Five years ago, it became clear that the prospects for specialized growing apples for processing were doomed to loss. Many growers in developing countries have even stopped picking up apple carrion, which was previously quite successfully processed for production of apple juice concentrate (AJC), since the cost of such an operation was higher than the procurement price of an industrial apple. FAO economist Andriy Yarmak wrote in detail about the reasons for this phenomenon in his blog on EastFruit (this blog is only available in Russian and Ukrainian languages).
However, in the 2022/23 season, the situation began to change – prices for AJC and industrial apples started raising. After the Prognosfruit 2023 conference, new serious prerequisites for the continuation of the uptrend for the industrial apples appeared.
What are the reasons for the sharp changes in the trends? Why are prices for the apple concentrate rising and how sustainable can this trend be in the long term?
EastFruit asked Andriy Yarmak, as a participant of the Prognosfruit 2023 conference to provide more details on this subject. Below is a direct quote from the expert.
“First of all, I would like to note the unusually large percentage of Prognosfruit 2023 participants who represented companies involved in production of apple juice concentrate or AJC trade. This was a good indicator of the high interest in this topic, as well as the fact that the last season for this industry was very successful. Which, by the way, was confirmed by representatives of the industry both in presentations and during conversations on the sidelines of the conference.
As for the reasons for the rise in prices for apple concentrate, and, as a result, for an industrial apples, or apples of low quality that cannot be sold on the fresh market, after the conference, I formed a list of the following 11 main reasons:
- Low apple harvest in China in 2022, and, accordingly, a decrease in the supply of apple juice concentrate from China in the 2022/23 season.
- Mass replacement of extensive and semi-intensive orchards in China and Poland with intensive ones, which leads to a sharp decrease in the supply of industrial apples for processing. Similar trends are seen in many other countries around the world, such as Moldova and Ukraine, two other major suppliers of apple concentrate to the EU and the US.
- A slowdown in the pace of economic development in many developed countries of the world, including the European Union, with simultaneous stagnation of income levels of the population. This, in my opinion, leads to more rational purchases of products. And apple juice reconstituted from concentrate is usually several times cheaper than NFC juice (not from concentrate). Accordingly, the demand for reconstituted juice could be growing.
- Soaring labor costs make picking apples from abandoned orchards in developing countries unattractive and reduced supply of such apples for processing needs, affecting supply of ACJ accordingly.
- Urbanization on a global scale, leading to a decrease in the number of rural population and a decrease in the number of apple trees in households. Accordingly, the apples grown in such villages are fewer, reducing supply.
- Growth in demand for low-alcohol and non-alcoholic drinks containing fruit juices based on apple juice, as the cheapest component.
- Long-term retention of the price level for AJC at a relatively low level, which led to an increase in interest in this product around the world for multiple purposes.
- Global inflation, which has outstripped the price of apple juice concentrate for many years, has made it too affordable. Do not forget about the sharp increase in energy costs for apple processing, which also made this business less profitable and required higher prices to continue. Therefore, the increase in AJC prices is also a certain technical adjustment to the realities of values of USD and euro.
- The forecast for a sharp decline in the production of oranges for processing for the 2023/24 season and a sharp increase in prices for orange concentrate, which automatically increases the demand for AJC and industrial apples correspondingly.
- Expectations for another low harvest of apples in China in 2023 and forecast for a decline in the apple harvest in Poland in 2023.
- Explosive growth in the consumption of reconstituted apple juice, exotic for these regions, as well as other fruit, berry and vegetable juices based on the AJC, in the developing countries of Southeast Asia and Sub-Saharan Africa. These countries have good demographics and relatively high rates of economic development, which also stimulates the consumption of exotic products, including apple juice. By the way, this factor was suggested to me by my colleague Fedir Rybalko.
Let’s also not forget that the population of Earth is still growing and there is naturally more consumption.
As you can see, there are many real reasons for these trends. Moreover, there is a real possibility of further growth in the price of an industrial apples in the 2023/24 season, which is very good news for farmers in countries such as Ukraine, Moldova, Georgia, Uzbekistan, Poland and Tajikistan, where large share of apples still does not qualify for fresh market by quality.
By the way, excellent conditions are now being formed in Uzbekistan for the development of the apple concentrate production business, given the growth in the production of apples of not the highest quality while population incomes increase.
However, let us return to the question “How long will or could this prices increase last”?
To answer this question, it is necessary to divide all the above reasons into temporary, medium-term and sustainable categories.
Temporary reasons for the increase in the price of apple juice concentrate are those that can change quickly. “Quickly” for fruits growers is one season.
Medium-term reasons for the increase in prices for AJC are those that may change over the next 3-5 seasons.
Sustainable reasons for the price increase for apple juice concentrate are those that will remain relevant for a long time, which more than 5 years.
If we return to the numbering of reasons above, then temporary reasons can be attributed to reasons: 1, 3, 8, 9, 10. In other words, low harvests can be replaced by high harvests during just one season, economic decline can turn into a growth, and high inflation can go down.
True, reasons 8 and 3 may also turn out to be medium-term – inflation may well remain high for some time if the volume of money printing remains high, and the stagnation of the economy may stretch for several years. Accordingly, we will assume that 40-50% of the reasons are temporary.
Reasons 6 and 7, 11, and possibly also reasons 8 and 3 can be classified as medium-term. Even if AJC rises in price, it will still remain the most affordable of all juice concentrates. Thus, consumption will not fall too sharply. And this process can drag on for several years until cheaper alternatives appear. Also, economic and demographic growth in the countries of Africa and Asia is unlikely to drop sharply, even if problems arise in individual countries of this region.
It is also worth explaining separately why reason 4 can also be attributed to both medium-term and long-term reasons. Obviously, there will probably not be more people who want to pick apples, and labor prices are unlikely to fall. However, one should not forget such a factor as an increase in the price of an industrial apple, which allows one to pay more for such work, which partially solves the problem.
Therefore, we will assume that 30-35% of the reasons for the growth in prices for AJC can be attributed to the medium-term ones.
Sustainable causes include causes 2 and 5. Replacing orchards with more intensive ones with a lower percentage of non-marketable apple will no doubt remain a global trend, as will further global urbanization. Here we also partially include reason 4, which I described in more detail above. Accordingly, there are about 20% of stable factors here.
If we believe in sustainable economic growth in Africa and Asia, then the eleventh reason can also be attributed to sustainable, which will slightly change the balance of analysis in favor of longer-term prospects for price growth. However, I will be conservative so as not to create excessive expectations.
As a result, we get the probability of maintaining the growth trends in prices for the industrial apples for at least one season, and, with a high probability, for two seasons. In the future, prices will either stabilize or decrease slightly again, which will largely depend on how much the prices for apple concentrate and apple increase in the 2023/24 and 2024/25 seasons. Too sharp a rise in prices will lead to a faster “rollback”.
Will prices for industrial apple and apple concentrate increase in Ukraine, Moldova, Georgia, Poland, Uzbekistan, and if so, how much?
I believe that the likelihood of such a development of events is high, however, of course, there are no accurate forecasts, because there are many factors that can change everything. For example, a sharp change in weather conditions in the time remaining before the harvest.
If the situation develops as it is now, then the prices for industrial apples, which are currently close to about 2.5 UAH/kg (7 US cents) in Ukraine, may rise to 3.0-3.2 UAH/kg or even higher. The fact is that in Ukraine there is now a sharp decrease in the number of entrepreneurs who consolidate and resell industrial apples to processors. According to Fruit-Inform, they could supply up to 400 thousand tons of industrial apples from the households and abandoned orchards! The main reason for this trend is that many people left the country, fleeing the invasion of Russians, and many are actively involved in repelling the Russian aggression.
Since Ukraine is the sixth largest exporter of apple juice concentrate in the world with export volumes exceeding 100 thousand tons per year, and the third largest exporter in Europe, global trends will be instantly reflected in the prices of industrial apple within the country.
This will be of great help to growers who have orchards with obsolete varieties, as it will allow them to avoid the urgent need for uprooting. It will also be a good help for those farmers whose share of a high-quality apple in the harvest exceeds 70%. After all, the remaining 20-30% can also be sold with a good profit for processing.
Gowers in Moldova need this support no less than farmers in Ukraine, because this year they will have 100 thousand tons of apples more compared to last season. At the same time, last season they had considerable problems with the sale of even a relatively low crop due to problems of exporting this production to Russia.
The export of AJC from Moldova is about half of what Ukraine exports – that is, Moldova – is also an important player and prices here will also dynamically react to the situation on the world market.
In Georgia, the production of low-quality apples is already stimulated by the state, so there will most likely not be such significant changes for growers, although the trend is positive for them too. Moreover, the harvest of apples “with problems” in quality, according to preliminary estimates, may be higher than a year earlier.
Also, horticulture in Uzbekistan is likely to benefit less from the situation since apple production is actively increasing here. At the same time, the main part of the increase falls on the apples of low quality. Accordingly, an increase in demand is likely to be largely offset by an increase in supply.
It should be mentioned separately that in the countries of Central Asia, in particular in Uzbekistan and especially in Tajikistan, the volume of apple supplies for processing is lower than it could be for an unusual reason. The fact is that apples of extremely poor quality according to European standards is quite successfully sold in these countries in retail at a very low price compared to normal quality apples. However, even this “low” price is still too high for processors to beat.
In addition, in the countries of Central Asia, a lot of low-quality apples are sent for drying under the sun. Then these dried apples are added to the so called “compote mixture”, which is exported mainly to the Russian market, reducing the price of the product. After all, apple is the cheapest component of this mixture.
Therefore, the competition for raw materials among the producers of apple concentrate in Central Asia is actually much higher than it might seem at first glance. Therefore, as a rule, the prices for industrial apples are already higher here than in Ukraine, Moldova, or Poland. This means that the rise in prices on the world market will have a lesser impact on the market here, although, perhaps, new players will be able to enter the apple processing industry.
Expensive apple juice concentrate – is it good or bad for professional apple growers?
Of course, any increase in the income of growers who work in this very difficult and high-risk agribusiness segment is positive. However, in my opinion, in the long run, the rise in the price of industrial apples is more of a negative than a positive development.
The fact is that this will reduce the pace of transition to the cultivation of high-quality apples. This means that sustainability of this segment will be reduced in the long run. Accordingly, the higher the price of the industrial apples, the higher the risks of the country’s horticulture.
And when the factors currently stimulating prices for AJC exhaust themselves, apple growers in countries with a high proportion of low-quality apples in the harvest will again suffer losses.
Strategically more interesting and sustainable would be a scenario in which prices for apple concentrate would be so high as to finally separate the segments of industrial apples and fresh apples, as happened long ago in many other fruit and vegetable segments. In other words, AJC and industrial apples cost enough to allow for investments into the fully mechanized cultivation of resistant apple varieties to become profitable.
Higher AJC prices would allow processors to invest also into cultivation, increasing the sustainability of their own business and to create additional opportunities for vertical integration. However, many aspects of the mechanization and automation of such production still need to be improved, as well as additional funds need to be made available for the development of apple varieties that are resistant to diseases and pests, which have good BRIX values and are highly productive. So far, for obvious reasons, this direction in apple tree breeding is not a priority, although experiments on developing industrial apple orchards for processing are periodically carried out in many countries. So far without success”.
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