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WFP-LH-costanalysis.JPG Logan Hawkes
University of California-Davis agricultural economist Daniel Sumner is pictured before speaking at a workshop last summer. His Agricultural Issues Center has published a new California walnut startup cost analysis.

Economist says still plenty of room for growth in walnut industry

While all farming operations offer a great deal of risk, growing and marketing nut varieties has more than a fair share of success stories.

In spite of the many challenges associated with starting a new agricultural operation, farming opportunities in the western United States remain popular among investors and entrepreneurs. This is especially so for individuals and partnerships considering establishing a nut production operation in California.

Water issues, land availability, the number of years required before a nut orchard produces a profitable crop, weather and environmental complications, and a host of other issues that make new startup nut operations challenging seem to offer little drawback to many investors and venture capitalists hoping to cash in on the growing popularity and profitability of a successful nut farming business.

Indeed, as noted by Western farm groups, there are few specialty crop successes that can match those being written by California’s nut producers. While all farming operations offer a great deal of risk, growing and marketing almonds, walnuts, pistachios, and other nut varieties has more than a fair share of success stories, and interest in establishing new nut operations continues to run high.

Industry analysts point out that since 2006, almond production has more than doubled, and market prices have continued to rise. The California Pistachio Research Board has said it believes demand will continue to outpace production in the foreseeable future, and three years ago a walnut industry spokesman said all three of California’s leading nut varieties (almond, walnut, and pistachio) were facing a positive outlook in the coming years.

STUDY EXPLORES INVESTMENTS

In response to the high and growing interest in new nut operation startups in California, University of California Cooperative Extension’s Agricultural Issues Center released a new study in November, “Sample Costs to Establish and Produce English Walnuts,” that explores the investment required for a new walnut startup operation in the Sacramento Valley.

“California is now up to a little more than 1.5 million acres of almonds, walnuts, and pistachios, and though it has been a rather tough year, with trade complications like tariffs, there remains a great deal of interest in new tree nut operations,” says Dr. Daniel Sumner, director of the UC Agricultural Issues Center at UC-Davis.

“For the last 10 years or so, those involved in the state’s tree nut industry would say there isn’t any more suitable land to increase nut operations, but just like a lot of cotton acres are now planted in nut orchards, the state’s dairy industry is struggling and we’re seeing some of those acres converted to tree nuts. We’re also seeing land that was considered unsuited to tree nuts now being planted with orchards.”

WATER ISSUES

Sumner says the move to develop more tree nut operations on marginal lands has been tempered somewhat in recent years as a result of California’s water issues. Though the rapid expansion of nut acres has slowed in recent times, he says there is still a great deal of interest in converting acres once reserved for growing high quality alfalfa in support of the dairy industry to new nut operations, often by established almond, walnut, or pistachio producers wanting to add other types of nuts to their operations.

This may be an area of interest that will support the continued growth of the tree nut industry in the years ahead as productive land becomes available and better technologies are developed that allow for less water use.

Experienced orchard operators are more aware of the investment required to establish new orchards and the time it takes for that orchard to begin offering a return on investment. For that reason, orchard expansion in California favors those who are experienced in tree nut farming and are equipped to weather the time needed to establish a productive orchard.

According to the new study, the actual cost of establishing an acre of walnuts will vary according to a number of factors, not the least of which would be water issues and availability related to the target land where the orchard is to be established.

Other variable costs for such things as local labor, costs of weed, pest, and disease control, site preparation, fertilization and irrigation, are all subject to variance depending on the location and condition of the land selected.

INVESTOR INTEREST

“I don’t think we will see the same boom the tree nut industry experienced a few years back, because of land availability and current problems associated with trade,” Sumner says. “California’s nut producers rely on exports that support their operations, and as long as there are roadblocks to trade and increasing tariffs, that serves to stunt orchard expansion to some degree.”.

But he says, he doesn’t believe it will stop investors from looking at the possibility of acquiring suitable lands as they become available, whether they develop those acres immediately or wait for trade solutions to fix export problems like those that developed late in 2018.

The 2018 Sample Costs to Establish and Produce English Walnuts study is now available online for review at https://bit.ly/2RmJtKf

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