Imagine What Pecan Industry Can Be


A LOOK BACK and A LOOK FORWARD TO WHAT THE PECAN INDUSTRY CAN BE

Mike Adams | President, American Pecan Board

 Our industry is at a crossroad. Let me begin with two stories that are insightful and revealing.

At the WPGA conference in Las Cruces in March of last year, over a breakfast conversation with Dick Walden (Green Valley Pecan Company), about the state of our industry, he mentioned an article that he had written in the 1990’s entitled “The Cannibalism of the Pecan Industry.” In the article, he described how we, as pecan folks, have been our own worst enemies with too much infighting for our own good.  Friendly fire among the pecan family stymies our growth and squanders our future.  Here we are in 2014, some 20 years later, and we are repeating history.

A second story occurred in May at a meeting with Richard Matoian, Executive Director of the American Pistachio Growers based in Fresno, California.  I was there to learn from another nut tree group and hear more about their recent marketing success story.  He asked me to preface our conversation with a brief overview of the representation within the pecan industry.  I began by describing two national groups, one for growers and one for processors; 3 regional grower associations; 14 state grower groups, and 2 state commodity boards.  Richard then asked, “But do you not have a national trade association representing pecans?”  My truthful answer was, “No, we do not.”  He respectfully shook his head as if to say, “Why?”

The first story prompted me to dig into the history of the pecan industry.  As an economist, I first investigated the historical numbers; i.e. crop sizes, prices, trends.  What I found was a telling story; simply put, for the last 50 years, the U. S. pecan industry has been stagnant.  Yes, the crop is alternate bearing, but averages smooth out those highs and lows.  How’s this for an example: in 1963 (50 years ago), the crop size was 365 million pounds.  That is essentially the same size as the 2012 crop and 150 to 180 million pounds more than the yet-to-be-determined 2013 crop.  The chart below illustrates the point:

 

Source: USDA, National Agricultural Statistics Service

Source: USDA, National Agricultural Statistics Service

Now, consider the farm value of the crop.  Farm value is a simple calculation of crop size multiplied by average price.

Source: USDA, National Agricultural Statistics Service

Source: USDA, National Agricultural Statistics Service

The trend line is positive, pulled upward in large part because of the favorable prices in 2010 and 2011.  However, understand that these figures are not adjusted for inflation.

Now, compare these two charts with a sister tree nut, the almond.  The corresponding data for almonds is superimposed over the data for pecans, same time period (note: almond crop and price data only available for 1960, then from 1993 through 2012.)  For comparative presentation purposes, the units for the y-axis are compacted; units are same for pecans and almonds.

 

Sources: USDA, National Agricultural Statistics Service; 2012 Almond Almanac, Almond Board of California

Sources: USDA, National Agricultural Statistics Service; 2012 Almond Almanac, Almond Board of California

The almond crop in 1960 was 61 million pounds.  The almond crop in 2012 was over 2 billion pounds, an increase by a factor of 33 (viz. 33 times) over the 50-year period.  For the same period, pecans have had one 400 million pound crop, nine 300 million pound crops, and the other 40 years bouncing between 100 and 200 million pounds.  Pecan crops have not increased even by a factor of 2, much less by a factor of 33.

The next comparison is more dramatic, the farm value of pecans versus the farm value of almonds.

Sources: USDA, National Agricultural Statistics Service; 2012 Almond Almanac, Almond Board of California

Sources: USDA, National Agricultural Statistics Service; 2012 Almond Almanac, Almond Board of California

The farm value of almonds in 1960 was 29 million dollars; the farm value of almonds in 2012 was 3.8 billion dollars, with a B.  The farm value of almonds from 1960 to 2012 increased by a factor of 133.  Taking a best-case scenario for pecans from 1960 to 2010, 2011, or 2012, the farm value increase is a factor of 10; again, without adjusting for inflation.

This analysis begs the question – how can a commodity increase the supply while at the same time increasing the farm value, or price?  Within the context of market economics, there is only one explanation – the demand curve shifts.  In the case of almonds, the demand curve shifted dramatically.  In layman’s terms, either more consumers bought almonds at a given price or the same number of consumers bought almonds at a higher price or both, which is most likely the case.

Let’s return to the case of pecans.  Obviously, some factors were active in the case of almonds that were not present or influential in the case for pecans.  If, as an industry, pecans could replicate the almond story, dramatic results would occur in supply and price.

It is this writer’s contention that the driving factor is marketing, a single-minded, laser focus on marketing.  The pecan industry is in need of a comprehensive, forward-looking, strategy to market the entire crop every year.

Furthermore, it is not a 50-year task.  The turnaround can be accomplished in a shorter period of time.  The example of pistachios demonstrates that it can be done in a compressed timeframe.  Go into any upscale super market today and notice the presentation of pistachios.  The American Pistachio Growers (which represent only about 40 percent of the U. S. pistachio supply), just 7 years ago, were spending $400,000 on marketing.  Last year, APG spent over $10,000,000 on marketing (1).  Do you watch ads for sporting events on TV?  The results speak for themselves.

The California Walnut industry, not to be outdone, has seen supply increase in the last 10 years by an impressive 176%.  More satisfying and confirming, however, based on the results a well-funded marketing campaign, is a farm value jump in the same time period of over 400% (2).

A quote by Richard Waycott, President and CEO of the California Almond Board, speaks volumes to this very topic:

“Therefore, we focus most on what we can directly impact, and that is the demand side of the equation.  73% of our budget is dedicated to global market development (market access, trade stewardship and marketing).”(3)

Just 10 years ago, the almond crop was one billion pounds and the average price was $1.11 per pound; last year the almond crop was two billion pounds and the average price per pound was $1.92 (4).

As a pecan industry, would we like for our crop size to double and our price to almost double in just 10 years?  It is not pie in the sky; in fact, it is very possible.

Now back to the beginning stories as anecdotes to shed light on possible explanations of stagnation, possible hindrances to future progress, and likely solutions.  Internal squabbling in our industry will impede our progress; unified cooperation will enhance the potential for success.  Growers need to get past the notion that shellers are the enemy, and shellers must explode the idea that the only way to make a profit is to pay low prices for pecans.  Increased farm prices will incentivize more supply, more supply will utilize unused or underused shelling capacity, and more profit will result at the farm, at the plant, and every point in between.

The second story is indicative of fractured representation where we, as an industry, sometimes pull in different directions.  It is not an efficient and effective way to tell the story of one of nature’s most healthy and preferred foods.

In the words of Paul Harvey, here’s the “rest of the story”.  The preceding account, some fact and some opinion, is a fundamental motivation for the formation of the American Pecan Board.  Dedicated and forward thinking individuals who recognize the potential for pecans have a vision to elevate the U. S. pecan industry to new heights.  The reality of the APB is just the first step.

(1)   Richard Matoian, Executive Director of the American Pistachio Growers

(2)  “California Walnuts: An Industry Working Together”; California Walnuts – Walnuts.org

(3)  Richard Waycott, President and CEO of the California Almond Board

(4)  2012 Almond Almanac; Almond Board of California