Tomato Market Report

Tomato Market Report Note : Exchange rate as of Feb. 26 th.. is 1.080 $ per Euro. Feb. 26 th., 2003 ITALY & REST of E.U. : Farmers leading the game? As said in our last report, trading has resumed slowly after several weeks of calm. Most of the demands posted through Tomatoland seem to have been satisfied even for products said hard to find. Although in limited volumes (few hundred tons), Hot Break and Cold Break paste volumes have been found in Spain, Portugal or Greece. Prices range from 680 Euros (730 US $) up to 710 Euros (765 US$) per MT. for aseptic 28/30 % on ex-works basis when 36/38 % is sold 100 to 140 Euros more per MT. Some small deals have also been closed for aseptic pizza sauces, both 10/12 % and 12/14 % from Italy (!) at prices ranging between 430 and 480 Euros (460 / 520 US $) per MT. on ex-works basis. Last, except for one 200 MT. deal under negotiation for aseptic diced tomatoes, we have not been able to source any product within the EU. However, it is quite clear that the quantities available at EU processors are very small and that new volumes sold are mostly coming from stocks already contracted but freed by customers, especially in Germany where the deliveries are slow according to an Italian seller. With still 5 months to go till the new crop, one can reasonably wonder whether Europe will need to import tomato products : it has already started in diced tomatoes (but products is now hard to find even in the USA!); finding paste might not be too difficult but we doubt low concentration products such as passata and pizza sauce can be easily found anywhere. 1

Prices for retail canned paste keep on increasing : latest deals closed through our service are 11.2 Euros for 70 g. per carton of 100, 8.6 Euros per carton of 50 cans of 140 g. On the other hand, peeled tomatoes prices ease a little bit at 7 Euros per carton of 12 x 1 Kg. can ex works. A look at the trade statistics recently released by Tomato News reveal some interesting trends : South Italy is importing more and more paste from outside EU, mainly from CHINA; the total volume has doubled in 2 years. The local production of paste and the purchases from North Italy or Greece are reducing significantly. The North European countries are mainly importing tomato products from EU origins : French and UK imports of paste are decreasing slowly when German ones are quite stable over the past 2 years. Canned tomatoes (peeled and chopped tomatoes) imports are increasing in France, UK and Germany by an average 13 % in 3 years; the growth for ketchup and sauces imports is even stronger with a total increase of 50 % for France, Germany and UK between 2000 and 2002! South Europe, especially Italy and Spain, is indeed now processing finished products that were manufactured in the North before but most of the increase comes from the Netherlands which doubled its sales to EU countries for these items! Some Italian farmers have recently protested against the imports of Chinese tomato paste by South Italian companies and these actions have found a favourable echo in the Italian press. One idea is to force the packer to indicate the origin of the paste on the label of the finished products, especially for passata (that product can be manufactured with fresh tomatoes during the crop or with tomato paste). However, professionals question the impact of such a decision : passata sold in Italy is mainly processed with fresh tomatoes and consumers outside Italy may not be so sensible to such an indication it is however interesting to note that, not like for products sold in Italy, the processor of a passata bottle sold in Germany is not required to mention whether it was made out of fresh products or not. 2

With the negotiations closed in most countries, we now have a better look at the price of fresh materials for 2003 crop. The price of tomatoes remains stable in Spain and Portugal where 2002 crop was satisfactory; it increases in France, North Italy and probably in Greece, countries that experienced very poor climatic conditions last summer. Overall, European prices are now quite close, around 51 Euros per MT. ex field, except for South Italy where the local situation is different (see below); the transport costs difference is then decisive : on that issue, Spain and Portugal, with an average cost probably below 5 Euros per MT. when Italians are paying more than 10 Euros per MT. in some cases, are privileged (with 5.5 Kg. of fresh tomatoes per Kg. of 28/30 % paste, the cost difference comes up to more than 25 Euros per MT., about 5 % of the total price). Also to be taken into account are all the side agreements about possible discounts, rebates, premiums related to brix levels, cost of bins, early or late deliveries and so on Crop 2003 forecast : higher prices and volumes of tomatoes for 2003 crop! Italy : Round table negotiations in the North have stopped with each processor trying to close contracts on an individual basis. We only learned about 2 processors having agreed on a price of 51,5 Euros per MT. ex field with the local OPs (producers organisations, the only bodies recognised by Bruxelles); we believe most of the deals have been closed at that level of price, around 12 % higher than in 2002! In the South, contracts have been closed at 53.7 Euros per MT. (ex-field), down from 56 Euros last crop (- 4 %) but still the highest price in Europe; this drop can be explained by the fact that South Italy has come out of the drought experienced in recent years. For long tomatoes, used for peeled tomatoes, the price remains unchanged from 2002 at 67.13 Euros per MT. exfield, but with premiums up to 5 or even 10 Euros per MT. for higher quality raw materials (the quality criteria is the tomato peeling easiness). In terms of volumes, South Italy should increase its contracts by 10 to 15 % but one should know that the local OPs tend to count the high range of the expected volume when others indicate a medium value (a 30 % margin is indeed allowed by the new EU system). North Italy acreage should remain stable from 2002. Overall, 3

estimates for 2003 crop range between 4.9 and 5.2 millions MT., against 4.3 millions in 2002 (EU quota for Italy is 4.35 millions MT.) Italy Breaking News : According to unconfirmed Italian sources, Solana the new factory set up by farmers near Milan has not received the Ministry approval because the installation of the machines has not reached the stage required by the official regulation. That means that farmers delivering fresh tomatoes to that factory will not be able to claim any EU subsidy. Solana is said to have contracted 180 000 MT. of fresh tomatoes for the coming crop; one can expect them to go for an appeal of that decision. One should remember that Agridoro, now part of CIO, had to face the same trouble in its first year of operation. We shall keep you posted in our next report as this could have a great impact on the industry in North Italy. Spain : The local government in Extramadura has put some great pressure on the system to push prices up reports a local processor. Spanish factories have somehow been forced to sign contracts at the same price level as in 2002 : 50,33 Euros per MT. ex field is the official figure. However, most professionals disagree with the UNEXCA (Union of Extramadura Agricultural Cooperatives) about the possible lack of raw materials. Altough new processing capacities will be installed both by cooperatives (e.g. Tomates Del Guadiana and of course Acorex setting up a new factory see our article on the homepage) and by private companies (e.g. Transa), it seems that, with few alternative products to grow in the area, farmers will plant enough fresh tomatoes to match factories requirements. In terms of expected volume, estimates go from 1.65 up to 1.8 Millions; Spain processed 1.55 millions MT in 2002 (EU quota for Spain is 1.238 millions MT.). Greece : The limit date for contract signing (between farmers and processors) has been deferred to March. 10 and discussions are currently under way. Most processors have offered same price as last year to the OPs; with the highest prices paid to farmers in 2002, Greek packers can hardly accept any price increase. 4

Portugal : All the factories have signed contracts at around 50 Euros per MT. exfield, the same price as in 2002. The question of Sopragol (Cirio group)is not solved yet. France : No recent indication on contracted prices yet; in any case, one should know that a large percentage of the fresh tomatoes is processed by farmers cooperatives. USA : 10.9 millions short tons (9.9 millions metric tons) expected for 2003 crop! According to our information, Californian processors do not hold any stocks of diced tomatoes for sale. That will not help the market conditions in Europe! Paste prices remain unchanged from previous weeks. Crop 2003 forecast : CTGA fighting to maintain prices at acceptable level! Del Monte Foods made a $49.00 offer to CTGA (California Growers Tomato Association) for the 2003 California tomato crop but it was rejected by the farmers. As reported in our previous report, most of deals have been concluded at 50 / 51 US $ per short ton (51 / 52 Euros per metric ton). Production intentions in California for 2003 now stand at 10.9 million short tons (9.9 millions metric tonnes). This figure is only 1 % lower than in 2002. That information, given in Sacramento during the CLFP (California League of Food Processors www.clfp.com) Showcase, was a shock to most people according to a European processor attending the event. Local professionals were indeed expecting a lower volume, between 10 and 10.4 millions short tons. It seems indeed that the increases planned by certain processors such as Rio Bravo will offset the reductions coming from the Heinz Stockton factory closing. This estimate was made on the basis of a total planted surface of 291 000 acres and an average yield of 37.46 short tons par acre; some local agronomists believe that this figure is probably too high. In any case, such a production will inevitably lead to more stock building and drive down prices of finished products; but this cannot be done on the backs of the growers 5

according to the recent CTGA Board Meeting early February (for more details, pls. visit the CTGA website at www.ctga.org). Productions intentions for all states will be given by the USDA on April 4. TURKEY : difficult 2003 crop ahead! We remind you one more time that, following the collapse of the local market, Turkey is currently quite competitive in canned tomato paste (0.5, 1 and 5 Kg. cans), especially with the drop of the US Dollars. Do not hesitate to contact us for more details. Companies news : Merko will run the old Mestas factory (3 500 MT. fresh tomatoes per day) at around 50 % capacity together with company Martas, a fruit processor owner of this unit. Elmasu will resume production this crop : aseptic cold break and hot break paste will be processed near Antalya in the very south of Turkey. Demko has installed a Goglio hot filling bags machines to pack diced tomatoes and paste in 0.5 and 1 kg. pouches. Available in the Economic Information folder : A breakdown of Turkish production in 2002, company per company. Crop 2003 forecast : difficult negotiations with the Northern farmes in 2003? Farmers in the Northern growing region, especially in the Karacabey / Kemalpasa area, are not very keen to grow tomatoes next crop according to local sources. Late payments and breaches of contracts by some processors including large and serious ones have apparently affected the relations between farmers and factories. They now prefer to grow corn as it gives them flexibility in the harvesting reveals a concerned Turkish processor. However, latest estimates still stand at around 1.35 millions MT., close to the level of 2002. CHINA : 2003 crop agreement hard to find between processors! 6 As said in our previous reports, Chinese sellers have no more goods to offer; latest deals were made for small quantities, between 150 and 250 MT. at around 620 US $

per MT. (575 Euros) for 36/38 % paste. Chinese large markets such as South Italy, Middle East, South East Asia or Central Europe seem fully covered; we will have a closer look at Russia here after. One last option to buy Chinese paste is to get it from South Italian packers : up to very recently, Tomatoland received some offers at competitive prices. For more details, pls. do not hesitate to contact us. Tunhe, the largest Chinese processor, is pushing Xinjiang sellers to agree on a minimum price level for exports. Several meetings have been held in recent days to close such an agreement under the authority of the Chinese Chamber of Commerce. An initial proposal for a price of 520 $ / MT. FOB on aseptic 36/38 % was apparently rejected by Chalkis company. The latest price we were given was 500 $ / MT. with a 5 % tolerance, taking it down to a possible 475 $ (440 Euros) / MT. FOB. According to our information, no formal document has been signed by all parties yet not to mention that one can question the actual efficiency (and legality) of such an agreement. As a comparison, please note that Chinese prices for triple paste ranged from 390 $ / MT (!) up to 630 $ / MT. on FOB basis over the past 3 years with most of the sales made between 480 and 550 $ per MT. Up to now, Tomatoland failed to get confirmation on the new production lines to be installed for 2003 crop from the Chinese processors. We still confirm that more that 15 new lines with a total capacity exceeding 20 000 MT. of fresh tomatoes per day will be installed next crop thus allowing China to further increase its production and become the second largest tomato paste processor only next to the USA! Although many volumes have been reserved by foreign buyers, very few contracts have been actually closed by Chinese processors yet. Local sellers and foreign buyers wait to learn more about the agreement mentioned above to go further with the negotiations. Available in the Economic Information folder : A breakdown of Chinese production in 2002, company per company. 7 Crop 2003 forecast : 2.8 millions metric tons in 2003? No clear information about the actual planting program is still available.

MIDDLE EAST : Iran the most competitive origin at the moment! With processors still able to supply several thousand tons of paste of all kinds (CB 28/30 % and 36/38 % as well as HB 28/30 %) at competitive prices, Iran can reasonably expect to achieve sales outside their traditional markets (Middle East, Central Asia and of course Russia). Surprisingly, local sellers have recently dropped their prices by an average 5 % : aseptic 36/38 % is now available at 660 $ / MT. FOB (Bandar Abbas), down from 700 $ a few weeks ago. It is indeed true to say that, for the time being and with the coming war in Iraq, Middle East customers as well as Russian ones are not very active on the market. Some updated offers are currently available on our Tomato Trading Board in the Trade Now section of our site. Samples are available upon demand. Crop 2003 forecast : No news NORTH and WEST AFRICA : quite markets! Crop 2003 forecast : Tunisia could raise its production in 2003! Thanks to heavy rains during autumn and winter, Tunisia has rebuilt its water reserves after 2 difficult years. Tomato should be one of the agricultural products to benefit from these improved conditions in 2003. The 2 last crops were around half a million metric tons but could go back to 1998 / 99 levels above 700 000 metric tons; it is widely accepted that, above 600 000 MT., Tunisia becomes an exporter of tomato paste. AUSTRALIA : 2003 crop under normal conditions more news available soon! CHILE & LATIN AMERICA : no updated information more available soon! CENTRAL & EASTERN EUROPE : Russia the big question? 8

Our visit to Prodexpo fair in Moscow early this month did not allow us to draw a very clear picture of the situation; it seems however that Russia will need some goods in the coming months. But buyers, mainly importers, disagree on when the country will need more products and on how much paste will be needed; estimates go from 10 000 up to 15 000 MT. It depends on the actual deliveries of the existing contracts / reservations made with suppliers in China reveals a large local operator. For the time being, deliveries are still running at prices much lower than the current market ones (purchases were made around 520 / 530 US $ / MT. on FOB basis) and very little new deals are concluded according to our information. Russian buyers are well aware of the international situation but have learned to be very cautious about their domestic market; things can change in the wrong direction very easily here said to us a long time fruits and tomato puree trader. Therefore, they prefer to wait to better evaluate the local situation. Russian buyers are currently receiving competitive offers from Uzbekistan and Moldavia. Although the quality of these products is low, they cover a significant share of the industrial needs. Crop 2003 forecast : Uzbekistan to process more? Uzbekistan is not the right place to grow tomatoes and Russian investments there have not turned good : this tough judgement by a Russian professionals close to Baltimore (this Russian company had indeed invested in tomato paste processing in Uzbekistan in recent years) contradicts information received by Tomatoland about the future growth of Uzbek processing tomato industry. According to Italian equipments manufacturers, 2 new lines will be installed there for 2003 crop. We shall try to learn more about this unknown origin. SOUTH EAST ASIA & JAPAN : No news! OUR CONCLUSIONS : Sellers back in control in Europe? 9

With the recent recovery in European prices, many professionals are questioning whether this improved situation will last. One should first try to understand why we had such a depressed market in recent years. This is because of overproduction explain the users; this is because of the Spanish factories claims a competitor from another origin; this is because of the Chinese competition reveals a Greek packer; this is because of the financial weakness of the sellers forcing them to accept almost anything from the buyers thinks a large European broker. Where is the truth? All the first 3 reasons are probably right to some extent : - China is significantly affecting quite directly the North Italian paste producers who lost business in South Italy but is not the main problem of EU processors in our opinion, - Spain has indeed be quite aggressive to gain market share in Europe, especially in France and Germany these past years but we have seen very low prices from all the countries and, with similar production costs, Spain has also suffered from recent market prices, - overproduction has been indeed a problem for some products because of inadequate offer / demand mixes especially with the old EU subsidy system but we also disagree that European overproduction is the main factor for low prices; the fact that we need a shortage to see prices reaching acceptable levels or that US tomato prices remain higher despite much bigger stocks prove indeed that the problem is elsewhere, - the last explanation is more sophisticated and could explain better why we indeed experienced very low prices these 2 last crops when market was quite balanced, at least for some items. The other factors did not help and damaged market conditions further but, to achieve a real recovery, the industry probably needs to go through a reorganization process. We are already seeing that in Italy : South is concentrating on peeled tomatoes (and repacking Chinese paste ), North industries are escaping step by step from the traditional industrial productions and invest more in finished products equipments (bottle and jar lines, can lines, hot filled bags machines, tetrapak fillers ). Some Greek, Portuguese and French packers are also following the same trend with a significant drop of the industrial paste production expected in 2003. On the other hand it seems that Spain is focusing on industrial paste to increase efficiency and reduce costs but also moves to alternative products such as diced tomatoes and pizza sauces. It is too early to properly 10

evaluate the effects of these changes but it clearly shows that the EU industry is not ready to give up on tomato products! On a shorter run, buyers (and sellers) try to properly forecast the prices of next crop. If we (European processors) do not impose costs based prices to buyers this crop, we will never do it recently said an Italian fresh tomato processor. It is indeed true to say that market prices were not linked to actual production costs in the past 3 years. As said above, buyers were leading the game as sellers were not in a position to resist cheap prices. Will that change? Yes it will because we have no stocks and because we need to make some profits; buyers have now understood that a shortage can happen explains us a large processor. We indeed expect much higher opening prices : around 650 Euros / MT. for aseptic CB 28/30 %, 780 Euros for 36/38 %, 380 Euros for diced tomatoes and 400 Euros for 12/14 % pizza sauce all on ex-works basis are prices currently given by processors in Europe. Today s prices are higher than these, much higher in some cases (500 Euros for diced tomatoes for example) but are buyers ready to accept an increase of about 15 % from last year? As Tomatoland, we would recommend buyers to be cautious and to be ready to pay more; a minimum of 5 to 10 % depending on products and contract conditions is foreseeable but also more in some cases. We should have the first negotiations quite early this crop and we will keep you all, sellers and buyers, perfectly posted on the market situation, product per product! Looking at 2003 for Turkey, one could draw a quite dark prospective picture : the domestic market is very slow and local processors have build up stocks of canned pate, Europe Union market is closed for diced tomatoes till January 2004 as the 8 000 MT. duty free quota is over, China will process more paste to supply the international markets, Middle East markets are uncertain due to the political turmoil in the region, Iran is increasing its capacity and the overall quality of its production However, Turkish processors remain optimistic and plan to process volumes at least equal to the ones of 2002. They indeed claim that their traditional markets like Japan have little turned to China or, when they did, often came back after running into quality or commercial troubles as described by a local seller; they also say that the versatility of 11

the Turkish offer helps them to supply customers with great efficiency worldwide; some also hope that a new Iraq could help them resuming their exports to this 25 millions people market (Turkey was the main food supplier of Irak before the 1991 war; we need to say that this opinion is quite isolated) thanks to their American links; diced tomatoes exports to Europe will probably resume as of January 1 st. 2004 once the quota is full again and, thanks to the shortage in Europe this crop, Turkish processors have found new customers that are fully ready to work with them again. Last, but very important, the US dollar is much lower against the Euro than it was last year; that could help Turkey in markets where they compete with Europe. We do not understand the US decision not to reduce its production next crop despite the huge stocks already in the hands of the processors. Pure players such as Morning Star, Ingomar or Rio Bravo are clearly pushing remanufacturers (like Heinz or Campbell, using their own production for manufacturing finished products) out of fresh tomato processing (Heinz is indeed closing its Stockton unit); but this war, doubled with a fight among pure players themselves, seem quite damaging to this industry. According to people attending the CLFP Showcase in Sacramento, the ambience was not very optimistic among participants. Paying fresh tomatoes cheaper might not be a solution on the long run. For once, we will not comment on the Chinese situation. Tomatoland is indeed preparing several online forums on topics to be selected by our members. The first forum to be held in April will be about China with prestigious speakers to be announced shortly. Besides, we shall keep you posted on 2003 crop prices and contracts signed by local suppliers. As usual, we will finish with some indication of the current market situation : As said above, EU prices are still increasing and will go higher for diced tomatoes and low concentration products before the new crop! We are currently trying to evaluate the real need of the EU markets before the new crop but this is no easy task as some consuming countries like Germany will probably reduce their intakes On a larger scale, we do not forecast any big demand in the coming months even if Russia goes to 12

the market. We will soon publish online the 2002 world production figures per country and we shall also give you some forecast for 2003 to better assess the world situation. Visit now the new Tomato Trading Board!! Efficiency and savings in sales and supplies!! The Tomatoland Staff 13