From Central Valley to Murray Valley: Cross-Pollinating Ideas between Australia and the Golden State
Vernon Crowder, Rabobank’s Senior Analyst based in Fresno, California visited Australia in November as a guest of the Almond Board of Australia, to present the keynote address at their annual conference in Melbourne. Together with time spent travelling to Australia’s primary almond growing regions in the Murray Valley, we explored how almond producers and processors at opposite ends of the world are dealing with resource constraints as they boost production to meet strong global demand for this specialty crop.
Video: Vernon’s reflections on his recent trip
Somewhat paradoxically, the most severe drought in living memory in California has not limited the growth ambitions of the Californian almond industry. Quite to the contrary, the role that the drought has played in limiting Californian almond production in the face of strong global demand only acted to push almond prices up to record levels (see Figure 1). The planting of new orchards has gone up commensurately in California, but also in Australia, where a lower Australian dollar has provided an additional boost to industry profitability.
Figure 1: Californian almond production and prices
Just add water
By far the most topical issue for Australian and Californian almond growers at present is how they expect to be able to manage their current and future expansion plans in the face of tightening water availability and regulations. Droughts aside, the water available to be withdrawn for agriculture is becoming more limited in both countries, as is land with good soil and ample access to high-quality and reliable water sources.
Finding more reliable and cost-efficient ways to harvest, store and distribute water—especially for use in more constrained locations where new development tends to be concentrated—is becoming increasingly necessary. As discussed in our recent report Free-Flowing Markets Sustain Growth, Australia has shown that developing market solutions for the allocation of scarce water resources presents an effective way forward. Not only does this provide a more efficient means to allocate water to its highest value use, but it also provides growers with security over an asset with a more definitive value.
The bees knees
Global almond prices have fallen to more long-term average levels in 2016, as record-high prices began to moderate demand, and a larger than expected Californian crop in 2015 and a large crop in 2016 added supply to the market. That said, global demand has duly responded to the lower price environment—as evidenced by the recent run of record monthly export shipments from California.
Past and present trends suggest that the recent expansion in almond acreage will be required in years to come. As such, almonds are expected to remain a profitable crop, albeit subject to the usual price cycles and volatility that we have come to expect in the past. But by-and-large, almond producers in both Australia and California will maintain their high marginal propensity to pay to secure key production resources. In addition to water, bees for pollination and casual labour also present future production challenges that both industries are proactively working together to address.
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Where to go from here
On-Year for US Pistachios Still On: 2020/21-2025/26 Market Outlook
Podcast: Almond Markets in 2020 – Supply and Covid-19 Bring New Dynamics
A Trade War Story: Some Implications of Higher Chinese Tariffs on U.S. Fruits and Tree Nuts
What’s Happening in the World of Almonds: US and Australian Perspectives