Canada’s position in a changing global apple market
March 31, 2008 By Hugh McElhone
Canada’s apple business is
determined by events an ever-changing global market place, says Dr.
Desmond O’Rourke, a world fruit market analyst with Washington-based
Canada’s apple business is determined by events an ever-changing global market place, says Dr. Desmond O’Rourke, a world fruit market analyst with Washington-based Belrose Inc.
Improvements in storage, handling and shipping have led to an “interdependent apple world,” says O’Rourke. Other contributing factors include falling trade barriers and the speed at which communication occurs between buyers and sellers. He notes that while this interdependence has been growing, there has also been a simultaneous growth in fruit production worldwide.
|Dr. Desmond O’Rourke|
In the span of 22 years (1982-2004), world fruit production has increased 50 per cent with a 35 per cent growth in population, explains O’Rourke. North American fruit imports from Central and South America are also up substantially, while global grape production is down for this period. He notes there has, however, “been tremendous growth in berry production.
“At some point during these 20 odd years, China emerged as a major exporter of apples,” he said. They also have one-third of the processing-apple market, of which juice is a principle component. By 2004, the juice market was essentially flooded, he adds.
During this time frame, “public and private financiers all saw their best prospects in intensive crops,” says O’Rourke. As a result, “the aggregate effect was gluts and lower prices.” Apple prices, for one, have dropped 15 to 20 per cent over the past 10 years.
Of O’Rourke’s predictions, he expects pear, sweet cherry and kiwi production to increase among the present grower nations. He says there will also be new supplying nations such as Turkey, Brazil, Iran, India, South Africa and China.
Apple production is also expected to increase 20 per cent by 2015. “While we’re backing off on production here, others are planting like crazy,” he says.
The new supplying nations also have the desert-like conditions that are optimal for production of the popular Fuji and Gala varieties. China alone is expected to increase Fuji production to 14 million tonnes by 2015, which represents 85 per cent of world production.
O’Rourke says the number of new apple varieties will increase while established ones, such as Ida Red, will wane as their target market shrinks.
New varieties need a “wow factor,” he explains, as was the case with Pink Lady in the U.K., which took off in the market place.
In Washington State, it’s estimated it costs $60 million to develop and market one new apple variety. By 2010, O’Rourke predicts there will be a large shift in varieties reflecting the change in consumer tastes. New varieties will be forthcoming from Washington by then, he adds.
Of the all the states, Washington remains Canada’s immediate competitor in the apple industry, says O’Rourke While their new plantings are down, he says their orchard densities are up. Production, however, should remain stable at around 4.4 million tonnes, and he doubts it will ever again reach the high of 5.3 million set in 1998.
In light of this information, O’Rourke wonders if Canada can compete in the global market.
With regards to production, the U.S. and Canada both rank 15th and 16th, respectively, among the world’s top-producing nations. On a per acre basis, both countries produce 40 per cent of what New Zealand and Chile grow on a single acre of land. To compete, O’Rourke says Canadian growers need to increase that to 60 or 80 per cent.
Along with lower productivity, there is a shortage of good orchard land in North America, and current orchards are aging, says O’Rourke. In light of increasing international competition, export capabilities are limited.
Today’s apple growers need to consider the greater concentration of retailers, plus the smaller households, changing tastes of older consumers, and the rise in multicultural families, he says. With this is mind, O’Rourke believes sub-markets for new varieties are growing, while the demand for such established mass market varieties as McIntosh and Empire are steadily declining.
Growers also have to bear the burden of skyrocketing fuel and fertilizer costs, which, in some cases, have more than doubled in the past 10 years, O’Rourke adds. There is also the growing demand from retailers for special cartons and packaging standards, plus traceability rules.
There are some positives for Canadian producers, however, and O’Rourke says Canada ranks high with regards to infrastructure and inputs, placing fifth among nations. He adds that Smart Fresh has also been good for the North American market with its ability to keep domestically grown apples fresh until the following spring.
Canadian producers can also meet the pesticide standards of Japan, the European Union and North America, while many new producing nations cannot, O’Rourke stresses.
He adds China wants access to the U.S. market but has been unable to meet a list of 350 pesticide and disease concerns imposed by the Americans. “If they ever meet that list, there’ll be a big dump of Fujis on the North American market,” he warns.
“I think there are opportunities in Ontario, and Canada in general, to compete but you need market information,” he says. What markets can you serve and should you aim for many small markets or one big one, he asks. At the same time, can you adopt favourites like Gala and Fuji, or should you gamble on new varieties such as Honey Crisp or Jazz? Should you form an alliance with other growers, and should a marketing agent be hired?
O’Rourke also suggests increasing orchard productivity with the aim of bringing yields up to competitive levels. He advises working within the soil, water and climatic constraints of the farm, as well as adopting new technologies, all with an eye toward profitability.
Finally, O’Rourke pitches the idea of developing a brand. The brand could be national, provincial or developed jointly with a mass merchandiser, and signal to retailers and consumers the superiority of the product. He notes that New Zealand killed its Enza-brand logo in 2002 and has recently begun work on developing a new one.
“Growers and districts must find a complementary set of products, productivity, markets, marketing operations and adequate promotion.” He adds those who face the issues with courage and determination will survive. “You can’t drift or you’ll be washed away by the tide of competition.”
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