People have embraced the taste of almond products. The question now is whether they can stomach higher costs.

The almond is having its moment.

Though criticised for being a water-thirsty crop grown mostly in California, almonds are more popular than ever. And spreads made from the tree nut are increasingly supplanting peanut butter in US lunch boxes and pantries. Americans are eating about 2 pounds of almonds per person annually, double the amount they consumed just seven years ago.

Protein-rich Paleo diets, peanut-butter allergies and evolving tastes have all fueled demand. That's sent major US food makers such as Hain Celestial Group and JM Smucker into the market, where they're vying against smaller suppliers. Almond butter now comes in a range of flavours, including maple and dark chocolate.

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But the almond craze has come at a cost. The growth in consumption - coupled with smaller crops - have sent prices surging to record levels. With California in its fourth year of drought, the burgeoning assortment of almond products is in danger of becoming too costly for most consumers.

"Almonds a year ago were priced at about $3.30, and we thought that was an exorbitant price," Stephen Smith, Hain Celestial's chief financial officer, said on a conference call last month. "And here we are looking at prices in the mid-$4 range."

Stealing market share

For now, almond spreads are stealing market share from peanut butter. US sales of specialty nut butters - including those made with almonds - have more than doubled since 2011, according to research firm IRI. They jumped 22 per cent last year to reach $448.9 million. Peanut-butter sales, meanwhile, fell 4.1 per cent.

More kids have peanut allergies these days, sending parents in search of alternatives. The number of US children who can't eat peanuts tripled from 1997 to 2008, according to Food Allergy Research & Education Inc. For that reason, some schools have banned peanuts altogether.

The situation prompted Smucker to get into the almond-spread business in 2013. The company rolled out an almond-butter version of Jif in creamy and crunchy varieties, becoming the first national brand to make the move. Jif also sells cashew butter and hazelnut spreads.

"There's a little peanut-butter fatigue, and you have people who want to try different types of spreads," said Bloomberg Intelligence analyst Kenneth Shea. Consumers are more willing to experiment, and almonds have a lot of protein, he said.

Healthy eating

Americans are trying to eat healthier and cut back on carbs, making almonds more appealing. They're high in monounsaturated fats - the good kind - and don't have any cholesterol or sodium. They're also gluten-free and a source of fibre. All of this makes them an obvious choice for Paleo dieters and wheat-free consumers.

But almond butter and similar spreads are pricier than peanut butter. Specialty nut butters cost $4.60 per unit on average, while peanut butter was $3.49, according to IRI.

Escalating prices are making life hard on the industry's pioneers, who have spent years refining their products to improve the taste.

Take Justin Gold, the founder of Justin's in Boulder, Colorado. He started the company in 2004 because the almond butters sold at the time were "soupy," he said. Gold began slicing the almonds very thinly with his food processor, instead of pulverising them, to minimise oil separation.

The company, which now sells products at Whole Foods, Kroger and Target, has seen almond costs jump more than 50 per cent in the past two years. Justin's has only raised its prices about 15 per cent, not wanting to scare away potential customers. But Gold is concerned about the future.

Crop down

"If it doesn't rain, we're going to see continued almond price increases," he said.

Hain Celestial, which sells the MaraNatha brand of nut butters and dark-chocolate almond spread, has begun looking outside California for supplies. While the state produces about 80 per cent of the world's almonds, they're also grown in Israel and Spain.

Almond prices reached a record in November after last year's harvest, when the drought hurt yields, according to the Bureau of Labor Statistics. The US crop is down 7 per cent this year and expected to decline again next year, according to the USDA.

During harvest, which runs from mid-August through October, the nuts are shaken from trees and dry on the ground for about 10 days. They're then swept into rows and picked up by a machine.

Almonds are the highest valued tree-nut crop in the US, worth about $6.46 billion this year, USDA data show. That's more than apples and strawberries combined.

It's clear Americans have embraced the taste of almond products, Gold said. The question now is whether they can stomach higher costs.

"There's a ceiling somewhere at some point," he said. "But we haven't hit it."

- Bloomberg