Boom at the port: Demand for the California almond means business

It’s not easy to find a parking space these days at the Port of Oakland’s APL Terminal, a terminal run by international shipping company APL, and one of nine terminals at the port. On a recent Thursday afternoon, the employee lot was filled to capacity as teams of dock workers loaded shipping containers onto an ocean-liner bound for Tokyo. In a few hours, another ship was set to arrive, and the process would start again with a new crew arriving to work through the night.

Standing on a platform high above the shipyard, the terminal’s manager, Steve Hessenauer, watched truck traffic pile up at the front gate as drivers waited to unload their cargo. Hessenauer probably should have ordered even more workers to the terminal, he admitted aloud, but until recently it was hard to imagine things becoming this busy. “We were down last year to one ship a week,” Hessenauer said.

Now the terminal is loading three ships per week, and its cargo volume has increased fivefold to more than 4,000 containers per week. Some of that surge was caused by route changes made by APL, but the port as a whole has also seen a major jump in traffic, particularly in exports. The port loaded about 490,000 containers to ship overseas during the sixth months ending in February 2010, up more than 20 percent from the same period a year earlier. (February is the last month for which statistics are available.)

While the port has publicly heralded this trend as a sign of an economic recovery, people who study exports caution that cargo traffic is not the best indicator of the economy’s health. Trade can be skewed by factors like international currency values, and since it takes a long time to arrange international shipments, the statistics do not offer an especially timely picture of what is happening. “They reflect decisions that were made anywhere from a few weeks to several months ago,” said Jock O’Connell, lead consultant for the ClarkStreet Group, a Sacramento firm that specializes in international trade.

But while the port’s activities may not be able to show whether the recession is over, or when it will end, it reveals a lot about the nature of the local and regional economies. Inside each shipping container lies a story about Northern California and its relationship with the rest of the world.

Take almonds. California grows about 80 percent of the world’s supply, and in the current crop year, which ends this summer, it has grown about 1.4 billion pounds. In February, the Port of Oakland alone shipped about $130 million worth of almonds, making them the most valuable commodity at the port.

A number of factors have contributed to the increase in almond exports, including a general rise in health-consciousness, aggressive international marketing supervised by the United States Department of Agriculture, and a record 2008 crop year that led to a sharp drop in prices. As the price dropped, one country in particular—China—greatly stepped up its almond intake and became an important driver of the recent boom. Between August 2009 and March 2010 China imported 118.5 million pounds of California almonds, a 65 percent increase from the same period a year earlier.

That figure made China the largest buyer of California almonds, consuming about 15 percent of the state’s exports, up from nine percent two years earlier. Almond growers aren’t sure whether that growth trend will continue, partly because they don’t know what share of China’s buying spree was the result of a genuine appetite for almonds, and what share came from speculation by commodities traders.

The uncertainty worries Scott and Dave Phippen, owners an almond farm and processing plant in Ripon, California, about 70 miles east of Oakland. The Phippens worry about other trends too—whether young people in Europe will continue to eat marzipan (an almond-based dessert ingredient) as frequently as their aging parents do, and whether Australia‘s harvest is better timed than California’s to provide almonds to the Middle East during Ramadan, when the nuts are an ingredient in seasonal treats—but China is of particular concern.

China has grown quickly to become a major consumer and driver of the almond market, but the Phippens worry speculators hoarded almonds while they were cheap, and are now poised to sell them throughout Asia, driving down the price.

“That’s a little scary for me,” Scott Phippen said of this last worry. “I think more of that is going on than we realize.” China is crucial to the future of the brothers’ business, which sells 95 percent of its almonds overseas.

The Phippen brothers grew up down the road from their farm, Travaille and Phippen. Their father grew almonds as a member of the Blue Diamond cooperative, but when the sons took over the business in the 1980’s, they decided that rather than pay Blue Diamond to process their almonds, they could do it more cheaply themselves. They built a processing plant, which has become the most profitable part of their business.

As the company has grown, the Phippens have learned from experience—and from sophisticated market research funded by the industry—about the tastes and quirks of each international market. Japanese consumers, the thinking goes, have the most expensive taste, and prefer mid-sized almonds. (The Phippens actually have a standard they call “Japan Quality,” which is a step beyond the USDA’s highest rating). Buyers in the Middle East are a close second, but prefer larger almonds. European consumers like cheaper almonds because they often use them in baking, where blemishes and irregularities are not a problem.

The Phippens have developed a complicated production process that aims to separate their almonds into different qualities and sizes to serve those markets. The process begins in the orchard in late summer, when machines shake trees full of ripe almonds, causing them to fall to the ground. Next, other machines push the almonds into neat rows, while still others pass by and vacuum up the nuts.

The almonds then pass through a series of machines, which further refine the product. One machine removes sticks, another removes stones, another removes the shell, and still others separate the almonds by size. The almonds are hand-sorted and divided into separate lots based on size and quality.

It’s still not clear where Chinese buyers—if the country’s heightened demand continues long-term—will fit into the Phippens’ quality spectrum. The brothers’ best guess is that the demands of Chinese buyers will lie somewhere between those of European and Middle Eastern buyers, and that China will also continue to import a large amount of almonds still in the shell, the cheapest variety of them all (They are not sure why China buys so many in-shell almonds, but believe it is because Chinese consumers enjoy peeling them by hand for snacking).

In addition to questions about quality, the Phippens are asking whether China will continue to buy almonds at all if they become more expensive. In fact, the Phippens trace China’s recent almond-buying spree to a record crop in 2008, which saturated the market and drove down prices. Now, as surpluses have been sold off, the price has bounced back from its low point. “China was grabbing them like crazy when they were selling for a dollar [per pound, wholesale],” Scott Phippen said. “Are they still going to grab them when they are selling for $2 or $2.50 a pound?”

The Phippens fear China will pull out of the market altogether, and opt for a less expensive alternative. Complicating matters is the fact that because of the way the words are translated, some Chinese retail customers mistake almonds for apricot pits. “It’s taken a large amount of time for us to convince them that no, these aren’t apricot pits and there’s a huge amount of value and flavor,” Dave Phippen said.

If China stopped buying almonds it would be a serious blow to California growers. Among the major almond consuming countries, China is the fastest-growing. And unlike longer established markets like Europe, China has a rapidly growing middle-class, which holds the promise of even greater almond consumption in the future.

With this year’s almond crop still green on the trees, the Phippens will focus for now on processing the remainder of last year’s crop, packaging the almonds, and loading them into ocean containers. Each container will arrive at the port anonymously, identified simply by a booking number.

Back at the port, the sheer scale of the operation makes it easy to forget what’s inside the containers. The cranes lift each box and stack them in computer-selected locations chosen based on their weight—some weigh more than 20 tons—and destination.

“I need to know the weight so I don’t break the boat, but what’s inside doesn’t make a difference to me,” Steve Hessenauer, the manager, says from his perch above the yard.

Below him, the dock workers scramble to finish loading the ship. During the worst part of 2008, many of them would to show up at their union hall each morning, hoping to get hired for the day. Now that more goods are moving, many of them have steady gigs at APL. For Steve Fynten, 38 and a fourth-generation dock worker, that assurance is enough. “I got lucky to get this job,” Fynten said.

But Fynten is aware that the port is a sort of anomaly, a world unto itself that is capable of changing at the whims of global trade patterns. “Ever since I became a longshoreman in ’91,” Fynten said, “from the oldest old-timer to the newest new-timer, they say, ‘Always save your money. One day, the ships could sink.’”

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