Sep 27, 2007
Experts Mull Over Rising Demand and Price for Apples

USDA’s final figures on apple consumption and prices for last year have growers and packers excited by what some are calling a fundamental change in economics.

Welcome Sauer, who was president of the Washington Apple Commission before leaving a year ago to become vice president of AgroFresh, called it a “classic demand shift,” in which consumers consume more of a product and pay more for it at the same time. Normally, of course, higher prices reduce consumption and lower prices increase it.

Sauer estimated that consumers last year paid $3.29 more for a box of Gala apples than “normal” supply-demand dynamics would have predicted – and that other varieties are witnessing a similar shift.

According to USDA, the 2006 season-average price to growers for all sales was 22.4 cents a pound, 29 percent above the 17.4 cents per pound of 2005 and 66 percent higher than 2004 prices of 13.5 cents a pound.

The season-average price for fresh-market apples averaged 31.5 cents a pound, up by 29 percent from 24.4 cents in 2005 and 74 percent higher than the 2004 average price of 18.1 cents a pound. The total value of fresh production increased 33 percent, from $1.49 billion in 2005 to $1.99 billion in 2006.

The average value of processing apples in 2006 increased by 17 percent, from the $106 per ton value in 2005 to $124 per ton, and increased 16 percent from the 2004 price of $107 per ton. The value of processing apple production in 2006 increased 18 percent, from $184 million in 2005 to $218 million in 2006.

The average juice-apple price of $96 per ton in 2006 was up 42 percent from 2005 levels of $68 per ton, and 37 percent more than 2004, when average juice-apple prices were $71 per ton.

With prices up in every category, the farm-gate value of apples in the United States last year rose to $2.21 billion for the 221 million bushel crop, 32 percent above the $1.68 billion of 2005 and the $1.4 billion of 2004.

The price of fresh apples was never so high. Yet consumers ate more apples.

USDA’s preliminary estimate for total U.S. per-capita consumption of apples and apple products in 2006 was 49.65 pounds, 4.58 pounds per person more than in 2005.

Tom Hurson, vice president for concentrates at Tree Top, the big grower-owned fruit processing company in Selah, Wash., said there was a “huge increase in fresh demand and fresh prices,” which also had a huge effect on the processing side of the industry.

Lindsay Buckner, senior vice president for field services at Tree Top, called last year “most dynamic.” Despite packing a Washington crop of 98.9 million boxes, the increased demand for fresh apples resulted in prices up 43 percent from two years ago, $3 to $7 more a box, he said.

“Fresh demand is pulling fruit up from lower-value uses,” he said.

Juice apples are graduating to become peelers, peelers are going in bags and apples formerly bagged are going into boxes.

If there was a reduction in quality in boxed apples, consumers didn’t seem to notice, but it surely had an impact on the supply and price of processing apples, he said.

Increasing the pack-out of a 20-bushel bin of apples from 16 to 17 bushels may not seem big, he said, since it adds only about 6 percent to the fresh market supply. But it reduces the amount going into processing from four to three bushels, and that’s a 25 percent reduction.

John Rice, vice president of Rice Fruit in Gardners, Pa., said a strong price for juice apples “eliminates a lot of second-grade fresh packed fruit” and keeps quality high in the East, where there is a strong history of growing apples for processing.

The strong recovery in juice apple prices, after years of pressure from imported apple juice concentrate, was a welcome relief to growers both East and West.

Buckner and Rice, together on the same program, represent similar companies at the two edges of the continent. Both are large, cooperative (grower-owned) processing companies.

The Rice family owns Rice Fruit, a company that both grows and packs fresh-market fruit. But John Rice also is on the board of Knouse Foods, a 1,200-member, grower-owned apple processing cooperative. Tree Top, Buckner’s company, has about 1,400 grower members.

Both companies – Knouse and Tree Top – have annual sales of about a quarter billion dollars of products that include apple juice, apple sauce and apple pie fillings – frozen, canned and bottled products for retail and food-service markets. Tree Top added fresh apple slices to its product line a few years ago.

One big difference between the two co-ops is that Tree Top members sell product to the company reluctantly.

“No one grows intentionally for us,” Buckner said. “But still, we are one of the largest apple buyers in the world.”

The Pacific Northwest apple industry, built on the market for fresh fruit, is only in the processing business because not every apple meets quality standards for fresh sales. But the industry produces as many processing apples by accident as Eastern U.S. growers produce on purpose.

“I represent a part of the country that is unusual, and where growers actually grow apples for processing,” Rice said.

That has been changing dramatically in the last few years, as imported apple juice concentrate has crushed the market for juice apples, and sort-outs from the Pacific Northwest have crowded the market with processing apples.

Eastern growers are reacting by moving into the fresh market, planting popular new varieties and tearing out the Northern Spys and York Imperials.

Still, Rice said “we want to keep a strong processing industry in the East – because we need it.”

But in the future, it will operate more on sort-outs from the fresh market – just as happens in the West, he said.

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