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An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers

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An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers by Mechel S. Paggi Fumiko Yamazaki Prepared for the California Association of Winegrape.Growers CAB C E H T i « F O ■ AsKicuiiut*! Business California Amicvuwai ,4iV—: 'J Tschholooy Imstiiuie Center for Agricultural Business California State University, Fresno An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers by Mechel S. Paggi Fumiko Yamazaki Center for Agricultural Business California Agricultural Technology Institute California State University, Fresno r C= T CALIFORNIA AGRICULTURAL TECHHOI.0QY INCTITUTC Published by the California Agricultural Technology Institute August 2007 CATI Pub.#070802 5?^ Table of Contents r*- Acknowledgments v About the Authors v About CAB V Introduction 1 California Grape Juice Concentrate Supply Factors 2 U.S. Juice Concentrate Supply 5 Product Substitutes 5 Foreign Grape Juice Concentrate Supply 7 Argentina's Grape Juice Concentrate Production 8 Argentina's Grape Juice Concentrate industry Structure and Pricing 9 U.S.Grape Juice Concentrate Demand 11 California Grape Juice Concentrate Industry 13 Market Structure 13 California Grape Juice Concentrate Pricing 15 Pricing Grape for Concentrates 18 Implications for Central Valley Growers 20 List of Tables Table 1: California Grape Concentrate (tons) 2000-2005 2 Table 2: Grapes Crushed by California Processors by Pricing District 4 Table 3: U.S. Concord Juice Grape Production 4 Table 4: Grape Juice Concentrate Supply and Use 4 Tables: Apple Juice Concentrate Supply and Use 6 Table 6: Pear Juice Concentrate Supply and Use 6 Table?: Argentine Grape Juice Crush 9 Table 8: Argentina Average Delivered Cost,2006 11 Table 9: 2005 Thompson Seedless Bases Price to Growers 15 Table 10: U.S.Grape Juice Concentrate Cost of Production,2006 16 Table 11: Net Returns with Alternative Prices and Yields for Thompson Seedless Varieties Grown for Concentrate 21 Table 12: Weighted Average Thompson Seedless Prices District 13 21 Figures Figure 1: Estimated Breakdown of Grapes Used for Concentrate (2000-2005) 3 Figure 2: U.S. Juice Concentrate Supply 7 Figure 3: U.S.Grape Juice Concentrate imports 2005 8 Figure 4: Argentine Grape Juice Concentrate Exports 2005 10 Figure 5: Non-citrus Juice Consumption 13 Figure 6: Grape Juice Concentrate Price CY 1999-2005 and Estimated Cost of Production 17 Figure 7: Red Grape Juice Concentrate Prices CY 1999-2005 and Estimated Cost of Production 17 Figure 8: Comparison of Return for Raisins vs. Crush 19 Acknowledgments This study was part of an initiative by the Central California Winegrowers with funding made available by the California Department of Food and Agriculture's"Buy California Initiative" and the U.S. Department of Agriculture, through the California State University Agricultural Research Initiative (ARI) Program.The ARI is administered by the California Agricultural Technology Institute (CATI), based at California State University, Fresno. About the Authors Mechel S. Paggi is the director of the Center for Agricultural Business, California State University, Fresno. Fumiko Yamazaki is senior research economist,the Center for Agricultural Business, California State University, Fresno. About CAB The Center for Agricultural Business (CAB) is one of four research units comprising the California Agricultural Technology Institute, located at California State University, Fresno. For more information on programs and research,contact us at the following address: Center for Agricultural Business California State University, Fresno 2910 E. Barstow Ave., M/S OF 115 Fresno,CA 93740-8009 Phone:559-278-4405 Fax:559-278-6032 Web:cati.csufresno.edu/cab An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers Page 1 An Economic analysis of the Market for Grape Juice Concentrate: Implications for Central California Grape Growers^ Introduction Grapes purchased for crush represent an important market alternative for many California growers, particularly in the state's Central Valley. In 2005, more than 2.2 million tons of grapes grown in the Central California region, from Stanislaus County to Kern County, were crushed for wine and concen trate, around 51 percent of the statewide total. Of that total approximately 26 percent were raisin and table grape varieties. Many, If not most, were destined for the production of grape juice concentrate. According to the California Department of Agriculture annual crush report, an average of about 16 percent of the total state grape crush has annually gone to pro duction of concentrate over the past six years. Growers whose raisin and table type grapes were purchased for crush experienced substantial varia tion In their product value over the same period. Between 1999 and 2002 the weighted average price for raisin and table type grapes for crush declined from $200 and $187 per ton to $76 and $80 per ton, respectively. Although prices rebounded somewhat in 2003 and reached the $200 per ton level In 2004, prices declined once again In 2005.^ The Instability In crush prices for grapes traditionally used In concentrate production, combined with other factors such as increasing input costs, creates uncertainty regarding long-term sustalnabllity for Central Valley grape growers dependent on this segment of the market. More stable prices at higher levels would help to Induce the investments necessary to lower production costs and/or increase yields, making growing grapes to use in concentrate production a more viable business enterprise. However the future prosperity of the California concentrate industry requires main taining a competitive price position relative to other domestic and interna tional suppliers limiting the prices processors can pay for grapes In this market. Increased Information regarding the various factors contributing to the current market environment will facilitate better strategic business planning for producers. The research for this report was supported in part by California Department of Food and Agriculture Specialty Crop Grant funds,provided to the Central California WInegrape Growers. Smaller tonnages of white and red wine varietals are also purchased for concentrate production. Prices for these grapes also experienced similar price instability over the same period. For example, the average price for French Colombard grapes fell from $192 per ton in 1999 to $107 per ton in 2002. Page 2 An Analysis of the Grape Juice Concentrate industry: implications for Central California Grape Producers The specific objectives of this research project were twofold.The first was to provide a detailed industry profile of the California grapes for concentrate industry, including the dynamics of the domestic market, international competition from imported grape juice concentrate and domestic and international alternative fruit juice concentrates.The second was to provide a detailed economic budget analysis of grape for concentrate production systems and use that information in an analysis of the economic sustainability of grapes for concentrate enterprises. In each case the analysis was conducted to provide Central California grape growers with the infor mation necessary to evaluate the long-term sustainability of their current and/or proposed operations. Because of the importance of raisin type grapes to the concentrate industry in terms of number of growers and amount of grapes going to crush, this report has a particular focus on the Thompson Seedless variety used to produce white grape juice concentrate. The report begins by discussing the supply factors, demand factors, and the grape Juice concentrate market structure. Following these sections is information on the pricing structure for grape juice concentrate and grapes used in concentrate produaion,and the implications for producer returns based on costs developed in the enterprise budgets developed for this study follows.The report concludes with a summary of the implications for California producers and suggestions for additional research activities. California Grape Juice Concentrate Supply Factors The grape juice concentrate industry continues to be an important part of the market for grape producers of California, especially in the San Joaquin Valley, which is part of the larger Centeral Valley. The 2005 California Depart ment of Food and Agriculture (CDFA) Crush Report indicates an estimated 550,300 tons of California grapes were crushed for grape juice concentrate; this is around 13 percent of the total state-wide crush of 4,330,064 tons and about a 16 percent decline from 2004 for concentrate crush (Table 1). Table 1. California Grape Crush for Concentrate (tons) 2000 - 2005 % Concentrate In Total % Total % Year Concentrate Crush Change Crush Change 2000 744828 18.85% 3951185 2001 536614 15.93% -27.95% 3368265 -14.75% 2002 752295 19.86% 40.19% 3787139 12.44% 2003 506877 15.04% -32.62% 3370121 -11.01% 2004 658048 18.20% 29.82% 3615231 7.27% 2005 550300 12.71% -16.37% 4330064 19.77% Source: CASS Final Grape Crush Reports An Analysis of the Grape Juice Concentrate industry: impiications for Central Cailfornia Grape Producers Page 3 Grape juice concentrates are mainly sold as food ingredients.The majority of white grape concentrate is used as an extender for juice products and as a natural sweetener. Red grape juice concentrate is primarily used as a food coloring agent.^ White juice concentrate is preferred for its neutral flavor
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