Left alone to grow, shell, and sell their tree nuts, the folks at Sahuarita, Ariz.’s Green Valley Pecan Co. --- the world’s second largest pecan farming operation --- would be doing just fine as they have for decades.
Maintaining three locations involving a total of 9,100 acres covered with well over 300,000 Western Schley and Wichita trees, they were cranking along nicely, thank you, until the first salvo of America’s tariff war with China fired off.
“The White House has taken upon itself to engage in a war by implementing tariffs in countries which we’ve had negotiations with, or at least relatively-open markets with, and we’re the ones that are suffering, not the White House,” says President Dick Walden, who has spent more than half a century producing quality pecan products on fertile land first planted by his father in 1948.
Historically, America has been king when it came to pecans --- the only tree nut native to the U.S. --- as production amounted to upwards of 300 million pounds (140,000 metric tons) or about 80 percent of the total world crop, according to the U.S. Pecan Growers Council.
“I’ve been doing this since the late 1960s when our oldest trees were just three years old and this is the worst time we’ve had in the past twenty years,” Walden says. “We’re having to take every step possible to reduce capital spending, evaluating every element of production while keeping in mind that we’re dealing with a plant, a living entity, and we can’t substitute or constrict the basic elements the plant requires or it won’t produce a crop. Despite the financial factor, we’ve still got to make sure our trees produce at optimum potential in order to result in lowest unit cost.”
The tariff tiff isn’t the only major problem, according to Bruce Caris, Executive Vice President and COO.
“We’re seeing a dynamic where Mexico and South Africa, over the last five years, are increasing their acreage that is rapidly changing from non-bearing to bearing,” he says. “We’re seeing some really large processing operations popping up in Mexico and for the first time ever, the 2018 crop harvested in 2019, Mexico produced more pecans in Sonora and Chihuahua than did growers in the U.S.”
Why that happened is easily explained, the farmers say.
“Labor and processing costs for Mexican shellers are a tenth of our labor costs, $10 a day versus 10 bucks an hour and hourly wages are on the rise again in Arizona and California pecan orchards,” says Walden.
“But tariffs are the biggest problem,” adds Caris. “Before they were implemented, as an industry we had gotten our numbers down to 7 percent for pecans coming from anywhere in the world. Then two retaliatory pushes --- we did something, China did something, then we reacted and they did too. The needle moved from 7 percent to a whopping 47 percent and China stopped buying U.S. pecans.”
China, historically the largest export market for American tree nuts, was purchasing anywhere between 55 to 90 million pounds. But this year’s to-date figure is a mere 4 million pounds, all because of the trade war.
“The tariffs are forcing our Chinese customers to develop relationships with Mexico and South Africa because they can no longer afford to buy here --- and market price of pecans has dropped 35-40% at the farm level because China is no longer buying. Growers in the U.S. are having to absorb that tariff and China knows how to play this game well,” Caris says.
“Not only pecans, but walnuts, almonds, and pistachios are at a disadvantage although the tariffs vary by product,” Walden adds. “None-the-less, we’re all kind of in the same basket of nuts because U.S. producers can no longer access 25% of the world’s purchasing power in China, so prices will drop and that represents a very large figure considering that California grew some 2 ½ billion pounds of almonds last year, pistachios represented nearly a billion pounds, and walnuts were a billon four in terms of pounds in-shell.”
Looking around for a bright spot, Caris notes that the American buying public is becoming more aware of the nutritional benefits of pecans, “although we haven’t had a voice to tell our story like the walnut and almond industry has where almonds have $88 million a year to spend on research and marketing while we had less than a million.
“That’s changed now that we finally have a federal marketing order, a successful referendum that we’ve never had before, where handlers are assessed an in-shell per-pound fee to generate a pool of money to help promote product. The American Pecan Council in Fort Worth now acts as our marketing and promotions entity with upwards of a $10 million budget to tell our story and that’s a big step forward toward raising domestic demand.”
If you look at it solely from a consumer standpoint, implementation of tariffs will ultimately result in a price reduction, the executives say.
“The industry sector using pecans in ice cream, candy, and baked goods are already seeing significantly cheaper prices than last year because they’re negotiating new contracts,” says Walden. “Pricing hasn’t come down to the retail level yet and that won’t happen until this summer when last year’s pre-Christmas inventory is depleted and new contracts are written.”
So, for the foreseeable future, the give-and-take of political maneuvering continues and growers like Green Valley Pecan Company tighten their belts further and buckle down for more choppy seas ahead.
“If you’re in agriculture, your glass is never half empty, it’s always half full, and you have to remain optimistic,” Walden advises. “Quite honestly, the greatest motivator to creativity is hard times and we’re definitely in them now.”