Competition mounts for world prune market

Issue Date: October 28, 2009

By Steve Adler

Rich Peterson has seen some dramatic changes in the California prune business since he joined the California Dried Plum Board more than two decades ago.

Back then, California growers produced more than 70 percent of the world's prunes, recalls Peterson, who serves as executive director of the dried plum board. Marketers also redirected their advertising, selling the fruit as dried plums in the United States, while continuing to market them as prunes elsewhere in the world.

Today, the biggest change for California producers is significant erosion in market share. While the United States still ranks first in prune production, some serious rivals have emerged—not the least of which is Chile. The South American country ranks second in prune production, with an estimated 55,000 tons produced in 2009, compared to U.S. production of 139,000 tons. California produces 99 percent of the commercial prune tonnage in the United States.

Winters prune grower Joe Turkovich, right, and Sunsweet Growers dryer manager Mark Ramos agree that the best way for California growers to meet marketing challenges from countries like Chile and Argentina is to place strong emphasis on producing high quality fruit.

"Gone are the days when California was the dominant world prune supplier with a market share of over 70 percent. Orchard removal and inclement weather have reduced California's market share to about 50 percent in a normal year," Peterson said.

New Chilean plantings that will come into production in the next five years are going to result in a swift closing of that production gap. According to the International Prune Association, the projected prune tonnage for the United States in 2014 is 147,000, a 6 percent increase from this year. Chile, on the other hand, will see a staggering 118 percent increase, from this year's 55,000 tons to 120,000 tons.

Argentina, which is third in world prune production, is also making some serious moves in the world market, with a 25 percent increase in production to an expected 50,000 tons over the next five years. France, with 45,000 tons annually, is projected to stay constant over that same period of time.

"Aggressive planting by both Chile and Argentina has led to prune surpluses that have threatened California's exports, which account for about 50 percent of total U.S. prune sales annually," Peterson said.

He notes that Chile and Argentina have very small domestic markets for their prunes (only about 5 percent each), which leaves the export market as the only outlet for sales of their prunes.

"Unfortunately, Chile and Argentina don't use marketing support to expand export markets as California does. Instead, they employ low pricing to steal market share from California and France," he said. "With labor costs and all of our regulations in California, we are always at a disadvantage. So when we compete with Chile and Argentina in Asia and Europe, we are always the premium priced product."

Prune grower Joe Turkovich of Winters says he is familiar with the erosion in worldwide sale of U.S. prunes due to competition from Chile and Argentina, particularly with small to medium-sized prunes.

"Chile and Argentina have habitually produced smaller prunes than California. So that is creating the current oversupply and California just can't compete," he said. "There are real concerns out there among the independent growers that are selling to handlers in the bulk business. They try to compete with South America, and they are really getting killed right now."

One of the challenges that California growers face in getting more prunes into the European Union is the 9.6 percent tariff levied on U.S. prunes. Chile, on the other hand, has a free trade agreement with the EU, so its prunes go in duty-free.

"The competitive disadvantage we face against Chile has emerged as a killer on exports to the EU. Unfortunately, lack of progress in the Doha Round of world trade talks has limited our ability to negotiate down the 9.6 percent tariff," said Josh Rolph, California Farm Bureau Federation national affairs director.

Estimates show how increased prune production in the Southern Hemisphere could alter the world market.

"The prune business has been helped by Market Access Program funds resulting in a significant increase in exports to Greece, for example, but until our trade ambassador has an opportunity to sit across the table from the EU ambassador, a deal is unlikely to happen in the short term. In the near term, we are encouraging the president to send the Colombia, Panama and South Korea Free Trade Agreements to Congress for consideration. Approval of the Korea FTA alone would eliminate an 18 percent tariff," Rolph said.

In order to hold market share and possibly increase it, California's growers need to produce larger, higher quality prunes, Turkovich said. That is accomplished through cultural practices, he explained.

"We have to grow larger prunes. The fruit was hard to size this year and so we had to aggressively prune in advance and we aggressively thinned during the season to limit the amount of fruit on the trees. And then we dropped some of the smaller fruit during harvest so we wouldn't incur the cost of harvesting and drying fruit that we couldn't sell," he said.

California currently has about 900 prune growers and 21 processors. There are 64,000 bearing acres in California, with most located in two primary production areas—the Sacramento Valley (Butte, Sutter and Yuba counties) and San Joaquin Valley (Fresno, Madera and Tulare counties).

At the height of production in 2000-2001, California had 86,000 bearing acres of prunes. But overproduction led to a collapse in prices. Industry-supported tree-pull programs in recent years resulted in the acreage reduction. Other assistance programs helped marginal prune growers shift to other crops.

There is little likelihood that new prune orchards will be planted any time soon.

"There isn't much sentiment out there to plant new prune orchards. Most growers are hesitant to consider planting more prunes because of what they see going on and the uncertainties about the cost of natural gas, which is a big factor in the drying of prunes. Things are very unsettled right now," Turkovich said.

"When you plant an orchard you have to be thinking about labor rates, electric rates, natural gas rates and it is so uncertain that a lot of growers are going with something else. So they are planting almonds or walnuts that don't require as much natural gas or labor," he said.

"The key for us is quality and food safety. There are safeguards and regulations in California that ensure that our product is the highest quality, the most consistent quality on the market. When you compare that to Chile and Argentina, they can't even compete," Peterson said.

(Steve Adler is associate editor of Ag Alert. He may be contacted at sadler@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item. Top