How Worms, Droughts, and Russia Could Slow the Booming U.S. Pistachio Industry

American pistachio farmers are up against natural and political threats to their crop.

Pistachios have surged in popularity in the last few decades, turning from an expensive, luxury import into a snack sponsored by the likes of Stephen Colbert and Korean pop phenomenon Psy in Super Bowl ads.

But the transformation is not without its challenges. For now, an explosion of global demand for the nut has shielded the industry from the effects of political changes overseas, but supply is affected by a number of environmental factors.

Among the natural threats to American pistachio trees is a fungal disease called Botryosphaeria, which threatens more than just pistachios: almonds, pecans, and walnuts are also affected. The disease is very difficult to manage, and its spread has accelerated in recent years. Trees are also suffering more than ever before from the effects of the navel orangeworm, a moth native to the southwestern U.S. that feeds on a variety of nuts and citrus.

At the same time, California, where 99 percent of the American pistachio crop is located, is experiencing the most severe drought on record. The extreme water scarcity is taking a toll on the trees, even though they are drought-resistant plants. "I'm paying five times the normal price for water," Tom Dille, CEO of a pistachio farm near Sacramento, Calif., told CBS San Francisco earlier this summer. He said that farmers struggling to keep up with the price of water may soon have to pass on the extra cost to consumers.

On the demand side, American pistachio exports are feeling some pressure from recent political circumstances. Earlier this month, Russia imposed an import ban on most foods from the U.S. and the European Union, abruptly cutting off the industry from its seventh-largest export partner.

"The loss of any market could potentially hurt the industry," said Richard Matoian, executive director of American Pistachio Growers, a trade association that represents farmers. He said the hole left by the disappearance of Western pistachios in Russia will likely be filled by Iran, the U.S.'s largest competitor for pistachio imports. As the U.S. and the E.U. relaxed sanctions on Iran in the past year, Iranian pistachios saw an almost 95 percent uptick in exports, according to the country's customs bureau.

But the effects of political developments in Russia are largely offset by the global demand for pistachios. Demand worldwide far outpaces supply, according to Judy Hirigoyen, APG's director of global marketing, and is only growing. More than a quarter of U.S. pistachio exports go to China; Europe and North America remain important export partners. The domestic market is growing as well. Hirigoyen says APG only recently started marketing to American consumers, and the nut still has a lot of catching up to do when compared with the more popular ones in the U.S., such as almonds and peanuts. But USDA data show that domestic pistachio consumption has been growing in the last five years, and that pistachios surpass hazelnuts and macadamia nuts in popularity.

But the positive demand outlook is little consolation for a pistachio grower who had a shipment on its way to Russia when the country announced the import ban. Unlike most such bans, which exempt shipments that are already en route, this one went into effect immediately, leaving Jim Zion with an entire container of the nuts stranded n the middle of the Atlantic Ocean.

"Luckily, it was toward the end of the season. We didn't have a lot sitting there," Zion told me. "We were fortunate that we didn't have 20 containers on the water." The shipment was rerouted to Germany, where the Russian buyer will try to resell the pistachios somewhere in the E.U.

Pistachios are a relatively new crop in the U.S.—the first trees were planted in the 1970s—but farmers are aggressively expanding production to catch up with demand. Unmoved by natural and political stumbling blocks, Richard Matoian expects the American pistachio crop to double by 2020.

As pistachios gain on the market share of almonds and peanuts at home, growers have set their sights high. Pistachios are more expensive than many nuts—they're still a relative luxury—and grocery store shelves are free of derivative products like pistachio milk. But if the industry can overcome the challenges it faces today, those farmers hope to see the pistachio become as ubiquitous as its more popular peers.