Tuesday, July 24, 2012

When Going to Poland Is a No Brainer

This post could have also been titled: The Economics of Tart Cherries

From AP via BI:
97 percent of Michigan's [tart cherry] crop was destroyed this year by a freak weather pattern. An unseasonably warm March that caused trees to bud was followed by an April freeze that killed the blossoms.

Prices usually skyrocket when farmers take that kind of a loss, or in severe cases consumers might just have to give up on a fruit for a season. But that won't happen in this case because of some unique factors in the tart cherry industry. As a result, cherry processors are scrambling to get what fruit they can, sometimes from Poland or Turkey, and taking a financial hit in an effort to keep prices low.

Tart cherries are different from sweet cherries, the variety sold fresh at farmers markets and in grocery stores. Most tart cherries are dried or canned and used as ingredients in pies, granola and trail mix. While sweet cherries are mainly grown on the West Coast, 70 percent of the nation's tart cherries come from Michigan.
The problem for tart cherry growers and the companies that dry or can the fruit is that it can be easily replaced by cranberries, blueberries or raspberries — and each group of fruit growers has its own industry marketing group ready to capitalize on the others' failures.

When tart cherries had a poor harvest in 2002 and dried cherry prices went up, companies that make granola, scones and other foods simply substituted other fruit, said Terry Sorenson, the president of the Wisconsin Cherry Growers Association.
"It took us a long time to bring sales back after 2002. That's definitely a concern this year," he said. To avoid a repeat, the cherry industry will try to keep its prices as stable as possible this year. Companies hope to make a profit, but if not, to at least keep their customers.

Businesses such as Kellogg Co., which makes cherry Nutri-Grain bars, and Kashi, which produces cherry dark granola bars, wouldn't say whether they are scouting for cherry alternatives or considering raising their prices due to the shortage.

Companies such as Cherry Republic in Glen Arbor, Mich., however, don't have the option of switching fruit since their whole focus is tart cherries. Owner Bob Sutherland said he plans to import cherries from Poland to get through the year.
"The Polish variety is a little darker, a little firmer after cooking but it's very similar in flavor" to the U.S. variety, Sutherland said. "For me, going to Poland was a no-brainer."

He raised the prices on a 1-pound bag of dried cherries from $14.50 to $18.95, and chocolate-covered cherries went from $13.95 to $16.95. But Sutherland held prices steady on his other cherry products: salsas, jams, salad dressings and barbecue sauces.

"We might have smaller margins," he said, "but we want to keep our customers."
Jamie Roster, the owner of the Cherry Stop in Traverse City, Mich., faced the same dilemma. She ended up raising her price for dried cherries from $10 per pound to $15.95 because she felt she couldn't afford to take a loss. In the weeks since, she has seen sales fall 10 percent.

"That's been our biggest price increase by far," said Roster, who is also considering buying cherries from Poland. "Since we've owned the business for the past seven years, prices have maybe gone up $1 per pound. So a $6 increase over one month is pretty phenomenal."

Those most likely to profit from the mess in the Midwest are tart cherry growers in Utah. The state is typically the nation's No. 2 tart cherry producer, but this year it will be No. 1 because its trees are mostly in good shape. And, the prices paid to farmers are skyrocketing.


  1. So, tart cherries are a fungible commodity, and the market can price in scarcity, and I can't wait to see the Michigan Ag Dept. ask for a bailout.
    Trees are a renewable resource after all...

  2. Supply, demand and price. How difficult can it be? Maybe we could let the banks be run like that? You know like the tart cherry or the socks market or the shoe market?

    How did the Soviets deal with the shoe market? Did they have a Central Shoe Planning Committee?