Oregon hazelnut farmers face low prices

Oregon produces 99% of the United States’ crop of hazelnuts, but Turkish-grown hazelnuts account for most of the global market supply. Market forces in Turkey have led to decreased prices, while shipping restrictions in China have meant a smaller market for Oregon producers. Terry Ross, executive director at the Hazelnut Growers Bargaining Association, joins us to discuss what all this means for Oregon’s hazelnut farmers.

The following transcript was created by a computer and edited by a volunteer:

Dave Miller: This is Think Out Loud on OPB, I’m Dave Miller. Times are tough right now for Oregon’s hazelnut growers. Two years ago their crop was worth $132 million, making it the 10th most valuable agricultural product in the state. But as reported recently in the Capital Press, the minimum initial price for hazelnuts right now is about half of what it was last year. Terry Ross is the executive director of the Hazelnut Growers Bargaining Association. He joins us to talk about what is happening. Terry Ross, welcome.

Terry Ross: Thank you for having me.

Miller: Thanks for joining us. What is the Hazelnut Growers Bargaining Association?

Ross: The bargaining association was formed in 1972 to give the growers a voice in what their prices would be, and a place at the table of negotiations with processors. It’s about 300 member growers currently, and expanding. We probably represent 40% of all the hazelnuts that are grown in Oregon.

Miller: So does that mean that some individual farmers are bargaining themselves with processors?

Ross: No, what typically happens is the terms that get laid out by the bargaining association usually get put across all growers in all situations. It’s just some growers choose not to join.

Miller: And why is it that you have to bargain with processors? Can you give us a sense for the overall economic picture of the way the market for hazelnuts in Oregon works?

Ross: Bargaining associations usually form towards the end of the life of an industry, or or at a mature industry, when there’s not a lot of meat left on the bone at the end of the sale season for the grower. And so growers can form cooperatives and have collective bargaining to give them strength in the process. You see it in many different industries, especially in the state of Oregon, several bargaining associations that exist. It gives us the ability to meet with the processors, talk about pricing, bring a transparent discussion about what’s really happening in the marketplace, and try to negotiate the highest price possible in regards to supply and demand. Bargaining associations are not able to artificially set prices, because in the end, they end up potentially bankrupting the processors. So we have to try to establish a fair and reasonable price. But it still has sideboards on what the price can be. And so our objective is always to try and get the highest price back to the grower, relatives to supply and demand.

Miller: And is it the basic case that growers would be selling to processors, and processors then in turn sell to buyers in other countries or in this country?

Ross: Yes, that’s correct. Two biggest customers for us would be in-shell hazelnuts directly to China. And one of the larger buyers of our crop has been Ferrero for products like Nutella.

Miller: What is a price floor? That was the focus of the recent article in the Capital Press, saying that the price floors for this year are about half of what they were last year. So what is this floor?

Ross: The floor is a price that the processors cannot go below. And in the past we’ve set floors that were well above growers cost of production. It’s an initial minimum. The way our process is set up with the contract that the bargaining association has with the packers that we sign with is that the packer will receive the first three cents of any increase in value, and everything above that comes back to our membership. It’s a very transparent process. It mostly benefits the grower. And for as many years as I’ve been involved in the process, we’ve been above the cost of production. This year for many, many reasons, we have actually been forced to set a price at or below cost of production. And it’s gonna be devastating.

Miller: Let’s first talk about the reasons for the price, and then we can talk about the devastation that you’re foreseeing. You said in that article that everything that can go wrong for growers has gone wrong. A lot of this has to do with stuff that’s far away from the Willamette valley. We can turn to Turkey first. What role does Turkey play in the global hazelnut market?

Ross: 65-70% of the world’s hazelnuts come from Turkey. They are the 800lb gorilla in the room. They tend to set the market. There’s multiple things going on in Turkey right now. You have posted inflation of at least 80%, but the reality is it could be as high as 170-175%. The currency, the lira versus the dollar, last year when we set the price of hazelnuts, it was 8.5 lira to $1. Today it’s closer to 18.5 to 1. And so that has made their product very, very affordable against our dollar, which is strengthening against all other currencies. We’re actually past par against the euro.

Miller: And so that would be good for a tourist. But if you’re competing against people who would either buy Oregon grown hazelnuts or Turkish ones, all of a sudden the Turkish ones are much cheaper for everybody.

Ross: Exactly, exactly. And then the other issue is, when the Oregon industry started to expand hazelnut acres, all the experts in the industry were under the impression that the Turkish crop was going to be in decline, and year over year we would see a steady decline of acres due to either neglect or lack of economics. And so an interesting thing that’s happened is that as prices have been pretty stable and profitable over the last many years, with the pandemic, farmers were staying home, they were attending to care for the things around them. And so they actually improved their economics. They took care of their orchards, and their yields have, have sustained. And now we’re looking at a second bumper crop in Turkey back to back, which by this time, we would have assumed that crop would have been 30% less than it is today. And so that has created some issues, as far as increased acres of hazelnuts around the world. The experts believed that the Turkish and Italian crops would be in decline. But they’ve seen a renaissance, unfortunately for us.

Miller: So thriving Turkish market in terms of the amount that supply, and also a lower price compared to Oregon grown hazelnuts. What about China? You noted that the biggest purchaser of in-shell, meaning his that haven’t been shelled, is China. What does demand look like right now?

Ross: So demand in China was initially disrupted in 2018 with the tariff war that was happening. And we’ve seen a little bit of relief there, but very little. So we’re dealing with a burdensome tariff scenario. We’re dealing with tree nuts around the world, especially for our competition would be Californian walnuts, almonds, pistachios, all of those nuts are seeing large crops, and so therefore reduced prices. And so the competition against other tree nuts into China has also depressed our prices. And so we’ve seen, instead of an increase of consumption into China, we’ve seen a slow but steady decrease in consumption. And it’s mostly due to other competing tree nuts, and then the burdensome tariff on hazelnuts. It’s not as bad in other tree nuts. A pistachio does not have the same level of tariff that a hazelnut does. So we’re just not as competitive there.

And then over the last two years, we’ve dealt with substantial freight issues, not only the cost, but the logistics to get product into China. The logistical issues are a little bit better this year, but costs are more than double what they were three years ago in terms of shipping.

Miller: So let’s turn back to the central issue of adding all this together, the price right now. The low range is 40 cents a pound, as opposed to 80 cents a pound last year. What will that mean for Oregon hazelnut growers?

Ross: Growers who are at peak production will probably break, even maybe make a small profit. But for many of our growers who are not yet into peak production, or have orchards that are older and struggling with any crop issues, blight might be something that’s holding an orchard back, unfortunately these prices will be below their cost of production. It’s the initial minimum. We hope that there will be reasonable market development to lift these prices and give some bonuses later. But as of this moment, there’s a lot of headwind against going against us.

Miller: As we’ve talked about many times on this show and when we’ve talked to farmers or about farming, you have to have a stiff backbone to be a farmer. You have to be ready for ups and downs, and to some extent you have to be able to prepare for them. Is there a reason to believe that this is a long term issue or a long term set of issues? Or just a real string of bad luck in one bad year?

Ross: Unfortunately, it seems like it might be both. It’s a string of bad luck, but the economies around the world are struggling. You see that with the strength of the dollars. We seem to be so far a little recession proof, and our economy seems to be humming along well. But it’s hard to believe that we can withstand what’s going on around the world as far as the Ukraine war. That’s just across the Black Sea from where a lot of these hazelnuts come from. And so it’s a hopeful situation. But it is a little concerning. And we are hopeful, because we have not had enough Oregon product to really build out our domestic markets here in the United States. This year, our product will obviously be more affordable for consumers. And so we’re excited about the opportunity to get Oregon grown hazelnuts in the hands of more people than ever. So this is hopefully one of those investment years where we are getting our product into more product lines, more people will get to taste and enjoy Oregon hazelnuts. And so the hope is that five or ten years from now, we’ll look back and say “this was a really tough time for our industry, but it was the spark that really got us going into our own domestic markets.” Unfortunately, there’s not a lot of good news. So all we can do is have hope for improvement.

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