September 6, 2007
As the federal government's peanut program has evolved in recent years, consumption has become more important than ever, says Jeff Johnson, president of Birdsong Peanuts.
“Consumption has gone from something that was a little bit interesting under the old program to something that will be critical to our industry as we go forward — it is more important than it once was,” said Johnson at the recent Southern Peanut Growers Conference held in Panama City, Fla.
Over the years, peanut producers have always had a reasonable safety net, says Johnson, including support price, quotas and additionals and loan rates. “The loan rate might not have been the greatest thing in the world, but with storage and handling fees, it wasn't too bad,” he says.
Growers responded to the new program by growing more peanuts, he says. Then, in 2005, the cost of production rose dramatically when the price of oil escalated, causing crop input costs to rise.
“Growers responded by cutting peanut acres to the lowest levels since 1917. And then, the following year, we've had the ethanol craze that has driven up the price of other commodities. For the first time, peanuts have had some real competition,” he says.
Johnson says he recently spoke to a group of European manufacturers who wanted to know if the United States would ever again be a major exporter of peanuts. “I said it depended on them. American peanut farmers grow the best peanuts in the world, and they have decades of expertise, but they're businessmen, and they'll grow whatever brings the best return. If you want peanuts, you'll have to pay for them and compete with other crops to get them grown — that also applies to domestic manufacturers,” he says.
How much manufacturers are willing to pay and how many peanuts they need to buy depends on consumption, says Johnson. “If we need 2.2 to 2.3 million tons, it'll take more money than if we need only 1.6 million because we'll have to bring in new growers and ask existing growers to expand acreage.”
In looking at consumption trends, Johnson says exports have been flat since 2002. “They dropped sharply under the old program. At one time, exports were 420,000 farmer stock tons — almost 25 percent of production. When we got the new program in 2002, we thought exports would increase, because that's basically what the program told us — that the government would set a repayment rate at a level that would make us competitive in domestic and international markets. As you know, that didn't happen, and it led to a falling export demand,” he says.
Peanut demand is up this year, by about 25 percent, and there are a couple of reasons for this increase.
“China backed down on exports because they had a big surge in demand in their own country, and that's probably the main reason for the increase. Also, Argentina had a short crop, so they were out of the exports picture. Some of these peanuts were sold back a year or so ago when we thought we had a huge surplus and our prices were fairly cheap. So there is a combination of reasons for the increase in demand.”
Looking ahead, Argentina has a large crop this year, but they can't expand, he says. “They don't have the land for it, and they don't have the infrastructure. Every time they've tried to make a big expansion, it has been disastrous. Brazil has unlimited land, ideal conditions and cheap labor, but they've also had problems with aflatoxin and shipping to Europe. The consensus is that Brazil will require large investments in infrastructure for them to be a long-term competitor.”
“There's a lot of talk that because China is growing and their demand is growing, that they will actually stop exporting peanuts and might even begin importing. However, their crop this year is up by 10 percent, and 10 percent of a 14-million metric ton crop is the size of the entire U.S. crop. I doubt anyone knows how much China is exporting.”
The biggest domestic use of peanuts is peanut butter, says Johnson, and everyone thought peanut butter use would decrease with the salmonella scare. Instead, it has gone up.
“Some of that can be explained because when the salmonella scare hit, they had to discard every jar of Peter Pan in existence. All of it was thrown out, and they had to replace it. So they had to increase production to make up for that shortfall. Now, ConAgra is producing peanut butter, but they're not putting it on the shelves — they're stockpiling it. So it's hard to get a clear picture with consumers.”
Smucker's, however, reports that their peanut butter demand is up 15 percent since 2001 and up 2.5 percent since the salmonella scare, says Johnson. “The explanation is that no one knows. Smucker's is as surprised as we are, Skippy is shocked — everyone is shocked. But the fact is that peanut butter consumption is up and it's still going very strong.”
Unfortunately, candy demand has gone the other way, he says. “I talked with some people at Hershey, and they say part of the problem is gas prices. They sell a lot of candy in convenience stores and gas stations. When you fill up your tank and it costs $50 or $60, you're not as likely to splurge on a Coke and candy bar. But chocolate candy is actually up by about 9 percent, and the main reason is an increase in the sales of dark chocolate. It has gone up 49 percent in three years, and it went up because a few reports were issued stating that dark chocolate was healthier than milk chocolate.”
Peanuts, he adds, have a much better health and nutrition story to tell than dark chocolate, and the industry needs to do a better job of telling it.
The consumption of snack peanuts also isn't strong, says Johnson. “Planters is on a mission to restore peanuts to their rightful place in the category of growth leader in snacks. Planters has been given a mandate by their parent company Kraft to restore peanut consumption. If you look at growth rate by nut types, peanuts — on a per-annum basis — aren't keeping up. They are being beat by just about every other category. Peanuts have lost 11 percent of market share over the past five or six years, and the problem is money.
“The health benefits of peanuts are incredible, and we have new research coming out — even relating to childhood obesity — but the word isn't getting out there because we don't have the money to promote it. The almond industry is spending $19 million per year on advertising, while pistachios are spending $2.9 million. Meanwhile, peanuts are spending $1.5 million. Planters has offered $2 million towards a generic campaign focusing only on peanuts, if they can get other manufacturers to contribute.”
Overall domestic consumption of peanuts over the past two years has been flat, says Johnson. “If we could change consumption by 3 percent per year over the next five years, our farmer stock crop would need to increase by one half million tons. It doesn't take much difference on an annual basis to make a huge difference. That's the difference between a prosperous industry and one that is barely limping along. Consumption is critical, and we need to start focusing on it.”
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