A Little Nut Defies Laws of Economics

In years past, ads for Blue Diamond Growers showed farmers in California standing waist-deep in almonds, entreating consumers to eat “A Can a Week” to get rid of the surplus. New ads have them buried up to their necks in almonds -- with big smiles on their faces.

Why not? Last fall’s record haul of 1.1 billion pounds of almonds didn’t bring the drop in price that comes with most bumper crops.

In fact, more nuts have meant more money for Blue Diamond cooperative members and the state’s other almond growers and processors. Last season’s crop is fetching as much as 20% more a pound than the 2001 harvest, which was 25% smaller. Many of the state’s 7,000 almond farmers are reaping handsome profits, without the aid of government subsidies or trade protections.

This would seem to defy conventional agricultural economics. California’s glut of grapes has wreaked havoc on vineyards and wineries in the state, and prices for other California fruits and vegetables, such as garlic, raisins and apricots, have been hurt by increasing competition from farmers overseas.

Almonds are a different game. California is virtually a cartel, supplying about 80% of the world’s almonds, up from 60% a decade ago. No other country can match California in producing almonds as abundantly, cheaply and efficiently.

California growers also have had success opening up new markets, such as India and Eastern Europe. At the same time, they have helped boost consumption in the United States by 57% since 1996, according to the U.S. Department of Agriculture, by promoting the brown wrinkled nut as a healthy snack and getting it into more candy, cereals and ice cream.

“With almonds, you have demand increasing. My raisins are just worthless,” said Antonio “Tony” Campos, a large grower and processor of almonds and a producer of raisins in Caruthers, Calif.

One reason almonds are more profitable than raisins: 4,000 of the state’s almond farmers bargain collectively for prices through Blue Diamond, which isn’t a stranger to hardball tactics.

Doug Youngdahl, chief executive of Blue Diamond, recounted what happened last May when he took the podium at the International Tree Nut Congress in Cape Town, South Africa. Facing an assembly of buyers from around the world, he couldn’t deny that California was awash in almonds. Even so, he told them that it was in their best interest to pay higher prices now, because a glut could turn into a shortage if low prices forced some almond growers out of business.

Then came the threat: If they refused to pay more, Youngdahl said, he and others in California would hold almonds off the market to shrink supply.

Youngdahl said his demands were met with disbelief and a lot of head-shaking. Ultimately, Blue Diamond got what it wanted: price increases of 15% to 20% to $1.20 a pound.

This will go down in commodity history, Youngdahl said.

Certainly it was a rarity for the agricultural industry, known for looking to the government for help. Producers of corn, soybeans and cotton are rescued from oversupplies by federal price supports. Trade restrictions help California’s avocado farmers cope with stiff competition from Mexico.

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California’s Edge

Almonds are different. California’s edge is productivity: Farmers in the Central Valley harvest about 2,000 pounds per acre from their large irrigated fields. Almonds are native to Spain, the world’s second-biggest producer, where growers typically reap only about 100 pounds per acre, according to nut farmers and other industry executives.

“There was a time when Spain was the largest growing country in the world,” said Juan Luis Peregrine, a nut distributor in Almeria, Spain. That was when he started in the business in the 1960s. Last year, Spain bought $136 million of California almonds, making it the state industry’s second-largest export market, after Germany.

It’s clear why Spain lost ground to California. Almond operations in Spain are small family farms perched on rocky hillsides, and Spaniards still harvest nuts by hand, tapping mallets against each tree and catching the falling nuts in nets.

In California, major almond growers such as Campos own thousands of acres of trees in Kern, Fresno, Merced and other counties in the Central Valley. Large mechanized shakers, which cost more than $100,000, now stand in for much of the industry’s workers. Once clamped onto a trunk, these machines can strip a tree of its bounty in less than one minute.

Campos never dreamed he would become one of the largest almond farmers when he left his small village near Pamplona, Spain, for California in the mid-1950s. He started out as a sheepherder before working his way up from farmhand to farm owner. In 1979, Campos and his brother planted their first almond trees, lured by the high prices the nuts were fetching compared with cotton and hay.

Today, the trim 67-year-old with wavy mane of pewter hair operates a business with 250 seasonal workers and a processing plant so large it requires a golf cart for Campos to navigate it. Each year, Campos Bros. Farms hulls, shells, dices and roasts about 80 million pounds of almonds, more than half from its own fields. Campos won’t say how much his business makes; experts say most almond growers break even when the price is $1 a pound.

His costs include high-tech sorting machines and other equipment as well as expenses for spending weeks at a time away from his farm, visiting customers in Spain, Germany or India.

When Campos is home, he starts his work day at 4 a.m., walking 10 paces across the single dusty lane from his ranch-style house to the offices of Campos Bros., where he begins placing calls to overseas customers.

At that hour, “I can get them just before they go to lunch in Europe,” he said.

Despite the current good times, Campos knows the industry’s fortunes could turn, as they did a few years ago when there was a sudden burst of increased production that led to a bit of panic among growers, who slashed prices to as little as 65 cents a pound and talked about pulling out trees.

The industry has recovered nicely in the last year, but some worry that the uptick in prices could spark another increase in planting, which could tip the balance and bring too many almonds into the world market.

Sales of almond seedlings were 50% higher this spring at Duarte Nursery, a major supplier in Hughson, Calif. “There’s not quite a planting boom yet,” said owner John Duarte, but “we are sold out of almond trees.”

This fall, almond growers are expecting to gather a slightly smaller harvest of about 920 million pounds. So far, there seems to be no shortage of demand from international customers. As of April, shipments are running about 30% ahead of last year.

“My opinion at this moment is that California almonds still have an attractive price,” especially when compared with other nuts such as pecans and walnuts, said Peregrine, the Spain-based distributor.

The trick, of course, is to keep demand ahead of supply. And that task falls largely on the Almond Board of California, a grower-supported organization.

On a recent day, board members gathered around a conference table in a modest office building in downtown Modesto, debating whether to come up with a new name for almond in China.

The nut has an obscure scientific name in Chinese. Most Chinese consumers call almonds xingren, which means apricot kernel.

After playing with a few names -- which roughly translated to “good fortune nut,” “big California xingren” and “vitality nut” -- that drew lukewarm responses from Chinese focus groups, the Almond Board decided to live with xingren as long as sales kept growing in China.

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Foreign Markets

To boost sales in foreign markets, which consume 70% of California-grown almonds, the Almond Board staff travels the globe: courting magazine journalists in India; holding Pillsbury Bake-Off-style cooking contests in China; and promoting sports celebrities in Japan such as Ryoko Tamura, an Olympic gold medalist who credits snacking on almonds for the strength needed to win her judo bout in the 2000 Sydney games.

“They have responded to these growing supplies by marketing very aggressively,” said Richard Sexton, a professor of agricultural economics at UC Davis. Nevertheless, he said, California growers might face tougher competition from abroad, especially if the Chinese government subsidizes the planting of more nut crops.

In the coming years, California’s almond industry is hoping to drive increasing demand by promoting the nut as a health food -- a kind of tasty, chewy vitamin.

About $1 million of the Almond Board’s $10.6-million budget is being used to sponsor clinical studies. Past research has suggested that almond’s high vitamin E content can do everything from helping prevent cancer to controlling diabetes.

The Almond Board has submitted a health claim for food packaging to the Food and Drug Administration that says eating almonds can help lower cholesterol.

And there are hopes that research may show that almonds may actually be a dietary product, with not all of its fat being absorbed by the body, or an anti-aging treatment suitable for skin creams.

“As the crops keep getting bigger,” said Karen Lapsley, the Almond Board’s director of scientific affairs, “we have to look for more outlets.”