PARTNERS

By Craig W. Anderson

The 2018 walnut crop was estimated to be a record setting 690,000 tons, a 10 percent increase over last year but that good news was hit hard by retaliatory trade tariffs imposed on the U.S. by three of the top export markets: China, Turkey and India. 

According to Michelle McNeil Connelly, California Walnut Commission Chief Executive Officer, this is one of the threats the walnut industry faces "which threaten the stability of our industry, our producers and our competiveness in the global market."

Connelly said the commission is working with the U.S. Department of Agriculture, U.S. trade representatives and congressional offices to maintain the important position walnuts occupy in trade negotiations.

Trade only part of problem
The retaliatory trade positions taken by the three nations contribute only part of the walnut challenge, said SJFB President Jim Ferrari. "The Chandler numbers were 20 to 40 percent light but here we’re doing better than the rest of the state."

He said yields have been low with "a lot of shrivel. I expect the yield will be at least 10 percent lower than the estimated 690,000 tons.  And a significant amount of walnuts were being held back by packers hoping for prices to improve."

Why it happened
Ferrari’s news continued to present an overview of a challenging walnut marketplace with nurseries selling their entire supply of walnut stock to Chile, Peru and Australia. Steep pricing declines and near-record supply coupled with Chile’s overproduction and three main export markets raising tariffs on U.S. agricultural exports, would push the initial short-term struggles into a painful long-term situation.

Congressman Tom McClintock, R-Elk Grove, said, "Tariffs have produced consistent result whenever they’re applied: the harm the economy of any country that employs them."

Explanations
What happened? Sean Murphy, compliance manager for Anderson Barngrover Ranch near Linden said a number of factors created the worldwide price crisis. 

"With a large crop estimate of nearly 700,000 tons the prices go down, although they increased later when it became clear the crop wasn’t as large as originally predicted," he said. "Chile, which produces a decent crop in March/April was slow to start making sales because they were asking a high price for this year and couldn’t find buyers."

Background
Murphy said some of Anderson Barngrover’s buyers "told us they actually refused to come down on price for a while, to the point that they ran out of storage and couldn’t continue harvest until sales were made. This caused prices to eventually drop considerably and by the time sales were made and their crop was shipped, they filled ports just as the US crop was just getting started."

With a slow start caused by Chile’s mismanagement of their crop, California’s crop experienced more price pressure.

Experience
The pressure along with tariffs has contributed to California’s loss of about $600 million in the walnut crop. The final numbers for the 2018 walnut crop probably won’t be known until January but it should compare favorably with the 2017 crop which was valued at $1.59 billion. San Joaquin County’s 2017 walnut crop was valued at $317.4 million.

Internal policies contribute
The internal policies practiced by other countries for purchasing walnuts has contributed to the crisis. "China has been interfering with their buyers for several years, requiring they purchase a large number of Chinese walnut containers for each container they buy of our walnuts," explained Murphy. "This increased the number of walnuts bought for Vietnam and neighboring countries to be smuggled into China. At this point the Chinese market is much smaller than it’s been in the past."

Bank reports bad news
The CoBank Knowledge Exchange Division said in a report that U.S. competitiveness is "constrained by trade uncertainties and the elevated value of the U.S. dollar, placing further pressure on the agricultural economy."

The report also said any significant farm-price improvements compared to last year will be limited, particularly with record U.S. yields for many of the major crop commodities adding to available supply levels. "Global demand for output from the U.S. agriculture sector is being outpaced by current U.S. production," said Dan Kowalski, vice president of the Knowledge Exchange Division. "Trade tensions between the U.S. and China [have] raised concerns of long-lasting effects on agricultural supply chains."

Other countries have problems
China isn’t the only country contributing to the price crisis for agricultural specialty crops like walnuts. Turkey’s ongoing financial crisis caused the Lira to drastically decline in value while the US dollar had been very strong which has weakened Turkey’s purchasing power.

"Our most reliable buyer has had significant financial problems because of this," Murphy said, adding that "tariffs have played a role in suppressing prices this year. Several countries, including Turkey, raised tariffs on walnuts ahead of harvest this year which further suppressed prices on walnuts."

Positive news
All may not be lost, said Ferrari because "China is interested in coming back in and there has been, and still is, a lot of ongoing back- channel work."

Ferrari continued, "We’re getting pushed by laws and regulations that make it more difficult to communicate and do business in the global marketplace. However, there is some reasonably good news: India has postponed further retaliatory action until mid-December and the dialogue between the two is ongoing."

With negotiations continuing between the U.S. and China there have been some indications that positive tariff changes could be imminent.  Until that happens many of the state’s walnut farmers are looking to sell into the domestic market and to countries outside of China, India and Turkey.

"Times are tough for walnuts," Ferrari said. "There are many ag sectors being dogged by similar obstacles. But we’re a resilient bunch and we’ll overcome these challenges as we have many others."