Southern Exposure
Hazelnut Growers of Oregon sourcing
product & new members in South America
By Catherine Merlo
Merlo is a freelance writer with extensive experience working with
cooperatives.
or 22 years, Hazelnut Growers of
Oregon has marketed what it calls “the
crunchy brown nut with the sophisticated
taste” for the state’s hazelnut producers,
many of whom farm in the state’s fertile
Willamette Valley.
But the nationality of the co-op’s membership
has just taken a quantum leap south.
This year, Hazelnut Growers of Oregon accepted
its first foreign member, a hazelnut farmer in
the South American country of Chile. And it
expects more Chilean hazelnut growers to join the
Oregon-based co-op in the near future.
“It’s a great opportunity for us,” says Troy
Johnson, vice president for Hazelnut Growers of
Oregon (HGO). “We have only one member so
far, but there is much interest there.”
HGO is just one of a growing number of U.S.
agricultural co-ops that have encountered the hard
reality of a global market. To succeed in today’s
24/7 marketplace, America’s grower-owned businesses
must contend with increased foreign competition.
They must satisfy the rise in consumer
demand for more and better products. And they
must protect their brands with a steady supply.
That means finding a way to overcome production
shortfalls that stem from adverse weather, alternate-
bearing crops or shrinking acreage.
Opening new doors
The venture into Chile offers a way
for HGO to meet those demands.
Sourcing some of its product in Chile
opens new doors to help the co-op
meet rising demand amid tightening
hazelnut supply.
“Things are changing
and the world is becoming
smaller,” Johnson
says. “To be successful,
you’ve got to find the
strategic alliances, or
make the strategic decisions,
to be successful in
the long term. You need
the best, most efficient
supply and you have to
be very good at all
aspects of your business.”
One benefit to the
Oregon co-op is that
Chile’s production comes
later in the season, in
April, avoiding the glut sometimes seen
when the North American hazelnut
harvest comes off in September.
The co-op’s venture south also reaps
benefits for Chilean hazelnut producers.
For them, being part of an established
co-op is a big draw. “One of the basic
reasons for joining a co-op is that it
provides a home to bring your production
to every single year for marketing,”
Johnson says. “That’s a very important
selling point that some people overlook.
It’s the biggest reason Chilean growers
want to be part of our co-op.”
Further, Johnson adds, “Chile sees
the U.S. as a fantastic consumer of
Chilean products, but
they also see the
American business model
as very successful.”
Goin’ south
A lengthy sliver of a
country that’s 20 times as
long as it is wide, the
Republic of Chile
stretches 2,700 miles
along the southwestern
coast of South America.
Home to a stable democracy
with a population of
16 million, Chile is
famous for the snowcapped
Andes mountains
that tower along the
country’s eastern border.
But the country is also the home of a
long, fertile basin west of the mountain
range. Called the Central Valley, it
stretches south from Santiago to
Osorno and enjoys a Mediterraneanlike
climate.
There, in its opposite seasonal cycle,
Chile harvests a variety of fruits, vegetables
and grains some six months after
the Northern Hemisphere does. And
the production quality is generally
good. California-based Sunsweet
Growers has begun sourcing fruit there
(see sidebar). Well-known citrus co-op
Sunkist Growers has sourced fruit in
Chile in the past, although it doesn’t at
present.
“Everybody is looking to build the
most efficient supply chain,” says Terry
Barr, chief economist with the National
Council of Farmer Cooperatives. “The
consumer has spoken, and retailers want
access to a product year-round. U.S. coops
are having to access products offseason,
particularly if they have a brand
and want to keep its established position
in the market.”
Chile’s hazelnut industry is young; it
needs another seven years before its
trees reach full nut-bearing maturity.
But that’s a short wait for the long-term
viability of Hazelnut Growers of
Oregon.
Up north
The largest U.S.
handler of hazelnuts,
HGO accounted for
about one-third of the
nation’s 27,000-ton
production last year.
Virtually all U.S.
hazelnuts are grown in
Oregon, which is said
to grow the tastiest
varieties of the brown
nugget.
Grower-owned
since 1984, the co-op
generates about $25
million a year in sales.
It’s the nation’s only
hazelnut co-op and
counts 140 members.
It also receives part of its hazelnut supply
from about 60 non-members who
deliver on a contract basis through an
independent company. HGO operates a
plant in Cornelius for processing, packing
and distributing its hazelnuts.
The co-op owns two labels. Oregon
Orchard represents its in-shell brand,
which is sold globally. Westnut is the
co-op’s industrial brand, sold to customers
such as Kraft, Godiva, Planters,
Diamond, Emerald Nut and Sara Lee.
The co-op typically exports about 60
percent of its hazelnut supply, although
this year it’s the domestic market that’s
buying 60 percent of the co-op’s crop.
HGO has witnessed a 20-year
decline in hazelnut acreage. Some loss
may be due to urban sprawl, but most
stems from a tree-killing disease called
Eastern Filbert Blight. The disease has
been slowly diminishing Oregon’s
hazelnut production, especially in the
Willamette Valley. So far, Johnson says,
Eastern Filbert Blight has taken out
about 1,000 acres of hazelnut trees,
leaving 28,400 acres in Oregon.
Meeting rising demand
At the same time, worldwide hazelnut
demand is rising. As a result, prices are
reflecting the tight global supply and the
increased demand for hazelnuts, used in
candies and other confectionaries. For
the 2005-06 season, U.S. hazelnut growers
are receiving their highest prices
ever: $1.15 a pound. That’s a sharp
increase from 2004’s 70-cent per-pound
price, or the average of 37.5 cents per
pound received from 1984-2004.
“The need to supply our customers
has grown significantly,” Johnson says.
“We want to continue to serve our markets,
so we’ve been looking for [hazelnut]
sources outside the U.S.”
HGO has considered several options
to meet customer demand, including
the possibility of buying hazelnuts from
Turkey, the world’s largest hazelnut
producer, and from Spain. But Turkey
has had two consecutive years of poor
production, further limiting the world’s
hazelnut supply.
Moreover, the Oregon co-op doesn’t
believe it can gain much added production
by increasing its U.S. membership,
even though its prices have averaged 18
percent above the hazelnut cash price
since its 1984 inception. “In the U.S.,
only a certain percentage of people
want to be co-op members,” says
Johnson. “While our membership in
Oregon remains open, we see a real
advantage to balancing our supply with
our existing plant capacity by sourcing
product from members in Chile.”
After being contacted by a Chilean
hazelnut farmer at a conference in
Spain last fall, Hazelnut Growers of
Oregon discovered a receptive mentality
toward co-ops in the South American
country.
“They’re good farmers, but not necessarily
good marketers,” Johnson says.
“So, if they can be part of a company
with greater expertise that can provide
long-term profitability, they’re open to
it.”
60,000-ton potential
In April, members of the board and
management of the cooperative are slated
to travel to Chile to meet with growers
and tour the production area. The
co-op hopes to sign up more members
at that time.
Because the Chilean hazelnut industry
is still young, “we don’t anticipate
too much production this year,”
Johnson says. “I’d be surprised if they
produced 20 tons.”
But the co-op does foresee promising
prospects. Its grower contacts in
Chile believe the industry can reach
60,000 tons of hazelnut production in
the next 20 years. Already, Hazelnut
Growers of Oregon has set up a
Chilean entity in Santiago with its first
Chilean member as its agent. That
should foster closer ties as well as more
local control, Johnson says.
“Initially, their production will be
shipped to us,” says Johnson. “But
what’s best is to have a processing plant
close to production. I think eventually
there will be.”
In the meantime, plenty of questions
remain: Will Hazelnut Growers
have a separate pricing pool for its
Chilean membership? If the co-op
should decide to build a plant in Chile,
how would it be financed? If Chilean
members’ production gets big enough,
will they earn a seat on the board of
directors?
The co-op is still exploring these
issues. “We have to look long-term at
what’s best for the co-op as a whole,”
Johnson says. “But we believe there are
a lot of blue skies ahead for the hazelnut
industry.”
Sunsweet puts down roots in Chile
With two consecutive crop disasters since 2004,
Sunsweet Growers Inc. has decided it won’t sit back and
watch its line of branded products shrivel on the store shelf
for want of supply.
The grower-owned co-op, based in Yuba City, Calif., has
just completed construction of a fruit-drying facility on land
it purchased last year in Santa Cruz, Chile. The plant will
process Chilean-grown prunes and market them for the coop’s
non-branded business. The 400-member co-op will
preserve its California fruit for the Sunsweet brand.
“Chile is a way for us to help avert disaster,” says Dane
Lance, Sunsweet’s vice president of global
sales and marketing.
The co-op believes that by building its
own drying facility, Sunsweet can ensure
that the Chilean dried fruit meets the company’s
quality standards.
“While our international facilities are
managed with the help of experienced jointventure
partners, they benefit from
Sunsweet’s proprietary systems and our
team’s quality control standards,” Sunsweet
President Arthur Driscoll II said last November
when the co-op began construction of
the South American facility. “Our global
customers expect quality products that can
only be achieved by using Sunsweet’s proprietary
drying processing and pitting methods.”
Furthermore, Sunsweet’s presence in Chile, the world’s
No. 2 prune producer, opens the door for it to participate in
and influence local markets, co-op officials say. “We see
Chile as a market for our brand,” says Gary Thiara, a California
prune grower and Sunsweet’s board chairman.
Worldwide sales strategy
Sunsweet is the nation’s leading marketer of dried plums
as well as specialty dried fruit products and juices. The coop
markets prunes and raisins in 60 countries, generating
about $250 million a year in sales. During its 88 years, it’s
built a brand that’s recognized by 85 percent of American
households. But adverse bouts with Mother Nature since
2004 have sharply limited California’s inventory of prunes, or
dried plums, as they’re also called.
Unprecedented back-to-back disasters have pounded
growers and packers in the Golden State, which produces
98 percent of the nation’s prunes and 70 percent of the
world’s supply. The California crop typically yields about
160,000 tons of the dried fruit. But unfavorable weather conditions
in 2004 led to the worst prune crop in the state’s history.
Production dropped to just below 48,000 tons.
Sunsweet’s members, who normally account for half of
the state’s output, delivered their smallest crop since 1918.
Then, in 2005, another unfriendly spring followed by intense
summer heat wrought another short crop.
The result? Increased expenses and reduced revenues
for farmers and packers — and a record low supply of
prunes to market into distribution channels.
“Some grocery shelves are bare of prune products, production
lines are not utilized full time, many of our experienced
teams must suffer through weeks of little or no work,
and some consumers are looking to other products to fill
their dried-fruit appetite and health
needs,” Sunsweet noted in its 2005 annual
report.
Short supply threatens
retail accounts
The prospect of losing key retail
accounts because of supply shortages
sent shivers through Sunsweet. “With a
brand, you pay a huge penalty if your
product goes out of stock,” says Lance.
“There’s a big cost to bring it back on to
the shelf.”
Thus, California’s consecutive crop disasters
paved the way for Sunsweet’s foray
into Chile. Sourcing all of its prunes in California
appears “increasingly risky,” Sunsweet has said.
If California had seen its normal production, says Lance,
it would be harder to explain why the co-op would need to
source dried plums from Chile. “But it’s been easy for
growers to understand that this is an attempt to protect
their business,” he says.
The co-op expects only modest volume out of its Chilean
operations — 2,000 tons of dried plums at most, compared to
the 75,000 tons Sunsweet sold in 2003, the last “normal” year.
It’s too early to forecast the 2006 California dried plum
crop, which will be harvested in September. But the co-op’s
move into Chile offers much-needed protection for
Sunsweet.
“It’s not our intention to abandon California as the primary
source for the crop,” Thiara says. “But we definitely
need to supplement that position with production from other
countries.”
Already, Sunsweet sources dried fruits from the Philippines
and Turkey, Thiara says. The co-op also works with
partners in the United Kingdom, Germany, China and the
Philippines to pack dried tree fruits for the Sunsweet brand.
Catherine Merlo
