Strong markets erode price premium for organic nuts

Paul Lauenroth and his fellow organic walnut growers in Lake County are responsible for 40 percent of the organic walnut acreage in the U.S. Having grown organic walnuts for 12 years, he said he has watched his premium erode as the conventional price goes up.

"The premium price for organic walnuts is not as high as it used to be. I think there are some people that got more for conventional walnuts last year than we got for organic," said Lauenroth, who initially transitioned to organic because the price for organic walnuts exceeded conventional by 60 cents a pound. "I averaged like $1.30-something a pound, and non-organic walnuts got about $1.50."

While he said he hopes the organic walnut price picks back up, Lauenroth said the reduced premium for organic walnuts may be a trend—especially as the demand for all walnuts increases worldwide. The average conventional price for 2011 was listed at $1.44 per pound, according to a preliminary report by the U.S. Department of Agriculture National Agricultural Statistics Service.

"The foreign markets are not after organic walnuts as much as they are after walnuts," Lauenroth said. "Years ago, we were talking about the market for walnuts in the United States; now we're talking about a 470,000-ton crop and there's still not enough to go around."

Rachel Elkins, University of California Cooperative Extension farm advisor in Lake and Mendocino counties, said if prices do not hold up for organic walnuts, the existing orchards in Lake County may eventually be removed or abandoned.

"Most of the organic walnuts are in older orchards with low tonnages and old cultivars, and so they would not even be worth farming if not for the organic market," Elkins said.

Lauenroth sells to a certified organic processor in Northern California that ships organic walnuts domestically and around the world. The price that he earns is based on crack-out yield, or the amount of meats left over after the nut has been cracked.

"A Chandler walnut cracks out about 50 percent meats and a Hartley cracks out about 37 percent meats. In other words, you are not going to make as much on a Hartley that you are on a Chandler," Lauenroth said. "The year before, the Hartleys brought more on the conventional market."

It is important that Lauenroth earn a premium for his organic walnuts, he said, because they are more expensive and difficult to grow than conventional, with lower yields. A few weeks away from harvest, Lauenroth said this year's organic walnut crop looks good.

"I've got a really huge crop and it looks like really nice walnuts, so I'm curious to see what happens this year," Lauenroth said.

As with organic walnuts, organic almond growers also experience higher costs, lower yield and some volatility in the market. Wendy Larson, CEO and general manager of Big Tree Organic Farms, a grower-owned marketing cooperative in Turlock, said it is important for organic growers to remain committed to supplying the organic market.

"Though market prices for conventional nuts might be close to or higher than organic nuts, the costs associated with organic production and processing makes selling into the conventional market a losing proposition," Larson said. "Additionally, the organic market will not broaden to absorb inventory in future years if a stable supply side is not experienced. For these two reasons, it is unwise for a grower committed to organic to sell organically produced almonds into conventional markets."

Due to the additional costs and the reduced productivity of an organic orchard, Larson said, organic almond farmers should earn a premium of at least 70 percent over conventional grower prices, just to break even.

When comparing almonds and walnuts, University of California Cooperative Extension agricultural economist Karen Klonsky added that almonds receive the higher premium because they have the larger yield decrease with organic.

"In most organic crops, the premium is reduced when the conventional price rises and it is common for organic growers to sell into the conventional market when conventional prices are high enough," Klonsky said.

In 2009, the 2008 harvested organic almond prices eroded to nearly the same level as conventional then rebounded more slowly than conventional, which created a brief intersection of conventional and organic prices, Larson said. That price erosion, she said, discouraged growers of about 2,000 acres of organic almonds from continuing organic production.

"Some returned to conventional farming because it's easier, less risky, and the volume potentially makes up for the premium in years like that. Others decided it was a good time to replant and pulled their orchards out," Larson said.

"The prices have seen some seasons of stability and others of wide volatility, but the general trend is upward—more demand and more supply. The organic almond market has grown and continues to grow," she said.

Organic pistachio grower Mike Braga of Braga Organic Farms in Madera said he has also noticed a reduction in the premium he earns for his crop, but said demand is booming.

"We're getting squeezed on the differential, but it is still worthwhile for us to stay organic. The demand for organic pistachios has exceeded supply," Braga said. "We've been able to sell all of our product, and everything we grow we can sell at what we think is fair pricing."

What the price does not cover, Braga said, is the risk.

"It doesn't cover the risk that you take on not having the chemicals to make up for some poor weather like in the spring. You don't get a premium for that risk that you take," Braga said.

(Christine Souza is an assistant editor of Ag Alert. She may be contacted at csouza@cfbf.com.)