Walnut to Replace the Dairy Market
Walnuts are the seeds of drupaceous nuts, usually harvested in the fall - between mid-September and November. Rich in protein and essential fatty acids, walnuts are usually used for culinary purposes. They are often candied and used in desserts, like walnut pie, or used as an ingredient of savory dishes, such as walnut soup. Walnut oil adds a fragrant flavor to salad dressings and baking.
Walnut is increasingly receiving attention from dairy alternatives market as it can be used to make vegan products. Increasing number of lactose intolerance cases and growing consumer awareness for products with low calories and high protein and vitamin prompted plant-based product manufacturers to look into new ingredients, like walnuts. Free of lactose with more calcium and vitamin content than dairy milk, walnut milk market is poised for significant growth in major walnut producing countries like the U.S. and China.
For instance, Elmhurst Milked - formerly branded as Elmhurst Dairy - switched its focus from dairy to plant-based milk in 2017. Elmhurst Dairy used to be a leading dairy company in New York for almost a century until it recently experienced significant deficits due to declining dairy market. In order to escape from deficits, the company reconstructed itself as a dairy substitutes manufacturer and launched nut-based milk, including walnut milk.
In terms of non-edibile usage, walnut shells are used in blasting, polishing, non-skid applications, and filler applications. Walnut shells are first grounded to be used in blast operations, the removing of hard paints and coatings without damaging substrates, and anti-slip applications, the addition of walnut shell flours on stairs, pools, floors, etc to make the surface less slippery.
Global Production Drops While Demand Stays Firm
Despite the diversifying usage of walnuts, USDA projects world walnut production to decrease by 2.1 million tonnes in 2017/18 because of lower output in China and the U.S., a shift from the increasing trend since 2012/13.
According to USDA’s recent report on tree nuts, walnut production in China, the biggest producer in the world, will fall by 6% in 2017/18 because of unfavorable climatic changes in key producing regions. In Southern China, Yunnan province experienced a spring frost, incurring a significant loss in walnut yield. In Northern China, Shanxi province suffered from drought, which caused walnuts to drop early from older trees.
The U.S., the second biggest walnut producing country, also faces a decline in production. USDA speculated a 5% decrease in production in 2017/18 because of record amounts of rain in winter and spring and insect problems. Since orchards were saturated for several weeks, roots of walnut trees were compromised, thus demeaning the value of harvested walnuts.
Ukraine currently accounts for approximately 1% of global walnut production, however, the production is forecasted to grow. USDA estimated a rebound in Ukrainian export as there are more supplies available with increasing volume of area harvested by commercial growers. On the other hand, walnut production in Turkey is expected to ease as a result of drought, hail, and frost in certain areas.
Source: Walnut export data provided by Tridge
The U.S. also dominates the global walnut export as it accounts for almost half of the world export. Despite a decrease in walnut production, the U.S. export continues to rise. USDA estimated a 3% increase in the U.S. export as the U.S. government focused on expanding its influence in China, Hong Kong, and Vietnam.
Mexico follows after the U.S. in global walnut export. The state of Chihuahua accounts for 54% of total walnut production in Mexico, half of which is exported. According to Tridge, Mexico experienced a significant increase in export between 2015 and 2016 due to the growing demand from its biggest export partner, the U.S.
Source: Walnut import data provided by Tridge
Turkey, the biggest export partner of the U.S. and the top importer of walnuts, decreased the custom tariffs for walnuts and almonds to 15% from 43.2% on December 31st, 2017. By lowering tariffs, Turkey welcomes more imported walnuts to meet domestic demand. Since walnut is a key component in traditional sweets and savory dishes in Turkey, it has continued to increase the number of imported walnuts from its top 7 import partners, except for Chile, in 2016, as reported by Tridge.
According Chilean Walnut Commission, Chile experienced an unprecedented magnitude of rain during harvests in April 2016. The catastrophic rain not only damaged Chilean walnut quality but also lowered prices for impacted products, thus lowering its competitiveness in countries, like Germany, that demand high quality. Chile had a 35.9% decrease in its export value.
Chilean Walnut Market to Bloom
Despite the aforementioned loss in export, Chilean walnuts successfully entered the two most populous countries in the world, China and India. In order to meet the demands from China and India, Chilean walnut production is expected to grow annually by 15-20% and the production volume is estimated to reach 500,000 tonnes by 2023 - compared to 73,500 tonnes in 2016 - forecasted by Chilean Walnut Commission.
In January 2016, Chile signed an agreement with China about exporting shelled walnuts. In addition to the agreement signed in 2014 - which only allowed the entry of in-shell walnuts - the 2016 agreement gave Chilean walnut producers access to the entire Chinese market. Though China only held the 12th rank in the list of top in-shell walnut importers in 2016, the explosive growth of emerging middle class in China has improved consumers purchasing power and adjusted their dietary habits, suggesting a promising future of Chinese walnut market. Moreover, thanks to its free trade agreement, the imported Chilean walnuts are not subjected to any tariffs in China as compared to the U.S. walnuts.
The U.S., the biggest exporter of in-shell walnuts to China in 2016, faces tariffs on its exported nuts, and the amount of tariff is subjected to drastic change. In the midst of the ongoing trade war between the U.S. and China, the amount of tariff imposed on walnuts may fluctuate depending on the level of tension between the two countries. Having maintained a relatively amicable relationship with China, Chile aims to overtake the U.S. in Chinese walnut market.
In August 2016, Chile succeeded in gaining competitive advantages in walnut export to India. In importing walnuts, India had only allowed the entry of nuts fumigated with methyl bromide - a procedure that is not mandated in other countries. After a long negotiation process with Chile, India finally authorized the entry of Chilean walnuts fumigated with phosphine. India’s approval of phosphine fumigation is only granted to Chile until now. With an expanding middle class of around 300 million people and walnuts incorporated in essential daily food in Indian diet, India is an extremely valuable market for Chile.
However, recent imposition of retaliatory tariffs on walnuts by India gives an ominous prospect for Chilean walnuts in India. As a response to the U.S. imposition of high tariffs on steel and aluminum, India joined the European Union and China in trade-war against the U.S. by increasing import duties for walnuts from 30% to 100% on June 2018. Since the U.S. shares 78.62% of in-shell walnut import in India, the U.S. walnut industry would be most damaged by this change. As the third biggest exporter of walnuts to India, Chile will also experience collateral damage from the U.S.-India trade war. Due to the time of year that these actions were taken, Chile might inadvertently be most affected because Chile was in harvest season whereas the U.S. doesn’t start harvesting walnuts until October.
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Editor: Wonjung Yun / wonjung.yun@tridge.com
Sourcing Team Expert: Elly Lee / eunjeong.lee@tridge.com
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References
2. https://www.wifss.ucdavis.edu/
4. http://www.chileanwalnut.org/