Dan Kass, Former Managing Director/International Sales At Wonderful Citrus, Sheds Light On The Current State Of Global Citrus Trading At Amsterdam Produce Show
Jim Prevor’s Perishable Pundit, November 7, 2017
There is often a “sweet spot” when it comes to listening to an industry speaker. Oftentimes, those who are gainfully employed are restricted in what they can talk about. Those who have been retired too long may have dated perceptions about the business.
Sometimes, though, you get someone who has been actively engaged and really knows the score and just recently went freelance. So, they are freer to talk and still up-to-date. Dan Kass has attended The London Produce Show and Conference and The Amsterdam Produce Show and Conference, so he knows well our high-level audience and, having just embarked on a freelance approach, he comes straight from industry battles.
As soon as we heard he was available, we snapped him up. We asked John Aiello, Contributing Editor at Pundit sister publication PRODUCE BUSINESS, to find out more:
Former Managing Director, International Sales
Q: We are delighted to have you as a speaker at the Amsterdam Produce Show and to learn from your insights. Can you provide a brief outline of your background and how you started in the industry?
A: Yes, I was born in Hartford, Connecticut. My family moved to Chicago when I was very young, and I spent my formative years there, eventually attending the University of Illinois and taking my degree in Business. After college graduation, I followed my folks when they moved to Florida and actually landed my first job in produce there; it was in the grapefruit industry working for Blue Goose Growers [which was a large grower but now mainly provides services to the citrus industry].
Right after I joined with them, they became Dole Citrus. I was hired to work with the exporting of grapefruits. This was in the 1980s during a growth movement in the industry — it was an exciting time. I also earned my MBA when I was in Florida, attending night school at the Florida Institute of Technology. I stayed in Florida until 1993, when Dole relocated its citrus headquarters to Bakersfield, and I moved to California to take over International Marketing and Sales for Dole Citrus. I worked there until 1999. There was a big freeze in 1998 and Dole sold off its citrus operations after that freeze.
After taking some time off, I joined Intermas — a Spanish plastics company, which also had applications in the agricultural industry. I spent two years at Intermas and then went to Market Gardeners in 2002. Market Gardeners is a New Zealand company — a co-op devoted to the fruit and vegetable trade. I was there until 2006, when I took a job with Paramount/Wonderful as the Director of Export Sales.
Compared to what the business looks like today, Wonderful was a tiny company at that time. Today it is a significant player in the fresh citrus industry. I stayed with Wonderful 11 years, managing all the international sales for the citrus we grew in the United States and Mexico.
Q: And what are you doing now?
A: I left Wonderful Citrus in August of 2017 to take some time off. I specifically wanted to spend some time with my family and my daughter. I missed a lot of that with work, and I travelled for work. So, I wanted to get some time with her.
In addition, I've been doing product consulting with some of my overseas customers, making introductions for them to growers and suppliers. But right now, I haven't finalized or formalized plans for a consulting business. I am freelancing right now while I explore new opportunities on the grower-shipper side of the industry.
Q: What topic do you intend to address at the Amsterdam Produce Show?
A: I will speak on the “Global Citrus Trade,” including the changing supply dynamics that have occurred since 1987, when I first started in the industry out of college.
Q: After some 30 years in produce, you are regarded as one of the leading citrus experts in the industry. Given that, can you provide some examples of changes in supply dynamics that have taken place since the 1980s when you started?
A: Well, on a global basis, citrus production has increased. Interestingly, there has been a great shift in production to “easy peel” fruit like mandarins and tangerines, of which there are many different varieties. So, the first major change has been seeded products being replaced by seedless products; it's what the consumers want on the table. Mandarins have actually become the leading citrus crop, replacing oranges. Oranges are now ranked number two.
The second major change is with the orange category, which has changed tremendously. Back when I started, seeded Valencia juice-oranges dominated. But these varieties slowly came to be replaced by seedless Navel oranges. Again, the change is driven by consumer preference — people want products with more consistent quality, which the Navels provide.
The third major change I would cite is with the Florida grapefruit industry; it used to dominate. However, because of pests and disease, it's basically been driven out of business. Grapefruit production is dominated by Spain and Turkey now. These countries have taken over the shelf space Florida used to occupy in Europe and other markets around the world.
Q: What are the leading areas of production for each of the leading citrus crops, beginning with oranges?
A: I can list the top five in each category for you.
For oranges, Brazil is ranked #1 (mainly for juice processing); #2 India (with most of the production quantity used domestically); #3 is China; #4 the United States; and #5 Mexico. These top five producers account for 54% of the total global orange production.
For the Tangerines/Mandarin category, China leads the way at #1 — China actually accounts for 66% of world production! These are mainly seeded varieties for the canning industry. Spain is #2; Morocco #3. Turkey #4. And Japan #5. The United States is number 6 here. These top five producers account for 84% of the total global Tangerines/Mandarin production.
For the Lemon/Lime category, India is ranked #1 (mainly for local hybrid lemon/lime varieties). Mexico is #2 (+/- 95% limes, 5% lemons). Argentina is #3. Spain is #4. And Brazil #5. Again, the United States comes in at 6 in the category. These top five producers account for 53% of the total global lemon/lime production. As an aside, in 1980, the United States led in the production of lemons globally. Italy was ranked #2 at the time. Today, Italy barely registers on the list, having been replaced by Mexico.
For the Grapefruit category, China again leads the way at #1, and even though there is no data available, I estimate 90%-plus are pummelos, not grapefruits. (Pummelos are a crop closely related to the grapefruit.) The United States is #2 here. Mexico is #3. South Africa is #4. And Turkey #5. These top five producers account for 72% of the total global production.
Q: Can you provide any rankings in terms of over-all citrus production?
A: Yes, for total citrus production, China is ranked #1. Brazil #2. India #3 (Indian citrus production is often overlooked since it is almost exclusively for local consumption and not for export). United States # 4. Mexico #5. Spain #6. Egypt #7. Turkey # 8. Italy #9. And Argentina #10. The top five producers account for 57% of the global production.
It's interesting to note that there are 195 countries in the world, and citrus grows in some capacity in 140 of these countries. It's the most over-produced commodity because so many countries can produce it on some scale, ranging from tiny to enormous...
Q: Where does this data come from?
A: My data is sourced from both USDA and FAO databases, and comes from 2015/2016.
Q: Turkey has apparently emerged as leader in grapefruit production, while Egypt has begun exporting large amounts of oranges. Is this conductive to the climate and soil in these regions? Or are there other reasons for this dynamic?
A: Certainly, the climate in these countries is conducive to strong citrus production. But there is also a natural drive to find lower-cost products to support the economic part of the equation. Basically, there is a big demand globally for these products, and these countries can produce them by controlling the costs of production. This has allowed them to expand their operations proportionally.
Q: Which European countries are the biggest consumers of citrus and why?
A: Well, France is really the only outlier — they lead the way in terms of grapefruit consumption. But insofar as other varieties, no country jumps out as being a particular heavy consumer for any one variety. They are all pretty even.
Q: In what climate does citrus thrive?
A: That's a good question. Citrus can actually thrive in a number of different climates. But, the first rule to understand is that the global “citrus belt” is between 40 degrees North Latitude and 40 degrees South Latitude. You cannot grow citrus further North than 40 degrees North Latitude. It's simply too cold and the trees will freeze; they just will never sustain themselves.
Nonetheless, you can grow citrus crops in tropical (Hawaii), sub-tropical (Florida), and arid (California, Spain) climates. There will be different production characteristics based on where the fruit is grown. For example, Florida's subtropical climate produces sweet and juicy fruit, but the outside skin has more blemishes. Bugs and various pests can affect the peel. Conversely, Turkey, a Mediterranean producer, has fruit that looks beautiful on the outside, but inside, the quality can be poor, with less eating qualities.
Q: You mentioned easy peelers earlier in our discussion. I understand Europe countries are expanding production of easy peelers. Why do you think these varieties have become so popular there?
A: Basically, it's for all the reasons I just addressed — it has a nice size and a good, consistent flavor. You get an eating experience without seeds. On the other hand, Navel oranges are much harder to peel, and the eating quality can vary, going up and down. And consumers don't really like this, which is why they are now gravitating toward mandarins and tangerines.
Q: Can you describe how the marketing of citrus from the retail end has changed since the 1980s, when you started in the industry?
A: Prior to the 90s, there were many more "regional" supermarkets than national or even international supermarkets. But there has been a lot of consolidation since that time period, to the point where the top 10 retailers (traditional, supercenter and club) now control somewhere around 55% of the US market. In the United States, through the late 90s and early 2000s, many retailers continued to work with wholesalers and broker/jobber networks to meet their needs. But today, there is a strong emphasis on direct relationships — retailers buying direct from suppliers.
This has thus necessitated consolidation on the supply-side of things. An overseas retailer once told me — “elephants sleep with elephants.” It means that huge demand for products from retailers requires large-scale suppliers.
Looking closer at the retail side, while Price Club (now owned by Costco) opened in the 70s, the explosion of club stores and their handling of produce didn't really take off until the early 90s, with Costco, Sam's and BJ's being the main club stores in the US.
Walmart Supercenters and their earnest handling of produce didn't begin until the late 80s and really took off in the 90s. More and more regional and national chains have attempted to open "supercenter" store formats to compete with Walmart since those early days. As we are fond of saying in America: “Competition makes us better and gives consumers more choices.”
Q: What about retail in Europe?
A: The supercenter or “hypermarket,” as they are often called overseas, were actually born in Europe. I think Carrefour in France was the very first to launch the concept. Similar to what we've seen in the US, there has been consolidation in Europe among retailers, although formats tend to be smaller due to the urban nature of the region and the space limitations in these areas. There are also more mom-and-pop-type stores compared to the US.
In recent years, driven by German discounters such as Aldi and Lidl, there has been fierce competition for consumer dollars, and this is especially true in the UK market. The European market has been saturated and stagnant for a while now, and these large scale European retailers are looking to the US and also Asia for expansion and growth.
Both Aldi and Lidl have recently entered the US market. Some are succeeding, but many are finding overseas expansion to be difficult and expensive — a loss rather than a profit right now. While there are many reasons for this, I believe a largely overlooked reason is the cultural differences between the countries. I think there has been a failure to understand these differences, coupled perhaps with a poorly reasoned belief that "we can take our way and make it work somewhere else."
Q: And the state of retail in Asia?
A: While Hong Kong, Japan and Korea have a strong and well-developed retail market, many other Asian countries are still developing their retail sectors. Even more so than Europe, there is still a strong presence of mom-and-pop-type stores in these places, but this is changing. Again, I think the dense urban populations, combined with cultural differences in how people shop, help contribute to the strength of mom-and-pop stores.
Hong Kong has long been dominated by two major retailers. Japan and Korea, meanwhile, have seen consolidation at the retail level during the 2000s. For many reasons, there are challenges for suppliers to directly reach retailers in these markets. Probably the biggest reasons are distribution and logistics.
China, meanwhile, is seeing a boom in the development of the retail sector. Some of the most impressive formats I have visited are now located in China. These big retailers are hungry for knowledge on category management and merchandising, and they are seeking the expertise of foreign retailers.
In some cases, foreign retailers are entering the market with their own name as well as through partnerships with local retailers. In China, retailers rely heavily on wholesale markets for their supplies, but as infrastructure improves and the scale of retailers increases, I would expect more direct business to be established.
Q: How do global politics impact the citrus market, and specifically, product pricing?
A: Certainly, free trade agreements are a benefit to the citrus market. In turn, political instability can impact these trade agreements in a negative fashion. In times of instability, countries are more likely to minimize the risk of introducing new pests and diseases to their regions. Therefore, market access during periods of instability is more difficult.
In stable times, countries work together to minimize these risks. But if there is instability, the process can be adversely affected. Pricing is a secondary issue and of lesser impact — basically this all comes down to supply and demand factors.
Q: Can you speak about the greatest challenges you see affecting the citrus market going forward?
A: The biggest thing I see is pest and disease pressure on a global basis. There are always different pests that come along. But right now, the number one problem is “citrus greening.”
Q: Can you expand on Citrus Greening?
A: This phenomenon is thought to have originated in China in the early 1900s. And now, it has traveled around the world, even spreading to the United States and Mexico in recent years. Essentially, it's a bacterial disease that attacks the vascular system of trees and eventually kills them. Think of it in terms of a blocked artery in your heart. Initially, the greening compromises the fruit, which does not reach full maturity. The disease is spread by bugs when they feed, and it's been quite the challenge to come up with a solution for it.
Q: Is it common for citrus growers to take part in the distribution of their own products as a means to control a bigger slice of the market share?
A: A typical grower is not involved with distribution. A typical grower has a relationship with a packinghouse, and the packinghouse has its own marketing process. A grower usually deals directly with a packinghouse, but what we are seeing today is much more consolidation among growers, with corporate investors creating large grower-associations. It's vertical integration —they control the whole production process from field to shelf.
Q: Is there a big gulf between conventional and organic citrus in terms of market sales?
A: Yes, for sure. Organic is actually a very small part of citrus. I think this is because citrus is a permanent crop, and it takes a significant amount of time to covert a conventional grove to organic. There's a big drawback to doing it as well —the cost of production with organic increases while the yield decreases greatly.
Organic is harder to grow with less volume being produced per tree. Organic is more conducive to the leafy vegetables because of these factors. Actually, I don't see organic ever really taking off in citrus. If it made strong sense growers would have naturally already made the move there.
Q: Where do you see citrus prices going in the next 5 years?
A: Everything is cyclical. Right now, the global citrus industry is in a real up-swing cycle. There's good demand, and strong pricing. But if more producers enter the market, this will eventually lead to a downturn — production will begin to exceed demand.
In the middle of the 1990s, there was a big down-swing in citrus. And it lasted until about 2005. But during the past 5-7 years, things have shot back up. This will continue until the economics and supply-and-demand change. But I have to believe that at some point the industry will experience a down-turn again.
A boom in citrus consumption, led by the rise in easy-peelers, has created a renaissance of branding with Cuties and Halos duking it out!
Recently, Wonderful acquired the DNE company, which was headed up for a long time by Bernie Egan, who was a good friend of the Pundit’s grandfather, Harry Prevor. Not too long after we started PRODUCE BUSINESS magazine, we wrote a column mentioning that though the French loved Florida’s red grapefruit, Florida was lucky to have the Japanese market, as that was the only place in the world that really wanted Florida’s white grapefruit.
Bernie called the Pundit to complain about the story and specifically the part about the Japanese being the only market for Florida white grapefruit. When we asked if we had written something incorrect, Bernie assured us we were 100% correct. When we asked what the problem was, Bernie explained: “You didn’t have to tell them!”
Well, in Amsterdam we will be having a no-holds barred conversation with Dan about global citrus markets: How does one manage such a far-flung operation? How does one grasp so many diverse cultures? How do logistics play into this?
There is plenty of history… In the early 1960s, Sunkist was shipping eight million cartons a year into Europe; today, almost nothing. What made this happen? Was it inevitable? Who in the world will it happen to next?
There is also hope. What produce item has more successfully won the hearts and minds of children? From Cuties at McDonalds to lunch-box snacks… from early imports from Morocco and Spain… to important Southern Hemisphere and US production. Was the US late to the easy-peeler game? Can we sell other items in large boxes and bags?
Come to Amsterdam where Dan is determined to tell it all!
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We look forward to seeing you in Amsterdam!