Introduction
United States is a leading producer of tomatoes worldwide. In fact the United States is only second to China in terms of global production. Both processed and fresh tomatoes industries in the United States account for more than two billion dollars in earnings. Florida and California are the two leading states in tomato production.
The California tomato industry is the bigger of the two. The California tomato industry was at an all time high in the 1980s and the 1990s. After that, the industry started facing a myriad of problems that eventually resulted in its decline. This paper explores the Californian tomato industry and its fundamentals. The paper also focuses on both the positive and negative aspects of the industry.
The Fresh Tomato Industry
California’s fresh tomato industry accounts for more than a third of the United States’ total production. The commercial acreage of the fresh tomato industry in California is approximately thirty-five thousand acres. Fresh production of tomatoes was at its peak around the 1980s.
At that time the commercial acreage stood at around forty thousand acres. Tomatoes are grown in California all year round except during the winter season. California’s fresh tomato industry has had a national market share of twenty five to thirty seven percent since 1980.
Tomato supplies from California peak after the spring season. Commercially, California’s fresh tomato market profitability dips from August to September when other markets have locally produced tomatoes. The demand for California’s tomatoes peaks during the colder months. During this time the United States has to rely on supplementary tomatoes from Mexico.
Tomatoes from the California region are mostly supplied to supermarkets around the United States. Around seventy percent of this market is in other states. In addition, most fresh tomatoes from California are purchased by domestic consumers. Tomatoes purchased for industrial purposes account for approximately thirty percent of the total production.
Prices of fresh tomatoes around California are considerably low compared to those in other states. Average tomato prices factor in the cost of wages, farm inputs, advertising, and land. Over the last two decades, prices of tomatoes in California have stagnated as a result of increased imports and green house production.
California’s Tomato Processing Economics
Tomato farming is subsequently associated with processed products such as tomato sauce and tomato paste. California leads in production of processed tomato products. Its global market share stands at around thirty percent. The other large producers of these products include Spain and China.
Just like the fresh tomatoes industry, the processing industry flourished around the 1980s and 1990s. This boom was mostly occasioned by high prices, expanded acreage, and higher yielding tomato varieties. Oversupply was the main factor responsible for the decline of this industry.
In 2000 economic observers had predicted that the tomato market industry would experience a decline in the subsequent years. One of the leading tomato processors by the name of Tri Valley Growers Limited filed for bankruptcy in that same year. This resulted in a crisis for the many farmers who were suppliers of this company.
The tomato processing industry was predicted to decline based on various factors. One of these was the over-supply that had resulted from the ever increasing acreage. In the San Joaquin Valley for instance, tomatoes were virtually the only crop under production. The other factor was the declining domestic consumption that had resulted from increased imports.
There was also a case of increased processing capacity. This meant that no produce was wasted irrespective of the level of supply. Eventually this supply overcame demand resulting in an over-supply of processed tomato products. The other reason for this grim prediction was the fact that other markets were seeking to reprise the success of the Californian industry. In turn, the tomato industry in California was facing stiff competition internationally.
The Californian tomato industry was originally meant to substitute the cotton industry. By then the cotton industry was seemingly on the decline. In addition, processed tomatoes had substantially higher returns. This enterprise soon flourished with farmers in California proceeding to develop their own processing plants. In the years between 1980 and 2000, tomato growing and processing was a very viable economic venture.
This was until the predicted downturn began taking effect around the year 2000. In the last ten years, statistics show that there has not been any tangible growth in this industry. Even in terms of production volumes, the figures still point towards a decline. The global market share previously held by Californian products is slowly being absorbed by Western European countries and China.
It is approximated that tomato growing acreage has been declining by an average of three percentage points per year. Volumes of production have also declined considerably. County wise, San Joaquin County leads in production with volumes of forty tons per acre in the last ten years. Fresno and Yolo counties are close contenders with a ten-year average of thirty eight and thirty six tons per acre respectively.
The reasons for this stagnated processing industry were covered earlier. To cope with this decline both private and farmer-owned industries have built larger and more efficient plants. This move has reduced processing costs and ensured production of a higher quality tomato paste. Since 2000 most factories have focused on building their processing capacity.
Processing plants are mostly built to support a specific acreage. It is for this reason that some experts have argued that the reason for the decreasing acreage is because no new processing plants have been built to support new acreage. It is therefore assumed that additional processing plants would stimulate an increase in acreage. Currently the processing capacity of the industry in California stands at around eleven million tons per season.
The domestic tomato processing industry is on its part showing signs of improvement from the decline occasioned in the last decade. Currently, the household per capita consumption of tomato products is approximately seventy five pounds. This is a very high rate when it is compared to other developed countries.
There are no readily available statistics of consumption rates of other processed tomato products. Therefore, there is no way of finding out the consumption rates of individual products like pastes, sauces, catsup, juices, among others.
Tomato production in California is mostly forward contracted. There is a bargaining association that represents a majority of the farmers in California. This association is known as CTGA- California Tomato Growers Association and it negotiates independently with processors. For this reason, most farmers in California receive approximately the same prices for their tomatoes.
Consequently, the price of tomatoes in California has remained constant over the last decade. This is different from other vegetables that have been characterized by fluctuating prices. This trend is mostly as a result of contracting. It also serves as an indicator of the fact that contracting stabilizes prices over a long period of time.
United States is both an exporter and an importer of processed tomato products. Statistics of this intra-industry trade show that the United State’s net exports have risen in the last few years. In the 2010- 2011 season, exports of processed tomato products were slightly less than one ton. These figures indicate that only about ten percent of tomatoes grown in the United States end up being exported.
The two main export destinations of processed tomato products are Mexico and Canada. These two countries combined purchase about sixty percent of the total United States exports. Japan has also been another export destination. However, this market has recently been facing stiff competition from China.
Despite the tough competition in the global front, California’s tomato industry has remained a formidable force. Observers had predicted that China would displace California in the global market. However, over the last decade California’s global market share has remained constant. Economically, China has performed better by managing to double its processing capacity over the same period. In addition, China’s acreage has managed to increase by around thirty percent.
The main reason for this turn of events is the fact that California has been able to maintain its domestic market share. This share accounts for about ninety percent of California’s total production. Industry experts are still wary of China’s rise. Most predictors are afraid that China may flood the global market with tomato paste in the near future.
Conclusion
This paper has explored the basic economic aspects of tomato growing and processing in California. It can therefore be concluded that this industry is mainly dependent on domestic consumption. This means global market shocks have not affected the industry in a major way. China still remains the biggest competitor to California’s products on the global front. In addition, the secret of the industry’s growth is an increase in export capacity.