Jan 29, 2015
Big Washington apple crop brings marketing challenges

Can Washington state’s apple industry come close to successfully marketing 2014’s record crop of 155 million 40-pound-boxes? The consensus is resoundingly positive, based on comments made during the state’s largest gathering of growers, packers, shippers and marketers.

Robert Kershaw, president of Domex Superfresh Growers, Yakima, Washington, said there’s no reason to stop the surge now, predicting increases that could exceed 200 million boxes in a few years.

“The state of Washington is one of the few areas of the world that has increased acreage where other areas have decreased acreage,” Kershaw said during a panel discussion held at the Washington State Horticulture Association’s annual meeting in Kennewick.

As of Dec. 1, the industry had shipped 32.4 million boxes, compared to 26.4 million at the same time the year before.

“I sat on a panel in 2004 on the future of apples here,” Kershaw said. “I tend to be more on the optimistic side. I said then I thought the industry would eventually grow and sell 120 million boxes, and I was laughed out of the room. I could see us possibly selling 200 million one of these days. As the trend lines continue to grow, we will continue to have larger and larger crops.”

Mike Taylor, a grower and vice president of sales and marketing for Stemilt Growers, said industry and market changes over the past decade have been dramatic, producing a welcoming environment for growing and selling apples.

“Everything is different. There is more vertical integration. There is a lot of dry powder available, with changes in capital, labor, varietals, the length of harvest,” Taylor said. “On the retail landscape there is widespread use of category and big data management. There’s better pre- and postharvest treatments. Overall, we’ve raised the quality of apples tremendously in the past 10 to 15 years. We’ve just scratched the surface. We will continue to see incredible acceleration in the rate of change and improvement.”

Challenges that were seen 10 years ago also exist today, Taylor said. Currency is a factor, with the U.S. dollar gaining strength against Asian currencies. Trade disputes also are putting demands on export opportunities.

Club varieties “with better flavors and tastes have given us the ability to increase consumption,” he said. The new offerings have helped keep per-capita apple consumption flat – without serious declines – despite competition from other fruit.

“Consumption is everything, and what I do that is actionable in my life is about moving the needle,” said the grower-packer. “Your primary customer is the retailer, who’s focused on what’s good for them and their bottom line. Forty percent of $1.99 is a lot better than 40 percent of 88 cents.”

The market preferences are forcing the hand of growers who must consider their orchard makeup and remove mature, inefficient varieties.

“One of the key things to think about as producers is what’s going to remain viable going forward,” Taylor said. “As we reflect back on this year, the realities of a big crop with a surplus of apples in the fall, we’ll have a poor scorecard on mature varietie, and success on newer ones. The retailer is moving their behavior toward the newer apples.”

He said the popularity of club apples is creating a “massive struggle for shelf space. It’s about the marketers’ ability to provide service and turnkey operations. I’m convinced no new club apples will hit the market that aren’t exceptional.”

Kershaw said a big obstacle for moving product is the ongoing West Coast port slowdown that is delaying shipments of up to 400 cars per week.

The “bright spot,” Kershaw said, is that after more than two years without access to China for Washington’s Red and Golden Delicious apples, USDA’s Animal and Plant Health Inspection Service (APHIS) recently announced their reinstatement.

Shipments of Washington apples to China stopped in August 2012, when the Chinese government refused to issue permits to importers, citing concerns with a recently discovered fungus they claimed was not in China.

“It’s a potential game changer,” and could improve further with a potenial trade deal in which “full varietal access is coming.”

Kershaw also pointed to Africa as being a potential apple bonanza for Washington state. “When we sit up here 20 years from now, people will be talking about Africa. Over time, we will see it as a great market. It has the demographics for it.”

Taylor’s advice to growers centered on the need to be quick on their feet in a rapidly changing market climate.

“More than ever before, and with a 155-million-box storage report and a limited amount of market, the key for growers is to understand they can’t put their head in the sand. Talk with your packer and marketer to see what they can actively sell and what they can’t.

“For the 2014 crop, if we sell 140 million of the 155 on the storage report, that would be a landmark year. Is it possible? I don’t think so, but we can get close,” Taylor said. “The key is to understand consumers are changing and we will have to purge ourselves out of a lot of low-efficiency blocks. It’s important to vertically integrate your growing, packing and marketing. Find a niche, differentiate and get into the clubs. Focus on efficiency. If you have blocks that are on the fence, you’re going to have to move to get out of them.

“We’re going to be here in this industry for the next 100 years,” Taylor said. “The rate of change is going to blow your mind. The industry is going to move 200 million boxes of apples – not in the next five years – but in the future for sure.”

Kershaw said growers must adjust rapidly to changing conditions.

“With the mature stuff barely making it, (the same approach over) the next eight years isn’t going to work.”

He said apple producers could benefit from gains made in the cherry industry when looking at how it can deal with larger crop production.

“(They’ve shown that) usually when you don’t do that well with a large, gigantic crop, the second time around you will have more confidence, the needed facilities and expanding demand that can come back and fill it the next time. It’s been pretty common with cherries.”

Bruce Grim, panel moderator and executive director of the Washington State Horticultural Association, issued a warning about ongoing labor questions.

“It’s been discussed forever,” Grim said. “(President Barack) Obama’s executive order offers somewhat good news in that workers here with family members who are citizens can stay here. The question is whether they will stay in agriculture or move into some other areas. H-2A is difficult, but we had over 9,000 workers come into the state of Washington in the last year.

“I think labor will continue to be our ongoing concern,” he said. “It will remain our Achilles heel going forward.”

Gary Pullano

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