Apr 7, 2007

Tart Cherry Industry Organized to Create Better Times

The tart cherry industry is emerging from some bad years, but its leaders are optimistic that better times lie ahead. The question now is, will growers see that vision and help bring it about?

On the agenda for early 2006 are industry meetings organized by Cherry Marketing Institute (CMI) in which the group will urge growers to approve doubling the check-off from one-half to 1 cent per pound and undertake an aggressive marketing campaign that relies heavily on paid advertising.

During the Great Lakes Fruit, Vegetable and Farm Market EXPO in Grand Rapids, Mich., tart cherry marketers and promoters said that the industry is poised to recover from recent events, including the disastrous, record-low production year of 2002. Tools are in place, they said, to restore the industry and make it grow.

James Jensen, president of CherrCo, Ludington, Mich., reviewed the “four stages” of the industry ¬– the fourth being one that is starting now.

The tart cherry industry’s history is not glorious. In the 1970s, leaders worked to organize the industry to obtain better prices for growers. They obtained a federal marketing order (FMO) to regulate supply, transferring cherries from big-crop years into small-crop years. But grower dissatisfaction led to the death of the order in 1989 ¬– which is where Jensen picked up the history.

In “stage one,” from 1989 to 1996, after the FMO died, tart cherry supplies were very unstable, price and cherry movement was volatile and trending down.

“To address these challenges, the industry began the lengthy process of reinstating an FMO,” he said.

They got the order back, starting “stage two,” during which the supply of cherries available was “remarkably consistent,” with crop available plus carry-in maintained at about 310 million pounds a year through 2001.

CherrCo, a super-cooperative made up of 29 producer cooperatives, was formed in 1997 to stabilize pricing. It controlled about 80 percent of the nation’s tart cherry supply, acting as exclusive marketing agent and setting the annual minimum price. So price was also stable, Jensen said, and trending upward.

Then came 2002, the year growers harvested the smallest crop in the history of the industry.

“Even with a rather large free market carry-in and the release of significant volumes from the FMO reserve, the market was dramatically undersupplied,” he said.

Production was about 50 million pounds. Reserves bumped the supply available to about 175 million pounds, a little more than half a normal crop.

Prices soared, but more than price hurt the industry, Jensen said. Customers sought cherries elsewhere.

“Some customers were unable to obtain sufficient supplies during 2002 and either changed their product mix or reformulated their products to utilize fewer tart cherries,” he said. “Other customers sought alternate supplies from Europe, many doing so for the first time.”

So the “stage three” years of 2002-2004 were years of unstable supplies, movement trending down, but stable to rising prices. The overall size of the market, however, was cut nearly a third, down to about 210 million pounds a year.

“While movement appears to be returning to more normal levels, movement is not nearly large enough to adequately address the larger crops anticipated in the future,” he said. “The challenge to the industry is to address this supply/movement imbalance and to do so now.”

The tools now in place work, he said. The FMO has been “an effective mechanism” and CherrCo “has been able to stabilize prices and should be able to continue to be successful in this effort if it can maintain a sufficient market share.”

The third tool in place is CMI, the promotion and market-building arm of the industry.

“We lost a lot of markets in (the last) three years and opened up our borders to imported cherries from Poland,” said Phil Korson, president of CMI. “Prices went up, supplies went down and manufacturers looked to the world for their cherry needs. It is also important to note that in May of 2004, Poland joined the EU (European Union). This gives Poland duty-free access to the German market. The duty on canned cherries going into Germany from the U.S. today is 19.2 percent ad valorem. That is an extra $4 per case.”

Suzanne Thornsbury, a Michigan State University agricultural economist, outlined the world picture for tart cherries. Except for the United States, production takes place in only a few countries located in Eastern Europe, down into Turkey and Iran. Russia and Poland are the world’s largest producers, generating about 375 to 400 million pounds a year. Turkey comes in around 270 million, slightly larger than the United States, and Germany is around 200 million. Hungary and Iran are about half that size, and Serbia/Montenegro comes in at about 160 million pounds.

Poland is seeking exports, as is the United States, and the competition for markets focuses on Germany – a large consumer that is an importer as well a producer – and on Japan.

CMI has market development programs underway in Japan, Germany and Mexico. Germany has been a favorable market for U.S. cherries, Korson said, especially German bakers. They like Montmorency cherries because of the red skin, which gives color to the products, while the clear flesh and juice does not stain the products or the icing, Thornsbury said.

The Japanese and U.S. markets are similar in being amenable to the health benefits of cherries. U.S. growers can’t afford to let the U.S. market be taken by imports, Korson said.

“Today there are 76 million baby boomers out there ¬– and we are all getting older,” he said. “Baby boomers believe that eating healthy along with exercise is essential to good health. It’s amazing to me that people really know the cherry story. We need to reinforce that story to spread the word and promote the ‘magic of Monts.’ It’s a message that will sell and a message that will create excitement for all our cherry products.”

The program CMI is proposing would create an assessment of $10 a ton starting in 2006 and running through 2010. Called the National Cherry Research and Promotion Initiative, it would use the Federal Marketing Order board to collect the funds – on imported cherries as well – and CMI would handle the promotional effort.

The backbone of the initiative is paid advertising, Korson said. Unlike general promotion, paid advertising controls the content, the placement and the timing of the message.

Korson said that industry meetings this winter would take the plan to growers, who would express their approval or disapproval in a straw poll. If approved by growers, the program would be launched in October 2006.