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Dealing with Mother Nature, the Economy, and the U.S. Appetite – the Tomato Processors’ Response

By Amber Neimeyer, Relationship Manager VP, Wells Fargo’s Agribusiness, Food and Hospitality Division (January 17, 2023)


Some of the most flavorful, highest quality, best-looking tomatoes are grown in America. For U.S. tomato growers and processors continuing to produce the world’s best tomatoes for consumers is paramount, and the industry is responding to difficult challenges with a can-do attitude.

Each year, Americans consume over 31 pounds of tomatoes per capita,1 three-quarters of that in processed form (paste, sauce, ketchup),2 and demand continues to grow. However, like so many crops, tomatoes have not been spared from the effects of climate change and economic challenges. As someone who works closely with tomato processors in California, I have the honor of seeing how companies and growers in this space are responding to the current dynamic environment. The following overview unpacks the situation, including insights from my colleague, Brad Rubin, Wells Fargo’s Agri-Food sector manager, who monitors the situation from a domestic and global standpoint.


Climate Change Impacts


Drought, extreme heat, and reduced acreage from competing specialty crops have significantly hindered the U.S. tomato growing season, causing shifts in production yields and inventory. These challenges, as well as the impacts of the Sustainable Groundwater Management Act (SGMA), will continue to impact production acres in California. Therefore, we should expect reduced acres in nearly all commodities grown in California. According to Rubin, “While today, U.S. tomatoes are primarily grown in California,3 without innovative actions and scientific development to meet consumer demand, there may be a future dependency tomato growers in China, Spain, and Turkey.”


Economic Headwinds


Amid the effects of climate change, tomato growers and processors also are facing the economic challenges of inflation and market pricing. With short supply going into 2022 and a shorter season than expected, coupled with demand for planted acres in 2023, inventory levels will continue to be short, likely keeping prices elevated for the next few years until inventory levels stabilize.


From November 2021 to November 2022, the USDA recorded the Consumer Price Index (CPI) for all foods increased by 7.1 percent4. “Due to declining inventory and rising demand, higher prices would be present regardless of the worldwide economy,” noted Rubin. “Still, in conjunction with current inflation rates, the cost of goods increases is incredibly impactful for businesses that are not vertically integrated.”

The tomato grower price ($105/ton in 2022 and expected to reach $125-130/ton in 2023)5 is likely to continue incentivizing producers to plant at least some tomatoes, as grower prices have increased materially across all row/field crops (rice, cotton, wheat). Producers who are paying attention to per-acre profit will be making decisions based on those economics, because the crop input costs have gone up materially as well, which plays into the overall margin per acre.


Fortunately, the American tomato industry is resilient and innovative. “Despite the challenges of climate change, tomato growers have begun to develop new reservoirs and implement improved irrigation methods6to combat possible draught. Rather than accept diminished tomato yield due to acreage reductions and the possibility of importing lesser quality tomatoes for American consumers, they are increasing per acre yield through scientific innovations,7” said Rubin. “Adapting and improving are hallmark characteristics of American agribusiness, and for American tomato growers and processors, preparing for the climate, the economy, and the consumer is simply a way of life.”


SOURCES

1USDA ERS - Chart Detail 2America Might be Headed for a Ketchup Crisis – Blame Climate Change (grid.news) 3Enhancing Production of Processing Tomatoes in California (bayer.com) 4Processing Tomatoes - UC Drought Management (ucdavis.edu) 5Enhancing Production of Processing Tomatoes in California (bayer.com) 6USDA ERS - Summary Findings 7https://www.tomatonews.com/en/california-2022-price-agreement-reached-with-all-processors_2_1536.html


ABOUT THE AUTHORS

Amber Neimeyer is a relationship manager within the Agribusiness, Food & Hospitality Division of Wells Fargo serving the Northern California and Oregon markets. Neimeyer joined Wells Fargo in October 2019 following a 10-year career with Bank of the West in their Food & Agribusiness Division. She holds a Bachelor of Arts degree in Sports Sciences from University of the Pacific. Reach out to her on LinkedIn.

Brad Rubin is a sector manager for Specialty Crops within Wells Fargo’s AgriFood Institute, with a focus on fruits and vegetables. Rubin joined Wells Fargo in January 2018 from iD Tech where he was chief marketing officer with responsibility for $65 million in revenue. Prior, he was vice president of operations for Kibo Commerce, an enterprise e-commerce provider. Before that, Rubin served as the director of global operations at TransUnion and managed customer operations globally for the credit bureau’s direct-to-consumer business. He holds a Bachelor of Science degree in Industrial Technology from California Polytechnic State University, San Luis Obispo. Connect with him on LinkedIn.



*Opinions and information included in this article are general and not intended to provide specific advice or recommendations for any individual or entity. Contact your banker, attorney, accountant, and/or tax advisor with regard to your individual situation. The author’s opinions do not necessarily reflect those of Wells Fargo Commercial Banking or any other Wells Fargo business.






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