March/April – 2005
Author: Steven Carruthers
Recent glasshouse expansions, combined with the arrival of imported tomatoes from New Zealand, has seen the market dynamics change for premium-grade hydroponic tomatoes in Australia. STEVEN CARRUTHERS reports small growers are struggling to stay profitable, and need to grow smarter if they want to stay in the fresh tomato business.
With new state-of-the-art greenhouse facilities either recently constructed, under construction or nearly approved, the industry’s spectacular growth is changing the market dynamics for hydroponic tomatoes. As large greenhouse growers continue to expand to supply premium-grade tomatoes year-round, smaller growers are starting to feel the squeeze. From the beginning of summer, piles of high quality tomato varieties fill the markets, and prices plummet. Grower returns barely meet the cost of production, and in many cases they make a loss. Growers stay in business only because what they lose during the tomato season, they pick up in the off-season when prices are higher. By amortising their returns over the year, small growers are generally profitable. However, with at least another 6 hectares of glasshouse tomatoes due to come online in 2005, many small growers fear their slim profits will disappear.
HOW BIG IS THE AUSTRALIAN TOMATO MARKET?
The Australian tomato market can be divided into two segments – processed tomatoes and fresh tomatoes.
Processed tomato markets
Processed tomatoes are grown in the field. During the 2004 growing season, Australian growers produced 320,000 tonnes of tomatoes for the processing industry, an industry valued at $44.1 million at the farm gate (A$138 per metric tonne). According to the World Information Centre for the Processing Tomato Industry, the intensive use of drip irrigation in Australia (60% of growing area) considerably improved crop production by 23% compared to the previous season.
Australian processors are counting on an 11% increase in production to 357,000 tonnes during 2005 in order to satisfy domestic demand for processed tomato products.
Processed tomatoes were used to make a variety of products:sauces (50%), peeled canned tomatoes (15%), canned baked beans and spaghettis (10%), tomato paste/puree (10%), dried and semi-dry tomatoes (8%), soups (5%), and juice (2%).
Eleven growers (four major and seven small growers) and four processors share the processing industry- Cedenco (paste), SPC-Ardmona (canned products), Heinz (sauce, ketchup and paste), and Unilever (sauces and soups).
Fresh tomato markets
Nobody really knows how large the fresh tomato market is, although industry leaders agree hydroponic tomatoes grown in greenhouses represents a small part of the total fresh market.
Mike Nichol,National Marketing Manager for Flavorite Tomatoes, estimates Australian growers produced between 220,000 and 260,000 metric tonnes for the fresh market during 2004.
“We think hydroponic tomatoes would be around 10% of the total fresh market,” he said.
Hydroponic tomatoes grown in greenhouses represent the high-end of the fresh tomato market.The main products are high quality truss and large,single tomatoes.
In 2004,four major grower/agents shared the top end of the market – Flavorite Tomatoes, KOS Tomatoes (the Costa Group), Freshpak Victoria (also branded as Testarossa), and Moraitis Fresh. Around these grower/agents are networks of smaller growers, usually family-owned and run greenhouses under 10,000sqm. By representing smaller growers, the major grower/agents are able to build critical mass to supply large markets including supermarkets.
For example, Flavorite Tomatoes currently grow 160,000 plants,and represent a network of smaller growers who grow another 300,000 plants. Collectively, Flavorite sells an average of 200 tonnes of high quality, fresh tomatoes, per week or around 10,400 tonnes per annum.
To a large extent, recent industry expansion is being driven by the major grower/agents as they form strategic alliances to consistently supply premium-grade tomatoes to markets in the eastern states,all-year-round.
Unlike the processed tomato sector and many other fresh commodity groups,the fresh tomato industry does not impose a levy on growers to help promote and market the industry or undertake R&D projects to improve production. This may change as the AHGA works with Horticulture Australia and AUSVEG to introduce a levy for the fresh tomato sector.
THE FRESH TOMATO SEASON
Weatherwise, 2004 was a good growing season for greenhouse tomatoes with larger than expected crops. However, when summer approaches ,there is a mindset – salads – and prices plummet. Historically,the tomato season begins soon after Melbourne Cup weekend in early November.
In the southern states, most growers plant in July-August with production up and running in late October-November. Most grow the same commodity, a size 18 or 20 tomato that is popular with consumers and offers the best return to growers. However,by the beginning of December there is a market glut for high quality truss and single tomatoes and grower returns are significantly reduced.
“Prices generally don’t come back until just before Christmas, or just after,depending on the supply and demand,” said Victorian grower, Sue Korevaar, who is also President of the Hydroponic Farmers Federation, a network of small growers that combine their resources to promote their high quality hydroponic tomatoes.
However, recent greenhouse expansions in the eastern states,combined with the recent arrival of imported tomatoes from New Zealand, has seen the market dynamics change dramatically for premium-grade tomatoes with many small growers struggling to stay profitable. Sue Korevaar believes small growers will survive, but they have to grow smarter.
“When I started 10 years ago, there were a lot of grumblings by established growers that newer, more up-to-date growers would destroy the marketplace and erode their prices .It didn’t happen!
“What did happen was the consumer started seeing hydroponic tomatoes in their local markets on a regular basis, and they have learned about the benefits of hydroponic produce. They liked what they were eating,” she said.
According to Sue,market share grew from 3% to 4% of the table tomato pie, to what she believes is around 16% today.The actual size of the hydroponic tomato market probably lays somewhere between 10% and 16% of total fresh tomato production.
THE CURRENT MARKET ENVIRONMENT
During 2004, high quality, large single hydroponic tomatoes grown in greenhouses sold on the Sydney wholesale market floor between $6 (high season) and $15 (low season) per tray. Each tray weighs between 2.2kg and 3.4kg. Over-ripe trays sold for around $5/tray. The wholesaler/agent collects between 10-12% commission on the floor price. At the height of the fresh tomato season, consumers paid around $4/kg for large single tomatoes.
Between Christmas 2004 and the New Year, prices rose to $9-$10/kg for truss tomatoes, but by early January 2005 they had dropped back down to $7-$8 for a 3 to 3.4kg tray, where they languished through to February.
There are many reasons why prices dropped on the Sydney market floor during the 2004-2005 tomato season. Many small growers in the Sydney Basin switched from growing Lebanese cucumbers, which produced a poor return the year before, to tomatoes. It is likely some growers will switch back to cucumbers in the 2005-2006 growing season because of the low returns they received from this season’s tomato crop.
Although the mild weather conditions produced higher yields, it also brought with it low consumer demand. Imported high quality tomatoes from New Zealand was another factor that contributed to a glut in the fresh tomato market.
Using medium-level technology and good management practices,production costs for an experienced small greenhouse tomato grower is somewhere between $2.00 and $3.00 per kg (between $6 and $9 per 3kg tray). Production costs include fixed and variable costs including wages,energy use, transport and fertiliser costs,which represent the major expenses for growers.
At the height of the 2004-2005 tomato season, growers broke even at best. However, in the low season, when prices are high,growers enjoy a reasonable profit. By amortising their returns over the year, small growers using medium level technology are generally profitable in the current market environment.
Many small growers operate roadside stalls to supplement farm income, with premium quality, large tomatoes selling anywhere between $4 and $5.50/kg. In some cases, farm gate sales represent 30% or more of total farm income, which often makes the difference between farm profitability or loss.
WHAT DOES THE FUTURE HOLD?
Sue Korevaar said that a positive to come out of current low prices is that people who have never bought hydroponic produce because of high prices will now try them, like what they try, and many will stay with the product when prices rise.
“Our market share will increase, consumer demand will increase, and the industry will be able to weather the influx of NZ tomatoes,” she recently told HFF members.
She said that small growers have to get smarter if they want to stay in business. She advises her members to talk to their agents, seed merchants, and other growers, and to look for a market niche by growing a different tomato variety. She encourages small growers to work together in an environment of “co-opetition”, a new buzz word where your competitor is your partner .It’s a concept widely practised in Europe and is gaining popularity in Australian horticultural industries, from promotional programs and pest management initiatives to supply chain and grower groups.
Over the next five years, Sue forecasts many small growers will drop out of the fresh tomato supply chain as corporate growers expand to have a greater share of the market, a trend reflected in other countries with developed greenhouse industries. She points to growers in the United Kingdom who switched to different tomato varieties when cheap Spanish tomatoes flooded that market in the 1990’s. Today, UK supermarkets carry at least 10 different types of high quality “home-grown” tomatoes that consumers can choose from, all grown hydroponically.
“For those who want to stay in the industry, they will need to find a niche market and work with other small growers to supply markets all year-round, even if growing the product is more labour intensive,” she said.
“A smart grower will say:’Hey, every hour I work, I pay my self; and that’s money in my pocket’.”
To remain profitable in the changing market environment, Sue offers the following advice to small growers:
– Change varieties
– Look for better tasting varieties
– Grow a different crop altogether
– Grow at a different time of year
– Reduce your commercial crop to supply local markets only,thereby reducing labour costs
– Reduce costs where practical
– Exploit niche markets as an individual grower or as a local grower group.
– Develop new packaging ideas that could fill a niche in the consumer marketplace
– Combine with other local growers to produce a product all year round
– Work to a business plan
– Consumer education
– Have you considered exporting?
Sue encourages small growers to calculate their production costs per kg carefully, no matter how painful.
“Historically, growers don’t include their labour costs, including working family members, when they should. Most owner-operated businesses generally don’t count the time for paperwork,” she said.
“Knowing your production cost per kg is the first step to turning your business around if the figures don’t stack up,” added Sue.
Coming out the other side of another tomato season, Sue says she is very positive about the future as more and more consumers are exposed to high quality hydroponic tomatoes and buy them on a regular basis.
In summing up, she said that small growers who want to stay in the fresh tomato business need to grow smarter to improve the bottom line,maintain a high standard of quality, keep increasing production per square metre, decrease costs where possible, look for niche markets, and to keep abreast of market trends.
“There is a bright future in this country for small growers willing to adapt to the new market environment,” she ended.