Writing Assignment 1

Econ 200B – Autumn 2015

Article Title: As Red Delicious Declines, Growers Make Bets on the Next ‘ Hit’ Apple

Article Summary:

In this article, we learn about the demand for different varieties of apples in the United States and the effect of changing demand on prices.  Red Delicious apples used to make up more than two thirds of the apples grown in Washington State, but now they are only about a quarter of the fruit grown here.  In many cases, red delicious cost more to grow than they can be sold for.  Galas have taken the place of red delicious as the most popular apple in the United States. Other popular varieties are Fujis and Honeycrisps and prices for these apples are much higher than the prices for Red Delicious.  Other varieties such as Braeburn and Firmgold are delicious, but not as popular and hard to sell.  What all of these  apples have in common is that they are considered superior in flavor and texture to the red  delicious.

Economic Analysis:

In chapter 3, we learn about supply and demand and how they contribute to the price and quantity sold when the market is in equilibrium.  In the case of Red Delicious apples, the demand for these apples used to be high and therefore prices were high.  Once consumers learned about Gala apples and other, tastier varieties, their demand for those apples increased and their demand for Red Delicious fell due to a change in their preferences. After prices fell, suppliers realized that they can’t get as much for Red Delicious and they began growing Galas and other varieties in their place.  In the graph, I show the market for Red Delicious apples and the shifts in supply and demand that have happened overtime.   First, demand shifts downward, lowering the equilibrium price and quantity sold.  Then, in a response to low prices, growers cut back on the number of Red Delicious sold and supply contracts or falls at every price.  The end result is that even fewer red delicious apples are sold, and the final equilibrium price goes up a bit, although it is still lower than it was originally.

(Please note: You could have shown the market for Honeycrisps instead, or possibly drawn two graphs for both markets.)

The Market for Red Delicious Apples

Source:

http://nwpr.org/post/red-delicious-declines-growers-make-bets-next-hit-apple

As Red Delicious Declines, Growers Make Bets On The Next ‘Hit’ Apple

Grower Rob McCormick stoops to examine a knotty tree trunk in an apple orchard in Selah, Washington. “You see right here?” he says. “These had been Red Delicious. Then we cut this down to a stump and grafted in the  Galas.”

Washington growers are expecting a record crop of apples this year, but not of Red Delicious: most American consumers have moved on.

At the height of their popularity, Red Delicious accounted for more than two thirds of Washington apples. Today, the variety represents just over a quarter of the fruit grown here. Prices have fallen dramatically. Frequently now, old varieties like red and golden delicious cost more to produce than you can sell them for.

“Everything is worth something. But sometimes that something is less than nothing,” McCormick says.

Like many growers, there are years he lets his harvest fall to the ground. “Is that an easy thing to do? Can I be dispassionate about it? No. I produced these things…it would be a hard thing to waste ‘em'," McCormick says.

Galas are originally from New Zealand. In 30 years, they have taken the place of Red Delicious as America’s most popular apple. But McCormick says there are still profitable years for Reds too. He has converted some Reds to Galas, “but we didn’t do the whole place. That was more of a gamble than I wanted to take,” he says.

In 35 years growing apples, McCormick says he’s seen more than one fellow grower invest heavily in a new variety and end up taking a loss. Reds are “cheap” and reliable to grow – they don’t require a lot of special treatment.

He tugs at a Red Delicious dangling from a branch. “When that is mature,” he says, “it will be as good an eating apple as you can find.”

David Nelley, Director of Apple and Pear Operations for apple marketing firm Oppenheimer, disagrees.

“Reds came out a long time ago and I dare say expectations have risen since then,” Nelley says. “The specifications that some of the retailers require from  us, have changed."

Today’s apples are sweeter and more crisp. They have a longer shelf life. First there was Gala, then Fuji, and now, Honeycrisp.

Nelley calls it “the rockstar of the apple world in North America right now.”

Last year, a box of Honeycrisp apples fetched nearly three times as much as a box of Red Delicious.

But as more and more growers get in on the action, quality control becomes key.

Somewhere, Nelley says, “There is a consumer who walks down to their

store, picks up a Honeycrisp, and they may have one that was picked a little bit too early, or grown in the wrong place during this gold rush of the Honeycrisp years. So that person is gonna think, ‘Wow, that’s not what I   remember a Honeycrisp tasted like." When that happens too many times, prices will fall.

Some growers, like Dave Allan, are trying a new strategy to avoid this cycle of boom and bust. Stepping down from his pickup truck into an orchard south of Yakima, Allan plucks a rosy-hued apple from the tree and begins to extol its virtues: “Now, Pacific Rose is a big, sweet apple. And it will get a brighter red. It’sjust a beautiful apple.”

“What’s neat about this Pacific Rose,” Allan says, using a pocket knife to cut himself a slice, “is after storage, you get this kind of aroma that comes out of it.”

All these qualities make Allan think Pacific Rose could be the next

Honeycrisp. But it’s not his only bet. Aided by DNA sequencing and advanced computing, the number of new varieties is exploding.

“Envy was the last one that came to us,” Allan says. “It came as a number, and I don’t even remember the number now.”

Both Envy and Pacific Rose are known as “club varieties”: you can only grow them if you’re part of the club. What that means is that breeders trademark their new creations, and license the right to grow and sell them to hand-

picked partners. Then, together, they invest a lot in building a new brand, and they limit production.

Suzanne Wolter, of Rainier Fruit, says, “You want to make sure that you don’t plant so many trees that you’re not able to sell the fruit when it actually gets to the market.”

Wolter oversees marketing operations for Rainier, one of Washington State’s  largest apple producers. She says trademark protection allows companies to   invest more in marketing their new proprietary varieties. One goal is to ensure that new varieties avoid the fate of an apple called Cameo. When Cameo was introduced, “Growers were getting more yield and we were packing more fruit every single year,” Wolter says. But, consumers didn’t buy it! People didn’t know about it.”

With dozens of new varieties and a resurgence of heirloom and regional ones competing for market share, there’s a long list of also-rans in today’s apple world: delicious, but hard to sell. Rob McCormick singled out Braeburn and Firmgold, which he calls a “superior apple.”

“They’re firmer, they store better, look how big they get,” McCormick says,  marveling at the sight of an overloaded Firmgold tree nearing harvest. “Look at the size of that thing! Now, how can that not be worth something?”

Though McCormick says it’s a bit arbitrary which varieties ultimately win out for shelf space in the grocery store, there’s not much to do about it. “You can’t tell people what they want,” he says. What they want is what they want. You either grow what they want, or find another business.”