The Industrial Concord Market from a Broker's Point of View
Reproduced by Robert Pool with permission from Herb Barber 1997
Editor's note - This presentation was made in 1997 by Mr. Herb Barber a long time member of the Concord grape juice industry in the US. It is the text of a talk given by Mr. Barber to the Washington State Grape Society, a grape grower organization. I asked Mr. Barber for permission to make this paper available because it presents valuable data on processing costs and market realities which are not available elsewhere. His presentation indicates that eastern produced Concord grape concentrate is unique and, under current market realities, has greater value than generic Concord or Concord-type concentrate. I would like to thank Mr. Barber for making this information available and for his long service to his industry. You can visit Mr. Barber's web page at http://www.herb-barber-sons.com/
It's a great honor for me to be asked to be your keynote speaker for this fine organization.
And a terrific pleasure to be back in my old stomping grounds - to be able to say hello to some old friends - and to learn more about the huge 1997 Concord crop you just finished.
To elaborate on the introduction a bit, my wife Joan and I arrived here in December, 1955. We lived in 5 different homes within a few blocks of this church during the 13 years we were here, including a new home on Euclid, one-half mile south, with a beautiful view of the valley and Mt. Adams. Our three sons were born in the Prosser Hospital. We farmed part-time with Concord Vineyards, Bartlett Pears and Bing Cherries, so I feel a close association with the valley.
For 13 years I held the best job in the National Grape Co-Op Organization - the job Dave Tobin now has - Nationals' Area Manager here in Washington-Oregon. Lots of responsibility and action - a wonderful group of grape growers to nurture and work with - great job satisfaction - it helped that the boss was 3000 miles away and you only saw him 2-3 times per year. Right Dave? Of course, you've got the President of the Co-Op and five Directors breathing down your neck. When I was here, we had 3 Directors and the President was from Pennsylvania.
I felt bad about leaving the valley in 1969, for promotions within National Grape. I haven't really regretted that decision since I achieved those goals, but can tell you that the area where we now are, Westfield, NY, which is in the heart of the Concord Grape belt along Lake Erie in upstate New York, can't hold a candle to the Yakima Valley. You have a wonderful place to live, to raise your families, and particularly to farm and to make your fortunes.
What I plan to do today is run through some basics about the Concord industry - for some of you this will be a review of facts you already know, and then spend a good share of my allotted time on some updated statistics and on changes that have taken place over the past nine years, since I last spoke to you.
I'll give you my viewpoint on whether these changes are positives or negatives, as far as you Concord Grape growers here in Washington are concerned.
I want you to know that I recognize that I'm talking to the elite among the Concord Growers of the world, the crème de Ia crème. Without a doubt, this is the most profitable area to grow Concords.
I congratulate you - most of you - on achieving the fruit grower's dream this year- having a big crop and also having high prices because your counterparts elsewhere had crop failures. You all look and no doubt feel pretty prosperous. I'm glad I didn't have to speak to you last year.
As alluded to in that nice introduction, I've spent my entire career - actually 2 careers - working very closely with the Concord industry.
After leaving National in 1982, 1 decided to try to go into business for myself and became a food broker - an Industrial Food Broker specializing in bulk Concord Grape products. So, you're looking at an Industrial Food Broker with 15 years experience. This is a much different field than the retail food brokers you may hear about and that companies like Welch's use to get their products into the supermarkets.
Industrial Food Brokers handle all the various bulk ingredients used by food manufacturers to make wholesale or retail packaged food products. Bulk refers to packaging:
(Will refer to brix, spelled B-R-I-X throughout my talk. This is synonymous with the term sugar solids and is a measurement of the pounds of fruit solids per gallon.)
Concord juice is unique and costs processors a lot of money for refrigerated tank storage. This is the only juice I'm aware of that can't be concentrated and used soon after pressing. Apple, Citrus, and Berry can be pressed today and bottled or concentrated today or tomorrow.
Concord contains potassium salts commonly called tartrates that won't filter or centrifuge out. Must be allowed to settle out by gravity minimum of 6 weeks, before it's detartrated and ready to use. Otherwise will have sediment in the bottom of the bottle of juice and the jelly will be a little grainy.
Average Concord processor will get 185-190 gallons of ready to use single strength juice per ton of grapes, after settling, regardless of the brix of the grapes. Will get about 34.38 gallons of 68° brix concentrate per ton depending on brix of single strength juice. The higher the brix of juice, the more gallons of concentrate and vice versa. Washington growers and processors have an advantage over Eastern since the average brix of the crops here is higher than the East so get more gallons per ton. That advantage has some offsets, which I'll discuss later.
Those are some facts you may not have heard and independent thinkers can use to decide whether to have your grapes turned into concentrate. The opportunity for custom processing exists. Quotes range from $100-iso per ton to turn your grapes into 68° brix concentrate in drums. Suggest you use a quality processor and have a plan for selling it. You probably should find yourself a good broker. More done here than anywhere - standard cost $120 per ton.
Buyers of bulk Concord products are several hundred companies that make a wide variety of grape related wholesale or retail products.
Our function as a broker is to try to find buyers for those companies or growers that sell the bulk products and to provide a service to the buyers by helping them locate the type and quality of product they want.
If we put the buyer and seller together, we formalize the deal with a purchase order or contract, follow the withdrawal of the product which may extend over several months, may provide some technical service, arbitrate any disputes between the seller and buyer and receive a commission from the seller after he has been paid for the product.
This is not an easy field to break into - very competitive - there are many other brokers with established relationships.
Some brokers will take possession of the product and re-sell at a marked-up price. We've moved into that area to a degree. More profit opportunity but a lot more risky.
We started with 2 product lines - Concord and Red Vinifera Grape Concentrates. We now handle the full line of bulk fruit juices, fruit concentrates, fruit purees, fruit essences and frozen fruits - both domestic and imported. We have a commercial office, one of my sons working with me, a professional office manager, secretary, and my wife is our bookkeeper and works nearly full time and we are very busy. It has been a tremendous learning experience and we are still learning new things every week. Last week we had a call for Pitayaha Puree - from cactus buds and my son located a source in New Mexico.
About 40% of our volume still involves Concord products so I have stayed very close to the Concord industry. We publish a newsletter once per year describing what's happening in the Concord industry as well as quoting other products such as Apple and other concentrates. Our mailing list now includes about 1400 companies in the US, Canada, and about 40 offshore countries.
One of the great strengths of the Concord variety is that it's the most versatile in its uses of all the hundreds of varieties of grapes grown in the world. Most varieties are used for wine only a few for table grapes - very few for juice. The Thompson seedless is a distant second to Concord in its uses - table, canned and frozen individual grapes, white concentrate used as a sugar replacement or extender in other canned products and juices, wine blender and sweetener, but it has bland flavor and neutral color.
The Concord has a strong, unique, foxy flavor and deep purple color. Its uses are: table grapes, jelly, jam, straight or sparkling juice, drinks diluted 50% or more with water, ades diluted with up to 98% water and sugar, drink bases, soda pop, frozen and shelf stable concentrate which the housewife dilutes with water, frozen bars and slush, ice cream topping, yogurt base, pie mix, powders and crystals.
Listen carefully - it may be blended heavily with Vinifera Grape concentrates, both red and white, and still maintain some Concord flavor.
Eastern growers and processors have the advantage over you here in Washington because their Concord juice has higher acid, deeper color and stronger flavor so they can blend higher percentages of cheaper concentrates than you can. The reasons acid is lower here vs. the East are 2-fold, primarily because the pH of the soil here is neutral, about 7, whereas the Eastern vineyard soils are acidic - about pH 5.5., but also because you tend to harvest at a higher brix which reduces the acid. As the brix goes up the acid goes down, as does the flavor. Your juice is preferred by many. Because of the lower acid, it is mellower - Eastern is astringent. I will mention this in my conclusion.
Concord is also mixed with several fruit juices such as Cranberry, Apple and Pear to produce blended juices and concentrates. New uses are still being developed.
In the wine industry as well, the Concord is surprisingly versatile. It is used for popular table and dessert wines, for making port, sherry and champagnes in red, pink and white. It is an ingredient in wine coolers and is used as a blender for several other types of wines, particularly if harvested immature at high acid.
In addition to its many uses, which indicate strong sales potential, the Concord is practically a specialty crop. Of over 5 mm tons of grapes produced in the US alone, only about 5-7% is Concords. This is because of the limitation on where they can be grown successfully and there is not much worry about expansion outside their current production areas because Concords require about a 180 day frost-free growing season which eliminates most Northern areas. They also require about a 40 day rest period brought on by freezing weather, which eliminates the entire South, including California. The only expansion area and hope for expanding the total US industry tonnage is here in Washington where there are thousands of acres of excellent vineyard sites.
You here in Washington are dominant now and over the coming years your share will grow. This means that more and more companies now buying Eastern bulk concentrate will have to turn to Washington or elsewhere for their supplies.
Description of growing areas:
Each year's full bar represents the total US tonnage - the bottom portion shows your (WA) annual tonnage & percentage of the total. The '97 tonnage is estimated, but we believe it will be close. Note the total '96 short crop. This was due primarily to your problems, even though NY-PA-OH had an above average crop.
In '97, NY-PA-OH harvested a crop 35-40% less than in '96. Many growers, especially those who hedge-pruned and didn't thin their vineyards in '96, harvested practically nothing in '97. Those vineyards were over cropped, didn't mature, and the fruiting wood was frozen while the fruit was still on the vines. All vineyards had very small berry size due to low rainfall during September and October.
You had a very large crop in '97 and one of the largest percentages during the 10 years. Note that your share of the total was pretty uniform for the 5 years 1988-92. It has since bounced up and down and you're showing a definite alternate bearing trend. It will be hard to get out of.
The total crop numbers are the same as in the previous chart. The floating bars represent the carryover inventory at August 31 approaching each crop year. Between the two, they represent the total supply available to the industry each year, which pretty much determines the prices growers receive. The industry likes to have at least a 3 month carryover supply since the new crop is not detartrated and ready to use until about December.
During '93, '94 and '95, we had 3 good sized crops and heavy carryovers which, together, depressed prices. The last 2 years appear to have close to adequate carryover. Actually, most was in the hands of Welch for retail, and there was very little concentrate available to the industrial market, which greatly contributed to the large increases in both grower and bulk concentrate prices, which you'll see in the next 2 charts.
The bar on the left shows Eastern prices compared to the one on the right showing Washington State prices for each year of the past 10. An old rule of thumb said Washington prices needed to be $30 to 40 per ton lower than Eastern prices, reflecting the cost to get your finished and bulk products to the Eastern markets. That rule is diminishing as the population of Western states has increased and sales of Washington Concord concentrate to the Far East have increased. Notice in 1992 and '96 the prices here were actually higher than in the East. The huge increase here from $120 in '95 to $220 in '96 reflected large vs. small crops.
Normally in a big crop year like you had in '97, you would expect the price per ton to drop. You were very fortunate that the Eastern crop was small and carryover inventories were low, allowing you to achieve that dream year I mentioned earlier. You should be appreciative of Milne Fruit Products for establishing the price much higher than they needed to.
The announced prices in New York this fall averaged $272 per ton, but ranged from $255-295. Were it not for the New York State Grape Pricing Law, prices would have gone higher, since the crop fell off from the August 15 estimates due to poor berry size. The New York State Commissioner of Agriculture will fine any processors who raise their prices to the growers from those announced August 15th Did I say that wrong? No - even though it sounds ridiculous, it is true. I believe this law has suppressed Concord prices throughout the US and Canada, including here in Washington, the majority of the years it has been in effect.
We got a kick out of arranging a couple of small sales of Concord grapes late in the '97 season, in Pennsylvania and Canada: 60 tons for $350 per ton and 112 tons for $400 per ton - both cash in advance of delivery. That's the highest I've ever heard of for Concords, but an example of supply and demand at work.
You growers are primarily interested in the price per ton and return per acre. As an industrial broker, my focus is on the price of concentrate. This chart tracks the price per gallon of 68° brix concentrate in single truckloads of drums at the beginning of the selling year. The '97 prices are only 2-3 weeks old. Here in Washington, the prices average $15.50 per gallon, but vary from $14.30 to $16.50. We expect they'll settle out at close to $14.50-15.00. Time will tell.
Note the prices were fairly uniform 1988.92 then decline gradually through '95. In the majority of years, the prices remained the same until new crop. The '95 crop prices moved up about 50% after February when your crop loss became obvious. The huge price increase in '96 was a direct result of your poor crop. The further increase in '97 reflected the reduced Eastern crop coupled with low carryover inventories.
The high grower and concentrate prices the past 2 years look wonderful but I can tell you they have shrunk the market, at least the industrial market. In our own little company, we lost 2 substantial accounts last year due to the huge price increase. They turned to Brazilian concentrate which wasn't quite as good quality, but was about $6.00 per gallon cheaper at the time. Normally, Brazilian is priced $1 to $2 less than domestic.
We're aware that due to the large price increases, many companies are re-working their formulas to reduce the percentage of Concord and increase the percentage of red or white concentrates for their blends. We've already lost one account so far this year, which reduced their Concord order by 2/3 and increased their red grape order by the same. Unfortunately, another broker handled the red grape.
It will be interesting to see how this crop's pricing turns out. We hope it sells at these levels but there is a limit versus your competition. We suspect that they may have to drop back a bit due to competition from Brazil, from red and white grape concentrates and from other juices.
There is no Eastern Concord concentrate available at this point. The major supplier allocated its customers at about 60% of their purchases last year.
Now I'd like to give you some insight into several things that are impacting the Concord industry, most of which you have no control over. Some are good - some are not so good.
Some negatives: some affect all US grape growers; others affect only you Washington growers. GATT (General Agreement on Trade and Tariffs) has an apparent goal of eventually eliminating all protective import duties throughout the world. Currently, the import duty for grape concentrate from South America is being gradually reduced and in a few years will be eliminated.
Three years ago, the import duty for 68° brix Vinifera (red & white) concentrate was $1.00 per gallon - it is now down to $.81. From Mexico, it is down to $.59. The import duty for slipskin (Labrusca) varieties from Brazil and elsewhere was $1.37 per gallon - is now $1.10. Both will eventually be phased out; they are going down 10% per year.
This is especially significant to you Washington growers because the Concord type concentrate coming from Brazil is competing directly with yours and to eliminate $1.37 per gallon duty will increase their ability to compete with yours, especially in the Eastern markets. The shipping cost from Brazil to the East coast is less than it is from here.
As mentioned earlier, most concentrate coming from Brazil is Concord type - a blend of Concord and Isabella. Brazil has an impressive supply of grapes that could be exported as Concord type. That does not mean it will all come to the US.
One factor in your favor is, the government sets the grower prices there and they've made good strides in improving the grape grower's lot, keeping up with inflation. When I was there in the 70's, the grower price for Concords was $30 per ton. This year the price was $.21 per kilo, which equates to $190.50 per ton.
Another recent US government action, which is a negative for all grape growers is the recent FDA Standards of Identity which now requires that if you want to declare 'grape juice' or 'from grape concentrate' on your label of retail product, you cannot dilute the grape juice concentrate lower than 16.0° brix. Processors used to dilute some grape products to 14.3° brix. Apple and Pear concentrates, however, can be diluted to 11.2° brix.
These 3 juices are in direct competition with each other, so grape has a serious price disadvantage. One gallon of grape concentrate yields 5.4 gallons of reconstituted juice whereas7 with both Apple and Pear, one gallon yields 8.1 gallons. Both Apple and Pear concentrate prices are now depressed, so this factor is exerting negative price pressure on grape.
The proliferation of blended juices which has occurred over the past few years and is still accelerating, is providing more and more competition for the consumer's dollar against grape juice and blends using grape.
The loss of competition within the Concord processing industry is a disturbing trend. As more primary processors go out of business for one reason or another, there become fewer cash buyers or co-ops bidding against one another for your grapes. The NY-PA-OH area lost a major co-op - Keystone Foods, which went bankrupt a few years ago. Coca-Cola Foods of Geneva, OH recently announced that they would close the plant, no longer purchase Concords, and have turned their growers loose to look for other homes. This area now has only 5 processors in the juice industry, including 2 cooperatives. Michigan only had one cash buyer - Warner Vineyards, which went bust, was taken over by Great Lakes Concentrates who claimed they could not make any money in the Concord market and closed their doors. St. Julian Wine Company has started buying a small quantity of Concords there.
Here in Washington, Seneca stopped buying. US Grape, Endurance and GAMA Foods went out of business. This leaves Milne and Smucker’s setting the grower price, which Valley Processing follows. There really are only 5 primary processors here, including National/Welch. Nine years ago there were 8. It's refreshing to know that a new processor has come on the scene, Johnson Concentrates of Sunnyside.
The merger between National/Welch and Yakima Valley Grape Producers is drawing mixed reaction. No doubt it is good for the former members of Yakima Valley. We hope that Yakima Valley continues in the industrial market as a separate entity.
Now for some positives. You produce a fine fruit juice product. Fruit juices are proclaimed to be the most healthful and fastest growing food category there is and Concord juice is prominent in that category.
Certainly, the publicity that red wine and now purple grape juice contains properties that prevent heart attacks is a great positive. The Food Institute reported 9/22/97 that supermarket sales of bottled grape juice were up 44% from a year ago.
The revelation, called the French Paradox, has boosted red wine sales substantially, and in so doing, has increased the price of red grape concentrate, a major positive influence on the value of Concord concentrate.
The US Customs Bureau requirement regarding country of origin labeling is good for you. Many customers will buy America first.
The FDA nutritional labeling requirement is a positive for Concord products -natural sugars are preferred.
The free trade agreement between the US and Canada has been very favorable and gave your concentrate a nice competitive edge over South America. The 15% import duty Canadian companies, other than wineries, had to pay to import US grape concentrate, is now eliminated, whereas, that duty is still about 12% for Brazilian and other South American and European sources.
The NAFTA agreement, which includes Mexico, along with the US and Canada, is favorable, particularly for you growers in Washington state. You have a freight advantage versus the East.
In conclusion, I believe the future for growing Concord grapes here in Washington is bright - primarily because of your geographical location. Plenty of sunlight and irrigation make possible larger yields per acre that will mature properly, more so than any other production area. Plus, you have plenty of good vineyard sites for expansion.
It appears that you have a lot more positives than negatives. Possibly the biggest thing you can do for yourselves, to assure that your future remains bright, is to harvest your grapes before they get too ripe (above 17.5 brix) to keep the acid and flavor as high as possible. This will also allow your vineyards to mature out better before winter freezes occur.
That concludes my prepared remarks. I'll be happy to try to answer any questions you may have. Good luck in the future. It's been a pleasure being with you.
This article was published with the permission of Herb Barber, President of Herb Barber & Sons Food Brokers, Inc., Westfield, NY 14787
Mr. Barber can be reached at firstname.lastname@example.org on the internet or through his web page http://www.herb-barber-sons.com/
© Cornell University, Department of Horticulture.