The Fruit Growers News - January 2003

Fresh apples face stiff competition with the huge, growing snack food market. Apples are a very tiny share of the $80 billion snack food market that doesn’t even include the $60 billion beverage market, according to Desmond O’Rourke of Belrose, Inc.

O’Rourke, a keynote speaker at the recent Washington State Horticultural Association annual meeting and trade show in December in Yakima, Wash. spoke on the topic, “Does Washington State Have the Weapons to Win Future World Apple Wars.”

He said there has been a tremendous growth in the sale of crackers, potato chips, tortilla chips, chocolate and cookies. “They’ve done an incredible marketing job,” said O’Rourke about the snack food industry. “Worldwide snack food markets are growing very, very rapidly.”

All fruit make up less than 10% of snack food revenues, he reported. The snack food market is “very, very complicated.” He said. Apple processors have tried to make headway in the snack food market with packaged, sliced apples, although there’s been a lot of technical problems. O’Rourke said that currently snack products with apples use the very cheapest apples, the processed culls.

O’Rourke said the American lifestyle of perpetual motion, brief food breaks, eating while doing other activities - a grab and go nation - is spreading around the world.

“Snacking between meals used to be frowned upon,” he said. “We grab food and eat on the run.” O’Rourke noted that people often start the day with a breakfast bar, citing the popularity of the Slim Fast Morning Rush meal bar.

This type of lifestyle can provide opportunities. “Food processors are rolling out thousands of new products per year,” O’Rourke said. He mentioned the success of the Kudos bar from Mars with just enough good stuff in it so consumers don’t feel guilty.

“The apple industry, in contrast, can take a generation to commercialize a new variety,” he said. “We now have soy-enriched products and vitamin enhanced water.”

He told growers that the CEO of Frito-Lay has plans to expand their no-fat, low fat and reduced fat products from 20% of their total portfolio to 50%.

“These trends are spreading worldwide,” O’Rourke said.

While sales of snack foods in the United States including french fries, candy, cereal, yogurt and diet soft drinks has risen, during the same time period the sales of apples and oranges fell slightly while bananas and some other fruits have grown.

“People are willing to take fruit in juice form rather than solid form,” said O’Rourke.

Consumption of strawberries and table grapes and fruits such as mango and pineapple have grown causing growers to ask how can traditional fruit compete with all of these fruits and snacks, O’Rourke said. Unique appeals are needed to persuade consumers to bite into an apple.

He said fruit marketers could partner with doctors, hospitals, educators, government and organizations such as the Boy Scouts or the American Association of Retired Persons.

“But only the fruit industry has the incentive to take the lead. Others will join once the ball is rolling,” O’Rourke said. “I really do believe apples can compete.”

He told the audience that the most likely future scenario will be increased global sourcing of food, stagnant markets in the developed world and growing markets elsewhere. He told growers that they can control quality, volume and productivity.

“We’re going to have to very much be an export industry,” O’Rourke said. He said that multi-national processing is growing fast, retailers are becoming more powerful and governments even more intrusive. He reminded growers that although reversal of these trends is unlikely in the next 10 years, none of the trends are permanent.

Washington state is the largest supplier of apples in the United States even though the state is a long ways to most markets.

“Other states have done a poor job of capitalizing on the closeness of markets. I don’t know why,” he said.

Compared to other states, Washington has larger orchards, higher average tree density and more younger plantings. As Gala and Fuji has grown very rapidly in Washington state, the percent of Red Delicious has fallen from 59% of apples in 1996 to 43% in 2001, O’Rourke reported.

“Supplies going to the domestic market have drifted downward although our introduction of new varieties hasn’t increased our share of per capital consumption,” O’Rourke said.

“Early adapters of new varieties got a price premium, but Red Delicious prices were hit hard,” O’Rourke said. He suggested that new varieties have cannibalized existing varieties.

“Simply introducing new varieties is not a guarantee of success,” he said. O’Rourke told growers that the quality and packout percent of existing varieties needs to be improved.

“We need to continue to drive down the cost of production, packing and marketing,” he said. O’Rourke said that Washington State University’s Precision Agriculture Center in Prosser is exploring new technologies such as global satellites, weather mapping and computers to try to lower costs and improve production.

O’Rourke said the fruit industry is using a lot of precision agriculture techniques that have been successfully used by onion and potato growers.

He noted that Washington state ranks behind New Zealand and Chile in international competitiveness. Washington’s strengths include plentiful land, as well as strong packing and marketing infrastructures. Weaknesses included variable production, older varieties and low-density plantings in some orchards, according to O’Rourke.

He told growers that Washington state’s labor costs are right up there with Germany and dramatically higher than Chile, Turkey and China. Also the purchasing price of the dollar makes it hard to compete.

O’Rourke believes the U.S. economy will still be very strong and very solid. He said that even with the North American Free Trade Agreement, Mexico and Canada are nearby markets but “erratic partners.” He said that Central and Latin America are in trouble politically and economically and the European Union “is expanding but very protectionist.” He told growers that countries in the Middle East have wasted enormous wealth while India has “great long term potential.” He said India now has a middle class of approximately 50 million people and that they have made tremendous changes in their economic philosophies.

He said that East Asia presents the most question marks in the next few years as the economies of Japan and South Korea have stalled.

“China is capturing more the of Southeast Asia market,” said O’Rourke. “Washington can compete on quality and varietal selection but not on price. The long-term solution may require Washington apple companies to establish growing, packing and marketing operations in China.”