Walnut Market Analysis Group member: Jessica, Tai, Zoe, Roson To Be Discussed Background Market Power Price Factors Regression Model Case Studies Background Walnut Fruit Walnut Background Walnut Categories Processes Technology Walnut Market Background Nutrition Value Leading Producer &Consumption Leading Exporters & Importers Walnut Background Walnut Fruit Round singleseeded stone fruit is enclosed in a husk Categories •Two major varieties of walnuts are grown for their seeds: English Walnut Persia Black Walnut Eastern North America Walnut •In every category, walnut has two basic form: In shell • Meet the appearance requirements meet the appearance shelled • Not requirements Climate requirement Warm weather Sunshine Average annual temperature range: l0-14 ℃ Minimum temperature :16 ℃ Maximum temperature not :38℃ 1 Good Growing Weather 2 High Quality 3 Important world walnut producing area Processes Farmer Process (Whole) Farmer Process( Annual) Trees produce full crops Trees pruned, irrigated and fertilized ( Year 4, first crops) Year 2-6 Year 7-100 • Pruning continues • Dormant Sprays DecemberMarch AprilAugust November SeptemberOctober Year 2 Year 1 Trees planted, irrigation system installed Seedling graft • Fertilization • irrigation • Pest management • Late harvest completed • orchard floors cleaned • Early harvest begins Processors Purchase Walnut from farmers mechanically dehydrated to optimum 8% moisture level Walnuts are transported to a packing plant Processing into different walnut food Technology Grafting Grafting is used to increase nut production on otherwise healthy trees and should be preformed when the host tree is fairly young Technology CON’T Insecticide Depth Good Production Width Nutritional Value •Elements ( per 100 gram) Unsaturated fatty acids (g) 8g Protein (g) 7g 14g 56g 15g Carbohydrates(g) Fiber(g) Others(Zinc, V6,Iron, Calcium) Nutritional Value •Main Benefits •Alpha- Linolenic Acid(the plant- based omega-3 essential fatty acid) •Antioxidants(slow down the process of ageing) Antioxidants Content mmol /serving 6 5.7 5 4 3 2 1 0 3.6 3.4 3.1 3 2.9 2.7 2.6 Walnut Market Background Leading producer Leading consumer Metric Tons 800,000 700,000 800,000 China 600,000 500,000 700,000 600,000 U.S. 500,000 400,000 400,000 300,000 300,000 200,000 Ukraine 200,000 100,000 0 China EU U.S. 100,000 Turkey Source: http://www.fas.usda.gov/psdonline/circulars/TreeNuts.pdf 0 Turkey 350,000 300,000 Leading Exporters Leading Importers Metric Tons 160,000 U.S. EU 120,000 250,000 200,000 140,000 Ukraine 100,000 China 80,000 150,000 Chile 100,000 60,000 Turkey 40,000 Japan 50,000 China 0 Source: http://www.fas.usda.gov/psdonline/circulars/TreeNuts.pdf 20,000 0 World Market thickness Year Exports Production Thickness 2007/08 296,900 1,037,450 28.6% 2008/09 357,000 1,184,700 30.1% 2009/10 416,200 1,285,700 32.4% 2010/11 466,800 1,335,600 35.0% 2011/12 474,100 1,455,700 32.6% Source: http://www.fas.usda.gov/psdonline/circulars/TreeNuts.pdf Consumers Producers Country 2011/12 Country 2011/12 China 700,000 China 758,200 United States 418,200 EU 171,300 Ukraine 115,000 United States 142,200 Turkey 80,000 Turkey 117,300 Total 1,455,700 Total 1,407,600 CR4 90.2% CR4 84.5% Exporters Importers Country 2011/12 Country 2011/12 United States 275,400 EU 125,000 Ukraine 100,400 China 75,500 Chile 36,500 Turkey 51,500 China 17,300 Japan 29,500 Total 474,100 Total 434,900 CR4 90.6% CR4 64.7% Source: http://www.fas.usda.gov/psdonline/circulars/TreeNuts.pdf Regulation and Policy Analysis Walnut Marketing Board The Board • also known as California Walnuts Board • supports the California walnut industry Established • according to the Code of Federal Regulation • by the Secretary of Agriculture By 10 numbers • selected by the Secretary. • All members represent processors and farmers The role of the Board Each processor and farmer shall pay the Board pro rata share of the expenses The Board may provide for the establishment of production research, marketing research and development projects Policy Analysis: Volume Regulation Estimation of production Recommendation of free, reserve, and export percentages Revision of percentages Free walnuts: for domestic market Reserve walnuts: each processor and famer has Reserve obligation Export walnuts: all from reserve percentage Policy Analysis: Grade and size Regulations Minimum standard for inshell and shelled walnuts • no individuals can handle substandard walnuts Minimum requirements for reserve • the Board may specify the minimum requirements for any lot of reserve walnuts Substandard walnuts • only for manufacture into oil, livestock feed Policy Analysis: Control over Substandard walnuts Substandard walnuts Only for manufacture into oil, livestock feed Other uses as the Board determines to be non-competitive with existing markets Handlers should report their production and holdings disposition to other person Dose Regulation Work? 𝐸𝑥𝑝𝑜𝑟𝑡 𝑃𝑟𝑖𝑐𝑒 − 𝐺𝑟𝑜𝑤𝑒𝑟 𝑃𝑟𝑖𝑐𝑒 𝐸𝑥𝑝𝑜𝑟𝑡 𝑃𝑟𝑖𝑐𝑒 The US is earning high profit from walnut export constantly. Price Factors Factors affect price walnuts US export pice /Tonne 3500 3000 2500 2000 walnuts US export pice /Tonne 1500 1000 500 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 0 Factors affect price Price factors Demand Healthy information Exchange rate Supply Substitution goods Policy Factors affect price Factors affect price Supply Parts Factors affect price: Policy The Rules and Regulations (Effective Data: Jan 1,2011) Original Regulation 1. All shelled walnuts are inspected and certified by DFA of California. Shelled walnuts Ending product 2. By-products are inspected and certified Walnut meat: pieces smaller than 3.175 millimeters. Walnut meal Byproduct Factors affect price: Policy New Regulation 1.Ending product are Inspected and certified 2.By-product are inspected and certified Shelled walnuts Ending product Walnut meal Byproduct Factors affect price: Policy Impact: improve the manufacturing process by Eliminating the need for multiple inspection for the same product (walnut meal). Improve processor efficiencies by eliminating duplicative inventory tracking. The price of walnut meal will decreased. Factors affect price: Policy Market Access Program(MAP) Assist U.S. organization Address sanitary, phytosanitary and technical barriers that prohibit the export of U.S special crop Develop a Walnut Pest Management Factors affect price: Policy MAP---Colifornia Walnuts commission 5000000 4000000 3000000 2000000 1000000 0 2006 2007 Source :http://www.fas.usda.gov/info/factsheets/mapfact.asp 2008 2009 2010 Factors affect price: Policy Impact: 1 • MAP encouraged U.S. farms to adopt new pest management techniques. • U.S. Walnut production was increased 2 3 • U.S. walnut price was more competitive. • The export volume was rise up. 4 (In- shell Walnut exports to South Korea already are much increased form previous levels) Factors affect price: Policy U.S. Total Export Volume 500000 450000 400000 350000 300000 250000 Total 200000 150000 100000 50000 0 2006 Source: USDA ERS 2007 2008 2009 2010 Factors affect price Factors affect price Demand part Factors affect price: Healthy information New Function of Walnut Impact: increase consumers incentive to buy walnut. Indian Case 1 • Walnut is a remedy for knee pain. 2 • Demand is more than 25% compared to previous year. 3 • Wholesale price of walnut in shell has surged 17-20%. Factors affect price: Substitution goods Acorns Chestnuts Peanuts Almond Factors affect price: Substitution effect 2 Correlation rate: 0.783542 1.8 1.6 1.4 1.2 walnuts US export pice /Pound 1 Almond US export pice /Pound 0.8 0.6 0.4 0.2 1980 1984 1988 1992 1996 2000 2004 2008 0 Source: FAO STAT PRICE OF ALMOND DEMAND OF WALNUT PRICE OF WALNUT Factors affect price: Exchange rate Exchange rate(RMB/$) 9 8 7 6 Exchange rate (dollar& RMB) 5 4 3 U.S price of walnut 2 1 0 1995 1997 1999 2001 2003 2005 2007 2009 http://www.oanda.com/lang/cns/currency/historical-rates/ U.S Dollar depreciate U.S goods becomes cheaper Global Demand U.S price Econometrical Analysis Econometrical Analysis Data Selection Data Collection http://faostat.fao.org http://data.worldbank.org http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1377 Econometrical Analysis: LOG Regression log(Pw) = β0 + β1log(e1) + β2log(e2) + β3export% + β4GovtF + u0 Most important factor is the export percentage that the board imposed can affect price change, which support our conclusion. Econometrical Analysis: Linear Regression Pw = β0 + β1e1 + β2e2+ β3exportQty +β4Pwg + β5Pa + v0 Most important factors for price level are exchange rates. But export quantity dose not affect price level a lot. Case Study: The Walnut Story The Walnut Story in EU EU Walnut Market Overview 200,000 180,000 160,000 140,000 120,000 Production Consumption Export Import 100,000 80,000 60,000 40,000 20,000 0 2005 2006 2007 2008 Source: http://www.fas.usda.gov/psdonline/circulars/TreeNuts.pdf 2009 2010 2011 2012 Stable and High Demand in EU Purchasing decisions variety Convenience Nutrition Usage Snack Cooking ingredient By-products for further processing Price Health Timing Ingredients in bakery and pastry industry Main purchase Winter time Holiday Increasing purchase over the year Stable Supply in EU Domestic Production: France : Net exporter, 85% export to EU Italy Spain Import: 69% walnut supply from the US Walnut Market in EU Promotions: Non price promotion Trade Shows Education Guide The Walnut Story in China China Walnut Market Overview 900,000 800,000 700,000 600,000 Production Consumption Export Import 500,000 400,000 300,000 200,000 100,000 0 2005 2006 2007 2008 Source: http://www.fas.usda.gov/psdonline/circulars/TreeNuts.pdf 2009 2010 2011 2012 Rising Demand in China Popularity of walnuts increases Awareness: increasing knowledge of nutritional values of walnuts Perception: American walnuts perceived of better quality Taste: American walnuts taste less bitter Income increases over the years, more disposable income Demand from middle class and young adults increases tremendously, drives up the price Result : Import from California doubled from 2008 to 2009 Price doubled over 3 years period between 2008 to 2011 Demand VS. Supply in China Consumption VS. Production Increasing consumption and production consumption demand exceeds production Increasing imports, shrinking exports Used to be a net exporter, became a net importer since 2008 Weak US dollars VS. strengthening RMB Changing direction from export driven to consumption drive economy in China China Walnuts Import & Export 100,000 90,000 80,000 70,000 60,000 Export Import 50,000 40,000 30,000 20,000 10,000 0 2005 2006 2007 2008 Source: http://www.fas.usda.gov/psdonline/circulars/TreeNuts.pdf 2009 2010 2011 2012 Production Challenges in China Cultural, Climatic, Geographical Challenges High investment, low return in the first few years Preventing the production to meet internal demand Production Improvement in China Production is expected to increase dramatically in 5 - 10 years (esp. in Yunnan Province) Poverty Alleviation Program Forestation Program Cropland conversion Program Production increases is expected by improving Technology motivated by government support Walnut Drying technology Traditional wood or coal fire oven VS. modern technology (improve taste) Making walnut milk and walnut oil Market Outlook in China Opportunities in Walnut Market EU Market Mature Room to expand China Market Growing Lots of room to expand