The Chinese want our nuts -- specifically our pecans

“The Chinese want our nuts” — simply not a sentence that you expect to see in a major daily newspaper (assuming you still look at one of those) but there it is in the Wall Street Journal (Shell Shock: Chinese Demand Reshapes U.S. Pecan Business, Apr 18). In a nutshell, the story explains how the Chinese have very quickly developed a taste for pecans and now represent a major export market for US pecans. As one can see in the (ahem) pecan pie charts at right, the Chinese have taken some nuts away from other export markets but largely they have reduced the number of nuts sold domestically, driving up prices as a consequence.

In the following video, the author discusses what has happened.

Puns aside, what I find interesting in this is the supply chain angle. First, and not surprisingly, this has been good for pecan farmers. And given that it can take up to a decade for a new pecan orchard to be productive, things should stay good for a while.

For now, life is good for pecan growers, who produce about $550 million a year worth of nuts at today’s prices. Grower Bill Goff sold the entire crop of his 1,800 acres of Georgia pecans to Chinese buyers last year. But he’s not putting the profits into a sports car. Instead, he is buying up another 500 acres of pecan orchards. In Georgia, he says, pecan orchards hovered between $3,000 and $3,800 an acre five years ago. Today, they sell for between $4,500 and $6,000 an acre.

Things are not so sanguine for other parts of the US pecan supply chain. The traditional supply chain went from growers to processors (known as shellers) to users (e.g., firms selling fruit cakes). The Chinese have no use for the shellers because they buy whole nuts. Consequently, they have been willing to go around them and buy directly from growers.

American shellers complained that selling so many premium pecans to China—the Chinese want the biggest, best nuts—would undermine both the domestic market and export markets in Europe. So they held back orders. China responded by going directly to growers. As Texas A&M pecan expert Jose Pena puts it: “It’s kind of hard to tell a grower not to sell to the highest bidder.” …

“A month before harvest,” says Mr. Stevenson, the Georgia grower, “your email fills up, you get phone calls. One of our best [Chinese] customers called my partner here at 2 a.m. looking for nuts.” …

With the Chinese buying so many nuts, exports to other markets have been crowded out. Some domestic buyers have had trouble getting the sort of nuts they want. One sheller went under last year; its plants were sold to the King Ranch, the big closely held Texas agribusiness that got into the pecan business by acquisition in 2006. Another sheller told customers in November it couldn’t honor its contracts.

So even in a commodity business a big enough buyer can force wholesale changes in the supply chain. In this case, shaking out the shellers. Certainly some will survive if only because they process nuts more cheaply than a domestic buyer could on their own but certainly their business will never be the same.