Domestic sales are the saving grace for South Africa’s walnut industry as global prices plunge on the back of industrial action in some United States ports, a crippling drought and shipping container shortages.
Chris Edwards, director of the Rotondo walnut farm and nursery in the Eastern Cape, says nut prices “have gone through the floor”.
The Aliwal North-based operation is the biggest walnut production operation in Africa, with 500ha under production.
“The average price for kernel in 2022 was US$5/kg. Production costs for the Californian farmers are US$6.50/kg. Fortunately, our production costs in South Africa are 20% cheaper, so we can still make walnuts work when other countries cannot. We are also able to sell our crop into the domestic market at the landed price from the United States and we don’t have to factor in the export costs,” he said.
Walnut farmers in South Africa are few and far between but Edwards says interest is growing amid increasing optimism linked to an exponential upward trend in world consumption. In South Africa, consumption of walnuts has grown by 20% year-on-year.
“Demand for trees and consumer demand for the nuts seem to be driven by the growth in the vegan protein and the health food markets. If you look at the macro environment, I do believe walnut prices will go up again, at least to a level where the farmers in the United States will break even. But now, the only way for many of them to keep going is to plant alternative crops in between the walnut trees to bring in extra income.”
Ongoing drought in California – where most of the world’s walnut supply is grown – has seen farmers’ irrigation water quotas cut to the extent where they’ve had to stop watering immature trees. Some farmers, Edwards said, had removed every second tree in mature orchards to not only save water, “but because the prices hit rock bottom last year, meaning many recorded a net loss after production costs”.
Chris Edwards.
The sensitive nature of the world nut market played out last year after a global shortage in shipping containers and industrial action at California’s Port of Los Angeles and the Long Beach port. The resultant backlogs were reportedly further exacerbated by a shortage of about 80 000 truck drivers, accessible workhouse space and night shift warehouse workers.
The status quo was compounded by the draconian Covid-19 lockdown in China in 2022. This meant major ports were shut down for days, resulting in further shipping delays.
When the Californian-grown crop finally arrived in European ports – their main market – marketers attempted to dump the stock by dropping prices. Regardless, about 8% of the 2022 walnut crop is still in storage. Marketers were now waiting for demand to pick up during Muslim celebration of Ramadan in March and April to offload the 2022 stock before buying in fresh stocks, Edwards said.
And with the thousands of walnut trees “gifted” to rural farmers by the Chinese government more than seven years ago now coming into production, world supply dynamics are “upside down”.
China is expected to harvest 1.4 million tons NIS this season, which is up 27% on the 2022 harvest. Exports out of the country are therefore expected to increase concomitantly.
“When China has a good year, they flood the market with walnuts, often decreasing prices by up to 30%,” Edwards said.
All of these factors combined, he stressed, had had a dire impact on the industry. “There isn’t a pent-up demand for nuts. If consumers can’t get walnuts today, it doesn’t mean they will buy double tomorrow when they become available again. They simply switch to other nuts.”
He added that the 2022 low prices would probably “set the bar” for 2023. “Further, it will take at least a year for the market to soak up the extra supply, so prices are likely to remain low.”
