Avocados ‘join the club’

by Laurie Meadows   

December 10, 2020

The ‘traditional’ economic model for fruit production and sale has changed dramatically in recent decades, but the change has not registered in the public consciousness.

Growers used to decide what variety of fruit tree to plant, according to their own ideas about the market trends, disease resistance, climatic adaption, and so on. Trees could be bought from any wholesale nursery, as many or as few as the orchardist wanted.

When the crop started to come in, the grower would either pack their own crop, or send bulk bins of fruit to a packhouse. The choice of packhouse was theirs alone.

This ‘chain of choices’ starts with the existence a desirable fruit variety, whether ‘desirable’ is viewed from the growers point of view (maybe resistant to an important disease), or from the consumers point of view (better flavor – always in demand).

It is relatively uncommon for growers to breed their own new fruit variety. Most developed countries pay institutions, universities, or government departments to do the specialist work of developing new fruit varieties as a ‘public good’. The economic fruit of these programs enhances the wealth of the nation by increasing production, overcoming newly emerging disease problems, and increasing export competitiveness. It also enriches the knowledge base of the experts who spend a lifetime doing this work – making them more valuable to society.

‘Free rider’ problem solved

But from the earliest days, there has been the problem of the ‘free rider’. A new variety was anybody's to do what they wanted with as soon as the first tree was sold. There was no law to prevent it. Indeed, it was not uncommon for a new variety to be renamed by a nursery, in the hope of deceiving buyers that the mursery also had a new variety, supposedly ‘similar to’ the variety in question! The only available strategy for the breeder and nursery wholesaler was to heavily promote the virtues of their new fruit variety, and put as big a volume of trees on the market as possible – before competitor nurseries had a chance to ‘muscle in’ – with the inevitable crash in prices due to oversupply.

The free rider problem was solved through countries taking up a form of patenting, which guaranteed the breeder exclusive (and legally enforceable) ownership rights to the variety, and giving the breeder the right to exclusively license a nursery (or nurseries) to propagate and sell the plants.

Plant Variety rights, patenting and UPOV

Plant patenting and the ‘International Union for the Protection of New Varieties of Plants’ (UPOV) system has been around for a while. Plant Varieties Rights (and in the US, plant patents) allow the plant breeder to exclusively license one or more nurseries of their choice to propagate their newly bred variety, in return for collecting the breeders royalty payable on every tree sold. Importantly, there is no restriction on the number of fruit trees the nursery can sell. And often the promotion and marketing of the trees is largely in the hands of the fruit tree wholesaler, not the breeder (unless the breeder has also created a trademark under which to sell the plant).

Unrestricted plant sales meant an important new variety, ‘Gala’ apple, for example, was in high demand, soon widely planted, then overplanted, fruit oversupplied the market, prices fell, and growers income with it.

Something had to be done to improve profitability all along the chain. The solution was cooperative vertical integration to choke supply and drive up prices.

Higher prices aren’t a bad thing when low prices act as a disincentive to investment in plant breeding and orcharding. And packers and marketers might earn a lower percentage on commodity fruit versus niche fruit.

Higher prices for a particular variety of fruit have to be supported by some easily appreciated quality. It has to live up to the marketing promise.

It is easier to create and live up to superior fruit when there are only a few varieties in existence, as is the case with kiwifruit. But even here, the value intrinsic to a delicious unique fruit can easily be destroyed by overproduction and erratic marketing.

As a result, New Zealand-bred gold kiwifruit copied the ‘club’ model used by the US apple industry. It works like this:

The 6 principles of creating a club fruit – the kiwifruit example

First, create a single marketing body controlled by the growers themselves that controls almost all kiwifruit exports. In this way the fruit growers prevents exporters undercutting each other to land export supply contracts – because undercutting has to come at the expense of the price paid to the fruit growers.

Second, obtain public taxpayer subsidies to (initially, at least) pay for study of problems in kiwifruit culture, as well as breeding and germplasm conservation.

Third, use the UPOV testing and description requirements to objectively identify your newly bred variety as unique, and distinguishable from all other varieties currently available.

Fourth, and this is the heart of the ‘club’ system, only release a pre-determined limited number of plants; and, most importantly, under a restrictive contract. This ‘chokes’ supply to the consumer, presumably to an economically optimal ‘set point’ where sufficiently good prices (from the kiwifruit industry point of view) don’t choke off too much demand.

Fifth, trademark and brand the supply chain and the fruit to build consumer brand recognition of an exceptional fruit – and a reliable fruit supplier. The reliability of the branded marketer and their fruit varieties merge into one. Zespri generically market any gold kiwifruit they create as ‘Zespri Gold’. (This is standard practice in the global fruit industry. The ‘Dole’ brand, an intellectual property of the well-known grower and marketer of banana, pineapple and papaya is one example among many.)

Sixth. Finally, the protected varieties must be vigorously defended from use by anyone who is not in the club. Big money can be at stake. At least as bad, if we take a long term view, the reputation of the ‘club fruit’ brand may be undermined if illegal growers market inferior fruit.

Protecting the Interests of the members of the club

The members of the ‘club’ tightly co-ordinate markets and market volumes, usually with strategic counter-hemisphere planting. The idea is that as seasonal supply from the southern hemisphere tapers off, supply from the new season northern hemisphere takes over – ensuring a steady year around supply to global customers. The brand on the piece of fruit is always the same, but it may have been grown and exported from different countries throughout the year. Quality is the hallmark of success, and the grower club members often have to agree on minimum maturity standards (among others), so that unripe fruit doesn’t erode consumer trust in the brand.

The profits to the grower and marketer for a ‘niche fruit’ where there are few varieties in existence can be very large. As a result, there can be fierce demand for the ‘right’ to grow highly profitable ‘niche’ varieties with large money-making upside and loss-limited downside. For example, growers are prepared to pay 400,000 NZD a hectare for the license to be allowed to grow Zespri gold kiwifruit. Presumably, the PVR per-plant royalty is on top of that.

Of course, in this kiwifruit example, it is a growers cooperative (Zespri) that in effect sets the price per kilo, promotes and brands the fruit, and pioneers new export markets. In turn, while packhouses have to meet standards set by Zespri, they can probably charge a bit more on the back of the more valuable fruit. For the breeders part (funded by Zespri), they have to agree not to release a new variety that betters the existing one until the license holders have had a chance to make big bucks from their expensive license. (I believe the growers are given 10 years, under ordinary circumstances.)

Any licensed grower who sells propagative material (in breach of their contract) is in double jeopardy – they can be taken to court for breach of plant varieties rights, and also for a specific breach of the contract terms relating to not selling or distributing plant material. In one recent case in New Zealand, the court imposed a fine of around 1.5 million NZD on each charge. In this case, the grower was a New Zealander, and he illegally exported the plants to China. However, for both political and legal reasons, little can be done to mitigate the financial and reputational losses Zespri has now incurred – the Zespri G3 variety (branded as SunGold) is already being grown and marketed in China.

The problem is likely to be transitional – China hasn’t had an effective plant rights protection system until recently. It has inefficiencies and inequities in the current system of administration of breeders rights. The main ones are that rights have to be obtained region by region – creating expensive duplication – and the structure of fines that can be imposed in the courts is so low that the cost of taking a legal action to protect plant rights often outweighs any monetary compensation the courts may order.

China is very advanced in some areas of plant breeding, particularly in genetic modification. China has a large overrepresentation of university graduates in the science and technology areas, and it is almost certain that CRISPR techniques will be used to accelerate plant breeding.

As a result, in my opinion, China is likely to reform its plant rights administration, and join the club system with enthusiasm and energy. It will be interesting to see which fruit species China selects from its vast array of indigenous germplasm, let alone introduced germplasm. It will even more be interesting to to see the club system expand into new territory – both into China and China into other countries.

But regardless of country, I suspect that the club system only exist for high value fruit that consumers themselves judge have special appeal worth paying a bit more money for. What ‘special appeal’ would persuade consumers to pay more for an avocado?

The avocado as a club fruit

The dominant Hass avocado variety is astonishingly hard to supersede. It is very productive, relatively tolerant of heat and cold, has good leaf retention in windy conditions, and above all, has that rich ‘nutty’ Hass taste. First patented in 1935 (Plant Patent Number 139), its patent expired long ago, and any nursery can propagate as many trees as they want. (Ironically, Rudolf Hass’s patent was widely violated, and although he had an agreement with his licensed nursery for a 25% royalty, he made very little money from his invention.)

Sure, Hass-like varieties have been developed, and they have value to the grower for specific growth habit and/or seasonal production features. Lamb Hass, for example, matures later than Hass, and extends its season. Lamb is also very upright, making tree management somewhat easier. There are other early and late Hass-like selections which will be released by the University of California breeding program in due time. But from the consumers point of view, they look like Hass, taste like Hass, and are likely to be mistaken for Hass. So where does this leave the ‘club’ concept for avocados?

Consumers won’t pay more for an avocado variety with improvements that only benefit the grower (such as more compact plant form). But they might pay more for a ‘connoisseur’ variety that genuinely tastes better than Hass. How feasible is it to develop a connoisseur commercial avocado?

The connoisseur avocado

Former University of California avocado breeder Bob Bergh considered Sharwil to be the best tasting avocado, thereby elevating it above ‘the rest’ to the rarefied status of ‘simply the best’. But Sharwil fruits very poorly.

Contra Bergh, some American avocado afficionados believe Jan Boyce is the best tasting avocado. But it is said to be an undesirably big tree with an unacceptably small fruit.

So there is a gap in the market for a connoisseur avocado that has acceptable sized fruit, bears well, and stores and ships well. This gap may now be filled by the new variety ‘Greystar’, a late fruiting sharwil seedling selected by the Grey family, who run a family orcharding business in Gisborne, New Zealand.

Greystar has sharwils exceptional flavor, but unlike sharwil, greystar crops regularly. All the other minimum requirements from a consumers point of view are ticked – the seed is an acceptable size relative to the flesh, there are no obvious fibers, the flesh is dense, smooth, creamy and resists discoloration when cut. (As yet there is no published information on attributes important to growers, such as storage ability, cropping cycles, resistance to wind damage, climatic adaptibility etc.)

In line with the ‘club’ concept, Greystar has been granted breeders rights under the UPOV convention (PVR 32964), a market agent (MG) appointed, Southern hemisphere nurseries licensed in Australia and New Zealand, at least, with nurseries in South Africa and USA (northern hemisphere) also showing interest. Aspiring growers will have to sign a contract not to propagate the plants, and perhaps even not to sow seeds (although that contravenes the UPOV convention under which PVR rights were granted). It is likely that fruit will have to be sold through the marketing agent, MG marketing. Whether or not tree planting will be restricted to a pre-determined number is unclear at this point, as is any club membership fee.

@TrevelyansNZ⁩ field day today. New varieties of #avocado and great discussion ⁦@NZ_Avocadopic.twitter.com/oBrohaNjd0

— danielbirnie (@danielbirnie1) December 9, 2020
Greystar, eclipse, and titan.

It seems to me that the UPOV system, in some cases, is devolving to be a means of authoritatively describing the new variety. After that, and superceding UPOV conditions, contract law takes over. Why? Because contract law is almost infinite in the conditions it can demand whereas UPOV is limited to ownership of the variety, and rights to royalty from propagating nurseries.

But the club contract conditions still have to be attractive to all parties.

I don’t know whether or not the Greystar contract provides for a fee per kilogram going back to the breeders, but these or similar provisions are certainly the new trend. This certainly gives a needed boost to commercial avocado breeders given the well known difficulties in breeding this fruit.

Given the increasing rate of understanding of plant processes due to application of genomic studies, the future of avocado breeding may belong to superb tasting club fruit controlled by triumvirates of select breeders, nurseries, and marketers.

One of the ‘knock-on’ effects of molecular manipulation techniques is the possibility of taking a dominant cultivar – Hass – and altering gene expression in a novel way. For example, New Zealand researchers have taken G3 kiwifruit plants and altered gene expression so that it is no longer a vigorous vine, but grows as a bush. The only significant barrier to ‘shrinking’ Hass trees is the notorious difficulty of retrieving avocado plants from a mass of tissue cultured undifferentiated tissue in the lab – a critical step in retrieving CRISPR – altered plants.

NZ Avocado Ltd, the NZ avocado industry body, has received government grants to help start a project to work on problems of tissue culture of avocado varieties – including varieties covered by Plant Variety Rights. All this is in the context of whether or not a New Zealand breeding program can be justified. I am sure they are very well aware of the American experience of tens of thousands of trees yielding only a few cultivars, not counting the multi-decadal nature of the enterprise.

The future for club avocado?

There are hints of the future for ‘club avocados’ here. It may be a future analogous to ‘pimping up’ production automobiles. Add different colored skin here. Increase phytonutrients such as lutein or α-Tocopherol. Change the oil profile there. Change the chemicals responsible for perception of flavor. Change the branch architecture. And so, onward.

But whether these ‘tweaks’ add enough value either to the consumer or the grower to justify a higher fruit or plant price is debatable. As is the question of whether the ‘front end’ cost of making the tweaks is recoverable from hoped for higher priced fruit, or savings in growing costs.

Perhaps Hass, Empress and Emperor of avocado, will finally have to hand over the Mexo-Guatem portion of the avocado empire due to CRISPR.

But perhaps not.

If the benefit of Hass and Lamb is as widely recognized ‘mainstream’ commodity avocados, relatively cheap, why would consumers – in an economically constrained circumstance – pay more?

Most Americans (for example) can’t meet a significant unexpected expense without going even deeper into debt. Covid-19 is teaching some what post-war ‘baby boomers’ grew up with – frugality. And the post-war generation is retiring and finding the make-do practices of childhood have new relevance. Retirees are once again watching their money, not spending.

So Hass and Lamb may be here to stay as best value for money.

‘Pimped’ avos may appeal to millenials, and so there is the market. Millenials feel they will never own a house, carry a crippling student debt, so might as well spend, spend, spend. You can add in the rich if you like, but the rich are still a tiny percent of the population.

The rise of the mutants

The twist in the ‘pimped avo’ tale is the unpatentability of mutations when they spread to the next generation and beyond.

Yes, you can patent a plant showing a novel mutation or gene expression. But seedlings of the patented plant that carry the genetic feature can’t be patented unless they are essentially identical to the patented parent. And this will never be the case with the very heterozygous avocado.

Avocado seedlings pop up all the time, in orchards, in compost bins, and also because people sow the seed from their store bought fruit.

CRISPR enhanced avocados simply add to the existing gene pool of useful mutations and over or under expression of gene products. So that is a public good, just as conserving avocado germplasm is a public good.

The nett result will be more avocado foundlings with valuable mixes of attributes – including CRISPR directed changes.

Some interesting seedlings may ultimately go to ‘club fruit’ situations, some may become home garden fruit, and re-vitalize the struggling small avocado nurseries – ‘cut out of the action’ by club fruit and exclusive nursery licensing.

The family farm re-visited

The Famous-in-New-Zealand pomologist Dr. Don McKenzie worked with Japanese breeders to develop apple varieties meeting their cultural requirements for big perfect apples (they were purchased as expensive gifts). Reading his reports of apple growing in Japan, I was surprised that very small family farms could survive.

Small Japanese family farms can make a good living partly based on government subsidies, and partly on ability to produce very high-value perfect fruit. The ultimate niche market.

While Japan’s respect-culture supports this market segment, it may be that a small family farm could be supported by the millenial segment – but only if they control the price of their newly found superior avocado by keeping it out of the club.

This is counterintuitive. My idea is that CRISPR will ultimately identify all the chemical components and ratios that result in the famous ‘Hass taste’. Multiple CRISPR interventions could in principle then be used to re-jig existing avocados whose trees are of special merit to growers. Of course, this will take time and a huge technological effort.

But in the long run it may cause a kind of ‘selective sweep’ where the ‘Hass taste factor’ is completely normal in all cultivars. Or the ‘Greystar taste factor’, if that becomes the new benchmark.

We have reached a point where molecular techniques can uniquely identify any plant variety (a view resisted by UPOV for some reason). Successful legal actions for illegal possession and use of proprietary plant varieties, from strawberries to kiwifruit, have underscored the asset-value and inviolability of privately owned plant varieties.

Therefore, it is enough to take tissue samples of a new variety and hold them in a time-stamped and tamper-proof manner to establish origination and ownership. Why bother with patenting or UPOV compliance? They are just proof-of ownership systems when plants are being sold. But if the model is to hold privately and never release, then patenting and UPOV have no relevance. Administration costs and time delays (10 to 15 years is normal) are eliminated.

Perhaps, if customers are beating your door down for your amazing tasting avocado, you should collapse the breeder-marketer-distributor chain down into your own orchard store plus internet shipping. You then control everything, from price to quality, to marketing shtick. But especially price. High as you can squeeze your customers.

Anyway, the fact you choose not to buy plant variety rights in your own country doesn’t prevent you from obtaining plant variety right in other countries (if you think it is a world-beater).

It’s not the model for everyone, but it might work for quite a while.

And it doesn’t have to be ‘either proprietary or club’. An orchard (‘ranch’ in west-Americanese) could include a commodity-Hass/Lamb backbone, an expensive-but-hopefully-profitable ‘club’ planting, and an unreleased proprietary cultivar for gate and local high-end and millenial restaurant sales.

Whatever the future of the ‘club fruit’ concept for avocado, it will happen in slow motion.