Market Analysis: Pistachio Industry Analysis

California’s pistachio industry, centered in the central San Joaquin Valley, is relatively young, with most orchards planted since the early 1970's. The first commercial crop produced in the area was harvested in 1976 and totaled 1.5 million pounds. Since that time, the total bearing acreage has increased from less than 1,500 acres to over 65,000 acres, with a total crop size in 1999 estimated at 123 million pounds.

• Pistachios: Graph 1 - Bearing Acres vs. Production

The growth in acreage has been curbed by the relatively long period of time required for a pistachio tree to reach full production, typically ranging from eight to ten years and resulting in excessive development costs. These significant costs, combined with the long time horizon for payback of initial investment, serve to limit the number of new plantings that typically occur as commodity prices rise. As a result, the overall average earnings have remained fairly consistent as the tendency for growers to quickly respond to anticipated profitability by over planting has been limited.  

The initial planting of choice was the Kerman variety on the Pistacia Atlantica rootstock, commonly known as the Atlantica rootstock. However, Atlantica rootstock has since proved susceptible to the Verticillium Dahliae wilt organism, a disease most commonly associated with land that was at one time planted to cotton.  Many orchards planted on such cotton land have suffered significantly and will require eventual replanting.  The pistachio industry recently responded with the development of the Pistacia Integerrima rootstock (commonly known as Pioneer Gold), which has proven resistant, but not immune, to the wilt organism. An additional benefit of the Pioneer Gold rootstock is increased vigor and production as compared to Atlantica rootstock.

Mature pistachio orchards exhibit a pronounced alternate bearing cycle similar to avocados, with the entire industry generally rotating between a large crop one year and smaller crop the next.  This tendency does appear more severe in orchards planted on the Atlantica rootstock than those planted on Pioneer Gold rootstock, especially in marginal orchards or those lacking in cultural care. 

An extensive industry study of this alternate bearing phenomenon has yet to discover a “cure”, however certain cultural practices, such as summer pruning, have shown promise in reducing the variability in production. In order to compensate for increasing crop sizes and the alternate bearing characteristic of the pistachio tree, the pistachio industry was faced with the challenge of effectively marketing the nuts to result in attractive grower returns.  To meet this challenge, the industry formed the California Pistachio Commission in 1981, which is funded by an assessment of each merchantable pound produced in the state. The Commission has provided support to the pistachio industry through public relations, marketing, and research programs. In general, commodity prices share an inverse relationship with the size of the crop, resulting in prices over $1.25 per pound in the off-production year, and lower prices, ranging from $0.92 to $1.10 per pound, in heavy crop years.

• Pistachios: Graph 2 - Yield vs. Price & Trend

While nut prices have trended down as production has increased, the net resultant revenues, on a per acre basis, have continued to climb.

• Pistachios: Graph 3 - Price vs. Return per Acre & Trend

As noted, however, revenues per acre are much more a function of yield per acre, than of price per pound. Clearly, the economics of pistachio production are based on high yields per acre. Orchards which produce at the higher yield rates are relatively insulated from swings in nut prices.

• Pistachios: Graph 4 - Yield vs. Return per Acre & Trend

Pistachio production in the U. S. reached an all time high of 188 million pounds in 1998 with the majority of the crop sold domestically, and the remaining sold in export markets.  Export markets continue to show promise for additional sales, especially in the Far East and in particular, Japan, Hong Kong and Taiwan. The majority of product sold is for the retail or consumer market, with relatively small amounts being sold for industrial or processing uses. Given the strong domestic market, per-capita consumption showed a steady upward climb during the early eighties as prices declined from historical levels. However, consumption slowed in the latter part of the decade as prices rose in response to declining production. Trend analysis indicates that general market equilibrium is achieved as prices stabilize near $1.10 per pound. This appears to illustrate the industry's need for a steady, consistent supply and the ability to accurately forecast future crop sizes.  Supply may stabilize as the popularity of the Pioneer Gold rootstock increases and slowly replaces the older Atlantica rootstock. The average yield in California for the period from 1988 through 1999 is approximately 2,126 pounds per acre, although average yields have clearly been increasing in recent years.

The total world production remains dominated by Iran and the United States. Iran has historically produced over 65% of the total crop, with the United States, (California), following closely with 20% to 30% of the total crop. Iran's production appears to be heavily impacted by the alternate bearing characteristic, and the product is generally considered lower in quality, due to less sophisticated growing, harvesting, and processing techniques. However, little information is available on Iranian production, and many question the accuracy of what is available.

Recently, the Clinton administration announced the lifting of the 20 year old trade embargo on Iranian pistachios. This topic was the highlight at the March, 2000 annual meeting of the California Pistachio Commission. It was reported that California growers and processors are in an early stage of “panic” with the recent announcement. Conclusive information regarding the embargo lift is not yet available, however, the California pistachio representatives do know that the enforceable ad volerum tariffs, collectively, amount to approximately 318% for Iranian pistachios. The tariff lift will be phased in over three dates in the current year. Many factors are involved in tariff reduction, such as food quality and safety, anti-dumping policies, and the like. If Iran ultimately complies with the terms of the embargo abolition, the tariff could potentially be dropped or reduced.

The California Pistachio Commission, however, is preparing for the eminent competition. They feel confident that retailers and consumers are supportive of the superior quality and safety of California pistachios.

Madera and Merced County pistachio orchard sales have remained stable to increasing over the past several years. Several large acreage orchards have recently sold at higher than expected values, by a large, vertically integrated operator from the southern San Joaquin Valley. Fewer sales of smaller acreage orchards have occurred recently, however, those that have occurred indicate increasing unit values.

The western and southern San Joaquin Valley pistachio markets remain relatively inactive. In past years, the sales incorporate predominantly large blocks of young orchards within a fairly narrow indicated value range.  In addition, the number of buyers are limited, several of whom are institutional investors. The prices paid for pistachio orchards in Kern and Tulare Counties appear stable to increasing, largely as a result of the reputation for higher yields, in part due to the newer plantings on Pioneer Gold rootstock.

Overall, the key to continuing profitability for California pistachios is contingent upon the growers’ ability to maintain high levels of production and quality standards, as well as the industry’s ability to effectively educate the consuming public as to the superior quality of California pistachios. Obviously, the impact of the changing global economy,  NAFTA, and the lifting of the trade embargo with Iran may impact the industry in coming years. At present, this industry continues to be a viable, integral component of California agri-business.