Spend Matters welcomes this guest post by Pamela Salimu of Mintec.
What do ketchup, tomato soup, tomato juice and pizza all have in common? They’re all made using processing tomatoes rather than fresh tomatoes. For the pizza and fast food companies out there, the good news is that the price of processed tomatoes has fallen sharply since May 2015.
Tomatoes produced for processing are different from those intended for the fresh market. They are typically the plum variety, always picked red ripe and packaged aseptically, i.e., in a sterile environment to prevent contamination and increase shelf life. The process they go through will vary depending on their end use. They can be drummed, canned or bagged, but generally what you end up with is known as tomato concentrate.
Prices for processing tomatoes shot up between 2012 and 2014 due to drought conditions in California, which accounts for 95% of US processing tomato production. The drought that caused the crops to suffer peaked in July 2012, when nearly all US states were affected. In 2013, the drought continued in California with less than 35% of the usual rainfall, the lowest level on record. There was also an outbreak of the curly top virus throughout the state that lowers production and increases waste. Consequently, California’s output in 2013 reached just 11m tons, down 5% year-over-year, and the prices continued to rise, peaking at $1.36 per kg in March 2014.
Production increased in 2014, causing prices to fall nearly 15% in a year. The forecast for global production in 2015 is 42.2m tons, up 7% y-o-y and the highest level since 2009. Since March 2015, processing tomatoes prices have fallen a further 15%, hovering around the $1 per kg mark. The bulk of this rise in global production is because Californian farmers increased the acreage for fresh tomatoes, rising to 295,000 acres, up 2% compared with the previous season. The 2015 production forecast for California is 12.8m tons, up by 1% year-over-year.
California has now gone from droughts to floods. Last weekend a 30-foot bridge carrying commuters to Arizona collapsed due to the heavy floods, leaving them stranded for miles. It’s yet to be seen what effect that could have on the processed tomatoes crop. For now at least, it seems as if the prices will remain low due to good supplies.