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As tariffs take toll, Green Valley Pecan eyes cutbacks

As the tariff dispute between the U.S. and China drags on, the effects are starting to hit Green Valley Pecan Co., with dropping prices and mounting uncertainty.

Add to that increased taxes on imports into China and devastating storms across the United States that have created a ripple effect across the pecan market with no end in sight.

All of these factors “have had a major impact on the pecan market,” said Green Valley Pecan president and CEO Dick Walden. “It’s having a major impact on us as pecan farmers and producers.”

In-shell pecan prices are about 40 percent lower than a year ago, Walden said. China increased the pecan import tax from 7 percent to 47 percent last year in retaliation for tariffs announced by the U.S.

Along with reduced prices, farmers including Green Valley Pecan were hit hard by storms and severe flooding across the South.

Walden said the company lost about 20 percent of the season’s crop and 30 percent of production capacity for the next 10 years due to Hurricane Michael. Green Valley Pecan has about 1,000 of its roughly 9,000 total acres of pecan orchards near Albany, Georgia.

The company isn’t alone. More than 50 million pounds of pecans were lost in Georgia in 2018 due to the hurricane and flooding; Texas and Oklahoma also suffered losses and the crop year is forecast to be significantly smaller than previous years, according to the American Pecan Council.

“The American pecan industry took a big hit last year in the form of natural disasters and, of course, the increased tariffs due to the ongoing US/China trade war,” according to Matthew Bailey, editor at Pecan Report, an industry trade publication. “Many growers know firsthand the effects of the trade war resulting in dramatically reduced pecan prices on the farm.”

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American pecan exports were down almost 70 percent in December from the previous month, Pecan Report shows. China has been looking to South Africa and Mexico to supplement its large pecan imports amid the trade war. About 60 percent of Green Valley Pecan's product is exported.

With prices low and uncertainty between the U.S. and China, customers are reluctant to sign extended deals, Walden said.

“Because the prices have come down so much, our customers are afraid to make long-term commitments,” he said. “Instead of signing 12-month contracts, they’re only willing to sign deals for one to three months, because they think the price may go down some more, they don’t want to be locked in at a higher price.”

With dramatic price changes and production reductions looming, Walden knows all options have to be considered.

“Any businessman’s responsibility is to deal with the facts as they are dealt to him, so absolutely we’re making some changes where we can,” he said.

While he didn’t see staff reductions being on the table, Walden said Green Valley Pecan will scale down investments in equipment in the foreseeable future because of those reduced prices and production.

“We normally plan out five years ahead, and we expect to reduce capital spending significantly for the next three or four years,” he said.

He wouldn’t rule out new investments, but said, “everything will be looked at very closely, we will have much more intense management of all expenses.”

The company has been converting from a flood system to sprinklers to reduce water usage and increase efficiency, but those conversions may be reduced if the cost isn’t worth the benefit at this point, he said.

As negotiations between the two largest pecan importers/exporters continue, Walden and other farmers are left wondering what will happen next.

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“We’re going to have to watch the markets and make determinations on a month-to-month basis,” Walden said. “The philosophy is, you have to be flexible, have to be willing to make changes where it makes sense.”

But even if a solution is reached soon, Walden said it could take at least six months for the effects to reach the markets and producers. In the meantime, the company will keep tabs and plan accordingly as best as possible.

“If I could see into the future, I wouldn’t be doing this,” he said. “We’re fortunate we have a good relationship with our bank.”

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Bobby Joe Smith/Special to the Green Valley News

Crews harvest at Green Valley Pecan in December. Falling pecan prices have resulted in the company scaling back plans for future investments.