The prospect of negotiating against his neighbors didn’t appeal to Larry George as he began scaling up his hazelnut packing operation.
George had delved into processing as a way to add value to his parents’ hazelnuts, but expanding the business would mean haggling to buy crops from surrounding growers.
Rather than confront that awkwardness, he instead offered to pack their hazelnuts for a flat fee — whether the market was up or down, George Packing Co. would take the same cut.
“The growers know what our margin is, so we’re not in competition with the growers,” he said. “Our interests and the growers’ interests are perfectly aligned.”
In other words, the 33 cents a pound charged by the company for packing and marketing hazelnuts creates an incentive to move larger volumes of hazelnuts.
Higher prices for farmers work in George Packing Co.’s favor, as they’ll be inspired to plant more hazelnut trees and eventually harvest a bigger crop.
“That’s how we backed into this business model. It motivates us to move the market up,” he said. “That gives growers confidence in the marketplace.”
To ensure farmers knew they were getting a fair shake, George Packing Co. empowered the Hazelnut Growers Bargaining Association, which negotiates the minimum annual price for farmers, to audit the company’s books, he said.
The processor has also vowed to offer the same terms to all its hazelnut suppliers, whether they grow 1 acre or 1,000 acres, to avoid the “special deals” that can sow division, George said.
While some have considered the company “dumb for leaving money on the table,” the flat fee strategy has allowed George Packing Co. to keep growing, he said, “but the deal is, we need growers to plant hazelnuts.”
In the grand scheme of things, farmers shouldn’t fear producing more hazelnuts than the market can handle, he said. “We have our own farming operation and we plant hazelnuts every year.”
Hazelnuts represent only about 10% of the world’s tree nuts, and those grown in Oregon — primarily in the Willamette Valley — make up slightly more than 3% of global hazelnut production, he said.
“To be a player in the marketplace, we need more hazelnuts planted,” George said. “The market may get oversaturated but it won’t happen because of the Willamette Valley.”
Increased processing volume has long been a theme for George Packing Co., representing a fundamental change in the nature of its business.
He moved from California as a young child when his family bought an orchard in Oregon’s Yamhill County.
His father, Gary, decided to flee California’s frequent droughts, seeing that water was becoming “a huge problem,” and was intrigued by filbert trees because they don’t require irrigation.
The earliest incarnation of the George Packing Co. began as an FFA project in the 1980s, with Larry and his brother, Shaun, making and selling coated hazelnuts from the family farm.
Change of focus
The company helped put Larry through college, but he eventually realized that focusing on snack- and confectionery-type products wouldn’t give his parents a meaningful financial boost.
“They needed me to be buying more product,” George said.
The company scaled up to become a bulk processor in the 1990s while phasing out the snack and confectionery business, which requires a “cumbersome” amount of work and high degree of risk to move a relatively small volume of hazelnuts, he said.
“We became a supplier to companies who were better at it,” George said.
Although specialized companies have succeeded in selling hazelnuts as a domestic snack food, the crop is more commonly used as a flavoring ingredient due to its high cost, he said.
The proportion of the kernel to the shell is significantly smaller for hazelnuts compared to almonds, so it’s tough for them to compete in the snack aisle — either the hazelnuts would need to be sold at a discount, or offered at a higher price point that wouldn’t move as much volume, George said.
“They’re just so much more valuable sold in other channels,” he said.
George Packing Co. has also diversified its market channels: selling in-shell varieties to China, as well as kernels to foodservice companies, ingredient makers, nut retailers and manufacturers of “spread” products, such as Nutella.
Major disruptions, such as the coronavirus outbreak, tend to dry up demand in some sales channels while increasing consumption in others, he said. “This COVID thing has demonstrated the strength of being in all these markets proportionally.”
Though hazelnuts grown in Oregon are just a fraction of the world’s supply, they’re nonetheless important to food companies due to the industry’s reliable record for following environmental, food safety and child labor regulations, he said.
The various cultivars grown in Oregon also provide a high degree of specificity regarding oil content, nut size, blanchability and flavor profile.
For this reason, George Packing Co. segregates its varieties to meet particular market niches and ensure clients get what they need.
“A lot of people think a hazelnut is a hazelnut. They’re not,” George said. “We have to separate them out so the buyer gets an absolutely consistent product every year.”
Larry George’s contributions to the hazelnut industry have helped all the Oregon farmers who grow the crop, guiding it through such challenges as the ongoing trade dispute with China, said Polly Owen, acting director of the Oregon Hazelnut Marketing Board.
“He’s very willing to provide both financial and time support to help us get through that,” she said.
George has been instrumental in raising money for dedicated hazelnut research through Oregon State University and is always willing to act as a cheerleader for the industry, Owen said.
George has traveled extensively to meet with regulators and hosted dignitaries when they come to Oregon, increasing the industry’s visibility and allowing it to punch above its weight, she said. “He’s showcased the industry very well.”