( U.S. Apple Association )

The next five years could be a challenge for apple growers, but the industry should emerge stronger and in a better competitive position after that.

That was the consensus of a panel of leaders from private equity firms discussing tree fruit merger and acquisitions trends Aug. 20 at the U.S. Apple Association’s online 125th Annual Crop and Outlook Marketing Conference.

“We think in five years the industry is going to be in good shape, but we think the industry is going to go through a bit of turmoil during the next five years,” said Michael Butler, co-founder and chairman of Seattle-based Cascadia Capital LLC.

Large integrated companies with pricing power and capital to invest in new varieties and technology are in a good competitive position, he said. Niche companies invested in organic pears and premium apple varieties are also in a competitive position.

“Everybody in between is vulnerable,” Butler said. “We think the mid-tier players will go away and we think that the industry will emerge a lot more streamlined and a lot more profitable over the next five years.”

Investing in technology will be a differentiator for growers and packers, said Baptiste Tellier, director of Fall Line Capital, San Mateo, Calif.  While some labor-saving technologies may be available only to the largest companies, Tellier said enough tech companies are working on solutions that prices for those solutions will decline over time and become more accessible.

Matthew Corbett, with partner with Montreal-based Fiera Comox, said the tide will eventually turn in favor of growers.

“The long-term consumption trends are clear and positive for both apples and cherries,” he said.

Economic conditions will be tough over the next few years, said Toby McKay, International Farming Corp., Kinston, N.C.

Price pressures, increasing labor costs, the difficulty in sourcing labor, building export sales and domestic demand might all be challenging, he said.

“I think the underpinnings of the economy are strong, and the tree fruit space is going to emerge stronger at some point,” McKay said. “But it’s going to be uncomfortable for all parties, and downright painful for some entities for the next few years.”

Over time, the panel indicated the number of apple sales desks may decrease to match the number of large chain store buyers.
 

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