Seven years ago, Stanislaus County, Calif., farmer Ron Martella pushed out his 450 acres of peach trees and began planting more walnut trees in his orchards, which then included 200 acres of walnuts and 400 acres of almonds. That same year Ron also entered into a new family partnership, forming Grower Direct Nut Co., Inc. to buy, process and sell walnuts.

Today, Martella, who started farming in 1965, is still growing walnuts. In fact, Ronald Martella Farms, another family partnership, and its 30 employees now tend to some 800 acres of walnuts and 400 acres of almonds, while also providing commercial hulling and drying and custom harvesting services. Meanwhile, the work force at Grower Direct’s facility near Hughson, Calif., has grown to 200 employees, who clean, shell, size, grade, blend and package walnuts for wholesale buyers around the world.

The annual volume of nuts packed and shipped from the plant has increased more than tenfold since the family partnership was formed.

“We’ve gotten much bigger than originally planned,” Ron says. “But, the opportunities were there and we’ve done a good job with our processing operations and marketing program. Plus, we love the business.”

That 'we' includes his son, Aaron Martella, president of Grower Direct; his daughter Jennifer Martella, the company’s sales and marketing director, and his two sons-in-law, Lucio Salazar Gracia, production manager, and Kevin Chiesa, chief financial officer,

They’re closing in on their goal of processing 40 million pounds of nuts a year — the sweet spot for their plant. “That’s the point of our maximum processing efficiency,” says Chiesa.

The Grower Direct facilities sit on the site of a former 25-acre walnut orchard. In addition to the sheller, the operation features a laser-guided sorter for removing shells and off-color nut meats, a 30,000-square-foot cold storage facility that can hold as much as 10 million pounds of walnuts in a controlled-temperature environment and a solar energy system that supplies about half of the facility’s electrical needs.

The nuts processed by Grower Direct come from throughout California, ranging from Bakersfield in the south end of the San Joaquin Valley to Chico in the northern part of the Sacramento Valley. The company sells about two-thirds of its production through brokers and the rest is purchased by to re-manufacturers who use the walnuts in making bakery goods and other food items or repackage the nuts and sell them to consumers. The mix of buyers varies from year to year, depending on the market.

The Martella family was attracted to the walnut processing and packing business by what they judged to be promising growth potential. “We saw an opportunity to increase the industry’s sales throughout the year by processing walnuts into good quality products and getting them into the hands of consumers in a prompt manner,” Aaron says.

The company’s growth stems, in part, from good timing. The company was established just as reports about the health benefits of walnuts were beginning to spread, helping to spur consumer demand. “That helped us a lot,” Ron says. “Also, a few years in which production fell short of industry needs helped open doors for us in the market that may have otherwise stayed closed."

Aaron notes another reason for the success of Grower Direct. “We’re farmer-oriented and we’re partners with our growers,” he says. “We process their product for them and sell it. Then, after taking our margin, we pay them.  Keeping our efficiency very high keeps costs down. That, plus good marketing, allows us to pay growers a little more and still make a profit.”

Like other packers, Grower Direct makes a partial payment to growers for their nuts when it receives their product. However, instead of the customary practice of making the final cash payment to them in January, when much of the crop has yet to be processed and marketed, Grower Direct has adopted a growing trend in the industry. It makes the final payment after the nuts have been sold, even if they haven’t all been shipped.

“That takes a lot of the market risk off our shoulders,” Aaron says. “As a result, we can afford to pay growers a little higher price for their walnuts.”

It may sound like a simple philosophy. But pulling it off successfully isn’t, he adds.

Compared to almonds, for example, processing walnuts is more complicated.

“Because an almond packer gets a product that has already been shelled, you pretty much know what you’re getting in terms of size, color and foreign material have when you buy it,” Aaron says. “But a walnut packer gets a product sight unseen, since the nut meat is still in the shell. Then, you have to process the walnut into a final product.”

Also, walnuts are much more fragile than almonds, and can easily break into various pieces, ranging in size from premium-priced halves to very fine, much less valuable baker nibs. All those pieces have to be sorted and handled separately.

“Every time you touch a walnut, you risk losing part of it,” Aaron says. “No matter how careful you are in processing walnuts, you can figure on losing 2 percent to 4 percent of your product. The less you handle them, the better the end result.”

Meeting the customer’s needs and desires adds even more complexity to the packing process. “Satisfying the customer is the art of putting the right walnut in the right place at the right time,” he says. “Make that happen when dealing with big volumes like we do is very difficult. That’s where a top production manager, like Lucio, is so important in meeting the customer’s product specifications.”

He tells of some of their Japanese buyers who have very demanding requirements for the walnuts they buy and pay well to get them. “We can send a 44,000-pound shipment to them and they can find two pieces of shells or some other foreign material in it,” Aaron says. “Then they’ll mail that material back to you in an envelope just to let us know that they found it.”

The sometimes wide fluctuations in the market, though, pose the biggest challenges. In 2007, for example, walnut prices hit historic highs. The following year, they had plunged by 50 percent to their lowest levels in years. “The most stressful part of our business is knowing when to sell,” Ron says.

This past season has seen the development of another unusual walnut market. Although the 2010 California crop didn’t meet earlier estimates of a record-breaking 510,000 tons of nuts — it’s still set a record 501,500 tons, close to 15 percent higher than last year’s 437,000-ton crop. Normally, such a huge crop would send prices lower. Not this time.

There was a lot of movement early in the market for the 2010 crop at what he considers was a fair price, Ron explains. However, Chinese buyers bought big. “They were buying up everything they could, shorting other markets for walnuts, and that put a lot of pressure on prices,” he says. “They’ve moved up substantially since last fall.”

As of mid-January, light walnut halves and pieces were selling at an average of about $4 a pound, roughly 70 percent higher than a year earlier for nutmeats. At the same time, inshell walnut prices were in the range of $1.60 to $1.70 a pound, up from around $1.35 per pound in January 2010.

“People are buying as fast as they can before prices go up even more, but there’s not much of the crop left to sell any more,” Ron says. “The pipeline is likely to be pretty well empty by the time we begin harvesting the 2011 walnut crop.”

Installation of a solar energy collection and distribution system in 2008 is designed to help hone Grower Direct’s competitive edge by reducing electricity costs. At the time, the electrical bill total about $9,000 to $10,000 monthly. The on high efficiency, photovoltaic array, which includes 1,400 solar panels, covering 35,000 square feet, and an inverter, generates about 520,000 kW of energy on a summer day, Ron reports. “It provides an average of about five hours of electricity a day throughout the year to power our plant." Any excess electricity generated by the system goes onto the power grid. The company receives a credit for it from the local electricity provider, Turlock Irrigation Districts, reducing the cost of purchased power,

A rebate program offered by the district and a federal tax credit made the investment in the $3.5 million solar power system economically feasible, Ron says. Originally, the system was projected to pay for itself in about eight years. However, electricity rates have since risen about 15 percent to 20 percent, shortening the projected payback period.

“We wanted to be leader in the area in adopting solar power,” Aaron says. “Customers won’t pay us a higher price for the walnuts because we have this system. But, in some cases, such as the European market, where there’s a strong support for renewable energy, it could be an effective marketing tool.”