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The image of America as breadbasket of the world is an enduring one. Agricultural products like wheat, corn, cotton, and soybeans hover at around 9 percent to 10 percent of our total exports year after year, and the collective output of our nation's farms has been growing at a steady clip of just over 1.5 percent annually since the end of World War II, largely due to increases in productivity. As the world's population continues to expand, so will demand for agricultural products, which makes this fertile ground for export growth.
High-value commodities like almonds are a crucial part of America's ability to continue growing its agricultural exports. California now produces close to 80 percent of the world's almonds, around 70 percent of which it exports. It's the state's largest food-crop export by a wide margin, surpassing not only other tree nuts like walnuts and pistachios, but also heavy hitters like dairy products and wine. In the last decade alone, crop yields in California have more than doubled, going from 700 million pounds in 2000 to 1.7 billion pounds last year. The growth of disposable income in emerging markets offers the best potential for increasing the world's ranks of almond consumers. While the global GDP is expected to grow 3.3 percent by 2019, China and India are projected to have growth rates of 8 percent and 7.5 percent, respectively. Not coincidentally, these represent two of the most heavily targeted and fastest-growing markets for almonds.
Blue Diamond Growers is far and away the largest player in this market. The privately held cooperative won't disclose the size of its footprint, only revealing that it's six times as large as the next-biggest of the 110 almond handlers in the state. Earlier this year, the Sacramento Bee estimated that Blue Diamond had $3.3 billion in sales over the last five years, $709 million last year alone.
In terms of crop output, analysts who study the market say the behemoth probably accounts for a good chunk of the state's—and, by extension, the world's—supply of almonds. "Their market-share production is certainly north of half of all the almonds grown in California, and somewhere in excess of that in terms of the export trade," says Jock O'Connell, international trade adviser for Beacon Economics.
While Blue Diamond may be the 800-pound gorilla when compared with other farms, its size indirectly benefits its smaller competitors. Almond exports are growing, and analysts like O'Connell say a large part of that demand is due to Blue Diamond's aggressive cultivation of overseas markets. A big part of getting all of these newly middle-class consumers to eat almonds is creating demand where none existed before, or building on a region's existing uses for almonds. In Western Europe, this means augmenting the region's storied history of nut-studded pastries and candies by introducing the nut as a salty snack, as it's frequently sold in the United States. "Lifestyles are becoming busier, so people start to snack more," says Bob Carroll, industrial export director for Blue Diamond. In the United Kingdom, where consumers already have similar snacking preferences, Carroll says Blue Diamond is already rolling out flavored almonds in snack-sized packages.
The economic crisis that gripped Europe made almonds a tougher sell, though. Almonds, while cheaper than most other tree nuts, are pricier than peanuts or starchy snacks like chips and crackers. When the number of new customers for the new snack products came in 15 percent lower than expected, Blue Diamond had to tweak its marketing tactics. Carroll says they've stopped relying on traditional advertising and now focus more on promotional tactics like giving away samples to London Tube commuters.
Europe has traditionally been the top export market for almonds, but emerging markets like China and India are changing that balance with import rates that are rising by leaps and bounds. The growing rate at which almonds are devoured reflects the increasingly upscale tastes of these regions as their middle classes expand. During August and September, the first two months of the new harvest season, Chinese import volume eclipsed that of Europe for the first time, according to Kristi Saitama of the Almond Board of California. Between 2006 and 2010, U.S. almond exports increased by 14 percent worldwide; in China, they grew by a staggering 169 percent in that same time frame. India's showing, a 30 percent increase, looks modest by comparison.
Asia presents bigger challenges, as well as a potentially bigger payoff. In China, both Blue Diamond and the Almond Board have been building demand pretty much from the ground up through the use of mass-market advertising and celebrity spokespeople (usually famous actresses). Now, they're a popular street snack, roasted, seasoned, and served in the shell from carts. As in the United States, ads that emphasize the nuts' health benefits have resonated with consumers—a marketing message that wouldn't have gotten traction in these locations until recently.
While this has led to huge increases in Chinese consumption of U.S. almonds, it's a high-volume, low-margin business. Most of the shipments to both China and India are bulk almonds, shelled or in the shell. While shelled almonds command a slight premium, both cost much less than branded snack products or chopped, sliced, and otherwise processed nuts. Blue Diamond's Carroll says that while Chinese consumers are aware of the health benefits of almonds, the price point of branded almonds is still an issue. Whereas a European with mid-afternoon hunger pangs might buy a 150-gram bag of almonds, a Chinese consumer might buy three or four individually wrapped chocolate-dipped almonds. To coax Indian consumers into eating costlier almonds, Blue Diamond is developing products like an almond-studded chocolate bar formulated to appeal to Indian palates.
Blue Diamond worries that the Obama administration's inaction on trade deals will put a brake on future growth. The South Korean free trade agreement that's currently in a holding pattern in Washington, much to the frustration of businesses of all sorts, is a particular sore spot for the cooperative. Susan Brauner, who handles public and government affairs for Blue Diamond, says the $25 million almond market in South Korea could triple in five years if a 45 percent tariff on processed and snack almonds and a 21 percent tariff on whole, shelled almonds were eliminated. (There's also a 5 percent tariff on other types of almonds, which the free trade agreement would also do away with.)
Brauner worries that Australia, an upstart almond producer with a growing season opposite to California's, could present a formidable challenge if it got a foothold in South Korea, which could lead to broader expansion in the fast-growing Asia-Pacific almond market. Australian nut growers are already targeting countries like India as potential export markets for their anticipated increase in crop production. With no trade barriers between Korea and Australia, American nuts would be in a poor position to compete on price. President Obama has indicated that he wants to hammer out the South Korean FTA before the G20 meeting in November. If the almond tariffs are eliminated, Blue Diamond stands a much better chance of remaining California's almond powerhouse for the next century.