NY “Muck Onion” AgriCluster

Executive Summary
In this working paper, I outline how the onion industry in the U.S.A. has undergone tremendous change over the past 50 years. Onion demand and production have increased dramatically. Over the past 20 years, production has reached a plateau of 3.2 million tons per year, while consumption has grown and will continue to rise based on demographic projections. These trends result in a trade deficit: the U.S. imports more and more onions each year, particularly from Mexico and Peru.
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The situation for onion growers in the U.S. is very different as the global, national, and local contexts have changed over the past 50 years. Onion growers, depending on their geographic location, have developed different strategies to deal with increasingly tough competition. Many growers (in Idaho, Oregon or Washington States) have chosen to develop a price competitiveness advantage. In contrast, others have built a differentiation strategy based on a premium onion linked to a terroir (i.e., place-based soil and climate advantages coupled with unique production practices), such as the Vidalia onion industry in Georgia. The third group of onion growers has not chosen between these two strategies; they have not collectively and locally established a shared vision that takes their strengths, weaknesses, threats, and opportunities into account. 
 
I suggest that this is the case for the New York onion industry, which competes with onion growers who have based their competitive advantage on a single marketing strategy: low price. But New York onion growers are not cost competitive, and their position has declined. In 2017, about 50 onion growers with more than 5 acres produced 95 percent of onion production with 6,400 acres. However, 20 years ago (in 2002) 114 farms with more than 5 acres used 11,400 acres. For 20 years growers and acreages have been approximately cut in half. My research suggests the drivers of this decline in New York Muck Onion are imperceptible from year to year, but over time have eroded NY's once powerful onion industry. In my view, New York onion growers have become links of a supply chain where they sell a generic onion like a commodity.
 
Recently, New York onion growers have complained about Canadian exports and have argued that Canada subsidizes Canadian onion growers, causing serious injury to New York growers. I have analyzed Canada’s export policy and found that there is no evidence to support this allegation. There are no subsidies to Canadian onion growers that would alter the price and create an unfair competitive advantage for Canadian exporters. 
 
New York onion growers are focused on Canadian yellow onion imports as they are direct competition, but they are also secondary/indirect competition coming from sweet onions year round. Because sweet onions are becoming a generic all-purpose onion for fresh eating and cooking, sweet onion now compete with pungent onion. The largest U.S. growers and shippers of sweet onions have established production in Mexico and Peru, and have become exporters of onions to the U.S. to meet consumer demand year-round.
 
Furthermore, my results show that the yellow onion market in the northeast part of the U.S. seems to run correctly, without competitive distortions. Growers and handlers try to compete with other onion supply chains that have better productivity and lower production costs. To maintain their onion market shares, New York onion growers use a single driver: low price. Over the last 10 years (2011-2020), in U.S. Northeast region, the current retail price of yellow (pungent) onions has decreased from US $1.06 to US $0.90 per pound. However, to reduce the price to consumers, retailers have reduced their share of the value. I examined New York onion price data for the 10-year period 2010 to 2020. At the beginning of the period (2010/2011), retailers received about 72% of the total value, and by the end (2019/2020), this portion declined to 63%. Retailers lost 9% on average. Four-percentage points have been captured by second handlers and five-percentage points by first handlers-growers. At the end of the period, when consumers paid US $0.90 per pound, 23 cents went to growers-first handlers, 7 cents to second handlers (packers), and 60 cents to retailers. These results contradict the notion that retailers have increased their profitability at the expense of growers and handlers. 
 
New York onion growers cannot change their position in the hierarchy of the yellow onion market. Consumers consider yellow (storage) onions a staple food and retailers use them in a “loss-leader” strategy. As a loss leader, retailers don’t use this onion to make profit; they are selling generic yellow onions below cost to attract customers (e.g., via promotional price discounts). But Retails will only accept a certain level of loss. The net result for New York onion growers is that they are caught in a low-price trap.
 
Within the low-price trap, there is price volatility suggesting as there is no volume control in the supply chain. Volatility can lead to asymmetric price transmission. Price transmission is the process by which upstream prices influence downstream prices and vice versa. However, I show no asymmetric price transmission or market power on either the grower-handler or retailer sides. In the long-run, shipping prices, terminal market prices, and retail prices move together. Moreover, I found that shipping price drives the terminal market price, and the latter causes retail price. Indeed, first and second handlers operate as if they were price makers even if it is “a low price”.
 
Therefore, like the Vidalia onion, I recommend that New York onion growers transition at least a portion of their production from the current unprofitable “supply chain” to a new value-added strategy based on a black dirt soil terroir to create a new, more profitable, and sustainable “value chain.” This new approach requires collective investment in the shared advantages the New York muck onion growers have-- unique soil, climate conditions, local onion varieties, and know-how. 
 
At the end of the report, I offer a cost/benefit analysis that shows, with given parameters and strategic investments, the New York muck onion community has the potential to capitalize on a new New York brand of onions that realizes benefits for all stakeholders in the state’s onion industry, not only growers, but also handlers, retailers, and consumers. I have developed a budgeting tool for New York onion farmers to use to help in making the decision to transition a portion of their onions to a new value-added onion brand[1].
 
In addition, I have also conducted an economic impact analysis of the New York State onion industry. This economic impact analysis shows the importance of the New York onion industry in terms of gross output, labor income and value added.  In a first scenario called the “branded onion scenario”, the change is an increase in onion sales at the farm gate in New York. This reflects the opportunity to develop a strategy of differentiation via a new premium branded onion. I show growers are able to generate a gross output surplus of $15.2 million. In this scenario, the direct effect is $15.2 million and a creation of 185 new jobs. The increase of labor income is $5.3 million and the value added has gone up over $8 million. In a second scenario, I evaluated the importance of the New York onion industry by modeling a change in which the onion sector shifted production to grain crops such as corn. In this scenario the onion industry loses its $41 million gross output to the grain crop sector. The grain crop sector would increase its acreage by approximately 7,200 acres to generate $4.7 million in new gross output, the direct effect for the onion industry would be a loss of $36.3 million and a loss of 472 jobs. The decrease in labor income would be $13 million and value added would decrease by over $19 million. 
 
To conclude, this report sheds light on the complexity of the onion industry in the U.S. The analysis at the farm gate and at the scale of the onion industry in New York State shows that there is potential to develop a profitable new value chain. The key challenge is for growers and handlers to believe in their strengths and seize the opportunity. To begin exploring this new approach, a group of onion growers begin meeting in 2020-21. With the support of the AgriCluster Retention and Expansion (ACRE) project, led by the Thomas A. Lyson Center, a nonprofit affiliated with Cornell University, these onion growers have drafted a Vision Statement: “New York Muck Onion industry will command a special market segment where consumers value a unique product. This segment provides increased profit, protects competitive advantage, and resiliency/vitality/vibrancy/well-being for growers and all constituents/members of the value chain”. With ongoing support from the State of New York, I believe the muck onion growers could achieve this vision.
 
Keywords: Onion industry, Market strategy, USDA, Price analysis, New York State, Muckland production, Terroir
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[1] An Excel spreadsheet to map out all the possible alternatives to onion growers’ decision exists. If you would like to get this Excel spreadsheet, please email philippe.jeanneaux@vetagro-sup.fr