With retail sales of fresh-cut apples slice rising and demand from quick-service restaurants growing, processors and marketers of apple slices are bracing for a smaller national apple crop and the expectation of higher prices.

Total U.S. apple output for 2012-13 was forecast at 190 million bushels in a June industry estimate, below the five-year average of 224.5 million bushels. What’s more, apple crops in important Midwest and Eastern producing regions — home to several large fresh-cut apple processors — are disproportionately hurt.

“The biggest concern is that higher prices for finished product could slow consumer demand at retail,” said Tony Freytag, senior vice president of sales and marketing for Cashmere, Wash.-based sliced apple processor Crunch Pak.

Stresses in the fresh-cut supply pipeline also could boost prices of lower grade and smaller apples this year, as fresh and processing interests compete for available supply in the Northwest, industry sources said.


Foodservice marketers of fresh sliced apple hope to hold on to their hard-won demand, and McDonald’s may have the most say if it can keep that demand in place.

While several quick-service restaurants have increased use of fresh-cut apples, the leading foodservice user of apple slices is the fast food giant McDonald’s Corp, with 14,000 U.S. restaurants. McDonald’s last year announced it was including fresh-cut apple slices in every McDonald’s Happy Meal by the first quarter of 2012. Previous to that, fresh-cut apple slice were an option, and the restaurant said only 11% of customers ordered the sliced apples.

Happy Meal servings of fresh-cut apples slices now equal a quarter of a cup, according to the company. Accounting for about 10% of McDonald’s sales, about 220 million Happy Meals were sold in the U.S. in 2010, according to a Reuters estimate.

A spokesperson for McDonald’s did not immediately respond to a request for information.

Fresh-cut processors use close to 1.5% of the total U.S. apple crop, according to Mark Seetin, Vienna, Va.-based U.S. Apple Association’s director of regulatory and industry affairs. The USDA estimates that fresh-cut apple processors used about 3.1 million bushels in 2010-11 and 3.3 million bushels in 2011-12, Seetin said. Value of apples used for fresh-cut slices was more than $26 million in 2011-12, he said.

Shorter crops in Michigan and New York will likely cause some fresh packers and fresh-cut slice processors in those states to look to Washington to fill in their needs, Freytag said.

The Michigan Frozen Food Packers Association in June estimated the size of the Michigan apple crop at just under 3 million bushels, compared with output of close to 26 million bushel cartons in 2011-12. New York’s apple output was forecast at 15.4 million bushels by the Michigan Frozen Food Packers Association, down about half from the five-year average of just over 30 million bushels.

While the Washington apple crop may compensate for some of the shortfall in the Midwest and East, it won’t make up for all of it.

The Washington apple crop was estimated for 2012-13 at a record 145 million bushels, up from the five-year average of 128.5 million bushels.

Higher demand from processors could set a higher floor for the fresh market, with lower-grade apples worth more, said Mac Riggan, vice president of marketing for Chelan Fresh Marketing Inc., Chelan, Wash.

He said there are reports of a couple of Michigan firms venturing to Washington and thinking about their needs for slicer apples.

“I think there is going to be a lot of wrangling before the season starts,” he said.

Smaller apples could be at a premium this year, given the dearth of fruit in Michigan, he said.

“In Washington, it could make the bag deal extremely strong as we get into December on,” Riggan said.

Jeremy Dygert, general manager of Champlain Valley Specialties, Keysville, N.Y., said shorter crops in Wayne County and other New York regions will make the fresh-cut apple processors’ job harder this year.

The firm tries to use New York state apples for business with schools in the state. The biggest New York variety they use for fresh-cut apple slices is the empire variety, which was hurt by frost this year.

“We are strongly looking at other varieties, but we haven’t determined what they are yet.”

The company also uses granny smiths and galas from the West Coast.

Dygert said there was some early panic in the market, but reports of Washington having a strong crop could help moderate expected higher prices.

“The biggest fear is that pricing goes so far out of line that consumers are no longer buying,” he said.

Casey Johnson, operations manager for Oxnard, Calif.-based Fresh Innovations, said the company is hopeful that commitments the company has with its suppliers will hold and only a small price increase may be necessary.

The company primarily sells to foodservice and club store accounts, using Pink Ladies, galas and granny smith apples. The company markets fresh-cut apples in packages ranging in size from 2 ounces to 24 ounces.

The apple industry has not experienced this type of unbalanced crop since the 1940s, said Jim Allen, president of the Fishers-based New York Apple Association,

“I think the processing market will be very, very strong,” he said.

With typical processing prices 9 to 13 cents per pound back to the grower, Allen said price this year for processing fruit is expected to be in the 24- to 25-cents per-pound range.

“It will certainly give growers a heckuva of an alternative if there is any question of what their packout might be,” Allen said.

Being able to sell fruit from at more than 20 cents per pound from the bin will be enticing, he said.

Allen said all processors — of fresh-cut slices, juice and applesauce — are very aggressive in the market.

“They are coming out with forward pricing, which typically never happens until September,” Allen said. “They are out there trying to procure and line up everything they can.”

Freytag said Crunch Pak made some adjustments in their pricing in the spring, but those adjustments didn’t take into account the shorter national crop picture. With continued pressure on supply, he said price increases appear to be likely in the fall, Freytag said.

The company has some agreements in place to buy product from growers, while other fruit is bought on an open basis in the market.

Rough patch ahead?

The category for fresh-cut apple slices has been in a strong growth mode, Freytag said, with Crunch Pak’s own growth well into double digits for the past two years. He predicted sales growth this year, but not at the pace of recent years because of higher prices could have a dampening effect on consumer demand.

“The nice part about it is that it is a well-established category, so it is not something where people will say we are just not going to (carry) them,” he said.

Dygert said he believes any disruption the fresh-cut apple business in the 2012-13 season will be only a bump in the road to long-term growth.

“I think volume be, at a minimum, maintained. There is a lot of processors for the McDonald’s (business) and they have to grow to keep that business maintained.”