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Aggressive new product development needed for almond crops

Jan 18, 2006 9:45 AM, By Brenda Carol

It is an aggressive market strategy for an industry that keeps planting almonds aggressively, but the leadership of the Blue Diamond Growers says product development will continue to raise consumer demand and keep prices high into the next decade. However, Blue Diamond and other almond marketing entities within the state will have to address current almond plantings that will soon come into play on the world market.

While prices are currently very good to the grower, a much larger supply of almonds will hit markets by the end of the decade, according to Blue Diamond president Doug Youngdahl who addressed attendees at the company’s 95th Annual Meeting in Modesto. He predicted that an annual increase of 20,000-25,000 net new acres would be needed to satisfy the anticipated future demand and acknowledged today’s plantings are at levels double that number.

“That’s why we are encouraging our customers to begin today to plan and develop new products with almonds,” he says. “It just makes good business sense for our customers to take advantage of new opportunities presented with the growing number of health and diet conscious consumers around the world. We are pleased that new supplies of great tasting nutritious California almonds are on the way to meet that demand.”

Whether or not the cooperative can continue to increase consumer demand with new product development and reap the current level of return remains to be seen. Almond growers have profited from the benefits of high consumer demand in recent years, and Youngdahl was quick to point that out.

Industry cycling

“Currently the California almond industry is cycling through the best of times,” said. “We have witnessed the three largest crops in California history, each commanding higher prices. Despite billion pound crops in 2002, 2003, and 2004, your returns (on a per pound basis) did not flatten; they rose sharply -- compared to the prior year by 26 percent, 35 percent and 43 percent respectively. An even larger per pound increase is anticipated for the 2005 crop.”

The last four years of windfall profits are largely due to the company’s vision of creating a more stable marketplace after three relatively lean years prior to that, he said. “It was clear to us in 2001 that your profitability in the near term would depend on a consistent and unrelenting campaign to focus the entire industry on the underlying market fundamentals,” Youngdahl said. “We believe these efforts resulted in an increasingly confident market, ultimately improving your profitability to the levels we see today.”

And while excess profit taking might seem the most lucrative strategy in the short run, Blue Diamond’s approach is to smooth the highs and lows in the financial playing field in the interest of long-term stability for everyone involved - growers, processors and retailers.

$2.21 per pound

California almond handlers recently reported that industry returns for the 2004 crop averaged $2.21 per pound, according to the California Agricultural Statistics Service. That was well below the Blue Diamond return average, according to Youngdahl.

“Given “20-20 hindsight,” holding more of your 2004 crop almonds for sale later, especially during a year in which prices rise an incredible $2 per pound, would have provided you with an even higher per pound return,” Youngdahl says. “But then market prices today would most likely be at lower levels. Executing a marketing strategy that encourages industry confidence has also delivered to you profitable returns, a 2004 return that was 43 percent on a per pound basis above the 2003 crop return.”

Reliability, convenience and cost savings of doing business with the industry’s largest almond processor pays a premium to Blue Diamond owners, according to Board Chairman Howard Isom.

“Because Blue Diamond avoids the peaks and valleys of uncoordinated selling, it is able to deliver reliable, competitive results under any market circumstance,” he says. “With California almond crops expected to produce 1.5 billion pounds by the end of the decade, long-term profitability and even higher margins on Blue Diamond’s branded product line will provide a secure return in the future.”

Major undertaking

Creating enough consumer demand to keep up with California almond growers’ race to plant new trees will be no small feat by any stretch of the imagination. That’s where new product branding comes in, according to Youngdahl.

“While historically high priced almond years like 2005 makes it difficult to maintain an acceptable retail shelf price and presence, the situation reverses and becomes significantly favorable during periods of abundant almond supply, a situation anticipated when increasing almond supplies arrive near the end of the decade,” he said. “Looking ahead, the favorable margins generated from retail sales will further differentiate Blue Diamond Grower returns.

“Blue Diamond's focus on patient, deliberate marketing of each year’s crop delivers industry-leading returns to me and my family,” says John Monroe who is a partner with his wife Meg in Done-Again Farms, a 200-acre almond orchard in Arbuckle, Calif. “Our family has been involved with Blue Diamond since the 1960s. Blue Diamond's commitment to a long-term strategy of market development domestically and internationally ensures that the demand will be there at attractive prices over the long term. Blue Diamond's passion for product quality ensures satisfied customers, supporting growth in demand over time.”

Other Blue Diamond growers echo a similar tone.

Stable co-op

“When times are good you can sell anything,” says George Goshgarian, Blue Diamond member and almond grower south of Fresno. “When times are tough, that’s a different story. I’ve been a member of Blue Diamond for 25 years. It’s a very stable co-op with a long history of success. It gives individual growers a more powerful voice in the world market, which helps us compete much more effectively over the long-term.

“I think the focus on brand recognition at the retail level will be very beneficial to our industry going forward,” Goshgarian says. “In three to four years, I think the consumer will be much more cognizant of the Blue Diamond brand on the grocery store shelf as a result of the plans and efforts we are taking today.”

It won’t be a free ride, however. All Blue Diamond products are subject to strict financial scrutiny, according to Isom.

“We make sure every product pays its own way,” he says. “Our cost measurement systems continually monitor the entire Blue Diamond product line to test margin contribution and profitability of each product. Products that don’t meet the test are eliminated.”

“Five years ago, this market was sick,” Goshgarian says. “Blue Diamond and its leadership are largely responsible for turning it around.”

Monroe agrees. “Customers want Blue Diamond almonds and products because of the quality of the product Blue Diamond delivers,” he says. “Demand grows for our almonds because of Blue Diamond's commitment to investing in new product development. Returns to growers are attractive because of the value customers perceive in the brand. And finally, we enjoy being part of an innovative organization that invests in developing and promoting its brand to the consumers of the world.”

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