David Marguleas, CEO of Sun World: The global grape industry is in the midst of a profound transformation

link original, pinche aquí

Sun World is one of the most recognized names in the global fruit breeding industry. Since its establishment in California in 1976, the company has become a hugely influential force in the world of new table grape and stone fruit varieties.

One of the key people at the organization’s helm over the decades has been David Marguleas. Having studied Communications and Food Marketing at Cornell University’s College of Agriculture from which he received his bachelor’s degree, he joined Sun World a decade after its founding by his father, working in different areas of the business, which at the time was a grower-marketer involved with around 250 produce items. In 1989, Sun World made a pivotal move into varietal breeding through the acquisition of Superior Farming Company, a development that brought fruit breeding into the Sun World portfolio and tripled the company’s size almost overnight. The younger Marguleas immediately latched onto the opportunity to use the breeding program and proprietary varieties that came from it as a strong differentiator globally.

Thirty years later, and after numerous metamorphoses reshaping the company’s product line, ownership and business strategy but never veering far from its commitment to innovation, in 2019, Sun World announced that it was divesting its farming and marketing operations to focus entirely on breeding new fruit varieties and licensing them to producers around the world, with Marguleas at the same time moving from Executive Vice President to CEO. Then earlier this year the remaining part of the business was acquired by British private equity investment group Bridgepoint.

We spoke with the industry leader about the thinking behind some of Sun World’s most recent announcements, what the future holds for some key mature and emerging production regions, and the widespread disruption that the grape industry faces as it moves into a new chapter.

 


It was interesting that in 2019 Sun World sold its farming and marketing operations, given that the trend nowadays is towards more integration. What led to this decision, and how has the transition been going?

 

The transition was motivated by our shareholders at the time. As with many outside investment groups, they worked on a defined time horizon, and decided to start thinking about exiting this particular investment.

At the same time, we conducted a deep analysis of Sun World’s key strengths and competitive advantages and identified our longstanding fruit breeding program and IP portfolio – and the moat we had built around both over many decades — as a true point of difference. We also recognized the inherent tension between a substantial fruit farming operation and a fairly modest but still very significant varietal development business.

While there may be a tendency toward vertical integration, most companies in the produce world don’t vertically integrate backwards quite as far as genetics. There are currently a few vertically integrated businesses that are engaged, and successfully so, in everything from breeding to packing and marketing. The notion of one company not only breeding and farming and packing and marketing fruit but distributing those varieties and building a licensing business around them alongside of their own production and marketing activities, created an opportunity for clarity about our strategic vision, about what was best for our shareholders and for our licensees.

We recognized the benefits of specialization and on focusing on what we do best. And that led to the divestiture of our California farming operation and precipitated the expansion of our genetics endeavor well beyond table grapes and stone fruit.

 


You now have an equity position in Sun World. Does that change anything about your relationship with the company?

 

My willingness to invest in Sun World sends a strong signal to our employees and our licensees, as well as to the broader produce community, that I am more committed than ever to this business, and that my interests are tightly aligned with Bridgepoint as the majority shareholder.

 


How would you characterize the evolution of the table grape industry over recent years?

 

The way in which table grapes were grown, picked, packed and sold has not changed much over at least the last hundred years. Yet, in the last 10 years we have seen a massive change in technology, trellising systems, automated packing, and variety development. And it’s been refreshing to see grapes being sold at retail with more theatre and excitement. The packaging industry, too, is responding well with new innovations and enabling the more contemporary promotion of grapes within supermarkets.

 


An increasing number of retailers nowadays are focusing on varietal promotions. Do you see grape consumers becoming more educated and aware of these different brands?

 

I think there is an opportunity for the grower and the marketer or exporter (and thus the retailer) to identify the variety on the punnet on the bag, and on the clamshell label and to give the consumer a reason to look for that variety and its desired characteristics on return visits to their supermarket. We’ve seen increased interest from consumers to understand where fruit is grown, and to identify its flavor and quality characteristics. Often brands are the best way to communicate that message.

We are seeing more and more interest particularly in places that have traditionally not embraced branding like the U.K. and on the continent of Europe.

 


In many markets there has been a retail trend towards more plastic packaging like clamshells and punnets, especially since the start of the pandemic. How does that fit in with the overarching sustainability trend?

 

That’s a great question. There is no doubt that our industry and the packaging industry, in particular, have more work to do in developing more sustainable packaging. There is clearly a desire on the part of the consumer for polybags, but there is equal concern about the environmental sustainability or lack thereof of that type of packaging material. Our industry has been looking at a number of more environmentally conscious and responsible packaging solutions and we clearly have more work to do in that area.

 


Grape imports into mature markets like the U.S. and Europe have seen limited growth over recent years compared to other fruits. Do you think there is much room for growth left?

 

I think there is, but it is going to come largely on the shoulders of the season and as replacements for undifferentiated less desirable legacy varieties. Over the last five or six or seven years, producers in Peru and Brazil, and to a lesser degree Chile, started to overlap with a number of other major growing regions in the northern hemisphere. There is redundancy between Spain and California, and certainly Peru and arguably parts of Chile as well, so that is probably more responsible for the modest growth in imports to the U.S. and Europe.

But we are seeing a number of new growing regions around the world that are starting to supply fruit for the export markets during more non-traditional supply windows. There are also now regions in the northern hemisphere that are attempting to meet new supply windows. Parts of Mexico are developing supply capabilities that we would not have dreamed would be available a number of years ago, and there are new growing areas in Central America. And there are certainly the longer-term prospects of massive disruption and the marketplace from large growing countries like China and India and Turkey, which has huge implications for the global table grape industry.

 


What kind of disruption do you expect to see from those last countries you mentioned?

 

Turkey obviously has a massive footprint and production capability on the doorstep of Europe. As countries like China and Turkey and India continue to make that shift from varieties that are older, undifferentiated – and in most cases, seeded – to more contemporary, proprietary seedless varieties that consumers are used to enjoying from the southern hemisphere, that is going to further drive the transition from those countries being largely domestic suppliers to exporting more fruit to regional and international markets.

 


What level of disruption do you foresee coming from other emerging supply regions such as North Africa and Jalisco in Mexico?

 

North Africa is strategically positioned to satisfy the supply needs of both Europe and the UK as well as other markets just ahead of the major northern hemisphere growing regions like Spain and California. So Morocco, Egypt, Tunisia – and to some degree Israel, and some of the other countries throughout the Middle East – can supply markets in March, April May, in addition to Jalisco, and also some places in Peru and Brazil due to new growing practices and technologies.

 


What do you think the future holds for mature growing regions like California?

 

Our industry is undergoing a profound and dramatic transformation largely driven by varietal conversion, but also by a number of technological advances that are facilitating labor and supply chain efficiencies and quality enhancements to the end product.

But as those varieties change and as those other market windows start to overlap and there is redundancy between established supply region, it will create healthy disruption, and big changes in the marketing practices and in the destination for that fruit.

All of the traditional markets for most of the last half century have been relatively constant, but we see them becoming more fluid and opportunistic.  On the one hand that is disruptive, and on the other it creates great opportunities for the grower-shipper community and the retailers they service to realize some unique opportunities to sell fruit in non-traditional windows.

 


Do you expect Peru’s massive growth rate of the last few years to continue?

 

I think Peru’s growth will level off and there will need to be some balancing out of competitive supplies between a number of these producing regions, mainly the late San Joaquin Valley production in California and the Peruvian production in that same fourth-quarter window, as well as the early start of Chile in Copiapó, and certainly the southern part of Spain that really aims for that same market window.

 


What do you think the future holds for Chile?

 

In spite of some extraordinary external challenges in Chile, and growers there initially being slow to respond to the varietal conversion underway in other competing regions, I am bullish on the prospects for success in Chile.

The Chilean industry has responded aggressively and with resilience to those challenges. There are some extraordinarily capable agricultural businesses, farmers, and exporters in Chile, and I see them rebounding quite nicely once we get through the last couple of years of largely weather-related challenges and social and political issues.

The traditional markets that they have supplied are largely supportive of the Chilean grape industry, but it is going to have to reset itself and continue to move aggressively toward the kind of varietal conversion that a number of the other countries with whom they compete have done throughout the last few years.

 


Speaking about new varieties, what new technologies are being incorporated for table grape breeding?

 

Since the inception of our breeding program forty years ago, we have been reliant on conventional breeding practices or hybridization, where we combine the favorable commercial traits of one parent with another and create many hundreds of offspring that ideally has a combination of the two parents’ most desirable traits. Increasingly we are looking at new technologies, not genetic modification, but new molecular breeding technologies that might enable us to create more efficiencies and to target more precisely the kind of flavor profiles and consumer traits that our industry is focused on.

 


Do you think these new varieties are enabling the grape category to increase its share of total fruit sales at retail, or are they simply helping it to hold its ground amid strong competition from other fruit categories?

 

In recent years we have seen some cannibalization of the grape category, as some of these redundant and undifferentiated varieties continue to come out of production and are replaced by better tasting, more highly productive varieties in the marketplace. I think we will see the grape category continue to grow at the same pace that it grew in the last decade, but we need to clean out the system and really work hard at introducing varieties that meet consumers’ needs and expectations as well as those of the producers investing in them.



All around the world now there are soaring costs of labor and other inputs for agricultural companies, while prices in the market remain the same. What do you see as the ramifications of this?

 

Supply consolidation amongst growers and exporters, will help fuel cost efficiencies. But there are also technologies that will become increasingly important to the grower-shipper community globally as they wrestle with reduced labor availability and increased labor cost. Our industry will need to embrace automation to a much greater extent than what we have been willing to do today, in both the field as well as the packhouse. Going forward, in virtually every country we operate in, we see pressures on an available workforce to help pick and pack highly labor-intensive crops like table grapes.

 


What opportunities are there for higher levels of automatic and mechanization in the grape industry?

 

It has really been in the last decade that we have seen automation introduced at the packing level, and that required a major process change for most table grape growers around the world. But the real opportunity, where the most significant labor expenditure and need occurs, is during the harvest itself. We are working with a number of robotics and automation companies that help bring some noteworthy solutions to our licensees around the world.

 


Are there some promising things in the pipeline?

 

We are excited about automated transport of produce in the field as well as some initial robotics solutions for harvesting and packing the fruit as well.

 


Given the numerous challenges the grape industry is facing, how optimistic are you about its long-term future and prosperity?

 

The produce industry, and especially the grape producers within it, thrives on adversity. Over the last couple of years, we have seen massive transformation in the regions where grapes are grown, the overlapping supply patterns and certainly the dramatic conversion of traditional varieties to proprietary ones. These changing dynamics have created adversity for some. Yet, for the truly creative and progressive players in the industry, I there will continue be opportunities to fill new market niches and to satisfy the increasing needs of the retail sector for different flavor profiles, different seasonality and different packaging. I’m encouraged by the long-term prospects for the grape industry, but it will require the same characteristic determination, optimism and vision that has long typified fruit growing and marketing.

Compartir