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Business Analysis & Features

There will be nuts... and there will be blood

New markets must be found for California's bumper crop of pistachios. But that might not be easy when growers are battling with Iranian producers and each other. Mark Halper reports

Lost Hills, California – In the parched fields down from where Daniel Day-Lewis drills for oil in There Will Be Blood, another determined play for market dominance is under way. It revolves around pistachios – and if one California nut baron has his way, Europeans will soon eat twice as much of the biblical snack, and the state that gave us hippies and Ronald Reagan will push world pistachio leader Iran further out of the picture.

Three years ago, with the flourish of a visionary, pistachio king Stewart Resnick, the chief executive of processor Paramount Farms, started paying growers about twice what they were used to getting for their nuts. That triggered a rush to plant pistachio trees, increasing acreage by more than 50 per cent, from 115,000 acres to 175,000. In another three years, the new trees will bear nuts, and the US will suddenly have more pistachios than it ever dreamt of. Put that on top of the bumper crop of 415 million pounds harvested last September and there is an imperative for the industry to find a place to sell its pistachios, which are sitting in huge metal silos in California's expansive San Joaquin Valley.

"How does one create enough demand for the increased supply that's coming on in the industry?" Mr Resnick asked at a Paramount conference last week in Monterey.

His answer: export them, especially to Europe. Paramount plans to sell 300 million pounds of pistachios around the world over the next five years, with Europe representing nearly a third of that target. Along the way, it will run into its old foe, Iran. The man on Paramount's front line taking on the challenge is the vice-president of worldwide sales, Mark Masten. "We don't mind stealing share from the Iranians," he declared last week.

Although the US took the European market share lead from the Iranians three years ago, Iran still holds sway in some countries, such as Spain and Italy. It has 90 per cent of the Russian market and its dominance in other parts of the world is huge – for example, in Israel, where importers are allegedly bringing in Iranian pistachios through Turkey, violating a law that bans trade with Israel's enemy. (Forget olive branches – world peace could come inside a pistachio shell.) Paramount and others are lobbying to stop this. They want in on Israel, where the per capita pistachio consumption is the highest in the world.

For the US and Iran, the challenge in Europe is to recover from a 1997 health scare when Iranian pistachios were banned for three months after the carcinogenic aflatoxin spore was found. The industry has never fully come back.

Paramount is pushing the pistachio as the "next nut". Its marketing campaign in the US is en route to Europe, leveraging the allure of California in its message. The health benefits of the pistachio will also be emphasised: it is claimed the nuts can lower cholesterol and stress levels, improve circulation, help manage weight and reduce the risk of diabetes.

Central to Paramount's push is a plan to establish its own brands. It will be a struggle. Tesco, which came close to agreeing to carry Paramount brands, backed out, according to one source. "Some of the customers in Europe are a little challenging," Mr Masten says.

With the branded approach, Paramount also risks competing against its traditional customers – roasters who package the nuts for the likes of Tesco and Marks & Spencer. "We're going to go out and try to do it ourselves, but without competing against our roasters," says Mr Resnick. "Our goal is to lift demand for everybody."

But if he does ruffle feathers, he will be no stranger to controversy. Mr Resnick fractured the industry when he hiked payments to growers, other processors seeing this as a ruthless move to buy dominance. One European importer, who asked not to be named, says: "That's when the war began between Paramount and the other processors."

Paramount successfully sued to dissolve the California Pistachio Commission, a trade body to which it contributed money but little influence. Six other processors then formed the Western Pistachio Association, without Paramount.

The WPA processors also see Europe as a prime market for expansion. Jim Zion, the managing director of Meridian Nut Growers in Clovis, California, says his company could soon bring its flavoured pistachios to Europe. In true California style, it offers smoked jalapeno, chilli lemon and garlic varieties. "In Europe, it's like potato chips – you can't go into a crisps aisle and see just salted," he explains. "We have to do the same thing to compete."

The weak dollar could help all the California processors, as European buyers find it less costly to buy American imports. But threatening to undermine the whole endeavour is a water shortage in the San Joaquin Valley. "Water is our single limiting factor in California," says Mr Zion. In one ongoing case, a federal judge has restricted the operations of irrigation pumps in the Sacramento Delta because they are endangering a tiny fish called the delta smelt. Those pumps send water as far south as Los Angeles.

But whatever problems lie ahead, expect to see more US pistachios in your supermarket.