Pistachios (Replay)

Summary

Podcast Summary: The Economics of Everyday Things – Episode: Pistachios (Replay)
Host: Zachary Crockett | Release Date: December 30, 2024
Produced by Freakonomics Network & Zachary Crockett

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Introduction: A Journey from Skepticism to Stewardship

In the episode titled "Pistachios," Zachary Crockett delves into the unexpected rise of pistachios as a booming industry in the United States. Through the lens of Sawyer Clark, a pistachio farmer, the podcast explores the transformation of pistachios from obscure nuts to a mainstream snack, uncovering the economic, agricultural, and marketing strategies that fueled this growth.

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Early Perceptions and Industry Transformation

Sawyer Clark's Initial Skepticism
[01:09] Zachary Crockett: "Growing up, Sawyer Clark did not understand the allure of pistachios."

Childhood Memories
[01:15] Sawyer Clark: "My first memory of pistachios is 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."

Transition to Farming
[01:24] Zachary Crockett: "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."

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The Rise of Pistachios in the U.S. Market

Historical Context
[02:22] Sawyer Clark: "In the 1990s, the USDA says the US produced about 250 million pounds of pistachios. This year, the estimate is going to come in bigger than £1.5 billion. So that's more than 6x in 30 years."

Global Leadership
[04:05] Zachary Crockett: "Today, the US is a 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."

Cultivation Requirements
[04:29] Sawyer 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."

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Economic Insights: Building a Pistachio Empire

Operational Economics
[05:27] Sawyer Clark: "The simple economics of planting a pistachio orchard in the US 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."

Long-Term Investment
[05:42] Zachary Crockett: "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."

Sustained Cash Flow
[05:58] Sawyer Clark: "Once you're at year seven, eight, nine, you'll start making positive cash flow every year, assuming your yields are good and the price is good."

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Marketing Mastery: The Wonderful Pistachios Phenomenon

Brand Dominance
[12:56] Diana Salsa: "We're the number one brand by far in pistachios. We have 75% share of the retail market."

Vertical Integration
[13:09] Diana Salsa: "We reached over a billion dollars in retail sales in 2020."

Strategic Marketing Campaigns
[14:36] Diana 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 Kraken, which was our first big campaign."

Celebrity Endorsements and High-Profile Ads
[15:12] Zachary Crockett: "Wonderful spent $55 million on a marketing campaign with a CGI elephant voiced by the wrestler John Cena. The company even bought Super Bowl ads featuring the Korean pop singer Psy and Stephen Colbert."

Impact of Marketing Efforts
[15:37] Diana 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 and awareness."

Consumption Surge
[15:55] Zachary Crockett: "Between 2008 and 2018, per capita pistachio consumption in the US rose from 1/10 of a pound per year to nearly half a pound per year."

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Operational Challenges: Water Usage and Sustainability

Water Consumption Concerns
[16:24] Zachary Crockett: "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."

Efficiency Compared to Other Proteins
[16:53] Sawyer Clark: "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."

Water Scarcity Issues
[17:14] Sawyer 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."

Corporate Water Usage
[17:23] Zachary Crockett: "The Resniks, 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."

Sustainability Efforts
[17:59] Diana Salsa: "We are very responsible in our water usage and we use precision irrigation. We focus on recyclability. We are working to develop rootstock that essentially produces more nuts within the same water usage of trees."

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Future Outlook: Expansion and Market Dynamics

Projected Growth
[18:15] Zachary Crockett: "American Pistachio Growers, the industry's largest trade group, projects that the supply of nuts will nearly double in the next decade."

Balancing Supply and Demand
[18:43] Sawyer Clark: "There are a lot of young trees that are going to come into production over the next five or 10 years. We've got to 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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Conclusion: Sustaining Growth Amid Challenges

Despite the impressive growth and strategic marketing that have catapulted pistachios into the spotlight, the industry faces significant challenges, particularly regarding water sustainability in drought-prone California. As the demand continues to rise and production scales up, stakeholders like Sawyer Clark emphasize the importance of innovating and expanding into new markets to maintain the industry's momentum.

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Notable Quotes with Timestamps

• Sawyer Clark on Industry Dominance:
  [13:38] Sawyer Clark: "Wonderful is the 800 pound gorilla in the pistachio world. They're a big grower. They're by far the biggest processor and biggest marketer."

• Diana Salsa on Marketing Impact:
  [14:53] Zachary Crockett: "Wonderful's Get Kraken campaign was everywhere."

• Sawyer Clark on Water Efficiency:
  [16:53] Sawyer Clark: "Pistachios are more efficient at making protein than, you know, a cow would be."

• Diana Salsa on Future Campaigns:
  [16:13] Diana Salsa: "We are just getting started."

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Final Thoughts

"The Economics of Everyday Things" episode on pistachios offers a comprehensive look into how a seemingly simple nut can evolve into a billion-dollar industry through strategic farming, marketing, and economic planning. It highlights the intricate balance between growth and sustainability, providing listeners with a nuanced understanding of the factors driving everyday products' success.

Transcript

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[Zachary Crockett]

Growing up, Sawyer Clark did not understand the allure of pistachios.

[Sawyer Clark]

My first memory of pistachios is 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.

[Zachary Crockett]

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.

[Sawyer 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 holes start peeling back, you shake the trees, cut the nuts, bring them to a processor and get them to consumers.

[Zachary Crockett]

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 farmers 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.

[Sawyer Clark]

In the 1990s, the USDA says the US produced about 250 million pounds of pistachios. This year, the estimate is going to come in bigger than £1.5 billion. So that's more than 6x in 30 years.

[Zachary Crockett]

Just within the US for the Freakonomics Radio network. This is the economics of everyday things. I'm Zachary Crockett. Today, pistachios. Pistachios have been cultivated and consumed for thousands of years in other parts of the world, especially Turkey and Iran.

[Sawyer 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.

[Zachary Crockett]

Pistachios first started showing up in the US 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 US Started growing its own pistachios commercially. When the Iranian revolution ended trade between Iran and the U.S. in 1980, California grown pistachios found their moment.

[Sawyer Clark]

The anecdotes you hear about how the industry started in the US Is immigrants who knew how to farm in Iran or in Turkey, 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.

[Zachary Crockett]

Today, the US Is a 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.

[Sawyer 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.

[Zachary Crockett]

Sawyer Clark works for an operation called Gold leaf farming. It's one of only 950 producers in the US that grows pistachios.

[Sawyer Clark]

Goldleaf farms about 12,000 acres of almonds, pistachios, and a few acres of dates. In good years, we do about £3,000 an acre. So that's £36 million of nuts.

[Zachary Crockett]

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 businessy job title, that's because pistachios have become a very businessy business, starting an orchard from scratch is expensive.

[Sawyer Clark]

The simple economics of planting a pistachio orchard in the US 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.

[Zachary Crockett]

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.

[Sawyer Clark]

Once you're at year seven, eight, nine, you'll start making positive cash flow every year, assuming your yields are good and the price is good.

[Zachary Crockett]

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.

[Sawyer Clark]

The pistachio 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 are many crops where that could be true.

[Zachary Crockett]

The payoff from all that work hinges on a single six week harvest period each fall. That's when people like Clark start to sweat.

[Sawyer 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.

[Zachary Crockett]

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.

[Sawyer 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.

[Zachary Crockett]

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.

[Sawyer 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?

[Zachary Crockett]

What farmers like to see is a nut that is slightly open. In a typical harvest, most of them qualify. Only 18% of the shells are sealed shut and 5% are cracked apart. This is a pretty impressive accomplishment because what a farmer shakes off a tree isn't what you actually see when you eat a pistachio.

[Sawyer Clark]

When we harvest and you see a pistachio on the tree, there's another layer called the hole. It smells kind of pine y or citrusy and you have to remove that hole to get to the shell that you see when you crack pistachios. That hole 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.

[Zachary Crockett]

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 growers by the pound, including the shell, which makes up more than 50% 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.

[Sawyer Clark]

There's a lot of people who have been disappointed by the almond price for the last couple years. Price to 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.

[Zachary Crockett]

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.

[Sawyer 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.

[Zachary Crockett]

That'S coming up.

[Sawyer Clark]

Now.

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[Zachary Crockett]

The Economics of Everyday Things is sponsored by the a16z podcast. Ever think about just how quickly the world is changing? Not so long ago we lived in an era of CDs, phones with cords and dial up Internet. Now we have pocket computers, AI that writes poetry and 3D printed rockets. If you want a glimpse into what's next, check out the A16Z podcast. The chart topping show brings on movers with a track record of being both early and right. Like Apple co founder Steve Wozniak or Cost plus drugs maverick Mark Cuban or A16Z co founders Marc Andreessen and Ben Horowitz. Not to mention folks you don't typically get to hear from like the very first CTO of the CIA. From the science and supply of GLP1s to the economics of deepfakes to self driving cars, drones and even boats, go ahead and eavesdrop on the Future with the A16Z podcast. The economics of Everyday Things is sponsored by Shopify. When you think about businesses growing their sales beyond forecasts like Momofuku or feastables by Mr. Beast or even a legacy business like Mattel, sure you think about a product with demand, a focused brand and influence driven marketing. But an often overlooked secret is actually the businesses behind the business Making, selling and for shoppers, buying. Simple. For millions of businesses, that business is Shopify, home of the number one checkout on the planet and the not so secret secret with shop pay that boosts conversions up to 50%, meaning way less carts going abandoned and way more sales. So if you're into growing your business, your commerce platform better be ready to sell wherever your customers are scrolling or strolling on the web, in your store, in their feed, and everywhere in between. The secret's out. Businesses that want to grow grow with Shopify, Upgrade your business and get the same checkout Momofuku uses. Sign up for your $1 per month trial period at shopify.comeverydaythings all lowercase go to shopify.com everydaythings to upgrade your selling today. Shopify.com everydaythings if you buy a bag of pistachios at the store, it's very likely to be a product of the wonderful company owned by Stuart and Linda Resnick. The couple started farming pistachios in California's Central Valley in 1989. Today, they oversee a $5 billion empire that produces Halo mandarins, Fiji Water, and the pomegranate drink pom. But pistachios are still the company's crown jewel.

[Diana Salsa]

We're the number one brand by far in pistachios. We have 75% share of the retail market.

[Zachary Crockett]

That's Diana Salsa. She's the vice president of marketing for Wonderful Pistachios.

[Diana Salsa]

We reached over a billion dollars in retail sales in 2020.

[Zachary Crockett]

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.

[Sawyer Clark]

Wonderful is 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.

[Zachary Crockett]

Each year, Wonderful processes £450 million of pistachios. They package them into consumer goods that are sold under their brand name all over the world. Around 70% of pistachios are exported to markets like India and China. Americans also eat a lot more pistachios than they used to.

[Diana Salsa]

It wasn't really until we made pistachios cool that we really were able to change the game for packaged pistachios.

[Zachary Crockett]

In the late 2000s, Wonderful realized that pistachio 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.

[Diana 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 Kraken, which was our first big campaign.

[Zachary Crockett]

Wonderful's Get Kraken campaign was everywhere. The company hired a roster of celebrities and interesting characters to eat pistachios in national TV spots. Everyone from Snoop Dogg. Snoop does it habitually.

[T-Mobile Representative]

Wonderful pistachios get cracking.

[Zachary Crockett]

To a professional. Dominatrix. Dominatrix. Do it on command. Wonderful spent $55 million on a marketing campaign with a CGI elephant voiced by the wrestler John Cena. The company even bought super bowl ads featuring the Korean pop singer Psy and Stephen Colbert.

[Diana 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 and awareness.

[Zachary Crockett]

All of these ads were hugely successful. Between 2008 and 2018, per capita pistachio consumption in the US rose from 1/10 of a pound per year to nearly half a pound per year. And salsa says Wonderful, is just getting started.

[Diana Salsa]

Last year, we did a Get Kraken eating contest with Joey Chestnut, who's a famous eater for from Major League Eating, who wins the hot dog contest every year. And we had some fun with his name.

[Zachary Crockett]

Of course, the company is aggressively going after younger generations, buying ads and Esports 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.

[Sawyer 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.

[Zachary Crockett]

Even so, that kind of water use is controversial, especially in the drought stricken valleys of California.

[Sawyer 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.

[Zachary Crockett]

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 Resniks, 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.

[Diana Salsa]

We are very responsible in our water usage and we use precision irrigation. We focus on recyclability. We are working to develop rootstock that essentially produces more nuts within the same water usage of trees.

[Zachary Crockett]

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.

[Sawyer Clark]

There are a lot of young trees that are going to come into production over the next five or 10 years. We've got to 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.

[Zachary Crockett]

For the economics of everyday things. I'm Zachary Crockett. This episode was produced by Sarah Lilly with help from Lyric Bowdich and mixed by Jeremy Johnston. Is there any, like, mystery that's still in it?

[Sawyer Clark]

Yeah, like a first and 30 year hurricane coming to Southern California. Yeah.

[Zachary Crockett]

Oh, God. The Freakonomics Radio Network the hidden side of everything.

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Stitcher.

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