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While coming at a very inopportune time, local filbert producers hopeful that dispute will lead to removal of existing Chinese tariffs

GRAPHIC FILE PHOTO - Yamhill County is the primary producer of hazelnuts in Oregon and within the United States.

With hazelnuts included in China's retaliatory tariffs against the United States, it could be a rough year for local farmers when it comes prices this fall.

Oregon hazelnut growers and handlers have been dealing with a 25 percent tariff and a 10 percent value added tax (VAT) on their product in China for years, but were hit with additional 25 percent and 15 percent tariffs this summer in response to the Trump administration's measures on Chinese imports.

And while slapping an additional 75 percent overall on its products in a major market is likely to hurt the price growers get this year, they are taking a surprisingly optimistic view on the situation in the long term.

Too small to garner attention in U.S.-China trade talks in the past, the hazelnut industry is working to include a solution to its long-standing tariff problem in any new trade agreement.

"Already it was unfair through the years, so here's an opportunity to talk about that and, hopefully in the long term, be able to perhaps bring it to levels that would make us competitive," said Polly Owen, director of the Oregon Hazelnut Industry Office in Aurora. "We're trying to take this and find the silver lining to the tariff cloud."GRAPHIC FILE PHOTO - Hazelnut processors in Oregon have been the brunt of tariffs and valued added taxes for many years.

As the largest county in the state for hazelnut production, Yamhill very much mirrors the industry at the state level, which in turn represents about 3.5 percent of the world market. In turn, the tariff situation with China is impacting hazelnuts more than any other agricultural industry in the county.

According to Owen, virtually all of the Oregon hazelnuts sent to China are unshelled, which represents about 35 to 40 percent of overall production. China does produce its own hazelnut varieties, but they are much smaller than those from Oregon.

"What they like to do with our hazelnuts is they take them in shell and crack them just barely so they're more like a pistachio," Owen said. "Then they brine them and sell them as snack nuts. Ours are really not in competition with theirs."

Oregon's nuts are in competition with those from other countries, like Chile, which do not face any import tariff in China.

"Chinese consumers love Oregon hazelnuts," said Larry George, co-founder of George Packing Company in Newberg. "They just can't get direct access to them and we would love to ship directly to them, but we can't."

About half of each year's crop is sold unshelled, with the other half going to the kernel (shelled) market. The U.S. kernel market is a major one and Oregon farmers do tap into it, but the worldwide kernel market is dominated by Turkey, which produces 70 percent of all hazelnuts.

George said that in most years, at least one of the two markets is good and Oregon producers can shift their product correspondingly, but that will be much harder in 2018 because the kernel market is also down.

"But what's really happened since the Turkey coup attempt, their currency has been reduced by more than half and that's creating a big problem," George said. "The big market for hazelnuts is the kernel market and that market is heavily depressed because of the Turkish lira. The trade dispute with China is coming at an inopportune time for us to change markets."

Owen said that the price growers get from handlers, which was 91 cents per pound (in shell) in 2017, will be set in early September. Harvest is likely to begin shortly after that, perhaps as soon as mid-September, and handlers will start selling soon after.

Owen noted that the Oregon hazelnut industry is growing steadily, expanding from approximately 30,000 acres in 2008 to more than 70,000 this year, with more of recently-planted orchards of blight-resistant trees approaching full production each year.

According to George, the existing Chinese tariffs were already forcing Oregon hazelnuts to be sold and shipped to third parties, which cuts into profits for both growers and handlers (processors), of which George is both.

Finding markets for the increasing production will be an important part of growth, but George said it's less than ideal to build an industry on basically a "smuggled product."

"We need to build an industry on getting our trade situation worked out," George said. "The reality is that we don't really ship anything directly to China now because of the previous tariffs."

That's why George and others in the industry have been making an earnest effort the past five or six years to address the Chinese tariff. So when the trade war developed, they seized on it as an opportunity to be heard.

"It's opened up a lot of dialogue between us and the Chinese government, the U.S. administration," George said. "Our congressional delegation has been super helpful in raising hazelnuts as a major issue in all these negotiations. (The trade dispute) could have a big impact (on prices this year), but the reality is that we have to make a change from what we had prior to this year."

The good news, and the source for much of the industries optimism, comes from those discussions, which have included meetings with the Chinese general consul based in San Francisco.

"Our read is that the Chinese government views this as something that is definitely workable and fixable for them," George said. "The U.S. government is looking at us like this is a win for everybody. It's a win for the Chinese consumer, it's a win for the Oregon farmer."

The trouble is that there's no telling when the trade dispute will be settled, but if it is and the result is elimination or significant lowering of Chinese tariffs on hazelnuts, George believes it will have been well worth it.

"It's sort of long-term gain, short-term pain," he said.

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