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Sawyer Clark, Asset Manager at Gold Leaf Farming joined Freakonomics to discuss the economics of pistachios as a part of their "Economics of Everyday Things" series.
Transcript
Growing up, Sawyer Clark did not understand the allure of pistachios.
CLARK: My first memory of pistachios was watching my grandpa crack them and put the shells into a bowl. And I couldn’t imagine why someone was eating those weird green nuts with a shell on that was hard to get off.
But Clark eventually had a change of heart. Today, he helps run a pistachio farm. He spends his days thinking about nitrogen levels in soil and calculating nut yields.
CLARK: In the fall — come, you know, late August, but usually more September — you keep an eye on the crop and when the nuts start splitting and the hulls start peeling back, you shake the trees, catch the nuts, bring them to a processor, and get them to consumers.
There’s a reason for his change of heart. A few decades ago, there wasn’t much of a commercial market for pistachios in the United States — they could only be found at farmer’s markets, or in the bulk bins at health food stores. These days, it’s a different story. Pistachios are touted by celebrities in Super Bowl ads. They’re sold in huge display cases at major grocery chains. And they’re now the fastest-growing nut product in the country.
CLARK: the 1990s The USDA says the U.S. produced about 250 million pounds of pistachios. This year, the estimate is going to come in bigger than 1.5 billion pounds. So that’s more than 6x in 30 years — just within the U.S.
For the Freakonomics Radio Network, this is The Economics of Everyday Things. I’m Zachary Crockett. Today: pistachios.
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Pistachios have been cultivated and consumed for thousands of years in other parts of the world — especially Turkey and Iran.
CLARK: You can actually find news reports where the two countries talk about who has the older tree. There are pistachios that still produce in Iran that are estimated to be 1500 years old.
Pistachios first started showing up in the U.S. in the late 19th century. They were sold in vending machines, a dozen for a nickel. Most of these nuts came from Iran, which dominated the global pistachio market for many decades. But in the 1970s, that began to change. Iran started serving packets of nuts to students in schools, which meant they had fewer pistachios available to export. The U.S. started growing its own pistachios commercially. When the Iranian Revolution ended trade between Iran and U.S. in 1980, California-grown pistachios found their moment.
CLARK: The anecdotes you hear about how the industry started in the U.S. is immigrants who knew how to farm in Iran or in Turkey or other places came to the Central Valley and said, “Hey, this climate and these soils remind us of what our families did back home. So let’s bring a few trees.”
Today, the U.S. is the global leader in pistachios. Last year, it harvested nearly 900 million pounds — more than half of the world’s supply. This year, it’s expected to hit around 1.5 billion pounds. Nearly all of those nuts come from a 175-mile stretch of farmland in California’s Central Valley. It’s a pistachio paradise.
CLARK: To grow pistachios, you need what is generally called a Mediterranean climate. And then you need soils that are suitable for growing crops, and you need water, access to water. California’s got a tremendous amount of water infrastructure to help deliver water in the summer to the Central Valley.
Sawyer Clark works for an operation called Gold Leaf Farming. It’s one of only 950 producers in the U.S. that grows pistachios.
CLARK: Gold Leaf farms about 12,000 acres of almonds, pistachios and a few acres of dates. In good years, we do about 3,000 pounds an acre. So that’s 36 million pounds of nuts.
Clark actually grew up on a hazelnut farm in Oregon. He met Gold Leaf’s founders in business school; he’s now the company’s director of asset management. And if that sounds like a business-y job title, that’s because pistachios have become a very business-y business.
Starting an orchard from scratch is expensive.
CLARK: The simple economics of planting the pistachio orchard in the U.S. is you pay $20,000 an acre for the ground, you spend $5,000 an acre to plant it. Then you spend another $10,000 per acre growing the trees and farming them.
It takes five years for those trees to produce anything. And even then, a young tree might only bear two to four pounds of dry nuts every fall. The yield increases as trees get older, but it takes an orchard nearly a decade to break even.
CLARK: Once you’re at year seven, eight, nine, you’ll start making, you know, positive cash flow every year, assuming your yields are good and the price is good.
The farms that tough it out are rewarded with a longevity that is extremely rare in the agricultural world. For instance, almond trees live for around 20 to 25 years before they need to be replanted.
CLARK: The pistachios someone eats might be off a tree that’s five years old, 50 years old, or if they’re somewhere else in the world, 500 years old. And there aren’t many crops where that could be true.
The payoff from all that work hinges on a single 6-week harvest period each fall. That’s when people like Clark start to sweat.
CLARK: This is the stressful time of the year because If your operation slips, if your machines go down, if someone gets hurt, if there’s a storm — everything you’ve done for the last 12 months can really be damaged.
Even harvesting pistachios can go wrong. Farmers use a huge machine with a mechanical arm that shakes nuts loose. The process is a delicate art.
CLARK: If you shake too early, there’ll be too much moisture still in the tree and the nuts won’t come off. If you shake too late, the trees can be too dry and the nuts won’t come off because they’re too stiff.
Every pistachio aficionado is familiar with the closed-shell nut. There’s a few of them in every bag. But people like Clark do everything they can to make sure most of the nuts they harvest have open shells.
CLARK: We get an in-shell percentage, we get a splits percentage, we get all this data. And one of the things is what percentage of your nuts were open?
What farmers like to see is a nut that is slightly open. In a typical harvest, most of them qualify. Only 18 percent of the shells are sealed shut, and 5 percent are cracked apart. This is a pretty impressive accomplishment. Because what a farmer shakes off of a tree isn’t what you actually see when you eat a pistachio.
CLARK: When we harvest and you see a pistachio on the tree, there’s another layer called the hull. It smells kind of piney or citrusy. And you have to remove that hull to get to the shell that you see when you, you know, crack pistachios. That hull has lots of moisture in it. So from the moment we shake a tree and start harvesting, we have to have those nuts to the processor within 24 hours.
Processors are the guys who buy up all the nuts, clean them, and prepare them for the market. And for growers like Clark, it’s where the entire year’s revenue is made. Processors pay by the pound — including the shell, which makes up more than 50 percent of a pistachio’s weight. Last year, Gold Leaf Farming made an average of around $2.25 per pound. That was a lot better than almond farmers made out.
CLARK: There’s a lot of people who have been disappointed by the almond price for the last couple of years. Price to the grower has been at a 30 year low for the last two or three years. So a lot of almond growers are switching to pistachios.
That influx of new farmers will mean a lot more pistachios in the coming years. So the companies that package and sell all these pistachios to consumers are investing a lot of money into growing the market.
CLARK: So we see the supply is coming. And that’s why the processors are saying, “We’ve got to do some big marketing, because we see a lot of nuts.”
That’s coming up.
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If you buy a bag of pistachios at the store, it’s very likely to be a product of The Wonderful Company, owned by Stewart and Lynda Resnick. The couple started farming pistachios in California’s Central Valley in 1989. Today, they oversee a $5 billion dollar empire that produces Halo mandarins, Fiji water, and the pomegranate drink Pom. But pistachios are still the company’s crown jewel.
SALSA: We’re the number one brand by far in pistachios. We have 75 percent share of the retail market.
That’s Diana Salsa. She’s the Vice President of Marketing for Wonderful Pistachios.
SALSA: We reached over a $1 billion in retail sales in 2020.
Wonderful is vertically integrated, meaning it controls every part of the pistachio supply chain. It owns its own farms, its own trucks, and its own processing and packaging plants. In addition to producing its own pistachios, the company buys nuts from smaller operators, like Gold Leaf Farming. Sawyer Clark says that Wonderful is his most prominent buyer.
CLARK: Wonderful is the the 800-pound gorilla in the pistachio world. They’re a big grower. They’re by far the biggest processor and biggest marketer. They’re the name that especially the American consumer associates with pistachios.
Each year, Wonderful processes 450 million pounds of pistachios. They package them into consumer goods that are sold under their brand name all over the world. Around 70 percent of pistachios are exported to markets like India and China. Americans also eat a lot more pistachios than they used to.
SALSA: It wasn’t really until we made pistachios cool that we really were able to change the game for packaged pistachios.
In the late 2000s, Wonderful realized that pistachio production was on the rise. That gave them an opportunity, if they could boost demand too. So, the company began to inject millions of dollars into advertising.
SALSA: Before then, pistachios weren’t really sold in a package. They were sold in bulk or produce, and people didn’t eat them as often. There was a lot of intent and strategy in advertising pistachios over a decade ago, starting with “Get Crackin’,” which was our first big campaign.
Wonderful’s “Get Crackin’” campaign was everywhere. The company hired a roster of celebrities and interesting characters to eat pistachios in national T.V. spots. Everyone from Snoop Dogg …
ANNOUNCER: Snoop does — habitually. Wonderful Pistachios.
… to a professional dominatrix.
ANNOUNCER: Dominatrix do it — on command!
Wonderful spent $55 million dollars on a marketing campaign with a C.G.I. elephant voiced by the wrestler John Cena. The company even bought Super Bowl ads, featuring the Korean pop singer PSY, and Stephen Colbert.
SALSA: We have the trees in the ground. We know the crop is growing. And it’s my job to create that demand. And an ad that reaches millions of households on one game and one event was a great investment in awareness.
All of these ads were hugely successful. Between 2008 and 2018, per capita pistachio consumption in the U.S. rose from one-tenth of a pound per year to nearly half a pound per year. And Salsa says Wonderful is just getting started.
SALSA: Last year we did a “Get Crackin’” eating contest with Joey Chestnut, who’s a famous eater from Major League Eating, who wins the hot dog contest every year. And we had some fun with his name, of course.
The company is aggressively going after younger generations, buying ads in e-sports content and partnering with TikTok influencers. But there’s a cloud that hangs over the growth of the pistachio industry: nuts require a lot of water. It takes roughly a gallon to produce a single pistachio. An acre of them calls for around 900,000 gallons a year.
CLARK: All food and fiber and forage takes water. We think of, like, what is the water use per protein we’re making? Or what’s the water use per calorie we’re making? So, in that context, pistachios are more efficient at making protein than, you know, a cow would be.
Even so, that kind of water use is controversial — especially in the drought-stricken valleys of California.
CLARK: This is a little bit contrarian, but there are places in California that have historically grown all sorts of things, including nuts that we probably shouldn’t anymore.
Most of California’s water is collected from snow and rainfall. But the state has been plagued by droughts — and water has gotten harder and harder to come by. Farmers have increasingly had to rely on privately-owned, underground basins. And the Resnicks — the owners of Wonderful — have a controlling stake in one of the state’s largest aquifers, giving them unparalleled access to water. The company uses 150 billion gallons of water every year — more than twice as much water as the entire city of San Francisco uses.
SALSA: We are very responsible in our water usage, and we use precision irrigation, we focus on recyclability. are working to develop rootstock that essentially produces more nuts within the same water usage of trees.
These water issues will likely intensify in the coming years. But the pistachio business isn’t showing any signs of slowing down. American Pistachio Growers, the industry’s largest trade group, projects that the supply of nuts will nearly double in the next decade.
For his part, Sawyer Clark is banking on his grandpa’s favorite nut.
CLARK: There are a lot of young trees that are going to come into production over the next five or ten years. We’ve gotta move that crop. We’ve got to find new markets. We think we can do it, but the supply is coming, so we’ve got to prove the demand.
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For The Economics of Everyday Things, I’m Zachary Crockett. This episode was produced by Sarah Lilley, with help from Lyric Bowditch, and mixed by Jeremy Johnston.
CROCKETT: Is there any like mystery that’s still in it?
CLARK: Yeah, like a first-in-30-year hurricane coming to southern California? Yeah.
CROCKETT: Oh god.
