Competitive Market Analysis Chestnut Producers

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Competitive Market Analysis Chestnut
Producers Michael A. Gold, Mihaela M. Cernusca,
Larry D. Godsey University of Missouri Center for
Agroforestry

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The Competitive Market Analysis Road Map

• An ancient crop
• Why look at markets?
• Chestnuts the new kid on the block
• U.S. consumer knowledge
• Competitive market analysis chestnut producers
• Everything chestnut
• Summary of findings and conclusion

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Europe/Asia - An Ancient Crop
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Why Look at Markets?

• Widespread adoption of agroforestry in North
  America is lagging
• Risk-averse producers reluctant to establish
  agroforestry practices in the absence of readily
  available market information
• Market knowledge is a key ingredient in the
  success of profitable agroforestry enterprises
  that produce commercially valuable products

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Chestnut New U.S. Nut Crop
2,000/acre _at_ 2.00 pound
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Consumer Research

• It is necessary to redevelop the domestic market
  by reintroducing the chestnut as a food crop to a
  new generation of U.S. consumers
• Studies in 2003 and 2004 were conducted to gauge
  consumer familiarity of with chestnuts and the
  key attributes that influence purchase decisions
• Results show that consumers were unfamiliar with
  chestnuts. Most had never tasted a chestnut, but
  did have interest in exploring them as a new
  food.
• Quality and nutrition-diet-health were
  consistently listed as the most important
  attributes influencing purchase and consumption
  decisions for chestnuts

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Consumer Research

• 2003 1st Annual Missouri Chestnut Roast
• Almost 1,000 attendance
• Conducted consumer survey
• Published survey results HortTechnology (2004)
• 2004 2nd Missouri Chestnut Roast
• Expected 2,000 people
• Over 3,000 people attended
• 2nd survey - results validate 2003 findings
• HortTechnology in press (2005)
• 2004/2005 National Survey of US Chestnut
  Producers, Nurseries, Wholesalers/Retailers

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Consumer Survey 2003/2004 - Results

• Most participants did not know that chestnuts
  need to be refrigerated or that chestnuts are
  very low in fat.
• Demonstrates that the public (retailers also)
  know little about chestnuts
• Need to be educated about how to buy, store and
  prepare chestnuts
• Need information on nutrition and health benefits

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Familiarity with cooking/preparing chestnuts,
pecans and black walnuts.
Survey at Missouri Chestnut Roast,
October 4, 2003. n232
87!
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Frequency of consumption for chestnuts, pecans
and black walnuts.
Survey at Missouri Chestnut Roast, October 4,
2003. n232
86!
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Nutrition Information for the Consumer
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Aerial view chestnut plantings HARC Field
research to support producers
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• National Producer Survey 2004/2005
• Objective
• To look at the U.S. chestnut industry from the
  producers perspective considering the five
  forces that influence competition
• Understanding these forces, producers can find
  ways to react and maintain or develop competitive
  advantages to succeed in the industry.
• Study provides information to individuals looking
  to enter the marketplace, with chestnut
  production being either a potential alternative
  farm crop or an opportunity for people already in
  the orchard business to diversify into different
  markets.

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• National Producer Survey Methods
• A multi-step research methodology was used
• First, U.S. chestnut producers were identified
  using secondary information (Internet, chestnut
  grower associations, and university colleagues)
• A database of producers (individuals and
  businesses) participating in the chestnut market
  was developed
• Second, a questionnaire-based survey was designed
  to collect general information about the market
  participants and information specific to each of
  the five forces

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• National Producer Survey 2004/2005
• Methods

The Five Forces Model looks at five areas of
competition that market participants face. The
influence of governmental policies on the market
was added to the Porter model.
By understanding the competitive forces within
the chestnut industry, market opportunities and
threats can be identified and successful
strategies can be developed.
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• National Producer Survey Methods
• Questionnaires were mailed to all individuals
  identified in step one
• Using a snow ball approach, a question in each
  survey asked for names and contact information of
  other participants in the market
• The newly identified individuals and businesses
  were added to the database and questionnaires
  were mailed to them

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National Producer Survey Results

• out of 250 surveys mailed nationwide, 90 surveys
  were returned and analyzed (36 response rate)
• Industry dominated by part-time producers
• 20 full time farmers
• Majority (53) are part-time farmers
• 27 are hobbyists

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Chestnuts as of full-time farming business (N
17) lt25 - 65 25-50 - 12 50-75 -
6 75-100 - 6 100 - 12
Chestnuts as of hobby farming (N 21) lt25
- 81 25-50 - 5 50-75 - 5 75-100 -
5 100 - 5
Chestnuts as of part-time farm business (N
43) lt 25 - 40 25-50 -
16 50-75 - 16 75-100 - 12 100
- 16
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National Producer Survey Results

• A young, undeveloped industry
• Vast majority of producers (96) have been in the
  market less than 20 years and 64 less than 10
  years
• Therefore, most orchards are new, just entering
  commercial production
• Commercial chestnut production begins sometime
  between 5 and 10 years after establishment,
  depending on location, management and other
  factors

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64 in business less than 10 years 96 less than
20 years
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National Producer Survey Results
Small-scale producers dominate
96 earn less than 25,000 per year
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National Producer Survey Results
Small-scale producers dominate
76 farm less than 10 acres
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Chestnut buyers
Most sales are fresh chestnuts
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Survey Results - Chestnut Prices

• Highest prices paid by restaurants, on-line
  customers, health and natural food stores,
  farmers markets, and on-farm
• Lowest prices are offered by discount grocery
  stores, distributors, and wholesalers
• Large range of prices received
• Farmers markets 0.75 to 6
• On-farm 1.50 to 6
• Restaurants 2.00 to 7

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Prices paid by buyers - per pound
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Chestnut Prices

• Full-time farming operations received better
  prices.
• Producers that grow chestnuts from cultivars,
  grow organic chestnuts and sell under a brand
  name obtained higher prices than those who sell
  generic seedling chestnuts grown conventionally.

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The Organic Marketplace

• Organic food market retail sales growth has
  equaled 20 percent or more annually since 1990,
  from 1 billion in 1990 to 9 billion in 2002
• Contrast this to growth rate of less than 5 for
  the overall US retail food market

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Organic Chestnut Price Premium
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Price Trends Next 5 Years
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Demand Trends Next 5 Years
Producers are optimistic about future sales demand
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Competitive Advantages

• Other competitive advantages
• Organic production
• Knowledge about the product
• Location

Producers feel that quality is critical
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Potential Income

• In the Midwest, Chinese chestnut trees begin
  bearing commercial quantities of nuts between
  ages 6 and 9.
• Planted at 30 x 30 spacing, and bearing 15-30
  pounds per tree, easily reach 1,000 pounds per
  acre
• At the farm gate, Iowa growers receive 1.60 per
  pound for small-sized chestnuts
• Gross return 1,600/acre
• Demand for quality chestnuts currently exceeds
  supply!

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Chestnut consumption per capita

• Korea 4 lb. per person per yr. on avg.
• Japan 1.2 lb.
• Europe 1.0 lb.
• China 0.5 lb.
• USA 0.1 lb.
• If domestic consumption rose from 0.1 to 1.0 lbs.
  per capita, it would require 50,000 - 100,000
  acres of mature production to meet domestic demand

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• Approach to Chestnut Market Development
• Market Pull Strategy
• Develop US consumer market to stimulate demand
  for chestnuts and chestnut products.
• Introduce chestnut to US consumers as a new
  crop
• Increased demand will provide growers with the
  motivation to increase productive acreage to meet
  the demands of the marketplace
• Requires adherence to quality standards

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Market Pull Strategy Consumer Market Development
Efforts

• Reach New Consumers
• Chestnut roast
• Consumer surveys
• Value added product collaboration
• National collaboration on marketing (WCGA, CGA?)

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Market Pull Strategy Reach New
Consumers Example MISSOURI CHESTNUT ROAST
You are cordially invited to attend this event
that will introduce the public to Missouri-grown
chestnuts, pecans and black walnuts Missouri
wineries Missouri value-added product producers
and will showcase the beauty of the Horticulture
and Agroforestry Research Center and the Missouri
River Hills. Saturday, October 16, 2004 11 a.m.
- 4 p.m.
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• Missouri Chestnut Roast
• Create positive, upscale, image for chestnuts
• Chestnut, pecan and black walnut producers.
• Educational presentations.
• Cooking demonstrations by Columbia chefs.
  Recipes.
• Nutrition information.
• Free samples - fresh roasted chestnuts.
• Fresh chestnuts - for sale.
• Grafted nut trees - for sale.
• Value-added food product producers - samples and
  products for sale.
• Missouri wineries tasting and sales.

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Reach New Consumers
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We had no idea there would be so much interest
in chestnuts! Not only did our four chestnut
sauces sell, but people wanted to buy our display
chestnuts as well! We received absolutely no
negative reactions to the new concept of
chestnuts as a sauce ingredient, but rather were
confronted with a myriad of questions (e.g. what
is a chestnut?) which opened the door to educate
the public on chestnuts as a new Missouri niche
crop. - Julie Price, CEO - Oct. 6, 2003
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Chestnut Beer
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Australian Chestnut Growers Approach
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Work with Chefs - in store recipes
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International Chestnut Congress
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Dried Chestnuts
Cornbread Mix
Value Added Products
Chestnut Bisque
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Another niche market value added
opportunity Chestnut flour is gluten free
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With our ready to eat culture - frozen, peeled
chestnuts will eventually dominate sales volume
- Australian Product (Mikes opinion)
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Chestnut honey?
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Summary

• The majority of U.S. chestnut producers have been
  in business less than 10 years
• Commercial production is just beginning
• Volume of production is low (perhaps less than
  1.5 million pounds).
• Producers are mainly part timers
• Production operations are small lt 10 acres
• The majority of respondents sell fresh chestnuts

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Summary Barriers to Success

• Lack of information for producers, retailers and
  consumers
• 5 to 10 year time lag to get a return on
  investment
• Shortage of available chestnut cultivars for
  commercial production.
• Potential problems related to pest and disease
  control
• Markets and market structure are undeveloped

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Chestnuts A Long Way to Go

• Information on production, management, cultivar
  selection, yield, harvest and post harvest
  methods is critical to the development of a US
  chestnut industry
• Increased domestic production is essential !!!
• Of equal importance the ability to sell what is
  produced by growers for a competitive price
• Establishment of a viable chestnut industry will
  depend on increased production and consumer
  market development

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Final Thoughts

• Need educational campaigns, annual events
  Roasts, free samples (in store) and in store
  sales.
• Consistent quality standards for chestnut
  industry
• Consumers want nutritional information and
  recipes.
• Gluten free chestnut flour - major selling
  point IF the price is not too high.
• Major long-term objective - change the image of
  chestnuts from that of a holiday tradition to a
  healthy year round food.
• Active collaboration among producers

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Questions?