All hazelnut industry participants recognize Post-Harvest Handling as a major factor in the quality degradation of the Georgian crop. Early in the season, the yields tend to be in the low 40’s and the quality is better, but as the first blush of harvest fades, so does the quality. Earlier this year, both HEPA and GHGA expressed interest in working together to find a way to address the quality problem faced by their respective memberships. In June 2014, on behalf of the associations, EPI hired a consultant in June to examine the main drivers behind poor quality and to develop a standard for the industry (See “Quality, the “Wild, Wild West,” and the Road Ahead,” by Thomas C. Beck).
The consultant found that growers were incentivized to preserve weight at the expense of quality. Current payments based solely on weight provide a disincentive for growers to dry nuts and employ proper post harvest handling techniques. As a hazelnut dries, the nut becomes lighter. Since the grower is paid on weight, irrespective of yield, moisture content, or quality, a kilogram actually becomes less valuable to the grower as it is dried and cared for properly. On the other side of the transaction, processors recognize that well cared for hazelnut stock, properly dried, is more valuable than heavier, wet, poorly cared for, product. Yields are higher and less total tonnage is required to fill orders when nuts are cared for properly and of good quality.
Regardless, current pricing and buying behaviors encourage poor quality, providing disincentives for proper treatment of stock. The consultant recommended that to promote quality in the near term, HEPA and GHGA jointly determine, agree, support, and implement a transparent pricing system reflecting the value of quality.
On June 26, 2014, and again July 5, 2014, GHGA and HEPA leadership met to discuss how best to address the inherent quality problems and the development of such a quality pricing incentive system.
At the July 5, 2014 meeting possible premium systems, based on quality, were discussed in detail. One concept discussed, with a number of variants, was based on providing a premium over a predetermined yield and moisture metric. Another concept, with variants, was based on discounting the Turkish market price to reflect Georgian stock’s moisture content and expected yield.
Both parties expressed verbal agreement on the feasibility of such an approach at the July 5, 2014 meeting, but no formal policy was adopted at that time. The meeting participants indicated that the premium pricing system should be a matrix chart calculating the value of a kilogram of in-shell hazelnut at each percentage of moisture and each yield percentage. Such a matrix is known of by, and in circulation among, the processors.
The July 5, 2014 meeting concluded with suggestions of how such an agreement would work in principle and how to promote the agreement to the market. The group concluded the meeting, committing to come together again later in July to formalize the agreement.
The follow up meeting did not transpire. The harvest began early. Seasonal and business requirements took priority over bringing together the leadership of the two associations to finalize the discussions. However, informal conversations with personnel and leadership of both associations during August and September indicate there is still interest in reaching such a pricing agreement.