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

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.

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."

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."

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."

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."

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."

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."

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.

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."

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.