Naumes, Inc.

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Naumes, Inc.

2 West Barnett Street
Medford, Oregon 97501
U.S.A.
Telephone: (541) 779-9951
Fax: (541) 772-3650
Web site: http://www.naumes.com

Private Company
Incorporated: 1946 as Nye & Naumes Packing Co. Inc.
Employees: 700
Sales: $39.7 million (2005)
NAIC: 111331 Apple Orchards; 111339 Other Non-citrus Fruit Farming; 424480 Fresh Fruit and Vegetable Merchant Wholesalers; 311411 Frozen Fruit, Juice, and Vegetable Processing

Naumes, Inc., grows and ships a variety of fruit and is the world's largest grower of Bosc and Bartlett pears. The company is also the leading independent industrial fruit juice processor in the United States. Operations encompass 7,000 acres and cold storage and packing facilities in California, Oregon, and Washington, which are also the states where Naumes sells its products.

BECOMING ONE OF THE LARGEST DOMESTIC FRUIT GROWERS

In 1946, after completing his military service, William Joseph "Joe" Naumes returned to Medford and founded Nye & Naumes Packing Co. Inc. with Stephen Nye. Naumes had been born in Hood River, Oregon, in 1910, and graduated from Santa Clara University in 1934. Naumes's grandfather, Peter Naumes, had earlier begun a fruit growing, packaging, and shipping operation in Oregon's Rogue Valley on land once owned by John Sutter. This land now belonged to Joe Naumes.

The Rogue River Valley is an area in Oregon well known for its rich fertile soil and its many orchards that produce some of the finest apples and pears in the United States. Naumes settled into the agricultural business with his wife, Frances McCormick. After Naumes and Nye parted company, Naumes renamed his business Naumes, Inc. The business remained a closely held family venture, involving Naumes, his wife, and the couples' three children, Susan, Mary, and Michael. The children started moving irrigation pipe at age 11, and by the eighth grade, they were picking, thinning, and smudging (protecting trees against frost and insects) in the orchards.

From the 1950s through the 1970s, Naumes, Inc., grew, acquiring additional acreage for apples as well as pears in California and storage facilities in and around Medford. In 1981, the company moved into Washington State's Yakima Valley. By the late 1980s, the company holdings totaled close to 3,000 acres in Oregon, Washington, and California.

As Naumes grew, so did its reputation as one of the largest domestic growers of pears. Joe Naumes became known for his warmth and personal integrity. In 1986, he received the horticultural society's Centennial Award for distinguished service to his industry. In 1987, the Oregon Horticultural Society awarded Naumes the Hartman Cup for his contributions to horticulture, and Santa Clara University gave him the Ignatian Award in recognition of distinguished service to humanity.

However, unfortunately for Naumes and other domestic growers, the market for apples began to change in the late 1980s. From 1987 to 1989, demand for the fruit crashed as people's fears about the chemical alar, which growers used to make apples look better and store longer, spread. New Zealand growers took advantage of the slackened demand for domestic fruit to begin exporting Granny Smith apples, which became almost immediately popular, into the United States. Apples grown in Asia, too, began to make their way into the American market and onto the American table.

By the early 1990s, growers throughout southern Oregon had responded to these foreign incursions by planting the varieties of apples grown abroad—Gala, Braeburn, Fuji, and more. The year after Joe Naumes's death in 1989, Naumes, which had by then become a major regional fruit growing and processing company, filled its new orchard in Grants Pass with dwarf root stock of foreign origin. The dwarf apple trees' small size allowed for as many as 650 trees per acre. "You used to grow apples so they would come into production in 10 to 15 years' time and keep producing for 70 years," explained the company's horticulturist in a 1994 Oregonian article. The Grants Pass orchard came into production in 1994 after only four years.

The company unfortunately suffered bad luck of a different sort during the early 1990s as a series of fires broke out in some of the large and aging packing facilities it owned in Oregon. The first of these fires occurred in 1991, and took the life of a worker trapped in a cold storage facility. In 1993, three fires struck in quick succession, the first destroying the roof of a building. The second, which began two weeks later in Medford, destroyed half a block of a packing and processing plant used for fruit sorting operations. The third fire raged through and demolished another two-story packing facility.

DIVERSIFICATION, NEW MARKETING STRATEGIES, ACREAGE REDUCTIONS

Despite such setbacks, Naumes continued to grow. In 1993, it was named one of three Oregon Family Businesses of the Year for its "innovative leadership, community activities, and integration of family and business." Like other Oregon farmers, it had begun to diversity into value-added products, adding fruit processing to its growing operations, to increase profits and deal with the fact that there was more fruit in the world than stores were buying. In 1992, Naumes bought a processing plant in Marysville, Washington, and began producing concentrates for juices, jams, and jellies. A second purchase of a juice concentrate plant in California soon followed. Also during the 1990s, Naumes began selling pears and apples under a label that certified their environmentally friendly farming practices.

However, by 1998, prices for juice apples were only a third of what they had been the year before as competitors from China undercut American growers. China was at the time the world's leading apple producer and had also begun building apple juice processing plants to handle surplus fruit. Though Naumes had become one of the largest pear growers in the world and the largest independent fruit juice processor in the United States, it idled its juice processing plant in Wapato, Washington.

Naumes also reduced its orchard holdings in Jackson County by 800 acres, leaving the land fallow rather than continuing to invest money in harvesting fruit for which there was no market. "We may go down to 2,000 acres, but I don't expect it'll affect our overall production," Mike Naumes, president and chief executive of Naumes, Inc. announced in a 1998 Oregonian article. "Our home is here in the Rogue Valley, and we expect we're going to be survivors. We're trying to be cutting edge. We're not just giving up."

Survival also entailed changes in marketing strategies. In Joe Naumes's day, growers sold to hundreds of fruit wholesalers and brokers, who in turn sold to the retail market. With the rise of the grocery giants, however, Naumes had to sell directly to fewer than eight grocery chains. Marketing was viewed as "the final funnel," according to Mike Naumes, in a 1999 Oregon Business Journal article. His company's new infrastructure included a computer system to track fruit shipments and informal alliances with competitors to meet the giants' demands.

COMPANY PERSPECTIVES

Our family has been growing, packing and shipping our own fruit for nearly 100 years. Today we are the largest grower of pears in the world—and committed more than ever to meeting our customers' needs.

The company's survival strategies paid off, although times continued to be rocky. In 1998, Naumes won the award for high-value added products at Oregon's agricultural awards. In 1999, it became the primary sup-plier of produce for Albertson's, the second largest grocery chain in the United States. It also purchased Gilco Apple Corp.'s juice plant in Wenatchee, Washington, completing a string of plants from California to Washington and giving it better access to Canadian markets. That plant, however, shut down temporarily in May 2001. "There just aren't enough juice apples to keep that line running," Mike Naumes announced in the August 2001 Wenatchee Business Journal, "We'll have to wait until the next crop of apples comes in."

By 2000, Naumes was diversifying in a new direction. It launched a line of prepackaged, fresh-cut bagged apple slices in a joint venture called Fresh Products Northwest that it undertook with Dovex Fruit Co. of Wenatchee, Washington. The fruit was treated with NatureSeal, a vitamin-mineral coating of Vitamin C and calcium, to keep it from turning brown for up to three weeks in a refrigerator. The "Crunch Pak" product was distributed to wholesalers and retailers in 17 states in the west and Midwest. At first it appeared sales of Crunch Pak would be slow, but, within months, Fresh Products Northwest could barely keep up with demand. The Washington Apple Commission did marketing tests that showed that two out of three people chose sliced apples over carrots when presented side by side. Other reports showed that sales of apples had increased 80 percent with the introduction of the apple slices. Marketed through Sysco Food Services of America, schools, and retailers, Fresh Products Northwest introduced two ounce packages of sliced apples designed for lunch boxes with the beginning of the school year in the fall of 2001. It also made plans to introduce pear slices.

CONTINUED HARD TIMES LEADING TO REPLANTING AND REZONING

Still, foreign fruit imports and the concentration of retail distribution channels conspired to create additional financial woes for southern Oregon pear growers as the decade came to a close. With more than 94 percent of the country's pears produced in Oregon, Washington, and California, pressure from imports narrowed the marketability and depressed the price of Pacific Northwest fruit. Lower wages for workers, lenient land use laws, and foreign government subsidies, as well as the use of pesticides and herbicides banned in the United States, meant that foreign farmers could offer fruit at a price well below what domestic farmers spent to grow it. Imported pears doubled between 1996 and 2001.

At the same time, Chinese apple juice began to be substituted for pear juice, devastating the apple market and nudging pear growers out of the fruit juice market entirely. In 1997, juice producers got about $130 for a ton of fruit juice. In 1998, when Chinese apple juice imports started coming in, the price of a ton of domestic juice went down to $30.

Hard times for Jackson County's pear industry got tougher yet in 2002 as the worst case of fire blight in more than a generation destroyed hundreds of acres of trees. A short heat wave in May followed by cooler, wetter weather had initiated the fire blight, a destructive bacterium that attacks pear and apple trees and is spread primarily by bees, insects, and wind. The disease, which breaks down the cambium, the thin layer between the bark and the wood and causes branch tips to turn brown, can kill a tree within hours.

Naumes, which farmed nearly 2,000 acres of pears, had "a couple of real hotspots of 150 to 200 acres," according to Sue Naumes in a 2002 Mail Tribune article.

KEY DATES

1946:: Joe Naumes founds Nye & Naumes Packing Co. Inc. with Stephen Nye.
1981:: The company moves into Washington State's Yakima Valley.
1989:: Joe Naumes dies.
1992:: Naumes buys a fruit processing plant in Marysville, Washington.
1999:: Naumes becomes the primary supplier of produce for Albertson's; company purchases Gilco Apple Corp.'s juice plant in Wenatchee, Washington.
2000:: The company starts a joint venture called Fresh Products Northwest with Dovex Fruit Co. of Wenatchee, Washington.
2003:: The company ranks 110 on Oregon Business 's Top 150 list.

As a result, despite remaining number 110 on Oregon Business Magazine 's Top 150 list, Naumes turned its attention to other means of securing its future in 2003. "The economics have totally gone out of the fruit industry. What we get for our product continues to go down and it doesn't pencil out very well," observed Mike Naumes in a 2003 Mail Tribune article. The company further reduced acreage in California and Washington and leveled a thousand acres of pear trees in the Rogue Valley. It replanted some of its historic orchard blocks in Oregon with new, denser stock, and replaced apple trees with cherry trees in California and Washington.

The company also rezoned some of its land for commercial, industrial, and residential use. "We'll continue our juice concentrate operations, but we're moving more and more into real estate and real estate development," Naumes said. The company had closed its Wenatchee concentrate plant by 2003, but continued to operate its other plants in Wapato and Marysville.

Then, suddenly in 2004, pear production exceeded expectations by 10 percent. Naumes, which operated 1,700 acres in three states, had "so many young trees coming on and some of the acreage we really haven't heard from" that it produced two and three times what it had in the past. "Coming off a light year, I was surprised how much tonnage there was and the size was about where we like to see it," celebrated Mike Naumes in a 2004 Mail Tribune article.

After the banner Bosc harvest of 2004, there was a 25 to 30 percent drop in production in 2005. However, growers benefited from the higher prices brought by California's leanest green Bartlett crop in 45 years. In 2006, as the market for pears rebounded, Naumes began planting 7,500 pear trees on a 60-acre site in Medford, with another 2,500 to follow. "The key thing is we're trying to maintain an overall economic unit," Mike Naumes reasoned in a 2006 Knight-Ridder/Tribune News article. "It's a balancing act."

Naumes began supply agreements with Costco and other major retailers. The company planted Golden Bosc, Star Crimson, and French Butter to extend its growing season into the middle of the fall on 500 acres that from the 1980s to 2004 were a Granny Smith apple orchard. With 2,100 acres in production, Naumes was also increasing its cherry orchards and strived to improve operations overall while keeping its eye on importers. "Retailers don't understand agriculture and don't really care," Laura Naumes, Mike Naumes's wife, asserted in the 2006 Knight-Ridder piece. "If imports are cheaper, they can make better margins. Because of global competition, you have to do everything well…. You have to grow it well, pack it well, and have a good sales team marketing it."

PRINCIPAL SUBSIDIARIES

Naumes Concentrates Inc.

PRINCIPAL COMPETITORS

Chiquita Brands; Dole Food Company, Inc.; Fresh Del Monte Produce; Auvril Fruit; ConAgra, Inc.; Doves Fruit; Gold Digger Apples; Greenridge Fruit; Holtzinger Fruit; Hudson River Fruit; Jones Produce; Liberty Orchards; Matson Fruit Company; Red Jacket Orchards; Riveridge Produce Marketing; Sierra View Sales; Sun Orchard Fruit Company, Inc.; Sunsweet Growers; Tree Top, Inc.; United Apple Sales.