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.
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.