A AGR AL EXPl STATIC CIRCULAR 386 . ,,,.■■■-■■-- SEPTEMBER 14* E L E~Y Scope Nation's Walnut Industry Located Entirely on Pacific Coast Must compete with imported walnuts and other nuts. U. S. production one fifth of world's tree nuts. . . . balance mostly from Mediterranean The English or Persian walnut indus- try in the United States is situated entirely on the Pacific Coast. California produces about 90 per cent of the domestic produc- tion and Oregon almost 10 per cent. While Washington produces a few Eng- lish walnuts, the volume is so small that in this publication California and Ore- gon production is considered to be the total domestic production. Domestically produced walnuts must compete not only with imported walnuts but with other domestic and imported tree nuts as well. Domestic production of other tree nuts (pecans, almonds, and fil- berts) is increasing. Imports of Brazil nuts, cashews, walnuts, almonds, filberts, pistachios, pignolias, etc., offer consider- able competition to the domestic walnut producer. Even peanuts which are pro- duced in such large volumes here in the United States might also be considered competitive with walnuts. Walnuts and competitive tree nuts, therefore, are of international importance. The Mediterranean basin produces about three fifths of the world's produc- tion of edible tree nuts. About one fifth is produced in the United States. The other one fifth is produced principally in the Balkans, India, South America, and China (table 1). The Mediterranean countries produce practically all of the pistachios and pignolias and most of the world's almonds and filberts. The United States produces practically all the pecans and over one third of the world's walnuts (table 2), together with some almonds and filberts. Brazil nuts come exclusively from South America. Cashews are pro- Table 1: TREE NUTS: AVERAGE PRO- DUCTION IN PRINCIPAL PRODUCING COUNTRIES (1935-1939) Millions of pounds, shelled equivalent Country Production Italy 104 96 72 70 42 31 22 14 11 9 6 6 23 United States Turkey Spain Brazil France India Mozambique Rumania China Portugal Yugoslavia Others Total 506 Table 2: WALNUTS: AVERAGE PRO- DUCTION IN PRINCIPAL PRODUCING COUNTRIES (1935-1939) Millions of pounds, shelled equivalent Country Production United States 44.4 29.9 12.5 11.1 9.4 6.4 5.9 3.7 1.7 France Italy Rumania China Turkey Yugoslavia Bulgaria Hungary Total 125.0 1 [2] duced in various places but are of com- mercial importance only in India and Mozambique. Almonds are the most important tree nut, accounting for 29 per cent of the world production of edible tree nuts. Wal- nuts are second, accounting for 25 per cent, followed by filberts— 21 per cent, Brazil nuts— 9 per cent, pecans— 7 per cent, cashews— 7 per cent, pignolias— 1 per cent, and pistachios— 1 per cent. The production of walnuts in the United States for the most part is from cultivated orchards, most of which are ir- rigated. Walnuts produced in foreign countries are generally grown on small farms, along roads, or interplanted with other crops. Supply Total Store of Tree Nuts in U. S. Increasing Up from 344 million pounds in 1920's to 564 million in 1946 mostly due to more domestic production of walnuts, almonds, pecans, and filberts Supplies of all tree nuts in the United States have increased from an average of 344 million pounds (unshelled basis) during the 1920's to a peak of 587 million pounds in 1945 and 564 million pounds in 1946 (table 3) . Most of the increase in supply has been due to an increase in do- mestic production of walnuts, almonds, pecans, and filberts. Production of these nuts averaged 127 million pounds during the 1920's and 302 million so far in the 1940's. Imports of tree nuts have shown no decided trend since World War I. They dropped during the depression and dur- ing World War II but have since returned to near record volumes. Prior to 1931, im- ported tree nuts in volume exceeded do- mestic production; but since 1931, with the exception of 1936, domestic produc- tion of tree nuts has exceeded imports. While the total supply of edible tree nuts in the United States has increased considerably, the per capita supply until 1944 was not much different than it was after World War I. Per capita supply of tree nuts on a shelled basis was 1.42 pounds in 1946 and 1.45 pounds in 1919. The supply per capita since World War I has varied from .88 pounds in 1933 to 1.45 pounds in 1919 and has averaged 1.21 pounds. Table 3: UNITED STATES TREE NUT SUPPLIES HAVE MORE THAN DOUBLED (1910-1946)* 10-year averages United States produc- tion! Imports Total supply 1,000 pounds, unshelled basis 1910-1919 1920-1929 1930-1939 1940-19461 45,517 126,825 207,852 302,044 157,989 217,148 185,836 180,927 203,506 343,973 393,688 482,971 * Includes almonds, filberts, pecans, walnuts, Brazils, pignolias, pistachios, chestnuts, cashews, and miscellaneous tree nuts. f Walnuts, pecans, almonds, and filberts. t 7-year average. United States supply of walnuts is increasing Total supplies of walnuts (shelled and in- shell) in the United States dropped from an annual average of over 51 million pounds (shelled basis) in the 1920's to about 37 million pounds during the de- pression (table 4). Supplies have since increased to over 51 million pounds. Per capita supplies of walnuts have increased since the early 1930's, but still remain below the 1920's. [3]' Table 4: PER CAPITA SUPPLIES DE- CREASED SINCE WORLD WAR I United States Total and Per Capita Supply of Walnuts Crop year averages Total supply Per capita supply 1,000 pounds shelled basis 1922-1925 51,259 .45 1926-1929 50,453 .42 1930-1933 36,907 .29 1934-1937 41,154 .32 1938-1941 48,412 .37 1942-1944 49,630 .36 1945-1947 51,041 .38 United States supply of in-shell walnuts also bigger The supph of in-shell walnuts in the United States, as shown in figure 1, is now considerably larger than during the 1930's but not much larger than the supply in the 1920's. During the 1920's i in ports made up a considerable part of the supph but the) have been an insigni- ficant part of the supply since the early 1930's. Shelled walnut supply now largely domestic production In recent years, supplies of shelled wal- nuts, while larger than during the 1930s are lower than in the 1920's ( fig. 2) . Im- ports formerly made up the major part of the shelled walnut supply, but domestic- production has now come to be the major part of the supply. Walnut imports may increase with lower tariffs During the 1920's the United States im- ported annually about 14 million pounds of in-shell walnuts and about 17 million pounds of shelled walnuts. With the in- crease in domestic production, increased tariffs, and lower prices during the 1930's. imports dropped to an annual average before the war (1935-1939) of 163,000 pounds of in-shell walnuts and 4,361.000 pounds of shelled walnuts. Fig. 1: UNITED STATES SUPPLY OF IN-SHELL WALNUTS 100 Fig. 2: UNITED STATES SUPPLY OF SHELLED WALNUTS 65 30 ILLIONS ) Ul \ Total / 2 ^ •z. i 15 Q / Imports \S M O i r\ ^r * ^ CL l0 5 n ■ ,i.i Domestic production ■ i i i i 1920 1925 1930 1935 1940 1945 Tariffs set in 1930 were 5 cents per pound on in-shell walnuts and 15 cents per pound on shelled walnuts. The Geneva trade negotiations in 1947 re- duced the shelled walnut tariff to 7% cents (the full amount of reduction per- mitted under the Reciprocal Tariff Agree- ment Act) on a quota of 5 million pounds per year. Imports in excess of 5 million pounds will be subject to the higher rate of 15 cents per pound. The importation of in-shell walnuts into the United States is under more handicap than the importation of shelled walnuts. A tariff of 5 cents per pound on in-shell walnuts is, under normal prices, a considerable part of the full value. Fur- thermore, the high standards established by the domestic industry and their well- established advertised brands make the importation of in-shell walnuts an unat- tractive undertaking. It would appear that imports of in-shell walnuts will not be a significant factor in the domestic market. However, more competition from im- ported shelled walnuts appears likely when satisfactory supplies are available. A tariff of 7 1 /2 cents is, under current prices, a relatively small amount of the full value of a pound of shelled walnuts. Furthermore, because of the great amount of hand labor involved in shelling, costs in foreign countries are considered to be much lower than those prevailing in the United States. Also the shelled market, especially the manufacturing trade, is very price sensitive and no doubt willing to take foreign shelled walnuts if prices are attractive. The competition, there- fore, that can be expected from foreign walnuts will be from the shelled walnut importations. While importations of walnuts in the past have been made from a great many Mediterranean and Balkan countries, France and China in the prewar period of the 1930's were the most important sources of imported walnuts. Future im- portations from China appear doubtful so long as internal warfare in north China continues. Increased exports from the Mediterranean basin, particularly France, and possibly Italy and Turkey, can be ex- pected when conditions appear favorable and when available supplies are of suit- able grade and quality. [5] Acreage Walnuts Planted Under Wide Range of Conditions Grown with other crops, aflong roadsides, on hills, in irrigated soils. . . . California has 5,000 acres of Black walnuts — potential English walnuts Walnut acreage is somewhat different from acreage of other trees. In the first place, walnuts take a very long time to reach maturity and are, therefore, fre- quently interplanted with other trees or crops. They are also used extensively as border plantings along roadsides. English walnuts are grafted onto Black walnuts, and it is estimated there are currently in California about 5,000 acres of Black walnuts in orchard position which are potentially English walnut acreages. Walnuts are also planted under a rather wide range of conditions— from hillsides to irrigated deep soils. In most cases trees are planted on either 50 or 60 feet inter- vals. Additional walnut trees may be used as interplants; or prune, almond or peach trees are frequently used as intercrops to be removed later as the walnut trees need the entire space. United States bearing acreage of walnuts continues steady While the bearing acreage of walnuts in the United States continues to increase slightly, the 1946 acreage of 138,600 is only 6,000 acres larger than ten years previous in 1937, which is less than 0.5 per cent increase per year. About 83 per cent of the bearing acreage is in Cali- fornia and 17 per cent in Oregon. Acre- age in Oregon and California is not ex- pected to increase significantly (fig. 3). Fig. 3: UNITED STATES BEARING ACREAGE CHANGED LITTLE IN RECENT YEARS 160 140 120 co Q < 100 CO z> o H 80 60 40 20 I Oregon - _-■ California - . 1920 1925 1930 1935 1940 1945 [6] California walnut acreage also remains steady The total walnut acreage in California reached a peak of almost 140,000 acres in the early 1930's (fig. 4) . It declined to about 125,000 acres in the early 1940's and since has remained almost constant. No significant change in total walnut acreage is anticipated in the immediate future. Plantings were heavy in the 1920's when nonbearing acreage reached a peak of 47,000 acres. Nonbearing acreage, as a measure of new plantings, declined dur- ing the thirties and has remained about 10,000 acres during the 1940's. Northern California acreage up, southern acreage down Bearing walnut acreage in southern Cali- fornia has declined from 73,000 acres in 1937 to 54,000 in 1947, while bearing acreage in northern California increased from 45,000 acres in 1937 to over 59,000 in 1947. Furthermore, nonbearing acre- age is increasing in northern California and decreasing in southern California (fig. 5). With more tree removals anticipated in southern California because of competi- tion from other more profitable crops, suburban development, and pest infesta- tions, further declines in the commercial bearing acreage of walnuts in southern California appear inevitable. A continua- tion of increased plantings in northern California will depend upon anticipated returns in comparison to other crops- prunes, grapes, peaches, almonds, etc. At present there does not appear to be much stimulus to further increased plantings of prunes or grapes. It would appear that a moderate increase in plantings of walnuts in northern California could be expected. California walnut acreage nears maturity; newer plantings mostly late Franquette variety About one half of the total California wal- nut acreage is 24 years or older, and Fig. 4: CALIFORNIA TOTAL ACREAGE STEADY SINCE 1940 160 1920 1925 1930 1935 1940 1945 [7] about three fourths are 19 years or older, and about one quarter is less than L8 years of age (table 5). Bearing walnut acreage is not a very precise measure of what the walnut industry might produce because as trees get older they increase greatly in size and productive capacity. While the total walnut acreage of the state might be considered old, the present acre- still increase in productive age could capacity l>\ as much as 10 to 15 per cent. About one third of the present total walnut acreage is of the early-harvesting Placentia and similar varieties, but most of these trees are old and plantings in the last 12 years have been negligible. The proportion of the total acreage in these varieties, planted largely in southern Cali- fornia, is decreasing. One fifth of the acreage is of the late-harvesting Fran- Fig. 5: NORTHERN CALIFORNIA ABOUT MAKES UP SOUTHERN ACREAGE LOSSES UJ g 20 < Nonbearing acreage: Northern California Southern California \- ' 1938 1940 1942 1944 1946 Table 5: WALNUT ACREAGE IN CALIFORNIA BY AGE OF TREES AND VARIETIES IN 1 1947 Variety Total acreage Acres Acres 7,807 Per cent 6.2 8 years or less 9-13 years 14-18 years 19-23 years 24 years and over Concord 171 177 894 2,156 4,409 Eureka 13,253 10.5 1,005 629 1,639 3,144 6,836 Franquette 27,156 21.4 7,743 2,994 4,529 5,026 6,864 Mayette 4,682 3.7 364 426 998 857 2,037 Payne 19,376 15.3 3,101 1,783 4,183 5,041 5,268 Placentia and similar. 39,366 31.0 666 849 3,724 10,329 23,798 Other varieties 9,164 7.2 1,289 628 1,496 1,627 4,124 Seedlings 5,984 4.7 47 54 246 121 5,516 All walnuts 126,788 100.0 14,386 7,540 17,709 28,301 58,852 Per cent 100.0 11.3 6.0 14.0 22.3 46.4 I 8 | quetle variety, but this acreage is com- paratively young. About one half of the plantings in the last ten years has been of this variety. Many of the northern plant- ings have been Franquettes. The Payne— an early-harvesting variety— is the third most important variety in total acreage. It has been planted extensively in north- ern districts and has been second only to Franquette in new plantings during the last 17 years. Late-harvesting Franquettes will not make early markets It is apparent from table 5 that the in- creased plantings of Franquettes will re- sult in an increasing proportion of the crop being harvested late. This may cause some concern in the marketing of walnuts as early markets are important. As Production pointed out (p. 13), 90 per cent of the distribution of in-shell walnuts by packers is made before Christmas. The markets must be supplied in late October and early November if a large amount is to be moved during the year. The period be- tween Thanksgiving and Christmas is most important, but a part of the annual movement must be made earlier in order to move large annual amounts. Of course, late varieties could be stored for the early fall market of the following year but that involves storage expense and waiting for returns. Usually more than half of the Concords, Placentias, and Paynes can be placed in eastern markets in time for Thanksgiving, while only about 5 per cent of the Franquettes and about 15 to 20 per cent of the Eurekas and Mayettes make these early markets. United States Walnut Output Is Likely to Continue Upward Average annual tonnage jumped from 25,000 in 1 920's to almost 70,000 in 1 940s. ... it may reach 80,000 in ten years Production during recent years aver- aged almost 70,000 tons as compared with 25,000 in the early 1920's (table 6). While walnuts are not markedly alternate bearing, there are fluctuations in produc- tion from year to year. Production of walnuts in any one year is considered to be a result of weather conditions rather than anything inherent in the trees. Great- est variation in annual production was from 1926 when the crop was very small, 16,200 tons, to 52,100 in 1927 when all weather factors were favorable to a large production. In spite of increasing acre- age, the 1927 crop was not equalled again until 1935. While currently crops of 70,000 tons are considered average, it would be possible for the crop to vary from 50,000 to 35,000 tons. Production is increasing, and crops approaching 75,000 Table 6: UNITED STATES PRODUCTION HAS INCREASED FOR DECADES — TREND MAY CONTINUE United States Walnut Production (tons — orchard run) Averages California Oregon United States 1920-1924 25,080 380 25,460 1925-1929 34,040 1,090 35,130 1930-1934 36,720 2,220 38,940 1935-1939 52,740 3,940 56,680 1940-1944 58,100 5,420 63,520 1945-1947 62,000 7,200 69,200 tons might possibly be considered aver- age in five years and 80,000 tons, in ten years. If more than usual amounts of acreages are pulled in the meantime, these volumes would not be reached. [9] California's tonnage rose from 31,000 to 60,000; may reach 70,000 in ten years California walnut production has in- creased from an average of 31,000 tons orchard run in the 1920's to 45,000 tons in the 1930's and 60,000 tons so far in the 1940's. It is estimated that California production in the early 1950's could av- erage about 65,000, and around 70,000 during the late 1950's. Oregon walnut production, which now averages about 7,000 to 8,000 tons per year, is also ex- pected to increase. These estimates are made on the basis of present acreage and yields in relation to age and also on the basis of per cent of full crop as reported by the Crop Reporting Service. The ex- pected increase will be due to greater yields from more mature trees. California production moves north, doubles in ten years In the early 1930's, two thirds of the California walnuts were produced in the area south of the Tehachapi (table 7). During the last ten years, production in southern California declined about- one half while northern California production doubled. It is expected that northern Cali- fornia production will continue to in- crease, based on the increasing bearing acreage and the greater yields that will come with increasing age of plantings. Production in southern California is ex- pected to decline even further because of tree removals. The increasing suburban development in southern California is also an important factor in removing con- siderable walnut production from com- mercial channels. Table 7: CALIFORNIA'S PRODUCTION GROWS IN THE NORTH, DECREASES IN THE SOUTH Production of Merchantable Walnuts, Northern and Southern California Averages 1930-1934 1935-1939 1940-1944 1945-1946 Southern California Bags 399,992 487,076 385,630 290,015 Per cent 71.1 60.5 46.0 30.4 Northern California 162,368 318,398 452,979 664,370 Per cent 28.9 39.5 54.0 69.6 Table 8: MOST HIGH QUALITY WALNUTS GROW IN COASTAL AREA Per cent of Merchantable Walnuts in Crop, 1942 to 1946 Year Southern California (south of Ventura County) Ventura and Santa Barbara counties Coast counties (north of Ventura County) Sacramento and San Joaquin valleys State total 1942 1943 1944 1945 1946 Average 74.6 69.4 55.8 67.1 65.6 66.5 83.9 75.3 77.3 87.2 81.4 81.0 87.6 88.0 81.1 91.4 90.4 87.7 84.5 87.6 83.9 86.4 86.6 85.8 73 73 67 76 79 74 Source of data: California Walnut Growers Association (correspondence). 10 Per cent of crop merchantable greatest in coastal area The per cent of the crop that is merchant- able—which means walnuts high enough in kernel quality after processing to be salable in-shell— is shown by districts in table 8 for the years 1942 through 1946. Southern California (south of Ventura) Utilization is consistently the lowest of all districts, averaging about two thirds merchantable. Central and north coast counties are usu- ally considered the areas of highest qual- ity production, but the central valleys and Ventura and Santa Barbara counties pro- duce crops almost as high in merchant- ability. Bulk of Crop Delivered to Packers or to Local Buyers Control program allocates supply to in-shell and diversionary (shelled and export) markets Very little of the domestic walnut crop is used on farms or sold by producers to consumers or retailers. The bulk of the Table 9: MORE WALNUTS ARE BEING SHELLED AS PRODUCTION INCREASES Amount and Proportion of United States Walnuts Shelled Year Orchard run production Amount shelled* Percentage of crop shelled tons (unshelled basis) per cent 1930 30,300 4,100 13.5 1931 34,200 12,100 35.4 1932 49,100 7,800 15.9 1933 34,000 6,500 19.1 1934 47,100 9,300 19.7 1935 57,400 10,500 18.3 1936 45,800 10,700 23.4 1937 62,400 13,800 22.1 * 1938 55,300 9,400 17.0 1939 62,500 30,250 48.4 1940 50,800 19,100 37.6 1941 70,000 35,290 50.4 1942 61,200 17,580 28.7 1943 63,800 21,305 33.4 1944 71,800 26,910 37.5 1945 70,900 21,360 30.1 1946 71,900 23,640 32.9 1947 64,800 26,700f 41.2 * California only, 1930-1938 inclusive. t Preliminary estimate. crop after being hulled and dried on the farm is delivered to local buyers or local cooperative packing plants. These local plants remove by air suction the blows and by hand the culls which are sent to shellers. An allocation of the merchantable sup- ply between the domestic in-shell market and a diversion to shelled and export out- lets is made each year by an industry marketing control program operated under government jurisdiction (see p. 16 for a discussion of the control program) . One third of crop is shelled; amount, proportion increasing Both the amount and the proportion of the crop that is shelled have increased with increasing production (table 9). In recent years roughly one third of the an- nual production has been shelled. Walnuts to shellers consist of orchard-run walnuts, culls, and merchantable walnuts. The merchantable walnuts are those diverted under the marketing control program and the amount varies from year to year. The amount of culls varies, of course, with the quality of the annual production, but it has averaged around 10,000 tons per year. In recent years about 10,000 tons of orchard-run walnuts have gone direct from farms to shellers. [in In-shell selling potential has increased, may reach 900,000 bags in 'fifties The amount of in-shell walnuts that can be sold to advantage in domestic markets is of great concern to the walnut industry as this form of marketing is more remun- erative than the export or shelling out- lets. During the 1930's about 600,000 bags appeared to be the saturation point of the domestic in-shell walnut market ( table 10). During the war, volumes taken increased to almost 900,000 bags and at prices much higher than the 1930s. The question then is, has demand changed? The war apparently changed consumption habits considerably. Meat, milk, eggs, some fruits and vegetables are definitely a greater part of the American diet in this postwar period than before the war. How many bags of in-shell walnuts are likely to be sold in the domestic markets in the near future? The 900,000 bag figure appears to be too high as the absorption of this volume was due to unusual wartime situations in which competing foreign nuts were not generally available. The 600,000 utiliza- tion of the 1930's on the other hand ap- pears too low T . The population has increased 12 per cent since then ; domestic purchasing power is also considerably greater. The market is larger. The post- war period has not settled sufficiently as yet to indicate very clearly the normal amounts that can reasonably be expected to be sold. Industry estimates, however, are in the neighborhood of 800,000 bags, which was the salable amount determined under the market control in 1947. How- ever, the pack fell below estimates, with the result that only about 725,000 bags were sold in-shell. Larger amounts, how- ever, could have been sold had the quality been higher. The movement of this volume in 1947, however, was facilitated by a 20 per cent drop in prices from 1 946. If 800,000 bags are a reasonable ab- sorption of in-shell walnuts in the do- Table 10: HOME MARKET CAN ABSORB MORE IN-SHELL NUTS THAN IN 'THIRTIES Domestic Absorption of Merchantable In-shell Walnuts (Absorbed by the wholesale trade) Crop year Amount 100-lb. bags 1933-34 449,654 1934-35 548,421 1935-36 563,024 1936-37 553,253 1937-38 602,569 1938-39 586,935 1939-40 609,645 1940-41 595,232 1941-42 630,286 1942-43 805,093 1943-44 830,787 1944-45 844,402 1945-46 898,768 1946-47 868,515 1947-48* 725,010 * Preliminary, August through March only. mestic markets in 1947, what about 1957? If domestic population continues its rate of increase and if our economy is expand- ing and prosperous, a domestic absorp- tion of 900,000 bags or more of in-shell walnuts would seem reasonable. This esti- mate is based more on increasing popu- lation rather than on increasing greatly the per capita consumption. If something is done to change per capita consumption, obviously the estimate of future in-shell absorption must also be changed. But as pointed out under the discussion of con- sumption (p. 13) , it does not seem reason- ably possible in light of past experience to increase per capita consumption sig- nificantly in face of the keen competition from other nuts and foods. In spite of the fact that the population increased 21 pet cent from 1922-1925 to 1942-1944 and that our national income has increased by 107 per cent, still domestic consumption of tree nuts onl\ increased 13 per cent. I 12 Exports declined during the war unlikely to recover much Very little exporting of walnuts was done until the early 1930's when domestic pro- duction increased and domestic purchas- ing power declined greatly. A short walnut crop in Europe in 1933 created an export market for American producers for about 10 million pounds in 1933 and again in 1934. Beginning in 1935, exports were subsidized by the federal government and almost 18 million pounds were ex- ported. This subsidy continued in varying amounts through 1942. All the exports Consumption were in-shell walnuts, and in the prewar period 1936-1938, exports amounted to 11 per cent of domestic production and 17 per cent of in-shell walnuts marketed. The United Kingdom and other European countries were the principal outlets. Exports were reduced to negligible pro- portions during the war and have not re- covered greatly since, nor is it expected that they will be very significant in the near future. Exports for August through February of 1947-48 account for less than 5 per cent of the in-shell walnuts mar- keted. Use of Tree Nuts Up Since War Consumers buy 72 per cent of in-shell walnuts before Christmas; shelled walnuts less dependent on season, one half purchased by food manufacturers The consumption of tree nuts did not change greatly from 1922 to 1945 (table 11). Since the war, however, because of increased imports (principally almonds, cashews, and Brazil nuts), the consump- tion increased about one third. Walnuts continue to be the most important tree nut in terms of volumes consumed, but al- monds and cashews are increasing in rela- tive importance, and pecans are second only to walnuts in volumes consumed. Consumption and movement of walnuts highly seasonal In-shell walnuts are sold principally dur- ing the fall and winter holiday season. A survey of consumer purchases at retail stores showed that 72 per cent of the con- sumers' annual purchases of walnuts were made during the quarterly period, Octo- ber through December, and only 28 per cent were made during the balance of the year, January through September. Over 90 per cent of the pack is sold by packers to the trade during the quarter, October through December. Because of the seasonal demand for in- shell walnuts, it is necessary to "hurry" the harvesting, packing, and shipments in order to supply the early demand. In years past when most of the production was in the South and of early-maturing varieties, no large problem of meeting early markets was involved. However, much of the northern plantings are of late-harvesting varieties, which are diffi- cult to place in early markets. Walnut pro- ducers should give this early market and maturity problem consideration because it is possible that should the production of late varieties increase too much, price dif- ferentials in favor of early-maturing vari- eties may be created. Seasonal demand for shelled walnuts is less marked. Movement is dependent on production of shelled walnuts. About one half the shelled walnuts are pur- chased by food manufacturers. A prewar survey indicates 45 per cent went to bakeries, 35 per cent to confectioneries, 5 per cent to ice-cream manufacturers, and 15 per cent to other outlets. [13 Marketina California Walnut Growers Association Markets 85 Per Cent of Crop Association grades, blends, shells nuts in own seven-acre plant in Los Angeles; California supplies 90 per cent of nation's walnuts The marketing of walnuts is one of the most highly organized by producers of any agricultural commodity. About 90 per cent of the national production is in California, of which about 85 per cent is marketed by the California Walnut Growers Association. This as- sociation was organized in 1912 and today consists of 25 local associations, Avhich receive and grade members' deliv- eries of walnuts. Practically all walnuts received by local associations are shipped to the California Walnut Growers Asso- ciation's large seven-acre plant in Los Angeles where they are further graded and blended to meet trade requirements. Surplus and cull walnuts are shelled in a modern shelling plant owned and oper- ated by the association. The producers through their association are able to con- trol the quality of in-shell walnuts they offer to the trade, which are about 80 per cent of the domestic offerings. Trade names are registered. Diamond brand is the best grade and individual walnuts are stamped with the Diamond brand. Rather extensive advertising costing normally about 14 cent per pound is concentrated Table 11: TREE NUT CONSUMPTION JUMPED SINCE WAR'S END; Estimated Annual United States Consumption of Tree Nuts and Peanuts WALNUTS LEAD 1922- 1925 1926- 1929 1930- 1933 1934- 1937 1938- 1941 1942- 1944 1945- 1946 Walnuts Pecans Filberts Brazil nuts Total consumption (1,000 pounds) 51,259 16,278 11,350 20,057 30,537 * 2,274 131,755 356,700 50,453 25,043 9,689 14,374 29,586 7,034 136,179 442,000 36,907 28,740 5,797 14,660 19,733 10,835 2,123 118,795 452,060 41,154 33,688 4,878 17,765 18,418 23,258 2,425 48,412 40,246 5,007 22,843 13,750 29,404 1,861 49,630 45,023 8,993 423 30,189 13,548 608 148,414 862,000 53,929 43,573 16,269 18,436 41,804 28,870 2,704 Almonds Cashews Other tree nuts Total tree nuts Peanuts f 141,586 514,170 161,523 586,520 205,585 755,000 Walnuts Tree nuts total Peanutsf Consumption per capita (pounds) 0.45 1.16 3.15 0.42 1.14 3.69 0.29 0.95 3.62 0.32 1.11 4.02 0.37 1.22 4.44 0.36 1.08 6.28 0.38 1.46 5.38 * Included with other i f Includes peanuts use iuts. d for butter but excludi 3S those used for oil. [14] on Diamond grade. Second grade is Em- erald and third grade, Suntand. Walnuts are graded by size and quality As walnuts are received at local packing plants, the blows (shriveled meats) are removed by air suction and the culls (other defects) are removed by hand. The remaining so-called merchantable walnuts are size graded (Large, Medium, Baby sizes) and the shells cleansed. The quality grade of each lot is determined by shell- ing a sample and determining the per- centage of sound and of light-colored kernels. Walnuts are sold to the trade on the basis of size and quality. Expanded sales expected from new consumer packages In-shell walnuts have been offered to the trade, by packers, usually in 100-pound burlap bags. Except where wholesalers repackaged in smaller containers, re- tailers also received the 100-pound bag. Considerable progress has already been made in packing in one-pound cellophane bags, 50 to a carton. This should encour- age wider distribution after the holidays, especially in small stores where a 100- pound bag of walnuts may be too large to stock. Consumer and retailer prefer- ence for prepackaged foods may increase consumption of in-shell walnuts. Market control program tries to get greatest farm returns The walnut industry, including commer- cial packers, growers, and cooperatives, controls the volume of in-shell walnuts marketed in the domestic market. This control, together with mandatory grade pack specifications of in-shell walnuts, operating under federal and state mar- keting agreements and orders is one of the oldest and most successful marketing Table 12: PERCENTAGE OF DIVERSION HAS BEEN SMALL IN RECENT YEARS Proportion of Walnut Production Diverted from Domestic In-shell Market Estimated per cent of diversion from domestic in-shell market Utilization of walnuts diverted from domestic in-shell market Total For shelling Export 1933-34 1934-35 per cent 30 30 30 25* 35 20 35 15 35 10 10 10 10 10 20 100-lb. bags 215,450 224,170 253,720 163,600 320,720 175,530 310,930 111,200 351,270 74,720 86,870 87,910 97,670 91,620 103,062f 66,510 100,110 119,480 95,450 184,950 96,320 271,360 88,380 338,670 74,680 86,870 87,910 97,670 91,620 102,217f 148,940 124,060 134,240 68,150 135,770 79,210 39,570 22,820 12,600 40 845f 1935-36 1936-37 1937-38 1938-39 1939-40 1940-41 1941-42 1942-43 1943-44 1944-45 1945-46 1946-47 1947-48 * Does not apply to Oregon- Washington because of short crop. f Through March 31, 1948. [15] control programs. The Walnut Control Board represents all factors of the indus- try and is the agency of the Secretary of Agriculture and the California State Di- rector of Agriculture in administering the provisions of these agreements and orders. Each year the Walnut Control Board, on the basis of experience and available economic and market informa- tion, determines the allocation of the sup- ply of merchantable walnuts between the in-shell market and the shelled market so that the greatest total farm returns may be realized. The percentage of the mer- chantable pack to be sold in the in-shell market is recommended to the Secretary of Agriculture and the California State Director of Agriculture, who may or may not take the recommendation in estab- lishing the volume or percentage that can legally be sold in the domestic in-shell market. The surplus is either shelled or exported. Ordinarily much greater prices are obtained from the in-shell market than from the shelled market. During the war, however, when imports of competing nuts were negligible, prices were equal in other words, the shelled market was as re- munerative as the in-shell market. Dur- ing the war, a War Food Order designated an amount to be shelled in order to main- tain those industries dependent upon a supply of shelled walnuts. Table 12 shows the amount of the pack each year that has been diverted from the domestic in- shell markets and the utilization that has been made of those diversions. What the control program tries to do; a two-price market is created for different outlets As pointed out above, the control pro- gram attempts to divide the total amount produced between the shelled market and the in-shell market so that greatest total returns will be realized. An increase in total returns through a controlled alloca- tion of supplies between the in-shell out- let and the shelling outlet is only possible because ( 1 ) the two outlets are somewhat independent, that is, customers will not readily shift because of price changes from taking in-shell walnuts, which are largely a holiday item, to taking shelled walnuts, which results in a two-price mar- ket, and (2) given percentage changes in supplies in two markets affect their prices by different percentage amounts. An example will illustrate how the in- dustry decides what division of the crop will bring the greatest returns (maximize returns). Suppose that the industry has a million-bag pack of merchantable wal- nuts. Suppose further that it is calculated that the following amounts could be sold in the in-shell market at the following prices: 600,000 bags at 22c lb. 700,000 bags at 20c lb. 800,000 bags at 18c lb. 900,000 bags at 16c lb. 1,000^)0 bags at 14c lb. $13,200,000 14,000,000 14,400,000 14,400,000 14,000,000 And suppose the following amounts could be diverted for shelling at the fol- lowing equivalent in-shell prices and re- turns : 100,000 bags at 10c lb. = $1,000,000 200,000 bags at 9c lb. = 1,800,000 300,000 bags at 8c lb. = 2,400,000 400,000 bags at 7c lb. = 2,800,000 Then the following diversions between the domestic in-shell market and the di- versionary outlets would make the follow- ing total returns: , 600,000 bags in-shell 700,000 bags in-shell 800,000 bags in-shell 900,000 bags in-shell 1,000,000 bags in-shell $13,200,000 + 400,000 bags shelled = $2,800,000 14,000,000 + 300,000 bags shelled = 2,400,000 14,400,000 + 200,000 bags shelled = 1,800,000 14,400,000 + 100,000 bags shelled = 1,000,000 14,000,000 Total $16,000,000 16,400,000 16,200,000 15,400,000 14,000,000 [16] These figures are merely hypothetical but they illustrate that with the assumed prices the industry would receive great- est returns when 700,000 bags were for the in-shell market and 300,000 bags di- verted to shelling. Of course, the situation would change with changing prices and volumes. Also it should be obvious that the industry does not know in advance precisely how much it could possibly sell in the two outlets at each price. The above illustration points out that the program attempts to maximize re- turns from both markets. In the illustra- tion maximum returns from the in-shell market alone are at 800,000 or 900,000 bags— but taking total returns from both outlets, they are maximized at 700,000 to the in-shell market and 300,000 to the shelled market. In effect, the program makes a two- price market by control of supply in the different outlets. Without control, prices in different outlets would, of course, tend to be the same. During the period 1933 to 1942, returns from the diversion out- lets of 8% cents per pound were about 40 per cent less than from the in-shell mar- kets. From the consumers' standpoint, the program does not affect the total supplies of walnuts available to them. The pro- gram only controls the volume of in-shell walnuts offered to the trade so that con- sumers will be willing to pay the most for a given total quantity of walnuts. Prices Farm Prices of Walnuts Ranged from 8%c in 1932 to '28 lie in 1946 Producers are paid on basis of size and kernel quality, not on basis of variety. . . . farm prices depend on sensitive wholesale prices Farm prices for walnuts in California have ranged from 8% cents a pound in 1932 to 2Sy 2 cents in 1946. During the 1920's, farm prices averaged 18^2 cents a pound, 11 cents during the 1930's and 20 cents for the period 1940-1946 (table 13) . At the present time, varieties are of no consequence with respect to farm prices as producers are paid not on a basis of variety but on a basis of size and kernel quality only. A few very large- sized varieties which are marketed sepa- rately do receive premium prices. How- ever, their volume is so small that they are not considered in the commercial crop. Farm prices are, of course, directly re- lated to wholesale prices as the bulk of the crop is sold by growers through their cooperatives to the wholesale trade. Wholesale prices respond quickly to changes in market conditions. Retail prices are said to be "sticky" because they tend to remain more steady and do not change so often as do wholesale prices. Parity prices for walnuts are men- tioned here because the diversion control program cannot operate when actual farm prices reach parity, nor is it likely that any subsidies will be forthcoming if ac- tual prices are anywhere near parity prices. That is so because government policy has been to try to bring farm prices up to parity but not over parity. The parity price of walnuts is that price which allows the producer to buy the same vol- ume of "things farmers buy" with the price of a pound of walnuts as he could during the base period (1919-1929). Parity prices, therefore, will go up or down with the costs of the things farmers buy. Farm prices for walnuts have been considerably below parity except for the years 1930 and 1943 through 1946 (table 13). [17 No assurance of diversion payments to walnut industry While federal law commits the govern- ment to support prices of many farm products, the government is not bound by law to support the price of any tree nut. While the government is not legally bound to support the farm prices of walnuts, the government has the permissive right to do so, which is optional with the Secre- tary of Agriculture. The industry during the crop years 1935-36 to 1942-43, as shown in table 14, did receive funds from the government representing subsidies on diversions to shelling and exports in con- nection with the marketing control pro- gram. These payments, however, were not made with the intention of maintain- ing farm prices at any announced level as under the price support programs. While it is possible that future diversion payments may be made to the walnut in- dustry, there is no assurance that they will be paid; or, if so, how much. If farm prices of walnuts would appear to aver- age over 90 per cent of parity, the pos- sibility of government subsidy would appear to be remote. Walnut prices have to compete with prices of other tree nuts Of the tree nuts produced in the United States (pecans, walnuts, almonds, and fil- Table 13: FARM PRICES HAVE BEEN BELOW PARITY,* EXCEPT IN 1930 AND 1943 Farm Prices and Parity Prices of Walnuts Crop year October-September California farm price California and Oregon farm price Parity price Per cent U.S. farm price is of parity price cents per pound per cent Base period 1919-1929 average 1929-30 1930-31 1931-32 1932-33 1933-34. 16.00 20.50 10.95 8.75 11.10 9.35 10.05 10.80 9.00 11.00 8.40 11.65 12.65 15.40 24.15 22.30 25.70 28.50 18.20 21.22 16.05 20.50 11.15 8.95 11.20 9.55 10.15 10.85 9.05 11.05 8.40 11.50 12.60 15.35 23.90 22.30 25.45 27.70 17.90 21.22 19.75 17.40 14.85 13.80 15.90 16.75 16.10 17.40 16.55 15.90 16.15 16.75 19.50 21.65 23.15 23.75 25.70 31.40 34.59 100 81 117 75 65 70 1934-35 1935-36 1936-37 1937-38 1938-39 57 63 62 55 69 1939-40. 52 1940-41 1941-42 1942-43 69 65 71 1943-44 1944-45 1945-46 1946-47 103 94 99 88 1947-48 52 * Parity is a purchasing value. The parity price of walnuts is that price which allows the producer to buy the same volume of "things farmers buy" with the price of a pound of walnuts as he could during the base period (1919-1929). [18] Table 1 4: INDUSTRY RECEIVED GOVERNMENT SUBSIDIES BETWEEN 1 935 AND 1 942 Export and Diversion Payments Received from "Section 32" Funds and Distributed by Board Crop year Pounds diverted * Funds received Rate — cents per pound 1935-36 1936-37 1937-38 1938-39 1939-40 1940-41 1941-42 1942-43 Total Average 25,102,900 16,333,000 32,015,300 16,350,800 31,073,900 11,101,500 33,333,300 7,466,700 $1,249,414 1,040,807 1,408,672 839,436 1,201,806 416,306 1,250,000 276,974 4.98 6.37 4.40 5.13 3.87 3.75 3.75 3.71 4.45 4.45 172,777,400 21,597,175 $7,683,415 $ 960,427 * Diverted subject to export and diversion programs. berts) only pecan prices seem to move regularly in sympathy with walnut prices. Pecans are considered much more com- petitive with walnuts than are the other domestic tree nuts. But walnuts must also compete with imported tree nuts, princi- pally Brazil nuts and cashews. In the in- shell market walnuts must compete with other tree nuts— pecans, Brazils, almonds, etc. This competition perhaps is most se- vere in the mixed nut trade where propor- tions are changed promptly with costs. In the shelled market, manufacturers like- wise will make shifts in the utilization of different tree nuts when prices change. What determines walnut prices? Walnut prices are, of course, determined basically by supply and demand. The marketing control program attempts to increase returns by affecting supplies and prices in the various outlets, and adver- tising programs attempt to raise prices by affecting demand. Both of these pro- grams no doubt have raised farm prices, although it is impossible to measure ex- actly their effects. In addition, govern- ment subsidies have also increased farm prices. Supply is made up of (a) domestic production, (b) imports, and (c) carry- over. Domestic production does vary and is an important factor affecting prices from year to year. For example, in 1927 even with increasing purchasing power, prices dropped $150 per ton, from $480 per ton on the extremely short 1926 crop to $330 on the very heavy crop of 1927. Imports are less important than they were formerly, but with the war over they may be more important in the future than they have been for the last ten years. Carryover is considered to be a rather important factor. The industry feels that a large carryover in the hands of the trade is more price-depressing than an increase in production of the same size as the carryover. Demand consists of (a) the consumers' desire for walnuts coupled with (b) pur- chasing power to buy. Since 1930 domes- tic purchasing power has been the most important factor determining the level of farm prices for walnuts, and doubtless will continue to be. When domestic pur- chasing power changes, other things re- maining equal, walnut prices can also be expected to change. Many things affect [19] the consumers' desire for walnuts, such as the season, changes in ideas of diets, the quality of walnuts offered for sale, and the quality and volume of competing nuts available, etc. While consumer demand in relation to supply determines retail prices, there is another factor which is quite important in determining the level of farm and wholesale prices and that is trade demand. Trade demand is not for consumption but for resale. The trade when purchasing walnuts must attempt to estimate what consumers will pay for walnuts. Some- times they make mistakes. Trade demand is very sensitive to price and market changes. Prospects of advancing prices stimulate trade demand, while an increase in size of carryover, as in 1947, dampens demand. It is apparent that no single factor alone determines farm prices for walnuts. In any season there are usually several prominent factors affecting walnut prices. Sometimes most of them may be (a) op- erating in the same direction to lower prices or (b) at other times in the oppo- site direction to raise prices, or (c) they may be operating in different directions so that their effects on prices are neutral- ized. Examples of such situations are as follows: (1) In the early 1930's increas- ing production coincided with sharp de- clines in purchasing power and prices fell drastically. (2) During World War II purchasing power increased greatly at the same time competing foreign nuts were not generally available and prices rose sharply. (3) Price factors tended to offset one another in 1947, when record purchasing power and a modest-sized crop, both price-raising factors, were more than offset by a very large carry- over, increased volume of competing nuts, and average poor quality of the 1947 walnut production. What about future walnut prices? To project prices into the future means first to appraise the factors that will be responsible. This much may be said of them in a general way: Supplies of wal- nuts should increase from domestic pro- duction and perhaps from increased im- ports. Supplies of competing nuts, both domestic and foreign, will also increase. So from the supply side, prices will be depressed. The demand side of the picture is less definite. Increasing domestic popu- lation should mean that more walnuts will be demanded and will offset at least in part the expected increase in walnut produc- tion; but the most indefinite factor and the most important over a period of time will be the level of purchasing power. If purchasing power falls and if commodity prices in general fall, it seems clear that walnut prices will also drop. In the light of past experience it does not seem pos- sible by any program to persuade con- sumers to keep on spending the same total amount for walnuts when their incomes fall. This does not mean that marketing control programs and advertising pro- grams are not worthwhile in bolstering prices. They may be very worthwhile in terms of expenditures, but cannot take the place of adequate purchasing power. llm-9,'48(A9716) [20]