Almond Growers Getting Shelled by Glut in Market

As the last of this fall’s record almond harvest rolls into warehouses across the San Joaquin and Sacramento valleys, growers are facing a glutted market and plunging prices, which is forcing them to hunt for new customers in developing nations and to create new products, such as the almond milk now hitting supermarket shelves at Lucky and Vons.

The size of this year’s crop is staggering. An estimated 830 million pounds are being picked, up from the 520 million pounds in last year’s El Nino-dampened harvest and well above 1997’s 756 million pound crop.

Prices have plunged in recent months on news of the surplus. Early sales are running about 75 cents a pound--below the break-even point for many farmers--compared with $1.40 last year and $1.56 during 1997’s huge harvest.

“It’s the worst glut we’ve seen,” says Jerry Siebert, an agricultural economist and professor with UC Berkeley.

The state’s other major nut crop, walnuts, also are being harvested in record numbers as new plantings begin maturing. Growers are expected to produce 280,000 tons of walnuts this fall, a 23% increase over last year. However, walnuts are still a much smaller part of the state’s total agricultural income--No. 20 by total value, compared with No. 10 for almonds, according to the Department of Agriculture.

The only other major nut crop in California, pistachios, are more cyclical in nature and declined this year after a bumper crop last year.

The oversupply of almonds likely will worsen, Siebert says, unless growers can develop new markets around the world. Currently about a third of California’s crop is sold domestically, the rest is exported to Europe and Asia.

The bumper crop wasn’t entirely unexpected. For years, growers in the Central Valley have been ripping out lower-value crops such as cotton to plant almonds, driving the number of acres of almonds up from 418,000 in 1995 to 480,000 this year.

However, few growers expected so many of the trees to go into production so soon. With 60% more almonds on their hands compared with last year, growers are having to scramble to find additional business here and abroad.

To find customers for these almonds, growers are advertising in India and China--populous markets with largely vegetarian diets.

Siebert and others say tapping these markets will be difficult. Although trade barriers to both countries have relaxed in recent years, tariffs remain high, with taxes adding as much as 50% to the wholesale cost of each pound in China, says Joe MacIlvaine, head of Paramount Farms and president of the Almond Board. Almonds that sell for $1.99 a pound at Trader Joe’s, MacIlvaine says, can sometimes cost as much as $6 in Beijing.

However, the almond industry is hoping that China will agree to tariff reductions to enter the World Trade Organization later this year.

Meanwhile, to keep prices from free-falling, almond growers have petitioned the federal government for permission to withhold 22% of this year’s almond crop from the market.

California growers also have asked the Department of Agriculture to buy 50 million pounds of the harvest for food assistance programs, as it did in 1990 when it replaced peanut butter with almond butter in school lunches.

Growers have used the reserve system several times this decade, including in 1990 when about one-third of the crop was held off the market. The system is designed to moderate year-to-year swings in production. Typically, when trees produce a bumper crop, the next year they expend less energy and produce fewer almonds.

However, given the huge number of new almond trees scheduled to come into production in the next couple of years, the practice may just perpetuate the oversupply, experts say. Another 100,000 acres are expected to reach bearing age in the next couple of years, says Vernon Crowder, an economist with Bank of America.

“The only thing that’s going to bring back prices is a bad weather year, or really two bad weather years,” Crowder says.

The price drop may be bad news for farmers, but it’s good news for almond buyers, including candy, ice cream and cereal makers, who can afford to put more almonds in their products. Two years ago, almond growers say they began hinting to their food manufacturing clients of a surplus.

Several cereal makers have since rolled out new almond-crusted products, including Kellogg’s Honey Crunch Corn Flakes, Post Cereal’s Cranberry Almond Crunch and General Mills’ Honey Nut Chex. And more candy makers have rolled out bite-size versions of their most popular almond-filled chocolate bars.

To drum up business with these processors, Blue Diamond’s research-and-development teams do “road shows” to show off half a dozen new recipes they’ve created for their products, be it cereals, candy or ice cream.

Blue Diamond also has begun launching products of its own, including Almond Breeze, a lactose-free almond milk designed to compete with soy and rice milk. The product, which began hitting California test markets earlier this year, is expected to expand to supermarkets across the country next year, as well as in Britain and New Zealand, says Walt Payne, chief executive of Blue Diamond.

“Right now the market for these drinks is [approaching] $300 million,” Payne says. “We’ve got a better-tasting product--I don’t know why we couldn’t get 10% of that market.”

Even if the venture is profitable, it would take some time for almond milk to consume a significant part of Blue Diamond’s massive crop, which is supplied by 4,000 growers. The product contains only 2% almonds by weight.

Still, Payne says developing new products like these is key to building up business in the U.S., where the state’s 6,000 growers sell only a third of their crop.

Instead of asking consumers to eat a can a week, as it did earlier in the decade, Blue Diamond and other growers are now trying to sneak almonds into more of the foods consumers typically eat.

“There haven’t been a lot of food manufacturers interested over the last few years because almonds have been relatively expensive and in short supply,” says MacIlvaine. “That’s changed.”

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Record Crop

As farmers in the San Joaquin Valley have ripped out cotton and other crops to plant almonds, the size of California’s harvest has soared. A record crop this year has driven the price paid to growers down to its lowest point in more than a decade.