Mar 3, 2009

Organic Apples Face Market Test This Year

Washington-grown organic apples have been coming to market at a rate of increase of about 30 percent a year. At Stemilt Growers, in Wenatchee, one of Washington’s largest packers of organic apples, the growth rate last year was 100 percent, a doubling from the year before.

Suddenly, the packer is being called on to market 2.6 million boxes of organic apples, 1.3 million boxes more and about a quarter of Washington’s total organic apple output. Stemilt packs for about 100 growers.
Harold Ostenson, Stemilt’s organic program manager, said the timing for all these new apples wasn’t really great. Yes, they knew many acres were in transition from conventional to organic and that more organic apples would be coming.

But this year, the Washington apple crop overall is very large, nearly 110 million boxes, and the marketing year is short because harvest was about two weeks late. Moreover, consumers, suffering the aftereffects of high fuel prices and enduring a financial meltdown and economic recession, are having second thoughts about how much they want to pay for food and how much they really want organic products at a premium price.

After several years of demand outpacing supply, this year may test the depth of commitment of existing organic product consumers and, given the higher production, discover how many more there are to win over.

It will also reveal how well organic apples store, since the marketing season will probably have to be longer.

All this was grist for a half-day session on organic apples at the Washington State Horticultural Association’s three-day educational event and trade show in Yakima in early December.

8 percent organic

David Granatstein, the sustainable agriculture specialist at Washington State University who tracks organic supply and demand, estimates that 8 percent of the apple acreage in Washington is now certified organic, as growers strive to exploit a niche for which they may be uniquely qualified.

The climate in Washington, with dry, sunny summers and cold winters, is not only ideal for growing apples organically, Washington is one of the few places in the world that fits that description, Granatstein said, adding:

“Washington is a great place to grow organic apples.”

His statistics indicate that Washington had 12,936 acres of organic apples in 2008 and another 4,256 in transition to organic. By contrast, in the more challenging climate of the eastern United States, there are only about 1,000 acres of certified organic apples in total.

In Europe, organic apples are grown in many countries with a more humid climate where apple scab is a big problem. But some European organic consumers are more willing to forgive, he said, and will buy fruit with cosmetic blemishes. In the U.S., people will pay more for organic, but they want only flawless fruit.

Declining prices

Desmond O’Rourke, who runs Belrose, Inc. in Pullman, Wash., tracks the apple industry world-wide and has been watching the emergence of organic apples for 11 seasons now. He calls it “the organic gamble.”

He concludes that the price of organic fruit parallels that of the conventional crop and does not appear immune to the laws of economics, in that “the price is set by the last apple offered.”

When marketing to committed organic enthusiasts, the price premium for organic fruit has been about a third.

As volume has risen, the crop has needed to attract more marginally committed consumers. These consumers, who are less willing to pay more for the organic version, nevertheless set the price for the whole crop, so those willing to pay more get theirs for less, too.

Over the last two years, as volume has increased, the premium for organic has declined, he said. When the organic crop was 6.7 percent of the total in Washington, growers got a premium of $6.77 a box ($32.36, on average, compared to $25.36 for conventional). That’s a 30 percent premium for organic.

He concludes that, when organic production reaches 12 percent of the total crop, the organic premium may decline to zero.

To prevent price declines, he said, organic producers need to attract more core consumers, increase the rate of consumer preference for organic, increase the penetration of organic in the apple category and lower their costs of production.

“That will be an uphill battle in the present economic environment,” he said, “where consumers are cutting back on upscale products and retailers are discounting.”

Organic producers might want to consider an organized promotion effort, he said.

“Our data don’t show the decrease in price and premium with the increase in supply,” Granatstein said. “In fact the price has been increasing along with supply in 2006 and 2007. Things were not as good in 2001-2004.”

The goose is dead?

Ostenson, who a year ago gave a talk entitled, “Is the organic goose dying?” modified the title this year to “How dead is the organic goose?”

European consumers of organic fruit are more committed, he said, and willing to compromise if fruit quality lags in a given year. In the United States, “those willing to pay more want very high quality fruit,” he said.

While Washington growers have learned how to prevent damage to organic apples from diseases and insects, he said, they have lacked good blossom-time thinners and good herbicides for orchard floor management. This can result in erratic crop size, smaller fruit and fruit that doesn’t store well.

“We need bloom thinners, good ones, to get fruit that will store,” he said.

Without suitable thinning, apple trees overproduce, generating small fruit that is low in calcium. “We need the calcium if we are going to store apples longer for a longer marketing year,” he said. “We’ve got to store enough to sell for 12 months.”

Retailers, he said, want product year round, and as organic product volume increases, organizations like Stemilt need more time to sell them.

Overcropping (because of inadequate thinning), besides giving smaller fruit, leads to biennial bearing, he said. The result is a year of fewer, higher priced apples generally not available for a full year, followed by a year with lots of small apples, lower in calcium, that won’t store and are less desirable to consumers.

“If you can’t sell a quarter of your apples because they’re low quality, you might as well grow conventionally,” he said. “You don’t want to dilute your market with low quality fruit.”

Too much gloom?

“There was a lot of doom and gloom from our first three speakers, I thought,” said Dain Craven, a consultant to organic growers and Stemilt’s Grower of the Year last year. He’s been growing apples organically for 17 years.

“I got into organics for the money,” he said. “Then I fell in love with the art.”

He finds growing organic apples a rewarding challenge, and agrees that Washington has an ideal climate for it. He wants to see the problems solved and growers continue to succeed growing organic apples.

To that end, he and Granatstein led an interactive question and answer session with 175 people at the organic session, three-fourths of them organic apple growers. They asked questions and the growers responded on a keypad that tallied their answers instantly.

On one question about cost of production, most growers said their cost of production was 10 percent to 20 percent higher, but 20 percent said their costs were similar or even lower.

Three quarters of them said that prices for organic apples, so far, had made it profitable for them to follow the organic regimen, with only a few saying it didn’t pay most of the time.

They wanted more research to find better weed control methods, lower cost sources of nitrogen and better tools to control insects, especially codling moth and, to a less extent, wooly apple aphid. They wanted more research on biological controls—the role of beneficials and how to protect and encourage them. They wanted more work on post-harvest and storage problems and on the effects of soil quality on fruit quality.

Asked about the effects of prices on them, one in eight growers said they wouldn’t switch back to conventional, no matter what the price. But others would switch if the price premium for organic dwindled away.

Granatstein said there is room for optimism, but that, as O’Rourke noted, the laws of economics apply. It is difficult to know what demand would be if product were available year round and retailers could count on that. Supply can grow too quickly. Growth of supply needs to equal growth in demand, he said.

“We don’t know when (what percent of market share) demand will flatten out. But we can’t just decide to transition huge acreage without considering what that represents in new supply that will have to be sold,” he said.