Tree fruit industry's profit challenge

Gordon Wiebe of Reedley, Calif., is no stranger to the sort of challenges that have plagued the tree fruit industry in the Central San Joaquin Valley in recent years; this year alone resulting in eight packinghouses closing their doors.

But you wouldn’t know it if you saw the flurry of activity in Wiebe’s peach orchard and packinghouse, where juicy fruit is plentiful and workers toil through triple digit temperatures.

“God has blessed us, and we’re still here,” Wiebe says, sitting in his office as the day unfolds. “Why, I don’t know.”

“Things are tight for all of us, we’re all on the edge, some a little this way, some that way,” he says. “I don’t think any farming operation is rolling in the money.”

In fact, industry leaders think more operations – maybe as many a dozen – will be added to the casualty list as consolidations continue and long-time packers fold. Several of the casualties go back to – and beyond – the first days of the Wiebe packinghouse during World War II.

Wiebe is a third-generation farmer, and he points with pride to the wooden section of his current packinghouse where it all began for his family. The packinghouse has been expanded considerably since then, of course. And Wiebe is diversifying now, adding olive trees for oil as another buffer against the winds of change in the tree fruit industry.

Five summers ago, well before the slump in the national economy, Wiebe was among 70 people who gathered to pray for a troubled tree fruit industry at Reedley Mennonite Church in the heart of fruit country, a region that grows most of the nation’s peaches, plums and nectarines.

A comment he made at that time could have been made this summer: “God is faithful all the time, but some years feel better than others. This is one of the years that doesn’t feel so good.”

Despite the setbacks, some believe the industry will emerge stronger when the current crisis – spawned by low returns and a nationwide recession – subsides.

“We’ll still see some changes, not all of them positive,” says Sheri Mierau, president of the California Tree Fruit Agreement in Reedley, which represents growers of peaches plums and nectarines. “As difficult as change is, it will strengthen the industry.”

One significant change in the past year has been that larger packers who have gone through consolidation have stepped up their own domestic promotion of fruit, a role previously played by the tree fruit agreement.

“They’re doing a lot of what we did,” Mierau says. “We continue to do research and come up with information to help them plan and work with retailers.”

Mierau’s predecessor as CTFA president, Blair Richardson, agrees that change could strengthen.

“We’re just going through a difficult time, and a lot will happen over the next year or so,” says Richardson, CEO of FreshSense, a Parlier company that markets premium fruit under the Ripe ‘N Ready label. “We will come out of it stronger, but things will be structured differently.”

Two former participants in Ripe ‘N Ready sales were among those who shut down in recent months.

George Brothers Inc., based in Dinuba, sold 1,000 acres to agricultural conglomerate Paramount Citrus, the largest packer and shipper of fresh citrus in the nation. George Brothers produced tree fruit for four generations.

And Ballantine Produce in Reedley, which was founded in 1943, closed its packinghouse just days away from the start of the tree fruit harvest.

Pat Ricchiuti, owner of P-R Farms in Clovis, had partnered with Ballantine last year to harvest and market about 800 acres of his tree fruit.

“It’s very sad,” says Ricchiuti, who has cut his tree fruit acreage from 2,000 at its peak to just 150 acres now.

“People don’t value tree fruit like they used to, there are too many choices in the marketplace that take up shelf space,” he says. Other operations that shut down in the past year included Ito Packing in Reedley and Z&S Fresh, a Fresno-based produce sales and marketing company.

The number of tree fruit packinghouses in the San Joaquin Valley dropped from 278 in 1999 to 144 in 2008.

About 10 percent of the state’s tree fruit acreage – 9,000 of its 93,000 – was removed last year. That’s a 54 percent increase in pullouts compared to the five year average, and it came on the heels of above average production in 2007 and 2008.

It’s not known how much fruit was replanted, says Gary Van Sickle, director of research for CTFA. It’s not uncommon for growers to take out some varieties and put in new ones to match consumer preferences.

The crop this year is overall smaller, about 25 percent shorter than last year’s crop. That’s due in part to the removals and in part to “severe frost damage,” Van Sickle said. It stood at 59 million boxes last year, and is now closer to 47 million. Despite the lower production, prices paid at wholesale have not kept pace.

Van Sickle says producers are looking at anything they can do to keep costs down.

“For example, some are creating a savings by packing into a brown box rather than one that has white paper coating. If you leave that off, it saves a nickel,” he says. “Guys are scrutinizing all their expenditures and saving pennies wherever they can.”

Van Sickle says there is trend toward larger packers getting bigger. “There are a dozen operations that may be on the ropes next year if this does not turn around.”

Industry leaders say the banking crisis had some play in at least some of the closures. “I have heard from several farmers that banks that had traditionally financed refused to do so, and people had to find new sources,” Van Sickle says.

Mierau says the banking crisis “plays a role in every business, loans are harder to come by. Hopefully we’ll see the banking sector strengthen and will see our sector strengthen.”

Barry Bedwell, president of the California Grape and Tree Fruit League in Fresno, says there remains “a disconnect between retail and wholesale pricing,” with times when fruit from the farm may sell at 20 to 30 cents a pound, then appear on grocery shelves at $1.99 a pound.

Bedwell said the decision to close or stay in business has meant taking a hard look at equity built over the years and whether that equity was being depleted by previous tough years or whether there would be enough to weather the storm.

“It’s a personal decision,” he says. “Some say, ‘I’m going to give it another year.’ Farmers are inherently optimistic.”

Bedwell sees some positive signs this year. Diesel costs have declined, meaning it costs far less to transport fruit across the nation.

“And we have a product that’s healthy,” Bedwell says.

“The nation is fighting obesity and people are changing habits and lifestyles. We have support from the farm bill on nutrition issues. Our challenge now is to produce the fruit at a profit in California.”

Bedwell believes the industry “has made great strides in correcting an oversupply.” He believes that between 40 million and 45 million boxes could be “a sustainable and profitable level” for the state.

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