COMPREHENSIVE NEWS & ANALYSIS OF THE WORLD PROCESSING TOMATO MARKET

Transcription

1 ISSUE N 8 JULY 28, 04 TOMATO MARKET REPORT COMPREHENSIVE NEWS & ANALYSIS OF THE WORLD PROCESSING TOMATO MARKET Italy Official crop forecast revised downward; more pressure to stop Chinese paste! Rest of Europe European crops starts in a very depressed market! California Very rapid start for the 2004 crop! Turkey Small problems in the North! China Crop 2004 starts much better than in 2003; lower prices already reported! Breaking News Tunhe now negotiating with giant company COFCO! Key number 215 Millions US$ : the unofficial price to be paid by COFCO to acquire 37 % of Tunhe! The Tomato interview José Lozano General Manager of Tomalia, one of the new Spanish cooperative! (find it online) Our Sponsor North Africa Tunisia ahead for a crop similar to 2003 at MT. Chile Some paste still available at attractive prices! LOW COST TRANSPORT FOR FOOD D PRODUCTS 1

2 Note : Exchange rates as of July 28 th.. are 1.21 $ and 0.66 per Euro. ITALY : Official figures revised downward! Italian major producers organisations have revised the 2004 crop volume down from 5.8 millions MT. of fresh tomatoes initially forecast based on hectares of plantations, to 5.35 millions MT. to be harvested on hectares. This 8 % reduction is blamed on the bad weather during transplantation and hailstorms in the North (see Tomatoland previous reports) and serious phytosanitary problems caused by unusual spring rains in the South. This updated figure is closed to the volume given in Tomatoland World Crop Estimates during June (see the Production Data folder of our website) at 5.3 millions MT. This information had indeed little impact on the tomato paste market as most professionals had already taken these elements into consideration; early observations tend to show that prices of peeled tomatoes did not increase either but most Southern processors are cautious to offer very large quantities before end of August. Following the problems faced in 2002 crop and more erratic weather patterns in recent years, many processors, in the North as well as in the South, have turned more cautious about August and of course September. Crop just starts in Parma / Piacenza area (Emilia Romagna province) and early observations show good yields and good raw materials quality according to local players. The Puglia and Campania crops should also debut shortly. Price wise, most tomato paste sellers have resisted the very low prices requested by some buyers. If to loose money, we will do it when we have no other choice if it happens; at this stage, we still have the crop to go explains a large Italian processor. Still, Italian prices have also dropped below 2003 levels, by 3 to 6 % in most cases, but remain about 20 Euros per MT. in average higher than the Spanish ones. 28/30 % aseptic paste was sold between 570 and 610 Euros ( US $ / GBP) per MT. FOT North Italy depending on packaging and contractual terms; this is about 30 Euros per MT. (5 %) lower than last crop averages according to our records. The reduction is similar for 36/38 % Cold Break aseptic paste at prices between 720 and 750 Euros ( US $ / GBP) again exfactory, about 30 Euros / MT. cheaper than in 2003! Following this negative trend, Italian processors have decided to reduce the volume of paste to be processed as much as possible but are still long, meaning that significant volumes are still not allocated at the beginning of the crop. Prices for crushed / aseptic diced tomatoes and low concentration products (passata, pizza sauce) have also dropped below the ones of 2003 crop but to more acceptable levels according to Italian sources. Still, the drop has been also around 4 to 6 %. These products are pure Italian products that we develop together with the machinery people and for which we use specific fresh tomatoes; it is not so easy to obtain the same result elsewhere insists a large Italian processor. Aseptic crushed 2

3 tomatoes was sold between 320 and 340 Euros ( US $ / GBP) per MT. and diced tomatoes has been contracted between 350 and 380 Euros ( US $ / GBP) per MT., down around 25 Euros per MT. from 2003, all on FOT basis. Sales have been better and, although North Italian processors are far from being sold out, a large share of the coming program is already contracted with European customers. Prices of low concentration pizza sauce / passata from 8/10 brix up to 16/18 brix have also eased from last year but to a lesser extent, by an average 2 to 3 % only. 12/14 % aseptic pizza sauce has been contracted between 350 and 375 Euros ( US $ / GBP) per MT. on FOT basis, about 20 Euros per MT. cheaper than a year ago. On the legislative level, the Italian government has adopted a rule to fix the definition of what is generally called passata di pomodoro ; this proposed regulation needs to be adopted by the Parliament within 60 days. This new Italian definition states that passata can only be obtained by processing fresh tomatoes; and no more from already processed tomato paste. This regulation was demanded by Italian growers and tomato processors associations, mainly in the North, for some time already as they face competition from the Southern packers that use cheap Chinese paste to produce passata made in Italy. This is a first step into the right direction but it now needs to adopted at an EU level explains a fresh tomato passata processor. Also to fight against the Chinese competition, and more specifically against the duty free imports (goods to be officially re-exported to third countries outside European Union) that stay in Italy illegally, AIIPA, one of the two main associations of tomato processors, instead of asking for more controls, called for the introduction of import quotas on processed tomatoes from third countries or any other measure that could cap volumes that are imported at zero duty. According to most professionals, such a regulation has little chance to be adopted by the EU but we shall keep you posted about any possible change to the EU import duty system. A third legislative issue is now becoming a major concern for the Italian tomato industry : the current EU agricultural subsidy system is due to expire in 2005 and a possible decoupling of payments from production could result in a severe reduction of the fresh tomato tonnage grown by growers. EU professionals now lobby for an extension of 3 years of the current system or a partial decoupling of payments with a large share of them still linked to processing. EU is under the pressure of the OMC to further reduce the agricultural subsidies but Southern countries are fighting hard to maintain existing levels of aids. At this stage, we could not get any precise information from Bruxelles about the most likely decisions to be taken by the EU commission. The market for new crop retail tomato products such as paste, passata, peeled and chopped tomatoes have now opened with sellers quite cautious to enter into the negotiations. Stocks of unsold products are limited according to most sources both in paste and peeled tomatoes. As said 3

4 above, the colder than usual weather in Spring has delayed the plantations and worry local growers. Since the terrible season of 2002 when many sellers found themselves unable to respect their contracts with retailers, tomato professionals, especially in Italy, have become very cautious about the climatic conditions in August. Opening prices are close to prior expectations, down about 3 to 5 % from 2003 levels at the same period for canned peeled and chopped tomatoes. You can check the World Price Index July 15 th. update for more details. According to our information, just like for industrial products, buyers are expecting much lower prices, below 4.5 Euros (5.45 US $ / 2.97 GBP) per carton (1/2 Kg. peeled tomatoes in easy open can x 24) when current prices are around 4.8 Euros (5.80 US $ / 3.17 GBP) on exworks basis. Volumes contracted are still small only one French retailer has contracted its volume so far, through e-auction according to our information) as sellers refrain to offer too large quantities before they have a better reading of the crop and because purchasers wait for prices to go down. This should happen if the weather conditions are favourable in August but also at least till Sept. 10 th. As shown by the recent trade statistics given by the ANICAV in its annual report, South Italy keeps a firm hold on the peeled tomato market with 125 companies still running in the Campania province. Canned paste prices are almost stable from a year ago; one must be aware that a large share of the paste in small cans (from 70 up to 850 g. net weight) are repacked from paste packed in industrial packaging, mainly imported from China by Southern packers. Most popular in Europe are 140 g. and 425 g. cans offered respectively at 6.80 Euros (8.22 US $ / 4.49 GBP) per carton of 50 tins and 9.00 Euros (10/9 US $ / 5.95 GBP) per carton of 24 tins on exfactory basis, Salerno region. Most of the business should be done close to these levels or slightly cheaper with European retailers. However, the largest part of this production will be sold to third countries mainly in Africa at more attractive prices but with different product formulation (brix, viscosity ). After a slow period, sales to Africa have now picked up and Italian repackers will soon need to receive new crop paste to keep up with the current strong demand. This specific business is in the hands of very few companies with the largest players still being Russo, Petti and Giaguaro according to our information. Rest of Europe : Crops start in a depressed market! The tomato crops have started in the Hiberic Peninsula during this week, in Extramadura and Andalucia (Spain) as well as in Portugal, slightly earlier than in 2003 despite the delayed feared in the crop start. Initial deliveries are satisfactory according to local sources. We have plenty tomatoes coming in and we should reach full capacity very quickly like last year explains a Portuguese processor. Similar information are coming from Spain where very first shipments should start shortly. Tomatoland will soon make a trip to learn more about the local situation and will inform you in details. Despite more aggressive 4

5 prices, Spanish sellers are far from being sold out in tomato paste. We still have good volumes available in tomato paste reveals an anonymous packer from Extramadura. Spanish contract prices have been also lower than a year ago, again by 4 to 7 % depending on contractual terms and markets. Aseptic 28/30 % Cold Break paste was sold between 550 and 580 Euros ( US $ / GBP) per MT. ex-factory with some early sales made at higher levels from more established processors; against contracts made between 570 and 600 Euros ( US $ / GBP) per MT. in 2003 for the same product, both on FOT Extramadura basis. 36/38 % prices have dropped even more from Euros ( US $ / GBP) per MT. in 2003 down to Euros ( US $ / GBP) per MT. ex-works Badajoz or Sevilla areas this crop. We remind you that you can find all logistic costs from main producing places updated in June 2004 in the logistic folder of our homepage. The English market, a traditional large user of triple (36/38 %) paste has been indeed very competitive with Spaniards undercutting Portuguese, Greek or Italian regular suppliers. Altough firm at the beginning of the negotiations, Portuguese sellers have also eased their position on prices and followed the trend downward; 28/30 % paste is now available at 590 Euros (710 US $ GBP) per MT. ex-factory if not lower, down from 620 Euros one month ago or in 2003, but the move came a little late and several factories are entering the new crop with very small quantities contracted, at least for paste! We do not know where we are heading told us a local packer asking Tomatoland for market opportunities. According to our information, both Greek and French processors are also short in paste sales and are now offering more attractive prices to buyers. As explained in details in previous reports, Spanish processors have set up large capacities of aseptic diced tomatoes for this coming crop with a total planned production approaching the MT. of finished products according to latest figures available, against less than MT. a year ago! Despite attractive prices for this item as well, sales have been under expectations as softly expressed by an Extramaduran new comer. Processing unsold diced tomatoes is riskier than it is for paste because of the limited number of buyers and the very little selling opportunities outside Europe. Consequently, factories may decide to reduce the diced volume and turn to more paste, provided that their paste production capacity allows them such a change. The real challenge for Spanish processors is to put on the market a high quality product to convince buyers to change their supplies in a larger scale in coming years. This is no easy task for a first year of production. Diced selling prices have been between 320 and 350 Euros ( US $ / GBP) per MT. FOT, 30 Euros cheaper than Italian averages and down up to 50 Euros from 2003 but with a different situation of course. Contracts made in Greece have been satisfactory according to local sellers. Prices have been lower than in 2003 but remain at acceptable levels and, just like Italians, Greek processors, have overall 5

6 maintained their position in Europe, both in UK and on the continent. Aseptic diced tomatoes from Greece was contracted between 340 and 370 Euros per MT., about 20 Euros cheaper than last crop. USA : Very rapid start in California! CTGA weekly data (available on line and updated every Tuesday in the Market Report folder of our homepage with comparative values over the past 4 years!) show that, as of July 31 st., California processors will have processed millions short tons (3 millions MT.) of fresh tomatoes, 27 % more than the past 4 years average and ahead of 2000 record start and of 2002 record final harvest. Also to be noticed is the expected weekly intake record at short tons ( MT.) of raw materials this week when 2003 weekly maximum did not exceed short tons. This shows that California is currently running at full capacity, with the total paste processing capacity for the 19 main factories estimated at short tons per week (no stop assumed Morning Start companies data), the rest of the volume being processed in other items, mainly aseptic diced tomatoes. The weather forecast for the next 7 to 10 days is perfect with clear skies and temperatures ranging between 14 C and 36 C. Based on the initial observations on average yields achieved in the fields, more analysts now forecast a higher than expected production; as said in our last report, the crop could exceed the planned 11 millions short tons (9.98 millions MT.) volume and reach 11.5 millions short tons (10.45 millions MT.). Unless the consumption of tomato products rises in coming months latest figures are not very good-, this large crop will likely lead to a build up of stocks and to a new prices decrease. 31 % Hot Break paste is still offered between 28 and 29 cents per pound FOB Plant, equivalent to 615 / 640 US $ (510 / 530 Euros) per MT. for goods packed in bins (about 1 MT. Net weight) or between 29 and 30 cents or 640 / 660 US $ (530 / 545 Euros) for merchandise packed in drums. Sales made at slightly lower levels are also reported by local users. It is interesting to see that US and European prices are currently almost equals when they were more than 10 % lower in the USA some weeks ago. With the cost of raw materials 20 to 25 % higher in Europe (see the Fresh Tomato Prices in the Production Data folder of our website) and also higher costs of production than in the USA, one can easily imagine the profitability of EU paste processing operations. TURKEY : Problems in the North! Newer reports from the Southern processors, in the Manisa region, are very positive both in quality and in quantity but this origin only represents 10 to 15 % of the total Turkish pack. In the Northern part (Karacabey, Kemalpasa, Balikesir, Biga), local processors are confirming a 25 to 30 % drop in the planted acreage. More over, the poor weather in Spring and early summer (colder than usual, cloudy and rainy, foggy ) had a double bad effect, on the yield first and also on the phytosanitary conditions of the plants. Although not critical, diseases are indeed reported 6

7 in several areas. Based on these field observations, the processors association still forecasts a 1.5 million MT. fresh tomatoes crop, down from 2 millions in Paste sales for the export markets are claimed satisfactory by local sellers; contracts have been closed with traditional customers in Middle East, South East Asia, Japan, Central Asia and East Africa at price levels close to the ones of 2003 in US $ terms : 28/30 % is sold around 670 US $ (555 Euros / 365 GBP) per MT. on FOB Izmir basis and below 650 US $ per MT. for faster shipments. 36/38 % has been contracted at 100 US $ per MT. higher with sales reported at 740 US $ (615 Euros / 405 GBP) for immediate deliveries! Contracts for aseptic diced tomatoes are not as good as in 2003 at the same period but Turkish processors have already sold good quantities to European countries. An estimated 30 % of the expected production remains available at this stage according to local trading sources. The domestic market is still quite with several companies still holding stocks of 2003 canned paste, both at factories and in the sales network. Opening prices should be lower than in 2003 but remain good with the sharp production cut. Last notice : some attractive offers on organic tomato paste in aseptic bag in drums available on the Tomato Trading Board. CHINA : Crop 2004 starts much better than in 2003 despite quality problems in North Xinjiang! Following some serious rains in the days preceding the start of the crop in North Xinjiang, processors are facing a mould count problems. Early lots are showing Hmc value above 60 % (the EU limit is 70 % but most users are asking for an HMC below 50 % - US limit is fixed at 40 %), showing a poor quality fresh materials. The weather forecast (check our Exclusive World Tomato Weather on Tomatoland.com homepage, juts added on line!), for the coming days show again possible rains which is no good news for local growers. However, the crop start has been much more favourable than a year ago with most factories, both in North and South Xinjiang, starting around July 25 and expected to run at full capacity within 3 days according to local professionals when this was not the case on August 15 last crop! The situation in Inner Mongolia is not as good as expected with there also some rains disturbing the start of the crop. Very small amounts of fresh tomatoes are reported so far and the newly installed equipments are not fully operational according to our information. Last Gansu province is about to start also under poor weather conditions with heavy rains storms forecast for the coming days. Coming to Tunhe now, as reported in our titles, it is now the turn of COFCO, the largest Chinese food conglomerate to study the purchase of Tunhe; more specifically the 37 % shares of Dlong in Tunhe s capital. Although a formal agreement was mentioned in the Chinese press about 10 days ago (causing a 10 % jump up in Tunhe shares), both companies have immediately denied it and Tunhe even made an official warning to ask investors not to follow rumours! At this 7

8 stage, it is confirmed that COFCO has sent several people to make a detailed financial and technical audit (all Tunhe factories in Xinjiang have been visited by these personnel) but no confirmation of any move has been given any of the 2 parties. Should this deal being concluded, COFCO would become Tunhe s major shareholder and, according to inside sources, would inject immediately 40 millions US $ to finance the crop. Tunhe current management is said to remain in position for the 2004 crop. Tunhe Xinjiang factories have started production last week like most of their competitors. No lack of packaging is reported at this stage except for metal lids but plastic lids should be available in sufficient quantities and could be changed later on. One question mark remains : what about the payment of the fresh tomatoes. Tunhe definitely needs cash to pay the farmers who are well aware of its financial troubles. It is clear that farmers have no real alternatives but to deliver some of their tomatoes to the Tunhe factories but it is also doubtful that the production runs smoothly if no cash money is made available to the troubled company; not to mention all the specific costs related to a crop such that need to be paid for (logistics, analysis ). Just like during the negotiations with Chalkis, the situation remains very uncertain about the capacity of Tunhe to achieve a normal production. We shall keep you informed in our next reports or by our news alerts if any new and confirmed information comes available to us In terms of prices and contracts, we start to have a slightly better picture of the market conditions. Southern Italian repackers have closed some quantities with Chalkis and their smaller competitors in Xinjiang and, new, in Inner Mongolia following the troubles of Tunhe. Total contracted volumes are already exceeding MT. of 36/38 % paste according to our information; net prices for these specific users vary between 485 and 515 US $ ( Euros / GBP) per MT. on FOB Tianjin basis, depending on packaging and contractual terms. Sales to other large using zones such as Russia, South East Asia and Middle East have also started at prices slightly above South Italian levels, between 500 and 530 US $ ( Euros / GBP) per MT. again on FOB basis. Last, Chinese sellers have achieved sales to European Union but in limited quantities up to now. Buyers are located in France, Germany and of course United Kingdom; price levels stand between 560 and 580 Euros ( GBP) per MT. for aseptic 28/30 % paste on delivered duty paid basis and 630 and 670 Euros ( GBP) per MT. for aseptic 36/38 % in drums. OUR CONCLUSION : European tomato industry at the turn of a new era! The EU tomato industry is facing many global and national challenges at this moment besides the low price levels for this 2004 crop, especially on tomato paste : - the very rapid growth of the Spanish industry in Extramadura over the past 3 years and now in Andalucia is severely disturbing the fragile market equilibrium we reached in 2003 after a 8

9 bad 2002 crop. These new comers need to find a space for their products and take prices mechanically down. This new force is mainly affecting Italian processors at this stage but Greece and Portugal will also be weakened from this crop on. - the end of the current EU subsidy system in 2005 and the possible decoupling of payments and production as expressed earlier in this report. A full decoupling system will have very serious effects on the industry and could lead to the abandon of tomato growing in some European regions. - the subsidy issue for Spain; based on current production forecasts, the payment to farmers could drop below 25 Euros / MT. in 2006 and below 15 Euros / MT. in 2007 against 30 Euros today and in 2005, provided that the current system remains unchanged in next 3 years. This reduction could become a major problem for tomato growers and/or for processors in their competition with other EU origins. - the financial weakness of several Italian tomato processors is also becoming a serious issue; as explained in one of our article, besides the troubled Cirio and Boschi (Parmalat group) companies, 5 companies have stopped their activities in the past 2 years and insiders information tend to show that several others are also facing high debts and financial difficulties. - the Chinese competition is also becoming a crucial question. First, finished products made out of Chinese paste, whether repacked tomato paste, passata or even sauces are directly competing with European origin goods. Second, the share of Chinese tomato paste used by EU food industries is also taking a bigger and bigger chunk of the European tomato market; moreover, instead of helping EU processors, the enlargement to 10 new countries had the opposite effect : custom duties in these countries were often much higher than the 14.4 % unique rate for European Union making the Chinese paste more attractive than in the past even against the duty free EU tomato paste! As explained above, several European growers and processors association are now calling for quotas on Chinese paste to stop this cheap competition. To overcome these present and future difficulties, European processors are adopting different strategies : Italian processors are focusing on quality, food security, custom made production, more finished products and try to develop a Made in Italy image with the help of new regulations! This is no easy task but probably the only way out of this depressed market. On the other hand, Spanish players are betting on lower costs and better productivity both at farming and processing levels; the special links between growers and the new processing facilities, should help them in this goal. Other origins try to specialize on specific production and develop niche markets like for canned pizza sauces in Portugal. All these issues should lead to significant changes in the European tomato industry in coming years 9

10 and growers as well as processors should try to prepare for it, as much as possible. Visit now the Tomato Trading Board!! Efficiency and savings in sales and supplies!! The Tomatoland Team 10