A fresh approach to apple processing

With strong demand and high-quality keeping apple prices hovering around $20 per 40-pound box, everything is upbeat for the apple industry this season.

Not so for the processors.

With more apples heading to the more lucrative fresh market, processors are paying much higher prices for the apples they need to produce popular consumer staples such as apple juice and applesauce.

Jim Davis, president of Snokist, a Yakima processor, said he's had to pay a least $250 per ton lately, much higher than the $60 to $80 he would've paid a few years ago.

"The good news is that the grower will get more," he said.

During the 2006 crop year, apple growers nationwide received, on average, more than $300 per ton when selling on the fresh market compared with $125 per ton from processors, according to the U.S. Department of Agriculture.

Not surprisingly, about 64 percent of the nationwide crop was sold on the fresh market, compared with 17 percent that was used for juice and another 11.7 percent that was canned.

And that figure may likely skew more toward fresh for the 2007 crop year. Growers throughout the state are receiving much more for apples harvested this past fall --about $400 a ton, said Keith Mathews, executive director of the Yakima Valley Growers-Shippers Association.

In the late 1990s, processors provided a home for the surplus of apples that had entered the domestic market after an Asian currency crisis closed down export markets overseas.

But now, demand for fresh apples worldwide is stronger than ever. A weak dollar has made the products more affordable, and an emerging middle class in countries such as India and China has boosted demand.

Growers are more vigilant about the quality of apples and are adapting techniques to ensure that every step, from planting to harvesting, goes without a glitch. And with less of the once-dominant Red Delicious variety, and more of others, such as Fuji and Gala, apples are generating more consumer demand domestically, too.

"When the fresh market is as brisk as it appears to be so far this year, that gives the packing house the ability to pack even lower-grade apples and smaller apples and find a cost-effective sale," Mathews said.

Typically, apples are purchased and processed in bulk during harvest. The final product then remains in cold storage until retailers need it.

But now Davis, of Snokist, is purchasing apples year-round and they're processed as soon as they are purchased. Such operations allow the company to keep a year-round staff and make costs manageable since they are spread out over an entire year.

The Hood River Juice Co. in Hood River, Ore., has adopted a similar operation. Like Snokist, apples are purchased year-round and are processed, packed and shipped to retailers within 72 hours after each purchase.

David Ryan, president of the Hood River Juice Co., estimates that the process reduces his overhead costs by about 40 percent.

"Needless to say, every company has their own overhead they have to deal with and if your total through-put is down by 35 percent, you got to look somewhere else to get the margin to be sustainable," Ryan said.

"And the only way to do that is to cut your overhead, or find other processes to pay off that overhead."

Such as passing along the higher prices to consumers. Davis said that consumers are already paying more for their favorite brand of apple juice or apple sauce.

"Assuming prices (for processing apples) stay as high as they are, consumers will have to get used to higher prices in the marketplace, that's the bottom line," Davis said.

But since apple juice and other processed products are consumer staples, retailers must keep a wary eye on prices to remain competitive with their rivals, said Jim Cranney, vice president of the U.S. Apple Association, the national organization for the apple industry.

But in the long-term, cost-cutting and operational changes may not be enough.

Processors now have an opportunity to serve new niche markets that may keep the industry sustainable, Mathews said.

Hood River Juice Co. found success in providing bulk apple juice for protein shakes and smoothies. Snokist is now processing apples to be used in flavored applesauce and for cereal and candy bars.

Ryan said he believes processors here won't win with the lowest price -- China will beat them there -- but with the quality of the product. That's why he is vigilant about the apples he uses.

"If we are willing to eat it, we're willing to squeeze it," he said. "If not, we don't run it at all."

But processors also have a much simpler solution: a record-breaking crop for 2008. Or at least a large one.

Industry officials note that at 98 million boxes, last fall's crop was relatively small. The state's growers have produced 100 million-plus boxes in the past.

With such high demand and prices, growers may respond by increasing their acreage, which could provide sufficient supply for processors.

But if they want a guaranteed supply, local processors may have to work more closely with growers to get the apples they need. In the East Coast, it's common for producers to contract a specific amount of apples for processors beforehand, said Cranney, of the U.S. Apple Association.

But Cranney is optimistic the processing industry will find a way to sustain itself.

No matter the number of high-quality fresh apples out there, processors still play an essential role for the industry, he said.

"There are products that consumers demand that only processors will supply: fresh sliced apples, pie filling and apple juice," he said. "These are things that consumers want and need."

* Mai Hoang can be reached at 577-7685 or mhoang@yakimaherald.com.