to sell. F.o.b. prices for the 2004-2005 season averaged $13.25 across all varieties and sizes. Although prices were up for the 2005-2006 season, Red and Golden Delicious—which make up almost half the crop—were selling at marginal prices.
Speakers at the meeting said that leaving poor quality fruit in the orchard this fall will have the two-fold benefit of reducing supplies and stimulating sales.
Dr. Tom Schotzko, agricultural economist at Washington State University, pointed out that putting increasing volumes of fruit onto the market without increasing consumer demand generally decreases the total value of the crop. If Washington’s 2006 fresh crop is 5 percent larger than its 100-million-box crop of 2005, growers can expect to lose $124 million in total revenue. A 10 percent increase in volume would likely lead to a $270 million decrease in crop value.
“The smart thing is to sell less fruit,” he said. “The industry is best served by working to increase demand and shorten supplies. Improving the quality of the fruit coming out of the orchard will help shorten supplies as well as increase demand.”
West Mathison, president of Stemilt Growers, Inc., Wenatchee, said if growers pick low-grade fruit and take it to the warehouse, it will get packed and sold because the fruit has already assumed in-charges at that point.
“You really can’t not pack it once it’s there,” Mathison said. “The fruit that comes into the warehouse is the fruit that gets sold. You don’t all of a sudden get new fruit in your CA rooms. You have to find customers for the fruit that’s in your warehouse.”
Marketers have to spend too much time and effort trying to move poor quality fruit, he said. Low-grade fruit acts as a set of brakes because when it’s put on the retail shelf it slows movement. When consumers have a bad eating experience, it’s a long time before they go back to buy more.
“We really have to show some discipline,” he said. “Less is better in so many different ways. At the end of the day, it’s got to come down to what’s the ultimate eating experience you’re going to generate from your farm.”
Consultant Welcome Sauer said the decision on whether to market a particular piece of fruit needs to be made in the orchard, not at the packing house, because by the time it gets to the warehouse, the grower has already put a lot of money into it.
In a business climate where prices are dictated to producers, growers must focus on what they can control, and employ practices such as pruning, timely spraying, and sunburn control to avoid producing poor quality fruit to begin with.
“Packouts will drive margins better than anything else,” he observed.
Sauer said the harsh economic reality is that those growers who can make the necessary investments to improve fruit quality will be the ones who survive. “The growers who can’t will be doing something else. Economics are going to force us to be good growers and business people.”
Agricultural economist Dr. Clark Seavert of Oregon State University explained that investing money on inputs to improve fruit quality or size can have a far more positive effect on the bottom line than cutting costs.
Seavert has developed budgeting software called A Grower’s TEAM that allows growers to compare the profitability of various scenarios or inputs using either industry average figures or their own numbers. The software can be downloaded from the Web site at www.oregonstate.edu/dept/mcarec, where it can be found under “Extension Materials.”
Randy Steensma of Nuchief Sales, Wenatchee, said it is difficult for the industry as a whole to regulate supply. “Economics are going to do that. We have to work on the demand side, and that’s mainly with quality. Don’t disappoint the consumer.
“You pick a poor quality fruit, and we will pack it,” he told the growers. “As soon as it gets to the warehouse, it will be packed and put on the marketplace.”
Many marketing decisions are based on how the fruit was picked in terms of maturity, he noted. “Once you get distressed fruit, you have to go with what the market gives you. Bad fruit creates a bad market.”
But if growers deliver a good product, marketers have no difficulty selling it, he said.
Mike Taylor, sales director at Stemilt Growers, said the industry needs to look at various approaches to increasing consumption of apples, such as making them into value-added products (e.g., fresh apple slices) and selling them through new venues.
Dan Kelly, assistant manager of the Washington Growers Clearing House Association, which cosponsored the meeting, demonstrated a cost-of-production calculator that is available on the association’s Web site at www.waclearinghouse.org. Growers can calculate the price they need to break even and compare that with average returns posted on the same Web site.
Wenatchee horticulturist Fred Valentine noted that it is costing growers around $15 per carton to grow a box of fruit and have it packed, but returns to growers are not based on cost.
“Today, we have buyers who send out a list of what they need and have you put down what you’re willing to sell it for, and they buy from the person who bids the lowest. That’s the way the market’s being established today.”
He asked the marketers how f.o.b. prices can be set at a level that returns a profit to the grower.
Taylor said that the Washington Apple Growers Marketing Association, a cooperative created after the industry crisis of the late 1990s to allow marketers to discuss pricing, has made great strides but is underutilized by the industry.
“Economic pressures might bring more people in,” he said. “The entire economic reality of the 2006 crop will be driven off how responsible we are in pricing Galas early in the season when there’s nothing else to pack,” he said. “It’s that serious. We have to make sure we have the right amount of fruit to match our customers, and go after customers who will give us long-term commitments and treat us fairly.”